Amicus Curiae Brief — Leegin Creative Leather Products v. PSKS, Inc.

MOTION FILED

NOV § - 2006

a>

No. 06-480

In the Supreme Court of the United States

LEEGIN CREATIVE LEATHER PRODUCTS, INC..,

PETITIONER

Vv.

PSKS, INc., D/B/A KAyY’S KLOSET... KAY’S SHOES,

RESPONDENT

On Petition for a Writ of Certiorari

to the United States Court of Appeals

For the Fifth Circuit

MOTION FOR LEAVE TO FILE BRIEF AS

AMICUS CURIAE AND BRIEF OF CTIA —- THE

WIRELESS ASSOCIATION AS AMICUS CURIAE

SUPPORTING PETITIONER

MICHAEL FIELD ALTSCHUL Roy T. ENGLERT, JR.*

CTIA — The Wireless DONALD J. RUSSELL

Association Robbins, Russell, Englert,

1400 16" Street N.W. Orseck & Untereiner LLP

Suite 600 1801 K Street, N.W.

Washington, D.C. 20036 Suite 41]

202) 785-0081 Washington, D.C. 20006

202) 775-4500

*Counsel of Record

MOTION FOR LEAVE TO FILE BRIEF

AS AMICUS CURIAE

Under Rule 37.2 of the Rules of this Court, CTIA — The

Wireless Association moves for leave to file the

accompanying brief as amicus curiae in support of the

petition for a wnt of certiorari. Counsel for petitioner has

consented to the filing of this bref, but counsel for

respondent has refused consent.

CTIA — The Wireless Association represents all segments

of the wireless communications industry. Members of CTIA

include service providers, manufacturers, wireless data and

Internet companies, and other industry participants. CTIA

has filed amicus briefs in this Court and other federal courts

on a variety of issues of interest to the wireless industry in

such disparate cases as Bartnicki v. Vopper, 532 U.S. 514

(2001), City of Rancho Palos Verdes v. Abrams, 544 U.S. 113

(2005), and Bell Atlantic Corp. v. Twombly, No. 05-1126 (to

be argued Nov. 27, 2006).

Members of CTIA sell a variety of sophisticated

communications products, such as Internet-accessible mobile

phones, that benefit from point-of-sale consumer services.

The Court’s decision on the question presented here will

directly affect how those companies market such devices.

CTIA — The Wireless Association therefore should be

granted leave to file the attached amicus brief.

Respectfully submitted.

MICHAEL FIELD ALTSCHUL Roy T. ENGLERT, JR.*

CTIA -- The Wireless DONALD J. RUSSELL

Association Robbins, Russell, Englert,

1400 16" Street NW. Orseck & Untereiner LLP

Suite 600 / 80] K Street, N.W.

Washington, D.C. 20036 =. sed a i

202) 785-0081 ashington, D.C. 20006

aa (202) 775-4500

*Counsel of Record

NOVEMBER 2006

TABLE OF CONTENTS

Page

(I aidiaeidials il

i hE i EAE l

IRIEL Tr GOP PERIIIIIIET sccccisscatertsnctctiouhsededeinnensdeatecencess ]

a 3

THE ANTITRUST LAWS SHOULD NOT TREAT MINIMUM

RESALE PRICE MAINTENANCE AS A PER SE

UNLAWFUL BUSINESS PRACTICE .............ccccccsscceccssccsesesseeees 3

I. Minimum Resale Price Maintenance Commonly

Serves Legitimate, Procompetitive Purposes

And Should Not Be Outlawed Across The

II. The Arguments Offered in Defense of Retaining

A Per Se Ban On Minimum Resale Price

Maintenance Are Unpersuasive...................::sseseeeeeeees 13

III. Stare Decisis Considerations Do Not Justify

Retaining An Obsolete, Economically

Damaging Rule That This Court Would Not

a RI spasinsticinininsciihaesinilaaiiaguidelaninanictsinbabenidutantettiee 17

eI Diioereseccipianevacnisccinentininiiiinindeerennvnintnieenpemmeeiecntinian 20

TABLE OF AUTHORITIES

Page(s)

Cases

Alaska Airlines, Inc. v. United Airlines, Inc., 948

Pee CITI cicesitisiccrteccienishnistinnllasssiestensiateinaliidennianion 9

Albrecht v. Herald Co., 390 U.S. 145 (1968) ...........::ccccee0es 18

American Airlines, Inc. v. Wolens, 513 U.S. 219

SIT ciliata daca ieiladinatataiaiuinitijigmiaciabeibaseilinbeibes 19

Appalachian Coals, Inc. v. United States, 288 U.S.

SoA hnssibinienieidiliinshthanecciiuhitindastatsiiealipiiianadibaiecdiannionns 17

Arizona v. Maricopa County Medical Society, 457

ee See TIT iiieeniciesiciahesceesedinasielpclsceeieeiilunitasbcabibieainga 3, 4, 18

Berkey Photo, Inc. v. Eastman Kodak Co., 603 F.2d

I Mailed cicicsiticaecaisaeechuhacialacigbilaciiticdinni 9

Blue Cross & Blue Shield United of Wisconsin v.

Marshfield Clinic, 65 F.3d 1406 (7th Cir. 1995)................ 9

Broadcast Music, Inc. v. CBS, 441 U.S. 1 (1979) ............ 4,18

Brooke Group, Ltd. v. Brown & Williamson

Tobacco Corp., 509 U.S. 209 (1993)........:cccccceceeseseceeeeees 16

Brown Shoe Co. v. United States, 370 U.S. 294

Sven nT th cssiusieseieibaiidiaiieliiahiiaaiicaiiadiibtenahiddinniniiladipinicinnpsanien 16

Business Electronics Corp. v. Sharp Electronics

Se EE Se ID sisnrcsionriiiiigninstintinninsesisiataiactieatictotean 5

Cargill, Inc. vy. Monfort of Colorado, Inc., 479 U.S.

ERE SAS Eee Sy oe ee eT ee Oe 16

Chicago Board of Trade v. United States, 246 U.S.

eee itiindsinthcesdeninciesietiieshdcnitiiedianuieapsinidiaseseimabedenittenseien 3, 18

Continental T.V., Inc. v. GTE Sylvania Inc., 433

ee ae Uilicicsnistuslduntiecisidiiannciininddidnitinndpincapinnnaiatsinies passim

TABLE OF AUTHORITIES—continued

Page(s)

Dr. Miles Medical Co. v. John D. Park & Sons Co.,

Be ae Se Ine thiinisicideseenitaniestinidindsndidadiadiniaiasitdabinainaiedl passim

FTC v. Indiana Federation of Dentists, 476 U.S.

FEF Ce iciiitshipncnscrinicstitenectnniiianntiianasiibdiiiiaiigie einai 18

Henslee v. Union Planters Nat'l Bank & Trust Co.,

Fe Ce I icosnienicsinssinnindieniiincinitilinteigtgeaioliagl 17

Illinois Tool Works v. Independent Ink, Inc., 126

es aks ee Se nchiccecicnncscsissiniaiiettpanaiidaaiiicininiadiiidclnteataiiaics 4

Kartell v. Blue Shield of Massachusetts, 749 F.2d

Be COOSA, Fie witinicncirecarcconeinisnsitestelanidineiiesaindsaledinidids 9

Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S.

