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Tuesday, May 26, 2009, 5:24 PM

Bye Bye Bargains? Congressional Hearings On Repealing Leegin

The House Judiciary Committee recently held a hearing entitled "Bye Bye Bargains? Retail Price Fixing, the Leegin Decision, and Its Impact on Consumer Prices." The committee heard testimony from several antitrust lawyers, including FTC Commissioner Pamela Jones Harbour, about whether Congress should overrule the Supreme Court's 2007 Leegin decision and reinstate the per se rule against resale price maintenance ("RPM"). Maryland has already enacted such a law with respect to its state antitrust laws. This hearing came within a few weeks of the Justice Department announcing a more aggressive approach to enforcing antitrust laws.

DOJ Signals More Aggressive Antitrust Enforcement By Withdrawing September 2008 Report On Monopolization

On May 11, 2009, Assistant Attorney General Christine A. Varney, Chief of the DOJ's Antitrust Division announced a policy shift in the Department of Justice regarding single-firm conduct under Section 2 of the Sherman Act. In her speech, Varney announced that the DOJ was withdrawing its report Competition and Monopoly: Single-Firm Conduct Under Section 2 of the Sherman Act, which had been unveiled during the last few months of the Bush Administration.

Varney explained that the DOJ, under the Obama administration, believed the report "misses the mark" because it "raise[d] the hurdles to government antitrust enforcement." She explained that the report "characterize[d] a dominant firm's ability to act efficiently as a core concern in evaluating any possible anticompetitive impact of its conduct." Although this is an important aspect of the analysis under Section 2 of the Sherman Act, Varney stated that the report "goes too far in evaluating the importance of preserving possible efficiencies and understates the importance of redressing exclusionary and predatory acts that result in harm to competition, distort markets, and increase barriers to entry." Varney said the repudiation of the report represents "a shift in philosophy and the clearest way to let everyone know that the Antitrust Division will be aggressively pursuing cases where monopolists try to use their dominance in the marketplace to stifle competition and harm consumers."

There is no doubt that Varney's speech is part of a larger effort by the Department of Justice to "reinvigorate" its antitrust enforcement policies, which some say were too lax during the prior administration. What this will mean for antitrust law, however, is yet to be seen. The Department of Justice may be more willing to bring cases, but the scope of the antitrust laws is determined by the courts--not the DOJ.

However, given the cost of responding to and defending a DOJ investigation, businesses should not simply view Varney's speech as a symbolic gesture. A recent headline in the US News and World Report reads: "Obama's New Antitrust Rules Have Big, Powerful Companies Sweating." This begs the question: who is a "big, powerful company"? Market definition and identification of monopoly power are just as (if not more) important issues in an antitrust case than whether the alleged monopolist misused its monopoly power. Varney's speech did not address those issues. The question is not whether "big, powerful companies" should be worried. Of course they should. The real question is whether your company is big and powerful enough to be worried.

Judicial Empathy

I wrote an op-ed column that was recently published by the Daily Progress, the newspaper in my hometown of Charlottesville, Virginia. Given that President Obama nominated Sonia Sotomayor as his first Supreme Court justice today, I am re-printing my op-ed column here. The focus of this column was President Obama's use of the word "empathy" when describing his ideal judge. "Policy," however, may be the buzz word for Judge Sotomayor's confirmation hearing given her off-hand comment that "policy" is made at the court of appeals.

Judicial Empathy

When describing what he would look for in a Supreme Court Justice, President Obama said that he viewed empathy “as an essential ingredient for arriving at just decisions and outcomes.”

What did he mean by “empathy”? Some complain that it is a code word for a liberal, activist judge. Others rejoice that it is a code word for a liberal, activist judge. I think it means neither. Put aside, for a moment, that the words “liberal” and “activist” are themselves code words whose meanings depend on the person using the words.

If you actually were able to “put aside” your view, then you have exhibited that quality of judicial empathy that I believe the President was describing.

Webster defines empathy as “the experiencing as one’s own the feelings of another.” Dahlia Lithwick of Slate magazine explained that President Obama defined “empathy” in his book, The Audacity of Hope, as “a call to stand in somebody else’s shoes and see through their eyes.” This got me thinking. Legal philosophers have written about judicial empathy (perhaps not in those terms), and I have seen judicial empathy in practice. It is nothing to be ashamed of. It has nothing to do with emotions or favoring one side (or one type of litigant) over another. Rather, judicial empathy is a thought experiment that helps judges make fair, impartial decisions consistent with the rule of law.

My notion of judicial empathy comes from John Rawls’s Theory of Justice, one of the most important works of political philosophy in the twentieth century. At the time I first read Rawls in law school, the only thing I knew about political philosophy was that Hobbes believed life was “solitary, poor, nasty, brutish and short,” while Rousseau believed “man is born free.” I failed to realize that their discussion of the state of nature was designed as a through experiment to uncover the foundations of law and government. What underlying rules would persons in the state of nature agree upon to govern themselves? The answer to that question, according to social contract theory, is the justification for government and the underpinnings of the law.

Rawls took this thought experiment one step further by asking what would persons in the “original position” agree was a fair way to organize society? Persons in Rawls’s original position were placed behind a “veil of ignorance” which prevented them from knowing any of the individual characteristics about themselves. If you stepped behind the veil of ignorance, you would be unaware of your own talents, religion, gender, race, class, or abilities.

