[Senate Hearing 111-267]
[From the U.S. Government Publishing Office]
S. Hrg. 111-267
THE DISCOUNT PRICING CONSUMER PROTECTION ACT: DO WE NEED TO RESTORE THE
BAN ON VERTICAL PRICE FIXING?
=======================================================================
HEARING
before the
SUBCOMMITTEE ON ANTITRUST,
COMPETITION POLICY AND CONSUMER RIGHTS
of the
COMMITTEE ON THE JUDICIARY
UNITED STATES SENATE
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
__________
MAY 19, 2009
__________
Serial No. J-111-24
__________
Printed for the use of the Committee on the Judiciary
U.S. GOVERNMENT PRINTING OFFICE
54-718 WASHINGTON : 2009
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC
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20402-0001
PATRICK J. LEAHY, Vermont, Chairman
HERB KOHL, Wisconsin JEFF SESSIONS, Alabama
DIANNE FEINSTEIN, California ORRIN G. HATCH, Utah
RUSSELL D. FEINGOLD, Wisconsin CHARLES E. GRASSLEY, Iowa
CHARLES E. SCHUMER, New York JON KYL, Arizona
RICHARD J. DURBIN, Illinois LINDSEY O. GRAHAM, South Carolina
BENJAMIN L. CARDIN, Maryland JOHN CORNYN, Texas
SHELDON WHITEHOUSE, Rhode Island TOM COBURN, Oklahoma
RON WYDEN, Oregon
AMY KLOBUCHAR, Minnesota
EDWARD E. KAUFMAN, Delaware
ARLEN SPECTER, Pennsylvania
Bruce A. Cohen, Chief Counsel and Staff Director
Matt Miner, Republican Chief Counsel
------
Subcommittee on Antitrust, Competition Policy and Consumer Rights
HERB KOHL, Wisconsin, Chairman
CHARLES E. SCHUMER, New York ORRIN G. HATCH, Utah
SHELDON WHITEHOUSE, Rhode Island CHARLES E. GRASSLEY, Iowa
RON WYDEN, Oregon TOM COBURN, Oklahoma
AMY KLOBUCHAR, Minnesota
EDWARD E. KAUFMAN, Delaware
ARLEN SPECTER, Pennsylvania
Carolina Holland, Democratic Chief Counsel/Staff Director
Jace Johnson, Republican Chief Counsel
C O N T E N T S
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STATEMENTS OF COMMITTEE MEMBERS
Page
Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah...... 3
Kaufman, Hon. Edward E., a U.S. Senator from the State of
Delaware....................................................... 5
Kohl, Hon. Herb, a U.S. Senator from the State of Wisconsin...... 1
prepared statement........................................... 127
WITNESSES
Cohen, Tod, Vice President and Deputy General Counsel for
Government Relations, eBay, San Jose, California............... 7
Haigney, Stacy John, General Attorney, Burlington Coat Factory,
Burlington, New Jersey......................................... 9
Harbour, Pamela Jones, Commissioner, Federal Trade Commission,
Washington, D.C................................................ 6
Wilson, James A., Partner, Vorys, Sater, Seymour and Pease LLP,
Columbus, Ohio, and Chair, Section of Antitrust Law, American
Bar Association................................................ 10
QUESTIONS AND ANSWERS
Responses of American Bar Association to questions submitted by
Senator Kohl................................................... 21
Responses of Tod Cohen to questions submitted by Senator Kohl.... 28
Responses of Stacy Haigney to questions submitted by Senator Kohl 31
Questions submitted by Senator Kohl to Pamela Harbour (Note:
Responses to questions were not received as of the time of
printing, February 22, 2010)
SUBMISSIONS FOR THE RECORD
Brunell, Richard M., Director of Legal Advocacy, American
Antitrust Institute, Washington, D.C., joint letter and
statement...................................................... 35
Cohen, Tod, Vice President and Deputy General Counsel for
Government Relations, eBay, San Jose, California, statement.... 80
Collier, Jim, President, ShortOrder.com, letter.................. 86
Haigney, Stacy John, General Attorney, Burlington Coat Factory,
Burlington, New Jersey, statement.............................. 100
Harbour, Pamela Jones, Commissioner, Federal Trade Commission,
Washington, D.C., statement.................................... 113
Wilson, James A., Partner, Vorys, Sater, Seymour and Pease LLP,
Columbus, Ohio, and Chair, Section of Antitrust Law, American
Bar Association, statement..................................... 129
THE DISCOUNT PRICING CONSUMER PROTECTION ACT: DO WE NEED TO RESTORE THE
BAN ON VERTICAL PRICE FIXING?
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TUESDAY, MAY 19, 2009
U.S. Senate,
Subcommittee on Antitrust,
Competition Policy, and Consumer Rights,
Committee on the Judiciary,
Washington, DC
The Subcommittee met, pursuant to notice, at 2:33 p.m., in
room SD-226, Dirksen Senate Office Building, Hon. Herb Kohl,
Chairman of the Subcommittee, presiding.
Present: Senators Kohl, Klobuchar, Kaufman, and Hatch.
OPENING STATEMENT OF HON. HERB KOHL, A U.S. SENATOR FROM THE
STATE OF WISCONSIN
Chairman Kohl. Good afternoon. This hearing will come to
order.
Today we will examine an issue with far-reaching impact on
the prices consumers pay for everything from clothing to
electronics, and to everyone who likes to get a bargain when
shopping. Two years ago, we held a hearing on the Supreme
Court's 5-4 decision in the Leegin case in June 2007 which
abolished a fundamental antitrust rule that manufacturers
cannot set minimum retail prices. At that hearing, we heard
warnings that this decision would imperil discount shopping
that consumers have learned to take for granted. Our experience
since the Leegin decision is giving credence to these fears,
and it comes at exactly the wrong time--just as millions of
consumers face a serious recession and depend on bargain
shopping more than ever to balance the family budget. That is
why I have introduced legislation to overturn what I believe is
this misguided Supreme Court ruling.
For nearly a century, the rule against vertical price
fixing permitted discounters to sell goods at the most
competitive price. Many credit this rule with the rise of
today's low-price, discount retail outlets, stores like
Burlington Coat Factory, and the Internet site eBay--both
witnesses today--not to mention such retail giants as Target,
Best Buy, and Walmart, all of which offer consumers a wide
array of highly desired products at discount prices.
We have already begun to see the manufacturers set minimum
retail prices resulting in higher prices for consumers. Some
antitrust experts suggest that there are an estimated 5,000
companies using minimum pricing policies. Last year, at the
outset of the holiday shopping season, Sony announced a no-
discount rule prohibiting discount retailers from cutting the
price on a number of its most in-demand top end products,
including some flat screen TVs as well as digital cameras. The
Wall Street Journal has reported that a new business has
materialized for companies that scour the Internet in search of
retailers selling discount products. When such bargain sellers
are detected, the manufacturer is alerted so that it can demand
that the discounting stop. Even the discounting of toys at pre-
Christmas sales was targeted.
I know from my own experiences in the retail industry
decades ago that established retailers can take advantage of
vertical price fixing to halt discounting dead in its tracks.
In order to eliminate low-price competition from smaller
retailers, large retailers can demand that manufacturers forbid
discount pricing. These large retailers have the bargaining
power with manufacturers to make these demands stick, all to
the detriment of upstart discount competitors and consumers.
Our common-sense worry that allowing manufacturers to bar
discounting will lead to higher prices is borne out by basic
economics. In his dissenting opinion in Leegin, Justice Breyer
estimated that if only 10 percent of manufacturers engaged in
vertical price fixing, retail bills would average $750 to
$1,000 higher for the average family of four annually. For this
reason, I have introduced the Discount Pricing Consumer
Protection Act, cosponsored by Senator Whitehouse. Our bill--
which is endorsed by 35 State attorneys general and all major
consumers' organizations--will simply make it clear that when
manufacturers prohibit discounting, they violate the antitrust
laws, and thereby restore a clear legal rule that had stood
since 1911.
In the last few decades, millions of consumers have
benefited from an explosion of retail competition from new
large discounters in virtually every product, from clothing to
electronics to groceries, in both ``big box'' stores and on the
Internet. We have all taken for granted our ability to walk
into discount retailers and buy brand name products at sharply
discounted prices. It is essential that Congress act swiftly to
enact my bill to once again make the setting of minimum retail
prices illegal.
I look forward to the testimony today of our distinguished
witnesses on this important topic.
Our first witness who will be testifying today is Pamela
Jones Harbour. Ms. Harbour has been a Commissioner of the FTC
since 2003. Prior to joining the FTC, Ms. Harbour served as
partner at Kaye Scholer law firm and was the New York State
Deputy Attorney General.
Next, we will have Tod Cohen. Mr. Cohen serves as Vice
President and Deputy General Counsel of Government Relations at
eBay. He began his legal career at the law firm of Covington &
Burling and was Vice President and Counsel for New Media for
the Motion Picture Association of America before joining eBay.
Our next witness will be Stacy Haigney. Mr. Haigney is an
in-house attorney at Burlington Coat Factory. He has almost 4
years of experience as an antitrust attorney, and he was a
founding partner of the firm Kassner & Haigney before working,
as he presently does, for Burlington Coat Factory.
And, finally, we will have James Wilson. Mr. Wilson is a
partner at Vorys, Sater, Seymour and Pease in Columbus, Ohio,
and is the current Chair of the Section of Antitrust Law of the
American Bar Association. He testifies today on behalf of the
ABA.
Before we swear in our witnesses, I would like to call on
the Ranking Member, Orrin Hatch, for any comments he might
make.
STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM THE STATE
OF UTAH
Senator Hatch. Well, thank you, Mr. Chairman. It is always
a pleasure to work with you, and I really appreciate our
friendship and our working together.
Today's topic of vertical price fixing is not new to this
Subcommittee. It has been almost 2 years since the Supreme
Court reached its 5-4 decision in Leegin Creative Leather
Products v. PSKS Inc., Kay's Kloset, and the Subcommittee held
its subsequent hearing on the Court's ruling.
Now, this decision has and will have an important effect on
our Nation's economy, and especially on discount retailers.
Therefore, Mr. Chairman, with your enormous expertise in this
area, I look forward to learning more of your thoughts and
perspectives on the issues behind your legislation, S. 148, the
Discount Pricing Consumer Protection Act.
To some the topic of vertical price fixing or minimum
resale price maintenance is as dry as week-old bread. However,
the contrary is true. This is an important topic. At stake is
how and at what price consumers will buy a variety of goods and
the dynamics by which manufacturers will enter into agreements
with retailers.
Mr. Chairman, a bit of background is necessary to fully
understand the importance of this issue. Nearly 100 years ago,
the Supreme Court ruled in Dr. Miles Medical Company v. John D.
Park & Sons that it was per se illegal ``under Section 1 of the
Sherman Act for a manufacturer and its distributor to agree on
the minimum price a distributor can charge for the
manufacturer's goods.'' In other words, vertical pricing was
against the law. However, this all came to an end nearly 2
years ago when the Court in Leegin discarded the per se rule
for the test under the rule of reason. Under this new decision,
vertical price fixing is permitted as long as it does not
constitute an unreasonable restraint on trade. Specifically,
the Court has held under the rule of reason, ``The fact finder
weighs all of the circumstances of the case in deciding whether
a restrictive practice should be prohibited as imposing an
unreasonable restraint on competition. Appropriate factors to
take into account include specific information about the
relevant businesses and restraints history, nature, and
effect.''
Now, the Court's majority argued that vertical price fixing
can stimulate ``inter-brand competition, the competition among
manufacturers selling different brands of the same type of
product, by reducing intra-brand competition, the competition
among retailers selling the same brand.''
Now, the Court goes on further to justify this decision by
stating, as they held in Kahn, the ``primary purpose of the
antitrust laws is to protect what really amounts to inter-brand
competition.'' The Court appeared to be very concerned about
the activity called ``free riding.'' Free riding can be
described as when a customer takes advantage of the service as
an information provided by a full-service retailer and then
makes the actual purchase of the product for a lesser price at
a discount retailer. The Court argues that by permitting
vertical price fixing, retailers would have less of an ability
to compete on price, thereby diminishing the opportunities for
free riding to occur.
It is surmised that retailers would then focus their
competitive energies on providing better services and shopping
environments for the customer in order to distinguish
themselves in the intra-brand competition.
Clearly, the Court in Leegin is favoring the manufacturer
over the retailer, especially the discount retailer. Not
surprisingly, discount retailers argue that this decision will
have an adverse effect on their businesses since they could
have additional difficulties in charging a lower price.
Now, this is a matter with which I am particularly
concerned. Will the Leegin decision result in the unintended
consequence of hindering the development of the next generation
of discount retailers by enabling manufacturers to set a
minimum price for their goods? And though I do not know the
position of Stanford's Thomas Sowell on this issue, I am
mindful of the point, albeit in a different context, that he
made in his book on economics. He said this: ``Lower costs
reflected in lower prices is what made A&P the world's leading
retail chain in the first half of the 20th century. Similarly,
lower costs reflected in lower prices is what enabled other
supermarket chains to take A&P's customer away in the second
half of the 20th century. And while A&P succeeded in one era
and failed in another, what is far more important is that the
economy as a whole succeeded in both eras in getting its
groceries at the lowest prices possible at the time from
whichever company happened to have the lowest prices. So does
the economy and consumers succeed in the long run under
Leegin.''
Now, that is the crux of the matter and why I will put the
same question to our witnesses today. I will have to do it in
writing because of an Intelligence Committee hearing that I
have to go to. But I asked that question 2 years. Does the
positive effect on the manufacturer competition created by
Leegin outweigh the negative effect on the discount retailer?
So I look forward to the panel answering that question, and
others as well, and, Mr. Chairman, I really appreciate you
holding this hearing, and I hope that we can help resolve some
of these conflicts and problems that exist in the best interest
of everybody.
I am very grateful to have all of you folks here. Welcome
to you, and please forgive me for having to run to the
Intelligence Committee, but I have got three conflicts right
now at 2:30. I am going to, as always, leave it in the hands of
my dear Chairman.
Thank you, Mr. Chairman.
Chairman Kohl. Thanks so much, Senator Hatch.
Senator Kaufman.
STATEMENT OF HON. EDWARD E. KAUFMAN, A U.S. SENATOR FROM THE
STATE OF DELAWARE
Senator Kaufman. Thank you, Mr. Chairman, and thank you for
holding this very important hearing. You know, for a long time
there has been discussion on the Hill. Conservatives say that
it is the judges on the left who engage in activism from the
bench. They say conservative judges stick to calling balls and
strikes of the law, while more liberal jurists insert their
political philosophy into their opinions.
Well, Mr. Chairman, the Leegin case proves that activism is
in the eyes of the beholder. With respect to vertical price
fixing, it was the addition of two conservatives to the Court,
Justices Roberts and Alito, that led to the reversal of 96
years of unbroken precedent. This case, plain and simple,
represents the elevation of big manufacturers' interests over
those of the consumer, and this Court acted because it decided
to embrace a different economic theory, not because any facts
or circumstances changed. In my book, that is judicial
activism.
For too long, we have had complacent antitrust enforcement.
During the previous administration, regulators seemed to forget
that the consumer should be the beneficiary and was designed to
be the beneficiary of our antitrust laws. And with this poorly
reasoned and radical departure from precedent in the Leegin
case, the United States Supreme Court, in my opinion, has
itself gotten into the act.
Well, Mr. Chairman, it is time to once again focus
ourselves on how antitrust law operates to protect or harm the
consumer. It can come as a surprise to no one that the setting
of price floors leads to the elevation of consumer prices. It
prevents price competition out of the paternalistic notion that
consumers, many of whom are struggling to get by, especially in
these economic times, do not want the lowest prices possible
but would rather have a fancy store, even if it means they
cannot pay all their bills. I reject this notion, and I look
forward to the testimony from these witnesses on this important
issue.
Again, thank you, Mr. Chairman.
Chairman Kohl. Thank you very much, Senator Kaufman.
We will start our testimony after you all are sworn in.
Would you rise and raise your right hand? Do you swear the
testimony you are about to give before this Committee will be
the truth, the whole truth, and nothing but the truth, so help
you God?
Ms. Harbour. I do.
Mr. Cohen. I do.
Mr. Wilson. I do.
Mr. Haigney. I do.
Chairman Kohl. Thank you so much.
We will start with you, Ms. Harbour, and we request that
you and the other witnesses hold your statements please to 5
minutes, and we will put into the record anything else that you
may have to say.
Ms. Harbour.
STATEMENT OF PAMELA JONES HARBOUR, COMMISSIONER, FEDERAL TRADE
COMMISSION, WASHINGTON, DC
Ms. Harbour. Thank you. Chairman Kohl and members of the
Subcommittee, I appreciate this opportunity to share with you
my personal views on minimum vertical price fixing. During my
oral remarks, there are three points that I would like to make.
First, the Supreme Court has decided to repeat an already
failed experiment with RPM that flaunts congressional intent
and harms consumers.
Second, the lower courts' evaluation of RPM under the rule
of reason will reward price-fixing merchants and manufacturers
and will further punish victims, i.e., consumers and non-
conspiring merchants.
Third, RPM should be presumed to be harmful to competition
until a manufacturer has factually shown that its use of RPM
benefits consumers more than it harms them.
The Supreme Court's 2007 Leegin decision gave manufacturers
the right to set minimum resale prices for consumer goods,
guaranteeing higher consumer prices. This is bad economic and
legal policy. It gives excessively short shrift to consumer
preferences, the supposed driving force behind the market.
Post-Leegin, and absent action by Congress, consumer
preferences will be subordinated to the interests of
manufacturers and merchants of branded consumer goods, and in
these tough economic times, it is especially wrong to saddle
consumers with higher prices for daily necessities while
providing no countervailing benefits.
RPM advocates essentially ask us to believe that consumers
are better off when they pay higher prices for the daily
necessities of life because the benefits to manufacturers and
retailers eventually will trickle down to consumers. According
to the logic of the Leegin court, it is preferable to maximize
the welfare of conspiring manufacturers and merchants, even
though the antitrust laws are designed to put consumer
interests first. The Leegin decision cannot be reconciled with
the legislative history of the antitrust laws. Congress never
adopted nor endorsed a preference for RPM at the Federal level.
Congress did create an exemption, an antitrust exemption, for
RPM under State fair trade statutes. However, Congress
ultimately graded that a 37-year-old natural experiment--graded
it a failure, and in 1975, the fair trade exemptions were
repealed in favor of per se illegality. Congress did so because
RPM had been a dismal, if not disastrous, detour from sound
public policy. RPM raised consumer prices by as much as 37
percent. RPM lowered sales levels. It increased the frequency
of business failure. RPM created entry barriers. It distorted
retailer incentives, and RPM generally retarded retail
competition.
Even if the Leegin majority can overlook these
congressional findings, I cannot. I ask: Are we falling into a
Groundhog Day vortex where we are doomed to endlessly repeat
the same mistakes over and over again? Competition policy can
and should do a better job of protecting consumers, but I do
worry that Congress may someday be called upon to write yet
another report detailing the disastrous harms inflicted on
consumers during the Court's current experiment with RPM. And
we know who is paying for this experiment. Sadly, it is the
American consumer.
Indeed, if you believe what you read in the newspapers,
consumers already are paying that price. The Court's new
experiment has led many consumers to incur RPM price premiums,
even in these trying times. Since the Court decided Leegin, the
number of companies using some version of RPM has increased
significantly. The use of third-party monitoring services by
manufacturers to identify, police, and then discipline Internet
discounting has rapidly expanded. Some discounters have been
terminated by as many as 25 percent of their suppliers, and
other discounters, like PSKS, the plaintiff in the Leegin case,
have gone out of business and have been unable to get the
courts to consider the merits of their claims under the rule of
reason.
Consumers do not realize that they are currently paying
substantial RPM premiums. Not surprisingly, the manufacturers
who impose these premiums are unlikely to notify customers that
the discounts are no longer available, nor are retailers who
support the RPM premiums particularly interested in telling
their customers that prices were too low before discounting was
eliminated.
The Leegin Court claimed that it intended the rule of
reason to weed out competitively harmful uses of RPM, but good
intentions will not cure a bad rule of law. The rule of reason
tends to be a euphemism for the absence of liability.
Potentially good RPM cases are already being dismissed without
any hearing on the merits.
The reality of litigation dictates that when the facts are
equally probative of guilt or innocence, then depending on
which theory is adopted to evaluate them, then usually the
party that has the burden of proof loses. If full-blown rule of
reason analysis is applied in RPM cases, the burden of proof
will be placed on the victims, not on the defendants who
imposed the RPM policies to begin with.
The FTC is doing its best to further the development of the
real-world effects and the real-world facts about the effects
of RPM by holding a series of workshops, but any answers may be
a decade or more away. Consumers need relief today.
In conclusion, when it comes to the RPM debate, one simple
fact is indisputable. RPM guarantees that consumers will pay
higher prices, and until it is proven otherwise, I will
continue to believe that consumers are very unlikely to gain
any countervailing benefits in return for these higher prices.
Thank you.
[The prepared statement of Ms. Harbour appears as a
submission for the record.]
Chairman Kohl. Thank you, Ms. Harbour.
Mr. Cohen.
STATEMENT OF TOD COHEN, VICE PRESIDENT AND DEPUTY GENERAL
COUNSEL FOR GOVERNMENT RELATIONS, EBAY, SAN JOSE, CALIFORNIA
Mr. Cohen. Chairman Kohl, I am Tod Cohen, Vice President
and Deputy General Counsel for Government Relations at eBay.
Thank you for the invitation to speak today about S. 148, the
Discount Pricing Consumer Protection Act, and the impact of the
Supreme Court's Leegin decision in particular on small and mid-
size retailers who use the Internet. eBay and our users support
your legislation to reinstate a per se rule prohibiting retail
price fixing.
Founded in 1995, eBay connects hundreds of millions of
people around the world every day. The company's online
platforms empower individuals and small businesses to meet and
engage in open trade on a local, national, and international
basis. We believe that the efficiency and consumer benefits of
the open Internet can be immense. Businesses use it to offer
lower prices, greater choice, and great values to consumers.
Consumers use it to more easily find, compare, and purchase
products. Unleashed, it can be a game changer, and we are still
in the innovation stage of retail on the Internet, with new
retail business models benefiting consumers, retailers, and the
overall economy.
The Internet is part of every serious 21st century retail
strategy--whether massive ``brick and click'' retailers with
websites and big box stores, large remote Internet and
catalogue retailers with nationally known brand names, or small
businesses who are building new Internet businesses or
integrating the Internet into an existing small shop to survive
and grow in today's highly competitive retail environment.
The Internet is also used by manufacturers, including the
most elite and specialized, to reach customers with
information, and more and more with products. And the Internet
is critical to more consumers every day. It is the greatest
source of product information ever created.
I mention these facts because sometimes people paint this
issue as being about Internet retailers and discounters on one
side and non-Internet retailers on the other. Nothing could be
further from the reality. In short, everyone in retail uses the
Internet, but there are big differences in how the Internet is
used.
On one side are established networks of manufacturers and
retailers who want to reinforce or enhance established retail
business models. They are threatened by the Internet when it is
harnessed to offer consumers better deals and more information
outside the established incumbent retail networks. On the other
side are innovators with new business models. They are almost
always small to mid-size businesses. They use new technologies
to offer consumers better deals, more information, and new
services.
We believe that the Leegin decision is undermining consumer
benefits delivered by innovative retailers, especially on the
Internet. There is evidence that small and mid-size Internet
retailers are a primary target of aggressive RPM policies.
eBay's own experiences confirm that many large established
businesses attempt to limit low-price, intra-brand competition
by continually scanning our platforms to identify sellers
offering their products at lower prices. They then use a range
of tools to identify the seller and stop low-price competition.
Many eBay sellers have been targeted by manufacturers and large
retail partners with various tactics to take down their
listings and discredit their sales. The Leegin decision has
clearly been interpreted by many as a legal ``green light'' to
more aggressively thwart low-price competition.
Established retailers and manufacturers attempting to
enforce traditional business models contend that the innovative
Internet retailers are able to offer lower prices to consumers
because they free ride on their traditional retail
counterparts. The truth is that the Internet turns the
traditional free-rider justification for RPM on its head.
Internet retailers and services provide significant pre-sale
information to consumers. The open Internet has completely
revolutionized the consumer information experience. Consumers
regularly turn to the Internet to search for product
information, make product comparisons, and check prices before
visiting and purchasing from established retailers. In fact, it
could be argued that the most established manufacturers and
largest retail partners are free-riding on the tremendous
consumer information tools created by Internet innovators.
From a competition policy and consumer benefit perspective,
the traditional free-rider argument for RPM policies as applied
to the Internet should be put to rest. Innovative Internet
retail models simply expose incumbents to new competitive
threats and more innovative forms of retailing. Protection from
new and innovative retail models was always a likely reason for
RPM, and we think that is even more true in the Internet age.
This Committee should aggressively scrutinize the Leegin
decision and enact S. 148 to reinstate a per se rule against
retail price fixing and protect consumers and retail
innovators.
Thank you, Mr. Chairman and members of the Subcommittee.
[The prepared statement of Mr. Cohen appears as a
submission for the record.]
Chairman Kohl. Thank you, Mr. Cohen.
Mr. Haigney.
STATEMENT OF STACY JOHN HAIGNEY, GENERAL ATTORNEY, BURLINGTON
COAT FACTORY, BURLINGTON, NEW JERSEY
Mr. Haigney. Good afternoon, Mr. Chairman and members of
the Subcommittee. I am Stacy Haigney, general attorney at the
Burlington Coat Factory. I am personally in charge of our trade
regulation. I am very delighted to have this opportunity to
come here and express my company's support for S. 148, which
will address an extremely serious competitive issue in the
market and foster consumer welfare immeasurably.
I believe that the story of Burlington Coat Factory is the
best evidence I know for why S. 148 should pass. Burlington
Coat Factory was founded by Monroe G. Milstein in 1972. He had
one store at that time. It was a discount store. What he did
was at that point sold coats 25 percent below what they would
be available in department stores. Then in 1975, Congress
repealed the so-called fair trade laws. This opened up a world
of opportunity for Mr. Milstein and his company. He not only
sold coats thereafter; Burlington Coat Factory sold every kind
of apparel and accessory that you can think of. And we sold
them all according to Mr. Milstein's original philosophy,
namely, give the customer full lines of in-season merchandise
such as one would find at a department store for 25 percent
below, approximately, what was being charged at the full-price
retailers. This philosophy was the basis of Burlington Coat
Factory's success, and we have gone from the one store in 1972
to approximately 400 today, including at least one in the State
of every Senator on this Subcommittee.
But there was no possibility that this approach would have
worked had the fair trade laws not been repealed. In fact,
there were no retailers like Burlington Coat Factory prior to
that repeal--retailers of the size of Burlington Coat Factory.
There is no doubt in my mind--or in Mr. Milstein's mind
when he still ran the company, or in Tom Kingsbury's mind, who
is now our CEO--that had the Leegin case been in force in 1975,
we probably would have stayed in one store on Route 130 in
Burlington, New Jersey.
Now, I feel that the retail market has done pretty well in
the intervening years, and all of a sudden, in the year 2007,
apropos of no need that I can see, the Supreme Court decided to
deep-six 98 years of antitrust jurisprudence by the Leegin
decision. And in aid of what? As I understand them, the concept
is that maybe if you fix prices at a high level, perhaps the
retailer will take some of the extra money the retailer earns
and maybe apply it to services which might be of use to the
manufacturer. For this, we throw away 98 years of antitrust
jurisprudence and what the Congress has stated over and over
again. Many times, the question of whether or not this per se
rule should remain the rule has come before Congress, as it did
in 1975, and on every occasion Congress has adhered to the per
se rule. And in 1975, it had tremendous bipartisan support
before President Ford signed the bill. And the reason was that
the empirical evidence was overwhelming that retail price
fixing, as Ms. Harbour pointed out, was a catastrophe for
competition and for the consumer.
Now, I have to say that it is grotesque from the point of
view of an off-price retailer to even hear someone say that
higher prices can lead to more competition. I frankly do not
get that point. It certainly is not--in the apparel industry,
it is a complete non sequitur.
Finally, let me just state--I see my time is running out--
that there are no free riders in the apparel industry. People
do not need advance services to help them put on a coat and try
on a dress. Our customers are well educated, and what they want
is the best bargain available. And that is what Burlington Coat
Factory gives them, and that is what S. 148 will guarantee that
Burlington Coat Factory will continue to give them in the
future.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Haigney appears as a
submission for the record.]
Chairman Kohl. Thank you, Mr. Haigney.
Now we call on Mr. Wilson.
STATEMENT OF JAMES A. WILSON, PARTNER, VORYS, SATER, SEYMOUR
AND PEASE LLP, COLUMBUS, OHIO, AND CHAIR, SECTION OF ANTITRUST
LAW, AMERICAN BAR ASSOCIATION
Mr. Wilson. Thank you, Mr. Chairman, members of the
Subcommittee. On behalf of the American Bar Association, which
has over 400,000 members, I thank you for the opportunity to
appear this morning. As Chair of the Antitrust Section of the
American Bar Association, I have been authorized to express the
views of the ABA on this important issue.
In contrast to the other witnesses this afternoon, Mr.
Chairman, the ABA's position is that the Leegin decision was
correctly decided.
In February of 2007, the House of Delegates of the American
Bar Association adopted the resolution proposed by our Section,
which stated that Section 1 of the Sherman Act should not be
interpreted to apply a rule of per se illegality to agreements
between a buyer and a seller setting the price at which a buyer
may resell goods or services purchased from the seller.
You may ask: Why did we propose that position? And why did
the ABA adopt it? We derived this position from the basic
principle of antitrust jurisprudence that the rule of reason
identified in Standard Oil of Ohio v. United States in 1911 is
the fundamental standard that governs the evaluation of all
restraints of trade. Any departure from the rule of reason
standard must be based on a demonstrable economic effect rather
than formalistic line drawing. Only when a specific type of
restraint produces a predictable and pernicious anti-
competitive effect and has limited potential for pro-
competitive benefit will and should the Supreme Court deem it
unlawful per se.
The Supreme Court's decisions over nearly a century since
adopting the rule of reason standard have carefully examined
the pro-competitive and anti-competitive effects of special
practices to determine whether they warrant treatment as anti-
competitive behavior under all circumstances and are thus
classified as per se, or if they in some situations show pro-
competitive benefits and, therefore, should be evaluated under
the rule of reason.
Like many of these vertical restraints that the Supreme
Court in recent years--that is, over the last 30 years--has
found should be evaluated under a rule of reason test, minimum
resale price maintenance agreements may stimulate competition
among resellers in ways that produce material benefits to
consumers which would not otherwise be available absent the
ability of manufacturers and distributors to set resale prices.
As outlined in our report to the House of Delegates, there
are several reasons that the Section on Antitrust Law believes
that the issue of resale price maintenance should not be a per
se violation of the antitrust laws.
First, most of the significant economic literature
regarding minimum resale price maintenance finds that it is
more likely to be used by manufacturers to achieve efficiencies
in distribution of their products rather than to enable dealers
to maintain significant margins.
Second, empirical studies of minimum resale price
maintenance have not established that the practice is
invariably anti-competitive. And I would specifically point to
work that was done by the FTC staff in the 1980s and the early
1990s that made that finding that there are many occasions in
which resale price maintenance is not anti-competitive.
Third, manufacturers and suppliers have developed practices
of achieving the same effects of minimum resale price
maintenance without actually entering into agreements on resale
pricing. This testimony that I have heard today about the
dramatic shift that would be attained by this legislation
simply does not square with how the market worked before the
Leegin decision. The reality is that as long as the Colgate
doctrine allowing individual manufacturers and distributors to
choose to whom they will sell exists, the effects that I have
heard from the other witnesses today are unlikely to be
achieved.
Finally, the per se prohibition on minimum resale price
maintenance, in force for several decades, has had the effect
of enhancing the market power of very large-scale retailers
that carry a wide variety of products. Conversely, it has
harmed smaller retailers who try to compete with those large
retailers not on price, where they cannot compete, but on the
basis of quality and service. For these reasons, the ABA
supports the position that under the Federal antitrust laws,
agreements between a buyer and seller setting the resale price
should not be per se illegal.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Wilson appears as a
submission for the record.]
Chairman Kohl. Thank you, Mr. Wilson.
Senator Klobuchar.
Senator Klobuchar. Thank you very much, Senator Kohl, for
holding this interesting hearing, and I know you bring to this
hearing your perspective as a retailer yourself, as someone who
owned stores. I bring the perspective of a shopper at stores,
so I think we make a good pair here looking at this issue. And
I think especially now when we have consumers who are so
strapped, it is very important, Ms. Harbour, to look at this.
And I am very glad the FTC is holding these workshops to try to
figure this out because, for a lot of my constituents, every
penny counts right now. Every penny saved counts. And so they
are looking at these things. Even though they may not
understand what the Leegin decision is or have understood this
idea of vertical price fixing, I think we owe it to them to
look at this very carefully.
Ms. Harbour, how much do you know right now about the
impact of the Leegin decision? Your written statement and in
what you said today mentioned that a number of companies
engaged in resale price maintenance has significantly
increased, and that some suppliers have stopped working with
some suppliers. Can you tell us more about what hard evidence
you have? And do you think that this financial crisis also,
that we have to look at that separately?
Ms. Harbour. At this point I do not have any additional
hard evidence, but we are at the Federal Trade Commission
holding workshops. We will be looking very closely at this
issue. Since the Leegin decision came down, it has been about 2
years. Maybe we will start seeing some natural experiments
where we can look at the effects of this ruling. But what I
testified to, we have seen that. There have been some
discussions in some of the newspaper articles, the Wall Street
Journal, about the use of some of the shopping bots that are
trolling and policing the Internet and going back to the
manufacturers and letting them know about price, and then those
discounters are being disciplined and prices have been
increased to the consumer. So the effect that we do know about
is that prices to the American consumer have indeed been
elevated. As far as additional effects, we will be looking very
closely for some of those.
Senator Klobuchar. OK. Mr. Cohen, do you want to talk,
adding to what Ms. Harbour said, about just your perspective
about prices? Do you have any numbers on the rise of resale
price maintenance being used against Internet retailers? And
are these numbers different for retailers that are 100 percent
based on the Internet like amazon.com versus multi-channel
retailer stores that have an extensive Internet presence?
Mr. Cohen. Senator Klobuchar, we have two different
examples that we believe show the pernicious effect of the
post-Leegin world. First is an increase in the number of
takedown reports we receive from different companies and agents
of rights holders and brand owners in which they have increased
the number of complaints we have received to take down lower-
price listings. A company called Net Enforcers sent in over 1.2
million notice and takedown requests to our site in which a
significant number were based on lower prices. We have seen
that, in a post-Leegin world, different manufacturers have
admitted that the reason why they were seeking information on
our sellers was because of a violation of MAP or retail price
minimum standards.
We are also engaged in research ourselves to see whether
there has been a change in pricing over time in specific
categories. We have not completed that research. When that is
completed, we will submit that immediately to the Committee.
Senator Klobuchar. Very good. This is when Justice Breyer
issued his dissent in the case, I know that this is--I know
when he issued his dissent, he talked about that the only safe
predictions to make about today's decisions are that it will
likely raise the price of goods at retail. And to me, right now
when we are in this difficult consumer market, especially when
there is actually slashing of prices going on because of the
market, if we are seeing increases, I think they could be even
worse if we were not in hard economic times. So I think it is
important when we look at these numbers we consider that as
well.
Mr. Wilson, I listened to your testimony, and I guess I
would have one question. If we, in fact, found out that the
prices have increased, as Ms. Harbour believes they have, would
that be enough for you to believe that we need to reexamine
this Leegin decision and look at legislation, as Senator Kohl
has introduced?
Mr. Wilson. Senator, I guess the question I would ask is
whether the prices had increased and the current law was
ineffective, because, after all, resale price maintenance is
not per se legal today. It is simply evaluated under the
standard by which most anti-competitive conduct is evaluated--
the rule of reason.
If resale price maintenance is as pernicious as the other
witnesses have said, it should be very difficult to present a
defense to a rule of reason case. After all, the defense in a
rule of reason case is proof that there are pro-competitive
effects here.
What I have seen is that the courts since Leegin--there
have been about 60 decisions citing it, less than half of them
in actually applying the rule of reason, but they have not
created some awkward or weak rule of reason test here. They
have applied a rule of reason test that is consistent with how
it is applied in other areas. We look forward as a Section to
offering our comments to the FTC in their workshops on exactly
that area.
Senator Klobuchar. And I appreciate that, that the courts
may have been reasonable in doing their rule of reason. But I
think our role here and our duty and the FTC's duty is beyond
that, and it is really looking at if there has been a bad
effect on consumers because of this. And right now, my view is
we just cannot hit on consumers anymore, that they have had it.
They are having very difficult economic times, and so that is
why I think the workshops that the FTC does and other evidence
that we have here is very important, because if--you know, this
was a very close Supreme Court decision with a vigorous
dissent, and this is really in the end a policy matter for the
Congress to consider.
So I appreciate what you have said about the rules, but I
think if we saw some pattern here of increased prices, as we
saw back in--who was bringing up 1975 and what had happened?
Mr. Haigney.
Mr. Haigney. Yes, in 1975, there was extensive empirical
evidence presented to the Congress to show--and I think Ms.
Harbour actually cited the figures--to show a drastic increase
in prices in States that continued to free trade, so-called,
and a diminution in sales in those States. These were hard-core
numbers, not just economic----
Senator Klobuchar. Do you think it would be useful if we
want to have that kind of clear, empirical comparison? Maryland
has just passed their law and gone back to the old way. Do you
think it would be useful to have more States do this?
Mr. Haigney. It would certainly be better than nothing, but
I would much prefer----
Senator Klobuchar. You would prefer it done nationally,
federally. It would be a lot easier than creating a national
study for us to look at.
Mr. Haigney. That is right.
Senator Klobuchar. OK. Anyone want to add to any of that?
Mr. Wilson. Senator, if I could, I would just point out
that if you adopt the rule that the legislation proposes, then
pro-competitive effects are no longer considered. And so you
have in effect lost any pro-competitive effects that exist
today.
Ms. Harbour. May I address the pro-competitive effects and
the statement about the empirical evidence that is out there
and also the Federal Trade Commission and some of the empirical
work it has done as well.
None of the empirical studies to date are definitive, and
there is an acknowledged empirical vacuum that leaves all of
these competing theories untested. It was referenced about a
Federal Trade Commission study. It was done by a very well-
respected economist, Pauline Ippolito. That study basically
found that there was no basis for concluding that minimum RPM
is anti-competitive. But I want to note that Pauline Ippolito
herself acknowledged that her study did very little to fill the
empirical vacuum, and her study did not test for the
hypothesized consumer benefits directly. So it did not test for
the consumer benefits. It only determined whether the pro-
competitive explanations had what she said ``limited
plausibility.''
So, basically, these studies are not definitive, and also
Justice Breyer in the Leegin dissent discounted the study by
saying that it equated the failure of plaintiffs to allege
collusion with the absence of collusion, and basically it
overlooked the tacit form that collusion may take. So these
studies are not definitive, and they have been cited as being
so, but they are not.
Senator Klobuchar. All right. Thank you very much. I
appreciate that.
Thank you, Senator Kohl.
Chairman Kohl. Thank you very much, Senator Klobuchar.
Well, you all know where I am coming from on this piece of
legislation, obviously. I am the sponsor of it. But I want to
take a look at it from another point of view, and that is the
point of view of the manufacturer who goes to great pains and
at great length and at great expense to build a product and a
brand into something that is desired by consumers, in many
cases regardless of the high price, but the manufacturer has
done such a good job of appealing to consumers on the basis of
the quality of his brand that consumers go way out of their way
to find that product and buy it, regardless of its price. And
that adds to the manufacturer's prosperity as well as to the
store that is selling it because they are not discounting it.
But it is a model, a way of doing business, you know, it is a
free country, and people have a right to do that. They can be
successful.
Now, under our legislation, what is likely to happen? Well,
discounters will buy the merchandise and beat the hell out of
the price, you know, and draw customers thereby, but also make
it very, very difficult for the traditional retailer to
maintain their price and for the manufacturer to have the price
maintained as he or she might wish to do; after all, it is
their product.
And the manufacturer, by virtue of, let's say, discounters
selling maybe 10 percent of the brand, but driving the price so
low in the minds of customers and thereby making it very
difficult for traditional retailers to carry that brand at a
maintained price, that the manufacturer could lose an enormous
amount of business just by virtue of the fact that a very
limited amount of discount retailers are driving the price of
that particular brand, merchandise on that brand, a category in
that brand, right down into the basement.
Now, is that fair? Is that fair to the manufacturer, you
know, who, after all, built his business, certain ideas,
certain concepts, does business with traditional retailers who
maintain the price, and here he is in a position whereby a
limited amount of discounters can almost kill that category for
the manufacturer at a profitable price? Is that fair? Doesn't
the manufacturer have a right, once he produces a product, to
have that product sold at a price that he regards as fair? What
is wrong with that, Mr. Haigney.
Mr. Haigney. Well, Mr. Chairman, long before Leegin was
decided, the Supreme Court decided the case of Sylvania, and in
that case it gave the manufacturer all the power anyone could
reasonably want to control its distribution. The only power
that it did not give to the manufacturer was the power to
control price. But it overruled the Schwinn case, which had
made vertical restraints per se violation, and the Sylvania
case made effectively all vertical restraints except price
fixing into per se legal restraints.
The result is that the manufacturers, if they want their
merchandise sold in only the fanciest stores, just sell to the
fanciest stores, cutoff dealers who try and depart from this
distribution scheme. There is nothing wrong with it under
Sylvania, and there are plenty of products out there that
Burlington Coat Factory cannot have because those manufacturers
want to maintain the snob appeal of their product. Perfectly
legitimate, and I have no argument with it. But the important
point is that this right was given to the manufacturers by
Sylvania in 1977. The Leegin case is a complete non sequitur.
The additional power to fix the price adds nothing to the
powers of vertical restraint that were given to the
manufacturers by Sylvania.
Chairman Kohl. All right. But let me follow that up. So you
are saying that even prior to Leegin, manufacturers had a way
of keeping their goods out of the hands of discount retailers
if that is what they wanted to do?
Mr. Haigney. That is correct, Mr. Chairman.
Chairman Kohl. And yet you said during your testimony that
had Leegin been in effect, Burlington would not be here today.
But what is the difference? If manufacturers had the power
prior to Leegin to keeping whatever merchandise they want out
of the hands of discount retailers, then what did Leegin do
except to certify that?
Mr. Haigney. Well, first of all, Mr. Chairman, they had the
power, they had the right, but they did not exercise it. They
wanted to sell--there are a few manufacturers who do not want
to see their merchandise in off-price stories, and that is
their right. But most do want to see--most people are very
happy to sell us their merchandise. We pay the same price as
any full-price retailer, and most manufacturers are happy to
get that price, particularly in a time like the present. And
so, yes, they could have, theoretically, prevented us from
getting the merchandise, but they did not because they did not
want to.
Chairman Kohl. Well, they do not have to, even under
Leegin. What has changed?
Mr. Haigney. Absolutely. They could still----
Chairman Kohl. I guess what I am trying to understand from
the point of view of a retailer, if prior to Leegin the
manufacturer could keep the merchandise out of the hands of a
discounter and now that we have Leegin they can still keep
their merchandise out of the hands of the discounter, what has
changed?
Mr. Haigney. Well, what has changed is that those
manufacturers, who are the majority, who do sell to stores like
Burlington Coat Factory would have the power suddenly--or have
the power under Leegin to fix our retail prices. Now we are an
``off-price retailer.'' Our entire competitive philosophy is
based on giving value and low prices. So if the manufacturer
can now, in addition, he can let us have the merchandise, but
we must sell it at the same price that it is carried at a full-
price retailer, that would put us out of business, at least
with respect to that line of goods.
Chairman Kohl. Yes, but--and I do not want to push this too
far. I just want to make it clear. Prior to Leegin, he still,
as you have said, could decide not to sell the merchandise to a
discounter.
Mr. Haigney. That is right, or to anybody.
Chairman Kohl. Yes, Ms. Harbour, what has changed? Why is
Leegin such a poisonous thing if prior to Leegin that
merchandise could still be kept out of the hands of a
discounter by a manufacturer acting in an intelligent way?
Ms. Harbour. What is poisonous about Leegin is that going
forward there will be no more Burlington Coat Factories. There
will be no more Costcos. There will be no more Walmarts.
Chairman Kohl. OK.
Ms. Harbour. That is the danger. These innovators, these
low-cost retailers, these Internet innovators, they will not
exist now because they will not have the opportunity to enter
the market. That is what has changed.
Chairman Kohl. That is a good point. You are saying Leegin
cuts off or seriously damages the possibility of the new
discounter even getting a foothold.
Ms. Harbour. For instance, if you are on the Internet and
you want to sell a branded product below cost to get a consumer
following, the manufacturer can cut you off at the knees, and
you never can get a toehold into the market. That is what is so
pernicious about Leegin.
Chairman Kohl. That is a good point.
Mr. Cohen.
Mr. Cohen. Mr. Chairman, I also think that the internet
created the very visibility and price transparency that
manufacturers need to police the internet in a way that would
have been impossible in the pre-Leegin world. We believe the
ability to see pricing every day in real time has put a
dampening effect on inflation, and really drives prices down.
But that has also allowed people who want to enforce their
pricing schemes to go after discounters and, more importantly
from our perspective, find out where there were leaks in their
distribution chain. Manufacturers are under intense pressure
from other larger retailers to not allow any discounting, and
then, therefore, they go after our small sellers and try to
find out exactly who those small sellers are, which they would
not have been able to do in a pre-Leegin world.
Chairman Kohl. Mr. Wilson.
Mr. Wilson. Yes, Senator. I guess I do not fully agree with
the economic premise that the other witnesses have suggested
exists here.
First of all, let us remember that this manufacturer in
your hypothetical is presumably working in a competitive
marketplace. Therefore, that manufacturer has to make certain
decisions as to how they are going to go to market. Are they
going to go to market as the lowest cost, or are they going to
try to create the perception of quality in your hypothetical?
If it is the latter, then their perception of quality gives
every other manufacturer either the incentive to increase their
quality or decrease their price. So overall in the marketplace,
in your hypothetical, prices should decrease or quality should
increase or both.
With respect to the notion of what difference does Leegin
make in this, where I believe it makes a difference is it
allows the manufacturer to continue the relationship with the
discounting retailer. Under the pre-existing law, the
manufacturer in effect had to execute the death penalty in its
relationship with that retailer. It had to say, ``You have sold
at below the prices I have suggested. I am no longer going to
do business with you, period.'' And those manufacturers were at
risk if they did that and then reestablished a relationship
because courts would presume an agreement from that back-and-
forth relationship.
After Leegin, what the relationship is in effect is that
the manufacturer can again say, ``You do not have my permission
to do that. You have violated our agreement. We have a
contractual dispute here. I can terminate you or I can simply
have a contractual dispute with you and continue to do business
with you.''
Chairman Kohl. Ms. Harbour.
Ms. Harbour. May I address that? I think that RPM protects
inefficient retailers. If you have a minimum resale price
policy, you could have Retailer 1 selling a quality good, but
Retailer 2, because they would be protected in that intra-brand
competition, the quality could be sub-par, yet they could still
charge the resale price, maintained price, and not in effect
keep the product at top quality. So I think it has the
potential to protect retailers who are not selling top-quality
intra-brand merchandise.
Chairman Kohl. Mr. Cohen.
Mr. Cohen. Mr. Chairman, may I submit to the record a
letter one of our sellers received from a company called
Captive Works, where they said, ``Dear David, Please do not
list the receiver less than $149; otherwise, it will be
reported and taken off. We need to have a steady price from all
the sellers so everybody will be making money. Your prices were
less than everybody else, and if you see someone else with a
lower price, be sure that they will be taken down soon. Thanks.
Raffi.''
So that is the real-world experience that our sellers are
experiencing every day, rather than the hypothetical and
theoretical viewpoint of antitrust experts about inter-brand
versus intra-brand competition. We have to live with the
reality that lower prices are not being able to be delivered to
buyers.
Chairman Kohl. Yes, Mr. Haigney.
Mr. Haigney. Yes, Mr. Chairman, just quickly to respond to
Mr. Wilson, his hypothetical does not coincide with the real
world that I know, at least speaking in the apparel off-price
world. He said that the manufacturer could fix a high price
with the consent of the retailer and go on and do business
afterwards. And the reality is that when your principal means
of competition is low prices, you simply cannot continue to do
business with that person. I mean, the fact of the matter is
Burlington Coat Factory cannot sell at those prices and be
Burlington Coat Factory. And I do not think any other off-price
merchants who roughly have our business model could either.
I also question the whole idea that the manufacturer's
notion of distribution should always be paramount and that
retailers--who, after all, are the ones who actually sell the
product and know the customers--somehow under the Leegin
majority, our views are not considered legitimate. Only the
manufacturer has the right to determine what is going to happen
to a product, which is our property by the time that we are
reselling it to the public.
Chairman Kohl. You know, Mr. Wilson, historically we have
been a consumer-driven society, a consumer-driven economy--we
still are; 80 percent of our economy are--people who are buying
goods on a daily basis, and competition has very much defined
the growth of the American economy. It very much defines
capitalism, competition. Naturally, people who are in a
position to try and do business without having to deal with
competition, that is the way they want it. But in our
capitalistic society we try to encourage competition, thinking
that is the best way, although not perfect, the best way to
proceed.
And that is what pre-Leegin--or if we ever get to post-
Leegin, that is the premise, that competition is the best way
to drive the American economy and serve the American consumer
while still preserving the rights of all manufacturers to try
and make a profit in that kind of a context. And pre-Leegin, as
we have now established, there is still a way--or was a way or
would be a way even under our legislation for a manufacturer to
elect not to do business with a discounter as long as they cut
off that discounter without saying it is because of price and
price only. You know that.
But isn't that a reasonable balance, to encourage
competition, to set up rules and regulations that will allow
for competition based on price, among other things--service,
quality, but also price? But also preserve the right of a
manufacturer when he or she decides that they do not want to do
business because that person is cutting the price too much?
They can find a way not to do business. Isn't that a decent
balance? What is your problem with that?
Mr. Wilson. Well, Senator, let me first of all say that our
Section and the ABA fully endorsed the notion that competition
needs to be the basis for our economy and our society, and I
think notwithstanding recent events, we have proven that
competition is the best way to have a thriving economy.
Our concern in the legislation is that in establishing a
per se test, it eliminates the ability for courts to recognize
situations in which the pro-competitive benefits of a
particular resale price maintenance arrangement outweigh the
anti-competitive effects. In situations where such pro-
competitive benefits outweigh the anti-competitive effects,
consumers benefit from the resale price maintenance.
The Section and the ABA have never taken the position that
resale price maintenance should be per se legal. Our view is
simply that the sound rule of antitrust, that the balancing of
anti-competitive and pro-competitive effects should apply in
this arena as it does in virtually every other arena of our
economy.
Chairman Kohl. Ms. Harbour.
Ms. Harbour. I would just like to respond to that. Mr.
Wilson was talking about the pro-competitive benefit of resale
price maintenance. I guess what I would say is then the
proponents of them should prove it. That is really all I am
asking here. Why put the thumb on the scale on the side of the
business that is imposing this RPM? Give the consumer the
benefit of the doubt. And that is what we have not seen. We
have not seen the proof of the pro-competitive benefits of
those manufacturers who are imposing the RPM. What we get is we
get theoretical assumptions about what those benefits are. All
we are asking, prove it. Even in Leegin, the Supreme Court did
not make, you know, the proponents of the RPM in Leegin to
prove what those benefits were for the ladies' handbags. So
going forward, if you shift the burden of proof, shift it from
the victim, shift it from the consumer. Shift it onto the
manufacturer who is imposing the RPM. Let them bear the burden
of proof for the elevated prices that they are foisting on the
American consumer.
Chairman Kohl. Good. Anybody else have another comment to
make?
Mr. Haigney.
Mr. Haigney. Yes, Mr. Chairman, just briefly on the rule of
reason now, let me say this: Plaintiffs do not win rule of
reason cases in this field. The rule of reason requires the
plaintiff to prove an immense amount of economic data. He has
to prove what the market is. He has to prove that the defendant
has power in that market. He has to prove that competition as a
whole within that market was somehow harmed by the individual
act harming this plaintiff.
Now, most plaintiffs in these cases are small companies who
are starting out trying to get a foothold. They have their most
important line cut off because of their unwillingness to live
up to a price-fixing agreement.
They go to court. Now, when it was per se, all they had to
do was prove the existence of the price-fixing agreement and
the fact that they were cut off because they did not follow it,
and then add up their damages of how much they lost. That
little company could probably bring that lawsuit with the local
lawyer, and probably that guy might take it on spec. To win a
rule of reason case, that local company would have to hire--I
do not know--ten economists, really high-level attorneys, and
launch a 2-, 3-, 4-year exploration of whatever market it
happened to be. That is, if he could satisfy the very strict
pleading requirements of the Twombly case and other decisions
of the Supreme Court that have pretty much put plaintiffs out
of business at the pleading stage.
So the per se rule is not the way to go--I am sorry. The
rule of reason is not the way to go. The per se rule is the
only way that a small plaintiff could ever get a remedy for
RPM's anti-competitiveness.
Chairman Kohl. Thank you.
Anything else, folks?
[No response.]
Chairman Kohl. I think it has been a good hearing. I think
we have laid out the pros and cons of the issue, and it is
really important to our American economy to try and come up
with the right decision on this. In that sense, this hearing
has been very informative. I appreciate your coming.
Thank you so much.
[Whereupon, at 3:40 p.m., the Subcommittee was adjourned.]
[Questions and answers and submissions for the record
follow.]
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