< Return To Hearing
Janet L. McDavid
July 31, 2007
JANET L. MCDAVID
ON BEHALF OF THE
AMERICAN BAR ASSOCIATION
SUBCOMMITTEE ON ANTITRUST, COMPETITION POLICY AND
COMMITTEE ON THE JUDICIARY
UNITED STATES SENATE
"THE LEEGIN DECISION: THE END OF CONSUMER DISCOUNTS OR
GOOD ANTITRUST POLICY"
JULY 31, 2007
Good morning Chairman Kohl, Senator Hatch, and members of the Subcommittee. My name is Janet McDavid, and I am a partner at Hogan & Hartson in Washington. I am also a former Chair of the Section of Antitrust Law of the American Bar Association and as such, I have been authorized to testify on behalf of the association. Thank you for inviting me to testify before you today concerning the Supreme Court's recent decision concerning resale price maintenance.
In February 2007, the House of Delegates of the American Bar Association ("ABA")
adopted the following resolution: RESOLVED, That the American Bar Association recommends that the Sherman Act, 15 U.S.C. § 1, and comparable state and territorial laws should not be interpreted to apply a rule of per se illegality to agreements between a buyer and seller setting the price at which the buyer may resell goods or services purchased from the seller. This is now the official position of the ABA, and it forms the basis for my testimony today.
In a 5-4 decision issued on June 28, 2007, the United States Supreme Court overruled a nearly century-old precedent and held that vertical agreements between a supplier and its distributor or retailer on the minimum resale prices for the supplier's products will be evaluated under the antitrust rule of reason, not the per se rule. In Dr. Miles Med. Co. v. John D. Park & Sons Co., 220 U.S. 373 (1911), the Court had held that such agreements are per se violations of Section 1 of the Sherman Act. Only eight years after Dr. Miles, however, the Court in Colgate generally allowed a supplier unilaterally to adopt and enforce a policy of refusing to deal with discounters because such a unilateral decision did not involve the agreement necessary for a Section 1 violation. United States v. Colgate & Co., 250 U.S. 300, 307 (1919). The Court's recent decision in Leegin Creative Leather Products, Inc. v. PSKS, Inc., 75 U.S.L.W. 4643 (U.S. June 28, 2007) (No. 06-480) 2007 WL 1835892, overrules Dr. Miles and brings the law on minimum vertical resale price agreements in line with both non-price vertical restraints and maximum vertical resale price agreements, which have been subject only to the rule of reason since the Court's decision in State Oil v. Kahn, 522 U.S. 3 (1997). The Court's Leegin decision is consistent with the position adopted by the ABA.
II. THE LEEGIN DECISION
Consistent with several of the Court's decisions over recent decades, the majority opinion asserts that "[t]he rule of reason is the accepted standard for testing whether a practice restrains trade in violation of §1." 2007 WL 2835892, at *4. "As a consequence, the per se rule is appropriate only after courts had considerable experience with the type of restraint at issue, . . ., and only if courts can predict with confidence that it would be invalidated in all or almost all instances under the rule of reason . . . ." Id. at *5 (emphasis added). That is, per se categorizations are reserved for restraints "that would always or almost always tend to restrict competition and decrease output." Id. quoting Business Elec. Corp. v. Sharp Elec. Corp., 485 U.S. 717, 723 (1988).
The majority opinion emphasizes that "[v]ertical agreements establishing minimum resale prices can have either procompetitive or anticompetitive effects, depending upon the circumstances in which they are formed." Id. at *8. For example, it recognizes that such agreements may stimulate interbrand competition by encouraging retailers to provide services and promotional efforts on behalf of a supplier's products, by giving consumers greater choices as to product quality, service, and price, and by preventing discounting retailers from "free riding" on services provided by others. Id. at *7. At the same time, it recognizes that such agreements may also be used to obtain monopoly profits or to facilitate cartels at the supplier or retailer levels. Id. at *8. However, it concludes on balance that "[a]s the [per se] rule would proscribe a significant amount of procompetitive conduct, these agreements appear ill suited for per se condemnation." Id. at *9.
