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127 S.Ct. 2705
In 1997, Leegin instituted the “Brighton Retail Pricing and Promotion Policy.” 4
id., at 939. Following the policy, Leegin refused to sell to retailers that discounted
Brighton goods below suggested prices. The policy contained an exception for
products not selling well that the retailer did not plan on reordering. In the letter to
stores; specialty stores that can offer the customer great quality merchandise,
superb service, and support the Brighton product 365 days a year on a
consistent basis.
“We realize that half the equation is Leegin producing great Brighton product
and the other half is you, our retailer, creating great looking stores selling our
incentives to become Heart Stores, and, in exchange, retailers pledged, among
other things, to sell at Leegin's suggested prices. Kay's Kloset became a Heart
Store soon after Leegin created the program. After a Leegin employee visited the
store and found it unattractive, the parties appear to have agreed that Kay's
Kloset would not be a Heart Store beyond 1998. Despite losing this status, Kay's
loss of the Brighton brand had a considerable negative impact on the store's
revenue from sales.
PSKS sued Leegin in the United States District Court for the Eastern District of
Texas. It alleged, among other claims, that Leegin had violated the antitrust laws
by “enter[ing] into agreements with retailers to charge only those prices fixed by
concerted action. See United States v. Colgate & Co., 250 U.S. 300, 307, 39
S.Ct. 465, 63 L.Ed. 992 (1919). The jury agreed with PSKS and awarded it $1.2
million. Pursuant to 15 U.S.C. § 15(a), the District Court trebled the damages and
reimbursed PSKS for its attorney's fees and costs. It entered judgment against
Leegin in the amount of $3,975,000.80.
to [vertical minimum price-fixing] agreements.” 171 Fed.Appx., at 466. On this
premise the Court of Appeals held that the District Court did not abuse its
discretion in excluding the testimony of Leegin's economic expert, for the per se
rule rendered irrelevant any procompetitive justifications for Leegin's pricing
policy. Id., at 467. We granted certiorari to determine whether vertical minimum
amended, 15 U.S.C. § 1. While § 1 could be interpreted to proscribe all contracts,
see, e.g., Board of Trade of Chicago v. United States, 246 U.S. 231, 238, 38
S.Ct. 242, 62 L.Ed. 683 (1918), the Court has never “taken a literal approach to
[its] language,” Texaco Inc. v. Dagher, 547 U.S. 1, 5, 126 S.Ct. 1276, 164
L.Ed.2d 1 (2006). Rather, the Court has repeated time and again that § 1
practice should be prohibited as imposing an unreasonable restraint on
competition.” Continental T. V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 49, 97
S.Ct. 2549, 53 L.Ed.2d 568 (1977). Appropriate factors to take into account
include “specific information about the relevant business” and “the restraint's
history, nature, and effect.” Khan, supra, at 10, 118 S.Ct. 275. Whether the
rule distinguishes between restraints with anticompetitive effect that are harmful
to the consumer and restraints stimulating competition that are in the consumer's
best interest.
[4] Link to KeyCite Notes The rule of reason does not govern all restraints. Some
types “are deemed unlawful per se.” Khan, supra, at 10, 118 S.Ct. 275. The per
see Texaco, supra, at 5, 126 S.Ct. 1276, or to divide markets, see Palmer v.
BRG of Ga., Inc., 498 U.S. 46, 49-50, 111 S.Ct. 401, 112 L.Ed.2d 349 (1990)
(per curiam).
