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S. HRG. 110–342

THE LEEGIN DECISION: THE END OF THE

CONSUMER DISCOUNTS OR GOOD ANTITRUST

POLICY?

HEARING

BEFORE THE

SUBCOMMITTEE ON ANTITRUST, 

COMPETITION POLICY AND CONSUMER RIGHTS

OF THE

COMMITTEE ON THE JUDICIARY 

UNITED STATES SENATE

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

JULY 31, 2007

Serial No. J–110–49

Printed for the use of the Committee on the Judiciary

(

(II)

COMMITTEE ON THE JUDICIARY 

PATRICK J. LEAHY, Vermont, Chairman 

EDWARD M. KENNEDY, Massachusetts 

JOSEPH R. BIDEN, JR., Delaware 

HERB KOHL, Wisconsin 

DIANNE FEINSTEIN, California 

RUSSELL D. FEINGOLD, Wisconsin 

CHARLES E. SCHUMER, New York 

RICHARD J. DURBIN, Illinois 

BENJAMIN L. CARDIN, Maryland 

SHELDON WHITEHOUSE, Rhode Island 

ARLEN SPECTER, Pennsylvania 

ORRIN G. HATCH, Utah 

CHARLES E. GRASSLEY, Iowa 

JON KYL, Arizona 

JEFF SESSIONS, Alabama 

LINDSEY O. GRAHAM, South Carolina 

JOHN CORNYN, Texas 

SAM BROWNBACK, Kansas 

TOM COBURN, Oklahoma 

BRUCE A. COHEN, Chief Counsel and Staff Director 

MICHAEL O’NEILL, Republican Chief Counsel and Staff Director 

SUBCOMMITTEE ON ANTITRUST, COMPETITION POLICY AND CONSUMER RIGHTS

HERB KOHL, Wisconsin, Chairman 

PATRICK J. LEAHY, Vermont 

JOSEPH R. BIDEN, JR., Delaware 

RUSSELL D. FEINGOLD, Wisconsin 

CHARLES E. SCHUMER, New York 

BENJAMIN L. CARDIN, Maryland 

ORRIN G. HATCH, Utah 

ARLEN SPECTER, Pennsylvania 

CHARLES E. GRASSLEY, Iowa 

SAM BROWNBACK, Kansas 

TOM COBURN, Oklahoma 

JEFFREY MILLER, Chief Counsel 

PETER LEVITAS, Republican Chief Counsel 

(III)

C O N T E N T S

STATEMENTS OF COMMITTEE MEMBERS

Page 

Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah ............................ 2

Kohl, Hon. Herbert, a U.S. Senator from the State of Wisconsin ....................... 1

prepared statement .......................................................................................... 72

WITNESSES 

Bolerjack, Stephen, Attorney at Law, Dykema Gossett PLLC, Detroit, Michigan ......................................................................................................................... 10

Harbour, Pamela Jones, Commissioner, Federal Trade Commission, Washington, D.C. ........................................................................................................... 5

McDavid, Janet L., Attorney at Law, Hogan & Hatson, Washington, D.C. ....... 11

Pitofsky, Robert, Sheehy Professor of Antitrust Law and Regulation, Georgetown University Law School, Washington, D.C. ................................................ 6

Syms, Marcy, Chief Executive Officer, SYMS Corp, Secacus, New Jersey ......... 8

QUESTIONS AND ANSWERS 

Responses of Stephen Bolerjack to questions submitted by Senator Kohl ......... 25

Responses of Pamela Jones Harbour to questions submitted by Senator Kohl . 29

Responses of Janet L. McDavid to questions submitted by Senator Kohl .......... 32

Responses of Robert Pitofsky to questions submitted by Senator Kohl .............. 38

Responses of Marcy Syms to questions submitted by Senator Kohl ................... 40

SUBMISSIONS FOR THE RECORD 

Bolerjack, Stephen, Attorney at Law, Dykema Gossett PLLC, Detroit, Michigan, statement ...................................................................................................... 41

Harbour, Pamela Jones, Commissioner, Federal Trade Commission, Washington, D.C., statement and attachment ............................................................ 46

McDavid, Janet L., Attorney at Law, Hogan & Hatson, Washington, D.C., 

statement .............................................................................................................. 74

Pitofsky, Robert, Sheehy Professor of Antitrust Law and Regulation, Georgetown University Law School, Washington, D.C., statement and attachment . 91

Syms, Marcy, Chief Executive Officer, SYMS Corp, Secacus, New Jersey, 

statement .............................................................................................................. 98

(1)

THE LEEGIN DECISION: THE END OF THE 

CONSUMER DISCOUNTS OR GOOD ANTITRUST POLICY? 

TUESDAY, JULY 31, 2007

U.S. SENATE, 

SUBCOMMITTEE ON ANTITRUST, COMPETITION POLICY AND

CONSUMER RIGHTS, 

COMMITTEE ON THE JUDICIARY, 

Washington, D.C. 

The Subcommittee met, pursuant to notice, at 10:01 a.m., in 

room SD–226, Dirksen Senate Office Building, Hon. Herb Kohl, 

Chairman of the Subcommittee, presiding. 

Present: Senators Kohl and Hatch. 

OPENING STATEMENT OF HON. HERB KOHL, A U.S. SENATOR 

FROM THE STATE OF WISCONSIN 

Chairman KOHL. Good morning to one and all. We welcome you 

here today. This hearing will be examining an issue with profound 

implications for the prices consumers pay for everything from clothing to electronics, and to everyone who likes to get a bargain when 

shopping. Last month, in the Leegin decision, a narrow 5–4 Supreme Court majority overturned a century-old ban on a manufacturer setting a minimum price below which a retailer cannot sell 

the manufacturer’s product. 

Many fear that allowing manufacturers to set minimum retail 

prices will threaten the very existence of discounting and discount 

stores, and lead to higher prices for consumers. For nearly a century the rule against vertical price fixing permitted discounters to 

sell goods at the most competitive price, and many credit this rule 

with the rise of today’s low-price, discount retail giants—like Target, Best Buy, Wal-Mart, and the Internet site Amazon, which offer 

consumers a wide array of highly desired products at discount 

prices. 

From my own personal experience in business, I know of the 

dangers of permitting vertical price fixing. My family started the 

Kohl’s department stores in 1962, and I worked there for many 

years before we sold the stores in the 1980s. On several occasions, 

we lost lines of merchandise because we tried to sell at prices lower 

than what the manufacturer and our rival retailers wanted. For example, when we started Kohl’s and were just a small competitor to 

the established retail giants, we had serious difficulties obtaining 

the leading brand name jeans. The traditional department stores 

demanded that the manufacturer not sell to us unless we would 

2

agree to maintain a certain minimum price. Because they did not 

want to lose the business of their biggest customers, that jeans 

manufacturer acquiesced in the demands of the department 

stores—at least until our lawyers told them that they were violating the rule against vertical price fixing. 

So I know firsthand the dangers to competition and discounting 

of permitting the practice of vertical price fixing. But we do not 

need to rely on my own experience. For nearly 40 years, until 1975 

when Congress passed the Consumer Goods Pricing Act, Federal 

law permitted States to enact so-called fair trade laws legalizing 

vertical price fixing. Studies the Department of Justice conducted 

in the late 1960s indicated that prices were between 18 to 27 percent higher in the States that allowed vertical price fixing than the 

States that had not passed such fair trade laws, costing consumers 

at least $2.1 billion per year at that time. 

The likely harm to consumers if vertical price fixing were permitted is even greater today. In his dissenting opinion in the 

Leegin case, Justice Breyer estimated that if only 10 percent of 

manufacturers engaged in vertical price fixing, then the volume of 

commerce affected today would be $300 billion, translating into retail bills that would average $750 to $1,000 dollars higher for the 

average family of four every year. 

I am particularly worried about the effect of this new rule permitting minimum vertical price fixing on the next generation of 

discount retailers, the next Sam Walton. If new discount retailers 

can be prevented from selling products at a discount at the behest 

of an established retailer worried about the competition, we may 

very well imperil an essential element of retail competition that is 

so beneficial to consumers. 

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 will need to carefully examine whether the Supreme Court’s abrupt change to the 

settled antitrust rule forbidding vertical price fixing will threaten 

today’s vibrant competitive retail marketplace and the pocketbooks 

of consumers, and we need to consider whether legislation will be 

necessary to protect the continued existence of consumer discounts. 

[The prepared statement of Senator Kohl appears as a submission for the record.] 

So we look forward to the testimony of our distinguished panel 

of witness on this important topic, and I now turn to my esteemed 

colleague, Senator Orrin Hatch, from the State of Utah. 

STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM 

THE STATE OF UTAH 

Senator HATCH. Well, thank you, Mr. Chairman. We welcome the 

witnesses here today and, of course, those who are in the audience. 

I want to thank you for holding this hearing today. As we all 

know, we are here to discuss the Supreme Court’s recent decision 

in Leegin Creative Leather Products v. PSKS, Inc...Kay’s Kloset. But why is that important? Why should a Senate Subcommittee 

turn its attention to a ruling that states minimum resale price 

maintenance agreements, or RPMs, should be judged by the rule of 

3

reason rather than being per se illegal, as they have been for nearly 100 years? 

Simply stated, the seeming dryness of this terminology does not 

reflect the importance of the Leegin decision—a decision which will 

alter the dynamic by which manufacturers enter into agreements 

with retailers and the way in which retailers sell their goods to 

consumers. 

Mr. Chairman, a bit of background on this issue I believe is necessary to fully understand the importance of this decision. Nearly 

100 years ago, the Supreme Court ruled in Dr. Miles Medical Co.

v. John D. Park & Sons that is was per se illegal, ‘‘under Section 

1 of the Sherman Act for a manufacturer and its distributor to 

agree on the minimum price the distributor can charge for the 

manufacturer’s goods.’’ In other words, the RPMs were against the 

law. 

However, this all came to an end last month, when the Court in 

Leegin discarded the per se rule for a test under the rule of reason. 

Under this new decision, RPMs are permitted as long as they do 

not constituted an unreasonable restraint on trade. Specifically, the 

Court has held under the rule of reason ‘‘the fact finder weighs all 

of the circumstances of a 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 restraint’s history, nature, and effect.’’

Now, why did the Court change its mind? The majority argued 

that the RPMs can stimulate ‘‘interbrand competition—the competition among manufacturers selling different brands of the type 

of product—by reducing intrabrand competition—the competition 

among the retailers selling the same brand.’’ The Court goes on to 

further justify this decision by stating, as they held in Khan, the 

‘‘primary purpose of the antitrust laws is to protect [interbrand] 

competition.’’

So what is the effect? One of the most important consequences, 

according to the Court, will be felt in an activity called ‘‘freeriding.’’ Free-riding can be described as when a customer takes advantage of the services and information provided by the 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 RPMs, retailers will have less of an ability to compete on 

price, thereby diminishing the opportunities for free-riding to occur. 

It is surmised that retailers will then focus their competitive energies on providing better services and shopping environments for 

the consumer in order to distinguish themselves in the intrabrand 

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. Specifically, for the first time in 100 years, the 

manufacturer can enter into a contract with a retailer that prohibits the retailer from selling below a certain price point. Obviously, if a discount retailer does not offer a significant advantage 

in price, consumers may very well reconsider where they make 

their future purchases. 

4

Despite these advantages that the Court confers on the manufacturer, a question still persists. Though most economists argue in 

favor of the adoption of the rule of reason for determining the permissibility of specific RPMs, does the positive effect on the manufacturer outweigh the negative effect on the discount retailer? 

That, Mr. Chairman, is one of the central questions that I hope 

that we are able to answer today, and I look forward to exploring 

that topic with our witnesses. We have an excellent panel today, 

and I look forward to listening to all of you. 

Thank you, Mr. Chairman. 

Senator Kohl. Thank you, Senator Hatch. 

Will the witnesses please rise to be sworn in? Do you affirm that 

the testimony you are about to give before the Committee will be 

the truth, the whole truth, and nothing but the truth, so help you 

God? 

Ms. HARBOUR. I do. 

Mr. PITOFSKY. I do. 

Ms. SYMS. I do. 

Mr. BOLERJACK. I do. 

Ms. MCDAVID. I do. 

Chairman KOHL. Thank you so much. 

Our first witness today will be Pamela Jones Harbour. Commissioner Harbour is currently a Commissioner at the FTC. Prior to 

joining the Commission, Ms. Harbour served as a partner at Kaye 

Scholer, where she handled antitrust matters. Prior to joining Kaye 

Scholer, Ms. Harbour was New York State Deputy Attorney General, during which time she argued before the U.S. Supreme Court 

in the landmark price-fixing case State Oil v. Khan. Also testifying today will be Robert Pitofsky. Mr. Pitofsky is the 

Sheehy Professor of Trade Regulation Law at Georgetown University Law Center and also currently serves as counsel for Arnold & 

Porter in Washington, D.C. Mr. Pitofsky was Chairman of the FTC 

from 1995 to 2001, where he also served as a Commissioner from 

1978 to 1981, and as Director of the Bureau of Consumer Protection from 1970 to 1973. He has co-authored many books and articles on antitrust and trade regulation. 

Our next witness will be Marcy Syms. Ms. Syms is Chief Executive Officer of Syms Corporation, a chain of off-price apparel stores. 

She was one of the first companies to offer designer and name 

brand clothing at discounted prices. Ms. Syms is a founding member of the Security Syms School of Business at Yeshiva University. 

Also testifying today will be Stephen Bolerjack. Mr. Bolerjack is 

counsel for Dykema in Detroit, Michigan, practicing in the cases of 

antitrust and trade regulation. Prior to joining Dykema, Mr. 

Bolerjack worked for the Ford Motor Company, providing antitrust 

advice on Ford’s acquisitions and divestitures. He currently serves 

as Chairman of the Competition Task Force of the National Association of Manufacturers. 

The final witness will be Janet McDavid. Ms. McDavid is a partner at Hogan & Hartson in Washington, D.C. She focuses on antitrust and trade regulation, with particular emphasis on Government investigations. Ms. McDavid has authored or co-authored 

many books and articles and is widely recognized as a leading authority on antitrust law. 

5

We welcome you all here today, and we will take your testimony. 

Statements for the hearing have also been submitted by the American Antitrust Institute, Tyler Baker, and Kenneth Elzinga. Without objection, these shall be made part of the record. 

Ms. Harbour, we would love to hear your testimony. 

STATEMENT OF PAMELA JONES HARBOUR, COMMISSIONER, 

FEDERAL TRADE COMMISSION, WASHINGTON, D.C. 

Ms. HARBOUR. Good morning, Chairman Kohl, Senator Hatch. I 

appreciate the opportunity to offer my personal views on the proper 

legal treatment of minimum vertical price fixing. As you may 

know, based on my ‘‘Open Letter’’ to the Supreme Court in the 

Leegin case, I have strong opinions on this subject, and I would 

have preferred it if a majority of the Court had adopted Justice 

Breyer’s cogent dissent instead. 

I am a Commissioner of the Federal Trade Commission. But let 

me be very clear: the views I express today are entirely my own. 

I have submitted a copy of my Open Letter along with my written remarks, and I will not rehash the Leegin decision today. Instead, I want to focus my comments on a fundamental issue of 

antitrust policy, and that is, what should consumers expect from 

the American antitrust laws and, consequently, the American retailing system? 

The Leegin opinion relies on at least two implicit assumptions: 

first, that manufacturers know what is best for consumers—even 

better than retailers, or consumers themselves; and, second, that 

retail competition is not important to the American economy or to 

consumers. 

But these assumptions do not match the reality of the American 

marketplace. Retailers compete by trying to predict what consumers want and at what prices. Many retailers promote efficiencies, which are passed along in the form of lower prices. Other 

retailers may charge higher prices, but offer superior service, higher-quality goods or other amenities. Consumers respond to this 

price and non-price competition by voting with their wallets, depending on their preferred mix of products, services, and quality at 

a given price. 

This is the essence of market-based competition. It is based on 

consumer choice. And many—if not most—consumers respond 

strongly to aggressive price competition because we all prefer a 

bargain. The rise of mass merchandisers like Wal-Mart, Home 

Depot, and Burlington Coat Factory illustrates my point. 

But let’s think about the post-Leegin world. As a general matter 

of antitrust law, a person who can ‘‘profitably...maintain prices 

above a competitive level for a significant period of time’’ is said 

to possess actionable market power. But the Leegin majority articulates a more lenient rule-of-reason standard for minimum vertical 

price fixing. To quote Justice Kennedy’s version of the rule, he said 

‘‘pricing effects’’ are not enough to establish market power; the 

plaintiff must make a ‘‘further showing of anticompetitive conduct.’’

In my mind, this is a virtual euphemism for per se legality because it will be extremely difficult for any plaintiff to make out a 

case. Therefore, absent congressional intent or action, I envision a 

6

post-Leegin world where there is no effective check on minimum 

vertical price fixing. 

