Publications

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A bill introduced in the US House of Representatives would “legislatively repeal” the United States Supreme Court’s 2007 holding in Leegin Creative Leather Products, Inc. v. PSKS, Inc. d/b/a Kay’s Kloset, a decision that changed the antitrust-law standard that the 1911 Court had established for judging the legality of vertical agreements (those between suppliers/sellers and their distributors/resellers) that set the minimum prices that resellers must charge in the sale of the covered goods.

Leegin altered the judicially crafted decisional rule, applied first in Dr. Miles Medical Co. v. John D. Park & Sons Co. (1911), that vertical minimum price-fixing agreements are per se illegal under Section 1 of the Sherman Act, holding instead that such agreements are to be judged by the rule-of-reason standard. The rule of reason permits a court to weigh evidence of an agreement’s anticompetitive and procompetitive effects and to determine whether, on balance, the net competitive effect renders the agreement “unreasonable.”

The bill introduced in the House on July 13, 2009, seeks to codify the per se illegality of vertical minimum price-setting agreements. The federal “Leegin repealer” is similar to legislation recently introduced in state assemblies to codify the per se rule in state antitrust statutes.

Federal antitrust statutes have never contained a provision expressly making any practice per se illegal. To date, very few state antitrust statutes have contained an express declaration of per se illegality. (Maryland has enacted a per se rule on vertical price-fixing agreements that becomes effective October 1, 2009; and a New York statute declares that a contractual provision restricting a reseller from sales at prices lower than a set price is “unenforceable”; also, immediately following the Leegin decision, certain state attorneys general announced that they would seek to enforce their state statutes as if they contained the per se standard.) The per se rule has always been a judicially created expedient, adopted or abandoned in the common-law evolution of antitrust principles and decisional rules. The Sherman Act itself does not declare any “contract, combination . . ., or conspiracy in restraint of trade” per se unlawful. Early in the common-law development of Sherman Act jurisprudence, the Supreme Court interpreted the statute as prohibiting only “unreasonable” restraints of trade. Standard Oil Co. v. United States (1911); Chicago Board of Trade v. United States (1918).

The House bill, introduced by Hank Johnson (D-GA) and Chairman John Conyers (D-MI) and referred to the Judiciary Committee, would codify in the federal antitrust laws the rule that all vertical minimum price-setting agreements violate the Sherman Act per se. H.R. 3190 provides (in its entirety) that “Any agreement setting a price below which a product or service cannot be sold by a retailer, wholesaler, or distributor shall violate section 1 of the Sherman Act (15 U.S.C. 1).” The preamble of the bill states that the purpose of the legislation is to “restore the rule” that vertical minimum price-setting agreements in themselves violate the Sherman Act. The rule to which the bill refers, however, is a judge-made, common-law decisional rule, which the bill seeks to “restore” by embedding it in statutory law for the first time.

H.R. 3190 is not an exemplary model of legislative drafting. It would not amend Section 1 of the Sherman Act; instead, it proposes a stand-alone statute that declares the specified conduct to be per se illegal by reference to another statute, Section 1. The specified conduct is not characterized as an unreasonable restraint of trade in parallel with the Sherman Act. The bill contains none of the definitions, conditions, or exceptions that are usually found in well-constructed legislation. The legal meaning of the word “cannot” in the prohibition section is not clear - the bill does not employ the most common legislative formulation for restraints of trade, the phrase “may not.” The bill does not define the “product or service” that cannot be sold or indicate whether the violation relates only to the resale of a product or service initially sold to the retailer, wholesaler or distributor by a party to the agreement. Nor does the bill use the familiar Sherman Act phrase, “contract, combination . . ., or conspiracy” to define agreement, or the terms “fix,” “establish,” “control,” or “maintain” that commonly describe prohibited price-related conduct in the antitrust laws.

By comparison, a bill recently enacted by the Maryland General Assembly codifies the per se illegality of “a contract, combination, or conspiracy that establishes a minimum price below which a retailer, wholesaler, or distributor may not sell a commodity or service,” declaring it to be an “unreasonable restraint of trade or commerce.” (Maryland House Bill 657, approved by the Governor, April 14, 2009 and effective as of October 1, 2009). Unlike the federal bill, the Maryland Leegin repealer amends the Maryland Antitrust Act by adding the per se rule condemning vertical minimum price-fixing agreements to the section that enumerates the types of conduct that can constitute offenses under the statute.

In the 1980s, there were similar efforts in Congress to overturn, or “repeal,” a Supreme Court antitrust decision involving the standards applicable to allegations of vertical price-fixing and to codify the per se illegality of such agreements. In Monsanto v. Spray-Rite Service Corp. (1984), the Court adopted a burden-of-proof standard for establishing, from indirect evidence, an agreement between a manufacturer and its full-pricing distributor to terminate a competing discount-pricing distributor. “Monsanto repealer” bills (S. 430 and H.R. 585) were introduced soon after the Court ruling, seeking to insert into the Sherman Act 1) an evidentiary standard of conspiracy that, if met, would require a court to submit a plaintiff’s vertical price-fixing claims to a jury, and 2) the codification of the per se illegality of vertical minimum and maximum price-setting agreements. Those legislative efforts of the late 1980s would have removed the subject matter of vertical price restraints from the common-law jurisprudence of antitrust law and substituted a code-based rule. The currently pending Leegin repealer bills would do the same.

The Monsanto repealers were not enacted, but they did garner substantial and effective support from certain constituencies, including most notably the discount retailing industry, consumer interest groups and state attorneys general. (The US Department of Justice was opposed to the repeal of Monsanto but was barred by Congress, through an appropriations restriction, from taking any action on the issue, including filing amicus briefs in the Supreme Court.) In view of the influence of those and possibly other constituencies, the state of the economy and the aggressive stance on antitrust enforcement announced by the Obama Administration, any efforts to “repeal” the Leegin ruling, codify the per se standard for vertical minimum price-fixing agreements and end the judge-made, common-law evolution of this area of antitrust law - at either the federal or state level - must be taken seriously, by opponents and supporters alike.