An ongoing U.S. Supreme Court case seemingly unrelated to MI could be a major determining factor regarding the FTC’s investigation of minimum advertised price. The case of Leegin Creative Leather Products, Inc. v. PSKS, Inc. is being followed closely by attorneys representing MI, because the verdict is sure to help strengthen or weaken any potential FTC investigation. In fact, it could be the key component and is likely to have a major ripple affect on MI in general. The FTC investigation of MI is only in a preliminary fact-finding phase at this time.
Leegin, a small California-based leather manufacturer known for its Brighton line, instituted a minimum retail price in 1997. The minimum retail price was intended to help Leegin compete against larger manufacturers. However, Texas-based PSKS, dba Kay’s Kloset, refused to adhere to the policies and often priced Brighton products below the minimum retail price set by Leegin.
Leegin responded by canceling all Brighton shipments to PSKS in 2002. PSKS sued Leegin, claiming its bottom line suffered greatly. The U.S. District Court, Eastern District of Texas, agreed with PSKS by saying Leegin violated the Sherman Antitrust Act of 1890, and awarded damages of $3.6 million.
Leegin has filed appeals since, and the U.S. Supreme Court agreed to hear the case on Dec. 7. The case was heard on March 27. Thomas B. Olsen, Leegin’s attorney, argued illegality rules regarding resale price are “widely recognized to be outdated, misguided, and anticompetitive. It should be replaced with the same rule of reason standard that applies to other forms of vertically-imposed marketing restrictions. The Sherman Act bars only unreasonable restraints of trade and the court presumptively applies a rule of reason analysis to determine whether a restraint is unreasonable.”
Olsen later added, “I think if the manufacturer makes a decision, whether it’s because dealers would like to see that happen or not, …there’s of course relationships between the dealers and the manufacturers, that the dealers may have an interest in doing this, because they may find for the same reason that the manufacturer does that it promotes the sales of products. The record is clear in this case that this was an effective strategy for the Brighton company—the Brighton Leegin company that’s manufacturing the Brighton products—to enter a very difficult and highly competitive marketplace, and it was successful.”
Based on the testimony, Supreme Court justices may be hesitant to change a nearly century-old rule called Dr. Miles, forbidding manufacturers from collaborating with individual dealers on a minimum price for a product. Said Justice Stephen Breyer, “Professor [Carl] Sherer, [an economist at the University of Chicago] [w]orked at the FTC for a long time. A good expert in the field. He points out the drug industry after you got rid of resale price maintenance; the margins fell 40 percent. The drug stores [said] it went down 20 percent. He says alone it saved American consumers $200 million to get rid of it. And his conclusion is, as in the uniform enforcement of resale price maintenance, the restraints can impose massive anti-consumer benefits. Massive.
“What that sounds like is that if at least he, who is an economist, thinks if you get rid of Dr. Miles, every American will pay far more for the goods they buy at retail. Now that’s one economist, of course. There are others who think differently. So how should we decide this?”
Breyer later added, “There are good arguments on both sides. [But] [w]hy should we overrule a case that’s 96 years old, in the absence of congressional indication that’s a good idea…?”
Justice David Souter realized the Supreme Court’s decision will be humungous for all retail industries, which of course includes MI. Said Souter, “We do have empirical evidence, though, don’t we, that the decision of this case is going to be very significant in the sort of battle between Wal-Mart and the Main Street stores; and why should this court in effect take a shot in the dark at resolving that, as distinct from leaving it to Congress, which is in a position to know more about where the shot is going to land than we are?”
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