Price Fixing Rules Revisited

The Supreme Court has agreed to hear an appeal brought by a California handbag manufacturer that could lead to a review of the 95-year-old rules that define price fixing, the Los Angeles Times reports. The existing rule makes it illegal for manufacturers in all industry to contractually oblige retailers and independent sales agents to charge a minimum fixed price. Thus, anyone who sells a product is free to discount as much as they want, which fosters price competition.

A company called Leegin Creative Leather Products is bringing the appeal. Leegin was successfully sued for dropping a Dallas area retailer that discounted prices on its merchandise. Leegin wanted to maintain a higher minimum price to preserve its luxury brand and to encourage retail sales clerks to pay more attention to consumers who were interested in its products. (In fact, back in 1996, Inc. quoted Leegin executives including owner Jerry Kohl at length on why the company often says no to retail accounts that don't mesh with their agenda for the Leegin family of brands, which includes Brighton leather goods.)

According to the Times article, the retailer sued Leegin on the grounds that it had violated the price fixing law, and also because the retailer had spent a significant amount of money promoting Leegin products in its local advertising. A jury awarded the retailer more than $3 million.

Some heavy hitters in the conservative wing of the Republican party are pursuing this litigation, perhaps to test the nascent Roberts Court's willingness to rethink the reigning business law orthodoxy. The National Association of Manufacturers, led by former Michigan governor John Engler, has brought together 25 economists to support a review of the price fixing rule. And Leegin will be represented in oral arguments before the court by Ted Olson, who served as solicitor general during President George W. Bush's first term in office. Olson successfully represented then-Gov. Bush in the case Bush v. Gore before the Supreme Court, which put the 2000 election to bed. Olsen says the Leegin case is "quite important."

"It doesn't happen often that the Supreme Court agrees to revisit a 95-year-old rule that was seemingly written in stone," he notes.

What do you think? Is dynamic price competition an economic principle that has served us well and worth preserving? Or should manufacturers have greater lattitude to make demands on retailers in terms of minimum pricing in an effort to protect and project the proper brand image?

Mike Hofman

Mike Hofman was previously editor of Inc.com and a deputy editor at Inc. magazine, which he joined in 1996. The site was nominated for a National Magazine Award for Digital Media in 2010, and was named the best business website by Folio Magazine. In 2006, Hofman was part of a team of writers nominated for a Webby Award for best business blog. He lives in New York City.