Congressional Subcommittees Hear Testimony on Vertical Price Fixing, Railroad Exemption

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter, and John W. Arden.

Subcommittees of the U.S. Senate and House Judiciary Committees held hearings May 19 on bills that would, respectively, reinstate the per se rule for resale price maintenance and repeal the antitrust exemption for railroads.

Restoration of Per Se Rule

The Senate Judiciary Committee's Subcommittee on Antitrust, Competition Policy and Consumer Rights held a hearing entitled "The Discount Pricing Consumer Protection Act: Do We Need to Restore the Ban on Vertical Price Fixing?"

The hearing considered the impact of the U.S. Supreme Court decision in Leegin Creative Leather Products, Inc, v. PSKS, Inc. (2007-1 Trade Cases ¶75,753), which requires that resale price maintenance be scrutinized under a rule of reason standard rather than declared per se illegal under federal antitrust.

Senator Herb Kohl (D-Wis.) said in a prepared statement that manufacturers have begun to set minimum retail prices resulting in higher prices for consumers, as a result of Leegin. Kohl introduced the "Discount Pricing Consumer Protection Act" (S. 148) in January 2009 to overturn the decision.

Among the witnesses was FTC Commissioner Pamela Jones Harbour, who reiterated earlier testimony before a House subcommittee on the same issue. Harbour said that Leegin had the effect of legitimizing minimum resale price fixing, which was "contrary to good economic and legal policy" because it subordinated consumer preferences to the interests of manufacturers and merchants of branded consumer goods.

Jim Wilson, the current Chair of the Section of Antitrust Law of the American Bar Association (ABA), also testified. Wilson said that the "[b]ecause the intention and likely impact of the Discount Pricing Consumer Protection Act would be to effectively overturn the Leegin decision and reestablish a rule of per se illegality, the ABA respectful urges Congress not to enact this legislation."

The rule of reason is the proper standard because minimum resale price maintenance “can stimulate interbrand competition and is not so inevitably pernicious as to warrant per se illegality,” he noted.

Todd Cohen, vice president and deputy counsel, government relations, for eBay, observed that the Leegin decision “is beginning to undermine many of the consumer benefits delivered by innovators using the openness of the Internet. Leegin empowers those who want to curtail the ability of small and mid-size online retailers to communicate and offer lower prices to consumers.” Since the decision was issued, there appears to have been an increase in RPM programs that restrict intrabrand price competition, he said.

“For example, a recent report in the Wall Street Journal details how some businesses limit price competition through continually scanning the eBay platform to identify sellers offering their prices at a lower price,” according to Cohen. “They then use a plethora of tools to identify the seller and enforce their minimum prices.”

Stacy John Haigney, attorney for Burlington Coat Factory, testified that off-price retailers like Burlington would never have gotten off the ground in the 1970s if the Leegin rule had been in effect. During that time, department stores “could not legally coerce their suppliers to impose high-pricing structures through the industry . . . However, post-Leegin, there is no practical way to stop such retailer-imposed price-fixing schemes from being put in place.”

Further details on the hearing—including written testimony and a webcast of proceedings—appear here at the Senate Judiciary Committee website.

Repeal of Railroad Antitrust Exemption

Adversaries and supporters of the proposed "Railroad Antitrust Enforcement Act of 2009" squared off at a Congressional hearing regarding the legislation in Washington D.C. The bill, introduced in both the House of Representatives (H.R. 233) and Senate (S. 146), would repeal railroads' antitrust exemption and provide for numerous means to halt "anticompetitive rail conduct."

Speaking to the House Judiciary Committee's Subcommittee on Courts and Competition Policy, Association of American Railroads officials said that the measure would have harmful impacts on railroad customers—and American consumers in general—by severely distorting the relationship between regulation and antitrust laws.

Union Pacific executive J. Michael Hemmer observed that the bill's potential granting of regulatory authority to the FTC created a glaring conflict with the Surface Transportation Board and that the bill’s proposed retroactive effect could lead to antitrust attacks on the continuing operation of every federally approved transaction in rail history. Hemmer added that the legislation should not be considered in isolation.

"If Congress wants to address rail transportation policies," he said, "it should work with colleagues in other committees of jurisdiction to craft a coherent, national rail policy that integrates regulation with antitrust jurisprudence."

In response, the Consumer Federation of America asserted that the legislation was sorely needed because "rampant consolidation" and a lack of regulatory oversight have "allowed railroads to abuse their monopoly pricing power and overcharge consumers and shippers $3 billion per year."

Shippers without rail-competitive options pay 75 percent to 100 percent more for rail shipments compared with similar movements in competitive markets, the CFA reported. Captive shippers' costs have been rising substantially over the past five years.

Speaking on behalf of the ABA Section of Antitrust Law, M. Howard Morse referred to the group’s frequent opposition to industry-specific exemptions from the antitrust laws. This opposition is based on the belief that “antitrust laws are sufficiently flexible to account for particular market circumstances.”

Accordingly, the Antitrust Section encourages Congress to dismantle the exemption for the railroad industry and to consider additional legislation to eliminate antitrust exemptions in other industries.

Written testimony and a webcast of the hearing appear here on the House Judiciary Committee’s website.