Thursday, June 28, 2007
Posted by Shubha Ghosh
As predicted, the Court overruled Dr. Miles today in the Leegin decision. As also predicted by some, the decision was split 5-4 with Justice Kennedy writing for the majority and Justice Breyer for the dissenters (which included Justices Stevens, Souter, and Ginsburg).
Justice Kennedy's opinion is a nice mix of economic analyis, discussion of the meaning of stare decisis, and extended appeals to not base antitrust law on formalistic distinctions and outdated doctrines. The majority characterizes Dr Miles as case relying on a outmoded view of restraints on alienation that did not take into account business realities. As a refrain, the majority reminds us that per se rules apply only to business practices that "always or almost always restict competition and reduce output." Overruling Dr Miles would be consistent with the trend of analyzing vertical restraints under the rule of reason and the higher standards for showing agreement in this context under Business Electric. The spirit of the opinion is best captured in one paragraph: "[The per se rule against minimum RPM] is a flawed antitrust doctrine that serves the interests of lawyers by creating legal distinctions that operate as traps for the unwary--more than the interests of consumers--by requiring manufactures to choose second-best options to achiece sound business objectives."
Justice Breyer's dissent emphasizes the anti-competitive uses of mimimum RPM and states that nothing really has changed since Dr Miles in our understanding of the practice. As the justice who is perhaps the closest representative of the economics methodology in law, Justice Breyer's skepticism towards the majority's extensive citations to economics is revealing: "Economic discussion, such as the studies the Court relies upon, can help provide answers to these questions, and in doing so, economic can, and should inform antitrust law. But antitrust law cannot and should not precisely replicate economists' (sometimes conflicting) views."
Personally, as someone who works in intellectual property as well, my favorite line from Justice Breyer's dissent is the following, made in response to the majority's justification of minimum RPM as a tool to prevent free-riding: "But free riding often takes place in the economy without any legal effort to stop it. Many visitors to California take free rides on the Pacific Coast Highway. We benefit freely from ideas, such as that of creating the first supermarket. Dealers often take free rides on investments that otehrs have amde in building a product's name and reputation. The question is how often the free riding problem is enough significantly to deter dealer investment."
So there we have it: old precedents don't just fade away, they die. And die, without any discussion of price as the central nervous system of the economy or how trademark law serves much of the same function in limiting free riding and promoting the provision of services. This new decision should keep the next generation of students of retail sales quite busy. The opinion can be downloaded here: Download Leegin.pdf