In a five-to-four decision, the U.S. Supreme Court overturned a 96-year-old ruling that prohibited manufacturers from dictating the minimum prices retailers must charge for their goods. The court found that minimum-pricing requirements by manufacturers do not constitute an automatic violation of the Sherman Antitrust Act. Instead, such agreements must be judged on a case-by-case basis according to a “rule of reason” to assess their impact on competition.
The Supreme Court case was brought by Leegin Creative Leather Products, manufacturer of the Brighton accessories brand. Leegin had refused to sell its goods to any retailer that did not comply with its pricing policy, which mostly bans discount prices for Brighton products.
But Kay’s Kloset, a boutique in Flower Mound, Texas, put all of its Brighton products on sale. Leegin stopped selling to Kay’s Kloset, the store’s business suffered, and Kay’s parent company, PSKS, sued.
A jury, finding that Leegin’s actions were automatically a violation of the Sherman Act, awarded Kay’s Kloset $1.2 million, damages that were tripled because the actions violated antitrust laws. The U.S. Court of Appeals for the 5th Circuit upheld the ruling.
Five Supreme Court justices said that the new rule could lead to more competition and better service. The principle that past decisions should be left alone “does not compel our continued adherence” in this instance, Justice Anthony Kennedy wrote in the majority opinion. Respected authorities in the economics literature suggest that the long-standing decision “is inappropriate, and there is now widespread agreement” that price floors can help promote competition, Kennedy added.
In his dissent, Justice Stephen Breyer wrote, “The only safe predictions to make about today’s decision are that it will likely raise the price of goods at retail.”
Manufacturers praised the Court’s decision, while opponents argued that it will serve to raise prices and prevent smaller and upstart retailers, including Internet merchants, from being able to compete with established ones. Some analysts said that while the ruling shifts the power to price goods to brands and away from retailers, Wal-Mart Stores and other large chains still retained a lot of clout in negotiating with manufacturers.
The decision was the fourth antitrust ruling by the court in recent months. In each case, the court sided with defendants that were sued for anticompetitive conduct.