Fae ETD incnsctiesinctintarnsitesenniptisialdatilesdiiiesidpuenibitiemmmidaiaial 5

National Society of Professional Engineers v.

United States, 435 U.S. 679 (1978) .0......::ccccceecsseceeeseeeseees 17

NCAA v. Board of Regents of the Univ. of

Oklahoma, 468 U.S. 85 (1984) ........::.cccceceeteeesseeeseeeeneeees 18

Northern Pacific Ry. v. United States, 356 U.S. |

GURU sccrecessicntssinennsnciieminidguinanaaitinassisitiatintnmiiniesatilbiaiudamadiae 3

Northwest Wholesale Stationers, Inc. v. Pacific

Stationery & Printing Co., 472 U.S. 284 (1985)................ 4

Palmer v. BRG of Georgia, Inc., 498 U.S. 46 (1990)

CEPI ccccosncscntcnssarcsatiinsininiiteiaiitiictediaiiiiiainiauubiaalisiiaiaa 18

Polygram Holding, Inc. v. FTC, 416 F.3d 29 (D.C.

Ce, Fie ncn csvesavccescnnnnpnnnntinapintapiaiviniastusniiniiiidpensiidlddaumanls 3

Puerto Rico Dep't of Consumer Affairs v. Isla

Petroleum, 485 U.S. 495 (1988) ........cccccececccceee cent ee eeeeeeees 16

Simpson v. Union Oil Co., 377 U.S. 13 (1964) ---.ccceccecereeees 18

TABLE OF AUTHORITIES—continued

Page(s)

Standard Oil Co. v. United States, 221 U.S. 1

EEE I cer ee 3,17

State Oil Co. v. Khan, 522 U.S. 3 (1997) ......ccccccccceeceee passim

Texaco, Inc. v. Dagher, 126 S. Ct. 1276 (2006)... 3

Texas Industries, Inc. v. Radcliff Materials, Inc.,

8 17

Trace X Chem., Inc. v. Canadian Indus., Ltd., 738

EE 9

Train v. City of New York, 420 U.S. 35 (1975) .......ccccccecees 16

United States v. Addyston Pipe & Steel Co., 85 F.

271 (6th Cir. 1898) , aff'd as modified, 175 U.S.

LE SE Sm 10

United States v. Arnold, Schwinn & Co., 388 U.S.

Ee rT 13, 18

United States v. Colgate & Co., 250 U.S. 300

ee eR 10, 12, 18

United States v. General Elec. Co., 272 U.S. 476

ESTES Sree 18

United States v. Parke, Davis & Co., 362 U.S. 29

ESE een ee 18

United States v. Socony-Vacuum Oil Co., 310 U.S.

SRT ERE Oe ec ne na 18

United States v. Trans-Missouri Freight Ass'n, 166

EE Le ee ee 17

United States v. Trenton Potteries Co., 273 U.S.

IEEE REECE SOOT E tent aecie Ae ae D e 17

TABLE OF AUTHORITIES—continued

United States v. United States Steel Corp., 251 U.S.

CE aE csccienscianasectiiihdieiiaibistainditaghieainditsibimmaiiinenebniatiage 10

Volvo Trucks North America, Inc. v. Reeder-Simco

GMC, Inc., 546 U.S. 164, 126 S. Ct. 860 (2006).......... 7,16

White Motor Co. v. United States, 372 U.S. 253

Taha itdealditesSecgheeicthateiaaaaibiaiaiiattbalieateareableciatiabi 18

Williamsburg Wax Museum, Inc. v. Historic

Figures, Inc., 810 F.2d 243 (D.C. Cir. 1987) ............ )

Willy v. Coastal Corp., 503 U.S. 131 (1992)... 17

Statutes and Other Legislative Materials

Pub. L. No. 75-314, 50 Stat. 693 (1937)............cccccceceeeeeeeees 15

Pub. L. No. 82-543, 66 Stat. 631 (1952)...............cccccceceeeeees 15

Pub. L. No. 94-145, 89 Stat. 801 (1975)... ccccccccceeeeeeee 15

Pub. L. No. 98-166, 97 Stat. 1071 (1983)..................eeececeeees 16

Pub. L. No. 99-180, 99 Stat. 1136 (1985)... eee 16

Miscellaneous

ABA Section of Antitrust Law, Antitrust Law and

Economics of Product Distribution (2006)............0cc00008+ 15

8 Phillip E. Areeda & Herbert Hovenkamp,

Bo 5,10

William F. Baxter, The Viability of the Vertical

Restraints Doctrine, 75 CAL. L. REV. 933 (1987) .. 5, 15, 19

TABLE OF AUTHORITIES—continued

Page(s)

Roger D. Blair, Jill Boylston Herndon & John E.

Lopatka, Resale Price Maintenance and the

Private Antitrust Plaintiff, 83 WASH. U.L.Q. 657

a sseietetdienepnceiinnemsitaniatinieiaiciaaianieinninibinitsseneduiieidienenteneltiglion 6, 15

Roger D. Blair & David L. Kaserman, Antitrust

SATIS eae nen ae eT 5,8

Robert H. Bork, The Antitrust Paradox (1993 ed.) .... 5, 13, 16

David A. Butz, Vertical Price Controls With

Uncertain Demand, 40 J.L. & ECON. 433 (1997)............... 6

Terry Calvani & Andrew G. Berg, Resale Price

Maintenance Afier Monsanto: A Policy Stull at

War With Itself, 1984 DUKE L.J. 1163.................... a

Dennis W. Carlton & Jeffrey M. Perloff, Modern

Industrial Organization (4th ed. 2005).............ccc0cc0000 6, 14

Yongmin Chen, Oligopoly Price Discrimination

and Resale Price Maintenance, 30 RAND J.

I iti asielelaaeaiaibiibibennbinnesainaiet 6

William S. Comanor, Vertical Price-Fixing,

Vertical Market Restrictions, and the New

Antitrust Policy, 98 HARV. L. REV. 983 (1985)................ 14

Raymond Deneckere, Howard P. Marvel & James

Peck, Demand Uncertainty and Price

Maintenance: Markdowns as Destructive

Competition, 87 AMER. ECON. REV. 619 (1997).................. 6

Raymond Deneckere, Howard P. Marvel & James

Peck, Demand Uncertainty, Inventories, and

Resale Price Maintenance, 111 Q.J. ECON. 885

TABLE OF AUTHORITIES—continued

Page(s)

Frank Easterbrook, Antitrust Law Enforcement in

the Vertical Restraints Area: Vertical

Arrangements and the Rule of Reason, 53

a 6, 15, 16

Douglas H. Ginsburg & Leah Brannon,

Determinants of Private Antitrust Enforcement in

the United States, 1 COMPETITION POLICY INT’L

ihe ieacdeititiiieiaiacasiiimapitcscinibiaiinaphidtiiaititiesmagencsinemmmanes 11

Warren S. Grimes, Brand Marketing, /ntrabrand

Competition, and the Multibrand Retailer: The

Antitrust Law of Vertical Restraints, 64

Ce Gals Ce ee tectetttininssnicimenintinninnes 15, 16

Oliver Wendell Holmes, The Path of the Law, 10

a nr ea EO 13

Herbert Hovenkamp, The Antitrust Enterprise

i inicteenstniniiitisancividiemninuntnaneipsecininspininicmmetmpnnecsenees passim

Pauline M. Ippolito, Resale Price Maintenance:

