SCOTUS may strike ban on manufacturers setting retail prices

[Dominus Atheos]

Examiner

WASHINGTON (Map, News) - Consumer protection collided with modern economic theory Monday as the Supreme Court wrestled with a 96-year-old standard designed to promote competition.

At issue is a 1911 Supreme Court ruling that is based on an assumption that any agreement between a manufacturer and stores to set minimum retail prices for products is almost always anti-competitive.

Not so, said Washington lawyer Theodore Olson, representing a manufacturer of women's accessories.

The idea that such agreements are automatically illegal is "outdated, misguided" and the restriction itself is anti-competitive, Olson argued.

The case stands at the intersection of discount chains and niche retailers like Kay's Kloset in Lewisville, Texas, which lowered its prices below an agreed-upon minimum with manufacturer Leegin Creative Leather Products Inc. Leegin cut off its shipments to the family owned business when Phil and Kay Smith refused to raise their prices.

Leegin says that by maintaining price consistency among its retailers, stores can offer improved customer service. The extra service, says the manufacturer, enables smaller stores to compete against rival brands sold by bigger cut-rate competitors.

If the old standard is abandoned, what about the argument that every American will pay far more? asked Justice Stephen Breyer.

Representing the Bush administration, Deputy Solicitor General Thomas Hungar said there is a consensus among economists that such agreements are not necessarily anti-competitive.

Consumers "want other things besides cheap," said Justice Antonin Scalia. Some consumers prefer more service at a higher price, said Scalia, and the fact that such price floor agreements might raise prices "does not prove anything."

The Smiths successfully sued Leegin, and the 5th U.S. Circuit Court of Appeals affirmed the jury's finding that Leegin and its retailers agreed to fix retail prices on the manufacturer's Brighton brand. If Leegin can get the 1911 Supreme Court ruling overturned, it would be much more difficult for the Smiths to prevail because they would have to show that the Leegin agreement is anti-competitive.

In recent years, the Supreme Court has eased restrictions in related areas, including a ban on setting maximum prices for products.

But in the case of price floors, Congress got involved and because of that, the court should move cautiously, suggested Justice Ruth Bader Ginsburg.

Beginning in the Depression, congressionally enacted legislation allowed states to exempt price floors from federal antitrust scrutiny. Congress reversed course in 1975, and President Ford wrote in his signing statement that the new law would "make it illegal for manufacturers to fix the prices of consumer products sold by retailers."

Olson said the notion that the rise of the discounters can be linked to the change in the law in 1975 is incorrect.

Discounters were "coming on strong before 1975," said Olson.

[General Zod]

If this does wind up happening, I expect Walmart to be shitting bricks.

[Dominus Atheos]

It passed

Justices End 96-Year-Old Ban on Price Floors
By STEPHEN LABATON

WASHINGTON, June 28 — Striking down an antitrust rule nearly a century old, the Supreme Court ruled today that it is no longer automatically unlawful for manufacturers and distributors to agree on setting minimum retail prices.

The decision will give producers significantly more leeway, though not unlimited power, to dictate retail prices and to restrict the flexibility of discounters.

Five justices said the new rule could, in some instances, lead to more competition and better service. But four dissenting justices agreed with the submission of 37 states and consumer groups that the abandonment of the old rule would lead to significantly higher prices and less competition for consumer and other goods.

The court struck down the 96-year-old rule that resale price maintenance agreements were an automatic, or per se, violation of the Sherman Antitrust Act. In its place, the court instructed judges considering such agreements for possible antitrust violations to apply a case-by-case approach, known as a “rule of reason,” to assess their impact on competition.

The decision was the latest in a string of opinions this term to overturn Supreme Court precedents. It marked the latest in a line of Supreme Court victories for big businesses and antitrust defendants. And it was the latest of the court’s antitrust decisions in recent years to reject rules that had prohibited various marketing agreements between companies.

The Bush administration, along with economists of the Chicago school, had argued that the blanket prohibition against resale price maintenance agreements was archaic and counterproductive because, they said, some resale price agreements actually promote competition.

For example, they said, such agreements can make it easier for a new producer by assuring retailers that they will be able to recoup their investments in helping to market the product. And they said some distributors could be unfairly harmed by others — like Internet-based retailers — that could offer discounts because they would not be incurring the expenses of providing product demonstrations and other specialized consumer services.

A majority of the court agreed that the flat ban on price agreements discouraged these and other marketing practices that could be helpful to competition.

“In sum, it is a flawed antitrust doctrine that serves the interests of lawyers — by creating legal distinctions that operate as traps for the unaware — more than the interests of consumers — by requiring manufacturers to choose second-best options to achieve sound business objectives,” the court said in an opinion by Justice Anthony M. Kennedy and signed by Chief Justice John G. Roberts Jr. and Justices Antonin Scalia, Clarence Thomas and Samuel A. Alito Jr.

But in his dissent, portions of which he read from the bench, Justice Stephen G. Breyer said there was no compelling reason to overturn a century’s worth of Supreme Court decisions that had affirmed the prohibition on resale maintenance agreements.

