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Antitrust law


When the Supreme Court overturns a well-established case, the impact extends well beyond that ruling. Cases that have survived for extended periods of time typically spawn complementary cases. These complementary cases protect the ruling in the principal case from erosion by the imagination of business planners, lawyers, scholars, and judges. Or, these complementary cases may be the cases that narrow the rule in the principal case when the Court wants to temper the effect of—but not overrule—its prior decision. When the principal case is, however, overturned, both of these types of cases become orphans. Without the parent case, it is not clear what the complementary cases stand for. This scenario is currently playing out in the field of antitrust. In 2007 the Supreme Court took a step many thought overdue and many more expected. Leegin Creative Leather Products, Inc. v. PSKS, Inc. overturned a nearly hundred-year-old case, Dr. Miles Medical Co. v. John D. Park & Sons, Co. In Dr. Miles, the Court established that resale price maintenance (“RPM”) was a per se violation of section 1 of the Sherman Act. Post-Leegin, RPM may still violate the Sherman Act, but only after a plaintiff prevails under the more difficult and economically meaningful “rule of reason” standard. Since Leegin, there has been a great deal of activity as legislation is produced at both the state and federal level to effectively overrule its holding and declare as a legislative matter that RPM is per se unlawful. And, as one would expect, there has also been a great deal of scholarly commentary. To some extent, the level of commentary about Leegin is surprising because the Court had already taken a number of steps that raised barriers to a successful antitrust claim based on RPM, even under the per se standard. In fact, from a practical standpoint, Dr. Miles, if not officially overruled, had already become far less important as a case and less influential in affecting business strategy. Despite this outpouring of discussion, a critical element of Leegin has not been explored: What is the continuing influence, if any, of nearly one hundred years of Supreme Court decisions that were complementary to Dr. Miles? Do they now play the same role they played in the era of Dr. Miles? For example, are consignment agreements ever the type of agreements that could lead to antitrust liability? This Article explains why they should not play the same role they did in the era of Dr. Miles and the danger of adhering to the analyses found in those cases. Indeed, if the complementary cases are not reconsidered, or if their lack of relevance is not at least understood, they could very well have the effect of undercutting the new direction Leegin signals. An assessment of Dr. Miles’s orphans is not a simple one. The task of predicting their future is difficult because the orphaned cases are not themselves consistent. In fact, they represent two different approaches depending on how broadly or narrowly the Court wanted the prohibition of RPM to be applied and the types of antitrust errors to be avoided. For example, in the period from Dr. Miles in 1911 to Continental T. V. Inc. v. GTE Sylvania Inc. in 1977, the Court, with one major exception, devoted itself to protecting the per se rule. In other words, the Court generally reacted firmly and negatively to efforts to avoid Dr. Miles’s prohibitions. This objective can be viewed as avoiding the error of treating as lawful a practice that is actually anticompetitive. After 1977, the Court reversed course and delivered a series of opinions that favored undermining the rule that RPM is a per se violation of section 1 of the Sherman Act. Here, the objective clearly was to avoid condemning a practice that actually was pro-competitive. In effect, the orphans created by Leegin have sharply differing characteristics. This difference, as will be explained, reflected a change in the Court’s view of vertical restraints more generally. Part I briefly describes Dr. Miles and Leegin. Part II explores the cases decided before and after Sylvania from the perspective of what it means to agree to fix resale prices. It also assesses the importance of those cases in the aftermath of Leegin. As a general matter, those cases are characterized by formalistic line drawing largely in service of the Court’s varying conviction about the correctness of the per se standard. Part II concludes that, insofar as Leegin signals a more substantive economic approach to RPM, those cases have the potential to retard this development and thus must evolve to fit the new approach. Part III then examines another set of cases that sought to distinguish RPM from consignment agreements. This important distinction—between instances in which goods are sold on consignment, as opposed to being resold—was for a time a possible way to avoid the prohibitions of Dr. Miles. The continued importance of this distinction is examined. Part III also pulls this analysis together in light of a limited number of post-Leegin cases. It suggests that the types of errors these sets of cases were designed to avoid are no longer a serious concern. Yet, if this is not recognized by lower courts, the full beneficial effects of Leegin may not be realized.