Notably, the Supreme Court explicitly recognized the tension between the effects of the Colgate decision and application of a per se rule: The manufacturer has a number of legitimate options to achieve benefits similar to those provided by vertical price restraints. A manufacturer can exercise its Colgate right to refuse to deal with retailers that do not follow its suggested prices. See 250 U. S., at 307. The economic effects of unilateral and concerted price setting are in general the same. [2007 WL 2835892, at *12.]
As a result of this dichotomy, prior to Leegin, suppliers seeking to implement a resale pricing policy have spent considerable time and effort seeking to establish that those programs were not the subject of an explicit agreement or even tacit understanding between them and their distributors.
The majority opinion buttresses its position by concluding that the premises upon which Dr. Miles was based no longer apply. Specifically, it concludes that application of the common law rule against restraints on alienation has been rejected in the case of vertical non-price restrictions (see, e.g., Continental. T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36 (l977)) and should not apply in the case of vertical price restraints either. 2007 WL2835892 at *5-6. Indeed, it emphasizes that vertical price restraints may be preferable from a competitive standpoint to reliance on Colgate or on vertical non-price restraints in some instances. Id. at *12-13. The majority also rejected the premise in Dr. Miles that a supplier's vertical agreements with its distributors should be viewed as essentially the same as a horizontal agreement among those distributors and should be similarly condemned. Id. at *6.
The dissenting opinion by Justice Breyer recognizes that vertical resale price agreements may have both procompetitive and anticompetitive effects. Id. at *16-18. It concludes, however, that the arguments in favor of applying the rule of reason have been "well known in the antitrust literature for close to half a century" and are insufficient to justify overturning a long-established precedent. Id. at *15.
III. ABA POSITION
The American Bar Association supports the position that, under the Sherman Act and analogous State and territorial antitrust law, agreements between a buyer and seller setting the price at which the buyer may resell a product or service purchased from the seller should not be illegal per se.
The Sherman Act and the many State and territorial antitrust laws that are modeled on the
Sherman Act contain language prohibiting every agreement in restraint of trade, but the Supreme Court has interpreted this language to prohibit only unreasonable restraints and has formulated two modes of analysis to determine whether a particular restraint should be considered unreasonable. "[M]ost antitrust claims are analyzed under a 'rule of reason,' according to which the finder of fact . . . tak[es] into account a variety of factors, including specific information about the relevant business, its condition before and after the restraint was imposed, and the restraint's history, nature, and effect." State Oil Co. v. Khan, supra. "Some types of restraints, however, have such predictable and pernicious anticompetitive effect, and such limited potential for procompetitive benefit, that they are deemed unlawful per se." Id. Today, there "is often no bright line" separating rule of reason from per se analysis; the rule of reason encompasses a range of analysis, extending from an abbreviated "quick look" to a "plenary market examination," and even where the rule of reason is not applied, "a 'considerable inquiry into market conditions' may be required before the application of any so-called 'per se' condemnation is justified." California Dental Ass'n v. FTC, 526 U.S. 756, 779 (1999), quoting National Collegiate Athletic Ass'n, 468 U.S. 85, 104, n. 26 (1984).
The rule of per se illegality against vertical price fixing (i.e., agreements between buyers and sellers setting the resale price) was established by the Supreme Court in 1911 in Dr. Miles Medical Co. v. John D. Park & Sons Co., supra. That decision was based, inter alia, on the Court's application of the common law rule against restraints on alienation and its concern that minimum resale price maintenance could achieve the same purpose as an agreement among the buyers themselves to fix the prices at which they would resell.
