The U.S. Supreme Court has told manufacturers engaged in resale price maintenance that they can continue to rely on its controversial 2007 opinion in PSKS Inc. v. Leegin Creative Leather Products, which struck down the Court’s long-standing precedent that such vertical price restraints are per se illegal.

After nearly four years of additional proceedings, the Supreme Court’s original Leegin decision has now proved fatal to the plaintiff’s antitrust complaint, which challenged a manufacturer’s resale price maintenance policy.  The Supreme Court has denied certiorari to the decision of the Fifth Circuit Court of Appeals affirming the dismissal of the Leegin complaint, which underwent a lingering death as the Supreme Court remanded the case to the lower courts, which dismissed the plaintiff’s claim under the more lenient rule of reason standard endorsed by the high court.

In its initial 2007 opinion, a fractured Supreme Court held that the practice of vertical resale price maintenance was not per se illegal under antitrust laws.  That decision overturned the nearly century-old precedent set by Dr. Miles Medical Co. v. John D. Park & Sons, which held that the practice automatically violated Section 1 of the Sherman Act.  Now, such activity must be examined under the rule of reason, a more lengthy and costly inquiry that examines procompetitive benefits of a specific policy and the context surrounding it. 

Both the Dr. Miles precedent – which had been heavily criticized by some antitrust commentators – and the 5-4 decision overturning it, over a vigorous dissent, were controversial.  Some antitrust commentators, economists, and judges had argued that there are valid justifications for resale price maintenance, such as maintaining the image of a particular brand.  The majority concluded in 2007 that “respected authorities in the economics literature suggest that the per se rule is inappropriate, and there is now widespread agreement that resale price maintenance can have procompetitive effects.”  However, the dissent authored by Justice Stephen Breyer, which was joined by Justice Ruth Bader Ginsburg and then-Justices John Paul Stevens and David Souter, emphasized the pro-consumer, low price effects of such a rule and argued for the importance of respecting precedent under the doctrine of stare decisis.  But the Court overturned the lower court ruling adhering to the Dr. Miles precedent and remanded the case to where it originated in the Fifth Circuit.

After the Supreme Court rejected the per se standard for vertical price fixing in its 2007 decision, the case returned to the lower courts, which considered the plaintiff’s antitrust claims under the more defendant-friendly rule of reason.  A Texas retailer, Kay’s Kloset, which was operated by PSKS, had attempted to price the goods of Brighton, Inc., which makes handbags and other goods, at a price lower than the manufacturer demanded.  The manufacturer argued that a higher price for its good at the retail level would enable the retailer to spend more money on promoting the brand in the store and educating the customers about its products.  The Fifth Circuit Court of Appeals affirmed the dismissal of the Kay’s Kloset’s case against Leegin in 2010, and the Supreme Court has now declined to grant certiorari.

The chairman of the House Judiciary Committee, Rep. John Conyers (D.-Mich.), has announced that the Committee will meet to consider H.R. 3190 (the “Discount Pricing Consumer Protection Act of 2009”) tomorrow.  The bill would reverse the effects of the Supreme Court’s decision in Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 887 (2007).  Leegin overruled a 1911 Supreme Court decision holding that resale price maintenance was per se illegal.  Under Leegin, resale price maintenance would be judged under the rule of reason. 

The notice of the markup can be found here.

The Committee’s Subcommittee on Courts and Competition Policy passed the bill by voice vote on July 30, 2009. 

For further information on the legislative history of the bill, see our earlier post here.

Resale price maintenance policies that pass muster under federal antitrust law may not survive state antitrust scrutiny in Kansas, according to that state’s highest court. 

The Kansas Supreme Court has overturned a lower court’s decision granting defendant handbag and accessory maker Leegin Creative Leather Products, Inc. summary judgment in a state antitrust suit brought by a class of consumers challenging Leegin’s resale price maintenance pricing policy.

The plaintiffs in O’Brien v. Leegin Creative Leather Products Inc. allege that Leegin’s resale price maintenance pricing policy amounted to illegal price fixing and violated the Kansas Restraint of Trade Act (“KRTA”). 

Leegin’s resale price maintenance practices fared better in a federal antitrust challenge to those practices in the U.S. Supreme Court decision in Leegin Creative Leather Products, Inc. v. PSKS, Inc. (2007).  In that case, the U.S. Supreme Court decided that – contrary to the longstanding per se ban on vertical resale price maintenance established in the early 1900s – resale price maintenance no longer constituted a per se Sherman Act violation and would instead need to be evaluated under the rule of reason. 

According to the Kansas high court, however, the KRTA does not follow in lockstep with federal antitrust law.  While federal antitrust decisions may be persuasive authority, they are nonbinding on Kansas state courts.  The Kansas high court thus declined to apply federal law precedent relating to the requirement to show “antitrust injury” and the application of a rule of reason standard of review to vertical price maintenance claims.  The U.S. Supreme Court’s decision in Leegin did not preempt the state antitrust claim under the KRTA.

The Kansas legislature, however, has been quick to react.  State lawmakers have proposed a bill (House Bill No. 2797) to “correct” the court’s ruling and overturn it for any pending or future lawsuits.  The stated intention of the proposed bill is to “minimize conflicts between the Kansas restraint of trade act and section 1 of the Sherman Act … and reduce uncertainty as to the law applicable to commerce in Kansas.”

The Senate Judiciary Committee has voted to overturn the Supreme Court decision that gave the green light to resale price maintenance.

The Committee has passed S. 148, the “Discount Pricing Consumer Protection Act.”  This bill would reverse the Supreme Court’s decision in Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 887 (2007).  Leegin overruled a 1911 Supreme Court decision holding that resale price maintenance was per se illegal.

Under Leegin, resale price maintenance is judged under the rule of reason.  Under S. 148, resale price maintenance would again be treated as a per se violation.   

A link to the archived webcast of the Senate Judiciary Committee’s markup can be found here. 

On January 13, 2010, the House Judiciary Committee passed similar legislation, H.R. 3190, by voice vote.  

A link to the archived webcast of the House Judiciary Committee’s markup can be found here.  At this time neither the House nor the Senate has scheduled floor action on the respective bills. 

For further information on Leegin repeal legislation, see our earlier posts.