SUPREME COURT LEGALIZES MINIMUM PRICING CONTRACTS
Last week the U.S. Supreme Court overturned a nearly 100-year-old antitrust law and ruled that manufacturers can sometimes contractually bind retailers to a set resale price of their products if the pro-competitive benefits outweigh the anti-competitive aspects.
On June 28, the Supreme Court ruled that vertical price restraints are not per se unlawful but should instead be judged under the "rule of reason." The rule of reason states that only agreements unreasonably restraining trade are subject to actions under the antitrust laws.
The case started with belt manufacturer Leegin Creative Leather Products (producer of Brighton) vs. Kay’s Kloset, a boutique in Dallas. The producer wanted to maintain the premium image of its belts by limiting their distribution to boutiques and keeping prices up.
Justice Anthony Kennedy, writing for the majority, concluded, “Vertical agreements establishing minimum resale prices can have either pro-competitive or anticompetitive effects, depending upon the circumstances in which they are formed.”
“Absent vertical price restraints, the retail services that enhance interbrand competition might be underprovided. This is because discounting retailers can free ride on retailers who furnish services and then capture some of the increased demand those services generate,” he continued.
Five out of nine justices ruled in favor of Leegin Creative. Justice Anthony Kennedy stated that big retailers shouldn’t a “free ride” at the expense of smaller retailers that build a brand.
We see this decision as having a potential impact on not only the Costco case, but on how brewers, distillers and wineries price their products. Producers will now have more control in setting minimum retail prices, as long as the pro-competitive benefits outweigh the anti-competitive benefits. Of course, negative consequences may result, but we feel this decision could help limit the freedom of discounters in the past. Let us know what you think at megan@winespiritsdaily.com.
On June 28, the Supreme Court ruled that vertical price restraints are not per se unlawful but should instead be judged under the "rule of reason." The rule of reason states that only agreements unreasonably restraining trade are subject to actions under the antitrust laws.
The case started with belt manufacturer Leegin Creative Leather Products (producer of Brighton) vs. Kay’s Kloset, a boutique in Dallas. The producer wanted to maintain the premium image of its belts by limiting their distribution to boutiques and keeping prices up.
Justice Anthony Kennedy, writing for the majority, concluded, “Vertical agreements establishing minimum resale prices can have either pro-competitive or anticompetitive effects, depending upon the circumstances in which they are formed.”
“Absent vertical price restraints, the retail services that enhance interbrand competition might be underprovided. This is because discounting retailers can free ride on retailers who furnish services and then capture some of the increased demand those services generate,” he continued.
Five out of nine justices ruled in favor of Leegin Creative. Justice Anthony Kennedy stated that big retailers shouldn’t a “free ride” at the expense of smaller retailers that build a brand.
We see this decision as having a potential impact on not only the Costco case, but on how brewers, distillers and wineries price their products. Producers will now have more control in setting minimum retail prices, as long as the pro-competitive benefits outweigh the anti-competitive benefits. Of course, negative consequences may result, but we feel this decision could help limit the freedom of discounters in the past. Let us know what you think at megan@winespiritsdaily.com.
posted at 2:10 PM
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