Markets Wired

The Federal Trade Commission has granted, in part, a petition from Nine West Group, Inc., to modify a 2000 FTC order prohibiting the women’s footwear company from fixing retail prices with dealers. The modified order allows Nine West to engage in resale price maintenance (RPM) agreements with dealers and requires the company to provide periodic reports on its use of RPM agreements so the FTC can analyze the effects of such agreements on competition.

Under the 2000 order, Nine West agreed to settle FTC charges that it engaged in retail price fixing with certain dealers in violation of federal antitrust laws. At the same time, Nine West entered into separate settlement agreements with various states for violations of state antitrust laws. This modification does not affect those state orders. According to the FTC, the company’s conduct deprived consumers of the benefits of competition, and prices to consumers of Nine West products increased. The order banned Nine West, for a 20-year period, from threatening or penalizing dealers that sell below the company’s designated retail prices.

In 2007, the U.S. Supreme Court ruled, in Leegin Creative Products, Inc. v. PSKS, Inc., that it is not a per se violation of the antitrust laws for companies to set minimum resale prices with retailers. The Leegin decision stated that RPM agreements should be analyzed on a case-by-case basis evaluating the competitive benefits and harms from such RPM agreements. The Leegin decision reversed Dr. Miles Medical Company v. John D. Park & Sons Company, a 1911 Supreme Court decision that made all RPM agreements per se illegal.

In October 2007, Nine West Footwear Corporation, successor to Nine West Group, Inc., filed a petition contending that the Leegin ruling changed the law governing RPM agreements, and asking the FTC to set aside its prohibitions as no longer necessary or appropriate. The petition was placed on the public record for comment for 30 days. Two comments were received, one from the American Antitrust Institute and one from a number of state attorneys general, requesting that the Commission deny the petition.

Relying on the Leegin decision, the Commission granted Nine West’s petition on the basis that its potential use of RPM agreements is not likely to harm consumers at this time. The Commission discussed possible procompetitive and anticompetitive effects from RPM agreements and acknowledged that there are various approaches to analyzing RPM agreements in the future. The Commission stated that “RPM agreements ordinarily might be seen by the Court as less intrinsically dangerous than horizontal price-setting arrangements, but not invariably so.” The Commission continued: “The [Leegin] Court’s elaboration of these relevant factors provides an approach for identifying when RPM might be subjected to closer analytical scrutiny, such as that anticipated by Polygram Holdings [v. Fed. Trade Comm’n] or other truncated rule of reason analyses.” After analyzing the various factors identified in Leegin, however, the Commission concluded that Nine West demonstrated that it did not “run afoul of the Leegin factors,” because of, among other things, its “modest market share.” The Commission concluded that Nine West’s use of RPM at this time does not pose any potential competitive concerns.

Notwithstanding the Commission’s removal of the prohibitions on Nine West entering into RPM agreements, the Commission did not rule that future uses of RPM agreements by Nine West would be per se lawful. In citing to the Leegin decision, the Commission noted the potential anticompetitive effects of RPM “must not be ignored or underestimated” and that “courts would have to be diligent in eliminating their anticompetitive uses from the market.” The Commission noted that “Nine West has not provided evidence of procompetitive effects that would result from its use of resale price maintenance agreements beyond its conclusory assertion.” Consequently, in the event Nine West engages in RPM agreements, it will be required to provide periodic reports that document the effects of the RPM agreements on Nine West’s prices and output. These reports will allow the Commission to analyze Nine West’s use of RPM agreements and allow the Commission to “challenge [Nine West’s] use of such a program should it appear to be illegal.”

The Commission vote to grant the petition to reopen and modify its order, issued April 11, 2000, was 4-0.

Copies of the document mentioned in this press release are available from the FTC’s web site at http://www.ftc.gov and the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC’s Bureau of Competition works with the Bureau of Economics to investigate alleged anticompetitive business practices and, when appropriate, recommends that the Commission take law enforcement action. To inform the Bureau about particular business practices, call 202-326-3300, send an e-mail to antitrust@ftc.gov, or write to the Office of Policy and Coordination, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, DC 20580. To learn more about the Bureau of Competition, read “Competition Counts” at http://www.ftc.gov/competitioncounts.