Wednesday, February 28, 2007

Resale Price Maintenance Should Remain Per Se Illegal: FTC Commissioner

Vertical minimum price fixing “is almost always harmful to consumers,” creates no incentive for distributors and retailers to become more cost-effective in the delivery of goods and services, and “typically leads to higher prices without bestowing countervailing benefits,” according to FTC Commissioner Pamela Jones Harbour.

Thus, the U.S. Supreme Court should “keep these principles in mind” when it considers overruling the long-held rule of per se illegality for resale price maintenance, Commissioner Harbour wrote in a February 26 “Open Letter” to the Supreme Court.

Review of Long-Standing Rule

The Court is reviewing a decision of the U.S. Court of Appeals in New Orleans that resale price maintenance is per se unlawful (Leegin Creative Leather Products, Inc. v. PSKS, Inc., 2006-1 CCH Trade Cases ¶75,166). The decision relied on the 1911 Supreme Court decision in Dr. Miles Med. Co. v. John D. Park & Sons Co. (230 U.S. 373), which established the per se rule against resale price fixing.

In this case, Leegin (a manufacturer of women’s accessories) announced that it would do business only with retailers that followed the suggested retail prices for its Brighton line of products. When retailer PSKS placed its Brighton products on sale, Leegin cut off all further supplies.

PSKS brought suit under Section 1 of the Sherman Act, alleging that Leegin entered into illegal agreements with retailers to fix retail prices and terminated PSKS as a result of those agreements. A jury found in favor of PSKS and awarded $1.2 million in damages.

On appeal, Leegin did not dispute the finding that it had entered into price-fixing agreements; it challenged only the application of the per se rule. The appeals court affirmed the district court judgment. “Because the [Supreme] Court has consistently applied the per se rule to such agreements, we remain bound by its holding in Dr. Miles Medical Co,” the court held.

Federal Government's View

Commissioner Harbour’s view is contrary to that of the federal government—including three FTC Commissioners—which filed an amicus brief on January 22, 2007. The government argued that a minimum pricing agreement between a supplier and its dealer should not constitution a per se violation of Section 1 of the Sherman Act because (1) Dr. Miles was based on reasoning and economic assumptions that predated and conflicted with modern economic theory and (2) the current presumptive standard for assessing the legality of the conduct at issue was the rule of reason, which examines the reasonableness of a given restraint in the context of a particular case.

The amicus brief further contended that the principle of stare decisis had less force in the antitrust context because Congress expected the Court to give continuing shape to the meaning of the antitrust laws, thereby reflecting “changed circumstances and the lessons of accumulated experience.” Current theory holds that the effects of resale price maintenance could be anticompetitive or procompetitive, depending on the facts in a given situation. Thus, a per se rule was “clearly inappropriate.”

Nevertheless, Commissioner Harbour asserted that overruling Dr. Miles would be erroneous as a matter of law, would constitute bad economic policy, would run contrary to Congressional findings and intent, and would be unsupported by the facts in the Leegin case itself.

The 20-page "Open Letter" appears on the FTC web site. Oral argument of the Leegin case is scheduled for March 26.

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