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BYE BYE BARGAINS? RETAIL PRICE FIXING, THE 

LEEGIN DECISION AND ITS IMPACT ON CONSUMER PRICES 

HEARING 

BEFORE THE

SUBCOMMITTEE ON COURTS AND 

COMPETITION POLICY 

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

APRIL 28, 2009 

Serial No. 111–37 

Printed for the use of the Committee on the Judiciary 

( 

Available via the World Wide Web: http://judiciary.house.gov 
(II) 

COMMITTEE ON THE JUDICIARY 

JOHN CONYERS, JR., Michigan, Chairman 

HOWARD L. BERMAN, California 

RICK BOUCHER, Virginia 

JERROLD NADLER, New York 

ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia 

MELVIN L. WATT, North Carolina 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

WILLIAM D. DELAHUNT, Massachusetts 

ROBERT WEXLER, Florida 

STEVE COHEN, Tennessee 

HENRY C. ‘‘HANK’’ JOHNSON, JR., 

Georgia 

PEDRO PIERLUISI, Puerto Rico 

LUIS V. GUTIERREZ, Illinois 

BRAD SHERMAN, California 

TAMMY BALDWIN, Wisconsin 

CHARLES A. GONZALEZ, Texas 

ANTHONY D. WEINER, New York 

ADAM B. SCHIFF, California 

LINDA T. SA ́ NCHEZ, California 

DEBBIE WASSERMAN SCHULTZ, Florida 

DANIEL MAFFEI, New York 

[Vacant] 

LAMAR SMITH, Texas 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

HOWARD COBLE, North Carolina 

ELTON GALLEGLY, California 

BOB GOODLATTE, Virginia 

DANIEL E. LUNGREN, California 

DARRELL E. ISSA, California 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

TRENT FRANKS, Arizona 

LOUIE GOHMERT, Texas 

JIM JORDAN, Ohio 

TED POE, Texas 

JASON CHAFFETZ, Utah 

TOM ROONEY, Florida 

GREGG HARPER, Mississippi 

PERRY APELBAUM, Majority Staff Director and Chief Counsel 

SEAN MCLAUGHLIN, Minority Chief of Staff and General Counsel 

SUBCOMMITTEE ON COURTS AND COMPETITION POLICY

HENRY C. ‘‘HANK’’ JOHNSON, JR., Georgia, Chairman 

JOHN CONYERS, JR., Michigan 

RICK BOUCHER, Virginia 

ROBERT WEXLER, Florida 

CHARLES A. GONZALEZ, Texas 

SHEILA JACKSON LEE, Texas 

MELVIN L. WATT, North Carolina 

BRAD SHERMAN, California 

[Vacant] 

HOWARD COBLE, North Carolina 

JASON CHAFFETZ, Utah 

BOB GOODLATTE, Virginia 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

DARRELL ISSA, California 

GREGG HARPER, Mississippi 

CHRISTAL SHEPPARD, Chief Counsel 

BLAINE MERRITT, Minority Counsel 
(III) 

C O N T E N T S 

APRIL 28, 2009 

Page 

OPENING STATEMENTS 

The Honorable Henry C. ‘‘Hank’’ Johnson, Jr., a Representative in Congress 

from the State of Georgia, and Chairman, Subcommittee on Courts and 

Competition Policy ............................................................................................... 1 

The Honorable Howard Coble, a Representative in Congress from the State 

of North Carolina, and Ranking Member, Subcommittee on Courts and 

Competition Policy ............................................................................................... 2 

The Honorable Brad Sherman, a Representative in Congress from the State 

of California, and Member, Subcommittee on Courts and Competition Policy .......................................................................................................................... 3

The Honorable Jason Chaffetz, a Representative in Congress from the State 

of Utah, and Member, Subcommittee on Courts and Competition Policy ....... 5 

WITNESSES 

Ms. Pamela Jones Harbour, Commissioner, Federal Trade Commission, Washington, DC 

Oral Testimony ..................................................................................................... 6 

Prepared Statement ............................................................................................. 9 

Mr. Thomas G. Hungar, Partner, Gibson, Dunn & Crutcher, LLP, Washington, DC 

Oral Testimony ..................................................................................................... 35 

Prepared Statement ............................................................................................. 37 

Mr. Tod Cohen, Vice President, Deputy General Counsel for Government 

Relations, eBay Incorporated, San Jose, CA 

Oral Testimony ..................................................................................................... 64 

Prepared Statement ............................................................................................. 66 

Mr. Richard M. Brunell, Director of Legal Advocacy, American Antitrust 

Institute, Newton, MA 

Oral Testimony ..................................................................................................... 71 

Prepared Statement ............................................................................................. 73 

APPENDIX 

Material Submitted for the Hearing Record .......................................................... 127 

(1) 

BYE BYE BARGAINS? RETAIL PRICE FIXING, 

THE LEEGIN DECISION AND ITS IMPACT ON 

CONSUMER PRICES 

TUESDAY, APRIL 28, 2009 

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON COURTS AND

COMPETITION POLICY

COMMITTEE ON THE JUDICIARY, 

Washington, DC. 

The Subcommittee met, pursuant to notice, at 3:04 p.m., in room 

2141, Rayburn House Office Building, the Honorable Honorable 

Henry C. ‘‘Hank’’ Johnson, Jr. (Chairman of the Subcommittee) 

presiding. 

Present: Representatives Johnson, Sherman, Coble, Chaffetz, 

Sensenbrenner, and Goodlatte. 

Mr. JOHNSON. This hearing is now in session. I want to thank 

everybody for being here. This issue has been around from before 

I was born. It is great to be in the time where we can deal with 

this particular issue and other similar issues, especially given the 

economic crisis that has, in part, been caused by laissez-faire attitudes. 

And so I am glad to be here today. Got some serious issues, of 

course. One of our big concerns is how our previous policies have 

impacted certain groups, particularly consumers, and have we 

ended up with a situation where prices that consumers pay are artificially set, or are those subject to the ‘‘free marketplace,’’ as has 

been our financial industry. 

Even former President Ronald Reagan condemned retail price 

fixing because it stifles competition, and adds to inflation. His view 

was that it was completely lacking in any kind of benefits to the 

consumer. Justice Kennedy has stated in the Leegin decision that, 

if we continue to operate as we have been doing, it will cost the 

average consumer anywhere from about $750 to $1,000 extra. And 

so, of course, inflation has taken that cost even further for our consumers who can now least afford to bear the brunt of our economic 

crisis that they had a very minor role in causing. 

And so what is the benefit to the consumers? This Congress has 

consistently stated over almost the past 100 years that, if there is 

no benefit to consumers, then allowing manufacturers to set retail 

pricing is disfavored. 

After assurances that the Administration had no intention of 

changing the longstanding policy, a dramatic policy shift took place 
2 

in the last Administration. And I believe it harms consumers. Of 

course, I am always ready to listen and be educated on all sides 

of an issue, and I look forward to us doing that, starting today. 

While some may argue that there are some competitive justifications for resale price maintenance agreements that benefit consumers, I am not yet convinced that that justification is actually 

the most prudent one for today’s times. 

Will manufacturers take advantage of recent court decisions and 

increasingly dictate minimum retail prices? Why would they not do 

that? The consumer is kind of like a drowning person, who just 

reaches out, and it doesn’t matter who they grab hold to. We have 

a lot of desperation, quite frankly, that has already been felt by the 

average consumer, and it continues. 

So we really must be careful in making sure that, as we try to 

save the victim who is drowning, that we don’t get pulled down and 

drown ourselves. 

So our respected colleagues in the Senate have already introduced legislation that would overturn the Leegin decision and, once 

again, make minimum retail price fixing illegal. Not that the 

House follows necessarily in lock-step the Senate. Sometimes we 

would really love for our friends in the Senate to yield to us and 

do what we want them to do. However, it is not always possible, 

but I remain hopeful in that regard. 

Now, thank you all for listening to my comments. And now I will 

turn it over to my colleague, our esteemed Ranking Member, Mr. 

Howard Coble. 

Mr. COBLE. Mr. Chairman, thank you for elevating me to the ‘‘esteemed’’ status. I am not sure I deserve that, but I appreciate that, 

nonetheless. 

