Supreme Court Overturns Per Se Rule In Minimum Retail Price Maintenance

Landmark Supreme Court antitrust decision gives manufacturers substantially more control over the prices retailers charge for their products.

In a 5-4 decision June 28, 2007, the U.S. Supreme Court overturned the per se rule on minimum resale price agreements established in the Dr. Miles case in 1911, holding that minimum resale price agreements are subject to "rule of reason" analysis.

Leegin Creative Leather Products Inc. v. PSKS Inc., No. 06-480, involved a clothing manufacturer that stopped shipping a line of clothing to a boutique because the boutique was discounting in direct defiance of the manufacturer's pricing policy. The boutique successfully sued the manufacturer for violating Section 1 of the Sherman Act and was awarded about $4 million. The trial judge excluded key expert testimony about the consumer benefits of the manufacturer's pricing policies on the ground they were per se or automatically illegal under Dr. Miles Medical Co. v. John D. Park & Sons Co. The U.S. Court of Appeals for the Fifth Circuit affirmed.

The Supreme Court reversed the lower court decisions, concluding that the more flexible rule of reason approach was more appropriate in evaluating resale price maintenance. The court emphasized that these vertical agreements may increase interbrand competition by, for example, encouraging resellers to invest more in service and marketing and giving consumers more options between low-service and high-service brands. In addition, the court concluded that adopting the rule of reason would be consistent with the way the court evaluates most other vertical restraints. Both the majority and dissenting opinions devoted much attention to the doctrine of stare decisis, ultimately splitting by one vote on whether it compelled adherence to a century-old precedent.

The Supreme Court's ruling in Leegin will give manufacturers substantially more control over the prices resellers charge for their products and will make it easier to prevent discounting. Combined with...