Paging Dr. Miles
That’s the Supreme Court calling to say that while the patient is fine, your time grows short.
As Lyle Denniston reported this afternoon, amidst the hubbub over the Supreme Court’s shrinking docket—Linda Greenhouse in the New York Times this morning and Tom Goldstein’s detailed commentary on Nov. 30th—the Supreme Court took five new cases today. Two are antitrust cases (bring the Term’s total to four). One of the new cases addresses antitrust immunities in the context of the initial public offering market; the second takes us back to 1911 and the Supreme Court’s decision in Dr. Miles.
The issue is vertical contracting and whether minimum resale price maintenance is so pernicious that it should be routinely condemned as a violation of Section 1 of the Sherman Act. The Court so concluded in 1911, but economic analysis in the intervening years has indicated that minimum RPM may often be beneficial and courts should therefore conduct a more careful analysis. Presumably, the Court granted cert today to adopt just that view and the good doctor’s near-century run will come to a close.
The Court has slowly pruned away its old doctrine regarding vertical contracting. These are contracts up-and-down the supply chain, say contracts between manufacturers and wholesalers or between manufacturers and retailers. Manufacturers impose limitations in those contracts and those limits have frequently been challenged on antitrust grounds. The Court’s decisions in this area have been organized around the question of whether the restraint in question is a nonprice restraint—say the location of where the goods can be sold—or a price restraint—a restraint that specifies a price above which or below which the good cannot be sold.
Many of these restraints were routinely condemned by the Court—subject to per se analysis as we put it—but the Court abandoned formalism and embraced modern economics in its 1977 decision in GTE Sylvania. That decision ordered more detailed analysis of the restraint in question—rule-of-reason analysis in antitrust lingo—understanding that restraints in vertical contracts often promote competition between brands. (In GTE Sylvania, Sylvania had re-organized its distributor program and had boosted its share of the market from 1% to 5%, a still-piddling share against then-dominant RCA, which had a 70% market share.)
But that still left in place rules of per se illegality for vertical price restraints. The Court has started to chip away at those. In 1997, in State Oil v. Kahn, the Court overturned its 1968 Albrecht decision to move maximum retail price maintenance into the rule-of-reason category. Now, in Leegin Creative Leather Products, Inc. v. PSKS, Inc., presumably the Court will do the same for minimum RPM.
That seems like a safe prediction. The interesting part isn’t substance—the academic literature on minimum RPM has been clear for awhile (indeed, the cert petition relies heavily on a 1984 article by one Frank Easterbrook))—but rather timing. Why did the Court choose to address minimum RPM now?
Maybe that takes us back to the case of the vanishing docket. With space to burn, maybe the Court can clean up some of its doctrinal backwaters. If minimum RPM today, what will come tomorrow?