Subsequently, in United States v. Colgate & Co., supra, the Court clarified that the
Sherman Act does not apply to sellers' unilateral refusals to deal with buyers that fail to charge the resale prices suggested by the sellers, thereby permitting sellers to exercise substantial influence over resale prices so long as they avoid entering into bilateral agreements to this effect. The Colgate doctrine was unsuccessfully challenged, on the ground that it was tantamount to minimum resale price maintenance, in Russell Stover Candies, Inc. v. FTC, 718 F.2d 256 (8th Cir. 1983), and then was squarely reaffirmed by the Supreme Court in Monsanto Co. v. Spray- Rite Service Co., 465 U.S. 752, 762-63 (1984).
At one time, the rule of per se illegality applied not only to minimum resale price
maintenance, but to most vertical resale restraints between buyers and sellers, including both price restraints and non-price restraints. See United States v. Arnold, Schwinn & Co., 388 U.S. 365, 380 (1967). Incrementally, however, the Supreme Court has abandoned this standard, except for the per se rule against minimum resale price maintenance, in favor of the rule of reason, under which the procompetitive effects of a restraint are weighed against the anticompetitive effects. The Court has "ma[d]e clear that departure from the rule of reason standard must be based upon demonstrable economic effect rather than--as in Schwinn--upon formalistic line drawing." Continental T. V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 58-59 (1977).
The chief reason for this about-face was the recognition that vertical resale restraints simultaneously have the potential to reduce competition between resellers of the same brand ("intrabrand competition") while stimulating competition between different brands ("interbrand competition") by stimulating resellers of each brand to compete harder. Continental T. V., 433 U.S. at 51-52. Manufacturers and other sellers impose vertical restraints "to induce retailers to engage in promotional activities or to provide service and repair facilities necessary to the efficient marketing of their products" which otherwise, "[b]ecause of market imperfections such as the so-called 'free rider' effect, . . . might not be provided . . . ." Id. at 55.
Thus, the Court overruled application of the per se rule to such non-price resale restraints as location clauses, territorial restraints and customer restraints, holding that these restraints should be judged under the rule of reason. See Continental T. V., 433 U.S. at 36.
Addressing price-related vertical restraints, the Court has held that the rule of per se illegality does not apply to bona fide consignment sales, maximum resale price maintenance, or agreements between a buyer and a seller for the seller to stop doing business with buyers that resell below a particular price. Simpson v. Union Oil Co., 377 U.S. 13 (1964); State Oil Co. v. Khan, 522 U.S. 3 (1997); Business Electronics Corp. v. Sharp Electronics Corp., 485 U.S. 717 (1988). At the same time, lower courts have declined to apply the per se rule to agreements against advertising at prices that are less than an agreed level. See, e.g., Illinois Corporate
Travel, Inc. v. American Airlines, Inc., 806 F.2d 722, 728-29 (7th Cir. 1986), cert. denied, 495 U.S. 919 (1990); see also In re Advertising Checking Bureau, 109 F.T.C. 146 (1987).
The ABA supports the Supreme Court's decision that the time has come to extend the rule of reason approach of these earlier decisions to minimum resale price maintenance because the same motives that manufacturers possess for entering into non-price vertical restraint agreements can also explain their motivation for wanting to enter into minimum resale price maintenance agreements. Manufacturers view dealer margins as their cost of distribution and have no economic incentive to overcompensate dealers--if they want to raise prices they need only raise their own wholesale prices to the dealers without limiting the prices at which the dealers may resell. See Continental T.V., 433 U.S. at 56 n.24. As explained further below, minimum resale price maintenance, like other vertical resale restraints, can stimulate interbrand competition and is not so inevitably pernicious as to warrant per se illegality.
