Abstract

In Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877 (2007), the Supreme Court reversed Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373 (1911), which had banned minimum resale price maintenance (“minimum RPM”) as unlawful per se. For many, Leegin was a straightforward exercise of the Court’s long-recognized authority, implied by the Sherman Act’s rule of reason, to adjust antitrust doctrine in light of new economic learning. In particular, Leegin invoked the teachings of transaction cost economics (“TCE”), which holds that many non-standard agreements, including minimum RPM, are voluntary mechanisms that reduce the transaction costs that manufacturers incur when they rely upon independent dealers to distribute their goods. For instance, proponents of TCE, including Nobel Laureate Oliver Williamson, have asserted that minimum RPM can prevent free riding and ensure that dealers engage in an optimal amount and type of promotion. Invoking these and other possible benefits, the Leegin Court ruled that minimum RPM could produce “redeeming virtues” and thus did not satisfy the normal test for per se condemnation. In so doing, the Court adhered to the rule of reason’s requirement, articulated in Standard Oil Co. v. United States, 221 U.S. 1 (1911), that courts adjust antitrust doctrine when “more accurate economic conceptions” undermine previous decisions.

However, some have chosen to resist Leegin to the utmost. In particular, scholars, enforcement officials, and forty-one state attorneys general have sought to convince Congress and/or state legislatures to reinstate the per se rule by statute, for instance, and have contended that minimum RPM is unlawful per se under existing state antitrust laws. Many have also argued that, pending Leegin’s reversal, courts should subject minimum RPM to a “quick look” rule of reason, whereby the practice is presumed unlawful, immediately casting upon the defendant a burden of justification. Perhaps because of these efforts, legislation that would have reversed Leegin and codified Dr. Miles was proposed by Congress in 2011.

There is, of course, a long history of Congress overriding straightforward applications of the Sherman Act, sometimes at the behest of special interest groups that benefit from such exemptions. However, those who resist Leegin and seek to reinstate the per se rule against minimum RPM do not rely upon the power of legislatures to pass wealth-reducing legislation. Instead they argue that Leegin “got it wrong” when applying basic antitrust principles animating the rule of reason. For these advocates, then, a new per se ban on minimum RPM would merely undo Leegin’s mistake.

This article refutes the various arguments that Leegin’s detractors have made for reinstating Dr. Miles and/or “quick look” treatment. TCE, it is shown, undermined the central premise of the per se rule, namely, that minimum RPM is economically indistinguishable from a naked horizontal cartel between dealers. This realization casts upon those who resist Leegin a burden of articulating and supporting an alternative rationale for per se condemnation. As the Article shows, Leegin’s detractors have not met this burden. Instead, their various arguments contradict TCE, basic antitrust principles, or both. Taken to their logical conclusion, these arguments would require the Court to abandon decades of jurisprudence based upon TCE and/or the long-standing test for per se illegality. However, Leegin’s detractors have offered no argument in favor of such radical changes.

Thus, far from correcting Leegin’s purported antitrust error, reimposition of the ban on minimum RPM would constitute a rejection of the “more accurate economic conceptions” that should drive antitrust doctrine and thus be akin to a welfare-reducing special interest exemption from the Sherman Act. Such exemptions are read narrowly, to minimize the impact of special interest influence in the legislative process. Indeed, even if Congress or the states do codify a per se ban on minimum RPM, state and federal courts will have various doctrinal strategies at their disposal to minimize the wealth-reducing impact of such legislation by, for instance, reading any amendment narrowly and restricting the class of plaintiffs who can challenge such agreements. As a result, resistance to Leegin may be more than merely misguided; it may also be futile

Document Type

Article

Publication Date

Summer 2013

Publication Information

40 Florida State University Law Review 908-970 (2013)

Download

Share

COinS