And what will this look like to consumers? Well, if you were to 

walk through a mass merchandiser’s store, you would see thousands of items produced by hundreds of manufacturers. Each of 

these manufacturers could require retailers to enter express agreements along the lines of, ‘‘you must sell my products at these 

prices.’’ Manufacturers also would be able to dictate a variety of 

other aspects of retail sale, such as shelf location, display spacing, 

and presentation. 

Intrabrand and interbrand competition may continue to exist, 

but only to the extent it benefits manufacturers, not consumers. In 

short, the American marketplace will no longer be driven by consumer preferences. And, in my opinion, this is wrong. 

My Open Letter explains that our Nation has been down the 

minimum vertical price-fixing road before. Congress enacted the 

Consumer Goods Pricing Act of 1975 to end a decades-long experiment of its own design. But Congress declared that experiment a 

failure, finding that minimum vertical price fixing harmed consumers by raising prices, decreasing distributional efficiencies, and 

deterring new entry, among other things. Had Congress not repealed the fair trade laws in 1975, it is doubtful that mass merchandisers would even exist today. 

As Justice Breyer observed in his Leegin dissent, the economic 

arguments in favor of minimum vertical price fixing have not 

changed appreciably over time. The defendant in Leegin made arguments strikingly similar to the ones the Court rejected in the 

1911 Dr. Miles case and that Congress rejected in 1975. There still 

is no body of sound empirical economic evidence to show that minimum vertical price fixing is, on balance, more likely than not to 

benefit consumers. 

Congress repeatedly has turned down calls for legislation that 

would allow minimum vertical price fixing on a national scale. 

There is no justification for Congress to change course. Yes, minimum vertical price fixing may sometimes be good for consumers, 

under some limited circumstances. But that is no reason to subject 

all American consumers to higher prices, which is virtually certain 

to be the outcome of Leegin—unless Congress intervenes. 

When it comes to close questions of competitive effect, American 

consumers deserve the benefit of the doubt. Therefore, I believe 

Congress should act to shift the burden of proof from the consumer 

onto the producer who imposes pricing restraints. 

In closing, I would be happy to work with the Subcommittee to 

draft statutory language if you choose to do so. Thank you. 

[The prepared statement of Ms. Harbour appears as a submission for the record.] 

Chairman KOHL. Thank you, Ms. Harbour. 

Mr. Pitofsky? 

STATEMENT OF ROBERT PITOFSKY, SHEEHY PROFESSOR OF 

ANTITRUST LAW AND REGULATION, GEORGETOWN UNIVERSITY LAW SCHOOL, WASHINGTON, D.C. 

Mr. PITOFSKY. Thank you, Mr. Chairman, Senator Hatch. As always, it is an honor to testify before this Committee. 

7

I agree with the suggestion that the 5–4 majority opinion in 

Leegin was wrong, and not just because it is a 95-year-old decision. 

The Court can make mistakes and rectify them later on. But subsequent decisions of the Court have consistently supported the Dr. 

Miles approach. Congress was aware of that approach and condoned it. In the past, the Court has paid attention to the way Congress felt about the Court’s interpretation of the antitrust laws. 

Now, I am going to hear the argument that, well, Dr. Miles was 

the Court’s statute, they have a right to change it. Of course, they 

do. But the Sherman Act is Congress’s statute, and if Congress 

thinks the Sherman Act should be interpreted in a certain way, in 

the past the Court has paid attention to that. This majority did not 

want to qualify or modify Dr. Miles. It wanted to overrule it. 

Turning to the merits, the one thing that is clear and really not 

debatable in this entire issue is if you allow minimum resale price 

maintenance, consumers pay more. Now, the argument is, yes, they 

pay more, but they get a good deal. They get things in return that 

make it worthwhile. 

Let me make a general point and then some specific points. Generally, if you look at the briefs, if you look at the majority opinion, 

if you look at Janet McDavid’s excellent presentation today, you 

will see that the entire case for overruling the per se rule is theoretical economic analysis. It is 95 years later, and they still have 

not come up with an iota of data, of empirical support, that free 

riders drive services out of the market, that manufacturers introduce minimum resale price maintenance in order to attract services. It is all Economics 101 theory. 

Specifically, what are the services? The one I have always found 

to be the most persuasive is where you have a new entrant coming 

into a market where there is tough competition. Maybe the new entrant has to guarantee the distributors some protection in order to 

get them to take on a less popular product. OK. But there are two 

answers to that. One is in our system we ask manufacturers to 

compete for dealers, not to charge consumers a tax to raise the 

price of the retailers so the manufacturer can attract more dealers. 

Second, if you really were troubled by that, then it is easy. Then 

there ought to be an exception for new entrants to the rule about 

per se illegality. We have exceptions for new entrants in other 

areas of per se illegality. Why not here? Why overrule the entire 

structure of distribution? 

Second, the argument is that you get a lot of services. Well, if 

a manufacturer really wants services, they know how to get it. If 

they want more advertising, they contract for it. If they want a better service department, they contract for it. They pay part of it. 

What they do not do is raise the minimum resale price in the hope 

that the retailer will know exactly what services the manufacturer 

wants and will introduce them automatically without any direction 

from the manufacturer. 

I looked back at the fair trade period to see which were the products that cost consumers $21 billion, that were fair traded and, 

therefore, a rule of reason applied: cosmetics, toothpaste, pet food, 

vitamins, hair shampoo, ammunition, blue jeans, men’s underwear. 

What exactly are the services that are invited into the market if 

you raise the price of toothpaste to consumers? How about shamVerDate 0ct 09 2002 12:03 Apr 10, 2008 Jkt 041548 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\41548.TXT SJUD1 PsN: CMORC
8

poo? Men’s underwear—what are the services in connection with 

men’s underwear? And besides that, if these products are sold in 

a store with 100, 500, 1,000 products can anybody really say raising the price of one product changes the ambience of the store? 

This is a gross exaggeration of the problems that free riders could 

possibly create. 

Briefly, either we could stick with the per se rule—I think that 

is the right idea—or we could do what we did with horizontal price 

fixing and have what is called a ‘‘BMI preliminary.’’ The defendant 

has to explain to the court in a quick look why it deserves rule of 

reason and not per se treatment, and only after that will the court 

give rule-of-reason treatment. 

The irony now is we treat horizontal price fixing in this country—everybody says that is the maximum anticompetitive form of 

behavior—more leniently than we treat vertical price fixing. No 

other country in the world does anything like that. 

By way of conclusion, one quick point. Judge Posner, a conservative icon and a man with a reputation for being candid about 

these issues—said the rule of reason in this area of the law is infeasible and unsound. He is right. It cannot work. It takes too long. 

It is too expensive. The trials go on for 2 or 3 years. And, therefore, 

he said doing away with Dr. Miles is only the first step to where 

we are really going, which is per se legality. So that the toothpaste, 

hair shampoo, and men’s underwear people can fix minimum resale 

prices even though services have nothing to do with it. 

I think that is where we are going—I think he is right—unless 

Congress steps in and restores its authority to establish the rules 

with respect to discounting. 

Thank you very much. 

[The prepared statement of Mr. Pitofsky appears as a submission 

for the record.] 

Chairman KOHL. Thank you very much, Professor Pitofsky. 

Ms. Marcy Syms? 

STATEMENT OF MARCY SYMS, CHIEF EXECUTIVE OFFICER, 

SYMS CORP, SECACUS, NEW JERSEY 

Ms. SYMS. Good morning, Chairman Kohl, Ranking Member 

Hatch, and members of the Subcommittee. I am Marcy Syms, the 

Chief Executive Officer of SYMS. Thank you very much for the invitation to testify today to the Subcommittee. Please be aware that 

I am neither a lawyer nor an economist, and I will limit the scope 

of my testimony accordingly. 

Let me begin with some background on SYMS. SYMS is an offprice retailer with 33 stores in 13 States that sells designer and 

brand name clothing at substantial savings to consumers. SYMS 

began in 1959 by selling garments produced by a select group of 

manufacturers that supplied it on the condition that it sell their 

garments with generic labels or remove the brand labels at the 

time of sale. As SYMS began to grow, manufacturers began to loosen their control over how SYMS could sell to its ‘‘Educated Consumers.’’ Today SYMS is able to sell brand name clothing with labels attached, as well as advertise brand names within its stores, 

on its website, and through customer mailings. 

9

SYMS purchases most of its merchandise directly from manufacturers of brand name and designer clothing. Most of the merchandise is first quality and in season. The availability of this merchandise is the result of overproduction, canceled orders, and other factors. SYMS works on a ‘‘mark up’’ system unique in retail, even 

among discount sellers and its ‘‘off-price’’ competitors. Instead of 

paying manufacturers wholesale and selling at a lower markup 

than its retail competitors, SYMS pays below wholesale prices. 

