This is an easy issue to intertwine with other just as important, but distinctly different issues, as raised by Currawong above and others. The issue of vertical pricing maintanence is a free market competition issue, which does not separately mean that the survival of brick and mortar businesses is not a legitimate concern.
The bottom line for Head-Fiers, is that this is an issue that may be costing you personally hundreds or even thousands of dollars. Its up to you if you want to ignore it or collectively examine it further.
Here is some additional information on the Supreme Court Decision which hopefully is an accurate representation of the facts. Hopefully someone who is knowledgeable in this area can weigh in on it.
Vertical Price Fixing No Longer Illegal Per SeJune 29, 2007
In Leegin Creative Leather Products v. PSKS, Inc., the Supreme Court, rejecting the 96 year-old Dr. Miles precedent, held that an agreement between a manufacturer and a retailer to set the price that the retailer will charge (called vertical resale price maintenance) should not be deemed per se illegal under Section 1 of the Sherman Act. Now, “Vertical price restraints are to be judged according to the rule of reason.” Leegin was the last of four antitrust decisions in the 2006-07 Supreme Court term, all of which were decided in favor of the defendant(s).
Background
Leegin adopted a policy that it would do business only with retailers that followed its suggested retail prices. When Leegin discovered that PSKS was discounting its products, it suspended product shipments to PSKS, who then filed suit, alleging that Leegin’s pricing policy was a per se illegal vertical resale price maintenance agreement.
At trial, Leegin did not dispute that it had entered into vertical resale price maintenance agreements with its retailers, but instead contended that such agreements should be analyzed under the antitrust rule of reason. The District Court excluded Leegin’s proffered evidence that its policy was procompetitive. Without that evidence, the jury found Leegin’s policy illegal per se, and awarded PSKS $3.6 million in damages.
On appeal, the Fifth Circuit, though sympathetic to Leegin’s claim that the program enhanced competition, rejected it as a matter of law. The Circuit Court felt bound by the Supreme Court’s 1911 Dr. Miles decision, which held that minimum resale price maintenance agreements between manufacturers and retailers are per se illegal under the Sherman Act.
The Decision
In a 5-4 decision by Justice Kennedy, the Supreme Court overruled Dr. Miles and held that all vertical price restraints challenged under Section 1 of the Sherman Act – including agreements directly setting or establishing a minimum resale price – will now be analyzed under the rule of reason. The rule of reason, it said, is “the usual standard applied to determine if there is a violation of [Sherman Act] § 1” and per se illegality should be reserved for restraints that have “manifestly anticompetitive effects” and “lack any redeeming virtue.”
Not so with vertical resale price maintenance, the Court found, remarking that “economics literature is replete with procompetitive justifications for a manufacturer’s use of resale price maintenance.” As examples, the Court noted that resale price maintenance can encourage retailers to invest in providing services to consumers or in promotional efforts that increase their manufacturer’s sales. Resale price maintenance can also encourage entry by allowing manufacturers to induce “competent and aggressive” retailers to carry their new products. These examples closely echoed the justifications that Leegin attempted to offer for its own resale price maintenance program in the lower courts.
At the same time, the Court stressed that resale price maintenance agreements may have anticompetitive effects, and that such agreements should continue to be found illegal under the rule of reason when those anticompetitive effects outweigh the procompetitive benefits. Allowing manufacturers to dictate resale prices can facilitate a price-fixing agreement at the manufacturer level, by giving manufacturers an easy tool to detect firms that cheat on the agreement. Similarly, vertical price restraints can also assist a price-fixing agreement among competitive retailers. Finally, by creating large profit margins to participating retailers, vertical price restraints can also be used by a dominant firm to encourage retailers not to carry competitive products.
Given this conflict between the anticompetitive and procompetitive potential of vertical price restraints, the Court concluded that “It cannot be stated with any degree of confidence that resale price maintenance always or almost always tends to restrict competition and decrease output.” Thus, vertical resale price maintenance will be analyzed under the rule of reason.
The Court identified three factors that lower courts should take into account in determining whether a vertical price restraint is likely to have net procompetitive effects. First, they should consider the number of manufacturers in a given industry that use resale price maintenance. If a minority in the industry adopt the practice, then the restraint is less likely to be anticompetitive because consumers can seek out alternative manufacturers and retailers. Second, courts should consider the source of the price restraint; if the retailers were the impetus for the restraint, then there is a greater likelihood that the restraint is anticompetitive. Finally, courts should consider whether any of the involved manufacturers or retailers have market power, as the absence of market power at either level allows manufacturers to sell through alternative distribution channels and makes it less likely that a manufacturer could prevent its competitors’ products from reaching the market.
The Court also rejected the argument that stare decisis required upholding the Dr. Miles rule, regardless of its economic correctness. The Sherman Act, it noted, has always been treated as a common law statute and, therefore, antitrust law should “evolve to meet the dynamics of present economic conditions.”