What type of rules would you want if you were in this original position behind the veil of ignorance? You would want rules that were fair to everyone since you would not know where you may end up after the veil of ignorance was lifted. You would want a basic set of minimum rights and privileges that all people could enjoy. And you would want everyone to have the opportunity to make the most of what they had been given, whatever that may be—remember if you are behind the veil of ignorance, you don’t know what your specific circumstances might be.

My idea of judicial empathy involves a similar thought experiment. The empathetic judge imagines herself to be in the shoes of the litigants, but she does not know in whose shoes she is standing. The resulting decision is simultaneously impartial and empathetic. Judicial empathy is not arbitrary. To the contrary, judicial empathy demands fealty to the rule of law because one of the things we would agree upon, behind the veil of ignorance, is that the law should be consistent, uniform and predictable.

Although I read Rawls in law school, I learned much more about the practice of judicial empathy when I served as a law clerk for two federal judges. Both of these judges were Republican appointees, but I doubt they would object if I complimented them on their judicial empathy. Although their rulings were always based on legal precedent, their decision-making process was not necessarily mechanical. After fully considering the arguments of both sides, these judges would make decisions that were impartial and fair. Although I do not profess to know everything went on inside their heads, I believe that their impartiality and fairness resulted from their ability to empathize with both sides without favoring either side. This is what I believe the President meant when he described “empathy” as a desirable characteristic in a judge.

I hope neither of the judges for whom I clerked take offense when I suggest they decided cases behind the “veil of ignorance.” Sometimes ignorance is a good thing.

Jason C. Hicks lives in Charlottesville, Virginia and is an attorney at Womble Carlyle Sandridge & Rice, PLLC. Jason was a law clerk for Judge Samuel G. Wilson in the Western District of Virginia in Roanoke, Virginia and Judge Susan H. Black on the Eleventh Circuit Court of Appeals in Jacksonville, Florida.

Maryland's Leegin Repealer

On April 14, 2009, Maryland enacted a law designed to counter a recent United States Supreme Court decision that made it easier for manufacturers to require their retailers to charge a minimum price for their goods. Unlike the current federal law, the new Maryland law treats any agreement that establishes a minimum resale price for goods or services as a per se antitrust violation of the Maryland Antitrust Act (MD. COM'L LAW CODE ANN. 11-204(a).) This per se rule once was the rule everywhere because, for nearly 100 years, the federal Sherman Act was interpreted to prohibit minimum vertical price fixing, also known as resale price maintenance.

The universal per se approach changed, however, in June 2007 when the Supreme Court held in Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877 (2007), that minimum vertical price fixing was not per se illegal but rather should be analyzed under the "rule of reason." The rule of reason is a multifaceted balancing test that analyzes whether an agreement constitutes an "unreasonable" restraint on trade. Generally speaking, under the rule of reason, a restraint is not "unreasonable" (and thus illegal under federal antitrust law) unless the parties to the agreement have "market power" which, again, generally speaking, is defined as something more than a 30% market share for a given market.

Given these generalities, it became a popular notion that the Leegin decision had opened the door for manufacturers to set a minimum resale price for their goods. More thoughtful lawyers, however, realized that resale price maintenance agreements were still risky because state antitrust laws could be more restrictive than federal antitrust laws and because legislatures could "overrule" the Leegin decision by passing special legislation outlawing minimum resale price maintenance. That is exactly what happened in Maryland.

The Maryland bill, which goes into effect October 1, 2009, amends the Maryland Antitrust Act to specifically state that "a contract, combination, or conspiracy that establishes a minimum price below which a retailer, wholesaler, or distributor may not sell a commodity or service is an unreasonable restraint of trade or commerce" for purposes of the Maryland Antitrust Act. See Maryland Senate Bill 239 (repealing and reenacting, with amendments, MD. COM'L LAW CODE ANN., Section 11-204). The accompanying notes to the bill recognize that the Maryland Antitrust Act previously had been interpreted to be consistent with federal antitrust law. By enacting this bill, however, Maryland is departing from federal law, specifically the Supreme Court's decision in Leegin. Maryland's actions demonstrate why the conservative approach to Leegin is for manufacturers to continue avoiding any "agreements" as to the minimum resale price for their products.

Maryland's new law, however, does not prevent what is known as a Colgate policy. Colgate policies are named after a Supreme Court decision holding that the unilateral termination of a dealer that sold goods below a suggested resale price was not an "agreement" in restraint of trade. See United States v. Colgate, 250 U.S. 300, 307 (1919). The Court's opinion was based on the "contract, combination or conspiracy language in the Sherman Act. Unless there was an agreement between two parties then there was no "contract, combination or conspiracy" and, accordingly, there was no antitrust violation. With a Colgate policy, a manufacturer unilaterally announces suggested resale prices for its products; retailers remain free to sell those products at discounted prices; and, the manufacturer also remains free to unilaterally terminate any discounting retailers. Since there is no agreement between the two parties, Colgate policies were considered lawful under federal antitrust law even before the Supreme Court's decision in Leegin. Maryland's recent revisions to its state antitrust law should not affect Colgate policies because Maryland's Antitrust Law contains the same "contract, combination, or conspiracy" language as the Sherman Act. Therefore, Colgate policies should remain lawful in Maryland. Of course, there is a fine line between a lawful Colgate policy unilaterally announced by a manufacturer and an unlawful "agreement" as to the resale price of goods.
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