For many years SYMS has relied on the prohibition against RPM 

agreements mandated by the Federal antitrust laws. It has invested its capital, structured its business, and built customer goodwill in reliance on that prohibition. 

Over the years SYMS has occasionally been pressured by manufacturers to stop selling particular merchandise because retail competitors that sell at higher prices have complained about SYMS’s 

prices. But the prohibition on RPM agreements has, I believe, kept 

in check serious threats to SYMS’s ability to sell merchandise according to the pricing approach I have described. That may well 

change as manufacturer-oriented RPM policies become more prevalent in the clothing industry. 

Let me now briefly outline what I predict will be some of the undesirable effects that will attend manufacturer-oriented RPM in 

the retail clothing industry: 

First, the introduction of RPM policies will force discount retailers, especially large ones, to pursue strategies other than price cutting—the provision of rebates, gifts accompanying purchases, and 

other special offers—in order to compete. As a result, consumers 

will find it difficult to judge what they are actually paying for the 

products they desire and the value they are receiving. SYMS’s wellknown sales approach is that consumers should be able to judge exactly what value they are receiving and to make purchasing choices 

accordingly. 

Second, as other witnesses will likely explain, RPM may facilitate horizontal price-fixing agreements among manufacturers, 

thereby reducing interbrand competition. 

Third, the retail clothing market is characterized by a continually changing and often seasonal product mix. Consumers are accustomed to, and benefit from, deep markdowns on seasonal items. 

The introduction of RPM policies will lower a retailer’s ability to 

sell end-of-season or out-of-season merchandise by discounting. A 

related problem will be the inability of retailers to sell poorly performing merchandise that is governed by RPM policies. 

Fourth, the introduction of RPM may create opportunities for foreign retailers—or large domestic retailers who set up foreign entities to distribute their products via the Internet or catalogues—to 

secure a competitive advantage over domestic retailers. This is because foreign retailers will find it easier than their domestic counterparts to escape the legal consequences of violating RPM policies. 

Fifth, retailers will face increased costs as a result of having to 

ascertain and comply with RPM restrictions that may be attached 

to the products, especially when they purchase products—as they 

often do—from suppliers other than manufacturers. 

Sixth, it is already difficult for off-price discount retailers in the 

clothing industry to expand their businesses. The limited supply of 

10

discount branded products on the wholesale market restricts 

growth. RPM policies will further restrict the supply of discounted 

merchandise. Much of the discount merchandise sold by manufacturers consists of off-season or out-of-season merchandise. Increasing the life cycle of an item at full retail will reduce the off-price 

supply. 

That concludes my prepared testimony. I would be happy to answer any questions. 

[The prepared statement of Ms. Syms appears as a submission 

for the record.] 

Chairman KOHL. Thank you, Ms. Syms. 

Mr. Bolerjack? 

STATEMENT OF STEPHEN BOLERJACK, ATTORNEY AT LAW, 

DYKEMA GOSSETT PLLC, DETROIT, MICHIGAN 

Mr. BOLERJACK. Thank you, Mr. Chairman and Senator Hatch. 

I am Steve Bolerjack. I am the Chairman of the Competition Task 

Force of the National Association of Manufacturers, and it is an 

honor and appreciated by the National Association of Manufacturers that we have the opportunity to present our views here today. 

We believe that the Leegin case represents sound antitrust policy. There are primarily three reasons. 

First of all, the unvarying rule is that the rule of reason is the 

accepted standard for antitrust analysis. The per se rule should always be reserved for restraints where the courts are confident that 

the restraint would be invalidated under the rule of reason all or 

almost all the time. That is not true of resale price maintenance. 

Even in dissent, Justice Breyer indicated that sometimes it will 

have procompetitive effects, sometimes it will have anticompetitive 

effects. It depends on the facts. Leegin will force courts to look at 

the facts in each case and the competitive effect. 

Leegin continues a progression of limiting the per se rule in the 

vertical area, cases between manufacturers and dealers. You have 

heard references to the 1977 decision in Sylvania overruling a prior 

per se ruling regarding what we call non-price restraints—a location clause in that case. So the manufacturer could choose to limit 

sales to an approved location if it did not have an anticompetitive 

effect. 

You have heard references to the 1997 Khan case on maximum 

resale price maintenance. It permits the manufacturer—or seller—

to require a maximum resale price, a price ceiling; that can be procompetitive, and it can certainly outweigh any anticompetitive effects, and it overruled almost 30 years of experience under a per 

se rule that absolutely prohibited that. 

Finally, and I think very importantly, Leegin requires courts to 

look at substance. What is the effect of the restraint on competition 

in a market? Prior to the Leegin case, we all spent time in a search 

for whether or not there was sufficient evidence of an agreement 

between the manufacturer and the dealer. And I submit they did 

not at all look at whether or not there was an anticompetitive effect in the market. In the Leegin case itself, the per se rule required exclusion of expert testimony that there were procompetitive 

benefits to the policy Leegin was following with its Brighton merchandise. What this case will do is bring back the ability of a manVerDate 0ct 09 2002 12:03 Apr 10, 2008 Jkt 041548 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\41548.TXT SJUD1 PsN: CMORC
11

ufacturer to use the evidence that it may have available to it showing procompetitive benefits, rather than following the per se rule 

where it simply is not permitted to defend itself in court using the 

facts that it would otherwise be able to use. 

We think it is also important to note what Leegin did not do. 

Minimum resale price maintenance is not per se legal. This is not 

going back to the fair trade days. The case did not eliminate the 

potential for a challenge to a manufacturer’s policy if it enters into 

a minimum resale price maintenance agreement. 

What the case says is any of those challenges should be decided 

under the rules that typically apply in a vertical case. And the 

Court also drew a very bright line around efforts to use resale price 

maintenance to enforce horizontal agreements, either amongst 

manufacturers or amongst dealers. And they said those agreements 

are and should continue to be per se violations, and to the extent 

resale price maintenance is being used to enforce it, that would not 

survive a rule-of-reason challenge. This is not a green light to just 

raise prices without regard to competitive effects. 

So thank you for your time, and later on I would be pleased to 

answer questions. 

[The prepared statement of Mr. Bolerjack appears as a submission for the record.] 

Chairman KOHL. Thank you, Mr. Bolerjack. 

Ms. McDavid? 

STATEMENT OF JANET L. MCDAVID, ATTORNEY AT LAW, 

HOGAN & HARTSON, WASHINGTON, D.C. 

Ms. MCDAVID. Good morning, Chairman Kohl, Senator Hatch. It 

is a pleasure to be here this morning with my friends Bob 

Pitofsky—who was my antitrust professor—Pamela Jones Harbour 

and Steve Bolerjack—who is my client—and to meet Marcy Syms. 

I am a partner at Hogan & Hartson here in Washington, D.C. I am 

a former Chair of the Antitrust Section of the American Bar Association, and I am here today on behalf of the ABA. My written 

statement reflects the position of the ABA, and to the extent my 

remarks today differ from that written statement, those views are 

my own. 

The Supreme Court’s recent decision in Leegin holding that resale price maintenance should be evaluated under the rule of reason rather than under the per se rule is totally consistent with the 

views of the American Bar Association. In reaching that decision, 

the ABA carefully considered the views on both sides of the issue 

and concluded that because resale price maintenance can be either 

benign or procompetitive, it should be evaluated under the rule of 

reason, which is the rule that is applied with respect to virtually 

all other restraints under the antitrust laws. It concluded that the 

basis for the Dr. Miles decision was largely discredited and should 

be overturned. 

That does not mean that resale price maintenance will always be 

found to be legal. In circumstances where it produces anticompetitive effects, it will be found unlawful under the rule of reason. Critics, including those here today, seem absolutely confident that 

there will be anticompetitive effects, but they seem significantly 

12

less confident that those effects can be proved under the rule of 

reason. That seems to me to be inconsistent. 

There has always been a tension between the rule in Dr. Miles

and a decision only a few years later in Colgate, where the Court 

held that a supplier could refuse to sell to dealers that would not 

charge its resale price as long as it did so wholly unilaterally. The 

rationale was that, absent an agreement between the manufacturer 

and the dealer, there was no violation of Section 1 of the Sherman 

Act. The competitive effects were exactly the same. The only question was whether or not there was an agreement between the manufacturer and the dealer. 

Later, the Court applied the rule of reason to a whole range of 

other vertical restraints, as Mr. Bolerjack has explained. Resale 

price maintenance, which eliminated only one form of competition 

at the intrabrand level was per se illegal; whereas, a territorial exclusion clause was evaluated under the rule of reason even though 

it might have a greater anticompetitive effect than the resale price 

maintenance arrangement. 

