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Supreme Court Changes the Rules on Vertical Price Fixing

June 29, 2007

Yesterday the Supreme Court issued what may be its most significant antitrust opinion of the summer: it relaxed the century old prohibition against vertical minimum resale price agreements, or agreements between manufacturers, distributors and retailers regarding prices. In Leegin Creative Leather Products, Inc. v. PSKS, Inc., the Court reversed a 1911 decision and explicitly held that vertical price agreements will no longer be considered per se illegal under the Sherman Act, but rather will be analyzed under the rule of reason. Unlike the per se rule, which condemns vertical price fixing without any consideration of business justifications, the rule of reason evaluates each individual agreement by balancing its pro-competitive benefits against its anticompetitive effects. Leegin significantly increases the ability of manufacturers to influence the resale prices at which their products are sold to consumers. Until yesterday, manufacturers who wished to impact resale prices of their products were generally advised to take extraordinary steps to ensure that their policies were unilaterally imposed rather than by agreement with their distributors. Today, manufacturers have much more flexibility, at least under the U.S. antitrust laws.

Of course, many state statutes still prohibit resale price agreements, and some vertical agreements would still fail to pass muster under the rule of reason, so manufacturers must be cautious. But there can be little doubt that Leegin will change the face of retail and distribution in the United States.