Empirical Evidence from Litigation, 34 J.L. &

es ce nctinennncinnetebtinnnianarintienianiceseiianiieiimeen 6, 15

Benjamin Klein, The Economics of Franchise

Contracts, 2 5. CORP. PIs. 9 (1DDS) ..cccccccescveccccscoccccccscocesess 6

Benjamin Klein & Kevin M. Murphy, Vertical

Restraints as Contract Enforcement Mechanisms,

Be aes ee. I eitecennecnccsesernnesvnnentnnsimmnnmeveens 6

Paul Oskar Kristeller, “Creativity” and

“Tradition,’’ 44 J. Hist. IDEAS 105 (1983)..................000. 17

Howard P. Marvel & Stephen McCafferty, Resale

Price Maintenance and Quality Certification, 15

Se i ets IE I cicncinicantenpsinaienpnsiiniicnenipecsmmesee 6

**

vil

TABLE OF AUTHORITIES—continued

Page(s)

Howard P. Marvel & Stephen McCafferty, The

Political Economy of Resale Price Maintenance,

SF, FU, Ce Fare Ge cencercnsntencnttsnsornsonssonmeecsvecsies 6

Howard P. Marvel & Stephen McCafferty, The

Welfare Effects of Resale Price Maintenance, 28

OE Ee 6

Frank Mathewson & Ralph Winter, The Law and

Economics of Resale Price Maintenance, 13 REV.

IG it 6, 8, 15

Timothy J. Muris, /mproving the Economic

Foundations of Competition Policy, 12 GEO.

SS CieNs pC crinictccnitininitsinacbiiadhdatimanmnsencceeseets 6

Thomas R. Overstreet, Jr., Bureau of Econ., Fed’]

Trade Comm'n, Resale Price Maintenance:

Economic Theories and Empirical Evidence

Ee NIE IIE citiriccstsciidhantedinhinitiintntaindavensdbinininnnneetincnenees 6

Robert Pitofsky, /n Defense of Discounters: The No-

Frills Case for a Per Se Rule Against Vertical

Price Fixing, 71 GEO. L.J. 1487 (1983)........cccceceseeeeseeeeee 6

Richard A. Posner, Antitrust Law (2d ed. 2001)............... 6, 16

Roscoe Pound, Survey of the Conference Problems,

als hes ss I cccheiiicdigtibiteinioremneimrenecees 19

F.M. Scherer, /ndustrial Market Structure and

Economic Performance (2d ed. 1980) ..............:ccccceeeeeeeee 14

John H. Shenefield & Irwin M. Stelzer, The

Antitrust Laws: A Primer (4th ed. 2001) .............0..000000000 16

Lester G. Telser, Why Should Manufacturers Want

Fair Trade?, 3 J.L. & ECON. 86 (1960)...........:cccccceeeeees 6, 8

Vill

TABLE OF AUTHORITIES—continued

Jean Tirole, The Theory of Industrial Organization

[PanIIT csinitniapeintiocqndeeihinnindiinmanatnpeninaianinidiapinpimiedmincaniensiacantictins 6

W. Kip Viscusi, John M. Vernon & Joseph E.

Harrington, Jr., Economics of Regulation and

a Be icesanteidettlpletiinanicttentncinininniiess 7,14

Ralph A. Winter, Vertical Control and Price Versus

Nonprice Competition, 108 Q.J. ECON. 61 (1993).............. 7

ix

BRIEF OF AMICUS CURIAE IN

SUPPORT OF PETITIONERS

INTEREST OF AMICUS CURIAE'

The interest of the amicus curiae is described in the

accompanying motion for leave to file this brief.

SUMMARY OF ARGUMENT

I. There is a consensus among lower courts, antitrust

scholars, and economists that vertical restrictions on

intrabrand competition are usually procompetitive and

beneficial to consumers. There is no serious intellectual

support for the proposition that such restrictions are always

anticompetitive (or nearly so) and deserving of per se

condemnation. Minimum resale price maintenance is one

such vertical restriction.

Manufacturers, and intermediate distributors such as

members of amicus CTIA, limit intrabrand retail price

competition for legitimate and procompetitive reasons in a

wide range of industries. By guaranteeing a minimum gross

margin between wholesale and retail prices, a manufacturer or

intermediate distributor can enlarge the number of retailers

that are willing to sell the product and create and preserve

retailers’ incentives to imvest in valuable non-price

competitive behavior, such as advertising and promoting the

product. Retailers’ incentives to provide such costly services

are severely undermined when a competitor offers lower

prices without providing them and without incurring the

associated costs. Manufacturers and intermediate distributors

have legitimate interests in preventing this free-riding

' Under S. Ct. R. 37.6, amicus curiae states that no counsel for a party

has written this brief in whole or in part and that no person or entity

other than the amicus curiae or their counsel has made a monetary

contribution to the preparation or submission of this brief.

‘

2

behavior, and consumers benefit from receiving the services

that vertical price restraints can promote. The current per se

treatment of minimum resale price maintenance imposes large |

costs on businesses and consumers alike.

II. The arguments offered in defense of retaining the per

se rule are unpersuasive. In Dr. Miles Medical Co. v. John D.

Park & Sons Co., 220 U.S. 373 (1911), this Court justified a

ban on resale price maintenance on the ground that the

practice is an unlawful restraint on alienation. That theory did

not survive this Court’s later decisions rejecting a rule of per

se invalidity for vertical nonprice restraints and for maximum

resale price restraints. Continental T.V., Inc. v. GTE Sylvania

Inc., 433 U.S. 36 (1977); State Oil Co. v. Khan, 522 U.S. 3

(1997). This per se rule also is defended on the ground that it

is necessary to prevent resale price maintenance from being

used to enforce a manufacturer- or distributor-level price-

fixing cartel. But resale price maintenance does not

invariably—or even usually—stem from or lead to

cartelization, this practice is not invariably anticompetitive,

and the rule of reason and direct prohibitions on cartels are

sufficient to police resale price maintenance for potential

cartel ‘activity. Finally, some argue that Congress has

endorsed the Dr. Miles rule. But no positive law today

dictates that resale price maintenance be deemed unlawful per

se, and the legislation used to support this congressional-

acceptance argument was repealed long ago.

III. This Court has recognized that stare decisis has

limited weight in the antitrust arena, where Congress intended

that liability rules would be adjusted in light of judicial

experience. The weight to be accorded to stare decisis is, in

any case, a question that can be considered at the merits stage

and should not dissuade the Court from re-examining a

precedent that has been as thoroughly discredited as this one.

3

ARGUMENT

THE ANTITRUST LAWS SHOULD NOT TREAT

MINIMUM RESALE PRICE MAINTENANCE AS

A PER SE UNLAWFUL BUSINESS PRACTICE

Section | of the Sherman Act proscribes concerted action

only if it unreasonably restrains competition. Ordinarily,

courts determine whether particular conduct is anticompet-

itive through a case-specific application of a Rule of Reason,

which requires the factfinder to assess the relevant

considerations in deciding whether a practice is an unreasona-

ble restraint on competition.? Certain practices, however, are

deemed per se illegal, dispensing with the need for case-by-

case evaluation. But since per se rules of illegality condemn

practices without even asking if they promote competition in

a particular setting, they create a risk of falsely condemning

procompetitive conduct.” Accordingly, per se rules of

illegality are appropriate only for “conduct that is manifestly

anticompetitive.’* Proponents‘ of any such rule have the

_ burden of proving, “based upon demonstrable economic

effect,” that it is “‘immediately obvious’” or known through

““experience” that a practice has “a pernicious effect on

competition and lack[s] * * * any redeeming virtue’”’ because

it ““would always or almost always tend to restrict

? See, e.g., Texaco, Inc. v. Dagher, 126 S. Ct. 1276, 1279 (2006);

Sylvania, 433 U.S. at 49; Chicago Board of Trade v. United States,

246 U.S. 231, 238 (1918); Standard Oil Co. v. United States, 221 U.S.

1, 60 (1911).