My written statement contains a detailed discussion of the economic and legal arguments on this question. I am a practicing lawyer, so I would like to talk to you a little bit about how this works 

in the real world. 

When I advise a client on an antitrust question, the first things 

I ask are: What are you going to do? And why are you going to do 

it? That allows me to consider the client’s business rationale for the 

conduct, the competitive dynamics in the industry, and whether 

there might be a less restrictive way to achieve that objective. But 

when we counseled in the resale price maintenance area, the rule 

was always different. Instead of asking why do you want to do this 

and what is the effect going to be, we spent our time talking about 

whether there were ways to achieve that objective without an 

agreement. Could you suggest resale prices? Could you establish a 

consignment arrangement? Could there be a principal agent relationship? Many of these questions made no business sense to the 

people whom I was counseling. 

If the client wanted resale price maintenance, it could adopt the 

Colgate policy: se resale prices completely unilaterally and simply 

terminate any dealer who refused to follow that pricing policy. But 

it had to do so without any discussion with the dealer. It did not 

matter whether that dealer was a valuable dealer with a longstanding relationship. It simply had to cut them off, because any 

conversation with the dealer ran the risk of an agreement. And as 

a consequence, this became a business rule that businesses could 

not understand. 

There was an amicus brief filed in the Leegin case by the Ping 

golf club manufacturer explaining that it had adopted a Colgate

policy on resale price maintenance because it felt that its club-fitting rules required service by dealers. As a result, it terminated on 

a zero tolerance basis any dealer who cut prices. Its representatives 

could not go out and counsel with those dealers. They simply had 

to cut them off because, otherwise, they risked an agreement. 

Concerns by the field representatives were not sent to the marketing department. They were sent to the general counsel’s office, 

which helped decide whether it was appropriate to cutoff the dealer 

13

in that circumstance. Ping said it terminated nearly 1,000 dealers 

over 4 years, with a resulting loss in outlets that were useful to 

consumers. It is very hard to explain to business people why that 

rulemakes any sense. 

Lawsuits in this area were also different. Instead of thinking 

about the anticompetitive or procompetitive effects of the conduct 

at issue, as we do in every other antitrust case, except a cartel, we 

spent our time discussing whether or not there was an agreement 

between the manufacturer and the dealer. Did the conduct of regional sales representatives somehow cross the line between persuasion and coercion so that there was an agreement? 

Leegin is an example. As has already been stated, the testimony 

of Ken Elzinga, one of the leading antitrust economists in this 

country, was excluded from evidence at the trial as irrelevant because the rationale for the arrangement was simply not relevant, 

and the jury was not allowed to consider the procompetitive rationale. 

So cases in this area were always slightly back-assward, and the 

courts tried to find ways to avoid absurd results. We spent our time 

focusing not on the competitive effects of these cases, but on whether there was an agreement. 

For these reasons, the Leegin decision is completely consistent 

with the views of the American Bar Association. I welcome the opportunity to answer your questions on how this works in the real 

world, and I hope we will have a chance to talk about some of the 

factors that a court might apply as it evaluates these cases under 

a rule-of-reason analysis. 

Thank you. 

[The prepared statement of Ms. McDavid appears as a submission for the record.] 

Chairman KOHL. Thank you very much. 

I would like to start by asking Ms. McDavid and Mr. Bolerjack 

the following question and the line of reasoning: What problem did 

Leegin fix? It seems to me, aside from the legalities of lawyers and 

manufacturers, the most important part of—or one of the very most 

important parts of retail America is that it provides the consumers 

the most vigorous kind of interaction between themselves and manufacturers and stores with the least kinds of obstructions as we feel 

we need to insert into the process to maintain some sense of sanity, 

but that the churning, the interaction is a good thing and not a bad 

thing. Now, if you disagree with that, then perhaps you want to 

make your case. But the kinds of restrictions that we want to impose are the least that are necessary. 

So if that is true as a premise, and if we had not had minimum 

price maintenance now for the longest time, why do we have to 

have it now? I mean, what is there that is occurring that is making 

it necessary for manufacturers to be able to set a minimum price? 

As Mr. Pitofsky pointed out, they can now set maximum price, and 

if they could set minimum price, theoretically they can set those at 

the same point. And as Mr. Pitofsky pointed out, he thinks maybe 

that is where we are heading. But legally now they can set a maximum and minimum at the same level. 

Now, why is that beneficial to the American retail—to consumers? Why would you then defend that as something that they 

14

should have the right to do if they wish if we are thinking about 

the whole panoply of America and retailing and the interaction 

that goes on and all the good things that it has provided over the 

years? Ms. McDavid, would you like to comment on that? 

Ms. MCDAVID. Well, as I explained, Senator, there has been resale price maintenance in this country under the Colgate doctrine 

for a long time. The question has always been whether it is imposed by the manufacturer unilaterally, resulting in the termination of any dealer who does not do it, or whether it has been imposed through an agreement. So it has existed, and there are a lot 

of companies, like Ping, who simply cutoff the discounters. 

So this system has existed. The problem has been that it is inefficient because we end up in the kind of inquiries that I have been 

describing where we do not focus on whether there is something 

good going on here or is it completely neutral or is there something 

bad. 

Manufacturers want the kind of hurly burly you have been describing, but they want it at the interbrand level. They want Sony 

and Sharp competing with Matsushita and JVC. They want that to 

be done as a consequence of being able to go into a store where you 

can get the kind of service that tells you the difference between 

those television sets. 

Chairman KOHL. Mr. Bolerjack? 

Mr. BOLERJACK. I absolutely agree that what the manufacturer 

is now freed to do in a straightforward fashion rather than by setting up its unilateral policy and spending the time, money, and effort of trying to track down violations of its policy—manufacturers 

now are free to explain to those who sell its product that we want 

you to take on my competition, don’t take on one another. And they 

can go forward and set a minimum price floor to try to assure that 

that does not happen. That may bring advantages to them that 

they cannot use today in as efficient a manner. This frees the manufacturers to do something like that. 

I would also like to point out that the assumption frequently in 

these matters is that the manufacturer is a large, powerful organization with all the power and abilities to enforce this in the world. 

And, frequently, that is not the case. It can be a small manufacturer trying to get into numerous outlets. In the case here, you had 

a manufacturer that made ladies’ leather goods and accessories. 

They finally got into 5,000 different outlets, and for reasons we 

probably do not need to explore in detail, they wanted to try to assure that a consumer had a very special boutique-type experience. 

Other manufacturers now might have the ability to undertake this 

policy. A manufacturer that relies—and I think frequently they 

do—on discounting and making sure that their entire output is 

taken and sold will not consider one of these policies. It does not 

do anything for them, and if they impose one of these policies and 

they have a significant market position, they are going to have to 

deal with any litigation that comes up. It is not a free pass. 

Ms. MCDAVID. If I could add, Senator, my experience in the very 

limited time since the Leegin decision—but many of us were expecting the Leegin decision for the last year or so—is that companies are not jumping at the opportunity to do this. They are thinking about it very carefully. They are thinking about whether it 

15

makes sense for their business. And they are also carefully evaluating the risk that their conduct might be found to be unlawful in 

a rule-of-reason analysis. 

I have already advised one client so far that it would be very 

risky for them to do this because of the circumstances in which 

they compete, and they have chosen not to proceed in that way, 

even with a full rule-of-reason analysis. I think that companies are 

going to make individualized decisions based on the competitive dynamics that they face in their particular space. 

Chairman KOHL. Mr. Pitofsky? 

Mr. PITOFSKY. Senator, here is the irony. If five retailers got together fixing a minimum price, that is illegal per se. It is a horizontal conspiracy. But if the five retailers manage to go to the 

manufacturer and say, do me a favor, stop these price wars, give 

us a minimum price, then, according to the Supreme Court, now 

you are going to have a rule of reason not illegality per se. And I 

just want to add, lawyers know, plaintiffs almost never win a ruleof-reason case. A rule-of-reason case means the kitchen sink is relevant, everything is relevant. They take years. Discovery takes 

years. They are very expensive. 

I will give you a piece of data, not theory. Thirty years ago, the 

Supreme Court went from per se to rule of reason with respect to 

territorial allocation: you sell in the Bronx, you sell in Queens, you 

sell in Brooklyn, don’t get in each other’s way. The Court went to 

rule of reason, it said, oh, it is only rule of reason. 

Four plaintiffs have won territorial allocation cases in the last 30 

years, one every 7 years. I think it will be even tougher to win a 

vertical price-fixing case. I think four cases in 30 years is per se 

legality, and that is where we are heading. 

