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54–718 PDF 2010

S. HRG. 111–267 

THE DISCOUNT PRICING CONSUMER PROTECTION 

ACT: DO WE NEED TO RESTORE THE BAN 

ON VERTICAL PRICE FIXING? 

HEARING 

BEFORE THE

SUBCOMMITTEE ON ANTITRUST, 

COMPETITION POLICY AND CONSUMER RIGHTS 

OF THE

COMMITTEE ON THE JUDICIARY 

UNITED STATES SENATE 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

MAY 19, 2009 

Serial No. J–111–24 

Printed for the use of the Committee on the Judiciary 

( 

(II) 

PATRICK J. LEAHY, Vermont, Chairman 

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 

RON WYDEN, Oregon 

AMY KLOBUCHAR, Minnesota 

EDWARD E. KAUFMAN, Delaware 

ARLEN SPECTER, Pennsylvania 

JEFF SESSIONS, Alabama 

ORRIN G. HATCH, Utah 

CHARLES E. GRASSLEY, Iowa 

JON KYL, Arizona 

LINDSEY O. GRAHAM, South Carolina 

JOHN CORNYN, Texas 

TOM COBURN, Oklahoma 

BRUCE A. COHEN, Chief Counsel and Staff Director 

MATT MINER, Republican Chief Counsel 

SUBCOMMITTEE ON ANTITRUST, COMPETITION POLICY AND CONSUMER RIGHTS

HERB KOHL, Wisconsin, Chairman 

CHARLES E. SCHUMER, New York 

SHELDON WHITEHOUSE, Rhode Island 

RON WYDEN, Oregon 

AMY KLOBUCHAR, Minnesota 

EDWARD E. KAUFMAN, Delaware 

ARLEN SPECTER, Pennsylvania 

ORRIN G. HATCH, Utah 

CHARLES E. GRASSLEY, Iowa 

TOM COBURN, Oklahoma 

CAROLINA HOLLAND, Democratic Chief Counsel/Staff Director 

JACE JOHNSON, 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 ............................ 3 

Kaufman, Hon. Edward E., a U.S. Senator from the State of Delaware ............ 5 

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

prepared statement .......................................................................................... 127 

WITNESSES 

Cohen, Tod, Vice President and Deputy General Counsel for Government 

Relations, eBay, San Jose, California ................................................................. 7 

Haigney, Stacy John, General Attorney, Burlington Coat Factory, Burlington, 

New Jersey ........................................................................................................... 9 

Harbour, Pamela Jones, Commissioner, Federal Trade Commission, Washington, D.C. ........................................................................................................... 6 

Wilson, James A., Partner, Vorys, Sater, Seymour and Pease LLP, Columbus, 

Ohio, and Chair, Section of Antitrust Law, American Bar Association .......... 10 

QUESTIONS AND ANSWERS 

Responses of American Bar Association to questions submitted by Senator 

Kohl ....................................................................................................................... 21 

Responses of Tod Cohen to questions submitted by Senator Kohl ...................... 28 

Responses of Stacy Haigney to questions submitted by Senator Kohl ................ 31 

Questions submitted by Senator Kohl to Pamela Harbour (Note: Responses 

to questions were not received as of the time of printing, February 22, 

2010) 

SUBMISSIONS FOR THE RECORD 

Brunell, Richard M., Director of Legal Advocacy, American Antitrust Institute, Washington, D.C., joint letter and statement ........................................... 35 

Cohen, Tod, Vice President and Deputy General Counsel for Government 

Relations, eBay, San Jose, California, statement .............................................. 80 

Collier, Jim, President, ShortOrder.com, letter .................................................... 86 

Haigney, Stacy John, General Attorney, Burlington Coat Factory, Burlington, 

New Jersey, statement ........................................................................................ 100 

Harbour, Pamela Jones, Commissioner, Federal Trade Commission, Washington, D.C., statement ........................................................................................ 113 

Wilson, James A., Partner, Vorys, Sater, Seymour and Pease LLP, Columbus, 

Ohio, and Chair, Section of Antitrust Law, American Bar Association, statement ...................................................................................................................... 129 

(1) 

THE DISCOUNT PRICING CONSUMER PROTECTION ACT: DO WE NEED TO RESTORE THE 

BAN ON VERTICAL PRICE FIXING? 

TUESDAY, MAY 19, 2009 

U.S. SENATE, 

SUBCOMMITTEE ON ANTITRUST, 

COMPETITION POLICY, AND CONSUMER RIGHTS, 

COMMITTEE ON THE JUDICIARY, 

Washington, DC 

The Subcommittee met, pursuant to notice, at 2:33 p.m., in room 

SD–226, Dirksen Senate Office Building, Hon. Herb Kohl, Chairman of the Subcommittee, presiding. 

Present: Senators Kohl, Klobuchar, Kaufman, and Hatch. 

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

FROM THE STATE OF WISCONSIN 

Chairman KOHL. Good afternoon. This hearing will come to 

order. 

Today we will examine an issue with far-reaching impact on the 

prices consumers pay for everything from clothing to electronics, 

and to everyone who likes to get a bargain when shopping. Two 

years ago, we held a hearing on the Supreme Court’s 5–4 decision 

in the Leegin case in June 2007 which abolished a fundamental 

antitrust rule that manufacturers cannot set minimum retail 

prices. At that hearing, we heard warnings that this decision would 

imperil discount shopping that consumers have learned to take for 

granted. Our experience since the Leegin decision is giving credence to these fears, and it comes at exactly the wrong time—just 

as millions of consumers face a serious recession and depend on 

bargain shopping more than ever to balance the family budget. 

That is why I have introduced legislation to overturn what I believe is this misguided Supreme Court ruling. 

For nearly a century, the rule against vertical price fixing permitted discounters to sell goods at the most competitive price. 

Many credit this rule with the rise of today’s low-price, discount retail outlets, stores like Burlington Coat Factory, and the Internet 

site eBay—both witnesses today—not to mention such retail giants 

as Target, Best Buy, and Walmart, all of which offer consumers a 

wide array of highly desired products at discount prices. 

We have already begun to see the manufacturers set minimum 

retail prices resulting in higher prices for consumers. Some antitrust experts suggest that there are an estimated 5,000 companies 

using minimum pricing policies. Last year, at the outset of the holiVerDate Nov 24 2008 09:21 Feb 23, 2010 Jkt 054718 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\54718.TXT SJUD1 PsN: CMORC
2 

day shopping season, Sony announced a no-discount rule prohibiting discount retailers from cutting the price on a number of its 

most in-demand top end products, including some flat screen TVs 

as well as digital cameras. The Wall Street Journal has reported 

that a new business has materialized for companies that scour the 

Internet in search of retailers selling discount products. When such 

bargain sellers are detected, the manufacturer is alerted so that it 

can demand that the discounting stop. Even the discounting of toys 

at pre-Christmas sales was targeted. 

I know from my own experiences in the retail industry decades 

ago that established retailers can take advantage of vertical price 

fixing to halt discounting dead in its tracks. In order to eliminate 

low-price competition from smaller retailers, large retailers can demand that manufacturers forbid discount pricing. These large retailers have the bargaining power with manufacturers to make 

these demands stick, all to the detriment of upstart discount competitors and consumers. 

Our common-sense worry that allowing manufacturers to bar discounting will lead to higher prices is borne out by basic economics. 

In his dissenting opinion in Leegin, Justice Breyer estimated that 

if only 10 percent of manufacturers engaged in vertical price fixing, 

retail bills would average $750 to $1,000 higher for the average 

family of four annually. For this reason, I have introduced the Discount Pricing Consumer Protection Act, cosponsored by Senator 

Whitehouse. Our bill—which is endorsed by 35 State attorneys general and all major consumers’ organizations—will simply make it 

clear that when manufacturers prohibit discounting, they violate 

the antitrust laws, and thereby restore a clear legal rule that had 

stood since 1911. 