* See Polygram Holding, Inc. v. FTC, 416 F.3d 29, 34 (D.C. Cir

2005) (Ginsburg, C.J.).

; Sylvania, 433 US. at 49.

* Sylvania, 433 U.S. at 58-59.

° Khan, 522 U.S. at 10 (quoting Arizona v. Maricopa County Medical

Society, 457 U.S. 332, 344 (1982)).

” Northern Pacific oil v. United States, 356 U.S. 1, 5 (1958).

-_— -

4

competition and decrease output.” A- particular business

practice therefore should be held per se unlawful only when

“experience” with it will “‘[eJnable the Court to predict with

confidence that the rule of reason will condemn it.’”””

Under that approach, minimum resale price maintenance

should not be deemed unlawful per se for three reasons. First:

Resale price maintenance directly and ordinarily serves

legitimate, procompetitive goals. Among other things, the

practice is used to create incentives for retailers to engage in

product advertising and promotion, to maintain adequate

inventory, and to train sales personnel to explain new or

complex products. Manufacturers and _ intermediate

distributors could reasonably believe that resale price

maintenance is necessary to prevent some retailers from free

riding off the presale services supplied by others, and market

forces will provide the necessary discipline if they are wrong,

because inefficient practices will result in loss of sales to

interbrand competitors. Second: The rationale for a rule of

per se illegality has become obsolete over time. The Court

adopted that rule in 1911 in Dr. Miles Medical Co. v. John D.

Park & Sons Co., 220 U.S. 373, before it had experience with

vertical restraints. Since then, the Court has rejected per se

rules in closely analogous circumstances.'® Resale price

maintenance also is not so inherently likely to serve as a

facade or tool for price fixing that it should be condemned

without giving a party a chance to defend its use. Third: Stare

* Northwest Wholesale Stationers, Inc. v. Pacific Stationery & Printing

Co., 472 U.S. 284, 289-90 (1985) (quoting Broadcast Music, Inc. v.

CBS, 441 U.S. 1, 19-20 (1979)); Khan, 522 U.S. at 10.

* Khan, 522 U.S. at 10 (quoting Maricopa, 457 U.S. at 344).

'° State Oil v. Khan, 522 U.S. 3 (1997) (rejecting a per se rule of

illegality for maximum resale price maintenance); Continental T.V.,

Inc. v. GTE Sylvania Inc., 433 U.S. 36, 59 (1977) (rejecting a per se

rule of illegality for nonprice vertical restraints); cf Illinois Tool

Works v. Independent Ink, Inc., 546 U.S. 164, 126 S. Ct. 1281 (2006)

(rejecting a per se rule that a patent creates monopoly power).

5

decisis considerations should not stand in the way of

abandoning a competitively damaging rule that this Court

would not adopt today in the first instance.

I. MINIMUM RESALE PRICE MAINTENANCE

COMMONLY SERVES LEGITIMATE, PROCOMPETI-

TIVE PURPOSES AND SHOULD NoT BE OUTLAWED

ACROSS THE BOARD

A. Manufacturers and intermediate distributors use

vertical restraints for a host of legitimate, procompetitive

reasons. In one fashion or another vertical restraints are

designed and operate to promote interbrand competition

among rivals by restr-ining intrabrand competition among

multiple dealers offering the same product. Over the last 30

years, this Court has recognized on a number of occasions

that vertical restraints can be procompetitive."'

Minimum resale price maintenance (also known as RPM)

is one type of vertical restraint. Sometimes used in lieu of

vertical integration, minimum resale price maintenance

constrains the lowest price at which a dealer can offer a

supplier’s product.'? Although this Court banned that practice

in 1911 in the Dr. Miles case, for more than two decades there

has been widespread agreement among antitrust scholars'’

'' See Sylvania, 433 U.S. at 54 (“Vertical restrictions promote

interbrand competition by allowing the manufacturer to achieve certain

efficiencies in the distribution of his products.”); Monsanto Co. v.

Spray-Rite Serv. Corp., 465 U.S. 752 (1984); Business Electronics

Corp. v. Sharp Electronics Corp., 485 U.S. 717, 728 (1988); Khan,

522 U.S. at 15-19.

'? A vertically integrated firm would set its own resale price to

consumers, so resale price maintenance is a partial substitute for

vertical integration. Roger D. Blair & David L. Kaserman, Antitrust

Economics 353 (1985).

'? See, e.g., 8 Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law

§] 1611 (2d ed. 2004); Robert H. Bork, The Antitrust Paradox 280-98

(1993 ed.); William F. Baxter, The Viability of the Vertical Restraints

Doctrine, 75 CAL. L. REV. 933, 935 (1987); Terry Calvami & Andrew

G. Berg, Resale Price Maintenance After Monsanto: A Policy Still at

6

and economists'’* alike that minimum resale price

maintenance is a legitimate business practice that

War With Itself, 1984 DUKE L.J. 1163, 1180-82; Frank Easterbrook,

Antitrust Law Enforcement in the Vertical Restraints Area: Vertical

Arrangements and the Rule of Reason, 53 ANTITRUST L.J. 135, 146-48

(1984); Herbert Hovenkamp, The Antitrust Enterprise 123-24, 186-91

(2005); Timothy J. Muris, /mproving the Economic Foundations of

Competition Policy, 12 GEO. MASON L. REV. 1, 17 (2003); Richard A.

Posner, Antitrust Law 172-73, 189 (2d ed. 2001). But see Robert

Pitofsky, Jn Defense of Discounters: The No-Frills Case for a Per Se

Rule Against Vertical Price Fixing, 71 GEO. L.J. 1487 (1983).

'* See, e.g., Roger D. Blair, Jill Boylston Herndon & John E. Lopatka,

Resale Price Maintenance and the Private Antitrust Plaintiff, 83

WASH. U.L.Q. 657, 659, 697-714 (2005); David A. Butz, Vertical

Price Controls With Uncertain Demand, 40 J.L. & ECON. 433 (1997);

Dennis W. Carlton & Jeffrey M. Perloff, Modern Industrial

Organization 423-34 (4th ed. 2005); Yongmin Chen, Oligopoly Price

Discrimination and Resale Price Maintenance, 30 RAND J. ECON.

441 (1999); Raymond Deneckere, Howard P. Marvel & James Peck,

Demand Uncertainty and Price Maintenance: Markdowns as

Destructive Competition, 87 AMER. ECON. REV. 619 (1997); Raymond

Deneckere, Howard P. Marvel & James Peck, Demand Uncertainty,

Inventories, and Resale Price Maintenance, 111 Q.J. ECON. 885

(1996); Pauline M. Ippolito, Resale Price Maintenance: Empirical

Evidence from Litigation, 34 J.L. & ECON. 263 (1991); Benjamin

Klein, The Economics of Franchise Contracts, 2 J. CORP. FIN. 9

(1995); Benjamin Klein & Kevin M. Murphy, Vertical Restraints as

Contract Enforcement Mechanisms, 31 J.L. & ECON. 265 (1988);

Frank Mathewson & Ralph Winter, The Law and Economics of Resale

Price Maintenance, 13 REV. INDUS. ORG. 57 (1998); Howard P.