Chairman KOHL. Ms. Harbour? 

Ms. HARBOUR. Let me give you the bottom line. I think the anticompetitive effects of minimum vertical price fixing are virtually 

certain. Prices will go up and consumers will pay more money. The 

procompetitive effects that we hear about are theoretical; they are 

speculative, and they are unproven. And let me tell you why. 

None of these empirical studies that we hear about, that we have 

read about, are definitive. There is an acknowledged empirical vacuum that leaves these competing theories untested. For instance, 

in 1985, Judge Easterbrook called for more rigorous empirical research, but to date, no studies have found evidence of the procompetitive benefit relating to minimum vertical price fixing. 

These studies are theoretical, and these studies are not definitive. But what we do know is that manufacturers will set higher 

prices, and we know this because in 1975 a congressional study 

showed that minimum RPM led to a 27- to 37-percent price increase for the American consumer. We know that in that same 

time period, a Stanford University study showed that fair trade 

cost consumers, in 1970s dollars, $6.5 billion a year. We know that 

there was a higher rate of business failure in fair-traded States. 

These States had a 55-percent higher rate of firm failure. 

So these are the things we do know, and I do not think that the 

per se rule should be thrown out based on theoretical arguments 

and no empirical data. 

16

Ms. MCDAVID. Mr. Chairman, the case that Chairman Pitofsky 

described is actually per se illegal. The dealers getting together and 

asking the manufacturer to impose a price on them is illegal. He 

brought that case when he was at the Federal Trade Commission 

against a group of Chrysler dealers who asked Chrysler to boycott 

discounters who were selling cars on the Internet, and it was found 

to be per se illegal. And do you know who brought the complaint 

to the Federal Trade Commission? Chrysler, because it had no incentive to get involved in that kind of a conspiracy. 

And the circumstance he posits in which there would have only 

been four territory allocation cases won by plaintiffs, I wonder if 

he disagrees with the Supreme Court’s Sylvania decision. Bob, 

didn’t you think they did it right? 

Mr. PITOFSKY. No, I thought the Supreme Court was right about 

Sylvania. It is a different situation. But price has always been 

treated as different. In Sylvania, the majority said this is territorial allocation, that is price, we are not touching price. But now 

this majority is. 

What was your—oh, the dealers. How did the dealers effectuate 

this business about getting the manufacturer to fix the price for 

them? First of all, they are smart enough—most of them are smart 

enough now, not all—not to go as a group to the manufacturer. 

They can go one at a time. Or they do not have to go at all. They 

just let their feelings be known that these price wars are killing us 

and eventually we are going to leave you if you do not stop the 

price wars. 

There is data, actual data, that resale price maintenance is more 

likely to occur where the dealers are well organized in trade associations than if the dealers are independent. There is nothing like 

that kind of data, taking the other side of this argument, that free 

riders drive services out of the market. 

Chairman KOHL. Chairman Hatch? 

Senator HATCH. Well, I have to add that this has been very interesting to me. I think you have all done a very interesting job, as 

far as I am concerned. 

Chairman Pitofsky, recently you wrote an article that discusses 

a common example cited by those who support a rule-of-reason 

analysis. Specifically, I am referring to the example of the audiovisual dealer that assists the consumer with expert advice and 

then has their sale undercut when the consumer leaves and buys 

the product from a discount store. 

You counter that argument by discussing how such a scenario 

does not apply to low-value textile goods, but does not—I guess my 

question is: Does not the Court recognize this in their holding? 

Simply put, just because one can do something like engage in an 

RPM does not mean that all manufacturers, especially those who 

sell ‘‘commodity priced’’ goods, will insist upon them? Will the market itself not work this out? 

Mr. PITOFSKY. That is the hypothetical that the conservative side 

of this argument always uses: you will go to Federated and get an 

explanation from a fancy service person; then you go across the 

street to the discounter and buy the product. I have three reactions. 

One, how often does that happen? I want to see a study of that. 

17

Two, might we not have a ‘‘BMI preliminary’’—we can make an 

exception for that kind of situation. The manufacturer comes in 

and says—or the dealer does and says, ‘‘I am having a lot of problems with this kind of behavior,’’ and the Court, as they do under 

BMI in horizontal market price fixing, says, ‘‘OK. You have persuaded us. Now we will give you a rule of reason. But we are not 

giving you a rule of reason for men’s underwear. That does not 

make any sense to us at all.’’

Third, I am going to make a point for the other side. I asked my 

class, ‘‘How many of you people go to Federated, get an explanation, and then go across the street to a discounter and buy the 

product?’’ And half the class raised their hands. I said, ‘‘You got to 

be kidding. I did not know that anybody did that sort of thing.’’ So 

afterwards, students came up and they said, ‘‘Well, what we do is 

we go to Federated and get the explanation,and then we buy it on 

the Internet.’’ That should have been the argument in favor of getting rid of a per se rule. 

But my answer to that is there is a much more constructive way 

to do it, and that is, simply have a ‘‘BMI preliminary.’’ Explain that 

this is the kind of product, high-tech audio equipment, computers 

and so forth, where people get the explanation and then buy it 

somewhere else. Eventually that will drive the explanation out of 

the market. I accept that. But that, Justice Breyer said, applies to 

10 percent of products. I really wonder if it is even 10 percent of 

products. All I know is that an overwhelming majority of the products have nothing to do with services. It is just that consumers will 

pay more and retailers will pocket more. 

Ms. HARBOUR. May I make a comment? 

Senator HATCH. Go ahead. 

Ms. HARBOUR. If I might just add to Professor Pitofsky’s comments. I believe the Supreme Court’s grounds for overturning Dr. 

Miles, were based on either a misstatement or a misunderstanding 

of the decision. The Leegin plaintiffs were wrong when they argued 

that Dr. Miles was based on what they called ‘‘prohibiting restraints against alienation.’’ Basically, Dr. Miles held that the arrangement between Dr. Miles and its 25,000 retailers constrained 

all downstream pricing. The Dr. Miles Court held that this arrangement was the functional equivalent of horizontal price-fixing 

between the dealers. So, the Supreme Court did not recognize the 

functional equivalency doctrine. Dr. Miles was grounded in traditional antitrust concepts namely, the elimination of competition 

and subsequent harm to consumers. I think that concept was overlooked by the Supreme Court. 

I want to talk about for a moment, though, about the free-rider 

effect. This effect has been grossly exaggerated in the economic literature. It is implausible in many of the product areas where RPM 

is used. 

If you take a look at the Leegin case, and as I had stated in my 

Open Letter regarding ladies’ handbags—what are those extra 

services that would justify imposing a price increase to consumers? 

Are ladies’ handbags something that would require operational expertise, consumer education or a showroom? I don’t think so. So I 

think there was no real justification for the resale price maintenance scheme in the Leegin case. 

18

Ms. SYMS. I would like to add something, if I may. 

Senator HATCH. Sure. 

Ms. SYMS. I think that this whole concept of free ride really has 

to be re-examined in the age of the Internet. We all get a free ride. 

Most of our consumers get their information from the Internet. If 

they want to get educated about something now very quickly, they 

do not have to get in a car; they do not have to pay for gas. They 

just get on their computer, and they get all the information they 

want. So I don’t know if this free-ride idea—actually, up until reading the case, I did not even know there was such a thing. So there 

you go. I mean, it is very esoteric. 

And the truth of the matter is in the merchandise that we sell, 

even though we are selling 40, 50 percent below what a regular retailer is, almost 70 percent of the merchandise that comes into a 

Syms store has a hang tag. The manufacturer, the brand—we deal 

directly with the brands, directly with the designers. We do not use 

middlemen. We do not use jobbers. And 70 percent of the merchandise has a suggested retail price hanging right on the garment. So 

we all—the consumer has a guideline; they know. And we have a 

guideline; we know. But it is not something that has to be regimented. The marketplace takes care of what the price is going to 

be based on where it is in the seasonality, based on how old the 

merchandise is. A turtleneck is not going to be the same as a new 

pocketbook from Coach. 

You know, there is a sensibleness to this that kind of gets lost 

in some of this discussion, and the consumer knows the sense of 

it. 

Senator HATCH. Well, let me give the other side a chance, too. 

Ms. McDavid, Mr. Bolerjack, if you would care to comment? 

Ms. MCDAVID. Well, some manufacturers, even manufacturers of 

men’s underwear, may have chosen to invest to create a premium 

product. Ms. Syms mentioned Coach handbags. I buy Coach handbags. I consider Coach a premium product. Should a manufacturer 

be prevented from cutting off someone whom it thinks is undercutting the value of the premium brand it has created? 

