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WASHINGTON — Retailers lobbied federal officials for help Thursday to remedy the impact of a U.S. Supreme Court decision that gave manufacturers the ability to set minimum prices.
This story first appeared in the December 5, 2008 issue of WWD. Subscribe Today.
Consumer groups and retailers, including eBay and the now defunct Kay’s Kloset, which was the plaintiff in the landmark 2007 case, said the decision had damaged their ability to do business and hurt the consumer. In the 18 months since the 5-4 court ruling, retailers and industry groups alleged some unidentified large brands have used the precedent to target companies offering discounts or low prices to consumers.
The Supreme Court decision came in a case that pitted accessories firm Leegin Creative Leather Products against PSKS Inc., which operated the Kay’s Kloset boutique in a Dallas suburb. Kay’s Kloset took Leegin to court when it disagreed with a policy that required adherence to a minimum price, and won the original case. But Leegin appealed to the High Court, which overturned the lower court decision and ruled the leather goods company could dictate a minimum price to retailers selling its brands.
The decision struck down a 96-year-old ban on minimum pricing agreements, giving brands the potential to enforce the lowest price at which their products can be sold. The court said setting a base price was no longer automatically against the law, and gave lower courts the leeway to determine, on a case-by-case basis, whether minimum pricing agreements were anticompetitive. In effect, the ruling allowed manufacturers to restrict how much a retailer can discount a product, creating challenges for off-pricers, Internet retailers and other discounters.
“The interests of manufacturers…have been deemed more important than the interests of consumers and that is not right,” said Pamela Jones Harbour, a member of the Federal Trade Commission. “Consumers deserve the benefits of competition at every level of distribution, not just at the level of competition among manufacturers.”
Jones Harbour testified during Senate hearings last year in favor of Congress taking action that would effectively reinstate the minimum pricing ban. She said the commission early next year would explore the impact of the case.
“The nature of the fashion industry is that it suffers a short shelf life,” said Phil Smith, who owned Kay’s Kloset. “The supply of most everything in the fashion industry is finite, only so much is ever produced each season. The fact is most everything in the fashion industry is marked down at the end of each selling season to make room for the next season’s styles. Allowing manufacturers to fix prices will force the American retailers to hold on to poor performing inventory and operate contrary to their own economic self interest. It is an insult to my status as an independent retailer to have my prices dictated by a manufacturer.”
After the decision, Kay’s Kloset lost a substantial portion of its sales when Leegin ended its relationship with the retailer. The independent boutique closed in October.
Smith spoke as part of a panel of consumer advocates, retailers and government officials that called for lawmakers and regulators to address the “anticompetitive and anticonsumer” impact of the court ruling.
“EBay wants to serve both buyers and sellers throughout the United States and around the world, and we are convinced that, post-Leegin, our buyers and sellers are suffering,” said Tod Cohen, vice president and deputy general counsel of government relations for eBay Inc.
Cohen alleged that manufacturers’ pricing in the wake of the court decision is aimed particularly at online sellers who pose a threat through better pricing and the ability to deliver goods anytime and anywhere.
“Entrepreneurs want to serve customers as best they can, that means offering them competitive prices,” he said. “This is especially important for the vast majority of [eBay] sellers who are small and medium-size enterprisers.”
Online sellers and retailers aren’t the only parties who bear the brunt of the Leegin case, panelists said. The issue also pits brick-and-mortar retailers against manufacturers.
The majority opinion in the Leegin-Kay’s Kloset decision acknowledged that minimum pricing agreements could be abused by powerful manufacturers or retailers, but said such arrangements also could spur competition.