5th U.S. Circuit Court of Appeals Decision Doesn't OK All Minimum Pricing

By Price, Marie | THE JOURNAL RECORD, July 3, 2007 | Go to article overview

5th U.S. Circuit Court of Appeals Decision Doesn't OK All Minimum Pricing


Price, Marie, THE JOURNAL RECORD


A U.S. Supreme Court decision could mean higher discount prices for some products, but doesn't automatically approve every manufacturer's attempt to set minimum prices, anti-trust attorneys say.

In Leegin Creative Leather Products Inc. v. PSKS Inc., the court overruled a 96-year-old precedent that barred agreements between manufacturers/distributors and retailers to set minimum prices.

However, the high court's ruling, one of the last announced this term, does not mean that all bets are off when it comes to pricing.

Kent Meyers, an attorney with Crowe and Dunlevy who also teaches antitrust law, said the Leegin decision addresses just one kind of restraint on trade - vertically imposed minimum resale price maintenance agreements. He said that vertical chain involves manufacturers, distributors and retailers.

"The manufacturer can say 'I'm selling this to you for a dollar on the condition you won't sell it for less than $1.50,'" Meyers said.

Under the 1911 decision in Dr. Miles Medical Co. v. John D. Park & Sons Co., known as the Dr. Miles rule, vertical price restraints were deemed per se illegal, with defendants given no opportunity to explain them.

"If the finding is simply, 'yes, I did it,' then the manufacturer is liable," Meyers said. "It doesn't get to defend itself."

Under Dr. Miles, Meyers said, once a manufacturer or other seller parted with goods, it could not dictate the price for which a buyer could resell them.

The Leegin majority disagreed with that interpretation, saying that these agreements should be subject to the rule of reason, under which defendant companies are allowed to outline why they are not unlawful in their situation.

"If it's the rule of reason, the defendant can say, 'yes, I did it, but here's why I did it and here's why it made economic sense for me to do it," he said. "The defendant basically gets to explain their actions, and gets to bring forward any pro-competitive aspects that it sees in its conduct."

Meyers said most restraints today are judged by the rule of reason, including agreements setting maximum resale prices.

"Everybody who is involved in this area of practice was kind of expecting this to happen the next time an issue got to the Supreme Court about this," he said. "Most of the economic literature for a number of years had been opining that it is silly to judge this under the per se rule, because there are an awful lot of economic motivations that someone might want a minimum resale price maintenance in order help itself competitively."

Meyers expressed surprise that the vote was 5-4, one of many close decisions to come out of the court since the retirement of Justice Sandra Day O'Connor. Meyers said he expected, if not a unanimous decision, maybe a 7-2 split at the closest.

Meyers said the Leegin decision could mean higher prices on some products at discount stores, as they negotiate agreements with manufacturers and distributors.

"That's a possibility," he said.

At the same time, Meyers said some of these agreements may be found unlawful under the rule of reason.

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5th U.S. Circuit Court of Appeals Decision Doesn't OK All Minimum Pricing
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