Antitrust Law, Appellate + Supreme Court, Litigation, and Antitrust Law | Litigation
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:
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:
PSKS, a retailer of “Brighton” brand products manufactured by Leegin, brought an action against Leegin, claiming that Leegin violated Section 1 of the Sherman Act by entering into illegal agreements with retailers to fix the retail sales price of “Brighton” products. A jury found for PSKS, and the Fifth Circuit upheld the jury’s verdict based on the long-standing per se rule against vertical minimum price-fixing.
Discussion & Analysis
The Supreme Court’s decision to overturn the per se rule of Dr. Miles reflects modern antitrust analysis and economic learning, and brings the treatment of minimum RPM agreements into the 21st century and in line with the Court’s other recent antitrust jurisprudence relating to vertical restraints of trade. In overturning Dr. Miles, the Court recognized that minimum RPM often may benefit consumers, and that manufacturers and retailers may have a number of procompetitive purposes for entering into minimum RPM agreements:
Notwithstanding these potential competitive benefits of minimum RPM agreements and the Court’s conclusion that such agreements should be evaluated under the rule of reason, the Court recognized that minimum RPM agreements can be anticompetitive in some circumstances. While a rule of reason analysis would require a full evaluation of the market circumstances before finding an agreement to be unlawful, the Court suggested that minimum RPM agreements nonetheless may present antitrust risk under the following types of circumstances:
As described above, the Court balanced these competing considerations and concluded that the per se rule is inappropriate for minimum RPM agreements, and the rule of reason shall apply going forward. This decision will harmonize the Court’s treatment of minimum RPM agreements with the treatment of various other types of arrangements used by manufacturers to control product distribution, including: (a) customer and territorial distribution allocations; (b) exclusive distribution arrangements; and (c) maximum RPM agreements.
It is important to note that the Court’s Leegin decision represents only a first step – albeit a very important one – in fully rationalizing the law in this area. The Court today recognized that lower federal courts will, over time, develop a “litigation structure” with presumptions, standards of proof, and guidelines to create clearer boundaries for the application of the rule of reason to minimum RPM agreements. Similarly, the law in two other areas remains uncertain, at best:
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