978-1285770178 Case Printout Case CPC-26-07 Part 2

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manufacturers have resorted to costlier alternatives of controlling resale prices

retailers charge consumers represents part of the manufacturer’s cost of

distribution, which, like any other cost, the manufacturer usually desires to

minimize. See GTE Sylvania, 433 U.S., at 56, n. 24, 97 S.Ct. 2549; see also id.,

that are not per se unlawful. See infra, at 2721 – 2724; see also Marvel 371.

manufacturers and consumers are aligned with respect to retailer profit margins.

consumers of a meaningful choice between high-service and low-price outlets,

most [resale price maintenance arrangements] are probably innocuous”);

Easterbrook 162 (suggesting that “every one of the potentially-anticompetitive

the restraint is less likely to promote anticompetitive conduct. Cf. Posner 177 (“It

makes all the difference whether minimum retail prices are imposed by the

manufacturer in order to evoke point-of-sale services or by the dealers in order to

obtain monopoly profits”). A manufacturer also has an incentive to protest

inefficient retailer-induceddddd price restraints because they can harm its

power is rare, because of the usual presence of interbrand competition and other

dealers”). And if a manufacturer lacks market power, there is less likelihood it can

use the practice to keep competitors away from distribution outlets.

The rule of reason is designed and used to eliminate anticompetitive transactions

from the market. This standard principle applies to vertical price restraints. A

more guidance to businesses. Courts can, for example, devise rules over time for

offering proof, or even presumptions where justified, to make the rule of reason a

fair and efficient way to prohibit anticompetitive restraints and to promote

procompetitive ones.

For all of the foregoing reasons, we think that were the Court considering the

[s]tare decisis reflects a policy judgment that in most matters it is more important

that the applicable rule of law be settled than that it be settled right.” Khan, 522

U.S., at 20, 118 S.Ct. 275 (internal quotation marks omitted). And concerns

about maintaining settled law are strong when the question is one of statutory

interpretation. See, e.g., Hohn v. United States, 524 U.S. 236, 251, 118 S.Ct.

statute. See National Soc. of Professional Engineers v. United States, 435 U.S.

679, 688, 98 S.Ct. 1355, 55 L.Ed.2d 637 (1978); see also Northwest Airlines, Inc.

v. Transport Workers, 451 U.S. 77, 98, n. 42, 101 S.Ct. 1571, 67 L.Ed.2d 750

(1981) (“In antitrust, the federal courts … act more as common-law courts than in

other areas governed by federal statute”). Just as the common law adapts to

no sense to create out of the single term ‘restraint of trade’ a chronologically

schizoid statute, in which a ‘rule of reason’ evolves with new circumstance and

new wisdom, but a line of per se illegality remains forever fixed where it was.”

Business Electronics, 485 U.S., at 732, 108 S.Ct. 1515.

Justice and the Federal Trade Commission-the antitrust enforcement agencies

with the ability to assess the long-term impacts of resale price maintenance-have

recommended that this Court replace the per se rule with the traditional rule of

reason. See Brief for United States as Amicus Curiae 6. In the antitrust context

the fact that a decision has been “called into serious question” justifies our

approach. We have distanced ourselves from the opinion’s rationales. See supra,

at 2713 – 2714; see also Khan, supra, at 21, 118 S.Ct. 275 (overruling a case

when “the views underlying [it had been] eroded by this Court’s precedent”);

Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U.S. 477, 480–

481, 109 S.Ct. 1917, 104 L.Ed.2d 526 (1989) (same). This is unsurprising, for the

continued to temper, limit, or overrule once strict prohibitions on vertical

restraints. In 1977, the Court overturned the per se rule for vertical nonprice

restraints, adopting the rule of reason in its stead. GTE Sylvania, 433 U.S., at 57–

59, 97 S.Ct. 2549 (overruling United States v. Arnold, Schwinn & Co., 388 U.S.

365, 87 S.Ct. 1856, 18 L.Ed.2d 1249 (1967)); see also 433 U.S., at 58, n. 29, 97

2549 (White, J., concurring in judgment).

Continuing in this direction, in two cases in the 1980’s the Court defined legal

rules to limit the reach of Dr. Miles and to accommodate the doctrines enunciated

in GTE Sylvania and Colgate. See Business Electronics, supra, at 726-728, 108

S.Ct. 1515; Monsanto, 465 U.S., at 763-764, 104 S.Ct. 1464. In Monsanto, the

unlawful because neither party suggested otherwise, id., at 761-762, n. 7, 104

S.Ct. 1464. In Business Electronics the Court further narrowed the scope of Dr.

Miles. It held that the per se rule applied only to specific agreements over price

levels and not to an agreement between a manufacturer and a distributor to

terminate a price-cutting distributor. 485 U.S., at 726-727, 735-736, 108 S.Ct.

under the traditional rule of reason. 522 U.S., at 22, 118 S.Ct. 275. Our continued

limiting of the reach of the decision in Dr. Miles and our recent treatment of other

vertical restraints justify the conclusion that Dr. Miles should not be retained.