The ultimate constraint here is going to be the existence of 

interbrand competition, the choice between a Coach handbag and 

an off-brand handbag. A consumer who is prepared to pay for a 

premium product will pay a premium price and perhaps buy a 

product that is subject to resale price maintenance, or a Leegin

handbag. A consumer who is price focused will buy a different 

brand which is not subject to resale price maintenance and is sold 

at a lesser price. The fact that there are price differences does not 

mean it is anticompetitive. 

Senator HATCH. Professor Pitofsky, you have taught your student 

well, but she is—

[Laughter.] 

Senator HATCH. She is straying from the course. 

Mr. Bolerjack? 

Mr. BOLERJACK. I would just finish up. I agree with, I believe it 

was, what Ms. Syms said. The market will take care of this. If a 

manufacturer goes out and says, I want an arrangement with you 

as a retailer, I want you to carry this in an attractive store. I want 

you to have a listening room for stereos, or I want you to have 

19

skilled salespeople, I want you to take returns, if the customer is 

unhappy with my product and wants their money back, I want you 

to give it to them, I want you to perform warranty work, some of 

this we can do with agreements. But the situation here is if they 

have priced that wrong and they get into resale price maintenance, 

the manufacturer will quickly learn a lesson from his competitors, 

and he will be taught that he cannot maintain that price. Competition with other manufacturers will take care of that. As Jan said, 

the interbrand competition. 

Ms. HARBOUR. Senator, I wanted to add that when thinking 

about these issues we must ask this question: Are the retailers the 

sales agents for the manufacturers? Or are the retailers the purchasing agents for the consumers? I believe it is the latter. Also, 

I do not believe that consumers really receive the services that are 

worth the price increases. Or if they do, I think the value of such 

services should be proven by empirical data, which to date I do not 

think it has been. 

Senator HATCH. Well, I have to say this has been really a very 

interesting hearing, and all of you have acquitted yourselves very 

well. I can see why these decisions are so difficult to make and why 

so few lawyers go into antitrust. 

[Laughter.] 

Senator HATCH. But this has been very interesting to me, and we 

will certainly weigh all of your statements very carefully. And I am 

fortunate to work with the distinguished Chairman here, and we 

will get together and see what we need to do here. 

Chairman KOHL. Thank you, Chairman Hatch. 

Senator HATCH. After all, he has been in the business, and I 

have just been a poor lawyer. 

Chairman KOHL. I would like to just pursue what we have been 

discussing a little further. You know, we have all kinds of varieties 

of retailing in America. We have the retailers who provide lots of 

services and many employees and a beautiful store, valet parking, 

and higher prices. That is how they appeal to their customer. 

Then we have people who are providing medium kinds of services, medium kinds of decor, medium kinds of—all kinds of attending kinds, and medium prices. 

Then we have people who do it at the lower level. They do it on 

the basis of price, no overhead or very little overhead, and they 

pass that on to their consumers. 

That is American retailing. It has been, and it is good. I am sure 

you would defend that. I would like to hope you would defend that. 

So then why would you say that the manufacturer can do away, 

in effect, with the discounter, with the lower level, by saying our 

minimum price is, and you cannot go below that minimum price, 

which takes away the No. 1 attractiveness of that retailer, who perhaps offers very little else other than his low price? Why would you 

say—and that person is trying to get the consumer to come in and 

buy, I mean, representing the consumer, as Ms. Harbour said, why 

would you say—or why do you say that that kind of retailing in 

America should be subject to curtailment by the manufacturer? 

Why would you say that? 

Ms. MCDAVID. I think simply, Senator, that the manufacturer 

should have the choice as to whom it sells. It may say I have a luxVerDate 0ct 09 2002 12:03 Apr 10, 2008 Jkt 041548 PO 00000 Frm 00023 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\41548.TXT SJUD1 PsN: CMORC
20

ury product, I want this sold in the store with the valet parking, 

the Nordstrom’s-type stores. On the other hand, it may say that my 

brand is not consistent with the discount model, and today the 

manufacturer has the ability to make that decision as long as it 

does so unilaterally without an agreement. That is happening 

today all the time. The Ping golf club example is one of those. But 

as long as there is an array of products available that compete with 

that product, then the discount outlets and the medium- priced outlets will all remain. The question is: Where is the consumer going 

to find the kind of good that it wants to purchase, at the price it 

wants to purchase, at the quality it wants to purchase? I think we 

would all agree that a Jaguar car is not sold in a discount outlet, 

and that is a perfectly legitimate decision for the manufacturer to 

make. 

Ms. SYMS. That is happening today. Syms does not sell Coach 

handbags, and we do not sell it, and they are able to control their 

distribution by just saying we do not produce enough to sell to discounters. We sell all of our product and we discount all of our product in our own Coach stores. 

And when I referred to one of my points about the foreign aspects of this and that a foreign manufacturer might not be restricted as an American company might be restricted—and that is 

an issue—many of the larger discounters, like a Wal-Mart, like a 

Target, can go overseas and they can manufacture and control 

costs vertically to the consumer. The smaller discounters, the regional discounters, like we are, would not have that advantage. So 

I think that there is also the possibility that having this price 

maintenance will be a problem for the smaller discounter, not the 

larger discounter. 

Chairman KOHL. I think so. 

Now, again, Ms. McDavid, a Supreme Court ruling is to fix something that needs to get fixed. What is the problem with the way 

we have the situation now? What is the problem? If they do not 

want to sell to Syms, they do not have to sell to Syms. Nothing is 

stopping them. So what was the problem that was so serious that 

they had to overturn, you know, decades and decades of legalism 

to say that a retailer can now set a minimum price. If they did not 

want to sell to Syms, they did not sell to Syms. It was not an issue. 

They could just say, ‘‘We are not going to sell to you.’’ What was 

the problem? 

Ms. MCDAVID. The Colgate policies were cumbersome and often 

did not work in practice. What would happen is the manufacturer 

would say, ‘‘This is the price at which I want my product resold, 

and if you will not do that, I will not sell it to you.’’

Now, on paper, that is easy. In practice, it results in the circumstance you had in Ping where the discussions with the dealers 

were not coming into the marketing department but were coming 

into the general counsel’s office. What would happen in practice—

and here I would like to quote my friend Pamela Jones Harbour 

in one of the first speeches she gave in the Antitrust Section. The 

policy on paper looked wonderful and complied with the law. But 

you have a regional sales representative out there who is going out 

and talking to the folks in the stores. And Pam said that the dialogue went roughly like this: 

21

‘‘Charlie, I love you like a brother, but you’re chiseling on the 

price.’’ And they would have a long discussion about whether Charlie really was chiseling on the price or whether Charlie was going 

to start complying with the policy, because if Charlie kept chiseling 

on the price, they were going to cut him off. And that led to an 

agreement, believe it or not, or a decision to cutoff Charlie, and 

Charlie sued and said, ‘‘They imposed an agreement on me to comply with the policy.’’ And that is where the litigation was. The litigation always involved the question of whether there was an agreement, because the policy itself was fine. It was the implementation 

that was cumbersome and awkward. I do not think we want marketing decisions being made in the general counsel’s office. Frankly, we are not very good at it. 

Ms. HARBOUR. Since Jan quoted me—

Chairman KOHL. Another way to say that is we want to make 

it easier, less cumbersome, less difficult for retailers—for manufacturers to set their price. 

Ms. MCDAVID. Exactly. 

Chairman KOHL. Beautiful. 

Ms. HARBOUR. Chairman Kohl, since—

Chairman KOHL. Beautiful. I could not agree with you more. 

That is the point of it. But I disagree with it. 

[Laughter.] 

Chairman KOHL. I do not think you can make the argument that 

that serves the American consumer. Clearly - and I appreciate that 

because we have, you know, many parts of the American economy 

and of our country. It serves the interests of the manufacturer, and 

that is fine, if you represent that—that is your client and you make 

the argument, and I appreciate that. 

Yes, Ms. Harbour? 

Ms. HARBOUR. Senator Kohl, since I was quoted, I will tell the 

second part of that hypothetical. Yes, it is true that sometimes 

those Colgate policies would fall apart in the marketplace, and, you 

know, sales reps would say, ‘‘Charlie, I love you like a brother, but 

you got to keep those prices up.’’

But what Jan did not say, in the second part of my hypo, is that 

it is possible to have a clean-cut Colgate policy. What happens in 

the marketplace is that sometimes manufacturers get a little cute. 

They want to implement the ‘‘three strikes you are out approach’’ 

or structured termination ‘‘Well, you know, get those prices up, we 

will give you one chance.’’ But then when it comes to the second 

chance, sometimes there is an implicit coerced agreement, and that 

is where they get into trouble. 

