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NAW Legal Advisory -- 07/26/07

Supreme Court approves greater supplier control over minimum resale pricing


In a sharply divided 5-4 decision, the U.S. Supreme Court has overruled its own 1911 decision in the Dr. Miles case and held that a manufacturer does not necessarily violate the antitrust laws by establishing a minimum resale price for its products and enforcing the policy by terminating a wholesaler-distributor or other reseller who sells below the minimum price. (Leegin Creative Products, Inc. v. PSKS, Inc. d/b/a Kay’s Kloset…Kay’s Shoes, Docket No. 06-480)

The Court ruled that “vertical agreements establishing minimum resale prices can have either procompetitive or anticompetitive effects, depending upon the circumstances in which they are formed.”

Thus, these agreements should no longer be per se (or automatically) unlawful, as previously ruled in the Dr. Miles case. Rather, courts should apply the “rule of reason” standard to decide, on a case-by-case basis, whether a particular vertical price restraint violates antitrust law. It should be emphasized that the Court’s decision still leaves vertical minimum resale price restraints open to antitrust challenge.

The dissenting opinion authored by Justice Breyer predicted that the Court’s ruling “will likely raise the price of goods at retail and that it will create considerable legal turbulence” as the trial courts gain experience in examining the effects of these restraints on competition, using the “rule of reason” standard.

To view the rest of the legal advisory, please click here.

The Court’s decision may be viewed here.