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Leegin V. PSKS

Leegin V. PSKS

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Leegin Creative Leather Prods. 127 S. Ct. 2705, 168 L. Ed. Kennedy, J., delivered the opinion of the Court, in which Roberts, C. J., and Scalia, Thomas, and Alito, JJ., joined. Breyer, J., filed a dissenting opinion, in which Stevens, Souter, and Ginsburg, JJ., joined. ] Justice Kennedy delivered the opinion of the Court. In Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373(1911), the Court established the rule that it is per se illegal under § 1 of the Sherman Act, 15 U.S.C. § 1, for a manufacturer to agree with its distributor to set the minimum price the distributor can charge for the manufacturers goods.

Petitioner, Leegin Creative Leather Products, Inc. (Leegin), designs, manufactures, and distributes leather goods and accessories. In 1991, Leegin began to sell belts under the brand name “Brighton.” The Brighton brand has now expanded into a variety of womens fashion accessories. It is sold across the United States in over 5,000 retail establishments, for the most part independent, small boutiques and specialty stores. Leegins president, Jerry Kohl, also has an interest in about 70 stores that sell Brighton products. ] provide customers more services, and make their shopping experience more satisfactory than do larger, often impersonal retailers. ]e want the consumers to get a different experience than they get in Sams Club or in Wal-Mart. Respondent, PSKS, Inc. (PSKS), operates Kays Kloset, a womens apparel store in Lewisville, Texas.

Kays Kloset buys from about 75 different manufacturers and at one time sold the Brighton brand. It first started purchasing Brighton goods from Leegin in 1995. Once it began selling the brand, the store promoted Brighton. For example, it ran Brighton advertisements and had Brighton days in the store. Kays Kloset became the destination retailer in the area to buy Brighton products. Brighton was the stores most important brand and once accounted for 40 to 50 percent of its profits. In 1997, Leegin instituted the “Brighton Retail Pricing and Promotion Policy.” Following the policy, Leegin refused to sell to retailers that discounted Brighton goods below suggested prices.

The policy contained an exception for products not selling well that the retailer did not plan on reordering. ] specialty stores; specialty stores that can offer the customer great quality merchandise, superb service, and support the Brighton product 365 days a year on a consistent basis. In December 2002, Leegin discovered Kays Kloset had been marking down Brightons entire line by 20 percent. Kays Kloset contended it placed Brighton products on sale to compete with nearby retailers who also were undercutting Leegins suggested prices. Leegin, nonetheless, requested that Kays Kloset cease discounting. Its request refused, Leegin stopped selling to the store. The loss of the Brighton brand had a considerable negative impact on the stores revenue from sales. ] PSKS sued Leegin in the United States District Court for the Eastern District of Texas.

] into agreements with retailers to charge only those prices fixed by Leegin.” Leegin planned to introduce expert testimony describing the procompetitive effects of its pricing policy. The District Court excluded the testimony, relying on the per se rule established by Dr. Miles. At trial PSKS argued that the Heart Store program, among other things, demonstrated Leegin and its retailers had agreed to fix prices. Leegin responded that it had established a unilateral pricing policy lawful under § 1, which applies only to concerted action. See United States v. Colgate & Co., 250 U.S. 1.2 million. Pursuant to 15 U.S.C. § 15(a), the District Court trebled the damages and reimbursed PSKS for its attorneys fees and costs. 3,975,000.80. The Court of Appeals for the Fifth Circuit affirmed. On appeal Leegin did not dispute that it had entered into vertical price-fixing agreements with its retailers.

Rather, it contended that the rule of reason should have applied to those agreements. We granted certiorari to determine whether vertical minimum resale price maintenance agreements should continue to be treated as per se unlawful. ]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States.” 15 U.S.C. § 1. While § 1 could be interpreted to proscribe all contracts, see, e.g., Board of Trade of Chicago v. United States, 246 U.S. ] language,” Texaco Inc. v. Dagher, 547 U.S. ] only unreasonable restraints.” State Oil Co. v. Khan, 522 U.S.

] actual effect”); see also Illinois Tool Works Inc. v. Independent Ink, Inc., 547 U.S. 28, 45-46 (2006). In its design and function the rule distinguishes between restraints with anticompetitive effect that are harmful to the consumer and restraints stimulating competition that are in the consumers best interest. The rule of reason does not govern all restraints. As a consequence, the per se rule is appropriate only after courts have had considerable experience with the type of restraint at issue, see Broadcast Music, Inc. v. Columbia Broadcasting System, Inc., 441 U.S. 1, 9 (1979), and only if courts can predict with confidence that it would be invalidated in all or almost all instances under the rule of reason, see Arizona v. Maricopa County Medical Soc., 457 U.S. The Court has interpreted Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S.

373 (1911), as establishing a per se rule against a vertical agreement between a manufacturer and its distributor to set minimum resale prices. See, e.g., Monsanto Co. v. Spray-Rite Service Corp., 465 U.S. ] who agreed to resell them at set prices. The Court found the manufacturers control of resale prices to be unlawful. It relied on the common-law rule that “a general restraint upon alienation is ordinarily invalid.” . The Court then explained that the agreements would advantage the distributors, not the manufacturer, and were analogous to a combination among competing distributors, which the law treated as void. The reasoning of the Courts more recent jurisprudence has rejected the rationales on which Dr. https://utoptens.com/ was based. Dr. Miles, furthermore, treated vertical agreements a manufacturer makes with its distributors as analogous to a horizontal combination among competing distributors.

