Supreme Court Overturns Long-Standing Per Se Rule Against Vertical Minimum Price-Fixing

This morning, the Supreme Court overturned its long-standing per se rule against vertical minimum price-fixing and held that such agreements shall be evaluated under the more flexible "rule of reason." See Leegin Creative Leather Products v. PSKS, Inc., Case No. 06-480. The Court's 5-4 decision, authored by Justice Kennedy, overturns the per se rule against vertical minimum price-fixing first announced by Dr. Miles Medical Co. v. John D. Park & Sons Co. in 1911.

In overturning Dr. Miles, the Court concluded that application of the per se rule to vertical agreements on price is inconsistent with modern antitrust and economic analysis. Under the new rule announced by the Court, vertical minimum price-fixing agreements will be evaluated under the "rule of reason," which takes into account market dynamics and weighs the anticompetitive effects of a practice against its procompetitive benefits.

In many respects, today's Leegin decision will provide businesses with greater freedom and flexibility to develop efficient sales, distribution, and licensing arrangements that support their strategic objectives and enhance their competitiveness. In particular:

Manufacturers and licensors of intellectual property will have greater flexibility to enter into express minimum resale price maintenance ("RPM") agreements in their product distribution and licensing arrangements;

Manufacturers will no longer be required by federal antitrust law to resort to less efficient alternative arrangements to control distribution of their products, including Colgate policies, minimum advertised price agreements, and exclusive distribution territories.

On the other hand, the expanded flexibility that Leegin's rule of reason standard offers businesses is likely, at least in the short term, to be clouded by legal uncertainty. In particular:

Parties contemplating entering into minimum RPM agreements must continue to evaluate the risks arising under state antitrust laws and the competition laws of foreign jurisdictions.

In addition, since federal courts applying the rule of reason may still prohibit anticompetitive uses of these arrangements, there is likely to be a period of legal turbulence and uncertainty as lower courts seek to develop standards and workable principles to distinguish between procompetitive and anticompetitive minimum RPM agreements.

Background

PSKS, a retailer of "Brighton" brand products manufactured by Leegin, brought an action against Leegin, claiming...