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The Supreme Court has moved closer toward re-examining one of the biggest and hoariest precedents in antitrust law, known to law students everywhere as the Dr. Miles rule. In an order released Aug. 28, the Court issued a stay of a judgment of the U.S. Court of Appeals for the 5th Circuit in a case that squarely tests the Dr. Miles precedent. Under that rule, established in the 1911 case of Dr. Miles Medical Co. v. John D. Park & Sons Co., minimum prices manufacturers set on what dealers can charge customers for their products are deemed as illegal per se under the Sherman Act, no matter what evidence might be presented. The per se rule has come under increasing attack in recent years as being too rigid to take into account market factors that argue for minimum price setting � including the perceived problem of “free-rider” discount retailers, who piggyback on the advertising, promotion, and informed sales force of other merchants selling the same product. Critics of the rule suggest the time is right to mount an attack on Dr. Miles, after the Court’s last term in which it rejected two lesser-known per se antitrust rules. The rule played a role in major antitrust litigation, including the Nine West litigation, in which several states and the Federal Trade Commission sued the company for fixing the price of women’s shoes. A settlement in the case was reached in early 2000. Though the Court has not yet granted review in the pending case, Leegin Creative Leather Products v. PSKS, its agreement to stay a 5th Circuit judgment that upheld Dr. Miles is a sign of substantial interest among the justices in taking up the case. “This is a potentially very major development,” says former Solicitor General Theodore Olson, a Gibson Dunn & Crutcher partner who sought the stay on behalf of Leegin, which makes women’s accessories under the Brighton’s label. “A stay is only granted if the justices regard a grant of cert as reasonably likely and there is a fair prospect that the decision below is erroneous.” But Olson’s adversary, Wichita, Kan., lawyer Robert Coykendall, cautions that the case is still in its early stages and could be denied review by the Court. He also dismisses the Dr. Miles precedent as a “quiet little backwater issue” that has “high visibility but low impact.” He says the case has been weakened by subsequent Court rulings and no longer is as important as it once was. Coykendall, a partner in the Wichita firm Morris, Laing, Evans, Brock & Kennedy, represents PSKS, owner of the retail shop Kay’s Kloset in Flower Mound, Texas. In violation of a price-setting agreement imposed by Leegin, the store discounted Brighton products, prompting Leegen to bar the shop from selling its products anymore. PSKS sued, claiming illegal price fixing. The jury, adopting the Dr. Miles per se rule, awarded PSKS $3.6 million in damages and $375,000 in attorney fees. The 5th Circuit affirmed. Olson obtained from the high court a stay in the payment of damages and fees. The rule has been a favorite target of the free-market-oriented “Chicago School” of economists. Five years ago, influential 7th Circuit Judge Richard Posner called the Dr. Miles rule “a sad mistake.” But former Clinton-era FTC Chairman Robert Pitofsky, a fan of the precedent, predicts a battle royal if the Court takes a case challenging it. Asserting that the current administration has shown little interest in anti-price-fixing enforcement, the Georgetown University Law Center professor says, “It’s a choice between the per se rule and no enforcement at all.” If Dr. Miles falls, he says, “consumer groups will be very unhappy, and the price cutters will be, too.”
Tony Mauro can be contacted at [email protected].

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