The Dr. Miles rule is also inconsistent with a principled framework, for it makes

little economic sense when analyzed with our other cases on vertical restraints. If

less efficient for a particular manufacturer to establish and sustain. The end

result hinders competition and consumer welfare because manufacturers are

forced to engage in second-best alternatives and because consumers are

required to shoulder the increased expense of the inferior practices.

The manufacturer has a number of legitimate options to achieve benefits similar

to treble damages and potential criminal liability. Ibid.; Business Electronics,

supra, at 728, 108 S.Ct. 1515 . Even with the stringent standards in Monsanto

and Business Electronics, this danger can lead, and has led, rational

manufacturers to take wasteful measures. See, e.g., Brief for PING, Inc., as

Amicus Curiae 9-18. A manufacturer might refuse to discuss its pricing policy

integrating downstream and selling its products directly to consumers. Dr. Miles

tilts the relative costs of vertical integration and vertical agreement by making the

former more attractive based on the per se rule, not on real market conditions.

See Business Electronics, supra, at 725, 108 S.Ct. 1515; see generally Coase,

The Nature of the Firm, 4 Economica, New Series 386 (1937). This distortion

given region. Our cases have recognized, and the economics literature confirms,

that these vertical nonprice restraints have impacts similar to those of vertical

price restraints; both reduce intrabrand competition and can stimulate retailer

services. See, e.g., Business Electronics, supra, at 728, 108 S.Ct. 1515;

Monsanto, supra, at 762-763, 104 S.Ct. 1464; see also Brief for Economists as

contrary to its per se illegality and the rule-of-reason status of vertical nonprice

restraints”). The same legal standard ( per se unlawfulness) applies to horizontal

market division and horizontal price fixing because both have similar economic

effect. There is likewise little economic justification for the current differential

treatment of vertical price and nonprice restraints. Furthermore, vertical nonprice

options to achieve sound business objectives.

Respondent’s arguments for reaffirming Dr. Miles on the basis of stare decisis do

not require a different result. Respondent looks to congressional action

concerning vertical price restraints. In 1937, Congress passed the Miller-Tydings

the Dr. Miles rule applied to vertical price restraints in 1975, according to

respondent, shows Congress ratified the rule.

This is not so. The text of the Consumer Goods Pricing Act did not codify the rule

of per se illegality for vertical price restraints. It rescinded statutory provisions

that made them per se legal. Congress once again placed these restraints within

could have set the Dr. Miles rule in stone, but it chose a more flexible option. We

respect its decision by analyzing vertical price restraints, like all restraints, in

conformance with traditional § 1 principles, including the principle that our

antitrust doctrines “evolv[e] with new circumstances and new wisdom.” Business

Electronics, supra, at 732, 108 S.Ct. 1515; see also Easterbrook 139.

v. Midcal Aluminum, Inc., 445 U.S. 97, 102, 100 S.Ct. 937, 63 L.Ed.2d 233

(1980). The state fair trade laws also appear to have been justified on similar

grounds. See Areeda & Hovenkamp 298. The rationales for these provisions are

foreign to the Sherman Act. Divorced from competition and consumer welfare,

they were designed to save inefficient small retailers from their inability to

Respondent also relies on several congressional appropriations in the mid-1980’s

in which Congress did not permit the Department of Justice or the Federal Trade

Commission to use funds to advocate overturning Dr. Miles. See, e.g., 97 Stat.

1071. We need not pause long in addressing this argument. The conditions on

funding are no longer in place, see, e.g., Brief for United States as Amicus

U.S. 808, 828, 111 S.Ct. 2597, 115 L.Ed.2d 720 (1991), especially “in cases

involving property and contract rights,” Khan, 522 U.S., at 20, 118 S.Ct. 275. The

reliance interests here, however, like the reliance interests in Khan, cannot justify

an inefficient rule, especially because the narrowness of the rule has allowed

manufacturers to set minimum resale prices in other ways. And while the Dr.

manufacturers, accounting for no more than ten percent of consumer goods

purchases, ever employed [resale price maintenance] in any single year in the

[United States]”); Scherer & Ross 549 (noting that “[t]he fraction of U.S. retail

sales covered by [resale price maintenance] in its heyday has been variously

estimated at from 4 to 10 percent”). To the extent consumers demand cheap

most part, the effects of the [Consumer Goods Pricing Act] were imperceptible

because the forces of competition had already repealed the [previous antitrust

exemption] in their own quiet way”).

For these reasons the Court’s decision in Dr. Miles Medical Co. v. John D. Park &

Sons Co., 220 U.S. 373, 31 S.Ct. 376, 55 L.Ed. 502 (1911), is now overruled.

The judgment of the Court of Appeals is reversed, and the case is remanded for

proceedings consistent with this opinion.

It is so ordered.