Marvel & Stephen McCafferty, The Political Economy of Resale Price

Maintenance, 94 J. POL. ECON. 1074 (1986); Howard P. Marvel &

Stephen McCafferty, The Welfare Effects of Resale Price

Maintenance, 28 J.L. & ECON. 363 (1985); Howard P. Marvel &

Stephen McCafferty, Resale Price Maintenance and Quality

Certification, 15 RAND J. ECON. 346 (1984); Thomas R. Overstreet,

Jr., Bureau of Econ., Fed’] Trade Comm'n, Resale Price Maintenance:

Economic Theories and Empirical Evidence (Staff Report 1983);

Lester G. Telser, Why Should Manufacturers Want Fair Trade?, 3 J.L.

& ECON. 86 (1960); Jean Tirole, The Theory of Industrial

7

manufacturers ordinarily use as a means of limiting

intrabrand competition in order to enhance interbrand

competition, which is the “primary concern of antitrust

law.”

Minimum resale price maintenance fosters competition

and efficiency in many ways. By ensuring a minimum margin

between wholesale and retail prices, a manufacturer or

intermediate distributor can: (1) ensure that a larger number

of retail outlets will carry the product; (2) spur nonprice

competition among potential dealers for the right to sell the

product; (3) create loyalty and honesty in retailers; (4) prevent

deterioration in the image of quality or prestige created by the

manufacturer’s or intermediate distributor’s marketing

efforts; and (5) create and preserve retailers’ incentives to

invest in several forms of valuable non-price competitive

behavior. Examples of such procompetitive non-price

behavior include, among others: point-of-sale advertising and

product promotion to educate consumers about new or

complex products; adequate, well-organized inventory and

prominent shelf space in individual outlets; the hiring or

training of knowledgeable sales personnel to explain

products; creation of an attractive shopping environment (e.z.,

multiple, short cashier lines; convenient, usable product

samples, etc.); and the offer of after-sale services. A

manufacturer’s economic encouragement of these behaviors

can cause retailers to create nonprice value for consumers that

exceeds the value of a somewhat lower retail price, and

therefore enhances demand for the product.

Organization 170-84 (1988); W. Kip Viscusi, John M. Vernon &

Joseph E. Harrington, Jr., Economics of Regulation and Antitrust 283

(4th ed. 2005); Ralph A. Winter, Vertical Control and Price Versus

Nonprice Competition, 108 Q.J. ECON. 61 (1993).

'S Sylvania, 433 U.S. at 52 n.19; see also Volvo Trucks North America,

Inc. v. Reeder-Simco GMC, Inc., 546 U.S. 164, 126 S. Ct. 860, 872

(2006).

8

Efforts by manufacturers or intermediate distributors to

offer consumers point-of-sale services are common in a wide

range of industries. Consumers benefit directly from receiving

the services and indirectly from the augmented interbrand

competition. And even dealers can benefit financially from

increased consumer demand due to nonprice sales features.

In sum all parties can benefit from this practice.'®

Retailers’ incentives to provide costly point-of-sale

services are severely undermined when a retailer that provides

these services loses sales to a competitor that can offer lower

prices because it does not provide such services and therefore

does not incur the cosis associated with them. A manufacturer

or intermediate distributor has legitimate interests in

preventing this kind of free-riding behavior, to encourage the

provision of these retail services when they allow the

manufacturer to engage more effectively in interbrand

competition. Yet, without a minimum resale price, dealers

knowledgeable or fearful of free-riding competitors would not

offer these services, injuring the manufacturer and consumers

alike.

The dramatic growth of Internet commerce has vastly

increased the threat of free-riding; retailers that provide costly

point-of-sale services now lose sales to distant Internet

sellers, not just local bricks-and-mortar free nders. If RPM

were permissible, manufacturers or intermediate distributors

could use that device to distribute their products through the

'° Manufacturers vary in their use of resale price maintenance. Some

firms may find it useful for retailers to educate consumers about new

products or about old ones that are purchased infrequently, such as

electronics equipment or vehicles. Other companies may find it

valuable to use RPM in lieu of or in conjunction with national

advertising. Different manufacturers may abandon RPM over time as

consumers gain familiarity with a product. And still other manufac-

turers may choose to rely entirely on national advertising for consumer

education. Telser, 3 J.L. & ECON. at 95-96; Blair & Kaserman,

Antitrust Economics 350; Mathewson & Winter, 13 REV. INDUS. ORG.

at 68.

9

Internet, while limiting free riding by Internet sellers.

Instead, because RPM is now per se illegal, manufacturers

and intermediate distributors now face the unattractive

alternatives of forgoing Internet distribution entirely, or

severely undermining the incentives of their bricks-and-

mortar retailers to provide valuable point-of-sale services.

Manufacturers and intermediate distributors do not use

minimum resale price maintenance as a device to achieve

monopoly profits. Such profits require a restriction in supply,

yet a vertical restriction affects only one brand; it does

nothing to eliminate or reduce interbrand competition. It also

would be irrational for a manufacturer to use resale price

maintenance to allow distributors to earn a monopoly return;

that would be tantamount to giving money to distributors.

And if all that a manufacturer wanted were to increase prices,

a firm would simply raise the price charged to distributors.’

A manufacturer may sometimes misgauge consumer

preferences, and a particular decision to promote non-price

competition by suppressing intrabrand price competition

could conceivably make consumers, on the whole, worse off.

The reason, however, is not that the manufacturer has done

something anticompetitive, and the reasonable response to

f

'’ The same principles apply even when the manufacturer is the

‘dominant firm in an industry. Minimum resale price maintenance does

not enable a dominant firm to extract monopoly profits from

consumers. If a manufacturer is a monopolist, it can make pricing

decisions without need for this restraint, since the exercise of its

market power is not itself illegal. Hovenkamp, The Antitrust

Enterprise 291 (there is no “no fault” antimonopoly rule); e.g., Berkey

Photo, Inc. v. Eastman Kodak Co., 603 F.2d 263, 294 (2d Cir. 1979);

Blue Cross & Blue Shield United of Wisconsin v. Marshfield Clinic, 65

F.3d 1406, 1412-13 (7th Cir. 1995) (Posner, C.J.) Alaska Airlines, Inc.

v. United Airlines, Inc., 948 F.2d 536, 548-49 (9th Cir. 1991);

Williamsburg Wax Museum, Inc. v. Historic Figures, Inc., 810 F.2d

243, 252 (D.C. Cir. 1987); Kartell v. Blue Shield of Massachusetts,

749 F.2d 922, 927 (ist Cir. 1984); Trace X Chem., Inc. v. Canadian

Indus., Ltd., 738 F.2d 261, 268 (8th Cir. 1984).

