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Dr. Miles is dead. The Supreme Court on Thursday overturned a 1911 precedent — known by law students everywhere as the Dr. Miles rule — under which minimum retail prices established by manufacturers were deemed to be an automatic or per se violation of the Sherman Antitrust Act. Citing modern-day market realities and economic theory, Justice Anthony Kennedy wrote for the 5-4 majority that the per se rule was of “slight relevance” and no longer valid. Instead, he said, “Vertical price restraints are to be judged according to a rule of reason.” The ruling was Leegin Creative Leather Products v. PSKS Inc. Justice Stephen Breyer led the dissenters and recited excerpts from the bench, lamenting the Court’s cavalier treatment of a long-obeyed precedent. If Dr. Miles could fall, Breyer suggested that the long-standing antitrust exemption granted to Major League Baseball could be at risk. Justices John Paul Stevens, David Souter, and Ruth Bader Ginsburg joined Breyer. “The only safe predictions to make about today’s decision are that it will likely raise the price of goods at retail and that it will create considerable legal turbulence,” Breyer said. He suggested that the decision could cost an American family of four up to $1,000 a year in higher costs for products in retail stores, the result of minimum prices set by manufacturers. The decision brought a range of reactions, with some analysts predicting a shutdown of discount retailers nationwide. But others said the decision was limited, especially because minimum price-setting can still be attacked in courts under the rule of reason standard. “Harmful agreements can still be policed,” said William & Mary law professor Alan Meese, who said the ruling represented “a victory for sound economic analysis.”Quentin Riegel, the National Association of Manufacturers vice president for litigation, said, “Despite what others may report, this ruling does not legalize resale price maintenance. It merely puts the practice on a par with other acceptable restraints that some manufacturers may impose on dealers. Resale price maintenance will be illegal, and subject to triple damages and attorneys’ fees, if the manufacturer can provide no reasonable, pro-competitive justification for it.” The per se rule was established in the 1911 decision Dr. Miles Medical Co. v. John D. Park & Sons. It 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. The rule has been a favorite target of the free-market-oriented “Chicago School” of economists. Six years ago, influential 7th Circuit Judge Richard Posner called the Dr. Miles rule “a sad mistake.” The decision came in a dispute between Leegin, which manufacturers’ women’s accessories under the brand name Brighton, and 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 Leegin 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 U.S. Court of Appeals for the 5th Circuit affirmed, and on Thursday the high court reversed. Howrey appellate litigator Jerry Ganzfried said the demise of Dr. Miles would be greeted with mixed feelings. “The decision is reminiscent of a retirement party for a longtime employee, where almost half the attendees think he is being forced out prematurely and unfairly, but no one is certain that he should have been hired in the first place.”
Tony Mauro can be contacted at [email protected].

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