As such, the agreement is considered a "conspiracy in restraint of trade" in violation of section 1 of the Sherman Act. The practice, particularly when a floor has been set under permissible resale prices ( minimum RPM), has been considered a per se violation of the antitrust laws since 1911, when the Court decided in Dr. Miles Medical Company v. John D. Park & Sons Company that such imposition and agreement was not analytically different from an agreement among the dealers themselves to fix their prices, thus depriving consumers of the advantages of competition. It required the plaintiff in Monsanto v. Spray-Rite Service Corp. to provide evidence of activity on the part of the manufacturer and the non-terminated dealer that "tends to exclude the possibility that [they] were acting independently" (465 U.S. 752, 764 (1984)). Finally, in Business Electronics Corp. v. Sharp Electronics Corp. the Court determined that neither (1) all of those agreements which affect price (because nearly all vertical agreements do), nor (2) all of those which contain the word "price" should be treated as per se violations. Per se illegality should be reserved for only those restraints that include "some [express or implied] agreement on price or price levels" (485 U.S. 717, 719, 728 (1988)). Notwithstanding that the per se treatment of maximum RPM had been in effect for approximately 30 years, Justice O'Connor noted, the Court had never been confronted with an "unadulterated" maximum RPM arrangement, and so found the "conceptual foundations [of that rule to be] gravely weakened." Leegin Creative Leather Products v. PSKS, Inc.7

Continuing the erosion of its precedents in the law of vertical restraints/RPM, a divided (5-4) Court overruled Dr. at 2709. Although the lawfulness of particular practices is often determined pursuant to the Rule of Reason, they acknowledged, there are some practices whose "likely anticompetitive consequences" are either so serious, with so few possible justifications, or whose justifications are "so difficult to prove [that] this Court has imposed a rule of per se unlawfulness—a rule that instructs courts to find the practice unlawful all (or nearly all) of the time" (127 S.Ct. 2652, 2007 WL 1804336), "argues [here] against overturning Dr. Miles " (127 S.Ct. at 2737.
The plaintiff in Leegin Creative Leather Products v. PSKS, Inc. successfully asked the Supreme Court to soften the longstanding treatment of resale price maintenance (RPM, vertical imposition of direct, minimum price restraints) as a per se (automatic, and not capable of being justified) antitrust offense. RPM had been so analyzed since the Court decided in 1911 that a manufacturer of patent medicines could not lawfully agree with retailers of its products on the prices at which those products would be sold (Dr. Miles Medical Company v. John D. Park & Sons Company, 220 U.S. 373). Such agreements, the Court had said in Dr. Miles, constituted both unlawful restraints of trade under the common law, and violations of the Sherman Act's prohibition against "contract[s] or combination[s] ... in restraint of trade" (15 U.S.C. § 1). Leegin's practice of entering into contracts with its retailers of the Brighton line of leather products to set the prices at which the dealers would resell those products was challenged by a discounting retailer whose replacement shipments were terminated; the trial court found a per se violation of section 1 (2004 WL 5254322), and the Court of Appeals for the Fifth Circuit affirmed that decision (171 Fed.Appx. 464 (2006)). Leegin argued in the Supreme Court that because RPM may sometimes be pro-consumer (might, for example, allow the retailers to profitably provide extra services desired by some consumers), the practice should not be conclusively presumed unreasonable "without elaborate inquiry as to 'its precise harm or business justification for its use.'" Agreeing with Leegin, the Court overruled Dr. Miles, stating that allowing RPM to be analyzed as a Rule of Reason violation (pursuant to which the procompetitive effects of a judicially determined antitrust violation are weighed against the anticompetitive results of the challenged activity) should be allowed: "Notwithstanding the risks of unlawful conduct, it cannot be stated with any degree of confidence that [RPM] always tend[s] to restrict competition ...." 551 U.S. ___, 127 S.Ct. 2705, 2709 (2007), quoting, Business Electronics Corp. v. Sharp Electronics Corp., 485 U.S. 717, 723 (1988).
This report will not be updated.