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 have all taken for 

granted our ability to walk into discount retailers and buy brand 

name products at sharply discounted prices. It is essential that 

Congress act swiftly to enact my bill to once again make the setting 

of minimum retail prices illegal. 

I look forward to the testimony today of our distinguished witnesses on this important topic. 

Our first witness who will be testifying today is Pamela Jones 

Harbour. Ms. Harbour has been a Commissioner of the FTC since 

2003. Prior to joining the FTC, Ms. Harbour served as partner at 

Kaye Scholer law firm and was the New York State Deputy Attorney General. 

Next, we will have Tod Cohen. Mr. Cohen serves as Vice President and Deputy General Counsel of Government Relations at 

eBay. He began his legal career at the law firm of Covington & 

Burling and was Vice President and Counsel for New Media for the 

Motion Picture Association of America before joining eBay. 

Our next witness will be Stacy Haigney. Mr. Haigney is an inhouse attorney at Burlington Coat Factory. He has almost 4 years 

of experience as an antitrust attorney, and he was a founding partner of the firm Kassner & Haigney before working, as he presently 

does, for Burlington Coat Factory. 

3 

And, finally, we will have James Wilson. Mr. Wilson is a partner 

at Vorys, Sater, Seymour and Pease in Columbus, Ohio, and is the 

current Chair of the Section of Antitrust Law of the American Bar 

Association. He testifies today on behalf of the ABA. 

Before we swear in our witnesses, I would like to call on the 

Ranking Member, Orrin Hatch, for any comments he might make. 

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

THE STATE OF UTAH 

Senator HATCH. Well, thank you, Mr. Chairman. It is always a 

pleasure to work with you, and I really appreciate our friendship 

and our working together. 

Today’s topic of vertical price fixing is not new to this Subcommittee. It has been almost 2 years since the Supreme Court 

reached its 5–4 decision in Leegin Creative Leather Products v. 

PSKS Inc., Kay’s Kloset, and the Subcommittee held its subsequent 

hearing on the Court’s ruling. 

Now, this decision has and will have an important effect on our 

Nation’s economy, and especially on discount retailers. Therefore, 

Mr. Chairman, with your enormous expertise in this area, I look 

forward to learning more of your thoughts and perspectives on the 

issues behind your legislation, S. 148, the Discount Pricing Consumer Protection Act. 

To some the topic of vertical price fixing or minimum resale price 

maintenance is as dry as week-old bread. However, the contrary is 

true. This is an important topic. At stake is how and at what price 

consumers will buy a variety of goods and the dynamics by which 

manufacturers will enter into agreements with retailers. 

Mr. Chairman, a bit of background is necessary to fully understand the importance of this issue. Nearly 100 years ago, the Supreme Court ruled in Dr. Miles Medical Company v. John D. Park 

& Sons that it was per se illegal ‘‘under Section 1 of the Sherman 

Act for a manufacturer and its distributor to agree on the minimum price a distributor can charge for the manufacturer’s goods.’’ 

In other words, vertical pricing was against the law. However, this 

all came to an end nearly 2 years ago when the Court in Leegin 

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

Under this new decision, vertical price fixing is permitted as long 

as it does not constitute an unreasonable restraint on trade. Specifically, the Court has held under the rule of reason, ‘‘The fact 

finder weighs all of the circumstances of the 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 restraints history, nature, and effect.’’ 

Now, the Court’s majority argued that vertical price fixing can 

stimulate ‘‘inter-brand competition, the competition among manufacturers selling different brands of the same type of product, by 

reducing intra-brand competition, the competition among retailers 

selling the same brand.’’ 

Now, the Court goes on further to justify this decision by stating, 

as they held in Kahn, the ‘‘primary purpose of the antitrust laws 

is to protect what really amounts to inter-brand competition.’’ The 

Court appeared to be very concerned about the activity called ‘‘free 

4 

riding.’’ Free riding can be described as when a customer takes advantage of the service as an information provided by a 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 vertical price fixing, retailers would have less of an ability to 

compete on price, thereby diminishing the opportunities for free 

riding to occur. 

It is surmised that retailers would then focus their competitive 

energies on providing better services and shopping environments 

for the customer 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 since they could have additional difficulties in 

charging a lower price. 

Now, this is a matter with which I am particularly concerned. 

Will the Leegin decision result in the unintended consequence of 

hindering the development of the next generation of discount retailers by enabling manufacturers to set a minimum price for their 

goods? And though I do not know the position of Stanford’s Thomas 

Sowell on this issue, I am mindful of the point, albeit in a different 

context, that he made in his book on economics. He said this: 

‘‘Lower costs reflected in lower prices is what made A&P the 

world’s leading retail chain in the first half of the 20th century. 

Similarly, lower costs reflected in lower prices is what enabled 

other supermarket chains to take A&P’s customer away in the second half of the 20th century. And while A&P succeeded in one era 

and failed in another, what is far more important is that the economy as a whole succeeded in both eras in getting its groceries at 

the lowest prices possible at the time from whichever company happened to have the lowest prices. So does the economy and consumers succeed in the long run under Leegin.’’ 

Now, that is the crux of the matter and why I will put the same 

question to our witnesses today. I will have to do it in writing because of an Intelligence Committee hearing that I have to go to. 

But I asked that question 2 years. Does the positive effect on the 

manufacturer competition created by Leegin outweigh the negative 

effect on the discount retailer? 

So I look forward to the panel answering that question, and others as well, and, Mr. Chairman, I really appreciate you holding this 

hearing, and I hope that we can help resolve some of these conflicts 

and problems that exist in the best interest of everybody. 

I am very grateful to have all of you folks here. Welcome to you, 

and please forgive me for having to run to the Intelligence Committee, but I have got three conflicts right now at 2:30. I am going 

to, as always, leave it in the hands of my dear Chairman. 

Thank you, Mr. Chairman. 

Chairman KOHL. Thanks so much, Senator Hatch. 

Senator KAUFMAN. 

5 

STATEMENT OF HON. EDWARD E. KAUFMAN, A U.S. SENATOR 

FROM THE STATE OF DELAWARE 

Senator KAUFMAN. Thank you, Mr. Chairman, and thank you for 

holding this very important hearing. You know, for a long time 

there has been discussion on the Hill. Conservatives say that it is 

the judges on the left who engage in activism from the bench. They 

say conservative judges stick to calling balls and strikes of the law, 

while more liberal jurists insert their political philosophy into their 

opinions. 

Well, Mr. Chairman, the Leegin case proves that activism is in 

the eyes of the beholder. With respect to vertical price fixing, it was 

the addition of two conservatives to the Court, Justices Roberts and 

Alito, that led to the reversal of 96 years of unbroken precedent. 

This case, plain and simple, represents the elevation of big manufacturers’ interests over those of the consumer, and this Court 

acted because it decided to embrace a different economic theory, 

not because any facts or circumstances changed. In my book, that 

is judicial activism. 

For too long, we have had complacent antitrust enforcement. 

During the previous administration, regulators seemed to forget 

that the consumer should be the beneficiary and was designed to 

be the beneficiary of our antitrust laws. And with this poorly reasoned and radical departure from precedent in the Leegin case, the 

United States Supreme Court, in my opinion, has itself gotten into 

the act. 

Well, Mr. Chairman, it is time to once again focus ourselves on 

how antitrust law operates to protect or harm the consumer. It can 

come as a surprise to no one that the setting of price floors leads 

to the elevation of consumer prices. It prevents price competition 

out of the paternalistic notion that consumers, many of whom are 

struggling to get by, especially in these economic times, do not 

want the lowest prices possible but would rather have a fancy 

store, even if it means they cannot pay all their bills. I reject this 

notion, and I look forward to the testimony from these witnesses 

on this important issue. 

Again, thank you, Mr. Chairman. 

Chairman KOHL. Thank you very much, Senator Kaufman. 

We will start our testimony after you all are sworn in. Would you 

rise and raise your right hand? Do you swear the testimony you are 

about to give before this Committee will be the truth, the whole 

truth, and nothing but the truth, so help you God? 

Ms. HARBOUR. I do. 

Mr. COHEN. I do. 

Mr. WILSON. I do. 

Mr. HAIGNEY. I do. 

Chairman KOHL. Thank you so much. 

We will start with you, Ms. Harbour, and we request that you 

and the other witnesses hold your statements please to 5 minutes, 

and we will put into the record anything else that you may have 

to say. 

Ms. Harbour. 

6 

STATEMENT OF PAMELA JONES HARBOUR, COMMISSIONER, 

FEDERAL TRADE COMMISSION, WASHINGTON, DC 

Ms. HARBOUR. Thank you. Chairman Kohl and members of the 

Subcommittee, I appreciate this opportunity to share with you my 

personal views on minimum vertical price fixing. 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 courts’ evaluation of RPM under the rule of 

reason will reward price-fixing merchants and manufacturers and 

will further punish 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. 

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, and in these tough economic times, it is especially wrong to 

saddle consumers with higher prices for daily necessities while providing no countervailing benefits. 

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 consumer interests first. The Leegin decision cannot 

be reconciled with the legislative history of the antitrust laws. Congress never adopted nor endorsed a preference for RPM at the Federal level. Congress did create an exemption, an antitrust exemption, for RPM under State fair trade statutes. However, Congress 

ultimately graded that a 37-year-old natural experiment—graded it 

a failure, and 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. RPM lowered 

sales levels. It increased the frequency of business failure. RPM 

created entry barriers. It distorted retailer incentives, and RPM 

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 

someday be called upon to write yet another report detailing the 

disastrous harms inflicted on consumers during the Court’s current 

experiment with RPM. And we know who is paying for this experiment. Sadly, it is the American consumer. 

7 

Indeed, if you believe what you read in the newspapers, consumers already are paying that price. The Court’s new experiment 

has led many consumers to incur RPM price premiums, even in 

these trying times. Since the Court decided Leegin, the number of 

companies using some version of RPM has increased significantly. 

The use of third-party monitoring services by manufacturers to 

identify, police, and then discipline Internet discounting has rapidly expanded. Some discounters have been terminated by as many 

as 25 percent of their suppliers, and other discounters, like PSKS, 

the plaintiff in the Leegin case, have gone out of business and have 

been unable to get the courts to consider the merits of their claims 

under the rule of reason. 

Consumers do not realize that they are currently paying substantial RPM premiums. Not surprisingly, the manufacturers who impose these premiums are unlikely to notify customers that the discounts are no longer available, nor are retailers who support the 

RPM premiums particularly interested in telling their customers 

that prices were too low before discounting was eliminated. 

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. 

The reality of litigation dictates that when the facts are equally 

probative of guilt or innocence, then depending on which theory is 

adopted to evaluate 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 will be placed on the victims, 

not on the defendants who imposed the RPM policies to begin with. 

The FTC is doing its best to further the development of the realworld effects and the real-world facts about the effects of RPM by 

holding a series of workshops, but any answers may be a decade 

or more 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 appears as a submission for the record.] 

Chairman KOHL. Thank you, Ms. Harbour. 

Mr. Cohen. 

STATEMENT OF TOD COHEN, VICE PRESIDENT AND DEPUTY 

GENERAL COUNSEL FOR GOVERNMENT RELATIONS, EBAY, 

SAN JOSE, CALIFORNIA 

Mr. COHEN. Chairman Kohl, I am Tod Cohen, Vice President and 

Deputy General Counsel for Government Relations at eBay. Thank 

you for the invitation to speak today about S. 148, the Discount 

Pricing Consumer Protection Act, and the impact of the Supreme 

Court’s Leegin decision in particular on small and mid-size retailers who use the Internet. eBay and our users support your legislation to reinstate a per se rule prohibiting retail price fixing. 

