Minimum-Price Accords May Be Allowed, Top Court Says

By Greg Stohr
Bloomberg
Jul. 01, 2007

June 28 (Bloomberg) -- The U.S. Supreme Court, overturning a 96-year-old antitrust precedent, said manufacturers and distributors in some circumstances can agree with retailers on minimum prices for products.

The justices, voting 5-4, today said the longstanding blanket ban on those accords was too rigid and that a case-by- case approach would promote competition and lead to greater consumer choice. Consumer advocates had argued that an end to the automatic ban would mean higher prices in stores.

``Minimum resale price maintenance can stimulate interbrand competition,'' Justice Anthony Kennedy wrote for the court. The practice ``has 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.''

The ruling split the court along ideological lines. Chief Justice John Roberts and Justices Antonin Scalia, Clarence Thomas and Samuel Alito joined the majority. Justices John Paul Stevens, Ruth Bader Ginsburg, Stephen Breyer and David Souter dissented.

The case focused on a rule that had become something of an anomaly as the court adopted a more flexible approach to antitrust law in recent years. The Supreme Court's 1911 decision in Dr. Miles v. Park made so-called vertical minimum-price agreements ``per se'' illegal, regardless of the impact on competition.

Under that rule, manufacturers often could take unilateral steps to prop up prices on cars, consumer electronics and other goods but were barred from reaching agreements with their retailers.

`Rule of Reason'

Opponents said the system made little economic sense and imposed cumbersome requirements on manufacturers that wanted to set minimum prices. Manufacturers could suggest prices -- and even withhold products from non-complying stores -- as long as they didn't agree with retailers on an exact price.

The ruling ``simplifies things for manufacturers'' that want to prevent retailers from offering discounts, said Herbert Hovenkamp, an antitrust expert at the University of Iowa.

In dissent, Justice Stephen Breyer said the court should have left it to Congress to make any changes to the law.

The arguments against the automatic ban were ``well known in the antitrust literature for close to half a century,'' Breyer wrote for the four. ``Congress has repeatedly found in these arguments insufficient grounds for overturning the per se rule.''

`Rule of Reason'

The majority said price-floor agreements should be evaluated under the ``rule of reason,'' a legal doctrine that assesses restraints on trade by looking at the impact on competition. In 1997, the court said the rule-of-reason test would apply when manufacturers set a maximum price that retailers may charge.

Even under the automatic ban, successful lawsuits against the practice were rare, Hovenkamp said.

``The practical effect is minimal in terms of litigation because very few plaintiffs have been winning,'' Hovenkamp said.

Efforts to set price floors are especially common among makers of electronic goods, software, books and pharmaceuticals, Hovenkamp said. The antitrust restrictions apply only to tangible goods, not to intellectual property or services.

The ruling is a victory for Brighton Collectibles Inc., a leather-products maker that had been ordered to pay $4 million to PSKS Inc., owner of a Texas retail store.

Brighton argued that price-floor accords often promote competition among brands, letting manufacturers carve out niches for their products as high-end goods and encourage competition among retailers based on customer service, rather than low price.

PSKS argued that Congress had repeatedly endorsed the ban on price-floor agreements and that the Supreme Court should respect that judgment.

The Bush administration backed Brighton in the case. The largest discount chains, including Wal-Mart Stores Inc. and Target Corp., opted not to take a position.

PSKS, a closely held company, pressed its suit against Brighton's Leegin Creative Leather Products division. Brighton, which also is closely held, is based in Industry, California.

The case is Leegin Creative Leather Products v. PSKS, 06- 480.

To contact the reporter on this story: Greg Stohr in Washington at [email protected] .