- The Washington Times - Monday, March 26, 2007

ASSOCIATED PRESS

Consumer protection collided with modern economic theory yesterday as the Supreme Court wrestled with a 96-year-old standard designed to promote competition.

At issue is a 1911 Supreme Court ruling that is based on an assumption that any agreement between a manufacturer and stores to set minimum retail prices for products is almost always anti-competitive.

Not so, said Washington lawyer Theodore Olson, representing a manufacturer of women’s accessories.

The idea that such agreements are automatically illegal is “outdated, misguided” and the restriction itself is anti-competitive, Mr. Olson argued.

The case stands at the intersection of discount chains and niche retailers such as Kay’s Kloset in Texas, which lowered its prices below an agreed-upon minimum with manufacturer Leegin Creative Leather Products Inc. Leegin cut off its shipments to the family-owned business when Phil and Kay Smith refused to raise their prices.

Leegin says that by maintaining price consistency among its retailers, stores can offer improved customer service. The extra service, says the manufacturer, enables smaller stores to compete against rival brands sold by cut-rate competitors.

Representing the Bush administration, Deputy Solicitor General Thomas Hungar said that economists say that such agreements are not always anti-competitive.

The Smiths successfully sued Leegin, and the 5th U.S. Circuit Court of Appeals affirmed the jury’s finding that Leegin and its retailers agreed to fix retail prices on the manufacturer’s Brighton brand. If Leegin can get the 1911 Supreme Court ruling overturned, it would be much more difficult for the Smiths to prevail because they would have to show that the Leegin agreement is anti-competitive.

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