Good to have you all with us, folks. 

Mr. Chairman, thank you for calling the hearing of the Courts 

and Competitive Competition Policy Subcommittee. Since 1911, the 

Supreme Court has held the agreements between a manufacturer 

and their retailer to set the minimum price that the retailer can 

sell the manufacturer’s good, also know as resale price maintenance, are a per se violation of the antitrust laws. 

However, in the 98 years since this decision, the Supreme Court 

has moved away from most per se standards to a rule of reason 

standard. Under the rule of reason standard, both the plaintiff and 

the defendant put forth evidence of the relative pro and anti-competitive effects of a given practice and the courts decide whether 

the challenged practice constitutes an unreasonable restraint of 

trade. 

By contrast, under a per se standard, once the plaintiff proves 

the basic elements of its claim, that the manufacturer did, in fact, 

enter into a price agreement with a retailer, then the liability, as 

I understand it, Mr. Chairman, automatically attaches. 

In 2007, in a case called Leegin v. PSKS, the Supreme Court continued its trend away from per se rules and held that resale price 

maintenance would be evaluated under the rule of reason. The decision was not without controversy. The Bush administration’s Department of Justice, along with the Federal Trade Commission, 

filed an amicus brief in favor of the position ultimately adopted by 

the Supreme Court. 
3 

However, some 37 states filed an amicus brief in favor of retaining the per se standard. Following the Supreme Court’s decision, 

Senator Kohl introduced a bill to legislatively repeal the Leegin decision. He has reintroduced the bill this year. And I would note, as 

best I can tell, Mr. Chairman, there is no similar or companion bill 

in the House, at least at this juncture. 

Prior to going back to a per se standard, this Committee and the 

court should take a hard look at the actual facts supporting resale 

price maintenance, it seems to me. It may be that there are some 

occasions where it is justified and some where, conversely, it is not. 

That is where the rule of reasoning comes in. It allows the courts 

to conduct the kind of detailed fact-finding necessary to determine 

the actual harm and benefits to consumers of resale price maintenance. 

Whatever the methodology, we benefit when competition is protected and promoted. After only 2 years of rule of reason analysis, 

I am not sure that the record has been established to warrant a 

return to the old rule. However, I trust that this Committee will 

continue to keep an eye on the situation to ensure that consumers 

are seeing a benefit from this treatment of resale price maintenance. 

And with that, I will conclude and join you, Mr. Chairman, and 

welcome our witnesses today. And I yield back the balance of my 

time. 

Mr. JOHNSON. Thank you for your opening statement, my good 

friend, Mr. Coble. 

And now, we shall recognize my colleague from California. And 

don’t be fooled by the hairstyle that he is employing right now, because he is younger than I am. 

So I want to give my friend, Mr. Brad Sherman, an opportunity 

to make an opening statement. 

Mr. SHERMAN. It is so nice to be younger than someone. As to 

my hairstyle, I actually cut it this way to facilitate the fact that 

I hand out plastic combs throughout my district. And given this 

hairstyle, people then remember the plastic comb. So I actually—— 

Mr. JOHNSON. I do appreciate you giving me mine, also. 

Mr. SHERMAN. Absolutely. And I would ordinarily have as much 

use for it as the gentleman from Utah, except for the fact that, in 

order to raise my name ID in my district, I cut it distinctively. 

Now, as to the matter at hand, there are two sides to this argument. The side against resale price maintenance is simple, but 

might very well be compelling, and that is discounts mean lower 

prices. 

The arguments against a per se rule are more complex. One of 

those isn’t just government should be laissez-faire. One counter to 

that is maybe manufacturers should be laissez-faire and let retailers have the freedom to do what they want. 

The second is that, in the absence of true vertical integration, the 

manufacturers’ interests are not necessarily hostile to those of the 

consumer. The manufacturer wants to move as many products as 

possible, and if they believe that, with resale price maintenance, 

they get the full panoply of services provided to the ultimate consumer, then they may be allied with the consumers’ arguable longterm interest. 
4 

The argument put forward most commonly is the free rider, that 

consumers will learn about a product, see a demonstration, get advice on which model to buy and how to use it from one retailer, and 

then go online or down the street and buy it from a discounter. 

Even if we were to believe that resale price maintenance provides 

consumers with more service, that still may mean that we decide, 

on balance, they would rather have the lower prices. 

One could say, if you want a consultant, hire one. Pay them by 

the hour. Don’t make everybody in your community pay a higher 

price for this or that product just because some consumers want 

some advice on how to use the product. We don’t necessarily have 

to bundle services and advice on the one hand with the physical 

product on the other. 

We have a number of routes we can take here in Congress. One 

is to go back to sleep and let the courts decide everything. It is 

easier that way, but I think that is an abdication of our responsibilities. I think it is Congress, rather than the courts, that can best 

decide what is really in the interests of consumers. 

A second approach is to just go with a per se rule. That is what 

we had in this country for many years, perhaps imposed by the 

courts, but we in Congress could resurrect that rule that, as the 

Chairman points out, has been pretty much the rule for our lifetimes, even his longer lifetime. 

And another approach would be to see if there are particular industries where the advantage of resale price maintenance outweighs its disadvantage, allow it in those few industries or those 

few products, and prohibit it with the rest. 

I would point out that the product we buy most that needs the 

most service, the most demonstration, is the automobile, and there 

we do not see—I have not seen an unwillingness of retailers to take 

me out on a test drive even though there was no resale price maintenance. There is a franchise governing a certain territory, but the 

fact that most of us live in urban areas means that we can easily 

go to any of the other franchisees, and now we can go online as 

well. 

So one wonders whether we really need to get away from decades 

of discounting being legal when I have had no trouble getting people to want to sell me a car and to spend all the time that I ask 

for showing me how to use it, comparing it to their other products, 

et cetera. 

So I don’t know whether the old rule actually deprived us of the 

service, the advice, the attention that consumers want. I do know 

that the old rule maximized discounts for consumers. And I look 

forward to learning more about this issue. 

I yield back. 

Mr. JOHNSON. Thank you, Mr. Sherman, for your opening statement. 

And next, we will have an opening statement from my good 

friend, Jason Chaffetz, newly elected out of Utah. And I am going 

to take Chairman’s privilege to reveal some confidential communications that he and I have been engaged in. And I know that you 

would not be offended if I were to reveal—I must disclose, as a 

matter of fact, he and I have talked about so many things, but I 

tell you, the biggest thing that I have learned from Jason thus far 
5 

is the products that he uses, Mr. Sherman, to ensure that he 

makes a good appeal to his constituents as well. 

So without any further ado—don’t believe his hair, either, because he has done a good job of his public relations projection. So 

without any further ado, Mr. Chaffetz, please? 

Mr. CHAFFETZ. Well, thank you, Mr. Chairman. I simply wanted 

to say thank you for calling this hearing. It is an important topic 

in which we need to dive deep, and I do appreciate all of you that 

have contributed to this. I wanted to thank the Chairman for recognizing that and this important issue and calling this hearing. 

I would note for the record that I have never owned a comb in 

my life, and especially since I learned about the miracle of hair 

styling gel, which has come to serve me well. So, for the record, so 

noted. 

And I appreciate it, and look forward to listening and hearing 

from you rather than being heard. So thank you. 

Mr. JOHNSON. Thank you, my good friend. By the way, to clarify 

our discussions, though they have included Brylcreem and those 

kind of things, we have also been talking about the Just For Men 

kind of thing. So that is what I really appreciate you for, for enlightening me on that, so I appreciate it. Thank you. 

Let me introduce our witnesses for today’s hearing. First is Commissioner Pamela Jones Harbour of the Federal Trade Commission. 

Ms. Harbour was sworn in as a commissioner of the FTC on August 4, 2003. Commissioner Harbour was previously a partner at 

the law firm Kaye Scholer, LLP, and she also spent 11 years as a 

New York State deputy attorney general, during which time she argued before the Supreme Court in a number of cases, including 

State Oil v. Khan, which has been a landmark antitrust price fixing case. 

