Supreme Court Overturns Antitrust Precedent from 1911
On the last day of the Supreme Court’s 2006 term, the Court published its 5-4 decision in Leegin Creative Leather Products, Inc. v. PSKS, Inc.. Leegin raises an important issue related to retail sales agreements and violation of the Sherman Act.
Leegin manufactures products under the brand name Brighton – whose products include handbags, belts, jewelry and other accessories. PSKS owns a boutique that sold the Brighton products at its store. Leegin required its retailers to agree in writing to a minimum resale price for all of their products. (A minimum resale price maintenance (“Minimum RPM”) agreement is an agreement enforced by the manufacturer requiring the retailer to set the resale price at an agreed upon minimum. For example, Brighton would require PSKS to sell a handbag at a minimum price of $250.) PSKS initially agreed, but later sold products at a reduced price in order to compete against other nearby retailers.
Leegin sued in the United States District Court for the Eastern District of Texas and the jury found in favor or PSKS because the court determined that the Minimum RPM agreement was per se illegal under the long-standing precedent of Dr. Miles, decided in 1911. The Fifth Circuit Court of Appeals affirmed. The Supreme Court reversed in a 5-4 decision overruling Dr. Miles, and determining that vertical Minimum RPM’s are to be evaluated under the rule of reason – giving judges greater discretion in determining whether the Sherman Act was violated. The rule of reason requires a court to assess restraints on trade by looking at the impact on competition.
Most commentators and the dissent in Leegin believe that this decision will drive up retail prices and consumers will be paying even higher prices for specialty items because now, manufacturers can enforce vertical Minimum RPM agreements under the threat that the retailer will lose the opportunity to sell their goods if they do not comply with the agreement.