Antitrust Superprecedent

Thom Lambert —  17 January 2007

Shubha Ghosh, of the Antitrust & Competition Policy Blog, is predicting that the Supreme Court will not overrule the 1911 Dr. Miles decision, which holds that “vertical minimum resale price maintenance” (i.e., a manufacturer’s imposition of minimum resale price for his goods) is per se illegal. Ghosh explains:

[T]he grant of cert in Leegin is not surprising. Whether the Court will overrule Dr. Miles is another matter. My sense is that Dr. Miles is superprecedent, to quote the Chief Justice, in the area of antitrust, and I do not see much academic or practitioner pressure to overturn the 1911 decision. Furthermore, the argument has been to distinguish maximum from minimum resale price maintenance with the per se rule making sense in the latter case but not in the former.

I must respectfully disagree.

Contrary to Ghosh’s suggestion, Dr. Miles has been the subject of gobs of academic criticism, primarily because it ignores the substantial procompetitive benefits vertical minimum price-fixing may confer (most notably, the elimination of free riding among dealers). Moreover, as I explain in this post, the set of circumstances in which minimum resale price maintenance may be anticompetitive is both narrow and fairly easy to identify, suggesting that a more probing rule of reason analysis is appropriate.

I will eat my hat if the Court does not overrule Dr. Miles.

Ghosh’s post does, though, raise an excellent question: What is the proper role of stare decisis in antitrust jurisprudence, particularly that related to Section 1 of the Sherman Act?

For the uninitiated, Section 1 prohibits contracts that “unreasonably” restrain trade. To determine whether a restraint is reasonable, courts typically employ a “rule of reason” whereby they look at things like market structure and the nature of the restraint to assess the restraint’s effect on competition. For some trade-restraining practices, though, no significant investigation is required because the courts have had enough experience with the practices to know that they are nearly always output-reducing. Those practices are said to be “per se” illegal, and they are condemned automatically. Naked price-fixing by competitors, for example, is per se illegal.

In general, courts apply the per se rule only after they have had enough experience with a practice to conclude that the practice is almost always output-reducing. As the Court stated in the Topco decision, “It is only after considerable experience with certain business relationships that courts classify them as per se violations….” Thus, the courts should begin analyzing practices under the rule of reason and proceed to the abbreviated per se rule only after having determined — based on significant experience — that the practice at issue is nearly always anticompetitive.

When the Court does decide that per se treatment is appropriate, stare decisis considerations (i.e., the fact that the practice at issue has received rule of reason treatment in the past) are irrelevant. That’s exactly how it should be, for the entire point of this method of analysis is that the judicial inquiry into reasonableness should be only as probing as required. As the Court explained in the California Dental decision, “What is required … is an enquiry meet for the case, looking to the circumstances, details, and logic of a restraint. The object is to see whether the experience of the market has been so clear, or necessarily will be, that a confident conclusion about the principal tendency of a restriction will follow from a quick (or at least quicker) look, in place of a more sedulous one.”

But what role should stare decisis play when the Court determines after lots of experience, academic analysis, etc. that the per se rule is too restrictive — i.e., that a practice once deemed per se illegal is, in fact, procompetitive in many situations? Unfortunately, the Court has in the past considered itself to be “bound” by stare decisis concerns. Take tying, for example. Most academics agree that the practice, once condemned under the now-discredited leverage theory, may be procompetitive or competitively neutral in many situations and ought to be judged under the rule of reason. In the 1984 Jefferson Parish decision, though, the Court declined to jettison the outmoded per se rule against tying, announcing that “[i]t is far too late in the history of our antitrust jurisprudence to question the proposition that certain tying arrangements pose an unacceptable risk of stifling competition and therefore are unreasonable ‘per se.'” In other words, the Court found itself bound by stare decisis.