[5] Link to KeyCite Notes Resort to per se rules is confined to restraints, like
those mentioned, “that would always or almost always tend to restrict competition
[6] Link to KeyCite Notes As a consequence, the per se rule is appropriate only
after courts have had considerable experience with the type of restraint at issue,
see Broadcast Music, Inc. v. Columbia Broadcasting System, Inc., 441 U.S. 1, 9,
99 S.Ct. 1551, 60 L.Ed.2d 1 (1979), and only if courts can predict with confidence
that it would be invalidated in all or almost all instances under the rule of reason,
253, 263, 83 S.Ct. 696, 9 L.Ed.2d 738 (1963) (refusing to adopt a per se rule for
a vertical nonprice restraint because of the uncertainty concerning whether this
type of restraint satisfied the demanding standards necessary to apply a per se
rule). And, as we have stated, a “departure from the rule-of-reason standard
must be based upon demonstrable economic effect rather than ... upon
752, 761, 104 S.Ct. 1464, 79 L.Ed.2d 775 (1984). In Dr. Miles the plaintiff, a
manufacturer of medicines, sold its products only to distributors who agreed to
resell them at set prices. The Court found the manufacturer's control of resale
prices to be unlawful. It relied on the common-law rule that “a general restraint
upon alienation is ordinarily invalid.” 220 U.S., at 404-405, 31 S.Ct. 376. The
its decision based on “formalistic” legal doctrine rather than “demonstrable
economic effect,” GTE Sylvania, supra, at 58-59, 97 S.Ct. 2549. The Court in Dr.
Miles relied on a treatise published in 1628, but failed to discuss in detail the
business reasons that would motivate a manufacturer situated in 1911 to make
use of vertical price restraints. Yet the Sherman Act's use of “restraint of trade”
for generations. The Court should be cautious about putting dispositive weight on
doctrines from antiquity but of slight relevance. We reaffirm that “the state of the
common law 400 or even 100 years ago is irrelevant to the issue before us: the
effect of the antitrust laws upon vertical distributional restraints in the American
economy today.” GTE Sylvania, 433 U.S., at 53, n. 21, 97 S.Ct. 2549 (internal
supra, at 734, 108 S.Ct. 1515 (disclaiming the “notion of equivalence between
the scope of horizontal per se illegality and that of vertical per se illegality”);
Maricopa County, supra, at 348, n. 18, 102 S.Ct. 2466 (noting that “horizontal
restraints are generally less defensible than vertical restraints”). Our recent cases
formulate antitrust principles in accordance with the appreciated differences in
485 U.S., at 726, 108 S.Ct. 1515.
A
[7] Link to KeyCite Notes Though each side of the debate can find sources to
support its position, it suffices to say here that economics literature is replete with
procompetitive justifications for a manufacturer's use of resale price
interbrand competition and consumer welfare in a variety of ways”); ABA Section
of Antitrust Law, Antitrust Law and Economics of Product Distribution 76 (2006)
(“[T]he bulk of the economic literature on [resale price maintenance] suggests
that [it] is more likely to be used to enhance efficiency than for anticompetitive
purposes”); see also H. Hovenkamp, The Antitrust Enterprise: Principle and
Ross, Industrial Market Structure and Economic Performance 558 (3d ed.1990)
(hereinafter Scherer & Ross) (“The overall balance between benefits and costs
[of resale price maintenance] is probably close”).
The few recent studies documenting the competitive effects of resale price
maintenance also cast doubt on the conclusion that the practice meets the
restraints. See GTE Sylvania, 433 U.S., at 54-57, 97 S.Ct. 2549. Minimum resale
price maintenance can stimulate interbrand competition-the competition among
manufacturers selling different brands of the same type of product-by reducing
intrabrand competition-the competition among retailers selling the same brand.
See id., at 51-52, 97 S.Ct. 2549. The promotion of interbrand competition is
consumers more options so that they can choose among low-price, low-service
brands; high-price, high-service brands; and brands that fall in between.
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
has a reputation for selling high-quality merchandise. Marvel & McCafferty,
Resale Price Maintenance and Quality Certification, 15 Rand J. Econ. 346, 347-
349 (1984) (hereinafter Marvel & McCafferty). If the consumer can then buy the
product from a retailer that discounts because it has not spent capital providing
services or developing a quality reputation, the high-service retailer will lose
facilitating market entry for new firms and brands. “[N]ew manufacturers and
manufacturers entering new markets can use the restrictions in order to induce
competent and aggressive retailers to make the kind of investment of capital and
labor that is often required in the distribution of products unknown to the
consumer.” GTE Sylvania, supra, at 55, 97 S.Ct. 2549; see Marvel & McCafferty
Resale price maintenance can also increase interbrand competition by
encouraging retailer services that would not be provided even absent free riding.
