Supreme Court tosses out century-old antitrust rule, remaking the law of resale price maintenance

By Lori Irish Bauman
June 28, 2007

In an extraordinary repudiation of 96-year-old precedent, the Supreme Court today swept away the per se prohibition on resale price maintenance.  Since the 1911 case of Dr. Miles Medical Co. v. John D. Park & Sons Co.,  it has been illegal under the Sherman Act for manufacturers to dictate the prices at which distributors and retailers re-sell products.  In the decades since, that case has played a major role in how the retail segment of the economy has been organized.  The court's 5-4 opinion in Leegin Creative Leather Products, Inc. v. PSKS, Inc., now firmly rejects the rule of Dr. Miles, and allows manufacturers and distributors/retailers to agree on resale prices, subject only to the rule of reason that applies to all other vertical restraints of trade.

The case presents an interesting study in how courts employ economics in modern antitrust analysis.  According to the majority opinion written by Justice Anthony Kennedy, (1) Dr. Miles was based on flawed reasoning, including that resale price maintenance (RPM) violated the antiquated common-law rule against restraints on alienation, (2) many economists have criticized the prohibition against RPM as dampening pro-competitive activity, and (3) the Sherman Act is a "common law statute," which means that courts interpreting it are less constrained by the doctrine of stare decisis.

The dissent by Justice Stephen Breyer responds that (1) economists are not wholly in agreement that barring RPM is harmful to competition, and in any event the job of the court is not to count noses among economists, (2) Congress has had nearly 100 years to overturn Dr. Miles and has chosen not to do so, and (3) the prohibition against RPM is so firmly entrenched in our economy that, even if it the Sherman Act is a common law statute, stare decisis dictates that the court not undo the rule.

See our earlier coverage of the case here.

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