The Rule of Reason after Leegin: Reconsidering the Use of Economic Analysis in the Antitrust Arena

Article excerpt


The United States Supreme Court has long distinguished between horizontal and vertical price restrictions in assessing their legality under the Sherman Antitrust Act (the Act). (2) Traditionally, courts use the "rule of reason" standard to determine whether a given price restraint violates the Act. (3) According to this rule, the fact-finder must determine whether the restraint's anti-competitive effects unreasonably outweigh its potentially pro-competitive effects. (4) This standard, however, does not govern all price restraints. (5)

For example, courts deem horizontal price restraints--those occurring between market participants at the same level of production or distribution--per se illegal in recognition of their consistent anti-competitive purpose and effect. (6) Additionally, beginning in 1911 with the Supreme Court's landmark decision in Dr. Miles Medical Co. v. John D. Park & Sons Co. (7) until 2007, courts deemed minimum resale price maintenance schemes per se illegal under the Act. (8) Minimum resale price maintenance is a type of vertical price restraint ordinarily employed by manufacturers to enhance a product or products. (9)

The Court's rejection of the per se rule as applied to resale price maintenance schemes in Leegin Creative Leather Products, Inc. v. PSKS, Inc. (10) signaled a dramatic shift in the Court's ability to recognize and interpret economic data and its effect. (11) Furthermore, applying the rule of reason standard to resale price maintenance schemes will certainly have lasting effects on producers and other corporate entities likely to employ such schemes. (12) The Court's rejection of decades of case law is not surprising, though, given its longstanding distaste for the overbroad characterizations inherent in per se analysis. (13) Although the Court initially established the per se rule for vertical price restraints in Dr. Miles, subsequent Supreme Court decisions have largely dismantled this holding. (14) In fact, these changes are the result of the Court's measured yet consistent willingness to recognize the pro-competitive effects of vertical price restraints. (15) Indeed, rule of reason analysis may avoid overbroad characterizations and allow the Court to assess the actual effect of a given restraint on private entities and the market as a whole. (16)

This Note examines some of the practical effects of the Court's Leegin decision, particularly on the lower federal courts and the judiciary in general. (17) As a preliminary matter, this Note will describe the general policy concerns that led Congress to enact Section I of the Sherman Act in order to later determine if the Court's current use of the rule of reason best diminishes these concerns. (18) This Note will also generally discuss potential effects of the Court's application of the rule of reason to resale price maintenance on the producer-dealer relationship. (19)

Part II examines the history of the Supreme Court's use of both the per se rule and the rule of reason to scrutinize both horizontal and vertical price restraints. (20) Part II also addresses the main policy concerns that caused Congress to enact Section I of the Sherman Act, as well as the Supreme Court's role in defining precisely what conduct the Act proscribes. (21) Part III cautions lower federal courts against using purely economic analysis when applying the rule of reason and advocates for courts to use important circumstantial evidence indicative of unlawful intent. (22) Part III also examines problems courts may encounter when applying the rule of reason to resale price maintenance agreements. (23)


A. Early "Antitrust" Law

Congress enacted the Sherman Antitrust Act in 1890, and it remains the most preeminent piece of American antitrust legislation today. (24) Despite its name, Congress did not intend the Act to target trusts in particular, but rather any mechanism used to artificially curtail trade and competition in the marketplace. …