Supreme Court Grants Cert In Case Challenging The Dr. Miles Per Se Rule Against Vertical Minimum Price Fixing

On December 7, 2006, the Supreme Court agreed to hear an appeal from the Fifth Circuit decision in Leegin Creative Leather Products v. PSKS, Inc. The issue in the case case, involving a dispute over retail sales in Texas of a line of women's shoes, is whether vertical minimum resale price policies are judged by the "per se" rule or "rule of reason" analysis. Plaintiff, operator of the retail store Kay's Kloset, was cut off from selling the Brighton line of accessories after selling some of the items at discounted prices in violation of defendant's pricing policy. The jury found in favor of plaintiff and awarded damages of $3.6 million (after being tripled) plus attorneys' fees. Defendants asked the Fifth Circuit to apply the "rule of reason" analysis to the price-fixing claim and thus reverse the jury's award. The Fifth Circuit, however, held that it was bound to apply the "per se rule" under the Supreme Court's decision in Dr. Miles Medical Co. v. John D. Park & Sons Co.

The Question Presented by the Petition for Cert. was as follows:

"This Court has held that antitrust "per se rules are appropriate only for conduct that ... would always or almost always tend to restrict competition." Modern economic analysis establishes that vertical minimum resale price maintenance does not meet this condition because the practice often has substantial competition-enhancing effects. The question presented is whether vertical minimum resale price maintenance agreements should be deemed per se illegal under Section 1 of the Sherman Act, or whether they should instead be evaluated under the rule of reason."

We have noted the dispute between academics and regulators regarding resale price maintenance and commented on this case before. We will continue to follow this case as it develops.