Victim of Price Fixing?
Citing concerns over brand consistency and price wars among franchisees (who, incidentally, are often supposed to have non-competing territories), many franchisors seek to control the prices charged at their franchised outlets. While this type of “intrabrand” price fixing is legal up to a point, franchisors can also impose anticompetitive pricing restraints that will give rise to legal causes of action for their franchisees.
Price fixing has always been a major issue in franchising. However, it gained renewed life in 2007 when the U.S. Supreme Court decided the case of Leegin Creative Leather Products, Inc. v. PSKS, Inc. In that case, the Supreme Court overruled 96 years of precedent and held that minimum resale price maintenance (or “RPM”) could be legal under certain circumstances. Since then, many franchisors have been testing the limits on just how much pricing control they can exert over their franchisees.
Limits on Franchisors’ Minimum Resale Price Maintenance
In order to assert minimum price controls, franchisors must adhere to a “rule of reason.” This is far from a hard-and-fast rule, and it has become fertile ground for franchisor-franchisee disputes over when, why, and how much franchisors should be able to determine the prices franchisees charge for their products and services.
In addition, since federal antitrust law does not necessarily preempt state antitrust law, franchisees can in some cases use state laws prohibiting minimum resale price maintenance to assert illegal price fixing claims against their franchisors. For example, authorities in the following states have indicated that they intend to continue enforcing the pre-Leegin prohibition on minimum resale price maintenance:
- New York
- North Carolina
In addition, the following states currently have laws in place that prohibit RPM:
Suggested Retail Pricing, Unilateral Pricing and Minimum Advertised Price Policies
In order to avoid the state and federal restrictions on minimum price fixing, franchisors will often implement a number of other types of policies to influence franchisees’ pricing decisions. Depending on how these policies are structured and deployed, they may or may not provide franchisors with the legal protection they desire.
Some of the most-common pricing policies that franchisors use include:
- Suggested Retail Pricing – While franchisors are free to “suggest” retail prices, they cannot coerce franchisees to comply with suggested pricing.
- Unilateral Pricing – Refusing to sell product to a franchisee who refuses to resell product above a set minimum price may constitute an unlawful unilateral refusal to deal.
- Minimum Advertised Price – Some franchisors will attempt to condition receipt of certain system benefits (such as approved marketing materials) upon compliance with suggested pricing. This approach has its limitations as well.
Discuss Your Minimum Price Fixing Claim With Franchise Lawyer Jeffrey M. Goldstein
If your franchisor is attempting to control the minimum prices you charge for your goods or services, we encourage you to contact us for a complimentary, confidential consultation. To learn more about the state and federal rules against minimum resale price maintenance, call the Goldstein Law Firm at 202-293-3947 or request a consultation online today.