The United States Supreme Court has long distinguished between horizontal and vertical price restrictions in assessing their legality under the Sherman Antitrust Act (the Act). Traditionally, courts use the “rule of reason” standard to determine whether a given price restraint violates the Act. According to this rule, the fact-finder must determine whether the restraint’s anti-competitive effects unreasonably outweigh its potentially pro-competitive effects. This standard, however, does not govern all price restraints.
For example, courts deem horizontal price restraints—those occurring between market participants at the same level of production or distribution—per se illegal in recognition of their consistent anti-competitive purpose and effect. Additionally, beginning in 1911 with the Supreme Court’s landmark decision in Dr. Miles Medical Co. v. John D. Park & Sons Co. until 2007, courts deemed minimum resale price maintenance schemes per se illegal under the Act. Minimum resale price maintenance is a type of vertical price restraint ordinarily employed by manufacturers to enhance a product or products.
The Court’s rejection of the per se rule as applied to resale price maintenance schemes in Leegin Creative Leather Products, Inc. v. PSKS, Inc. signaled a dramatic shift in the Court’s ability to recognize and interpret economic data and its effect. Furthermore, applying the rule of reason standard to resale price maintenance schemes will certainly have lasting effects on producers and other corporate entities likely to employ such schemes. The Court’s rejection of decades of case law is not surprising, though, given its longstanding distaste for the overbroad characterizations inherent in per se analysis. Although the Court initially established the per se rule for vertical price restraints in Dr. Miles, subsequent Supreme Court decisions have largely dismantled this holding. In fact, these changes are the result of the Court’s measured yet consistent willingness to recognize the pro-competitive effects of vertical price restraints. Indeed, rule of reason analysis may avoid overbroad characterizations and allow the Court to assess the actual effect of a given restraint on private entities and the market as a whole. . . .