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The Leegin Decision

United States. Congress. Senate. Committee on the Judiciary. Subcommittee on Antitrust, Competition Policy, and Consumer Rights

Published: 2008

Total Pages: 108


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For decades, it has been a per se violation of U.S. antitrust law for manufacturers or distributors to specify retail selling prices. In the spirit of atomistic, unrestrained competition, retailers were free to set prices without undue interference from upstream channel participants. Attempts by manufacturers or other channel participants to restrict retail price setting initiatives were viewed by regulators as an unwarranted and illegal interference with the market mechanism. Restrictions on price setting initiatives would, it was argued, lessen competition and ultimately raise prices above competitive levels to the detriment of consumers. Recently, under the leadership of newly appointed Chief Justice Roberts, a more “business friendly” Supreme Court has reversed this policy; vertical price fixing is no longer a per se violation of U.S. antitrust law. By a five-to-four margin, the Court held in Leegin Creative Leather Products that manufacturers could, under certain circumstances, establish binding retail selling prices. Henceforth, retail price setting restrictions will be subject to a rule of reason evaluation whereby price restrictions will be assessed on a case-by-case basis. Proponents of the now-legal restrictions argue that this will ensure that merchandise sold through retail outlets will receive needed support, free riding will be reduced or eliminated, and new brand introduction will be facilitated. Critics argue that the Court's decision marks a return to the days of fair trading; marginal firms will be protected, so-called “inframarginal consumers” will be forced to pay for services they do not want or need, and prices for many branded products will rise, all to the detriment of consumer welfare.

Bye Bye Bargains?

United States. Congress. House. Committee on the Judiciary. Subcommittee on Courts and Competition Policy

Published: 2010

Total Pages: 160


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The Supreme Court's Leegin decision overturned the longstanding rule of per se illegality for resale price maintenance and applied a rule of reason. One might think that the question whether a vertical “agreement” exists between a manufacturer and a dealer should not be affected by the mode of analysis to be applied after an agreement is found. First one asks whether an agreement exists, and determines whether the per se rule or rule of reason applies only after receiving an affirmative answer. Nevertheless, ever since Colgate the Supreme Court has generally taken a more restrictive approach on the agreement issue in resale price maintenance cases than in cases involving other vertical agreements. Unlike horizontal agreements among competitors, which are relatively uncommon, vertical agreements between actual or would-be suppliers and customers are everywhere, and include sales, licenses, franchises, employment agreements, and information arrangements. Their very ubiquity indicates that only a few will be of antitrust concern. Given the ubiquity of vertical agreements, we need to be clear on which ones should be of concern to antitrust law. Too many cases have asked whether an agreement is present without considering the nature of the agreement sought. Indeed, virtually every case alleging resale price maintenance or other vertical restraints involves firms who are the parties to some agreement. A curiosity of many dealer-complaint cases is their failure to identify the nature and content of the alleged complainer-manufacturer agreement. The apparent subject matter of the alleged agreement is not the plaintiff's destruction but the manufacturer's distribution policy and its implementation, the complainer's future behavior, or both. The tribunal must first define its concept of an agreement and then ask whether the defendant had a motive to enter into that agreement. If unilateral termination of a price cutter because of price cutting does not constitute an agreement, then no agreement exists unless there is a motive for and evidence of the manufacturer's agreement with some third party. In any event, the consequences of not finding an agreement are not quite the same when the underlying restraint is addressed under the rule of reason. Both unilateral and multilateral conduct that result in reduced output and higher prices are actionable, although unilateral conduct must meet the somewhat stricter structural standards of §2's monopolization or attempt offense.

The Leegin Decision

United States. Congress. Senate. Committee on the Judiciary. Subcommittee on Antitrust, Competition Policy, and Consumer Rights

Published: 2008

Total Pages: 108


Get eBook

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The Leegin decision: the end of the consumer discounts or good antitrust policy?: hearing before the Subcommittee on Antitrust, Competition Policy, and Consumer Rights of the Committee on the Judiciary, United States Senate, One Hundred Tenth Congress, first session, July 31, 2007.
Bye bye bargains?: retail price fixing, the Leegin decision and its impact on consumer prices : hearing before the Subcommittee on Courts and Competition Policy of the Committee on the Judiciary, House of Representatives, One Hundred Eleventh Congress, first session, April 28, 2009.
Resale price maintenance (RPM) is a controversial pricing practice for managing retail distribution channels. In Leegin Creative Leather Products, Inc. v. PSKS, Inc. (2007), the Supreme Court abolished a nearly century-old per se rule against RPM established in Dr. Miles Medicine Co. v. John D. Park & Sons (1911). Henceforth, RPM will be judged under federal antitrust law by the rule of reason - a less restrictive standard that requires courts to weigh all the relevant circumstances of a case to assess whether a practice unreasonably restrains trade. Despite that the decision in Leegin leaves many unanswered questions, the decision has prompted an increasing number of consumer goods manufacturers to adopt RPM in the management of their retailer relationships. Recently, the widespread use of restrictive pricing practices in the retail distribution of contact lenses has drawn attention and elevated debate over the practice. Pending lawsuits in the industry have been identified as an important "test case" for antitrust's new vertical pricing regime following Leegin. Drawing upon relevant literatures from law, economics, and business, together with publically available information, important questions in the debate and related cases that share significance for scholarship and practice are elaborated upon and examined. We hope this examination reveals insights helpful to understanding the antitrust implications of contact lens manufacturers' pricing practices and for advancing academic knowledge, marketing practice, and competition policy involving RPM.