Prohibition on Resale Price Maintenance Stuck Down

In Leegin Creative Leather Products, Inc. v. PSKS, Inc. DBA Kays Kloset … KaysShoes, The U.S. Supreme Court stuck down an antitrust rule that made resale price maintenance requirements by manufacturers and distributors illegal. This has long been a point of dispute between manufacturers who want to maintain higher prices and profit margins and who assert that retailers who sell below the manufacturers suggested prices, such as discounters, erode the quality image of their brands. One of the relevant economic issues is whether there can be pro-competitive effects from resale price maintenance and vertical price agreements in general. In a 5-4 decision the Supreme Court instructed courts to follow the Rule of Reason and examine antitrust implications of a given pricing requirement on a case-by-case basis. Economists have long debated whether having a per se rule against resale price maintenance is economically correct. Some have debated how minimum resale price maintenance can actually stimulate competition among different brands.

The Court stated that a Per Se rule, while administratively convenient, may not be economically correct in all cases. In reaching this conclusion the court indicated that the facts and circumstances of each case need to be examined in the context of any other anticompetitive conduct so as to make a determination on a case-by-case basis. The court left plenty of room for parties in such suits to present their own economic expert testimony to argue for or against the competitive effects of such vertical price agreements.