Commissioner Harbour received her law degree from Indiana 

University School of Law, and she obtained her bachelor’s degree 

in music from the Indiana University School of Music. Welcome, 

ma’am. 

Next is Mr. Thomas Hungar, a partner in the Washington, DC 

office of Gibson, Dunn & Crutcher. Mr. Hungar served as a US 

deputy solicitor general from 2003 to 2008, and he has argued 24 

times before our Supreme Court. And in fact, he was intimately involved as one of the attorneys in the Leegin case on behalf of the 

petitioners. 

Mr. Hungar previously clerked for Justice Kennedy and is a 

graduate of Willamette University and also Yale Law School. Welcome, sir. 

Next is Mr. Tod Cohen, who is vice president, deputy general 

counsel for government relations at eBay. Prior to eBay, Mr. Cohen 

was the vice president and counsel of New Media for the Motion 

Picture Association of America. And before that, he was European 

legal counsel and vice president for the Business Software Alliance. 

Upon graduating from the University of Utah, Mr. Cohen served 

as a congressional aide prior to attending George Washington University law school. We appreciate you being here today, Mr. Cohen. 

And finally, we have Mr. Richard Brunell, who is the director of 

legal advocacy for the American Antitrust Institute. Mr. Brunell is 
6 

a guest lecturer at Boston College Law School, and he wrote one 

of the amicus briefs in Leegin. 

Mr. Brunell is a graduate of Swarthmore College and also the 

Harvard Law School, where he was an editor of the Harvard Law 

Review, just like our newly elected President. 

I want to thank you all for your willingness to come today and 

participate in our hearing because, quite frankly, we have found it 

difficult to have—we want to have—well, our goal is to always have 

equality in terms of the views that are expressed, because it is an 

educational process for us. But unfortunately, we were unsuccessful 

at twisting the arms of some interests to take a stand today. 

And I am sure that they have stands that they have taken. And 

I am sure that they are watching everything that is going on regarding this issue, particularly my appearance here today, mine in 

particular, of course. So I expect that we would be in full discussions about things as we proceed, and we will have other hearings 

where we are going to hear more views than we will hear today. 

So without objection, your written statements will be placed into 

the record, and we would ask that you limit your oral remarks to 

5 minutes. And you will note that we have a lighting system that 

starts with a green light. And at 4 minutes, it turns yellow. 

I know that real connection between green and yellow. I learned 

that in pre-K, I guess, in terms of mixing the paint and everything. 

And of course, somewhere about a minute later, you will see that 

ominous red light that appears. And so I know a lot of folks don’t 

particular—you get wound up and everything, but we shall assist 

you as best we can in that regard. 

So I appreciate, once again, you all coming. And after each witness has presented his or her own testimony, Subcommittee Members will be, of course, permitted to ask questions subject to the 5- 

minute rule. 

Commissioner Harbour, please proceed with your testimony. 

TESTIMONY OF PAMELA JONES HARBOUR, COMMISSIONER, 

FEDERAL TRADE COMMISSION, WASHINGTON, DC 

Ms. HARBOUR. Thank you. 

Chairman Johnson, Ranking Member Coble and Members of the 

Subcommittee, I appreciate this opportunity to share with you my 

personal views on minimum vertical price fixing, sometimes referred to as resale price maintenance (‘‘RPM’’), or margin maintenance. 

During my oral remarks, there are three points that I would like 

to make. 

First, the Supreme Court has decided to repeat an already failed 

experiment with RPM that flaunts congressional intent and harms 

consumers. 

Second, the lower court’s evaluation of RPM under the rule of 

reason will reward price fixing merchants and manufacturers, and 

will further punish the victims, i.e., consumers and non-conspiring 

merchants. 

Third, RPM should be presumed to be harmful to competition 

until a manufacturer has factually shown that its use of RPM benefits consumers more than it harms them. 
7 

The Supreme Court’s 2007 Leegin decision gave manufacturers 

the right to set minimum resale prices for consumer goods, guaranteeing higher consumer prices. This is bad economic and legal policy. It gives excessively short shrift to consumer preferences, the 

supposed driving force behind the market. 

Post-Leegin and absent action by Congress, consumer preferences 

will be subordinated to the interests of manufacturers and merchants of branded consumer goods. In these tough economic times, 

it is especially wrong to saddle consumers with higher prices for 

daily necessities while providing no countervailing benefit. 

RPM advocates essentially ask us to believe that consumers are 

better off when they pay higher prices for the daily necessities of 

life because the benefits to manufacturers and retailers eventually 

will trickle down to consumers. According to the logic of the Leegin 

court, it is preferable to maximize the welfare of conspiring manufacturers and merchants even though the antitrust laws are designed to put consumers’ interests first. 

The Leegin decision cannot be reconciled with the legislative history of the antitrust laws. Congress has never adopted nor endorsed a preference for RPM at the Federal level. 

Congress did create an antitrust exception for RPM under the 

state fair trade statutes. However, Congress ultimately graded its 

37-year natural experiment with RPM as a monumental failure. In 

fact, in 1975, the fair trade exemptions were repealed in favor of 

per se illegality. Congress did so because RPM had been a dismal, 

if not disastrous, detour from sound public policy. 

RPM raised consumer prices by as much as 37 percent. It lowered sales levels. It increased the frequency of business failures. It 

created entry barriers. It distorted retailer incentives, and it generally retarded retail competition. 

Even if the Leegin majority can overlook these congressional 

findings, I cannot. I ask, are we falling into a Groundhog Day vortex where we are doomed to endlessly repeat the same mistakes 

over and over again? Competition policy can and should do a better 

job of protecting consumers, but I do worry that Congress may 

some day be called upon to write yet another report detailing the 

disastrous harms inflicted on consumers during the Supreme 

Court’s current experiment with RPM. 

And we know who is paying for this experiment. Sadly, it is the 

American consumer. Both intra-brand competition and inter-brand 

competition provide important benefits to consumers. Existing case 

law, however, consistently denigrates the importance of intra-brand 

competition. 

Justice Powell’s footnote in GTE Sylvania declaring the primacy 

of inter-brand competition, finds no support in the legislative history of the antitrust laws, but the courts routinely, even rotely, cite 

it as authority. 

In GTE Sylvania, the court was rebelling against the Warren’s 

court’s alleged formalistic line drawing to support liability. Yet the 

Leegin opinion, the Leegin majority, appears to have drawn similarly formalistic lines to short-circuit the RPM inquiry in the opposite direction and, in doing so, has effectively created the very presumption of per se legality that the court purports to disclaim. 
8 

This court’s line drawing is devoid of substance. Labels have 

again replaced rigorous analysis, and the law and the American 

consumer are suffering because of it. 

The Leegin court claimed that it intended the rule of reason to 

weed out competitively harmful uses of RPM, but good intentions 

will not cure a bad rule of law. The rule of reason tends to be a 

euphemism for the absence of liability. Potentially good RPM cases 

are already being dismissed without any hearing on the merits. 

These threshold presumptions must be established before the rule 

of reason can become a workable tool for combating harmful uses 

of RPM. 

There are economic theories praising RPM and other theories 

condemning it, but none of theories on either side of the aisle are 

supported by any systematic body of empirical evidence. At best, 

we have strongly held beliefs about the effects of RPM, sometimes 

bordering on the almost religious, but we are missing facts, which 

are the building blocks of litigation. 

The realities of litigation dictate that, when the facts are equally 

probative of guilt or innocence, depending on which theory is 

adapted to advocate them, then usually the party that has the burden of proof loses. If full-blown rule of reason analysis is applied 

in RPM cases, the burden of proof would be placed on the victims, 

or the burden of proof will be placed on the victim, but it won’t be 

placed on the defendants who impose the RPM policy. 

The FTC is doing its best to further the development of realworld facts about the effects of RPM by holding a series of workshops, but any answers will be more than a decade away. Consumers need relief today. 

In conclusion, when it comes to the RPM debate, one simple fact 

is indisputable: RPM guarantees that consumers will pay higher 

prices. And until it is proven otherwise, I will continue to believe 

that consumers are very unlikely to gain any countervailing benefits in return for these higher prices. 

Thank you. 

