e-Bulletin: U.S. Supreme Court Ruling Permits Manufacturers to Set Minimum Retail Prices
June 29, 2007
The U.S. Supreme Court has discarded an almost century old prohibition on agreements that set price floors for products. In 1911, the Supreme Court established a rule against vertical agreements between a manufacturer and its distributor setting minimum resale prices. This week, the Supreme Court reversed course and held that vertical price-setting agreements are no longer always illegal. Instead, such agreements will be judged on a case-by-case basis. The Court’s decision brings antitrust law closer in line with the realities of modern business relationships and is clearly supported by modern economic analysis. It is good news for the economy, businesses, and consumers.
In Leegin Creative Leather Products, Inc. v. PSKS, Inc., a manufacturer stopped selling its products to a retailer after the retailer refused to cease discounting the products below the manufacturer’s suggested prices. For the past 96 years, courts have ruled that these types of agreements are always illegal, precluding the parties from arguing that the agreement was not anticompetitive or had procompetitive benefits. However, in Leegin, the Supreme Court ruled, consistent with modern economic analysis, that vertical price-fixing agreements may provide stimulation to competition that is in the consumer’s best interest. Minimum resale price agreements can stimulate interbrand competition by eliminating intrabrand competition, and they have “the potential to give consumers more options so that they can choose among low-price, low-service brands; high- price, high-service brands; and brands that fall in between.”
Although Leegin is a landmark decision that should bring benefits to a variety of industries and their consumers, the Court noted that vertical price-setting still is subject to scrutiny under the law. The Court discussed potential economic dangers of resale price maintenance, such as agreements that facilitate cartels. The Court also examined factors that tend to show a restraint as anticompetitive, including the number of manufacturers that make use of the practice in a given industry, if the retailers pressured the restraint onto the manufacturer, and if the entity has market power.
If you would like more information about how the Leegin decision might affect your business operations, or would like to consult with an attorney about other antitrust matters, please feel free to contact a member of the Antitrust Practice Group at Taft Stettinius & Hollister LLP.
In Leegin Creative Leather Products, Inc. v. PSKS, Inc., a manufacturer stopped selling its products to a retailer after the retailer refused to cease discounting the products below the manufacturer’s suggested prices. For the past 96 years, courts have ruled that these types of agreements are always illegal, precluding the parties from arguing that the agreement was not anticompetitive or had procompetitive benefits. However, in Leegin, the Supreme Court ruled, consistent with modern economic analysis, that vertical price-fixing agreements may provide stimulation to competition that is in the consumer’s best interest. Minimum resale price agreements can stimulate interbrand competition by eliminating intrabrand competition, and they have “the potential to give consumers more options so that they can choose among low-price, low-service brands; high- price, high-service brands; and brands that fall in between.”
Although Leegin is a landmark decision that should bring benefits to a variety of industries and their consumers, the Court noted that vertical price-setting still is subject to scrutiny under the law. The Court discussed potential economic dangers of resale price maintenance, such as agreements that facilitate cartels. The Court also examined factors that tend to show a restraint as anticompetitive, including the number of manufacturers that make use of the practice in a given industry, if the retailers pressured the restraint onto the manufacturer, and if the entity has market power.
If you would like more information about how the Leegin decision might affect your business operations, or would like to consult with an attorney about other antitrust matters, please feel free to contact a member of the Antitrust Practice Group at Taft Stettinius & Hollister LLP.
