Industry Reaction To SCOTUS Retail Ruling Is Mixed

by Karl Greenberg, Jun 29, 2007, 5:00 AM

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The U.S. Supreme Court ruling on Thursday in Leegin Creative Leather Products v. PSKS, Inc., ends a long-standing per se rule against manufacturer agreements with retailers to set minimum resale prices. The court, in its ruling, held that vertical price restraints will now be judged by a "rule of reason" test.

The 5-4 decision overrules a nearly 100-year-old standard in antitrust law based on the proposition that pricing agreements between manufacturers and retailers are illegal.

The new rule will require that cases of potential antitrust violation--in which manufacturers demand that retailers not sell their products below a certain price--be reviewed individually. Responses from industry and retail groups were mixed.

The Consumer Electronics Association (CEA), which represents manufacturers, designers and distributors of electronics goods sold through retail channels, came out largely in favor of the ruling. President Gary Shapiro applauded the decision by the Supreme Court to reverse the per se rule, arguing that it makes sense to judge each instance separately.

"The Supreme Court holding that the 'rule of reason' should apply to the legality of manufacturer pricing decisions means, simply, that all the facts will be examined before a finding of illegality--replacing a black-and-white rule of illegality in every case," he wrote, speaking for the CEA.

He also said that since manufacturers of consumer electronics invest heavily in retail marketing themselves, they should be able to levy some influence upon retail prices.

"Reasonableness has come back to the antitrust laws, and in the consumer electronics industry, where sales training, industry marketing, and after-sales service are highly valued by manufacturers and reputable retailers, it makes perfect sense to consider these factors when evaluating a manufacturer's requirement that threshold prices be maintained."

The National Automobile Dealers Association offered its own comment, suggesting the ruling could undercut dealerships' tactics. "It's not clear what impact the ruling may have on consumers, but it could lead to higher prices if auto manufacturers were ever to prevent retailers from discounting," it said. "Auto dealers, like all retailers, know their local markets best and should be free to set their own prices."

But Andy Restivo, president of Culver City, Calif.-based Omnicom retail marketing firm Creative Channel Services, sees the Supreme Court's decision leading to a more disciplined product mix at retail. "I think, clearly, it gives the manufacturer a lot of additional control. It will lead to, likely, a more rigorous selection process in terms of product mix that retailers take on. It limits their ability to use the pricing and promotions lever.

"When retailers get stuck with product that doesn't sell, the most powerful tool they have to get rid of product is to blow it out on price. If they are limited in their ability to do that, they will have to be even more selective on supply chain management," he says. "My take is that it's going to have a significant impact on retailers--it will just continue the process that we have been seeing toward a more rigorous valuation process in terms of what they pick up and don't."

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