[The prepared statement of Ms. Harbour follows:] 
9 

PREPARED STATEMENT OF PAMELA JONES HARBOUR
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Mr. JOHNSON. Thank you. 

And now we will move on to Mr. Hungar. You ready, sir? 
35 

TESTIMONY OF THOMAS G. HUNGAR, PARTNER, GIBSON, 

DUNN & CRUTCHER, LLP, WASHINGTON, DC 

Mr. HUNGAR. Thank you, Chairman Johnson, Ranking Member 

Coble and Members of the Committee. It is a great honor to testify 

before you today on the subject of resale price maintenance, or 

RPM. 

I note that I am pretty seriously outnumbered on this panel by 

opponents of RPM, but it is important to remember that among 

those in the best position to understand the true effects of RPM, 

namely economists who have actually studied the issue, there is an 

even more lopsided breakdown, except it runs in the opposite direction. There is a widespread consensus among economists that RPM 

can achieve pro-competitive ends and advance the interests of consumers in obtaining better services, more information, and wider 

selection. 

The evidence is overwhelming that RPM can, and often does, 

have pro-comprehensive effects that benefit consumers. It can encourage inter-brand competition, prevent free riding, facilitate 

brand entry, ensure that retailers provide costly but beneficial 

point-of-sale services, encourage retailers to maintain adequate inventories despite uncertain demand, and give customers peace of 

mind. 

In fact, Pauline Ippolito, who currently heads the Bureau of Economics at Commissioner Harbour’s agency, did an extensive study 

of RPM a few years ago and concluded that the principal anti-competitive explanation for RPM, namely that it can facilitate or conceal cartel activity, lacks explanatory power for the vast majority 

of RPM uses, while the pro-competitive, service and sales enhancing explanations, potentially explain the vast majority of RPM 

uses. 

She concluded, ‘‘These findings are consistent with the view that 

a relaxation of the broad per se standard prohibiting RPM was 

warranted.’’ And again, she is the acting head of the Bureau of Economics at the FTC. 

Most of the counter-arguments advanced by my fellow panelists 

today rest at bottom on the unstated assumption that, as a result 

of the Leegin decision, RPM will become universal, or at least widespread in the economy. But there isn’t the slightest reason to believe that is true. Wal-Mart, Costco, Amazon.com and other large 

discounters dominate the retail scene in today’s economy, and that 

is not going to change. 

Where consumers value price over service, discount strategies 

will thrive and RPM strategies will fail, along with those manufacturers that adopt them. But in those markets where RPM is an efficient means of meeting the demands of a particular segment of 

the consuming public, there is no basis, in logic or experience, for 

denying that flexibility to a manufacturer. 

Arguments against RPM also fail to take account of the fact that 

manufacturers could achieve the same price effects through other 

means, even under the old Dr. Miles rule: through Colgate policies 

or vertical integration. So the effect of Leegin is only to make it 

possible for manufacturers to achieve the same results more efficiently, and efficiency gains are pro-competitive by any measure. 
36 

Commissioner Harbour and other opponents complain that it will 

be too difficult for parties challenging RPM to satisfy the rule of 

reason test under Leegin, but, if true, that is merely a concession 

that RPM can’t be shown to be anti-competitive, which is hardly a 

good reason for banning or restricting it. Under the rule of reason, 

a plaintiff can meet its burden either by showing actual anti-competitive effects or by means of a market analysis. 

And plaintiffs, including the FTC, do prevail in challenging 

vertical practices under the rule of reason. Even the cases cited by 

Mr. Brunell show that plaintiffs don’t always lose. 

There is no basis for departing from the rule of reason approach 

that the courts use to analyze all other vertical restraints, especially since it is undisputed that non-price restraints can have the 

same price effects as RPM. Congress should not legislate hastily on 

the basis of rhetoric and speculation rather than actual experience 

and evidence. 

I urge you to preserve the flexibility of the Sherman Act, and let 

the courts do their jobs and gain experience judging RPM under 

the rule of reason. 

Thank you. 

[The prepared statement of Mr. Hungar follows:] 
37 

PREPARED STATEMENT OF THOMAS G. HUNGAR
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Mr. JOHNSON. Thank you, Mr. Hungar. 

Now, Mr. Cohen, will you proceed, sir? 
64 

TESTIMONY OF TOD COHEN, VICE PRESIDENT, DEPUTY GENERAL COUNSEL FOR GOVERNMENT RELATIONS, eBAY INCORPORATED, SAN JOSE, CA 

Mr. COHEN. Chairman Johnson, Ranking Member Coble and 

Members of the Subcommittee, my name is Tod Cohen, Vice President and Deputy General Counsel for Government Relations for 

eBay. Thank you for the invitation to speak today about the negative impact of the Supreme Court’s Leegin decision, in particular on 

small and mid-size retailers who use the Internet and whose benefits to help consumers are being crippled by the very visibility created by the Internet. 

We support Congress legislatively intervening and reinstating a 

per se rule prohibiting retail price fixing. 

Founded in 1995, eBay connects hundreds of millions of people 

around the world every day. The company’s online platforms empower individuals and small businesses to meet and engage in open 

trade on a local, national and international basis. 

We believe that the efficiency and consumer benefit to the open 

Internet can be immense. Businesses use it to offer lower prices, 

greater choice, and great values to consumers. Consumers use it to 

more easily find, compare and purchase products. 

Unleashed, it is a game-changer, and we are still in the innovation stage of retail on the Internet, with new retail business models 

benefiting consumers, retailers and the overall economy. The Internet is part of every serious 21st century retail strategy, whether 

massive brick-and-click retailers with websites and big box stores, 

large remote Internet and catalog retailers with nationally known 

brand names or small businesses who are building new Internet 

businesses or integrating the Internet into an existing small shop 

to survive and grow in today’s highly competitive retail environment. 

The Internet is also used by manufacturers, including the most 

elite and specialized, to reach consumers with information, and 

more and more with products. And the Internet is critical to more 

consumers every day. It is the greatest source of product information ever created. 

I mention these facts because sometimes people paint this issue 

as being about Internet retailers and discounters on one side and 

non-Internet retailers on the other. Nothing could be farther from 

reality. In short, everyone in retail uses the Internet, but there are 

big differences on how the Internet is used. 

On one side are established networks of manufacturers and retailers who want to reinforce or enhance established and highly 

profitable retailing business models. They are threatened by the 

Internet when it is harnessed to offer consumers better deals and 

more information outside the established incumbent retail networks. 

On the other side are innovators with new business models. They 

are almost always small to medium-size businesses. They use new 

technologies to offer consumers better deals, more information, and 

new services. 

We believe that the Leegin decision is undermining consumer 

benefits delivered by innovative retailers, especially on the Internet. There is evidence that small and mid-size Internet retailers 
65 

are the primary target of aggressive post-Leegin retail price fixing 

policies. 

EBay’s own experiences confirm that many large, established 

businesses attempt to limit low price intra- and inter-brand competition by continually scanning our platforms to identify sellers offering their products at lower prices. They then use a range of tools 

to identify these sellers and stop low-price competition using different tactics, depending on the circumstances of the sellers. The 

Leegin decision has clearly been interpreted as a legal green light 

to more aggressively thwart low-price competition. 

Established retailers and manufacturers attempting to enforce 

traditional business models contend that innovative Internet retailers are able to offer lower prices to consumers because they ‘‘free 

ride’’ on their traditional retail counterparts. 

The truth is that the Internet turns the traditional free-rider justification for RPM on its head. Internet retailers and services provide significant pre-sale price information to consumers. The open 

Internet has completely revolutionized the consumer information 

experience. 

Consumers regularly turn to the Internet to search for product 

information, make product comparisons, and check prices before 

visiting and purchasing from established retailers. In fact, it could 

even be argued that the largest and most established retailers and 

their largest retailer partners are free riding on the tremendous 

consumer information tools created by Internet innovators. 

From a competition policy and consumer benefit perspective, the 

traditional rider free argument for RPM policies as applied to the 

Internet should be put to rest. Innovation Internet retail models 

simply expose incumbents to new competitive threats and more innovative forms of retailing. 