IV. WHY THE AMERICAN BAR ASSOCIATION SUPPORTS APPLYING THE
RULE OF REASON TO MINIMUM RESALE PRICE MAINTENANCE
There are several reasons why the ABA supports application of the rule of reason to minimum resale price maintenance, including the following:
A. The Weight of Economic Analysis Favors Application of the Rule of Reason
The economic literature weighs heavily against condemning all minimum resale price agreements to per se illegality. Notable examples include Robert H. Bork, THE ANTITRUST PARADOX 32 (1978), and Richard A. Posner, ANTITRUST LAW 189 (2d ed. 2001). See generally ABA SECTION OF ANTITRUST LAW, ANTITRUST LAW AND ECONOMICS OF PRODUCT DISTRIBUTION 37-76 (2006) ("the bulk of the economic literature on [minimum resale price maintenance] . . . suggests that [minimum resale price maintenance] is more likely to be used to enhance efficiency than for anticompetitive purposes"). The seminal treatment appears in Lester G. Telser, Why Should Manufacturers Want Fair Trade, 3 J. L. & ECON. 86 (1960), which explained why manufacturers would adopt minimum resale price maintenance to assure the efficient distribution and marketing of their products--by encouraging dealers to promote the product without fear of "free riding" by rival dealers of the same brand that cut prices and spend little or nothing on services. As this principle is described by Judge Posner, when dealers are forced to compete without cutting prices, they "vie with one another to provide presale services" and the manufacturer benefits. Richard A. Posner, Legal Narratology, 64 U. CHI. L. REV. 737, 738 (1997). The prevailing view among economists is that minimum resale price maintenance is more often adopted to serve the interests of manufacturers in achieving efficiencies in distribution than to serve the interests of dealers in assuring their margins. See Business
Electronics Corp. v. Sharp Electronics Corp., supra, 485 U.S. at 727 n.2 ("[r]etail market power is rare" citing Baxter, The Viability of Vertical Restraints Doctrine, 75 Calif. L. Rev. 933, 948-49 (1987)).
B. The "Ancient Rule Against Restraints on Alienation" Does Not Support A Per Se
Rule Against Minimum Resale Price Maintenance
The Supreme Court's ruling in Dr. Miles was predicated largely on "the ancient rule against restraints on alienation," a rule that the Court cited again in its since-overturned decision in United States v. Arnold, Schwinn & Co., 388 U.S. 365, 380 (1967). However, there never actually was an unqualified rule against restraints on alienation. "The plain fact is that the common law never proscribed all restraints on alienation, even of land, and that the 'ancient rule' which the Court invokes actually permitted such restraints under a variety of circumstances." Milton Handler, The Twentieth Annual Antitrust Review--1967, 53 VA. L. REV. 1667, 1684 (1967). "Coke on Littleton cannot provide the answers for the problems that vex[ed] us in the twentieth century," id. at 1685, much less the twenty-first century.
C. Empirical Evidence Under the Fair Trade Laws and Application of the Colgate
Doctrine Do Not Support Application of a Per Se Rule
There have been several empirical tests of minimum resale price maintenance, none of which proves that the practice is always destructive. Between 1937, when the Miller-Tydings Fair Trade Act, Pub. L. No. 75-314, 50 Stat. 693, was passed, and 1975, when the Consumer Goods Pricing Act of 1975, Pub. L. No. 94-145, 89 Stat. 801, was adopted, states were empowered to adopt Fair Trade Laws permitting manufacturers and retailers to enter into minimum resale price maintenance agreements. Many states enacted such laws and many manufacturers took advantage of them, fixing the retail prices at which their products could be resold. Empirical studies conducted at the time showed that identical products tended to cost more in Fair Trade states than in other states, but the premise underlying these studies was that minimum resale price maintenance agreements were usually imposed by buyers upon reluctant sellers--a premise that, as noted above, has not won universal acceptance among economists. See ABA ANTITRUST SECTION, MONOGRAPH NO. 2, VERTICAL RESTRICTIONS LIMITING INTRABRAND COMPETITION 79-80 (1977). There is no indisputable evidence that such agreements created additional market power for any individual brand or were destructive of market-wide competition. Nevertheless, Congress chose to end the program during the decade when Schwinn was still controlling law.
