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High court appears split on price fixing

Several justices say a repeal of a 1911 rule could mean consumers will pay more. Antonin Scalia and others say the law is outdated.

March 27, 2007|David G. Savage | Times Staff Writer

WASHINGTON — Bush administration lawyers urged the Supreme Court on Monday to repeal a nearly 100-year-old rule that bars manufacturers from fixing the retail prices of their products.

In a case involving a California company, the government argued that the price-fixing rule was too rigid and made it harder for companies to market their products with special displays in retail stores.

But several justices said a repeal would hurt consumers and lead to higher prices. It could mean "every American will pay far more for the goods they buy," said Justice Stephen G. Breyer, citing examples as diverse as jeans and medicines. Why should we run that risk? he asked.

"Price is not the only thing consumers care about," replied Deputy Solicitor Gen. Thomas G. Hungar.

The high court finds itself at a crossroads in the area of antitrust law and price fixing. The National Assn. of Manufacturers and other business groups have joined the administration in urging the court to limit antitrust enforcement.

Their lawyers say companies can promote their brands as they see fit. Sometimes that could mean making contracts with retailers to charge a fixed minimum price for a product, they say.

Since 1911, however, such contracts or agreements have been illegal under the antitrust laws.

The Consumer Federation of America says a repeal of this rule would allow manufacturers and retailers to set higher prices. It would hurt discounters as well as shoppers who go online to look for good deals, the advocacy group contends.

The justices appeared to be split during Monday's argument. Breyer and the other liberal justices questioned the wisdom of overturning a rule that has helped create a highly competitive retail market in the United States that includes huge discounters such as Wal-Mart Stores Inc. and Target Corp.

Lawmakers could choose to repeal the anti-price-fixing rule, noted Justice Ruth Bader Ginsburg. "The court should allow them to make the change," she said.

The conservatives, led by Justice Antonin Scalia, said they agreed the old rule against retail price fixing was outdated and should be repealed.

"The mere fact that [repeal] increases prices doesn't prove anything," Scalia said. "I just don't think that what the customers want is cheap [prices]. I think they want service ... and selection," he said. If manufacturers cannot "assure retailers a cushion" with a fixed price, they will not have "the big showroom" to promote the product, he said.

A lawyer who favors preserving the price-fixing rule said American consumers already had a choice between full-service retailers and discounters. "There's no doubt resale price maintenance raises prices to consumers," said lawyer Robert Coykendall of Wichita, Kan. If this type of price fixing is made legal, "some consumers will be paying for service they don't want."

Scalia said he doubted consumers would pay more for unwanted services. "Is the real argument against this that there's some stupid consumers who can be conned? Whatever rule we adopt, that's going to be the situation," he said.

Coykendall's client is Kay's Kloset, a women's store in suburban Dallas. Its owner sold Brighton handbags for less than the retail price set by its manufacturer, Leegin Creative Leather Products Inc., based in the City of Industry near Los Angeles.

When Leegin refused to do business with Kay's Kloset, the retail outlet sued the manufacturer, claiming that it was enforcing an agreement to fix prices. Leegin was hit with a $3.6-million judgment for violating the rule against retail price fixing that the Supreme Court set down in the 1911 case of Dr. Miles Medical Co.

The "Dr. Miles" rule is one of the most famous and long-standing in antitrust law.

Last fall, Washington lawyer Theodore B. Olson, the U.S. solicitor general during the current administration's first term, urged the court to repeal the Dr. Miles rule and throw out the verdict against the handbag maker.

The rule is "outmoded and misguided," Olson said, and no longer supported by most economists.

Although the Justice Department under Bush opposes the rule against retail price fixing, many state attorneys general say it benefits consumers. On Monday, they joined the argument on the side of preserving the rule.

"The whole point of a [price-fixing] agreement is to prevent price competition among retailers, to prevent discounts," said Barbara Underwood, a former Clinton administration lawyer who now works for New York Atty. Gen. Andrew Cuomo.

If a change in the law is to be made, she said, "it should be made by Congress and not by this court."

david.savage@latimes.com

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