This asymmetric approach to stare decisis (ignore the doctrine when moving from the rule of reason to a per se rule, but honor it when pressed to move in the opposite direction), is troubling. As Prof. Hovenkamp recently pointed out in The Antitrust Enterprise: Principle and Execution (pp. 118-19):

Stare decisis has effectively created a ratchet effect for the per se rule, permitting courts to move in one direction but not the other. But knowledge about the competitive effects of business practices must be regarded as a two-way street. Just as increased judicial experience with a practice can lead judges to conclude that it is virtually always anti-competitive and can be disapproved after a truncated inquiry, judicial experience can also reveal the opposite.

To alleviate this unfortunate ratchet effect, Hovenkamp wisely argues that courts should afford stare decisis treatment to judgments regarding the method of analyzing restraints and not to individual conclusions about the reasonableness of particular restraints.

It will be interesting to see what the Court does with Dr. Miles. As noted, I’m almost sure the precedent will be overruled. Hopefully, the Court will also use the occasion to rethink the Jefferson Parish approach to stare decisis. We really don’t need anymore antitrust superprecedents.

Thom Lambert

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I am a law professor at the University of Missouri Law School. I teach antitrust law, business organizations, and contracts. My scholarship focuses on regulatory theory, with a particular emphasis on antitrust.

11 responses to Antitrust Superprecedent

  1. 

    What an excellent comment thread. I want to chime in a dissenting voice in response to Professor Ghosh’s comment:

    “The per se treatment of minimum RPM does not strike as controversial as maximum RPM or the presumption of market power.”

    I disagree. Per se analysis is properly reserved for those contractual arrangements that are known, through experience and empirical verification, to restrict market output or increase market price. For instance, Judge Ginsburg takes this position in Three Tenors when he explains that per se analysis is only appropriate because of “the close family resemblance between the suspect practice and another practice that already stands convicted in the court of consumer welfare.” Per se rules are generally justified on this basis.

    We simply don’t have that with Max or Min RPM. And if we are to believe the empirical literature on Min RPM, we aren’t even close to a state of evidence that would support a per se rule. To the contrary, the bulk of evidence suggests that these restraints are generally associated the output-increasing provision of promotional services.

  2. 

    Thanks for responding to my post on the status of Dr. Miles. I am not going to make any claims about eating hats, but I do think the case against per se treatment of minimum RPM is different from the case against per se treatment of maximum RPM that the Court bought in Kahn. Much of the free riding concerns that Thom correctly arises can be dealt with through territorial restrictions or other non price related limitations, and we know that those restrictions are subject to the rule of reason. I would hope that courts would scrutinize contractual limitations on price competition among retailers more closely.

    Nonetheless, there must be a reason why the Court granted cert, and as far as treatment of precedent, super or otherwise, the Court’s terrific opinion in Illinois Tool last term is a good example of how the Court can and should deal with precedent that seems to fly against academic and other conventional wisdom. The per se treatment of minimum RPM does not strike as controversial as maximum RPM or the presumption of market power.

  3. 

    To the extent one admits the notion of a superprecedent, I think one is rather unlikely to find such decisions in the arena of antitrust.

    First, though, it’s not terribly helpful to talk about “superprecedents” without some agreement on what we mean by that term. It’s certainly not a notion that appears in any formal jurisprudence, at least to my knowledge.

    That said, I would define a “superprecedent” simply as a case that is unthinkable or impossible to overrule. (I’d probably add some gloss that the case has to be important. Thus, a decision that definitively interprets a narrow and rarely applied statutory provision is unlikely to merit the “super precedent” label.)

    Now, what factors might make a case unthinkable or impossible to overrule?

    I can think of three important considerations: (1) strong general consensus as to the correctness of the decision, (2) public reliance on the decision, and (3) reliance of significant bodies of law on the decision.

    Thus, Marbury qualifies as a superprecedent. There’s a strong consensus (albeit not unanimous) in constitutional supremacy and that it is the province of the judiciary to “say what the law is.” And more important, there are tremendous dependencies in the public sphere but even moreso in all areas of law upon this principle

    And, for the same reason, there are few antitrust decisions that likely qualify. Brunswick on antitrust injury is the closest I can think of, as it establishes the bedrock jurisdictional principle of antitrust injury, defining the scope and applicability of antitrust laws.

