Leegin Creative Leather Products: the United States Supreme Court's Le(e)g-in the Door of Reason

Date01 January 2007
Author
Leegin Creative Leather Products:
the United States Supreme Court’s
Le(e)g-in the Door of Reason
DANIEL N
´OVY*
Introduction
In Leegin Creative Leather Products, Inc vPSKS, Inc, dba Kay’s Kloset …
Kay’s Shoes,1the United States Supreme Court held that vertical minimum
price-f‌ixing (hereinafter referred to as “RPM”) should no longer be judged
by the per se rule of illegality but it should instead be evaluated under the
rule of reason. In doing so, the Supreme Court overruled its decision in Dr
Miles Medical Co v John D Park & Sons Co.2
Describing and analysing the decision in Leegin and the nature and
effects of the practice of imposing RPM, this note attempts to argue that the
Court reached a correct and welfare-enhancing conclusion.
The Case
The case arose as Leegin Creative Leather Products, Inc (hereinafter referred
to as “Leegin”), a designer, manufacturer, and distributor of leather goods
and accessories, ceased selling its products to an apparel store operated
by PSKS Inc (hereinafter “PSKS”) after the store had not complied with
Leegin’s pricing, promotion, and marketing strategies. The named strategies
in effect comprised of, inter alia, refusing to sell to retailers that discounted
certain Leegin’s goods below suggested prices, and pledges, by retailers, to
sell at Leegin’s suggested prices.3
The United States District Court for the Eastern District of Texas, where
PSKS sued Leegin, relied on Dr Miles,4in which the Supreme Court had
“established that it is per se illegal under section 1 of the Sherman Act, 15
* Daniel N
´ovy LL.B. (Dubl), Mgr. (University of West Bohemia). The opinions expressed
herein are those of the author.
1Leegin Creative Leather Products, Inc vPSKS, Inc, dba Kay’s Kloset … Kay’s Shoes,
551 US (2007), 127 S Ct 2705 (28 June 2007) [hereinafter Leegin].
2220 US 373 (1911) (hereinafter Dr Miles)
3Leegin, supra, note 1, pp 2–4. The products in question were sold under the brand
name Brighton. Ibid
4Supra, note 2
USC section 1, for a manufacturer to agree with its distributor to set the
minimum price the distributor can charge for the manufacturer’s goods”.5
The Court of Appeals for the Fifth Circuit affirmed,6noting that the Dr
Miles per se rule had been “consistently applied”7by the Supreme Court to
vertical minimum price-f‌ixing.
In determining that RPM agreements should not continue to be treated
as per se unlawful, the Supreme Court, by a 5–4 decision,8reversed the
judgment of the Court of Appeals. Relying on the Court’s reasoning in
“more recent jurisprudence [which] has rejected the rationales on which Dr
Miles was based … [and] formulate[d] antitrust principles in accordance
with the appreciated differences in economic effect between vertical and
horizontal agreements, differences the Dr Miles Court failed to consider”,9
Justice Kennedy noted that “[t]he reasons upon which Dr Miles relied do
not justify a per se rule”.10
The Restraints
Vertical Restraints
Vertical restraints refer to restrictions, which a f‌irm at one stage in a chain
of transactions (usually the seller) imposes upon the conduct of firms at
another stage (distributors or, generally, the customers of the seller). Beside
prescribing prices at which a dealer may resell the upstream f‌irm’s product
(pertinent to the present discussion), these restraints may include, inter alia,
the limiting of the geographical territory in which a dealer may resell what
it has purchased (territorial restrictions) or inducing the buyer to deal only
in the seller’s product (exclusive dealing).11
5Leegin, supra note 1, p 1
6171 Fed Appx 464 (2006) (per curiam)
7Ibid, p 466. See Leegin, supra note 1, p 4
8Kennedy J delivered the opinion, in which Roberts CJ and Scalia, Thomas, and Alito,
JJ joined. A dissenting opinion was f‌iled by Breyer J; Stevens, Souter, and Ginsburg,
JJ joined.
9See supra note 28 and text thereto. Leegin, supra note 1, para 7–9 (citing, inter alia,
Continental TV, Inc et al v GTE Sylvania Inc, 433 US 36 (1977) [hereinafter GTE
Sylvania], Business Electronics Corp vSharp Electronics Corp, 485 US 717 (1988)
[hereinafter Business Electronics]; Arizona vMaricopa County Medical Soc, 457 US
332 (1982) [hereinafter Maricopa County]).
10 Leegin, supra note 1, pp 8–9
11 See Scherer & Ross, Industrial Market Structure & Economic Performance, (3rd ed)
(New York: Houghton Mifflin Co, 1990) [hereinafter Scherer & Ross], at 541. See
also Areeda & Kaplow, Antitrust Analysis; Problems, Text, Cases (4th ed) (Little,
Brown & Co, 1988) [hereinafter Areeda & Kaplow], pp 400, 625–626.
106 DANIEL N
´OVY

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