2nd Circuit finds post-and-hold pricing statute does not violate antitrust provisions absent an actual agreement not to lower prices for beverages

BY ASHLEY BRANDT · FEBRUARY 27, 2019

Plainly, the 2nd Circuit has now differed from other Circuits and determined that a liquor pricing statute which mandates that a group of wholesalers see each others monthly pricing, hold that pricing for a month, and which allows them to meet each others prices, does not create an anticompetitive violation of the Sherman Act absent an actual agreement or contract between them to meet and hold each others prices. That’s correct – the agreement between them is the deciding factor even though the statute may facilitate their consumer-harming behavior.

Here’s what the case was about:

Connecticut Fine Wine – one of the chain of Total Wine stores – brought suit to invalidate parts of Connecticut’s liquor control statute and the statute’s implementing regulations arguing they were per se violations of the Sherman Antitrust Act.

The three provisions the retailer sought to undo were:

• The Post and Hold Provision. Under Connecticut’s post and hold provision, each month, in-state and out-of-state manufacturers and wholesalers must publicly post a bottle/can price and a case price for every alcoholic beverage they intend to sell and then they must hold that price for a month. Competing sellers are allowed a limited time after the initial monthly posting date, having seen their competitors’ pricing, to change their pricing to meet their competitors’ lowest prices and all sellers must then hold their set prices (amended or not) for the month.
• The Minimum Retail Price Provision. The minimum retail price provisions mandate that a retailer sell to customers at a price defined by statute as “cost.” Not actual cost, but rather, “cost” is a price for the beverage related to the post and hold case price plus a markup for shipping and deliver. This means that the “case” price as set by the wholesalers actually dictates retail to consumer pricing – wholesalers therefore control the price the consumer pays.
• Provisions regarding Price Discrimination/Volume Discounts. The provisions ban volume discounts or rebates or any mechanism that would provide a price to a retailer lower than the lowest price the beverage is sold to other retailers, thereby forcing those selling to retailers to sell at the set prices regardless of factors such as quantity.

The Second Circuit affirmed the district court’s dismissal. The opinion considered interesting arguments such as whether the hold portion of the post and hold amounted to a tacit agreement to restrain trade, but reasoned that the statutes and regulations did not create a contract or agreement to collude amongst sellers of alcoholic beverages (such an agreement is required by the section of the Sherman Act under which the plaintiffs sued). Rather, the court reasoned that the provisions such as the post and hold statute allowed the wholesalers to set prices by their own choice, and if their choice was to simply not compete on pricing, but to maintain set prices, that was not an agreement to restrain trade simply because they made a decision by right under the statute.

Individual action having the same effect as concerted action (e.g. everyone realising it would be better not to compete over pricing is different than everyone having a conversations and agreeing together to not compete over pricing). An actual agreement/contract to perform the activity was necessary and was not present under the facts of this case.

You can read the full opinion in Connecticut Fine Wine and Spirits v. Seagull here.

Importantly, as noted above, this case represents a split from other Circuits that have considered the issue. And this opinion appeared to base its decision, in part, on precedent rather than undertaking a new analysis.

Let’s talk about this case and the main case it relies on for a second, because this decision makes some sense given another 2nd Circuit case, Battipaglia, and a Supreme Court Case, Leegin. Easily, Battipaglia was a 2nd Circuit case from 1984 that upheld the propriety of a similar New York post and hold statute. And Leegin was one of several cases over the past half-century implementing a switch away from a blanket rule holding certain relationships implementing vertical restrictions on commerce illegal under the Sherman act (per se illegality) to a different analysis under competition law called the rule of reason. Simply, the rule of reason test says you cannot just consider a restriction illegal, you must analyze whether it unreasonably restrains trade in order to make the determination. Thus, a shift from blanket prohibitions on certain restrictions to a nuanced test meant to review the restrictions before making a determination.

Contrast this determination with the noted decisions from the 9th and 4th Circuits that differ in their analysis as noted by the 2nd Circuit in this opinion:

The Fourth and Ninth Circuits, the only two circuit courts to address similar laws, have sided with [the view that these provisions violate the Sherman Act]. Each has emphasized that the statutory requirement of adherence to posted prices, were it adopted by private agreement, would be per se illegal price fixing.  See Costco Wholesale Corp.v. Maleng, 522 F.3d 874 (9th Cir. 2008) (holding Washington provisions preempted by § 1 [Sherman Act]);  Miller v. Hedlund, 813 F.2d 1344 (9th Cir. 1987)(holdingOregon provisions not exempt from § 1 and remanding the case to the district court for a determination whether the Twenty First Amendment shielded the challenged regulations);  TFWS, Inc. v. Schaefer, 242 F.3d 198, 210 (4th Cir. 2001)(holding Maryland provisions preempted by § 1, while reserving on whether,under the Twenty First Amendment, Maryland’s regulatory interests with respect to alcohol trumped federal interest under the Sherman Act)

Given the distinct split and the posturing of this case which seems to favor a determination in line with a rule of reason decision, there’s a high probability that further review is in its future.

This article was originally posted on my blog about liquor law, advertising, cannabis and beverage lega, regulatory and policy issues, the Libation Law Blog.