Supreme Court Eases Ban on Retail Price Floors

The U.S. Supreme Court on Thursday eased a nearly century-old ban on retail price floors, leaving it to lower courts to determine whether individual circumstances violate anti-trust laws.

In a 5-4 decision, the court directed lower courts to apply a "rule of reason" to each case to establish whether the practice is in violation of the Sherman Anti-Trust Act. Justice Anthony Kennedy, writing the majority opinion, ruled that vertical retail price agreements could, under certain circumstances, either hurt or aid consumers.

"As courts gain experience with these restraints by applying the rule of reason over the course of decisions, they can establish the litigation structure to ensure the rule operates to eliminate anti-competitive restraints from the market and to provide more guidance to businesses," Kennedy writes.

The case, Leegin Creative Leather Products vs. PSKS, pitted a leather goods maker against the operator of Kay's Kloset stores in Texas. PSKS argued the stores violated a 1997 agreement with the company by selling products below a retail price the manufacturer suggested. Leegin argued it adopted the policy to position its product as an upscale brand sold only in boutique stores.

The Sherman Anti-Trust Act of 1890 prohibited practices that restrained trade or commerce. A 1911 Supreme Court ruling, Dr. Miles Medical Co. v. John D. Park & Sons, banned the practice of establishing vertical price controls between retailers and manufacturers, a precedent the court overruled Thursday.

Kennedy was joined in his decision by Chief Justice John Roberts and Justices Samuel Alito, Antonin Scalia and Clarence Thomas. Justice Stephen Breyer, joined in dissent by Justices Ruth Bader Ginsburg, David Souter and John Paul Stevens, argued that despite half a century of arguments to abandon the rules banning vertical price floors, Congress had -- properly -- not acted.

"The only safe predictions to make about today's decision are that it will likely raise the price of goods at retail and that it will create considerable legal turbulence as lower courts seek to develop workable principles," Breyer writes.