Friday, January 17, 2014

Leegin Creative Leather Products, Inc. v. PSKS, Inc. case brief summary

Leegin Creative Leather Products, Inc. v. PSKS, Inc. case brief summary

Leegin used RPM with sales of its “Brighton” brand and ceased selling goods to a retailer when in declined to cease discounting “Brighton” goods. The Court took the opportunity to reconsider anew the categorization of RPM as per se illegal and recast the inquiry under the rule of reason.

  • Both the FTC and the DOJ had supported overturning Dr. Miles and removing the distinction between price and non-price vertical restraints.
Legal Considerations
  • The Court recognized that RPM could
      1. facilitate a manufacturer cartel,
      2. organize cartels at a retail level,
      3. forestall competition from innovative retailers challenging a dominant retailer, and
      4. give retailers the incentive not to sell products from rivals to a dominant manufacturer.
  • The Court also acknowledges certain precompetitive justifications for RPM
      1. Provide means for dealers to invest in tangible and intangible services
      2. Facilitate entry by new firms (or expansion)
      3. Provide customers with more options (e.g. high price/service goods and low price/service goods)
      4. Address market imperfections i.e. free-riding
      5. Provide a more efficient and flexible means of requiring point of sale service which is difficult to specify and enforce through contracts
  • The Court overruled Dr. Miles because it was formalistic, failed to consider modern economic theories and to appreciate the difference between horizontal and vertical restraints, and argued that recent cases had severely undermined Dr. Miles.
  • The Dissent argued that Dr. Miles should not be lightly overturned, based upon its age, the lack of any new economic argument, the inconclusive nature of the studies, the administrative importance of bright-line rules and the Congressional endorsement of the rule.
  • Identical economic arguments apply to the precompetitive benefits of price and non-price restraints; the only new argument the Court brings up is the idea that non-price restraints are being used as the less efficient step-child of vertical price restraints and that these burdens are then being passed onto the consumer.
  • States and Congress remain free to pass rules disallowing RPM; Canada and the EU still prohibit RPM. This may be less effective as a legal ruling than as a signaling device regarding how the Court is treating per se rules.
Relevant Factors for Rule of Reason Analysis

  • Market power of manufacturers
  • The more widely RPM is adopted, the more likely it is anticompetitive.
  • The source of the RPM restraint (since manufacturers’ interests are generally aligned with consumers according to Leegin).

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