Court Gives Manufacturers Leeway on Pricing
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Today, the Supreme Court gave manufacturers greater leeway to set minimum prices at the retail level. The five-to-four opinion overturns a long-standing precedent in antitrust law.
And as NPR's Jim Zarroli reports, there are concerns that it could make it harder for small retailers to offer discounts on the products they sell.
JIM ZAROLLI: The case involved Leegin Creative Leather Products, which sells women's accessories under the brand name Brighton. For several years, Leegin required retailers to charge a minimum price for its products. It did this because it was cultivating a high-end image, and it wanted to ensure that the stores selling its goods offered a certain level of service.
But in 2002, Leegin discovered that one of its retailers, a small Texas chain called Kay's Kloset, was discounting its belts as much as 20 percent, and it stopped shipping products there. Kay's Kloset sued Leegin on antitrust grounds and was awarded nearly $4 million. In its suit case, Kloset argued that minimum pricing agreements were always anticompetitive. But in its ruling today, the court rejected that argument. Critics like Rick Brunell of the American Antitrust Institute say the ruling sweeps aside a 96-year-old legal precedent.
Professor RICK BRUNELL (Senior Fellow, American Antitrust Institute): I think it's bad for antitrust. It's bad for consumers. It restricts the ability of retailers to discount branded manufactured goods.
ZAROLLI: The case turned on the question of whether allowing a manufacturer to set minimum prices for its products was good or bad for consumers. In his ruling, Justice Anthony Kennedy said such agreements were often anticompetitive, but not necessarily. In some cases, he said, setting a minimum price can protect competition. The court cited the example of what are called free riders. These are shoppers who go to expensive retailers to look at merchandise and ask questions, and then buy the products online or at discount stores.
Quentin Riegel of the National Association of Manufacturers says this undercuts retailers who hire knowledgeable staff and offer good service.
Mr. QUENTIN RIEGEL (VP for Litigation, National Association of Manufacturers): That has a cost associated with it. And if a full service retailer incurs that cost, but the sale goes to a discounter who doesn't have the same cost, and those full service retailers are either going to go out of business or not sell that manufacturer's product, and that's bad for competition.
ZAROLLI: The ruling today will require courts to look at minimum pricing agreements on an individual basis and decide whether they hurt or help competition. The ruling is bad news for retailers who compete largely on the basis of price. If they want to, manufacturers can try to force them to charge more for their products.
But Thomas Nachbar, who teaches at the University of Virginia Law School, doesn't think that's likely to happen much. Nachbar says big discount chains are probably protected.
Professor THOMAS NACHBAR (Law, University of Virginia Law School): I don't think Wal-Mart has too much to worry about because Sony is going to have a hard time coming to Wal-Mart and saying, look, if you don't sell our products for a certain price, we're going to quit selling to you. Because in many ways, Sony needs Wal-Mart more than Wal-Mart needs Sony.
ZAROLLI: Nachbar also notes that most manufacturers simply have no incentive to impose minimum prices on retailers because it can only hurt their sales. There are exceptions, however, and in his dissent today, Justice Stephen Brier said today's ruling was likely to raise prices at the retail level. Justice Brier also said the majority had not shown any reason to overturn such a long-established legal precedent.
Jim Zarolli, NPR News.
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