Protection from new and innovative retail models was always a 

likely reason for RPM, and we think it is even more true in the 

Internet age. Therefore, we ask this committee to aggressively 

scrutinize the Leegin decision and adopt appropriate measures to 

protect consumers and retail innovators. 

Thank you, Mr. Chairman, and Members of the Subcommittee. 

[The prepared statement of Mr. Cohen follows:] 
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PREPARED STATEMENT OF TOD COHEN
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Mr. JOHNSON. Thank you, Mr. Cohen. 

And last but not least, we will ask Mr. Brunell to commence your 

opening statement. 
71 

TESTIMONY OF RICHARD M. BRUNELL, DIRECTOR OF LEGAL 

ADVOCACY, AMERICAN ANTITRUST INSTITUTE, NEWTON, MA 

Mr. BRUNELL. Chairman Johnson, Ranking Member Coble and 

Members of the Subcommittee, I am Richard Brunell, director of 

legal advocacy for the American Antitrust Institute. Thank you for 

this opportunity to present the views of AAI on the Leegin decision. 

We believe that consumer welfare and economic innovation are 

best served when retailers are free to engage in discounting, and 

therefore we urge Congress to restore some version of the per se 

rule. We have had 22 months since the Leegin decision, and we 

have learned a few things since then. 

As expected, the use of resale price maintenance programs appears to have increased even though antitrust counselors have advised caution because some state attorneys general have taken the 

position that RPM remains per se illegal under state laws, and 

other states have passed, or may pass, their own Leegin repealer 

bills. 

We also believe that there has been a greater use of Colgate policies and minimum advertised price policies to enforce minimum resale prices. Allowing manufacturers to forestall discounting by legitimate retailers is problematic at any time, but we agree that it 

is particularly unfortunate during this time of deep recession when 

consumers depend on discounts to make ends meet, and manufacturers may be more pressured than ever to use RPM to forestall 

retail price wars. 

Another thing we have learned in the 22 months since Leegin is 

that the so-called rule of reason adopted by the Supreme Court is, 

in effect, a rule of virtual per se legality. Now, the court said that 

RPM agreements were to be evaluated on a case-by-case basis, and 

courts would have to be diligent in eliminating anti-competitive 

uses from the market. 

However, in most of the cases decided since the Leegin decision, 

the lower courts have summarily dismissed the complaints because 

the alleged relevant markets were said to be too narrow as a matter of law. Plaintiffs were not even allowed to try to prove their 

cases. 

Now, the problem with the rule of reason is not just that it requires a plaintiff to prove a relevant market, to prove that the defendant has market power, which is a difficult and expensive proposition even if the plaintiff gets by a motion to dismiss. The problem is that the Supreme Court fundamentally misunderstood the 

nature of the anti-competitive harm from resale price maintenance. 

The court and its Chicago School supporters look at higher prices 

that result from RPM and they say, ‘‘So what?’’ They assume that 

the manufacturers’ and consumers’ interests are congruent. The 

manufacturer would prefer its retailers to sell at lower prices, and 

therefore, if the manufacturer adopts RPM, well, it must be because it will somehow increase demand for its product, notwithstanding the higher prices. 

Under this view, higher prices are only anti-competitive when 

they result from collusion among manufacturers or retailers. And 

if that is the anti-competitive theory, then no plaintiffs will ever 

win a resale price maintenance case. 
72 

The critics of RPM, notably including Congress when it repealed 

the fair trade laws in 1975, look at higher prices, and they see 

harm to consumers. When a manufacturer announces that it will 

not permit prices to fall below a certain level, they are rightly suspicious. They know that manufacturers are not fond of retail discounting when it puts downward pressure on wholesale prices, and 

that a fixed retail price on one product can put a floor under the 

price of competing products that are not even subject to RPM. 

So when they see higher prices that result from RPM, they, and 

Commissioner Harbour and many others, say, ‘‘Show me the consumer benefit.’’ Yet, the business justifications generally offered for 

RPM, including those suggested by Mr. Hungar, provide no real 

benefits to consumers. Economists may see a theoretical benefit, 

but, in reality, there are no real benefits. 

A common justification is that RPM allows a manufacturer to 

buy better distribution or shelf space from retailers that carry competing brands. But while this may increase the manufacturer’s 

sales, it does not benefit consumers. On the contrary, it can give 

retailers an incentive to push the product with the largest margin 

protected by RPM even when the product may be inferior to competing products. 

Another common justification, of course, is the free rider theory. 

But even if this is a plausible concern in some cases, RPM is a poor 

mechanism for addressing it. 

RPM is also frequently touted as a tool to maintain the brand 

image of high-end products. And if one looks at the Wall Street 

Journal in the series they have had on RPM, you see that a lot of 

the manufacturers that are interested in RPM are the high-end 

manufacturers of fashion products. 

Let me just conclude by noting that, even where RPM could have 

some possible justifications, it has one anti-competitive effect that 

is universal. And that is it tends to prevent more efficient retailers, 

who have expert local knowledge of the needs and shopping behavior of their customers, from passing on the benefits of their lower 

costs to consumers. 

This centralization of decision-making not only harms consumers 

in the short run, it slows down innovation and productivity in the 

retail sector by impairing this essential competitive tool for innovative retailers to gain market share. 

Thank you, and I look forward to answering your questions. 

[The prepared statement of Mr. Brunell follows:] 
73 

PREPARED STATEMENT OF RICHARD M. BRUNELL
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Mr. JOHNSON. You are quite welcome, Mr. Brunell. 

At this time, we will begin the questioning, and I will grant myself as much time as I may consume. 

I want to ask you all about some written testimony by Mr. 

Hungar. And Mr. Hungar says that ‘‘Sales efforts focused on factors 
113 

other than price may be more effective at serving the interest of 

consumers.’’ And if I could get you all to respond to that statement 

with your concise response, we would appreciate it, starting with 

Commissioner Harbour, and then to Mr. Cohen, and also Mr. 

Brunell. And if necessary, we will give Mr. Hungar an opportunity 

to clarify anything that may need to be clarified. 

Proceed. 

Ms. HARBOUR. I believe that, in Mr. Hungar’s written testimony, 

the sentence before that talked about how consumers who don’t 

value the services, but would prefer lower prices, would be inclined 

to shop at discount stores. But there are consumers who would 

value those services, and then would be willing to pay a higher 

price. 

The consumer should vote with his or her pocketbook. They 

should not be dictated to about which prices they should buy consumer goods at. 

Also, Mr. Hungar talked about how parties—how those who are 

against RPM basically talked about how the rule of reason was 

very difficult to satisfy and thought that that was in favor of the 

argument that it was very difficult and it inured against them. I 

guess what I would like to say there is there should be a presumption of illegality, and it should be on the part of the manufacturers 

to overcome that presumption. Let’s shift the burden away from 

the American consumer, away from the victim of the higher prices, 

and let the manufacturers who are proposing the higher prices 

have the burden of proof. 

Mr. JOHNSON. Thank you, Commissioner. 

Before we go to Mr. Cohen, I want to recognize the fact that we 

have been joined by the distinguished gentleman from Virginia, 

Mr. Goodlatte. Welcome, sir. 

Mr. GOODLATTE. Thank you, Mr. Chairman. 

Mr. COHEN. Mr. Chairman, I think that factors other than price, 

one of the concerns we have is that price uniformity is what exists 

across for small- and medium-sized companies who want to use and 

sell goods, they are forced into a price uniformity. Consumers don’t 

get a choice any longer as to where they want to choose, if price 

is taken out of the equation, and that large retailers have a lower 

price but may not be able to deliver the services also. 

So that at least if we have price transparency and price elasticity 

and the allowance for people to choose where they want to buy, 

then that is the key measurement that should occur here. That is 

what is being limited by retailers and retail price maintenance 

post-Leegin. Mr. BRUNELL. I would just concur that, when retailers are free 

to decide what price they will sell at, you end up with a market 

that has both high service and high-price retailers, and low service 

and low-price retailers, and that ultimately is for the benefit of consumers. 

Mr. JOHNSON. Thank you. 

Mr. Hungar, do you wish to be in line for a response or anything? 

