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Keeping an Eye on Unilateral Pricing Policy Antitrust Risks
Practical Law Legal Update w-000-7461 (Approx. 4 pages)
Keeping an Eye on Unilateral Pricing Policy Antitrust Risks
by Practical Law Antitrust
| Published on 10 Nov 2015 • USA (National/Federal) |
The recent decision in Costco Wholesale Corp. v. Johnson & Johnson Vision Care, Inc. illustrates that companies must carefully implement unilateral pricing policies to minimize antitrust risks.
Many companies rely on unilateral pricing policies as a way to control the resale prices of their products. However, companies must execute unilateral pricing policies carefully. In particular, companies should minimize discussion with others in the distribution chain about the terms of any unilateral pricing policy, to avoid accusations of entering into a vertical price-fixing agreement. Vertical price-fixing agreements are:
- Illegal under federal law if they unreasonably restrain competition.
- Per se illegal under some state laws.
In Costco Wholesale Corp. v. Johnson & Johnson Vision Care, Inc., the District Court for the Middle District of Florida upheld allegations that Johnson & Johnson (J&J) entered into vertical price-fixing agreements with its distributors and retailers that unreasonably restrained competition (No. 3:15-cv-00734 (M.D. Fla. Nov. 4, 2015)). The pricing policies purported to be unilateral and stated that J&J would cease to supply any retailer who sold contact lens products below the policy's price. The policies also restricted the use of promotional offers.
The plaintiff, Costco, alleged that J&J's pricing policies were vertical price-fixing agreements that violated Section 1 of the Sherman Act.
J&J argued that the pricing policies were unilateral and not subject to Section 1, because:
- J&J did not seek the consent of any retailer or distributor before implementing the pricing policies.
- Soliciting feedback about the pricing policing from J&J's distributors and retailers did not amount to an agreement with them.
- Language in the pricing policies described them as unilateral.
However, the court found that Costco plausibly alleged vertical pricing agreements between J&J and the retailers and distributors. In particular, the court relied on the allegations that J&J:
- Implemented the policies in response to retailer requests and complaints about discounting.
- Revised the policies in response to retailer feedback and negotiations.
- Agreed with its distributors to implement and enforce the policies against retailers.
- Coerced retailers such as Costco to enter into the agreement.
The court found that Costco's allegations also met the other requirements of the Section 1 claim, including that the pricing policies unreasonably restrained competition by eliminating price competition between retailers for J&J's contact lens brands.
Practical Law has resources to help counsel understand the antitrust risks of unilateral pricing policies and navigate the complex legal environment of vertical pricing restraints, including: