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Supreme Court will reconsider law on price fixing

Published Dec. 8, 2006

Accepting an appeal from a California manufacturer, the Supreme Court agreed Thursday to reconsider a long-standing rule that forbids companies from setting a minimum retail price for their products.

A win for the manufacturer could have a wide effect on how products are sold and how much consumers pay for items from cars to handbags. Some retail analysts predicted Thursday that it could lead to sharply higher prices, especially for some well-known brands.

The justices took the case from Leegin Creative Leather Products, a maker of high-quality women's handbags in the City of Industry. The company was sued and hit with a $3.6-million verdict by a Texas jury for having dropped a retailer that discounted prices on its merchandise.

Former U.S. Solicitor General Ted Olson, who represents the company, urged the high court to scrap the landmark decision that made retail price-fixing illegal. He said the court's decision to hear the case was significant.

"This is quite important," he said. "It doesn't happen often that the Supreme Court agrees to revisit a 95-year old rule that was seemingly written in stone."

In 1911, the Supreme Court in the case of Dr. Miles Medical vs. John D. Park adopted the rule that makes retail price-fixing illegal in all instances. This rule outlaws contracts or agreements between manufacturers and independent sellers that require these retailers to charge a minimum price for the product.

This ban on price-fixing has helped create an intensely competitive retail market in the United States, one in which low-cost sellers regularly undercut the prices of brand-name products.

Some manufacturers have chafed at this rule, however, and many economists say it is outdated.

Many manufacturers want their retailers to sell as many products as possible, even if the retailers have to cut prices to do it.

But other manufacturers want to maintain a special niche and a high price for their products. They also want retailers to give special displays to their products and extra service for their customers. These companies say they should be allowed to insist their retailers not undercut the fixed price.

Last month, a group of 25 economists joined the National Association of Manufacturers in urging the court to overrule its precedent against retail price-fixing. And on Thursday, the court agreed to consider it.