Mr. HUNGAR. Thank you, Mr. Chairman. Just a couple brief 

points. 

First of all, the concerns that are expressed seem to assume that 

RPM will be somehow enacted across the entire relevant market, 
114 

and therefore somehow people’s choices will be limited. But of 

course, the reality is there is no reason to believe that. We saw, 

even at the height of the fair trade era when the law was much 

more favorable to RPM than it is under a rule of reason test, at 

most, 5 to 10 percent of the economy was affected by RPM. 

So the idea that consumer choice will be limited because everyone will adopt RPM has yet to be seen. And experience suggests 

the opposite. And if consumers don’t value what the RPM system 

is producing in terms of extra services, they will go elsewhere, and 

the RPM manufacturer will fail or change its policy. That is consumer choice. 

And then, the other point is, the fact of the matter is, as the economic analysis indicates in some of the testimony before the FTC, 

retailers and manufacturers have different incentives, and RPM 

can encourage the retailers to focus on providing the benefits and 

the services and the promotional activities that will advance the interests of the manufacturer in inter-brand competition. 

Thank you. 

Mr. JOHNSON. Thank you, Mr. Hungar. 

And my dear great-great-great grandmother has always been 

known as a impulse buyer, and so yesterday she was looking at— 

shopping on the Internet, as the elderly usually do, and in her 

spare time while she is home from work. And she came across a 

deal on a laptop computer, and then that impulse kicked in. Instead of just ordering it online, she put on her tennis shoes and decided, ‘‘I am going to go right now to the retail outlet, and I am 

going to purchase my item there, because I want it now.’’ 

And so I have two questions. Tell me who is the free rider, if any, 

in that instance? And also, isn’t it the retail store that is getting 

the free ride off the Internet? And to use your words, sir, isn’t it 

the service provider free riding off of the discounter, as well? 

Mr. HUNGAR. I haven’t seen any analysis of the question whether 

you would call that a free-riding situation. But certainly, that context is one in which the free-rider issue can arise because, although 

as Mr. Cohen pointed out, there are many circumstances in which 

there is every reason to think that Internet sales are most advantageous at the lowest price possible, there are certainly circumstances with complex goods, such as a computer, where many 

consumers value the opportunity to go actually see the product, 

have it explained to them by a live person rather than by computer-ese, and have an opportunity to touch and feel and decide 

whether it is the right thing for them. 

And of course, the problem is it costs money to do that, and not 

everyone is an impulse buyer, as you suggested. And so for those 

people who aren’t impulse buyers—and frankly, I have done this 

myself, go and decide which product you want at the showroom and 

then purchase it online where it is cheaper. But of course, if 

enough people do that in enough length of time, then of course it 

becomes prohibitively expensive to have showrooms, and we are all 

worse off. 

Mr. JOHNSON. Anyone else have a response to Mr. Hungar? 

Ms. HARBOUR. Yes, I would like to respond. 

Chairman Johnson, I think you hit it exactly on the head. I do 

think that, when your grandmother went to the Internet—— 
115 

Mr. JOHNSON. No, no, no, my great-great-great grandmother. 

Ms. HARBOUR. Right. Excuse me, so your great-great-great 

grandmother, when she went to the Internet—— 

Mr. JOHNSON. Yesterday. 

Ms. HARBOUR [continuing]. And she did the research. She probably learned quite a bit about that computer. And then she went 

to her electronics store and looked at it, and maybe purchased it. 

I believe that the electronics store was free riding on the Internet, and that is precisely what Mr. Cohen from eBay was talking 

about. These forms of innovative retailing, if RPM is allowed to remain in place, I believe that prices on the Internet will be elevated. 

There are things called shop-bots that troll the Internet looking 

for prices, and manufacturers are using these shop-bots to police 

their pricing. And if they see that a price is below the resale price, 

they will contact the store and tell them to raise the price of the 

goods. I don’t think that this is in the interests of the American 

consumer, so I do think it is a free ride, and I agree with you. 

Mr. JOHNSON. Thank you. 

Mr. Cohen? 

Mr. COHEN. Yes. I want to follow up a little bit on what the Commissioner was saying with regard to how they are policing and 

going after lower price sellers. 

One of the concerns we have had was a company called Net Enforcers, which represents brand owners and others and large retailers. They scan our platform and identify sellers who are offering 

at lower prices. 

And last year, the Net Enforcer people attempted to shut down 

more than 1.2 million listings on eBay claiming that there were 

trademark or copyright infringements. In general, they were most 

around the area of copyright infringement on the images that were 

used by the seller, the text. That is true that those were copyright 

infringements. 

But we have seen an acceleration by those who use these trademark and copyright violation claims when they are asking us to 

take down the seller pages. When the sellers we examined, the sellers they are going after, they are the sellers that are at the lower 

prices, not at the MAP prices. And the MAP price sellers who are 

using the same photos, same copyrights, same trademark, are not 

being asked to have their listings taken down. 

So we are certain that the concern is is that it is a pricing issue. 

It is not a copyright or trademark issue. And that is where our interest has been in, to show that, post-Leegin, aggressive MAP pricing schemes are being attempted across the Internet. 

Mr. JOHNSON. All right. Thank you. 

And last, Mr. Brunell? 

Mr. BRUNELL. I would just point out that this whole free rider 

argument has been around for a long time, and it was before the 

Congress in 1975 when Congress outlawed a fair trade. 

And the usual response is, well, if services for brick-and-mortar 

retailers are necessary and important, then why can’t the manufacturer just pay the retailers, provide promotional allowances or 

what have you for those services? 

Mr. JOHNSON. Thank you, Mr. Brunell. 

And now, I will ask Mr. Coble to commence his questions. 
116 

Mr. COBLE. Thank you, Mr. Chairman, and you can call me into 

a halt whenever you think the time is appropriate, in view of the 

vote. 

Mr. Hungar, you noted a number of justifications for RPM, but 

you also stated that there could be good RPM and bad RPM. I want 

to ask you to give us an example of a bad RPM. 

And I want to ask you also your opinion as to whether you favor 

a statute to address those circumstances, or do you believe that the 

courts are better suited to devise those rules on a case-by-case 

basis? 

Mr. HUNGAR. Thank you. 

An example of bad RPM would be resale price maintenance that 

is used to enforce and permit policing of a manufacturer cartel, 

where they can easily tell whether there has been any cheating because each of the manufacturers has a stated resale price maintenance policy for its retailers, and so the retailers are all forced to 

price at the same level, thereby concealing a cartel. 

And of course, a horizontal cartel is, per se, illegal, and resale 

price maintenance in conjunction with that activity would certainly 

violate the rule of reason. 

I don’t think that there is any need for a statute, nor is there 

any basis for legislating at this point. Much of the bad RPM, such 

as the example I gave, comes in conjunction with activity that the 

courts are already very well equipped to deal with. 

But we have not had sufficient experience with the wide range 

of RPM policies that can be imposed to make any sort of informed 

judgment about precisely where, as a legislative matter, to draw 

the line, which is exactly why we should benefit from the genius 

of the Sherman Act, which is the flexibility it provides the courts 

to carefully examine different situations in the particular context 

in which they arise and determine what the appropriate response 

is. 

And on this line, I would just point out that Commissioner Harbour, in her written testimony, actually has, I think, a very forthright admission that is very probative on the point that this is not 

the time for Congress to legislate. She says, ‘‘The lack of empirical 

research regarding the effects of RPM is a further complication.’’ 

And she says, ‘‘There are economic theories praising RPM and 

other theories condemning it, but none of these theories on either 

side are supported by any systematic body of empirical evidence.’’ 

Now, I would say there is evidence, such as the Ippolito article 

I pointed to on the side that RPM is not generally or primarily 

anti-competitive. But putting that aside, she says, ‘‘At best, we 

have strongly held beliefs about the effects of RPM, sometimes bordering almost on the religious, but we are missing facts, which are 

the building blocks of litigation.’’ 

Well, I would submit that facts should also be the building blocks 

of legislation. And it would be unwise and inappropriate and premature for this body to act until sufficient facts have been generated, and the judicial system is the best forum for doing that. 

Mr. COBLE. Thank you. 