“The only safe predictions to make about today’s decision are that it will likely raise the price of goods at retail and that it will create considerable legal turbulence as lower courts seek to develop workable principles,” he wrote. “I do not believe that the majority has shown new or changed conditions sufficient to warrant overruling a decision of such long standing.”

During the period from 1937 to 1975 when Congress allowed the states to adopt laws that permitted retail price fixing, economists estimated that such agreements covered about 10 percent of consumer good purchases. In today’s dollars, Justice Breyer estimated that the agreements translate to a higher annual average bill for a family of four of roughly $750 to $1,000.

The dissent was signed by Justices John Paul Stevens, David H. Souter and Ruth Bader Ginsburg.

The case involved an appeal of a judgment of $1.2 million against Leegin Creative Leather Products Inc. after it cut off Kay’s Kloset, a suburban Dallas shop, for refusing to honor Leegin’s no-discount policy. The judgment was automatically tripled under antitrust law.

Leegin’s marketing strategy for finding a niche in the highly competitive world of small leather goods was to sell its “Brighton” line of fashion accessories through small boutiques that could offer personalized service. Retailers were required to accept a no-discounting policy.

After the United States Court of Appeals for the Fifth Circuit, in New Orleans, upheld the judgment and said it was bound by Supreme Court precedent, Leegin took the case to the Supreme Court. Unless it is settled, the case, Leegin Creative Leather Products v. PSK Inc., will now be sent down to a lower court to apply the new standard.

The Supreme Court adopted the flat ban on resale price agreements between manufacturers and retailers in 1911, when it founded that the Dr. Miles Medical Company had violated the Sherman act. The company had sought to sell medicine only to distributors who agreed to resell them at set prices. The court said such agreements benefit only the distributors, not consumers, and set a rule making such agreements unlawful.

Justice Kennedy said today that the court was not bound by the 1911 precedent because of the “widespread agreement” among economists that resale price maintenance agreements can promote competition.

“Vertical agreements establishing minimum resale prices can have either pro-competitive or anticompetitive effects, depending upon the circumstances in which they are formed,” he wrote.

But Justice Breyer said in his dissent that the court had failed to justify the overturning of the rule, or that there was significant evidence to show that price agreements would often benefit consumers. He said courts would have a difficult time sorting out the price agreements that help consumers from those that harm them.

“The upshot is, as many economists suggest, sometimes resale price maintenance can prove harmful, sometimes it can bring benefits,” he wrote. “But before concluding that courts should consequently apply a rule of reason, I would ask such questions as, how often are harms or benefits likely to occur? How easy is it to separate the beneficial sheep from the antitrust goats?”

“My own answer,” he concluded, “is not very easily.”

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[Edi]

And the Bush Supreme Court again demonstrates that its conservative members are on the payroll of big business and have no interest in anything but pushing their own ideological beliefs.

The 1911 ruling is a blatant statement of the obvious and the reasons why they overturned it is pure bullshit.

[Lord Zentei]

Representing the Bush administration, Deputy Solicitor General Thomas Hungar said there is a consensus among economists that such agreements are not necessarily anti-competitive.

"Not neccesarily anti-competitive". The emphasis should be on "not neccesarily". As in, "potentially".

This descision is fucking stupid.

[brianeyci]

Well well well price floors are not necessarily anti-competitive eh?

I expect the same economists to turn around and say the minimum wage, aka price floor, is anti-competitive. Fucking dicks.

[Invictus ChiKen]

I gotta ask.

What are they gonna do when people get to the point they can't buy the latest shiny thing?

[atg]

What are they gonna do when people get to the point they can't buy the latest shiny thing?

Complain that someone, somehow, is causing people to stop buying their products through shady means, ala RIAA. Because, of course, it couldn't be their fault in any way. No, its gotta be those damm commies, or hackers, or pirates, or other generic third party that can be conveniently blamed.

[Patrick Degan]

And here we have our economic system's Plessy decision.

[Darth Wong]

Wow. What a surprise. Yet another case of "alarmist" liberals being 100% correct about the Bush Administration's agenda. Just as we've been consistently right since 2000, yet the conservatives still think we must be wrong because we're "extremist".

[Darth Servo]

Leegin says that by maintaining price consistency among its retailers, stores can offer improved customer service.

HOW?

The extra service, says the manufacturer, enables smaller stores to compete against rival brands sold by bigger cut-rate competitors.

And the lower prices DON'T?!?

Representing the Bush administration, Deputy Solicitor General Thomas Hungar said there is a consensus among economists that such agreements are not necessarily anti-competitive.

Oh wow. The Bush cocksuckers all agree. Well call ME convinced.</sarcasm>

Consumers "want other things besides cheap," said Justice Antonin Scalia.

Yes, and thats what Neiman Marcus, Saks Fifth Avenue and Rodeo Drive are for.

Some consumers prefer more service at a higher price, said Scalia,

Yes and some want CHEAP. This shithead is really starting to remind me of Marie Antoinette. Hey Scalia, why don't you just come out and tell the masses they can eat cake?

and the fact that such price floor agreements might raise prices "does not prove anything."

They DO raise prices. Thats the whole fucking point you dipshit. How did such a moron ever get through law school?

