Background on: Leegin Creative Leather Products, Inc. v. PSKS, Inc.

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Mar 27, 2007

This backgrounder was originally published on January 16, 2007, updated on March 27, 2007, and further updated on June 28, 2007.

Issue: On December 7, 2006 the United States Supreme Court granted certiorari to hear the case of Leegin Creative Leather Products, Inc. v. PSKS, Inc. This case involves the question of whether vertical minimum resale price maintenance agreements will continue to be deemed per se illegal under  1 of the Sherman Antitrust Act.

Factual and Procedural Background: The Petitioner, Leegin, a clothing manufacturer, entered into an agreement with PSKS pursuant to which PSKS would sell a women’s clothing line manufactured by Leegin. Leegin instituted a policy stating that it would only do business with retailers that would apply Leegin’s suggested retail prices, and would not discount items contrary to that policy. When it discovered that PSKS had, in fact, violated this policy, it discontinued shipments of the products to PSKS. PSKS subsequently brought an action under  1 of the Sherman Antitrust Act alleging that Leegin entered into illegal agreements with retailers to fix prices, and seeking damages. The jury in the District Court found for PSKS and awarded damages.

On Appeal: The Fifth Circuit subsequently affirmed the trial court’s decision and affirmed that the per se rule applicable to cases involving vertical price fixing applied to this case. Beginning with the decision of Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373 (1911), the Supreme Court has held that vertical resale price maintenance agreements shall be deemed per se illegal under 1 of the Sherman Antitrust Act. The Fifth Circuit held that the Supreme Court has consistently applied the per se rule to cases involving vertical price-fixing arrangements, and that they were “bound” by the Supreme Court”s holding in Dr. Miles. PSKS, Inc. v. Leegin Creative Leather Products, Inc., 171 Fed. Appx. 464 (5th Cir. 2006). Leegin petitioned the Supreme Court to review this case arguing that the Supreme Court should overrule Dr. Miles, arguing that the per se rule “squarely conflicts with accumulated economic knowledge which recognizes that vertical minimum resale price maintenance can have significant procompetitive effects,” and further arguing that the per se rule is not supported by the Court’s recent economic approach to antitrust. Petitioner’s Brief at 2 (emphasis in original). The parties and several amici curiae filed briefs. The Court heard oral argument in this case on March 26, 2007. Decision: The Court issued its opinion on June 28, 2007. The Court ruled for the petitioner, overruled the Dr. Miles decision, and held that the rule of reason was the appropriate standard for evaluating vertical price restraints.

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