More recently, since the 1984 Monsanto decision reaffirmed the Colgate doctrine and the right of sellers to stop doing business with discounters, numerous sellers have relied upon this doctrine to announce that they will not sell to discounters and to cut off dealers that resell at less than suggested resale prices. See, e.g., Euromadas, Inc. v. Zanella, Ltd., 368 F.3d 11, 17 (1st Cir. 2004); Audio Visual Associates, Inc. v. Sharp Electronics Corp., 210 F.3d 254, 262 (4th Cir. 2000). The result has been to curtail discounting for the products affected, and as the FTC predicted in Russell Stover, the outcome has been very close to the effect of minimum resale price maintenance, but again there is no evidence that the impact has been the augmentation of market power or a diminution in interbrand competition. This has led to criticism that the per se rule against minimum vertical price fixing has become a trap for the unwary, with sophisticated companies accomplishing almost the same result without illegality, but only by jumping through the hoops of the Colgate defense, a result that critics consider both inefficient and unfair.
Finally, more recent empirical study conducted into the effects of minimum resale price maintenance by Federal Trade Commission personnel has found no basis for concluding that minimum resale price maintenance is always anticompetitive or for preserving the rule of per se illegality. See Pauline M. Ippolito, Resale Price Maintenance: Empirical Evidence from Litigation (FTC 1988); Pauline M. Ippolito, Resale Price Maintenance: Empirical Evidence from Litigation, 34 J. L & ECON. 263 (1991). See also Thomas R. Overstreet, Jr., Resale Price Maintenance: Economic Theories and Empirical Evidence (FTC 1983); Ronald N. Lafferty, Robert H. Lande and John B. Kirkwood, Impact Evaluation of Federal Trade Commission Vertical Restraints Cases (FTC 1984); Howard P. Marvel & Stephen McCafferty, Resale Price Maintenance and Quality Certification, 15 RAND J. ECON. 346 (1984).
D. Outlawing Minimum Resale Price Maintenance Has Raised Barriers to Entry and
Produced Anticompetitive Effects
The rule of per se illegality against minimum resale price maintenance has had an impact on retail competition today that was not addressed or necessarily foreseen when the Supreme Court decided Dr. Miles. Currently, it is possible for large retailers that carry a wide variety of products to sell selected products at very low prices--even at or below cost--in order to attract customers into their stores. The retailer does not need to earn a profit on the sale of such products because it can make up for this by selling other products to the consumers that frequent its stores. This strategy works most effectively by discounting products that are exactly the same at every outlet, so that consumers can easily compare prices. The problem for manufacturers of these products, however, is that retailers specializing in such products cannot match the unremunerative prices because they do not carry the wide variety of other products in their stores. The natural result is the eventual disappearance of more specialized outlets, or their refusal to support the targeted products, leaving manufacturers and consumers with fewer options and eventually leaving the large retailers with less competition and greater market power.
All of these reasons militate against preservation of the rule of per se illegality and in favor of application of the rule of reason, under which minimum resale price maintenance would only be unlawful if, on balance, its anticompetitive effects can be proven to outweigh its procompetitive effects in a relevant market.
