More Thoughts on the Leegin Transcript

Keith Sharfman —  27 March 2007

A few more thoughts to supplement Josh’s fine posting on the transcript of oral argument in Leegin.

I don’t understand Justice Breyer. He recognizes that there are at least some circumstances in which RPM helps consumers. Why isn’t that enough for Dr. Miles to be overruled?

Justice Breyer regards this as a “close case” (presumably for reasons of stare decisis rather than on the merits) and asks “what has changed?”

What has changed is our state of economic understanding. When Dr. Miles was decided in 1911, the proconsumer aspects of RPM were not yet recognized. And that was largely true even in 1966, a year that Justice Breyer has focused upon, given the publication that year of an academic book criticizing RPM, which seems (so far as Justice Breyer can tell) to have made all of the same arguments against RPM that are now being made today. But it was not and could not have been argued back in 1966 that it would be inconsistent to exempt some vertical restraints from the per se rule but not others. Only once the late 1970s came, when Continental overruled Schwinn, did it become clear how foolish Dr. Miles is. Now that we allow (subject to the rule of reason) non-price vertical restraints, it seems entirely crazy not to allow RPM as well. As then-Professor Posner argued back in the 1970s, RPM is likely in many cases to be a more efficient vertical restraint than the now permissible non-price ones. So banning RPM across the board on a per se basis does not seem to make any sense. And while many of the same arguments against RPM could have been made in 1966, there are some new ones now that didn’t exist then. Anyway, Dr. Miles was decided in 1911, not 1966. It’s not as though the Court considered overruling Dr. Miles in 1966 and decided not to. The Court is now squarely addressing whether Dr. Miles should be overruled for the first time. So any post-1911 developments in economic science are fair game; there’s no basis for excluding from debate what happens to have been known in 1966!

Justice Breyer is impressed by Professor Scherer’s examples of cases where RPM has been harmful to consumers. But how can these examples justify a per se rule? If Professor Scherer can persuasively demonstrate the benefits of banning RPM in the market, say, for blue jeans, then RPM should be banned in that context under the rule of reason. But this does not come close to showing that RPM is”always or almost always” harmful to consumers such that a per se rule is justified.

But enough about Justice Breyer. I also don’t understand Justice Stevens. What on earth does a horizontal conspiracy among New York distributors have to do with this case? As Justice Scalia said, what possible procompetitive benefit could be associated with a horizontal agreement on price? It’s very hard to think of one. But if Justice Stevens can think of one, then sure: apply the rule of reason in that context too!

Predictions are hard to make. But I don’t think Shubha Ghosh is right about Dr. Miles definitely have four votes in the bag. I say it’s one, not four. Justice Breyer says it’s a close case and may well come around. Justice Souter seems altogether uncertain. Justice Ginsberg if anything seems to be leaning the other way–given her interest about what arguments would be available to the plaintiff on remand assuming (as she appears to think likely) a loss in the Supreme Court. As I read the transcript, Dr. Miles can be confident only about Justice Stevens’ vote.