The law since 1911 prohibiting price fixing was overruled, requiring rule of reason analysis. However, see below, where the real result was just to validate the price fixing. The discounter now loses, meaning the public pays more for the same goods, and the manufacturer/retailer can compete at a higher, fixed, price. Nice work if you can get it.
PS: the free market does not set the price. Where are the free market bandwagoneers when you need them?
Per Fifth Circuit Opinions with Commentary - August 24, 2010:
PSKS, Inc. v. Leegin Creative Leather Products, Inc. No. 09-40506
http://www.ca5.uscourts.gov/opinions/pub/09/09-40506-CV0.wpd.pdf
Before SMITH, GARZA, and CLEMENT, Circuit Judges.
AFFIRMED. (August 17, 2010).
Posted in Sherman Antitrust Act, Antitrust
Leegin Creative Leather Products, Inc. ("Leegin") manufactures and distributes a line of women's accessories under the "Brighton" brand, and utilizes a "dual distribution system" for those products. Leegin distributes "Brighton" products at the wholesale level to independent retailers, but also owns and controls over one hundred "Brighton" retail stores. Accordingly, Leegin is both the manufacturer and a distributor of the "Brighton" line. In an effort to haromonize and control the retail price of "Brighton" products, Leegin imposed a retail price maintenance policy. PSKS, Inc. ("PSKS"), a retailer of "Brighton" goods, violated that policy by selling the goods at a discount. When PSKS refused to cease selling at a discount Leegin stopped selling its goods to it. PSKS sued Leegin on alleged violations of § 1 of the Sherman Act, complaining that Leegin had entered vertical resale price maintenance ("RPM") agreements. A jury agreed and awarded PSKS damages of $3.975 million based on Leegin's per se violation. The Fifth Circuit, pursuant to Dr. Miles Med. Co. v. John D. Park & Sons Co., 220 U.S. 373 (1911), affirmed and the Supreme Court granted a writ of certiorari to reexamine the per se rule of Dr. Miles. The Supreme Court reversed the Fifth Circuit, and in the process overruled Dr. Miles in favor of holding that vertical price restraints, like vertical nonprice restraints, should be judged under the rule of reason. Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877 (2007). The matter was remanded to the Fifth Circuit which in turn remanded to the District Court where PSKS filed a second amended complaint to allege the independent retailers were involved in the enforcement of Leegin's RPM policy. PSKS asserted that the relevant product markets were: (1) the "retail market for Brighton's women's accessories" and (2) the "wholesale of brand-name women's accessories to independent retailers." Finding that PSKS had failed to plead a plausible relevant market as required under the rule of reason, the District Court granted Leegin's Rule 12(b)(6) motion to dismiss. PSKS appealed.
The Fifth Circuit affirmed on the dispositive finding that PSKS's claim failed as a matter of market definition. The Court emphasized that an antitrust claim for anticompetitive RPM "must plausibly define the relevant product and geographic markets." Further, the proposed product market must include all "commodities reasonably interchangeable by consumers for the same purposes." United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 395 (1956). As to the alternative product markets asserted by PSKS, the Court agreed that the District Court had properly rejected them because neither encompassed interchangeable substitute products. Additionally, the Court agreed that "Brighton" products did not constitute their own market or submarket. The proposed wholesale market definition was rife with insufficiencies as "wholesale sale" did not adequately define the relevant market inasmuch as a relevant market definition must focus on the product rather than its distribution level. Moreover, "women's accessories" was "too broad and vague a definition to constitute a market." As to anticompetitive harm, the Court observed that nothing in PSKS' complaint plausibly alleged a harm to interbrand competition. Finally, the Court found no error in the District Court's ruling that PSKS's horizontal-restraint claims could not be raised for the first time on remand. The District Court had properly concluded that such claims were barred by the mandate rule "which precludes litigation of waived issues on remand because they were never raised in district court."