Price-fixing case could impact wireless distribution channels

The cellphone industry, the Bush administration and others are urging the Supreme Court to abandon a century-old antitrust standard in favor of one that would give carriers, vendors and others in the wireless supply chain greater protection against price-fixing lawsuits.
The high court set oral argument in Leegin Creative Leather Products Inc. v. PSKS Inc. for March 26.
In a nutshell, the case involves an agreement between Leegin, a clothing manufacturer, and retailer PSKS in which the latter agreed not to discount items below suggested retail prices. When PSKS breached the pact, Leegin halted shipments to PSKS. The retailer sued, first winning a jury verdict and later affirmation by a federal appeals court. The lower courts relied on a 1911 Supreme Court holding that “vertical resale price maintenance” agreements are per se-that is, on their face-illegal under Section 1 of the Sherman Act. Leegin wants the Supreme Court to reverse, and it has plenty of backers.
The case has implications in the wireless industry because carriers and vendors sell a variety of products, including Internet-ready mobile devices, that benefit from point-of-sale consumer services. The cellular industry is among those asserting the per se standard is out of date with modern antitrust analysis, which stresses consumer welfare and rejects the notion that big is always bad. Wireless carriers, which have largely relied on retail outlets to help sign up 233 million subscribers the past two decades, and other business sectors have urged the Supreme Court to apply a more flexible “rule of reason” analysis to determine whether vertical price fixing is in fact anti-competitive.
“Manufacturers and intermediate distributors, such as members of amicus CTIA, limit intra-brand retail price competition for legitimate and pro-competitive reasons in a wide range of industries,” stated the cellphone association in a friend-of-the-court brief. “By guaranteeing a minimum gross margin between wholesale and retail prices, a manufacturer or intermediate distributor can enlarge the number of retailers that are willing to sell the product and create and preserve retailers’ incentives to invest in valuable non-price competitive behavior, such as advertising and promoting the product. Retailers’ incentives to provide such costly services are severely undermined when a competitor offers lower prices without providing them and without incurring the associated costs. Manufacturers and intermediate distributors have legitimate interests in preventing this free-riding behavior, and consumers benefit from receiving the services that vertical price restraints can promote.”
The application of the per se standard, added CTIA, burdens businesses and consumers with extra costs.
The Department of Justice agreed. “The time has come to harmonize the law’s treatment of RPM [resale price maintenance] with modern antitrust doctrine. There is no sound basis for treating RPM differently from other vertical agreements. The rule of reason offers protection against anti-competitive uses of RPM, while allowing defendants to defend their arrangements as legitimate and pro-competitive,” stated U.S. Solicitor Paul Clement and other lawyers at the DoJ and Federal Trade Commission.
Leegin is one of four antitrust cases in this Supreme Court term, a relatively large number for that category of law. One of those antitrust cases-Bell Atlantic Corp. v. Twombly-has direct implications for Bell telephone companies, owners of the two largest U.S. mobile phone carriers: Cingular Wireless L.L.C. and Verizon Wireless. The case turns on the question of how specific allegations of collusive behavior must be for an antitrust case to move forward. The plaintiff claims Bell telephone giants conspired after the 1996 telecom act-designed to promote competition-to thwart then-new entrants and now-defunct competitive local exchange carriers.