In later cases, however, the Court rejected the approach of reliance on rules governing horizontal restraints when defining rules applicable to vertical ones. See, e.g., Business Electronics, supra, at 734 (disclaiming the “notion of equivalence between the scope of horizontal per se illegality and that of vertical per se illegality”) . Our recent cases formulate antitrust principles in accordance with the appreciated differences in economic effect between vertical and horizontal agreements, differences the Dr. Miles Court failed to consider. The reasons upon which Dr. Miles relied do not justify a per se rule. As a consequence, it is necessary to examine, in the first instance, the economic effects of vertical agreements to fix minimum resale prices, and to determine whether the per se rule is nonetheless appropriate.

Though each side of the debate can find sources to support its position, it suffices to say here that economics literature is replete with procompetitive justifications for a manufacturers use of resale price maintenance. ] . . . The few recent studies documenting the competitive effects of resale price maintenance also cast doubt on the conclusion that the practice meets the criteria for a per se rule. ] are evidently not unusual or rare”); see also Ippolito, Resale Price Maintenance: Empirical Evidence From Litigation, 34 J. Law & Econ. The justifications for vertical price restraints are similar to those for other vertical restraints. See GTE Sylvania, 433 U.S., at 54-57. Minimum resale price maintenance can stimulate interbrand competition—the competition among manufacturers selling different brands of the same type of product—by reducing intrabrand competition—the competition among retailers selling the same brand.

] they see it in a retail establishment that has a reputation for selling high-quality merchandise. Marvel & McCafferty, Resale Price Maintenance and Quality Certification, 15 Rand J. Econ. Resale price maintenance, in addition, can increase interbrand competition by facilitating market entry for new firms and brands. ] may be particularly important as a competitive device for new entrants”). New products and new brands are essential to a dynamic economy, and if markets can be penetrated by using resale price maintenance there is a procompetitive effect. Resale price maintenance can also increase interbrand competition by encouraging retailer services that would not be provided even absent free riding. It may be difficult and inefficient for a manufacturer to make and enforce a contract with a retailer specifying the different services the retailer must perform.

While vertical agreements setting minimum resale prices can have procompetitive justifications, they may have anticompetitive effects in other cases; and unlawful price fixing, designed solely to obtain monopoly profits, is an ever present temptation. Resale price maintenance may, for example, facilitate a manufacturer cartel. See Business Electronics, 485 U.S., at 725. An unlawful cartel will seek to discover if some manufacturers are undercutting the cartels fixed prices. Resale price maintenance could assist the cartel in identifying price-cutting manufacturers who benefit from the lower prices they offer. A horizontal cartel among competing manufacturers or competing retailers that decreases output or reduces competition in order to increase price is, and ought to be, per se unlawful. Resale price maintenance, furthermore, can be abused by a powerful manufacturer or retailer.

A dominant retailer, for example, might request resale price maintenance to forestall innovation in distribution that decreases costs. A manufacturer might consider it has little choice but to accommodate the retailers demands for vertical price restraints if the manufacturer believes it needs access to the retailers distribution network. See Overstreet 31; 8 P. Areeda & H. Hovenkamp, Antitrust Law 47 (2d ed. Toys “R” Us, Inc. v. FTC, 221 F.3d 928, 937-938 (CA7 2000). A manufacturer with market power, by comparison, might use resale price maintenance to give retailers an incentive not to sell the products of smaller rivals or new entrants.

As should be evident, the potential anticompetitive consequences of vertical price restraints must not be ignored or underestimated. ] to restrict competition and decrease output.” Business Electronics, supra, at 723 (internal quotation marks omitted). Vertical agreements establishing minimum resale prices can have either procompetitive or anticompetitive effects, depending upon the circumstances in which they are formed. And although the empirical evidence on the topic is limited, it does not suggest efficient uses of the agreements are infrequent or hypothetical. ] As the rule would proscribe a significant amount of procompetitive conduct, these agreements appear ill suited for per se condemnation.

Respondent contends, nonetheless, that vertical price restraints should be per se unlawful because of the administrative convenience of per se rules. See, e.g., GTE Sylvania, supra, at 50, n. 16 (noting “per se rules tend to provide guidance to the business community and to minimize the burdens on litigants and the judicial system”). That argument suggests per se illegality is the rule rather than the exception. This misinterprets our antitrust law. Those rules can be counterproductive. They can increase the total cost of the antitrust system by prohibiting procompetitive conduct the antitrust laws should encourage. See Easterbrook, Vertical Arrangements and the Rule of Reason, 53 Antitrust L. J. 135, 158 (1984) (hereinafter Easterbrook). They also may increase litigation costs by promoting frivolous suits against legitimate practices.

The Court has thus explained that administrative “advantages are not sufficient in themselves to justify the creation of per se rules,” GTE Sylvania, 433 U.S., at 50, n. Respondent also argues the per se rule is justified because a vertical price restraint can lead to higher prices for the manufacturers goods. ] in most cases increased the prices of products sold”). Respondent is mistaken in relying on pricing effects absent a further showing of anticompetitive conduct. ] because the results are generally consistent with both procompetitive and anticompetitive theories”). For, as has been indicated already, the antitrust laws are designed primarily to protect interbrand competition, from which lower prices can later result.

The Court, moreover, has evaluated other vertical restraints under the rule of reason even though prices can be increased in the course of promoting procompetitive effects. See, e.g., Business Electronics, 485 U.S., at 728. And resale price maintenance may reduce prices if manufacturers have resorted to costlier alternatives of controlling resale prices that are not per se unlawful. Respondents argument, furthermore, overlooks that, in general, the interests of manufacturers and consumers are aligned with respect to retailer profit margins. The difference between the price a manufacturer charges retailers and the price retailers charge consumers represents part of the manufacturers cost of distribution, which, like any other cost, the manufacturer usually desires to minimize. See GTE Sylvania, 433 U.S., at 56, n 24; see also id., at 56 (“Economists .