[bilateralrope]

Can someone tell me while a manufacturer might want to set a floor retail price ?

[phongn]

Let me make it clear that I don't support this ruling - however, I just wanted to address a couple points by Darth Servo.

Leegin says that by maintaining price consistency among its retailers, stores can offer improved customer service.

HOW?

With an increased minimum price, the retailer presumably would be able to spend more money on customer service if they chose to.

The extra service, says the manufacturer, enables smaller stores to compete against rival brands sold by bigger cut-rate competitors.

And the lower prices DON'T?!?

The argument is that the big-box stores can negotiate volume prices far below what a smaller retailer could. Therefore, a higher minimum price might permit a small store to survive. A small store cannot afford to try and underprice one of the big ones.

---

Can someone tell me while a manufacturer might want to set a floor retail price ?

Avoid a price war, keep retail prices hire to change perception of a good, etc.

[General Zod]

The argument is that the big-box stores can negotiate volume prices far below what a smaller retailer could. Therefore, a higher minimum price might permit a small store to survive. A small store cannot afford to try and underprice one of the big ones.

Wal-Mart has a demonstrated history of running smaller stores out of business by setting prices so low so that other stores in a neighborhood can't compete. That's the one instance that I can think of that this brings to mind.

[Pelranius]

I hope this fucks Wal Mart up and sideways. I certainly won't complain about that.

Of course, the question is how many of Wal Mart's suppliers would dare to set floor prices?

[Flagg]

And what is the fucking legal basis for this decision, exactly? Where in the US Constitution does it prohibit congress from enacting such measures?

[The Duchess of Zeon]

And what is the fucking legal basis for this decision, exactly? Where in the US Constitution does it prohibit congress from enacting such measures?

All powers which are not explicitly stated in the constitution as federal are automatically reserved for the states or the people, and the judges reserved that the Interstate Commerce Clause didn't cover this, apparently.

[Flagg]

And what is the fucking legal basis for this decision, exactly? Where in the US Constitution does it prohibit congress from enacting such measures?

All powers which are not explicitly stated in the constitution as federal are automatically reserved for the states or the people, and the judges reserved that the Interstate Commerce Clause didn't cover this, apparently.

Well, I'm glad they're consistent on that when it comes to ant-drug legislation. Oh, wait...

[ArchMage]

I hope this fucks Wal Mart up and sideways. I certainly won't complain about that.

Of course, the question is how many of Wal Mart's suppliers would dare to set floor prices?

It depends if they want WalMart to continue to buy their stuff.

[Adrian Laguna]

I hope this fucks Wal Mart up and sideways. I certainly won't complain about that.

Of course, the question is how many of Wal Mart's suppliers would dare to set floor prices?

It depends if they want WalMart to continue to buy their stuff.

They could always gang-up and set floor prices as one.

[Flagg]

I hope this fucks Wal Mart up and sideways. I certainly won't complain about that.

Of course, the question is how many of Wal Mart's suppliers would dare to set floor prices?

It depends if they want WalMart to continue to buy their stuff.

They could always gang-up and set floor prices as one.

Wouldn't that constitute price fixing?

[ArchMage]

i supose they could. but outside of the internet, in real retail, people want to make money. and if you are in the business of doing that, you make profitable business agreements with retailers to do so.


The companies that make stuff that walmart sells enjoy the business relationships they have or they would not continue to have those relationships. Of course, that is unless you believe all the propaganda...

[Patrick Degan]

And what is the fucking legal basis for this decision, exactly? Where in the US Constitution does it prohibit congress from enacting such measures?

All powers which are not explicitly stated in the constitution as federal are automatically reserved for the states or the people, and the judges reserved that the Interstate Commerce Clause didn't cover this, apparently.

I'm afraid you misread constitutional theory. Congress is not restricted from exercising powers which aren't explicitly stated, only those which are expressly prohibited.

[The Duchess of Zeon]

I'm afraid you misread constitutional theory. Congress is not restricted from exercising powers which aren't explicitly stated, only those which are expressly prohibited.

How do you explain the Tenth Amendment, then?

"The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved for the States respectively, or to the people."

It is assumed therefore that powers not delegated to the United States by the Constitution are reserved for the States. This is considered a legal truism in the United States.

[Patrick Degan]

I'm afraid you misread constitutional theory. Congress is not restricted from exercising powers which aren't explicitly stated, only those which are expressly prohibited.

How do you explain the Tenth Amendment, then?

"The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved for the States respectively, or to the people."

It is assumed therefore that powers not delegated to the United States by the Constitution are reserved for the States. This is considered a legal truism in the United States.

Which invalidates the original point how, exactly? You have not demonstrated just how the powers under the IC clause aren't "delegated", nor how they are prohibited —particularly in light of the clause empowering Congress "to make all necessary and proper laws for the execution of the foregoing powers". Your argument also ignores the fact that there are a specific set of forbidden powers enumerated in the Constitution, of which the powers you claim not to legitimately exist are decidedly not listed in that section of the document.

To reiterate: Congress is not restricted from exercising powers which aren't explicitly stated, only those which are expressly prohibited. That also is a legal truism in the United States.