    Asking the question in the negative is perhaps a more useful way of defining a superprecedent. How much harm would be done, to settled business expectations and to settled bodies of law, by a hypothetical reversal of the proffered decision?

    As for Dr. Miles, I don’t see that its reversal would result in significant real-world effect in these terms.

    In fact, I’d suggest that a decision that establishes that certain conduct is subject to per se versus rule of reason analysis is not likely to be a superprecedent. Rule of reason treatment does not mean the conduct at issue is per se lawful. Such a decision really represents a fairly small change in the degree of risk faced by a business engaging in the conduct.

  4. 

    Uh, that should be “I have not bothered to check or research this ….” Apologies.

  5. 

    I have not bothered to check research this (and I am thinking out loud here), but couldn’t one argue that antitrust is an area of law that is particularly unsuited for superprecedent? Because there is very little statutory and regulatory law on antitrust (for example, the Sherman Act is very, very short), antitrust law has largely been developed by the Courts (and not by Congress or by the executive). Therefore, courts should regularly review, revise and update its antitrust jurisprudence. Again, just thinking out loud here with absolutely no research done, and please do not ask me how often the courts should “regularly” review, revise and update!

  6. 

    Keith and Josh–

    Thanks for reminding us of Kahn and Continental. Let’s hope the Roberts Court similarly rejects the notion of antitrust superprecedent and distances itself from any “it is too late in the day” reasoning.

    (And Josh–excellent note.)

  7. 

    I agree with both of you the good money is on Thom not having to eat his hat. But this whole “antitrust superprecedent” discussion fascinates me. I, too, think of State Oil v. Khan as a primary example of the Court’s stance on stare decisis in antitrust cases:

    “[s]tare decisis is not an inexorable command. In the area of antitrust law, there is a competing interest, well-represented in this Court’s decisions, in recognizing and adapting to changed circumstances and the lessons of
    accumulated experience . . . . Accordingly, this Court has reconsidered its decisions construing the Sherman Act when the theoretical underpinnings of those decisions are called into serious question.”

    Is this passage reconcilable with the famous “far too late” language in Jefferson Parish? And if we are to take the State Oil v. Khan language seriously, what about merger cases? Surely Von’s Grocery and Brown Shoe fit the Court’s criteria (theoretical underpinnings called into question, heavily scholarly criticism … (see, e.g. this *fascinating student note on Von’s Grocery, 48 UCLA L. Rev. 743!)). Why not merger cases?

  8. 

    Excellent post, Thom. On stare decisis in the antitrust context and in particular with respect to resale price maintenance, it will be instructive to take a look at Justice O’Connor’s opinion in Khan v. State Oil, which held that maximum resale price maintenance is subject to rule of reason analysis, overruling the earlier decision in Albrecht, which had held that maximum resale price maintenance is per se unlawful. (Apparently, the strong view on stare decisis that O’Connor expressed in Casey was less strongly felt by her in the antitrust area.)

    Another explicit overruling of an antitrust decision is the overruling in Continental (which applies the rule of reason to vertical territorial restraints) of Schwinn (which had condemned them per se).

    Other antitrust rulings have been overruled less explicitly (e.g., California Dental seems implicitly to have overruled the “quick look” doctrine of NCAA; NYNEX seems implicitly to have partly overruled the per se rule concerning vertical group boycotts seen in Klor’s and Fashion Originators).

    So it won’t be at all surprising if the Dr. Miles gets overruled. Indeed, it seems unlikely that cert would have been granted if it were not the case that at least four Justices are seriously thinking about overruling Dr. Miles.

    Every year I tell my class that Dr. Miles is on thin ice, just as Albrecht was prior to Khan. This year, the ice is likely at last to crack!

Trackbacks and Pingbacks:

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