United States Supreme Court opinions can resolve issues and create controversy and public comments. But, as time passes, what the parties did after the opinion was issued is often lost. Sometimes the parties settle, either as part of a confidential arrangement or in a way that generates no additional publicity. Sometimes the losing party may give up. So it is interesting to see what is most likely the final result of a recent notable U.S. Supreme Court case.
In 2007, in a seminal antitrust case, the U.S. Supreme Court overruled a nearly century-old precedent and determined that vertical resale price restraints would be judged under the rule of reason and would not be per se illegal. (Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 557 U.S. 877 (2007)). Leegin overruled the 1911 case of Dr. Miles Medical Co. v. John D. Park & Sons Co. (220 U.S. 373 (1911)), which prohibited vertical resale price restrictions.
Leegin followed a number of recent U.S. Supreme Court cases narrowing the scope of activities that would be per se illegal and, correspondingly, expanding activities that would warrant a closer review based on detailed analysis (the so-called "rule of reason"). Leegin represented the most recent activity to come under the rule of reason - vertical resale price maintenance that established a minimum price.
Even so, Leegin was very controversial, a decision based on a bare 5- 4 majority. At the time, 37 states joined in an "amicus" brief urging the Supreme Court to retain the "per se" rule in cases involving vertical resale price restraints. Since the Leegin decision, there have been efforts in Congress, so far unsuccessful, to overturn Leegin at the legislative level. Nevertheless, the U.S. Supreme Court ruling in Leegin still stands and the Court of Appeals was required to follow it in its Leegin decision on remand.
The Court of Appeals summarized the lengthy procedural history and the factual background that led to the original lawsuit. Leegin manufactures and distributes handbags, belts, jewelry, and other products under the "Brighton" brand. PSKS operated Kay's Closet, a retail fashion store. Leegin imposed a resale price maintenance policy, prohibiting the sale of Brighton products at a discount. When PSKS refused to stop selling at a discount, Leegin stopped selling to it. PSKS sued Leegin for antitrust violations and a jury awarded $3,975,000 to PSKS. The jury award was affirmed by the Fifth Circuit Court of Appeals.
But the U.S. Supreme Court reversed, holding that vertical price restraints could have procompetitive justifications, such as encouraging retailers to invest in services and promotions and eliminating free riding by discount retailers. So resale price maintenance, even setting minimum prices, should be judged by the rule of reason. The U.S. Supreme Court remanded the case to the lower courts under its new rule. Following the U.S. Supreme Court ruling, the district court granted Leegin's motion to dismiss.
With much at stake, PSKS amended its complaint to try to prove its case again. But the Fifth Circuit Court of Appeals affirmed the lower court and dismissed the claim. (PSKS, Inc. v. Leegin Creative Leather Products, Inc. No. 09-4056, issued on August 17, 2010).
In its attempt to avoid dismissal, PSKS claimed that Leegin (also a retailer of its own products) was part of a horizontal conspiracy of retailers to maintain anti-competitive high prices, to the detriment of consumers. It argued that the market that Leegin's practices were impacting was the "retail market for Brighton's women's accessories" and "the wholesale sale of brand-name women's accessories to independent retailers."
Using the newly adopted rule of reason in resale price maintenance cases, the Fifth Circuit Court of Appeals affirmed the dismissal. The court noted that it is only a rare case where a single brand of products is its own market, as PSKS alleged. PSKS failed to show why Brighton goods were not interchangeable with non-brand name products. Since PSKS could not show that Leegin had market power over a clearly defined market, its claim of illegal resale price maintenance failed.
Therefore, it followed that, if Leegin did not have market power over a relevant market, PSKS could not show the ultimate harm to consumers who, in fact, had off-brands and other name-brands to choose from. It also ignored areas where retailers could also compete for customers, such as service, sales staff, and attractive stores.
Regarding the alleged horizontal conspiracy among Leegin and other retailers, the court was equally dismissive. The conspiracy allegedly was based on discussions Leegin had with its Hawaii retailers. But the court rejected the notion that a manufacturer could not "calibrate prices through discussions with [its] retailers." A rule prohibiting such discussions would increase costs to the detriment of consumers.
PSKS, the plaintiff, had an unusual roller coaster ride in this case. But, unlike the amusement park roller coasters, it was not fun. PSKS first obtained a judgment of nearly $4 million on what it felt was solid law. But the U.S. Supreme Court did something it seldom does and admittedly does not like to do - it overruled itself. The district court and the Fifth Circuit Court of Appeals got the message from the U.S. Supreme Court. So, in the end, PSKS received nothing and Leegin's resale price maintenance policy was upheld. It was no doubt a bitter result to PSKS after several years of litigation.