10

this phenomenon is not strict treble-damage liability for

guessing wrong. Because sellers of products can be more

profitable by giving consumers what they want than what

they do not want, the incentive of the manufacturer is aligned

with that of the body of consumers, and a misapprehension of

consumers’ tradeoffs is merely the result of imperfect

information or bad business judgment, not a diminution in

competition. Moreover, interbrand rivals can take advantage

of such a mistake by offering consumers the cheaper, no-frills

product if that is what consumers (in the requisite numbers)

want. The market, not a court, will “punish” the manufacturer

for any mistakes it makes.'* And here the record facts suggest

that petitioner did not make any mistake, but rather correctly

chose a strategy to advance both its own business interests

and consumer welfare. See Pet. App. 37a-38a. The self-

correcting “problem” of manufacturer restraints that do not in

practice optimize consumer welfare for some limited period

of time is trivial in comparison to the procompetitive benefits

of resale price maintenance, and certainly no reason for a per

se rule against the practice.

' B. This Court has acknowledged that every other means

through which manufacturers may limit intrabrand

competition can be procompetitive. A manufacturer may

lawfully limit intrabrand competition by vertically integrating

into retailing;'? by announcing a suggested retail price and

unilaterally terminating any retailer that charges less;”’ by

contractually limiting the geographic area or the class of

customers that a retailer may serve;”' and by agreeing with

'® See 8 Areeda & Hovenkamp, supra, § 1612e, at 149.

'° See United States v. Addyston Pipe & Steel Co., 85 F. 271, 287 (6th

Cir. 1898) (Taft, J.), aff'd as modified, 175 U.S. 211 (1899); cf, United

States v. United States Steel Corp., 251 U.S. 417 (1920).

© United States v. Colgate & Co., 250 U.S. 300 (1919); Monsanto,

supra; Sharp Electronics, supra.

** Sylvania, supra.

11

retailers on a maximum retail price.” Like resale price

maintenance, all of these practices have both the purpose and

the effect of limiting intrabrand competition, but this Court

has recognized that such practices often increase interbrand

competition. Their net effect is usually procompetitive, and

none of these practices is subject to per se condemnation;

indeed, the vertical restriction that is the most similar to resale

price maintenance—a manufacturer’s unilateral policy of

refusing to sell to any dealer than charges less than the price

“suggested” by the manufacturer—is per se lawful.

Judicial experience has confirmed that vertical restraints

are almost always procompetitive. When non-price vertical

restraints were mistakenly treated as per se unlawful, the

result was described by Judge Ginsburg (formerly the

Assistant Attorney General in charge of the Antitrust

Division) as a “plaintiffs’ picnic” that produced a surge of

meritless antitrust litigation.”> Sylvania corrected that mistake

by holding that the legality of non-price vertical restraints

must be judged by their actual competitive effects; in the 14

years after Sylvania was decided, plaintiffs won in only four

of the 45 reported decisions involving non-price vertical

restraints. And that sample of 45 litigated cases, of course,

involved those restraints that were most likely to be

anticompetitive. For the vast majority of vertical restraints, no

plaintiff even alleged an anticompetitive effect. In light of this

judicial experience with non-price vertical restraints, there is

no reason to believe that resale price maintenance is virtually

always anticompetitive. Vertical agreements that limit

intrabrand price competition should be treated in the same

way as non-pfice vertical restraints.

“ 33 RAR supra.

* Douglas H. Ginsburg & Leah Brannon, Determinants of Private

Antitrust Enforcement in the United States, 1 COMPETITION POLICY

INT'L 29, 37 (2005).

8 Id. at 42.

12

Instead, under the Dr. Miles rule, businesses are forced to

use more costly and less effective devices to limit intrabrand

competition rather than resale price maintenance agreements, |

and to spend large amounts of time and money on antitrust

compliance programs designed to ensure adherence to

arbitrary distinctions that are as irrational and counterintuitive

to business executives as they are to antitrust scholars. These

costs are imposed on every manufacturer or intermediate

distributor that relies on others to distribute and retail its

products. And the beneficiaries of this complexity are not

consumers, distributors, or manufacturers, but lawyers.

Consider just the costs of navigating between the Dr.

Miles rule prohibiting resale price maintenance and the

Colgate rule allowing firms to refuse to sell to dealers who

will not follow a manufacturer’s recommended resale price.

The legality of a Colgate “announce and terminate” policy

does not turn on an evaluation of its competitive effects.

Rather, it turns on a formalistic inquiry into whether the

supplier and dealer have engaged in verbal or nonverbal

communications sufficient for them to be deemed to have

entered into an agreement. Any back-and-forth communi-

cations that could give rise to an inference that the supplier

asked the reseller to maintain a minimum price and that the

reseller communicated his assent might suffice to find an

agreement. Moreover, actions by a supplier other than imme-

diate and indefinite termination of a noncompliant dealer raise

a raft of questions whether they have “agreed” on a resale

price.”> The complexities demanded by this state of the law

>> Consider just these: Can a manufacturer take any retroactive action

with respect to past sales, such as declining to give otherwise earned

rebates or discounts or refusing to accept returns on terms otherwise

applicable, or does such retroactive action permit the inference that

manufacturer and dealer had agreed on resale prices and that the dealer

breached the agreement? Can a manufacturer discuss with the dealer

whether it will terminate the reseller, or just give the dealer a warning?

Can a manufacturer adopt an “announce and terminate” policy for

13

force companies to spend money on legal fees that are better

spent on product research and development. This type of

needless line-drawing exercise is precisely what Sylvania

sought to end by stating that any “departure from the rule-of-

reason standard must be based upon demonstrable economic

effect rather than * * * upon formalistic line drawing.””°

Il. THE ARGUMENTS OFFERED IN DEFENSE OF

RETAINING A PER SE BAN ON MINIMUM RESALE

PRICE MAINTENANCE ARE UNPERSUASIVE

In Dr. Miles, this Court justified a ban on resale price

maintenance on the ground that the practice is an unlawful

“restraint[] upon alienation.””’ Regardless of whether reliance

on that ancient property law rule was appropriate in 1911,”

that rationale did not survive this Court’s 1977 decision in

Sylvania, which rejected a rule of per se invalidity for vertical

nonprice restraints, or the Court’s 1997 decision in Khan,

some products, but not for all? Can a manufacturer terminate a dealer

- for some elements of the manufacturer’s product line, or must the

dealer be terminated across the board? Can a manufacturer terminate

only some noncompliant dealers, or must all be terminated? Can a

manufacturer reinstate a wayward dealer, or will reinstatement be

deemed an agreement to sell at the manufacturer’s resale price? Can a

manufacturer prohibit other dealers from transshipping goods to a

terminated dealer, or will that be deemed an agreement between the

manufacturer and the remaining dealers or among the remaining

dealers?

© 433 U.S. at 58-59.

*” 220 U.S. at 404; United States v. Arnold, Schwinn & Co., 388 U.S.

365, 380 (1967) (so construing Dr. Miles).

** Justice Holmes did not think so. Dr. Miles, 220 U.S. at 412

(dissenting opinion); see also Oliver Wendell Holmes, The Path of the

Law, 10 HARV. L. REV. 457, 469 (1897) (“For the rational study of the

law the blackletter man may be the man of the present, but the man of

the future is the man of statistics and the master of economics.”); Bork,

_ The Antitrust Paradox 285 (“It is hardly reassuring to learn that the

sole basis for antitrust’s answer to a modern business problem is the

solution given three or four hundred years ago by an English judge

who was talking about something else.”’).

14

which rejected a rule of per se invalidity for maximum resale

price restraints. A defense of Dr. Miles must lie elsewhere.