It may be difficult and inefficient for a manufacturer to make and enforce a
contract with a retailer specifying the different services the retailer must perform.
Offering the retailer a guaranteed margin and threatening termination if it does
Econ. 265, 295 (1988); see also Deneckere, Marvel, & Peck, Demand
Uncertainty, Inventories, and Resale Price Maintenance, 111 Q.J. Econ. 885,
911 (1996) (noting that resale price maintenance may be beneficial to motivate
retailers to stock adequate inventories of a manufacturer's goods in the face of
uncertain consumer demand).
An unlawful cartel will seek to discover if some manufacturers are undercutting
the cartel's fixed prices. Resale price maintenance could assist the cartel in
identifying price-cutting manufacturers who benefit from the lower prices they
offer. Resale price maintenance, furthermore, could discourage a manufacturer
from cutting prices to retailers with the concomitant benefit of cheaper prices to
services or to promote its brand but to give inefficient retailers higher profits.
Retailers with better distribution systems and lower cost structures would be
prevented from charging lower prices by the agreement. See Posner 172;
Overstreet 13-19. Historical examples suggest this possibility is a legitimate
concern. See, e.g., Marvel & McCafferty, The Welfare Effects of Resale Price
decreases output or reduces competition in order to increase price is, and ought
to be, per se unlawful. See Texaco, 547 U.S., at 5, 126 S.Ct. 1276; GTE
Sylvania, 433 U.S., at 58, n. 28, 97 S.Ct. 2549. To the extent a vertical
agreement setting minimum resale prices is entered upon to facilitate either type
of cartel, it, too, would need to be held unlawful under the rule of reason. This
demands for vertical price restraints if the manufacturer believes it needs access
to the retailer's distribution network. See Overstreet 31; 8 P. Areeda & H.
Hovenkamp, Antitrust Law 47 (2d ed.2004) (hereinafter Areeda & Hovenkamp);
cf. Toys “R” Us, Inc. v. FTC, 221 F.3d 928, 937-938 (C.A.7 2000). A
manufacturer with market power, by comparison, might use resale price
degree of confidence that resale price maintenance “always or almost always
tend[s] to restrict competition and decrease output.” Business Electronics, supra,
at 723, 108 S.Ct. 1515 (internal quotation marks omitted). Vertical agreements
establishing minimum resale prices can have either procompetitive or
anticompetitive effects, depending upon the circumstances in which they are
conclusion). As the rule would proscribe a significant amount of procompetitive
conduct, these agreements appear ill suited for per se condemnation.
[8] Link to KeyCite Notes Respondent contends, nonetheless, that vertical price
restraints should be per se unlawful because of the administrative convenience
of per se rules. See, e.g., GTE Sylvania, supra, at 50, n. 16, 97 S.Ct. 2549
antitrust laws should encourage. See Easterbrook, Vertical Arrangements and
the Rule of Reason, 53 Antitrust L.J. 135, 158 (1984) (hereinafter Easterbrook).
They also may increase litigation costs by promoting frivolous suits against
legitimate practices. The Court has thus explained that administrative
“advantages are not sufficient in themselves to justify the creation of per se
Miles rule.
[9] Link to KeyCite Notes Respondent also argues the per se rule is justified
because a vertical price restraint can lead to higher prices for the manufacturer's
goods. See also Overstreet 160 (noting that “price surveys indicate that [resale
price maintenance] in most cases increased the prices of products sold”).
competition, from which lower prices can later result. See Khan, 522 U.S., at 15,
118 S.Ct. 275. The Court, moreover, has evaluated other vertical restraints under
the rule of reason even though prices can be increased in the course of
promoting procompetitive effects. See, e.g., Business Electronics, 485 U.S., at
728, 108 S.Ct. 1515. And resale price maintenance may reduce prices if
In 1997, Leegin instituted the “Brighton Retail Pricing and Promotion Policy.” 4
id., at 939. Following the policy, Leegin refused to sell to retailers that discounted
Brighton goods below suggested prices. The policy contained an exception for
products not selling well that the retailer did not plan on reordering. In the letter to
stores; specialty stores that can offer the customer great quality merchandise,
superb service, and support the Brighton product 365 days a year on a
consistent basis.
