U.S. Supreme Court Asked to Review Interpretation of Leegin: Will Consumers Benefit the Second Time Around?

In Leegin Creative Prods., Inc. v. PSKS, Inc., a 5-4 decision it issued three years ago,  the Supreme Court  overturned the 100 year-old decision Dr. Miles Medical Co. v. John D. Park & Sons Co., which held that it was per se unlawful for manufacturers and distributors to agree on minimum retail prices under federal antitrust law.  In Leegin, the Supreme Court ruled that manufacturers’ agreements with resellers that establish minimum resale prices should be evaluated under the rule of reason which permits the agreements as long as they encourage competition.  Some have argued that applying the rule of reason to these agreements has effectively made them lawful.  In his Leegin dissent, Justice Breyer estimated that the Court’s decision would result in retail prices rising by “roughly $750 to $1,000 annually for an American family of four.”

In the wake of the Leegin decision, consumer advocates have noticed the increased use of these types of agreements and that consumers have been negatively impacted, especially in the markets for consumer electronics, baby goods, home furnishings, and pet food.

On November 15, 2010, the clothing boutique Kay’s Kloset, the losing party in the Leegin decision, filed a petition with the Supreme Court asking the Court to revisit that case.  Kay’s Kloset argues that the U.S. Court of Appeals for the Fifth Circuit improperly applied the rule of reason in dismissing  its complaint on remand.  Counsel for Kay’s Kloset includes Einer Elhauge, an antitrust expert and Harvard law school professor who, according to the Wall Street Journal, accepted the case on a pro bono basis because he is so concerned with the direction many lower court decisions have taken in applying the Supreme Court’s Leegin decision.

Kay’s Kloset argues that the lower courts have read Leegin in such a way as to allow manufactures to freely fix prices.  Kay’s Kloset contends that the Fifth Circuit’s decision created conflicts among the circuits over issues of market definition, market power, rule of reason review, and horizontal agreements.  According to the petition, these conflicts “sweep beyond vertical price restraints to disrupt antitrust enforcement on mergers, cartels, monopolization, and all other areas of antitrust.” Kay’s Kloset asserts that the petition raises the fundamental question, “will modern antitrust jurisprudence live up to its aspiration of replacing arid formalisms with sound economics, or will it have the more dismal legacy of replacing pro-plaintiff formalisms with new pro-defendant formalisms equally lacking in economic merit?”   If the Supreme Court decides to review the Fifth Circuit’s decision, it will undoubtedly impact consumers for years to come.