1. A tool to prevent cartels: The principal defense offered

today for the Dr. Miles ruie is that minimum resale price

restraints can sometimes be used as a tool to monitor and

enforce horizontal cartel agreements by manufacturers or

retailers. This theoretical concern, however, finds scant

support, at best, in actual experience. In cases challenging

horizontal cartels, evidence that vertical restraints were used

as a cartel tool is rare. Similarly, cases challenging vertical

restraints rarely produce evidence of horizontal cartel

agreements. Dr. Miles may have been one of those rare

exceptions; the facts in that case suggest that the dealers there _

may have been involved in a cartel.” But in the

overwhelming majority of resale price maintenance cases, as

in this one, there is not even a hint of horizontal cartel

behavior. See Pet. App. 32a, 34a-35a.

In any case, the question here is not whether resale price

maintenance can occasionally be anticompetitive, but whether

it is virtually always anticompetitive.” There is no reason to

deprive businesses and consumers of the usual benefits of the

practice merely because, in unusual cases, the practice might

be misused by a cartel. The Sherman Act provides ample

tools to sue (and prosecute as a criminal offense) the cartel

?? Herbert Hovenkamp, The Antitrust Enterprise 186 (2005).

*° Economists have concluded that minimum resale price maintenance

can have different productive and allocative effects in different

settings. See Carlton & Perloff, Modern Industrial Organization 437;

William S. Comanor, Vertical Price-Fixing, Vertical Market

Restrictions, and the New Antitrust Policy, 98 HARV. L. REV. 983

(1985); F.M. Scherer, Industrial Market Structure and Economic

Performance 591-94 (2d ed. 1980); Viscusi, Vernon & Harrington,

Economics of Regulation and Antitrust 283 (“A detailed analysis of

various cases suggests that RPM can be either efficiency increasing or

decreasing, depending on the magnitude of the demand shift.”). There

is no serious argument, however, that this practice never or even rarely

is economically beneficial.

15

directly; the continued application of the per se rule against

horizontal price fixing is not at issue in this case. Inflexible

condemnation of an often-procompetitive practice because it

might sometimes be associated with an always-illegal practice

is unwarranted. Moreover, there is widespread agreement

among the antitrust bar that “[m]Jost instances of resale price

maintenance are beneficial to consumers and cannot

reasonably be construed as efforts to restraint trade or

monopolize any product or service.”’' Accordingly, the

possibility that a facially legitimate business practice could be

used to enforce a price-fixing agreement does not suffice to

outlaw its use across the board.

2. Congressional ratification: Another defense is that, in

1975, Congress ratified the Dr. Miles rule by repealing

legislation (the Miller-Tydings and McGuire Acts)

authorizing states to permit resale price maintenance.” But

that conclusion does not follow from its premise. At one time,

Congress did suspend the Dr. Miles rule whenever a State

chose to permit resale price maintenance, and Congress later

lifted the suspension. But in so doing Congress did not revise

the Sherman Act to incorporate the Dr. Miles rule and make it

a permanent feature of antitrust law. The choice that Congress

*' Hovenkamp, The Antitrust Enterprise 123-24. Accord, e.g., ABA

Section of Antitrust Law, Antitrust Law and Economics of Product

Distribution 76 (2006) (“the bulk of the economics literature on RPM

* * * suggests that RPM is more likely to be used to enhance

efficiency than for anticompetitive purposes”); Baxter, 75 CAL. L.

REV. at 944-45; Blair, Herndon & Lopatka, 83 WASH. U. L.Q. at 696;

Easterbrook, 53 Antitrust L.J. at 135; Warren S. Grimes, Brand

Marketing, Intrabrand Competition, and the Multibrand Retailer: The

Antitrust Law of Vertical Restraints, 64 ANTITRUST L.J. 83, 89 (1995);

Ippolito, 34 J.L. & ECON. at 281-82, 292; Mathewson & Winter, 13

REV. INDUS. ORG. at 66.

* See the Miller-Tydings Act, Pub. L. No. 75-314, 50 Stat. 693

(1937), and the McGuire Act of 1952, Pub. L. No. 82-543, 66 Stat. 631

(1952), repealed by the Consumer Goods Pricing Act of 1975, Pub. L.

No. 94-145, 89 Stat. 801.

16

made in 1975 was not a decision to entomb development of

antitrust law in its then-current state. Rather, Congress chose

to return the development of federal antitrust law to the

federal common law decisionmaking process, rather than to

leave the matter to state legislatures."’ And any hope that the

Members of any particular Congress may have had as to the

future course of antitrust that was not expressed in positive

law does not bind the courts.** This Court is free to revisit the

issue.”

** Bork, The Antitrust Paradox 288; Easterbrook, 53 Antitrust L.J. at

139; Posner, Antitrust Law 189.

In the 1980s, Congress twice added riders to appropriations bills

prohibiting the Justice Department from arguing for reversal of the Dr.

Miles rule. Pub. L. No. 99-180, 99 Stat. 1136 (1985); Pub. L. No. 98-

166, § 510, 97 Stat. 1071, 1102 (1983); Calvani & Berg, 1984 Duke

L.J. at 1166 n.11. Whatever import those restraints may have had then,

they are not in effect today.

** See Puerto Rico Dep't of Consumer Affairs v. Isla Petroleum, 485

U.S. 495, 501 (1988) (“[U]nenacted approvals, beliefs, and desires are

not law.”); Train v. City of New York, 420 U.S. 35, 45 (1975)

(rl L]egislative intention, without more, is not legislation.”).

* It is no defense of the Dr. Miles rule that it is necessary to protect

small retail firms. (In fact, it could be argued that RPM benefits small

manufacturers seeking to promote a new product. Grimes, 64 Antitrust

L.J. at 100; Pet. 2-3.) The antitrust laws protect the market, not

individual firms whatever their size. E.g., Brooke Group, Ltd. v.

Brown & Williamson Tobacco Corp., 509 U.S. 209, 224 (1993) (“It is

axiomatic that the antitrust laws were passed for ‘the protection of

competition, not competitors.’”) (quoting Brown Shoe Co. v. United

States, 370 U.S. 294, 320 (1962)); Volvo, 546 U.S. 164, 126 S. Ct. at

872 & n.4 (same); Cargill, Inc. v. Monfort of Colorado, Inc., 479 U.S.

104, 116 (1986) (“[T]he antitrust laws do not require the courts to

protect small businesses from the loss of profits due to continued

competition.”); John H. Shenefield & Irwin M. Stelzer, The Antitrust

Laws: A Primer 12-13 (4th ed. 2001).

17

It].S7TARE DECISIS CONSIDERATIONS DO NOT JUSTIFY

RETAINING AN OBSOLETE, ECONOMICALLY

DAMAGING RULE THAT THIS COURT WOULD NOT

ApbDopT TODAY

Stare decisis considerations dictate that settled decisions

ordinarily should receive considerable deference and should

not be abandoned lightly.*° But those considerations enjoy

less weight in this context. In the antitrust laws, Congress

authorized the federal courts to create a common law

governing the competitive process,’’ and the antitrust laws,

like the common law generally,”* must “adapt{] to changed

circumstances and the lessons of accumulated experience.”””