“We realize that half the equation is Leegin producing great Brighton product
and the other half is you, our retailer, creating great looking stores selling our
incentives to become Heart Stores, and, in exchange, retailers pledged, among
other things, to sell at Leegin's suggested prices. Kay's Kloset became a Heart
Store soon after Leegin created the program. After a Leegin employee visited the
store and found it unattractive, the parties appear to have agreed that Kay's
Kloset would not be a Heart Store beyond 1998. Despite losing this status, Kay's
loss of the Brighton brand had a considerable negative impact on the store's
revenue from sales.
PSKS sued Leegin in the United States District Court for the Eastern District of
Texas. It alleged, among other claims, that Leegin had violated the antitrust laws
by “enter[ing] into agreements with retailers to charge only those prices fixed by
concerted action. See United States v. Colgate & Co., 250 U.S. 300, 307, 39
S.Ct. 465, 63 L.Ed. 992 (1919). The jury agreed with PSKS and awarded it $1.2
million. Pursuant to 15 U.S.C. § 15(a), the District Court trebled the damages and
reimbursed PSKS for its attorney's fees and costs. It entered judgment against
Leegin in the amount of $3,975,000.80.
to [vertical minimum price-fixing] agreements.” 171 Fed.Appx., at 466. On this
premise the Court of Appeals held that the District Court did not abuse its
discretion in excluding the testimony of Leegin's economic expert, for the per se
rule rendered irrelevant any procompetitive justifications for Leegin's pricing
policy. Id., at 467. We granted certiorari to determine whether vertical minimum
amended, 15 U.S.C. § 1. While § 1 could be interpreted to proscribe all contracts,
see, e.g., Board of Trade of Chicago v. United States, 246 U.S. 231, 238, 38
S.Ct. 242, 62 L.Ed. 683 (1918), the Court has never “taken a literal approach to
[its] language,” Texaco Inc. v. Dagher, 547 U.S. 1, 5, 126 S.Ct. 1276, 164
L.Ed.2d 1 (2006). Rather, the Court has repeated time and again that § 1
practice should be prohibited as imposing an unreasonable restraint on
competition.” Continental T. V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 49, 97
S.Ct. 2549, 53 L.Ed.2d 568 (1977). Appropriate factors to take into account
include “specific information about the relevant business” and “the restraint's
history, nature, and effect.” Khan, supra, at 10, 118 S.Ct. 275. Whether the
rule distinguishes between restraints with anticompetitive effect that are harmful
to the consumer and restraints stimulating competition that are in the consumer's
best interest.
[4] Link to KeyCite Notes The rule of reason does not govern all restraints. Some
types “are deemed unlawful per se.” Khan, supra, at 10, 118 S.Ct. 275. The per
see Texaco, supra, at 5, 126 S.Ct. 1276, or to divide markets, see Palmer v.
BRG of Ga., Inc., 498 U.S. 46, 49-50, 111 S.Ct. 401, 112 L.Ed.2d 349 (1990)
(per curiam).
