- The Washington Times - Friday, June 29, 2007

The Supreme Court yesterday ruled that a manufacturer can tell a store owner that it can’t sell its goods for less than a minimum price, overturning nearly a century of antitrust law.

The court, in a 5-4 ruling, said price minimums are legal if they encourage competition and that the existing blanket ban on price fixing was too rigid and did not help competition.

“It is a flawed antitrust doctrine that serves the interests of lawyers — by creating legal distinctions that operate as traps for the unwary — more than the interests of consumers,” said Justice Anthony M. Kennedy in the majority opinion, joined by Justices Samuel A. Alito Jr., Clarence Thomas, Antonin Scalia and Chief Justice John G. Roberts Jr.

Allowing manufacturers control over minimum prices can increase competition between brands, the court said.

Justice Kennedy, in his opinion, said high-end and independent retailers were hurt under previous practice. High-end retailers, such as purse companies, build a reputation for their brand by providing extra service to customers, such as extra attention from salespeople in the store. Discount stores are able to sell the image of that brand without the cost, he argued.

Luxury brands thrive on being exclusive, meaning they wouldn’t want their products sitting on a 50 percent off shelf with the likes of generic products.

The ruling could have broad implications for shoppers as manufacturers establish if they are going to use price floors and to what extent they would enforce them with retailers.

“We do have empirical evidence, though, don’t we, that the decision of this case is going to be very significant in the sort of battle between Wal-Mart and the Main Street stores,” Justice David H. Souter said during oral arguments in March.

Justice Souter dissented with Justices Stephen G. Breyer, John Paul Stevens and Ruth Bader Ginsberg and said the ruling likely would result in higher prices.

“The only safe predictions to make about today’s decision are that it will likely raise the price of goods at retail and that it will create considerable legal turbulence as lower courts seek to develop workable principles,” Justice Breyer wrote in the dissent.

But the ruling dismissed concerns that manufacturers would abuse the system and set prices high.

“A manufacturer has no incentive to overcompensate retailers with unjustified margins,” Justice Kennedy wrote. “The retailers, not the manufacturer, gain from higher retail prices.”

The suit began in Georgetown, Texas. Kay’s Kloset, which is owned by PSKS Inc., had been selling Leegin Creative Leather goods in its stores. Leegin wanted to attract higher-end customers and began demanding retailers sell their goods above a set price. Kay’s Kloset didn’t obey and sold the goods for less.

Leegin pulled its products from Kay’s shelves.

The Fifth Circuit U.S. Court of Appeals initially ruled for Kay and had awarded the retailer damages of $3.6 million.

The decision means that now, in theory, a manufacturer can tell a discount retailer such as Wal-Mart Stores Inc., Target, Marshall’s or Burlington Coat Factory that it must sell its goods for at least a certain amount or stop selling it.

Economists say manufacturers would have no incentive to raise prices too high because they don’t want the store to stop selling the product and because other companies will manufacture similar products.

“Manufacturers and consumers have aligned interests here,” said economist Daniel Garrett, vice president of Cornerstone Research, a Menlo Park, Calif., a litigation research firm that assisted Leeginon this case. “They both don’t want retailers to make any more money than they have to to stay in business.”

He added that there is no way to know how heavily manufacturers will use their newfound authority to set minimum prices.

The American Antitrust Institute criticized the ruling, saying it will make it harder for the government to combat anti-competitive practices.

“This decision is a great disappointment and will lead to higher prices for consumers,” said Albert Foer, president of the institute.

The justices wrote that concerns about anti-competitive pricing would be determined on a case-by-case basis, leaving retailers or manufacturers to take such problems to court.

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