Business Law Notes
Summer 2007 Edition
For nearly one hundred years, it has been illegal for manufacturers and distributors to dictate minimum prices to retailers. The US Supreme Court overruled that long-standing case law in June of this year. With the decision in Leegin Creative Leather Products, Inc. v. PSKS, Inc., manufacturers and distributors may now set “minimum” resale prices.
The US Supreme Court ruled in 1997 that manufacturers and distributors could impose “maximum” resale prices that retailers could charge for their products as long as there was a reasonable justification. Under Leegin the same “rule of reason” test will be applied to a manufacturer’s or distributor’s required floor on prices. A “rule of reason” test, however, will enormously increasing the burden on retailers to prove an anti-trust violation.
The long-term effects of this new ruling are not clear. The Supreme Court’s intent is to have an overall positive effect on price competition but only time will tell. Expect manufacturers and distributors to begin experimenting with minimum price strategies affecting all retailers, from mom and pop operations to the largest stores. You can also expect these new minimum-pricing strategies to percolate through the federal judicial system for many years to come.
A “bonefide purchaser for value” or BFP is one who pays valuable consideration for some right, obligation of another (e.g., a promissory note or a lease contract), has no notice of outstanding claims of others against the seller, and acts in good faith with regard to that purchase. For example, if Buyer Brown contracts with a Seller Smith for goods or leases goods but later finds that the goods are defective, yet Third-party Thomas purchases the contract from Seller Smith for valuable consideration and has acted in good faith without knowing of the claim that Buyer Brown has against Seller Smith, the obligations of Buyer Brown have been purchased by Third-party Thomas. Buyer Brown’s claims against Seller Smith are not good against Third-party Thomas, who is a BFP. Buyer Brown must pay Third-party Thomas.
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