Will Congress Overrule Leegin?

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Max Huffman, Nov 23, 2007

Senate Bill 2261, introduced on October 30, 2007 aims to overrule the U.S. Supreme Court’s holding in Leegin Creative Leather Products Inc. v. PSKS Inc. The short statutory paragraph compares closely with language suggested in a letter to the Senate Judiciary Committee by FTC Commissioner Pamela Jones Harbour, a vocal opponent of applying the rule of reason to resale price maintenance claims. One of two Democrats on the Commission (and with Commissioner Leibowitz one of two dissenters from the Commission’s decision to join the U.S. Government’s brief in Leegin), Commissioner Harbour has argued that reversing the rule from Dr. Miles Medical Co. v. John D. Park & Sons Co. will eliminate discounting.

S. 2261 would add the following language to Sherman Act Section One: “Any contract, combination, conspiracy or agreement setting a minimum price below which a product or service cannot be sold by a retailer, wholesaler, or distributor shall violate this Act.”

The “findings” section of S. 2261 also reflects Commissioner Harbour’s comments, relying primarily on the experience of the “Fair Trade” laws – which permitted states legislatively to overrule the Dr. Miles rule and permit resale price maintenance – to support the conclusion that Leegin was based on a faulty understanding of the economics of retail pricing.

This anti-Leegin bill is misguided. It ignores strong evidence of actual discounting practices that take place with the approval of manufacturers, who even under the reign of Dr. Miles had tremendous power to decide what prices would be charged for their products. It restrains antitrust courts’ flexibility to adjust to changing business methods through the common-law process, and could initiate an unfortunate trend of changing the simple Sherman One prohibition into a mish-mash of targeted regulation. Moreover, it ignores lessons of the harms of populist legislation in a regulatory scheme that is directed toward economic efficiency.

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Huffman (Nov. 2007)