Aware that “[cJourts do make mistakes,””” this Court has been

receptive to Justice Frankfurter’s sage advice that “[w]isdom

too often never comes, and so one ought not to reject it

merely because it comes late.’*' In antitrust law the Court

often has retraced its steps when it concluded that an earlier

path was wrongly chosen.*” That has been particularly true in

*° E.g., Khan, 522 U.S. at 21.

*” Texas Industries, Inc. v. Radcliff Materials, Inc., 451 U.S. 630, 643

(1981); National Society of Professional Engineers v. United States,

435 U.S. 679, 688 (1978).

** See Paul Oskar Kristeller, “Creativity” and “Tradition,” 44 J. HIST.

IDEAS 105, 112 (1983) (“We should realize from the beginning that a

completely stable or rigid tradition that never admits change is

humanly impossible and has never existed.”).

*° Khan, 522 U.S. at 20; Sylvania, 433 U.S. at 48-59.

Willy v. Coastal Corp., 503 U.S. 131, 139 (1992).

*' Henslee v. Union Planters Nat'l Bank & Trust Co., 335 U.S. 595,

600 (1949) (Frankfurter, J., dissenting).

*? Compare, e.g., United States v. Trans-Missouri Freight Ass'n, 166

U.S. 290 (1897) (adopting a rule of per se invalidity for horizontal

price-fixing agreements), with Standard Oil Co. of New Jersey v.

United States, 221 U.S. 1 (1911) (adopting a rule-of-reason analysis

for all horizontal agreements), with United States v. Trenton Potteries

Co., 273 U.S. 392 (1927) (readopting a rule of per se invalidity for

horizontal price-fixing agreements), with Appalachian Coals, Inc. v.

18

the case of vertical business practices, which this Court has

come to appreciate as often procompetitive.*®

United States, 288 U.S. 344 (1933) (applying a rule of reason to a

horizontal output-restriction agreement), with United States v. Socony-

Vacuum Oil Co., 310 U.S. 150 (1940) (applying a rule of per se

invalidity for horizontal price-fixing agreements), with Broadcast

“Music, Inc. v. CBS, 441 U.S. 1 (1979) (efficiency-enhancing horizontal

price-fixing agreements may be subject to a rule-of-reason analysis),

with Arizona v. Maricopa County Medical Society, 457 U.S. 332

(1982) (applying a rule of per se invalidity for a horizontal maximum

price-fixing agreement), with NCAA v. Board of Regents of the Univ.

of Oklahoma, 468 U.S. 85 (1984) (applying a rule of reason to a

horizontal agreement to limit output), and with Palmer v. BRG of

Georgia, Inc., 498 U.S. 46 (1990) (per curiam) (applying a rule of per

se invalidity for a horizontal market allocation agreement). Or

compare Chicago Board of Trade v. United States, 264 U.S. 231, 238

(1918) (identifying factors used in the rule-of-reason analysis), with

FTC v. Indiana Federation of Dentists, 476 U.S. 447, 458-59 (1986)

(articulating a so-called “quick look” analysis).

> Compare, e.g., White Motor Co. v. United States, 372 U.S. 253

(1963) (adopting rule-of-reason analysis for vertical nonprice

restraints), with United States v. Arnold, Schwinn & Co., 388 U.S. 365

(1967) (adopting a rule of per se invalidity for vertical nonprice

restraints; overruling White Motor), and with Continental T.V., Inc. v.

GTE Sylvania, Inc., 433 U.S. 36 (1977) (abandoning a rule of per se

invalidity for vertical nonprice restraints; overruling Schwinn). Or

compare Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S.

373 (1911) (a manufacturer cannot force a distributor to agree on a

manufacturer’s pricing recommendation), with United States v.

Colgate & Co., 250 U.S. 300 (1919) (a manufacturer may refuse to

deal with a retailer that does not honor the manufacturer’s pricing

recommendations), with United States v. General Elec. Co., 272 U.S.

476 (1926) (a manufacturer can set a resale price by consigning the

goods to a distributor, instead of selling them), and with United States

v. Parke, Davis & Co., 362 U.S. 29 (1960), and Simpson v. Union Oil

Co., 377 U.S. 13 (1964) (a manufacturer cannot enforce its pricing

recommendations). Or compare Albrecht v. Herald Co., 390 U.S. 145

(1968) (adopting a rule of per se invalidity for maximum resale price

maintenance), with State Oil Co. v. Khan, 522 U.S. 3 (1997) (rejecting

19

This Court had little experience with vertical restraints at

the time that it decided Dr. Miles.“ By outlawing the practice

there, however, this Court denied itself, the lower courts, the

academy, and the bar the opportunity to acquire the

experience with vertical pricing mechanisms that is necessary

before a business practice should invariably be outlawed.*°

In the last 30 years, however, this Court has held that two

closely related practices—vertical nonprice restraints (such as

territorial restrictions) and maximum resale _ price

maintenance—should not be deemed per se unlawful under

the antitrust laws.*° Stare decisis did not prevent this Court

from overruling unsound precedents in those cases. The

factors that this Court found persuasive there—particularly

the economic utility of vertical restraints in promoting

interbrand competition*’—militate powerfully in favor of

treating the vertical practice at issue here as another generally

permissible business decision. The “lessons of accumulated

experience” that this Court found convincing in Sy/vania and

Khan are equally instructive here.

“x ee *

It is inconceivable that this Court would conclude today,

as a matter of first impression, that vertical resale price

a rule of per se invalidity for maximum resale price maintenance;

overruling Albrecht).

“ “Unlike the early cases involving horizontal restraints, none of the

early vertical restraint cases wrestled with economic principle and

explored the implications of the then-rudimentary learning about price

theory or industrial organization.” Baxter, 75 Cal. L. Rev. at 933;

Hovenkamp, The Antitrust Enterprise 186.

** Hovenkamp, The Antitrust Enterprise 186; see American Airlines,

Inc. v. Wolens, 513 U.S. 219, 234-35 (1995) (“[I]n our system of

adjudication, principles seldom can be settled ‘on the basis of one or

two cases, but require a closer working out.’”) (quoting Roscoe Pound,

Survey of the Conference Problems, 14 U. CIN. L. REV. 324, 339

(1940) (Conference on the Status of the Rule of Judicial Precedent)).

*° Sylvania, supra; Khan, supra.

*’ Sylvania, 433 U.S. at 49-52.

20

maintenance warrants per se condemnation. This case offers a

perfect opportunity to revisit that issue. The Court adopted the

Dr. Miles rule more than 90 years ago, long before it

concluded that antitrust analysis should be guided by

contemporary industrial organization theory. Contemporary

antitrust legal and economic analysis has concluded that

vertical restraints can be procompetitive. And this case

squarely presents the question whether the Dr. Miles rule

should be overruled. The Dr. Miles rule has become an

anachronism harmful both to competition and the develop-

ment of sound antitrust law. This Court should grant review

in this case to reconsider and overrule the Dr. Miles rule

automatically and invariably condemning minimum resale

price maintenance.

CONCLUSION

The petition for a writ of certiorari should be granted.

Respectfully submitted.

MICHAEL FIELD ALTSCHUL Roy T. ENGLERT, JR.*

CTIA — The Wireless DONALD J. RUSSELL

Association Robbins, Russell, Englert,

1400 16" Street N.W. Orseck & Untereiner LLP

Suite 600 1801 K Street, N.W.

Washington, D.C. 20036 Suite 411

(202) 785-0081 Washington, D.C. 20006

(202) 775-4500

*Counsel of Record