Did You Know the Reseller Law Changed in 2007?

Short answer: Yes. The 2007 Leegin decision changed resale price maintenance software rules — overturning 96 years of law so that vendors can now influence what their distributors and resellers charge, in certain situations and within antitrust limits.

Did you know the US Supreme Court changed software and SaaS distributor and reseller law in 2007? I bet you missed it, but I always look for the software-law angle in these cases, and how it applies to a reseller agreement, a distribution agreement, or an OEM agreement.

What Leegin Changed.

Until 2007, any resale price maintenance software provision was automatically illegal under antitrust law. The old rule was that when someone resells your product, you could not tell them they may not resell below a certain floor price. You could suggest a price, but you could not mandate the floor. In antitrust jargon this is resale price maintenance. In Leegin Creative Leather Products v. PSKS (2007), the Supreme Court overturned 96 years of law and held that minimum resale price agreements are no longer automatically illegal.

Resale Price Maintenance Software: What the Rule Change Means.

The legal standard moved from the “per se rule” (automatically illegal) to the “rule of reason,” which weighs the facts: the effect on competition, competition within the channel, and the justification for the restraint. The Federal Trade Commission still scrutinizes these arrangements, and its guidance on manufacturer-imposed resale requirements is the practical starting point. Some states are also stricter than federal law, which is why this is not a do-it-yourself exercise.

What This Means for Software Vendors.

Bring it into the software world. I have often heard about resellers free-riding, skipping the value-added services they are supposed to provide, then at the last minute underbidding a project another reseller has worked for months. Before Leegin there was little a vendor could do. Now, if you sell software that genuinely requires services or well-trained value-add resellers, you may be able to set a floor that stops the free-riding reseller from undercutting on price alone — but any resale price maintenance software arrangement still needs to survive rule-of-reason scrutiny. Which channel contract you use, a referral, reseller, distributor, or OEM agreement, is its own decision; see which form of distribution agreement you need and the broader reseller and OEM agreement models.

Talk to an Antitrust Attorney First.

This area is genuinely tricky and the penalties for getting it wrong are severe. I would not institute any kind of resale-pricing plan without first talking to an attorney who specializes in antitrust. The right structure depends on your channel, your services, and your states. For a related channel-pricing trap on the trademark side, see Google’s trademark use policy for reseller sites.

Frequently Asked Questions.

Can I set a minimum resale price for my resellers now? Often yes, after Leegin, but only if the arrangement passes rule-of-reason scrutiny and complies with any stricter state law. Get antitrust advice before you implement it.

Why would a software vendor want a price floor? To stop free-riding. If resellers must deliver real services, a floor keeps a discounter from undercutting the partners who actually do the work.

Is resale price maintenance still risky? Yes. It is no longer automatically illegal, but the FTC and several states still police it, so a poorly designed plan can still draw an antitrust challenge.

I hope this helps.

Resources:

Which Form of SaaS Distributor Agreement Do You Need?

SaaS Reseller and OEM Agreement Models

Disclaimer:

This post is for informational and educational purposes only, and is not legal advice. You should hire an attorney if you need legal advice, which should be provided only after review of all relevant facts and applicable law.