Commissioner Harbour, let me put a quick question to you, in 

view of the time. If a prominent manufacturer of handbags engages 

in RPM, does not that give an incentive to other handbag manufac-
117 

turers to enter that market and sell their goods for a little below 

that which the RPM manufacturer is selling his goods? Does this 

not, in fact, enhance competitive between brands for sales of handbags? 

Ms. HARBOUR. Not if you are a woman who loves a particular 

brand of handbag, and I will call it Handbag X. If that is the only 

handbag you want to buy because it is designer, and you only want 

to carry that, if Handbag Y is selling for less money, you don’t 

want that. 

This is called intra-brand competition. Once you decide, as a consumer, what handbag you want, then it doesn’t matter what other 

brands are selling. You are going to buy the one you want. So I disagree with that premise. 

But I must respond to Mr. Hungar. He made a few comments 

that I just feel compelled to respond to. 

Mr. COBLE. Well, let me weigh in on your answer. 

I guess, because of my frugality, Mr. Chairman, I would opt for 

the cheaper good, but that is the difference in males and females, 

I guess. 

Ms. HARBOUR. But that is your right as a consumer, and you 

should be able to do that. But let me just say for the record that 

this is the time to legislate. You can mischaraterize my testimony 

however you want to, but I want to make it perfectly clear: it is 

definitely time to legislate. 

There is another thing that Mr. Hungar said that I want to push 

back on. He basically said that RPM is not going to be enacted 

across all of the relevant markets, and that it really only affects 

about 5 to 10 percent of the economy. 

Well, back in 1975 when Congress looked at this issue, Congress 

determined that the dollar amount was in the millions of dollars. 

That was back in—actually, no, they said it was in the billions of 

dollars, back in 1975. The effect of RPM was in the billions of dollars. 

Now, we are looking at 2009. That is more than 33 years later. 

So the effect of RPM, if one could do an empirical analysis, would 

probably be much greater in this day and age. So I wanted to definitely talk about that. 

And Mr. Hungar was asked about his opinion of the good uses 

of RPM. Well, that is what the question is. We know what the anticompetitive effects of RPM are. They are higher prices. What is the 

pro-competitive benefit of RPM? 

Mr. JOHNSON. And I want to stop you right there. 

Mr. Coble, along with every other Congressperson, has been 

called to the floor for three votes. And those three should not take 

more than about 35 minutes or so for us to get back here. So if you 

would hang out, we would appreciate it, and we will see you as 

soon as we can. 

We will now take a recess. 

[Recess.] 

Mr. JOHNSON. We are now back in this hearing, and I am going 

to turn it back over to the Ranking Member, Mr. Coble, if you have 

any follow ups or anything like that. 

Mr. COBLE. I think I am okay. 

Mr. JOHNSON. Okay. All right. Thank you. 
118 

So we will now yield the floor to Mr. Brad Sherman. 

Mr. SHERMAN. Mr. Hungar, one thing I never thought I would do 

in Congress is to disagree with someone who used the phrase, ‘‘Genius of the Sherman Act.’’ And in fact, we are much better off that 

that act passed than the regime that applied before. 

But you have put forward the genius of the Sherman Act as the 

concept that we will have the courts decide, and, ultimately, the 

Supreme Court decide what economic policy is in the interest of 

consumers. And to have the idea that our economic policy would be 

determined by an entity that has no economists on staff, that obtains no information except what is presented to them inside their 

own building, and hears orally from no one except an attorney, that 

that would be the entity that would devise economic policy is absurd on its face. 

In fact, it is one that only lawyers would even think of countenancing. I think it is obvious that Congress has delegated its responsibility and its authority by passing a rather vague statute, 

and that what we are engaged in here is the idea of perhaps drafting a more precise statute. 

And to think that we should defer to an entity that takes pride 

in the fact that they never talk to real consumers—God forbid a 

Supreme Court justice should talk to somebody at Costco. That 

would be ex parte. They would vilify the concept that it could affect 

them. 

We here in Congress are in Costco every day, at least one of us. 

We talk to real consumers. And oh, by the way, we are accountable 

to them. And to think that the right form of government is one 

where nine people who take pride in never talking to any consumer, who take pride in the fact that they are immune from any 

accountability to any consumer, that that is the body that should 

make economic policy, that concept is a blot on the Sherman family 

name. 

And the idea here is that, somehow, consumers benefit because, 

up until the recent court decision, we didn’t have legal resale price 

maintenance agreements. And so if someone wanted higher prices 

and more service, they might be denied that opportunity. 

Now, I, unlike the Supreme Court, talk to a lot of consumers 

about public policy and have those conversations influence my decision. But I can’t talk to all of them. Do you know of any poll or 

market survey where Americans said, ‘‘Damn it, we are being deprived of the opportunity to find some retailer that will charge us 

higher prices and provide better service?’’ Is there any evidence 

that this unavailable, mythical, more-service, higher-price retailer 

is desired by consumers? They just can’t find it? 

Mr. HUNGAR. Well, I think, first, on the genius of the Sherman 

Act, which I continue to adhere to, my point about the genius of 

the Sherman Act is that Congress did not attempt, in writing the 

Sherman Act, to proscribe a detailed code of conduct that addresses 

every particular type of practice. 

Mr. SHERMAN. Well, excuse me. Businesses have to deal with a 

real world where they have to know what the rules are. The vaguer 

those rules, the higher the attorney’s fees and the more vagueness 

they have to operate with. 
119 

And if Congress doesn’t provide detailed rules, then either there 

are no rules and you have to guess at them, or nine people, deprived intentionally of any contact with normal humans in terms 

of gathering information about public policy, are going to make 

those rules. And in fact, the antitrust law fills tens of volumes, and 

the portion of it written by Congress is barely a pamphlet. 

So to say that businesses are going to operate without rules is 

absurd. And to say that those rules should be written by those who 

we defer to because we are unwilling to do our job, I just hope that 

concept is not associated with my surname. 

Mr. HUNGAR. Well, with all due respect, Section 1 of the Sherman Act, I believe, is one sentence long, and that is what we are 

talking about here, the fact that—— 

Mr. SHERMAN. Exactly. And if Congress—— 

Mr. HUNGAR [continuing]. Of the law. 

Mr. SHERMAN [continuing]. Would do its job, it would be several 

pages long and the rules that business operated under would be decided by democracy instead of an institution that prides itself on 

being removed from the reach of consumers. 

Your theory of government is fundamentally anti-democratic. 

Mr. HUNGAR. I am not suggesting that Congress doesn’t have the 

power. Of course it has the power to prescribe detailed—— 

Mr. SHERMAN. But you praised those who went before us for not 

exercising that power, for deferring—— 

Mr. HUNGAR. Well, Congress did exercise the power in the Sherman Act, and the genius of the Sherman Act is that it bans unreasonable restraints on trade. But Congress recognized that you can’t 

possibly identify and try to legislate regarding the infinite number 

of different possible situations in which different arrangements can 

be imposed. And therefore the courts, because they can do a caseby-case careful analysis that considers all the facts, that has economists come and testify in the courts, and they do that in all these 

cases—— 

Mr. SHERMAN. Well, we are not here—sir, reclaiming my time, 

we are here dealing with a Supreme Court decision, ultimately the 

rules. I mean, the rule for a business isn’t, ‘‘Well, we will go to 

court, and we will figure it out what it is, because you can’t run 

a business that way. 

And the only rule that you can adhere to is one set forth by the 

highest court in the land. And to say that this anti-democratic institution should be deferred to by the elected representatives of the 

people is certainly not genius. It is what has happened. 

But I would ask you to use my time to address my question, and 

that is, can you identify a circumstance in which the vast majority 

of consumers have said, ‘‘Well, at least in this circumstance, we are 

deprived of the opportunity to pay higher prices. We want to pay 

higher prices, and we want more service than is available at the 

highest priced retailer in our community.’’ 

Mr. HUNGAR. Well, I think that the variety of types of sales efforts made by different types of retailers and manufacturers show 

that some consumers clearly do value the—service. 

