by Ken Reetz

Created on: November 28, 2007

Was the US Supreme Court right to allow manufacturers and distributors to create resale price agreements? Well, it was a 5 - 4 decision so there must be good argument for both sides of the opinion, with a slight edge supporting the affirmative.

Please consider the following point of view that agrees with the majority vote of the US Supreme Court.

First of all it should be noted that the ruling does not give free reign to any manufacturer to restrain trade or fix prices. Justices Breyer, Souter, Ginsburg and Stevens dissented because they worried about 96 years of precedent - what happens to all of that earlier legal advice and rulings that were decided using that precedent? If strict precedent were to be ignored in this case, how would that endanger the reliability of precedent in future cases? Serious concerns, but not focused upon the matter of free trade and price fixing - the court agrees that such practices are still illegal.

There remains a test of reason that all manufacturers are obliged to meet when they implement any price agreement, expressed or implied, with their distribution channels. The majority opinion simply makes much needed room for the 'proper' use of these agreements and puts considerable weight in favor of those that increase competition and keep prices low to the consumer for the long term, instead of operating purely for the short term.

Justice Kennedy, in writing the majority opinion, pointed to the volumes of current economic literature that justifies the use of resale price agreements as a pro-competitive tactic. He also illustrated that second-best alternatives usually add cost and risk to the manufacturer, leading to the eventual price increase at the consumer level.

The argument in favor of allowing resale price agreements, when it can be demonstrated as beneficial to business and consumers, is compelling. It gives manufacturers the freedom to practice under a sensible business model and does nothing to prevent the vigorous prosecution of those perverting the system.

Copy and paste this link to your browser for a detailed legal analysis of this issue.
www.metrocorpcounsel.com/current.php?artType=v iew&artMonth=November&artYear=2007&EntryNo=7284

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