Guiding the Lower Courts in the Aftermath of Leegin Creative Leather Products, Inc. v. PSKS, Inc.

• Author: Angela M. Opalenik
• Position: J.D. 2009
• Pages: 1201-1241

GUIDING THE LOWER COURTS IN THE AFTERMATH OF

LEEGIN CREATIVE LEATHER PRODUCTS, INC.

V. PSKS, INC.

ANGELA M. OPALEN IK*

I. INTRODUCTION

In the s ummer of 2007, the Suprem e Court overruled a ninety-six year

old precedent when it overruled the h istorical decision of Dr. Miles1 in

Leegin Creative Leather Products, Inc. v. PSKS, Inc.2 Relying on

economists’ views, the majority took a drastic measure and held that t he

per se illegality standard should no longer be implemented with respect to

minimum resale pri ce maintenanc e, but that the rule of reason should be

used.3

Part II examines the cases and leg islation that have form ed the

jurisprudence of an titrust law. Beginning in 1 911, Dr. Miles established

the per se illegality standard4 and Stand ard Oil Co. establish ed the rule of

reason.5 These rul es have been the b asis of antitru st law and Part II

analyzes how thes e rules have progres sed throughou t time.

Part I II examines Leegin itself and anal yzes t he majority and

dissenting opinion. It examines the facts o f the case and the case’s

progression throughout the trial and appellate stages. In Part IV both the

majority and the d issenting opinions are analyzed. The majority’s opinion

consists of three arguments. First, it critiques Dr. Miles and explains why

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Copyright © 2009, Angela M. Opalenik.

* J.D. 2009. The author wo uld like to thank Prof essor Regina Burch. With out her

wisdom and guidance, this p aper would not be possible.

1 Dr. Miles Med. Co. v. John D. Park & Sons Co., 220 U.S. 373 (1911).

2 127 S. Ct. 2705 (2007).

3 Id.; see also BLACK’S LAW DICTIONARY 1332 (8th ed. 200 4) (R esale price

maintenance is def ined as a “form of pric e-fixing in which a manufactur er forces or

persuades several d ifferent retailer s to sell the manufacturer’s product at th e same price,

thus preventing competition. Resale price maintenance [was] per se illeg al under antitrus t

law. But a manufactur er [was] permitted to suggest a retai l price as long as i t [did] not

compel retailers at that pric e.”).

4 Dr. Miles, 220 U.S. at 408 .

5 Standard Oil Co. of N.J. v. Un ited States, 221 U.S. 1, 61–62 (1911).

1202 CAPITAL UNIV ERSITY LAW REVIEW [37:1201

it is no longer pract ical to fo llow.6 Second , the majori ty’s opi nion consists

of an econ omic analys is of res ale price m aintenance an d discusses the pro -

competitive and an ti-competitive arguments for the use of them.7 Third,

the majo rity d iscusses why stare decisis is not a valid argument for

adhering to Dr. Miles.8 The dissent ing opinion led b y Justice Breyer

argues in support of the per s e rule and explains why the principle of stare

decisis should be adhered to in this case.9 Part I V also consists of an

analysis of the streng ths and w eaknesses of both th e majority an d

dissenting opinions.

In Part V , the sign ificance of the case is analyzed . Because the

majority did not set forth a guide for the lower courts to follo w, thi s wil l

adversely affect the co urt sy stem because i nconsistent decisions are likely

to result. Thu s, workable p rinciples must be introduced to help gui de these

lower courts. Professors Areeda and Hovenkamp have recommended a

structured rule of reason approach fo r resale price maintenance.10 When

the approach is applied to the facts of Leegin, the analysis demonstrates

that the approach creates more certainty and is better than the bright-line

per se illegality rule. 11

Part V also examines the impact on public policy issues, such as how

the average consumer will suffer in the short-term. Th is is becau se l arge

low-price retailers will most likely have to raise pr ices because whole

sectors of the economy (such as large low-price retailers) have com e to

rely on the per se ru le.12

Although there are many reasons not to allow resale price maintenance

agreements, there a re many pro-competitive ben efits t hat result from them

as well.13 When it overruled Dr. Miles , the Supreme Court to ok an

innovative approach t o help further o ur economy. The majority was

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6 Leegin, 127 S. Ct. at 2713 –14.

7 Id. at 2714–20.

8 Id. at 2720–25.

9 Id. at 2725–37.

10 8 PHILLIP E. AREEDA & HERBERT HOVENKAMP, ANTITRUST LAW ¶ 1633, at 328–29

(2d ed. 2004).

11 Id. ¶ 1633e, at 337–39.

12 See Leegin, 127 S. Ct. at 2735.

13 Id. at 2715–16.

2009]LEEGIN CREATI VE LEATHER PR ODUCTS, INC. V. PSKS, INC.1203

correct in rul ing that t he Dr. Miles rule is i nconsistent with a principled

framework.

II. BACKGROUND

Antitrust l aw developed from a series of cases which began as earl y in

1911 when Dr. Miles was decided. 14 These cases established the two

dominant rules of la w for anti trust viol ations: per se illegality and the rule

of reason approach. Practices are per se illegal when they are “so plain ly

anticompetitive and so often lack . . . any rede eming virtue th at they are

conclusively presumed illegal without further examinat ion.”15

“The . . . rule o f reason req uires an antitrust p laintiff to s how that th e

challenged conduct has t he effect, or at least the po tential, of

‘unreasonably’ restricting competition, that is, of being net anticompet itive

after all poss ible p ro-competitive effects are taken into account.”16 These

series of cases hav e shaped the juri sprudence of ant itrust law.

A. Per Se Jurisp rudence

1. Dr. Miles Medi cal Co. v. John D. Park & Sons Co.

In Dr. Miles Medical Co. v. John D. Park & Sons Co. the Court

established the rule t hat it is per s e illegal under section 1 of the Sherman

Act17 for a manufacturer to agree with its distributor to set the minimum

price the distributor can charge for the manufacturer’s goods.18 In Dr.

Miles, a man ufacturer of proprietary medicines so ught to enforce an

agreement whi ch set forth minimu m prices fo r all of the sales of it s

products, bo th at wholesale an d retail.19 The Cou rt relied on t he common-

law rule th at a “gener al restraint u pon alienation is ordinari ly invalid.”20

The Court con cluded that pri ce fixing agre ements are injuri ous to the

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14 Id.

15 Broad. Mu sic, Inc. v. Columbia Broad. Sys., Inc., 441 U.S. 1, 7–8 (1979) (internal

quotations omitted).

16 Lino A. Graglia, L eegin Creative Leather Products, Inc. v. PSKS Inc.: The Stran ge

Career of the Law of Resale Price Maintenanc e 1, 23 (Nov. 2007) (unpublished Law and

Econ. Research Paper No. 1 15) (available at http://ssrn.com/abstract=102 8562).

17 Monopolies and Combinations in R estraint of Trade, 15 U.S.C. §§ 1–38 (20 06).

18 220 U.S. 373, 408 (1911).

19 Id. at 394.

20 Id. at 404.