[5] Link to KeyCite Notes Resort to per se rules is confined to restraints, like
those mentioned, “that would always or almost always tend to restrict competition
[6] Link to KeyCite Notes As a consequence, the per se rule is appropriate only
after courts have had considerable experience with the type of restraint at issue,
see Broadcast Music, Inc. v. Columbia Broadcasting System, Inc., 441 U.S. 1, 9,
99 S.Ct. 1551, 60 L.Ed.2d 1 (1979), and only if courts can predict with confidence
that it would be invalidated in all or almost all instances under the rule of reason,
253, 263, 83 S.Ct. 696, 9 L.Ed.2d 738 (1963) (refusing to adopt a per se rule for
a vertical nonprice restraint because of the uncertainty concerning whether this
type of restraint satisfied the demanding standards necessary to apply a per se
rule). And, as we have stated, a “departure from the rule-of-reason standard
must be based upon demonstrable economic effect rather than ... upon
752, 761, 104 S.Ct. 1464, 79 L.Ed.2d 775 (1984). In Dr. Miles the plaintiff, a
manufacturer of medicines, sold its products only to distributors who agreed to
resell them at set prices. The Court found the manufacturer's control of resale
prices to be unlawful. It relied on the common-law rule that “a general restraint
upon alienation is ordinarily invalid.” 220 U.S., at 404-405, 31 S.Ct. 376. The
its decision based on “formalistic” legal doctrine rather than “demonstrable
economic effect,” GTE Sylvania, supra, at 58-59, 97 S.Ct. 2549. The Court in Dr.
Miles relied on a treatise published in 1628, but failed to discuss in detail the
business reasons that would motivate a manufacturer situated in 1911 to make
use of vertical price restraints. Yet the Sherman Act's use of “restraint of trade”
for generations. The Court should be cautious about putting dispositive weight on
doctrines from antiquity but of slight relevance. We reaffirm that “the state of the
common law 400 or even 100 years ago is irrelevant to the issue before us: the
effect of the antitrust laws upon vertical distributional restraints in the American
economy today.” GTE Sylvania, 433 U.S., at 53, n. 21, 97 S.Ct. 2549 (internal
supra, at 734, 108 S.Ct. 1515 (disclaiming the “notion of equivalence between
the scope of horizontal per se illegality and that of vertical per se illegality”);
Maricopa County, supra, at 348, n. 18, 102 S.Ct. 2466 (noting that “horizontal
restraints are generally less defensible than vertical restraints”). Our recent cases
formulate antitrust principles in accordance with the appreciated differences in
485 U.S., at 726, 108 S.Ct. 1515.
A
[7] Link to KeyCite Notes Though each side of the debate can find sources to
support its position, it suffices to say here that economics literature is replete with
procompetitive justifications for a manufacturer's use of resale price
interbrand competition and consumer welfare in a variety of ways”); ABA Section
of Antitrust Law, Antitrust Law and Economics of Product Distribution 76 (2006)
(“[T]he bulk of the economic literature on [resale price maintenance] suggests
that [it] is more likely to be used to enhance efficiency than for anticompetitive
purposes”); see also H. Hovenkamp, The Antitrust Enterprise: Principle and
Ross, Industrial Market Structure and Economic Performance 558 (3d ed.1990)
(hereinafter Scherer & Ross) (“The overall balance between benefits and costs
[of resale price maintenance] is probably close”).
The few recent studies documenting the competitive effects of resale price
maintenance also cast doubt on the conclusion that the practice meets the
restraints. See GTE Sylvania, 433 U.S., at 54-57, 97 S.Ct. 2549. Minimum resale
price maintenance can stimulate interbrand competition-the competition among
manufacturers selling different brands of the same type of product-by reducing
intrabrand competition-the competition among retailers selling the same brand.
See id., at 51-52, 97 S.Ct. 2549. The promotion of interbrand competition is
consumers more options so that they can choose among low-price, low-service
brands; high-price, high-service brands; and brands that fall in between.
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
has a reputation for selling high-quality merchandise. Marvel & McCafferty,
Resale Price Maintenance and Quality Certification, 15 Rand J. Econ. 346, 347-
349 (1984) (hereinafter Marvel & McCafferty). If the consumer can then buy the
product from a retailer that discounts because it has not spent capital providing
services or developing a quality reputation, the high-service retailer will lose
facilitating market entry for new firms and brands. “[N]ew manufacturers and
manufacturers entering new markets can use the restrictions in order to induce
competent and aggressive retailers to make the kind of investment of capital and
labor that is often required in the distribution of products unknown to the
consumer.” GTE Sylvania, supra, at 55, 97 S.Ct. 2549; see Marvel & McCafferty
Resale price maintenance can also increase interbrand competition by
encouraging retailer services that would not be provided even absent free riding.