V. WHY THE AMERICAN BAR ASSOCIATION REJECTS THE ARGUMENTS
ADVANCED IN SUPPORT OF THE RULE OF PER SE ILLEGALITY AGAINST
MINIMUM RESALE PRICE MAINTENANCE
To assure that the ABA reached a sound conclusion, prior to adopting its position it also considered the reasons that have been advanced for preserving the rule of per se illegality against minimum resale price maintenance. In particular, the ABA considered--but ultimately rejected--each of those arguments, including the following:
A. Elevating Prices to Consumers
A common reason advanced for the rule of per se illegality is that minimum resale price maintenance eliminates the ability of retailers and other resellers to engage in price competition on a local level--for example by providing fewer services or a less costly location in exchange for lower prices--thereby resulting in elevated prices to all consumers, including those who would prefer a less expensive distribution option. See William B. Comanor, Vertical Price Fixing, Vertical Market Restrictions, and the New Antirust Policy, 98 HARV. L. REV. 983, 987 (1985); Robert Pitofsky, In Defense of Discounters: The No Frills Case for a Per Se Rule Against Vertical Price Fixing, 71 GEO. L.J. 1487, 1493 (1983). While non-price vertical resale restraints may limit the number of resellers that are allowed to compete for any particular sale, they do not limit the freedom of each competing reseller in a marketplace to adjust its own resale price to local conditions, thereby distinguishing non-price vertical resale restraints from vertical price fixing. Also, while some services may benefit consumers as well as manufacturers, other services provide little or no benefit to consumers even though resale price maintenance can be expected to elevate the price that some consumers pay.
Of course, if minimum resale price maintenance were permitted, and a manufacturer set too high a resale price, sales of its products would suffer. Again, manufacturers have no incentive to increase the margins that their dealers earn on each sale unless the result will be greater sales and greater profits for the manufacturer as well. See Continental T. V., 433 U.S. at 56 n.24. Furthermore, if minimum resale price maintenance harms competition in a relevant market more than it strengthens competition, it would be subject to condemnation under the rule of reason. Cf. Business Electronics Corp. v. Sharp Electronics Corp., 485 U.S. 717, 726-28 (1988) (agreements to terminate "price cutters" subject to rule of reason). Therefore, the ABA disagrees with those who contend that applying the rule of reason--instead of the rule of per se illegality--to minimum resale price agreements will necessarily lessen competition or raise prices for consumers.
B. Facilitating Coordination or Collusion Among Sellers
Another longtime rationale advanced for the per se rule is that minimum resale price
maintenance can facilitate coordination or outright collusion among manufacturers and other sellers to fix the wholesale prices at which they sell their products to dealers. Although wholesale prices frequently are not public, making it difficult for one manufacturer to determine the price that another manufacturer is charging to its dealers, retail prices typically are out in the open. As a consequence, the argument goes, the fixing of retail prices would make it easier for a manufacturer to determine whether another manufacturer is "cheating" on an understanding to maintain prices above a particular level.
For example, if gasoline refiners were permitted to enter into agreements with service stations fixing the price at which each service station owner may resell gasoline to consumers, the refiner could assure that the prices at the pump would be the same at all stations reselling its brand (either with variation among states to account for differences in taxes in different states or even without such variation by equalizing the effect of differences in state taxes). This would enable each refiner to know the retail prices that competing refiners are setting and to coordinate its own wholesale and retail pricing accordingly. If there were an actual agreement among the refiners to maintain a particular resale price, it would be easy to detect deviations from that price. Previously, it has been held that refiners may not intentionally disclose their wholesale prices to one another, In re Petroleum Prods. Antitrust Litigation, 906 F.2d 432, 445-48 (9th Cir. 1990), cert. denied, 500 U.S. 959 (1991), but permitting minimum resale price maintenance could be equally effective in facilitating price uniformity.
In Continental T. V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 52 n.18 (1977), the Supreme Court observed: "The per se illegality of price restrictions has been established firmly for many years and involves significantly different questions of analysis and policy [than nonprice restrictions]. . . . [S]ome commentators have argued that the manufacturer's motivation for imposing vertical price restrictions may be the same as for nonprice restrictions. There are, however, significant differences that could easily justify different treatment. In his concurring opinion in White Motor Co., [372 U.S. 253 (1963),] MR. JUSTICE BRENNAN noted that, unlike nonprice restrictions, '[r]esale price maintenance is not designed to, but almost invariably does in fact, reduce price competition not only among sellers of the affected product, but quite as much between that product and competing brands.' 372 U.S. at 268. Professor [now Judge] Posner also recognized that 'industrywide resale price maintenance might facilitate cartelizing.' Posner, [Antitrust Policy and the Supreme Court: An Analysis of the Restricted Distribution, Horizontal Merger and Potential Competition Decisions, 75 COLUM. L. J. 282 (1975)] at 294 (footnote omitted)."
