Majoras Responds to Conyers Regarding Leegin

Thom Lambert —  8 March 2007

There’s just so much paper going back and forth on Leegin that it’s hard to keep up.

In addition to various briefs and commentaries and Commissioner Harbour’s de facto brief (also discussed here), there has been some interesting correspondence between Rep. Conyers, Chair of the House Committee on the Judiciary, and Deborah Platt Majoras, Chair of the FTC.

Back in January, Rep. Conyers wrote to Chairman Majoras and Assistant Attorney General Thomas Barnett, head of DOJ’s antitrust division, “to request the Department’s and Commission’s views” on RPM in general and the Leegin case in particular. Based on Rep. Conyers’ leading questions, it was pretty clear where he stood on Leegin. (e.g., “Given Congress’ active involvement in the RPM issue…in unequivocal support of the Dr. Miles line of cases — would you agree that the Supreme Court should defer to Congress on this issue?”)

Chairman Majoras has responded. The crux of her response is the eminently sensible point that RPM is a “mixed bag” competitively — i.e., it can sometimes be anti-competitive and sometimes pro-competitive — and that rule of reason treatment is therefore appropriate.

Specifically, Chairman Majoras addresses:

The relevance of the 1975 Consumer Goods Pricing Act. The 1937 statute repealed by the 1975 Act effectively permitted states to provide per se legality for RPM schemes. In repealing the Act, Congress again subjected RPM to antitrust scrutiny, but it did not mandate a particular standard to govern such scrutiny. Instead, it contemplated that the standard would evolve with judicial understanding of the practice.

The fact that the DOJ and FTC testified in favor of the 1975 Act. The agencies testified in favor of the 1975 Act because they believed — and still believe — that exemptions and immunities from the antitrust laws (the practical result of the “fair trade” laws authorized by the federal statute repealed by the 1975 Act) are disfavored. They believed RPM should be subject to antitrust scrutiny, but they did not necessarily think it should be subject to the per se rule. Moreover, to the extent their 1975 testimony “failed to recognize potential procompetitive and proconsumer justifications for RPM,” it “did not reflect the subsequent experience and economic analysis that has developed during the last thirty-plus years.”

The FTC’s 2000 enforcement action against the recording industry’s use of minimum advertised prices for the sale of CDs. Sure — some schemes restricting competition over resale prices can be anticompetitive. With regard to this particular scheme, “[t]he Commission examined the circumstances under the rule of reason and concluded that it had reason to believe that the practices were anticompetitive.” Overruling Dr. Miles would not prevent courts and regulators from condemning RPM schemes that, upon investigation, appear to be anticompetitive on balance. But “whether an RPM agreement is anticompetitive or procompetitive depends on the particular facts of the case.”

Academic commentary suggesting that RPM is more dangerous than vertical non-price restraints. The evidence here is unclear. Indeed, economists who have weighed in on the case “observed that nonprice vertical restraints, such as exclusive territories, can more completely restrict intrabrand competition than does RPM.” That’s because, “[w]hile exclusive territorial restrictions can eliminate virtually all intrabrand competition, RPM permits retailers to engage in intrabrand competition on factors other than price, leaving multiple sellers of the brand in the same geographic market to engage in interbrand competition.” (Internal quotation and alteration omitted.) Bottom line: RPM, like vertical non-price restraints, is a mixed bag and should be evaluated as such — that is, subject to the rule of reason.

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All in all, a succinct and persuasive response to some of the leading arguments against overruling Dr. Miles.

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.