Supreme Court Abandons Century-Old Per Se Rule Against Resale Price Maintenance

"[I]t is a flawed antitrust doctrine that serves the interests of lawyers ó by creating legal distinctions that operate as traps for the unwary ó more than the interests of consumers ó by requiring manufacturers to choose second-best options to achieve sound business objectives."

Leegin Creative Prods., Inc. v. PSKS, Inc., No. 06-480 (June 28, 2007).

The U.S. Supreme Court has jettisoned the per se Sherman Act prohibition on firms requiring their resellers to sell at or above set resale prices. In Leegin Creative Leather Products, Inc. v. PSKS, Inc., No. 06-480 (June 28, 2007), the Court held that vertical price restraints are to be judged by the rule of reason. Under the rule of reason, a vertical price restraint will be found to violate federal antitrust law only if after weighing all the circumstances a fact-finder concludes that its anti-competitive effects outweigh its pro-competitive effects.

Background on the Leegin Dispute

PSKS, the plaintiff in Leegin, operated a retail store under the name "Kay's Kloset." Kay's purchased Brighton brand women's belts and other accessories from Leegin. Leegin told Kay's (and its other retailers) that it would only do business with retailers that followed its suggested resale prices for Brighton products. When Kay's started selling Brighton products at prices below those suggested by Leegin, Leegin suspended all shipments to Kay's. Kay's sued Leegin alleging that its pricing policy, which was incorporated into marketing agreements with retailers, was an agreement in restraint of trade that violated ß 1 of the Sherman Act, 15 U.S.C. ß 1.

Leegin contended that its policy was pro-competitive because it encouraged retailers to promote the Brighton brand and protected the brand by not allowing discount pricing to cause some consumers to feel cheated when others obtained the product at a lower "sale" price. The trial court refused to allow Leegin the opportunity to defend its policy on these grounds based upon the Supreme Court's holding in Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373 (1911), that vertical minimum resale price maintenance agreements are per se antitrust violations. A jury found that Leegin's policy violated the per se ban on resale price maintenance and awarded $3.6 million in damages and $375,000 in attorneys' fees. After the United States Court of Appeals for the Fifth Circuit affirmed based upon Dr. Miles, Leegin asked the Supreme Court to review the case in order to...