The California based manufacturer, Leegin Creative Leather Products Inc. has challenged a 1911 Supreme Court ruling that automatically classifies agreements to set minimum prices as anticompetitive. The case was filed when Kay’s Kloset, a family-owned retailer in Texas decreased prices on women’s fashion accessories; in reaction the manufacturer discontinued the store’s supply. Phil and Kay Smith sued and won in a case now before the Supreme Court that asks whether price-fixing always is illegal. Arguments before the court are scheduled for Monday.
The case has brought Brighton handbags and accessories, famous for their high-end tooled leather, silver trim and heart logos, at the center of the legal dispute that could affect the price and marketing of a multitude of other products as well. The court will reconsider the rule enacted in 1911 that prevent companies from requiring a minimum retail price for their products. The ’suggested’ retail price is intended to be just that, a suggestion. Leegin, backed by the U.S. Justice Department, says it is time to drop the rule that any such price mandate is automatically illegal.
The Justice Department siding with Leegin has said current competitive market no longer makes minimum-price deals automatically bad for buyers. For example, they say, minimum pricing can induce retailers to invest in a product, whether through advertising or service, which can serve buyers. At the same time, the Consumer Federation of America maintains that any such advantage is overshadowed by price competition among all kinds of retailers for a product.
Leegin and its supporters also contend that manufacturers need to set minimum prices so that retailers can afford to promote their products and offer service to customers. On the other hand, Kay’s supporters argue that setting price floors is almost always harmful to consumers. They further are of the view that it creates no incentive for distributors and retailers to become more cost-effective in the delivery of goods and services to consumers. And the practice passes on to consumers the cost of inefficient business practices.
In the recent past, the court has relaxed or repealed several rules intended to prevent anti-competitive schemes and is now set to hear another widely followed case that could dramatically change the rules of the retailing business. However, the court will specifically seek to resolve the legality of a handbag manufacturer’s requirement that retailers adhere to minimum pricing agreements. Such agreements have long been considered to be illegal under an antitrust ruling from 1911.