Mr. SHERMAN. Oh, clearly. I mean, up until this case, there was 

a wide variety of different stores offering different levels of service 

and different prices. We didn’t have resale price maintenance 
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agreements. And if I wanted to go to Nordstrom’s instead of Shirts 

’R Us, I was free to do so. 

Do you have proof that 2006 was a terrible year for consumers 

because they were being deprived of the benefit of greater service 

and greater information about a product, and greater prices? I 

mean, what was the matter with 2006? Nordstrom’s was there. 

Mr. HUNGAR. As Commissioner Harbour said in her testimony, 

we don’t have empirical evidence either way, and therefore there 

is, in my view, no basis for the Congress to legislate. 

Mr. SHERMAN. Ah, but we do, because we are not a court. We actually talk to real people. Got 535 of us. And it may not be a scientific poll, but it is probably better than most real pollsters. 

I have never had a constituent complain that prices were too low. 

I have heard them complain about bad service at this or that store, 

but they were always aware, and before the decision, that there 

was a higher-priced store they could go to. 

I have received at least 1,000 complaints about high prices, and 

not a single consumer has ever said, ‘‘I want to pay even more than 

is being charged at the highest-priced store in the San Fernando 

Valley because I want better service than is being provided at the 

most exclusive store in the San Fernando Valley,’’ let alone anybody—they could always drive to Beverly Hills if they wanted to. 

But even people who were confined to my own community, is 

there any evidence that 2006 was a year in which consumers could 

not find the high-price, high-service combination that you say they 

often want? 

Mr. HUNGAR. Well, you need to remember that, even under the 

Dr. Miles regime, manufacturers could impose minimum retail 

prices through either vertical integration or through the Colgate 

policy, which allowed them to terminate any discounting retailer. 

So it is not really—— 

Mr. SHERMAN. But the law we had in 2006 is what I am talking 

about, because we could pass the 2006 Law Restoration Act and 

put resale price maintenance agreements back where they were in 

2006. Is there any evidence that there is any group of consumers 

that would be disadvantaged by such a policy? 

Mr. HUNGAR. Well, again—— 

Mr. SHERMAN. Given the fact that, in 2006, at least in the San 

Fernando Valley, there were plenty of high-priced stores with great 

service. 

Mr. HUNGAR. There is no evidence that there would be any group 

of consumers who would be advantaged, either. Remember that, in 

2006, the law was that a manufacturer could impose minimum 

prices through a Colgate policy and terminate any—— 

Mr. SHERMAN. In 2006, we went on eBay and we got great prices. 

Mr. HUNGAR. And you do today, as well. 

Mr. SHERMAN. Ah, but we have, what, Mr. Cohen, how many different things have you been asked to take down? 

Mr. COHEN. From the Net Enforcers, just one company that was 

seeing to enforce MAP pricing on our site, there were 1.2 million 

listings that they claimed that they sought to have taken down last 

year in 2008. 

Mr. SHERMAN. Hmm. 
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Now, I would point out that this whole idea of free riding was 

a concept invented and discussed before the Internet. Now, when 

I want information, I go to the Internet. When some new company 

wants to start and they want access to the market, they often start 

as an e-retailer. And in terms of investing in inventories, which is 

some justification for retail price—I mean, if you only need one inventory to service the whole country because you are an Internet 

retailer. 

Mr. Cohen, your testimony talks about how the Internet is 

changing the concept of free riding. Do you have any data that 

back up the assertion that there has been a change? And is it now 

the case that, with the Internet, there are ways to get information 

and to deal with inventory maintenance and market access that 

substitute for the perceived benefits, or alleged benefits, of retail 

price agreements? 

Mr. COHEN. Congressman Sherman, a Wall Street Journal article 

highlights the new generation of how consumers are benefiting in 

this, and that they are looking it up online first and then buying 

it offline. 

And the article references that cars, homes, personal computers, 

medical care, are areas where nearly four out of five shoppers say 

they gather information on their own from the Web before buying— 

92 percent of the respondents said that they had more confidence 

in the information they seek out online than anything coming from 

the traditional sales clerk or the offline. So—that there is even 

more value to the information they find online, and that nearly 70 

percent of Americans say they consult product reviews or consumer 

ratings before they make their buying decisions, and spend at least 

30 minutes online every week to help them decide what and whether to buy. 

I would ask the Chairman and the Ranking Member to submit 

to the record the article that has the background data that was 

used by the Wall Street Journal in this article. 

Mr. SHERMAN. So moved. I assume there is no objection and it 

will be made part of the record. 

Mr. JOHNSON. Without any objection, so ordered. 

[The information referred to follows:] 
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Mr. SHERMAN. Now, a lot of this Internet information is not free 

rider in the sense that I am going to one retailer, getting all this 

wonderful information that they paid thousands of dollars to put 
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up on the Internet, and then going to another retailer. Usually, at 

least in my case, I am going to a manufacturer’s website, or I am 

going to articles that are written. 

When you describe this gathering of information, is much of it 

a circumstance where one retailer is providing the information and 

another retailer is getting the sale? 

Mr. COHEN. It is literally every possible permutation you can 

think of. So for example, people use our sites to gather pricing information, right? They will search on eBay. They will search on 

shopping.com to find all the different prices that are available for 

the product that they want. 

They will use Amazon to look at product reviews, and then purchase off of eBay. They will purchase on Amazon. So there is 

both—within different Internet retailers, within different marketplaces, we all have the example of doing it ourselves to go online 

to gather up information. 

We know from our own empirical evidence that a staggering percentage of people that come and use our site never purchase on our 

site. So there is some information that they are gathering from 

that that they are finding useful in their purchasing decision. And 

we can also submit to the record some of that information, too. 

Mr. SHERMAN. Mr. Brunell, is there any way to identify particular niches of products where perhaps we should the current 

court’s decision to persist, or must we paint with a broad brush 

here and have one rule for golf tees and computers? 

Mr. BRUNELL. I don’t really think there is a basis to have a separate rule for different industries, but there may be instances, for 

example the one that Justice Breyer cites in the dissent in Leegin, 

of resale price maintenance as being used by a new entrant in a 

business as being an example where he suggests that perhaps you 

should have an exception to the per se rule. 

So there might be particular instances where Congress could define specific types of instances where a different rule might apply, 

but there is no basis for treating industries differently. 

Mr. SHERMAN. So whether it is CAT scan machines or nuclear— 

there is no particular product which you are convinced, ‘‘Aha, there 

we need the manufacturer to control,’’ although usually there is not 

a retailer for a nuclear plant. 

Mr. BRUNELL. The answer is typically that there are other tools 

that manufacturers can use to ensure that services are provided, 

promotional allowances and so forth that are, indeed, quite common so that the purported benefit of resale price maintenance, 

even under the Chicago School theory, is not so much that the 

services are provided under their theory, but that it might be, in 

their view, perhaps more costly for a manufacturer to pay for promotional services, let’s say, rather than have resale price maintenance. There is no evidence, of course, that that is the case, but 

that is the theory. 

Mr. SHERMAN. Commissioner Harbour, I have got an unusual 

question for you. Were you appointed by President Bush? 

Ms. HARBOUR. I am an Independent, and I was nominated by the 

majority leader, Senator Daschle at the time, Majority Leader 

Daschle. Then, my name went to the White House, and President 
126 

Bush passed on it. And then, my name went to Congress, and I 

was confirmed by the full Congress. 

Mr. SHERMAN. That is a process that might have yielded a different result if President Bush had simply selected without Mr. 

Daschle’s input. And I think in this case, the process was quite successful. 

I will yield back. 

Mr. JOHNSON. Thank you, Mr. Sherman. 

And do we have any more questions coming from any of our 

many Members of the panel who are here today? Seeing nobody, 

and hearing from no one, Mr. Coble, do you have any objections to 

us concluding this hearing at this time? 

Mr. COBLE. Much to the satisfaction of probably the witnesses, 

I have no objection at all, Mr. Chairman. 

Mr. JOHNSON. Well, I agree. I think they have been tortured long 

enough, and not by any one particular person, but just by being 

here as long as you have. And we do sincerely appreciate your coming today. 

This hearing is adjourned. 

[Whereupon, at 5:09 p.m., the Subcommittee was adjourned.] 
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