8 

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 benefits of 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 can be 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 catalogue 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 customers 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 further from 

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

are big differences in how the Internet is used. 

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

are a primary target of aggressive RPM policies. 

eBay’s own experiences confirm that many large established 

businesses attempt to limit low-price, intra-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 

the seller and stop low-price competition. Many eBay sellers have 

been targeted by manufacturers and large retail partners with various tactics to take down their listings and discredit their sales. 

The Leegin decision has clearly been interpreted by many as a legal 

‘‘green light’’ to more aggressively thwart low-price competition. 

Established retailers and manufacturers attempting to enforce 

traditional business models contend that the innovative Internet 

retailers are able to offer lower prices to consumers because they 

free ride on their traditional retail counterparts. The truth is that 

9 

the Internet turns the traditional free-rider justification for RPM 

on its head. Internet retailers and services provide significant presale 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 be argued 

that the most established manufacturers and largest retail partners are free-riding on the tremendous consumer information tools 

created by Internet innovators. 

From a competition policy and consumer benefit perspective, the 

traditional free-rider argument for RPM policies as applied to the 

Internet should be put to rest. Innovative 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 that 

is even more true in the Internet age. This Committee should aggressively scrutinize the Leegin decision and enact S. 148 to reinstate a per se rule against retail price fixing and protect consumers 

and retail innovators. 

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

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

for the record.] 

Chairman KOHL. Thank you, Mr. Cohen. 

Mr. HAIGNEY. 

STATEMENT OF STACY JOHN HAIGNEY, GENERAL ATTORNEY, 

BURLINGTON COAT FACTORY, BURLINGTON, NEW JERSEY 

Mr. HAIGNEY. Good afternoon, Mr. Chairman and members of 

the Subcommittee. I am Stacy Haigney, general attorney at the 

Burlington Coat Factory. I am personally in charge of our trade 

regulation. I am very delighted to have this opportunity to come 

here and express my company’s support for S. 148, which will address an extremely serious competitive issue in the market and foster consumer welfare immeasurably. 

I believe that the story of Burlington Coat Factory is the best 

evidence I know for why S. 148 should pass. Burlington Coat Factory was founded by Monroe G. Milstein in 1972. He had one store 

at that time. It was a discount store. What he did was at that point 

sold coats 25 percent below what they would be available in department stores. Then in 1975, Congress repealed the so-called fair 

trade laws. This opened up a world of opportunity for Mr. Milstein 

and his company. He not only sold coats thereafter; Burlington 

Coat Factory sold every kind of apparel and accessory that you can 

think of. And we sold them all according to Mr. Milstein’s original 

philosophy, namely, give the customer full lines of in-season merchandise such as one would find at a department store for 25 percent below, approximately, what was being charged at the full-price 

retailers. This philosophy was the basis of Burlington Coat Factory’s success, and we have gone from the one store in 1972 to approximately 400 today, including at least one in the State of every 

Senator on this Subcommittee. 

But there was no possibility that this approach would have 

worked had the fair trade laws not been repealed. In fact, there 

10 

were no retailers like Burlington Coat Factory prior to that repeal—retailers of the size of Burlington Coat Factory. 

There is no doubt in my mind—or in Mr. Milstein’s mind when 

he still ran the company, or in Tom Kingsbury’s mind, who is now 

our CEO—that had the Leegin case been in force in 1975, we probably would have stayed in one store on Route 130 in Burlington, 

New Jersey. 

Now, I feel that the retail market has done pretty well in the intervening years, and all of a sudden, in the year 2007, apropos of 

no need that I can see, the Supreme Court decided to deep-six 98 

years of antitrust jurisprudence by the Leegin decision. And in aid 

of what? As I understand them, the concept is that maybe if you 

fix prices at a high level, perhaps the retailer will take some of the 

extra money the retailer earns and maybe apply it to services 

which might be of use to the manufacturer. For this, we throw 

away 98 years of antitrust jurisprudence and what the Congress 

has stated over and over again. Many times, the question of whether or not this per se rule should remain the rule has come before 

Congress, as it did in 1975, and on every occasion Congress has adhered to the per se rule. And in 1975, it had tremendous bipartisan 

support before President Ford signed the bill. And the reason was 

that the empirical evidence was overwhelming that retail price fixing, as Ms. Harbour pointed out, was a catastrophe for competition 

and for the consumer. 

