Legal Definitions - Resale Price Maintenance Agreements

Resale Price Maintenance Agreements (RPM) are arrangements between a product supplier (like a manufacturer) and its resellers (like retailers) that dictate the price at which the resellers can sell the product to customers.

These agreements come in two primary forms:

• Minimum RPM: This sets a price floor, meaning resellers are prohibited from selling the product below a specified price. The goal is often to maintain a premium brand image, ensure retailer profitability, or prevent price wars.
• Maximum RPM: This sets a price ceiling, meaning resellers are prohibited from selling the product above a specified price. This can be used to ensure affordability for consumers or prevent price gouging.

Under federal antitrust law in the United States, RPM agreements are generally evaluated under the "rule of reason." This means they are not automatically considered illegal; instead, courts examine the specific circumstances and overall effect on competition to determine if they are unlawful. However, it is important to note that some individual states have their own antitrust laws that may treat RPM agreements more strictly, sometimes considering them automatically illegal or unenforceable.

Here are some examples to illustrate Resale Price Maintenance Agreements:

• Example 1 (Minimum RPM - Luxury Apparel): A high-end fashion designer sells its latest collection of designer handbags to various upscale boutiques. To protect its brand's exclusive image and perceived value, the designer includes a clause in its wholesale agreements requiring all boutiques to sell the handbags at or above a specific retail price, such as $2,500. The boutiques are free to sell above this price but cannot discount below it.

  Explanation: This is a minimum RPM agreement because the fashion designer (supplier) is setting a price floor ($2,500) below which its resellers (boutiques) are not permitted to sell the handbags. This directly illustrates the concept of maintaining a minimum resale price to uphold brand prestige and value.

• Example 2 (Maximum RPM - Software Licensing): A company that develops specialized business software licenses its product to a network of independent consultants who then customize and resell the software to their clients. To ensure the software remains accessible and competitively priced for end-users, the software company includes a term in its licensing agreement stating that the consultants cannot charge more than $500 per user license for the base software package.

  Explanation: This demonstrates a maximum RPM agreement. The software company (supplier) is setting a price ceiling ($500) for its resellers (consultants) when selling the base software license. This prevents consultants from charging excessively high prices, aiming to keep the product affordable and competitive.

• Example 3 (Minimum RPM - Consumer Electronics): A manufacturer of popular gaming consoles sells its products through major electronics retailers and online stores. To prevent intense price competition among retailers that could erode profit margins for all parties and potentially devalue the product, the manufacturer implements a policy requiring all authorized sellers to list and sell its new console model for at least $499.99 for the first six months after launch.

  Explanation: This is another instance of minimum RPM. The manufacturer is enforcing a minimum price ($499.99) for its gaming console across all its resellers. This strategy aims to stabilize prices, protect the profitability of its retail partners, and ensure a consistent market value for the new product.