Legal news and trends for Canadian in-house counsel and c-suite executives
Issue link: https://digital.canadianlawyermag.com/i/50892
FEATURE U.S. and Canada at odds over price maintenance laws Year-old ruling ready to have effect on manufacturers distributing north and south of the border. By Kelly Harris Canada are in accord. If you are a large manufacturer and you distribute across the border you've got to take that into account," says Lynda Marshall of Hogan and Hartson, Washington, D.C. The landmark June 2007 U.S. Supreme Court decision Leegin R Creative Leather Products, Inc. v. PSKS, Inc. says Leegin could re- quire retailers to sell their products at a certain price, or risk los- ing distribution rights. It overturned a 1911 decision on price arrangements known as Dr. Miles Medical Co. v. John D. Park & Sons Co., which set out that minimum price agreements are au- tomatically illegal — or per se illegal. In Leegin, SCOTUS ruled that these agreements should be treated on a case-by-case basis or on the rule of reason. This puts the rules in the U.S. and Can- ada at odds with these types of agreements illegal in Canada. In the past, U.S. manufacturers of high-line or specialty items had always been able to apply United States v. Colgate & Co., allowing for minimum acceptable pricing on certain products and terminating distribution to companies that sell under that price. The key is the price requirement is unilateral and there is no specific agreement. The idea is specialty items come with an ex- pected level of service that a customer is unlike- ly to be able to find at a big-box store. The service can also be part of a com- pany's marketing plans or requirements so this would be a major part of the distribution agree- ment drawn up by coun- sel. "They've got to look carefully at the individual arrangement and they [have] got to take a look at where it is being distributed first of all," Marshall says. "They've got to take a look at what arrangements they want their retailers to do, they've got to talk to their marketing folks to say 'is this a special product, do you want to put it in a particular price?' elaxed price maintenance rules in the U.S. could mean distributors that operate on both sides of the border risk breaking one country's laws even though they comply with those of their own country. "I don't believe that the systems in the U.S. and "If they do want to put it in a particular price, at least in the U.S., they are going to have to decide how they are going to structure that, just as a flat resale price maintenance program, and if they do that, they've got to look at the various competi- tive and anti-competitive issues." While Leegin grants a certain amount of flexibility when selling products in the U.S., what happens if that same retailer wants to sell those products in Canada? "If you were a man- ufacturer, whoever you are, in Canada you cannot impose a minimum resale price on your distributor, wholesaler, dealer, retailer, or whatever kind of reseller you're dealing with," says Neil Campbell, partner at McMillan LLP in Toronto. Canadian laws allow manufacturers to set a maximum suggested retail price. Often in Canada, advertisements will list that price with the "dealers may sell for less" caveat. The key, says Campbell, is that retailers "need to know that they have the autonomy to set their own price or at least to go below your suggested price." Even the Colgate agreement is out of line in Canada, says Campbell, where the laws have always been stricter and maybe too strict. "There's a feeling in Canada that this law is too strict that it's just a rule it doesn't take into account whether it gener- ates positive effects or . . . where in certain cases it would [have] "I don't believe that the systems in the U.S. and Canada are in accord. If you are a large manufacturer and you distribute across the border you've got to take that into account." you can't ever do it. There have been proposals over the past de- cade or so to repeal or decriminalize or amend the price main- tenance rules in the Competi- tion Act, none of them have been implemented yet." Campbell also laments – LYNDA MARSHALL, HOGAN AND HARTSON that Leegin will put further constraints on U.S. manu- facturers distributing across the border. The widening gap between what is accept- able in the U.S. versus what is acceptable north of the border may have a negative effect on Canadian consum- ers and their ability to get the products they want. "I think this is actually a notable area particularly for corporate counsel in Canadian subs of U.S. companies as well as corporate counsel in Canadian companies making sure that they're attentive to the stricter little world here until it gets changed, whenever that might be." IH C ANADIAN Lawyer INHOUSE DECEMBER 2008 21