U.S. Supreme Court Rules on Pricing Case

By June 28, 2007Briefly Legal

A colleague wandered by to offer the prediction that, in the wake of today’s Supreme Court ruling in Leegin Creative Leather Products, Inc. v. PSKS, Inc., the media storyline would be something like, “Justices legalize price fixing.” Something like that — simple, inflammatory, wrong.

In today’s ruling (available here as download), justices overturned the 1911 precedent in Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U. S. 373, that makes vertical price restraints a per se violation of the Sherman Act. The NAM filed an amicus brief (download here) urging the Court to derail the precedent. The key? Courts must apply antitrust law using “The Rule of Reason,” rather than automatically finding a violation because of price maintenance. From our news release:

“Despite what others may report, this ruling does not legalize resale price maintenance,” said Quentin Riegel, NAM’s vice president for litigation. “It merely puts the practice on a par with other acceptable restraints that some manufacturers may impose on dealers. Resale price maintenance will be illegal, and subject to triple damages and attorneys’ fees, if the manufacturer can provide no reasonable, pro-competitive justification for it. The ruling means that manufacturers will at least have a chance to say in court why their pricing policy is good for competition.”

It’s been a good Supreme Court term this year for the rational application of the law to business issues (as this Washington Post story avers). Judicial appointments do matter.

UPDATE 4 p.m.: Well, that didn’t take long. The online headline from The Los Angeles Times: Supreme Court OKs retail price fixing by manufacturers.

UPDATE II 4:10 p.m.: Gary Shapiro of the Consumer Electronics Association praises the ruling.

“The Supreme Court holding that the ‘rule of reason’ should apply to the legality of manufacturer pricing decisions, means simply that all the facts will be examined before a finding of illegality – replacing a black and white rule of illegality in every case.”

“In the consumer electronics industry,” Shapiro continued, “where sales training, industry marketing, and after-sales service are highly valued by manufacturers and reputable retailers, it makes perfect sense to consider these factors when evaluating a manufacturer’s requirement that threshold prices be maintained.”

UPDATE III (4:15 p.m.): Tyler Cowan comments at the Volokh Conspiracy law blog.

Even when cartelization is the motive, I don’t worry that Colgate will monopolize the market for toothpaste. Most or all retail products face lots of competition from the products of other manufacturers. I also don’t think that so many business decisions should become primarily legal decisions; our government has enough real crimes to look after. So in my view RPM should be close to per se legal (certainly not per se illegal), with some possible exceptions for resource-based monopolies, not that I can think of any relevant exceptions in the retail context. Arguably government should not enforce RPM agreements, though product pulling is in any case the major means of implementation.

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