Cengage Advantage Books: Foundations of the Legal Environment of Business 3rd Edition by Marianne Jennings

تمرين 3

Leegin Creative Leather Products, Inc. v. PSKS, Inc. 551 U.S. 877 (2007)
It's Not in the Bag; It's in the Service
Facts
Leegin Creative Leather Products, Inc. (Leegin) (petitioner), designs, manufactures, and distributes leather goods and accessories under the brand name "Brighton." The Brighton brand includes a full line of women's fashion accessories and is sold across the United States in over 5,000 retail stores. PSKS, Inc., (PSKS) (respondent) runs Kay's Kloset, a Brighton retailer in Lewisville, Texas, that carried about 75 different product lines, but was known as the place in that area to go for Brighton. Kay's ran Brighton ads and had Brighton days in its store.
Leegin's president, Jerry Kohl, released a new strategic refocus for Brighton by explaining: "[W]e want the consumers to get a different experience than they get in Sam's Club or in Wal-Mart. And you can't get that kind of experience or support or customer service from a store like Wal-Mart." Leegin instituted the "Brighton Retail Pricing and Promotion Policy," which banished retailers that discounted Brighton goods below suggested prices. The policy had an exception for products not selling well that the retailer did not plan on reordering. The suggested prices gave retailers sufficient margins to provide customers with the quality service central to Brighton's strategy.
In December 2002, Leegin discovered Kay's Kloset had been marking down Brighton's entire line by 20 percent. Kay's Kloset said it did so to compete with nearby retailers who also were undercutting Leegin's suggested prices. Leegin, nonetheless, requested that Kay's Kloset cease discounting. When Kay's continued its discounting, Leegin stopped selling to the store. Kay's lost significant revenue from sales and a majority of its profits-about 40 to 50 percent of its profits were from Brighton.
PSKS sued Leegin for violation of the antitrust laws. Leegin asked to introduce expert testimony describing the procompetitive effects of its pricing policy. The District Court excluded the testimony, holding Leegin's conduct to be a per se violation of federal antitrust laws. The jury awarded PSKS $1.2 million in damages, and the judge trebled the damages and reimbursed PSKS for its attorney's fees and costs, for a total judgment against Leegin of $3,975,000.80. The Court of Appeals affirmed. Leegin appealed. The U.S. Supreme Court granted certiorari.
Judicial Opinion
KENNEDY, Justice
[T]he per se rule is appropriate only after courts have had considerable experience with the type of restraint at issue, and only if courts can predict with confidence that it would be invalidated in all or almost all instances under the rule of reason. The justifications for vertical price restraints are similar to those for other vertical restraints. Minimum resale price maintenance can stimulate interbrand competition-the competition among manufacturers selling different brands of the same type of product-by reducing intrabrand competition-the competition among retailers selling the same brand. Resale price maintenance also has the potential to give consumers more options so that they can choose among low-price, low-service brands; high-price, high-service brands; and brands that fall in between.
If the consumer can then buy the product from a retailer that discounts because it has not spent capital providing services or developing a quality reputation, the high-service retailer will lose sales to the discounter, forcing it to cut back its services to a level lower than consumers would otherwise prefer. With price competition decreased, the manufacturer's retailers compete among themselves over services.
Resale price maintenance, in addition, can increase interbrand competition by facilitating market entry for new firms and brands. "[N]ew manufacturers and manufacturers entering new markets can use the restrictions in order to induce competent and aggressive retailers to make the kind of investment of capital and labor that is often required in the distribution of products unknown to the consumer."
Resale price maintenance can also increase interbrand competition by encouraging retailer services that would not be provided even absent free riding. It may be difficult and inefficient for a manufacturer to make and enforce a contract with a retailer specifying the different services the retailer must perform. Offering the retailer a guaranteed margin and threatening termination if it does not live up to expectations may be the most efficient way to expand the manufacturer's market share by inducing the retailer's performance and allowing it to use its own initiative and experience in providing valuable services.
While vertical agreements setting minimum resale prices can have procompetitive justifications, they may have anticompetitive effects in other circumstances. Vertical price restraints also "might be used to organize cartels at the retailer level." A group of retailers might collude to fix prices to consumers and then compel a manufacturer to aid the unlawful arrangement with resale price maintenance. In that instance the manufacturer does not establish the practice to stimulate services or to promote its brand but to give inefficient retailers higher profits. Retailers with better distribution systems and lower cost structures would be prevented from charging lower prices by the agreement.
Vertical agreements establishing minimum resale prices can have either procompetitive or anticompetitive effects, depending upon the circumstances in which they are formed.
Resale price maintenance, it is true, does have economic dangers. If the rule of reason were to apply to vertical price restraints, courts would have to be diligent in eliminating their anticompetitive uses from the market.
Reversed.
Case Questions
1. What reasons did Leegin give for wanting the minimum price established for its retailers?
2. What points does the court make about not having minimum prices in terms of reducing competition?
3. What risks are there in allowing minimum price requirements?