But is this sufficient reason to deny every seller the ability to enter into minimum resale price maintenance agreements with buyers, regardless of the nature of the product and the circumstances of its distribution? Plainly, this has not been a rhetorical question, but manufacturers engaging in horizontal collusion risk fines under the Sherman Act of $100 million or more and individuals participating in such collusion risk fines of $1 million and ten years in prison, which provides appreciable deterrence without applying a rule of per se illegality to every instance of minimum resale price maintenance. For all these reasons, the ABA does not agree that applying a rule of reason analysis to minimum resale price maintenance agreements will facilitate coordination or outright collusion among manufacturers and other sellers to fix the wholesale prices at which they sell their products to dealers.
C. Facilitating Collusion Among Buyers
A further criticism of minimum resale price maintenance that the ABA considered, but ultimately rejected, is that it can facilitate collusion among buyers to maintain supracompetitive prices. As noted earlier, this was a consideration in the original Dr. Miles decision. However, this not only would run counter to the interests of the seller, but would require the complicity of resellers of other brands, if there are any. See R. J. Reynolds Tobacco Co. v. Cigarettes Cheaper!, 2006-2 Trade Cas. (CCH) ¶ 75,393 (7th Cir. 2006) (why a seller would be drawn into a buyers' cartel "is a mystery" because it would be hurt thereby at least as much as would consumers). In any event, this phenomenon appears to be sufficiently rare as not to justify perpetuation of a rule of per se illegality. Business Electronics Corp. v. Sharp Electronics Corp., 485 U.S. at 727 n.2 ("[r]etail market power is rare"). Moreover, if a seller is drawn into a price fixing conspiracy among buyers, this still would be subject to the rule of per se illegality, not as a vertical conspiracy but as a horizontal one. See United States v. General Motors Corp., 384 U.S. 127 (1966).
D. Congress Has Not Supported Efforts to Overrule the Per Se Rule
The ABA also considered, but was not persuaded by, the argument that the per se rule of illegality for resale price maintenance should be maintained because Congress has not previously supported efforts to overturn it. In 1983, the Department of Justice filed an amicus brief in the Monsanto case in favor of overturning the per se rule of Dr. Miles and wanted to present oral argument to the same effect, but Congress enacted legislation prohibiting the use of funds "for any activity, the purpose of which is to overturn or alter the per se prohibition on resale price maintenance in effect under the Federal antitrust laws." Pub. L. 98-166, 97 Stat. 1071. Congress never has endorsed abandonment of the per se rule and, when confronted with an effort to achieve this end, chose to block it, indicating its support for the existing rule. Nevertheless, the per se rule was the creation of the Supreme Court and it is within the Court's discretion to allow the rule to evolve. As the Court has recognized, the "changing content" of the term "restraint of trade" in the Sherman Act already was "well recognized" when the Act was adopted in 1890, and [i]t would make 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 circumstances and new wisdom, but a line of per se illegality remains forever fixed where it was." Business Electronics Corp. v. Sharp Electronics Corp., 485 U.S. at 731-32.
In sum, the ABA supports the position that under the federal antitrust laws--and analogous state and territorial antitrust law--agreements between a buyer and seller setting the price at which the buyer may resell a product or service purchased from the seller should not be illegal per se. Instead, these agreements should be analyzed under a rule of reason analysis. The ABA also believes that the Supreme Court's recent decision in Leegin is consistent with that position. The ABA appreciates the opportunity to appear before the Subcommittee to discuss this important issue of U.S. antitrust law, and I look forward to your questions.