So I think that it is possible to have a clean Colgate policy. But, 

the problem occurs when the salesmen are not disciplined and 

there is a structured termination policy using the ‘‘three strikes 

you are out’’ structured termination. This is where a lot of the 

manufacturers get in trouble. 

Chairman KOHL. Mr. Pitofsky? 

Mr. PITOFSKY. Just a comment on what we have just heard. I am 

no fan of Colgate. It is a mess. But the solution to Colgate is not 

to overrule Dr. Miles. I mean, it is a non sequitur. You want to 

straighten out Colgate? Good. We are all for it. We would pitch in 

on that. 

22

Second, let’s be clear that we all agree there should be high-end, 

middle, and low-end retailers. They should all be protected. But the 

reason for challenging Dr. Miles was to hamper the ability of the 

low-end discounters to really do their job. And you do that by an 

epithet. You call them free riders. You call them names. You call 

them—you say they are not righteous compared to the high end. 

But the fact of the matter is I have not seen poor services in discount operations. On the contrary, sometimes the services are better. 

And, finally, as far as discounters are concerned, it is quite possible the reason they can discount is because they get up earlier, 

they work harder, they handle their inventory better, they bargain 

better for prices, and they want to pass their efficiencies along to 

consumers. 

What really upsets me is the argument that the manufacturer 

has the right to trump the market and prevent the efficient discounter from passing discounts along to consumers. That seems to 

me inconsistent with what American antitrust is about. 

Ms. HARBOUR. And if I might put a fine point on that, Mr. Chairman. There was a study that was done in 1983 by Thomas R. Overstreet. It was titled ‘‘Resale Price Maintenance: Economic Theories 

and Empirical Evidence.’’ And basically what that study found and 

acknowledged was that traditional wholesalers and retailers had 

lobbied to legalize minimum RPM, and they did that, and I quote 

the report, ‘‘to shield themselves from new forms of competition.’’ 

The retailers had argued vigorously that competition and falling 

consumer prices, in their opinion, were generally bad for the economy and bad for small business, and that motivation is the antithesis of a free and open market economy. 

Chairman KOHL. Thank you. 

Anybody else want to make a comment? This has been a great 

hearing. 

Ms. MCDAVID. One comment, Chairman Kohl. 

Chairman KOHL. Go ahead. 

Ms. MCDAVID. No one here today has argued that the absolute 

per se rule of Dr. Miles is the right rule. Chairman Pitofsky has 

not taken that view. Commissioner Harbour has not taken that 

view. Certainly we have not taken that view. 

Even Commissioner Harbour and Chairman Pitofsky—

[Laughter.] 

Ms. MCDAVID.—have said there could be exceptions for new 

entry there could be exceptions, there could be a BMI sort of analysis in which you determine whether the rule of reason applies. 

Keep that in mind as you move forward here. 

Chairman KOHL. Mr. Pitofsky? 

Mr. PITOFSKY. Well, we have a per se rule against horizontal 

price fixing. It is the toughest rule in the world, and the penalties 

are extreme. But we also have a softening effect through BMI

which says if once in a blue moon you have an argument that your 

horizontal price fixing is efficient, as it turned out it was in BMI, we will listen to you, and if you persuade us, we will give you a 

rule of reason. That does not mean we give the other 97 products 

a rule of reason. We just back off a little bit and soften the edges 

of a per se rule. But the value of the per se rule is predictability, 

23

certainty, short trials, the ability of private plaintiffs to bring cases 

like this. It is the staple now of American antitrust enforcement; 

even though the BMI qualification has been added, it did not undermine the horizontal per se rule. And I think a similar approach 

would have been wiser for the majority in Leegin, but they were 

not interested in preserving the virtues of the per se rule. They 

were interested in overruling Dr. Miles. 

Ms. HARBOUR. I absolutely agree with Professor Pitofsky, and if 

the Chairman is interested, I would give you my proposed wish list 

for legislation, if you are so interested. 

Ms. SYMS. And I just would like to say one thing. Since we have 

been in business, since 1959, I can recollect in all those years only 

two times where we were involved in any legal kind of—you know, 

between a manufacturer and a retailer, and we were one of many. 

I would make a seventh in my list of predictions. I articulated six. 

I would make a seventh, that there would be a lot more litigation 

with the new rule. 

Ms. MCDAVID. I would like to comment on the predictability 

point that Chairman Pitofsky made. These cases were not predictable for the reasons that Commissioner Harbour and I described as 

to what the dialogue actually looked like in the field between the 

manufacturer representatives and the dealers. The manufacturers 

usually did not know that was happening until they actually got 

sued. There was no predictability at the business level, and the 

lawsuits—there were thousands of dealer termination cases. They 

all turned on the question of agreement. Was there enough coercion 

by that regional sales manufacturer to bring the dealer into the 

agreement. The dealers won a lot of these cases. The manufacturers won a lot of these cases. But there was lots of litigation, and 

there was no predictability on the outcome because the manufacturer never knew what was really happening out there. That is 

why Ping centralized these decisions in the general counsel’s office. 

Ms. HARBOUR. And that is why Congress can fix this with proposed legislation. 

Chairman KOHL. Is this an issue that should never have come 

before the Supreme—I mean, is this an issue that belongs in Congress? 

Ms. HARBOUR. Yes. 

Chairman KOHL. Mr. Pitofsky? Professor? 

Mr. PITOFSKY. I think the Supreme Court had no need to take 

this case. It was aware that Congress was comfortable with this 

rule, and a conservative majority had said 15, 20 years ago that 

this is price and price is different, as far as we are concerned, so 

we are going to sit tight and rely on Congress’s attitude toward 

this rule. 

So I was surprised they granted cert. Once they granted it, one 

has a sense that a very conservative Supreme Court might knock 

off this rule, just as they have found against the enforcement side 

in antitrust several times now. So I think they should have stayed 

away from this one. It was working OK. 

Ms. MCDAVID. Judges and juries all over the country every day 

in all antitrust cases except cartel cases weigh all of the facts and 

circumstances in evaluating whether a particular kind of conduct 

24

does or does not have anticompetitive effects. This rule should just 

be the same as all of the others except cartels. 

Mr. BOLERJACK. I agree completely. There is no issue. The Court 

drew a bright line around cartels. If this is being used to enforce 

cartel behavior, it will be stopped. I think the Court also laid out 

that the courts need to be cautious about potential anticompetitive 

effects. There is no free pass. There is not an expectation that this 

can go forward and no one will look at it. It can be challenged. 

And the final point is one Professor Pitofsky talked about—I believe he said one case every 7 years resulting from the Sylvania decision. There are a lot more than that each year dealing with dealer terminations, and they can be used in a variety of ways, sometimes as leverage by a customer who seeks to force a small manufacturer to continue to supply. 

Chairman KOHL. I remember during John Roberts’s confirmation 

hearing—perhaps you recall this, too—he made the point that a 

Supreme Court Justice is really just an umpire. He calls the balls 

and strikes, and it is pretty much not a matter of judgment, it is 

just a matter is it a ball or a strike, and virtually anybody looking 

at it fairly would see most of these issues the same way. 

Could we at least agree that that is not entirely true, that smart, 

intelligent people sitting on the Supreme Court can and do look at 

issues and see them differently because they are people of different 

judgments and temperaments, as, for example, this case might indicate? 

Ms. MCDAVID. And there are different implications of these policies that can be seen differently by different people. 

Chairman KOHL. Absolutely. What else? Anybody else? Ms. Harbour, go right ahead. 

Ms. HARBOUR. Just to put another fine point on what Professor 

Pitofsky said, I do think that the ability to price independently is 

sacrosanct. Some of the earlier cases held that. I think price is the 

central nervous system of our American economy. I believe that 

prices will go up in the wake of Leegin. Consumers will pay more 

money, and that is the bottom line. I believe that the basis for 

overturning Dr. Miles, i.e. the ‘‘new’’ economic learning—is not 

new. These are the same arguments that were made in 1911. These 

arguments were rejected by the Dr. Miles court. These were the 

same arguments that were made in 1975. these arguments were rejected by Congress. There is nothing new here. The only thing 

‘‘new’’ that has changed is the composition of the Supreme Court 

and its disregard for congressional will and stare decisis. 

Chairman KOHL. Well, it has been a great hearing. We have got 

some obviously very smart people sitting before us, and you have 

given us all the difference sides of the issue, and let’s see where 

we go from here. So we thank you all for coming this morning. 

[Whereupon, at 11:23 a.m., the Subcommittee was adjourned.] 

[Questions and answers and submissions for the record follow.]

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