Leegin Creative Leather Products, Inc. v. PSKS, Inc.

Supreme Court of the United States · 2007 · Administrative Law

Administrative LawAntitrustSherman Act § 1Vertical RestraintsResale Price MaintenanceSherman ActSection 1rule of reason

Facts

Leegin sold Brighton brand accessories through mostly independent boutiques and adopted a retail pricing policy under which it refused to sell to retailers that discounted below suggested prices, subject to a limited exception for slow-selling goods. It later created the Heart Store Program, under which participating retailers pledged, among other things, to sell at Leegin's suggested prices. Kay's Kloset, operated by PSKS, sold Brighton products and promoted the brand, but in 2002 discounted Brighton's entire line by 20 percent. After PSKS refused Leegin's request to stop discounting, Leegin ceased selling Brighton goods to the store, and PSKS claimed Leegin had entered unlawful price-fixing agreements with retailers.

Issue

Should a vertical agreement between a manufacturer and its distributor setting a minimum resale price be treated as per se unlawful under § 1 of the Sherman Act, or should it instead be evaluated under the rule of reason? More specifically, should Dr. Miles be overruled?

Rule

Vertical agreements establishing minimum resale prices are not per se illegal under § 1 of the Sherman Act. They must be judged under the rule of reason, under which courts assess all the circumstances, including the restraint's history, nature, effect, market power, source of the restraint, and the number of firms using the practice, to determine whether the restraint unreasonably restrains trade.

🔒

See the holding & full analysis

Create a free KwikCourt account to unlock the rest of this brief — and practice the case.

The court's holding and reasoning
Doctrine tests, pitfalls & exam hypotheticals
10 practice questions + 4 AI-graded essays on this case

Free sample · practice this case

Test yourself

One of 10 multiple-choice questions for this case. Pick an answer to see why.

Cedar Vale Audio, a manufacturer of high-end speakers in Portland, requires its independent dealers in Oregon and Washington to sell the speakers at or above stated minimum prices. The company says dealers need sufficient margins to fund listening rooms, trained staff, and product demonstrations. A discount dealer in Eugene sues under Sherman Act § 1 and argues the agreement is automatically unlawful.

How should a court analyze the pricing agreement?

Explanation. The majority held that vertical agreements setting minimum resale prices are not per se illegal. They must be judged under the rule of reason because such restraints can have either procompetitive or anticompetitive effects. Procompetitive justifications include encouraging retailer services and demonstrations that may enhance interbrand competition. (Derived from Leegin Creative Leather Products, Inc. v. PSKS, Inc. (n.d.).)