It may be difficult and inefficient for a manufacturer to make and enforce a
contract with a retailer specifying the different services the retailer must perform.
Offering the retailer a guaranteed margin and threatening termination if it does
Econ. 265, 295 (1988); see also Deneckere, Marvel, & Peck, Demand
Uncertainty, Inventories, and Resale Price Maintenance, 111 Q.J. Econ. 885,
911 (1996) (noting that resale price maintenance may be beneficial to motivate
retailers to stock adequate inventories of a manufacturer's goods in the face of
uncertain consumer demand).
An unlawful cartel will seek to discover if some manufacturers are undercutting
the cartel's fixed prices. Resale price maintenance could assist the cartel in
identifying price-cutting manufacturers who benefit from the lower prices they
offer. Resale price maintenance, furthermore, could discourage a manufacturer
from cutting prices to retailers with the concomitant benefit of cheaper prices to
services or to promote its brand but to give inefficient retailers higher profits.
Retailers with better distribution systems and lower cost structures would be
prevented from charging lower prices by the agreement. See Posner 172;
Overstreet 13-19. Historical examples suggest this possibility is a legitimate
concern. See, e.g., Marvel & McCafferty, The Welfare Effects of Resale Price
decreases output or reduces competition in order to increase price is, and ought
to be, per se unlawful. See Texaco, 547 U.S., at 5, 126 S.Ct. 1276; GTE
Sylvania, 433 U.S., at 58, n. 28, 97 S.Ct. 2549. To the extent a vertical
agreement setting minimum resale prices is entered upon to facilitate either type
of cartel, it, too, would need to be held unlawful under the rule of reason. This
demands for vertical price restraints if the manufacturer believes it needs access
to the retailer's distribution network. See Overstreet 31; 8 P. Areeda & H.
Hovenkamp, Antitrust Law 47 (2d ed.2004) (hereinafter Areeda & Hovenkamp);
cf. Toys “R” Us, Inc. v. FTC, 221 F.3d 928, 937-938 (C.A.7 2000). A
manufacturer with market power, by comparison, might use resale price
degree of confidence that resale price maintenance “always or almost always
tend[s] to restrict competition and decrease output.” Business Electronics, supra,
at 723, 108 S.Ct. 1515 (internal quotation marks omitted). Vertical agreements
establishing minimum resale prices can have either procompetitive or
anticompetitive effects, depending upon the circumstances in which they are
conclusion). As the rule would proscribe a significant amount of procompetitive
conduct, these agreements appear ill suited for per se condemnation.
[8] Link to KeyCite Notes Respondent contends, nonetheless, that vertical price
restraints should be per se unlawful because of the administrative convenience
of per se rules. See, e.g., GTE Sylvania, supra, at 50, n. 16, 97 S.Ct. 2549
antitrust laws should encourage. See Easterbrook, Vertical Arrangements and
the Rule of Reason, 53 Antitrust L.J. 135, 158 (1984) (hereinafter Easterbrook).
They also may increase litigation costs by promoting frivolous suits against
legitimate practices. The Court has thus explained that administrative
“advantages are not sufficient in themselves to justify the creation of per se
Miles rule.
[9] Link to KeyCite Notes Respondent also argues the per se rule is justified
because a vertical price restraint can lead to higher prices for the manufacturer's
goods. See also Overstreet 160 (noting that “price surveys indicate that [resale
price maintenance] in most cases increased the prices of products sold”).
competition, from which lower prices can later result. See Khan, 522 U.S., at 15,
118 S.Ct. 275. The Court, moreover, has evaluated other vertical restraints under
the rule of reason even though prices can be increased in the course of
promoting procompetitive effects. See, e.g., Business Electronics, 485 U.S., at
728, 108 S.Ct. 1515. And resale price maintenance may reduce prices if
