High Court Appears Split on Price Fixing

The Supreme Court appears divided over whether to overturn a 96-year-old ruling that bars manufacturers from requiring retailers to sell their products for a set minimum price. Often referred to as the Dr. Miles rule for the manufacturer that sought to fix retail prices of its patent medications, the ruling is one of the most famous and long-standing in anti-trust law.

The case before the court involves Leegin Creative Leather Products, City of Industry, Calif., whose brands include the Brighton line of accessories, and Kay’s Kloset, a privately owned store in Dallas. Leegin refused to do business with Kay’s Kloset after the owners refused to raise prices on Brighton handbags, which they were selling for less than the retail price set by the manufacturer. The owners subsequently sued Leegin, claiming that it was enforcing an agreement to fix prices. A jury ruled in their favor, and Leegin was hit with a $3.6 million judgment for violating the rule against retail price fixing that the Supreme Court set down in the 1911 case of Dr. Miles Medical Co. Leegin wants the judgment reversed.

Leegin’s attorney, Theodore Olsen, the U.S. solicitor general during the first term of the current administration, argued in briefs that discounted prices “degrade” the Brighton brands. He said forcing retailers to charge higher prices could benefit consumers by helping ensure the stores would have enough money to provide desirable services to shoppers. Olsen urged the court to repeal the Dr. Miles rule, which he called outmoded and misguided, and throw out the verdict against the handbag maker.

The Bush administration, along with the National Association of Manufacturers and other business groups, backed Leegin. But 37 states and the Consumer Federation of America urged the court to retain the ruling, saying its repeal would hurt discounters as well as shoppers. In its brief supporting the retailer, the Consumer Federation of America asked, “Absent the ban … would there ever have been a Sears & Roebuck, an A&P, a Walgreens, a Kmart or a Wal-Mart, as we have come to know them? The evidence suggests not.”

The Dr. Miles ruling gave rise to the “manufacturers suggested retail price” (MSRP), and circulars promoting that a retailer’s price was too low to advertise as manufacturers retained the right to restrict retailers from advertising their products below a set minimum.