Now, I have to say that it is grotesque from the point of view of 

an off-price retailer to even hear someone say that higher prices 

can lead to more competition. I frankly do not get that point. It certainly is not—in the apparel industry, it is a complete non sequitur. 

Finally, let me just state—I see my time is running out—that 

there are no free riders in the apparel industry. People do not need 

advance services to help them put on a coat and try on a dress. Our 

customers are well educated, and what they want is the best bargain available. And that is what Burlington Coat Factory gives 

them, and that is what S. 148 will guarantee that Burlington Coat 

Factory will continue to give them in the future. 

Thank you, Mr. Chairman. 

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

for the record.] 

Chairman KOHL. Thank you, Mr. Haigney. 

Now we call on Mr. Wilson. 

STATEMENT OF JAMES A. WILSON, PARTNER, VORYS, SATER, 

SEYMOUR AND PEASE LLP, COLUMBUS, OHIO, AND CHAIR, 

SECTION OF ANTITRUST LAW, AMERICAN BAR ASSOCIATION 

Mr. WILSON. Thank you, Mr. Chairman, members of the Subcommittee. On behalf of the American Bar Association, which has 

over 400,000 members, I thank you for the opportunity to appear 

this morning. As Chair of the Antitrust Section of the American 

Bar Association, I have been authorized to express the views of the 

ABA on this important issue. 

In contrast to the other witnesses this afternoon, Mr. Chairman, 

the ABA’s position is that the Leegin decision was correctly decided. 

11 

In February of 2007, the House of Delegates of the American Bar 

Association adopted the resolution proposed by our Section, which 

stated that Section 1 of the Sherman Act should not be interpreted 

to apply a rule of per se illegality to agreements between a buyer 

and a seller setting the price at which a buyer may resell goods or 

services purchased from the seller. 

You may ask: Why did we propose that position? And why did 

the ABA adopt it? We derived this position from the basic principle 

of antitrust jurisprudence that the rule of reason identified in 

Standard Oil of Ohio v. United States in 1911 is the fundamental 

standard that governs the evaluation of all restraints of trade. Any 

departure from the rule of reason standard must be based on a demonstrable economic effect rather than formalistic line drawing. 

Only when a specific type of restraint produces a predictable and 

pernicious anti-competitive effect and has limited potential for procompetitive benefit will and should the Supreme Court deem it unlawful per se. 

The Supreme Court’s decisions over nearly a century since adopting the rule of reason standard have carefully examined the procompetitive and anti-competitive effects of special practices to determine whether they warrant treatment as anti-competitive behavior under all circumstances and are thus classified as per se, or 

if they in some situations show pro-competitive benefits and, therefore, should be evaluated under the rule of reason. 

Like many of these vertical restraints that the Supreme Court in 

recent years—that is, over the last 30 years—has found should be 

evaluated under a rule of reason test, minimum resale price maintenance agreements may stimulate competition among resellers in 

ways that produce material benefits to consumers which would not 

otherwise be available absent the ability of manufacturers and distributors to set resale prices. 

As outlined in our report to the House of Delegates, there are 

several reasons that the Section on Antitrust Law believes that the 

issue of resale price maintenance should not be a per se violation 

of the antitrust laws. 

First, most of the significant economic literature regarding minimum resale price maintenance finds that it is more likely to be 

used by manufacturers to achieve efficiencies in distribution of 

their products rather than to enable dealers to maintain significant 

margins. 

Second, empirical studies of minimum resale price maintenance 

have not established that the practice is invariably anti-competitive. And I would specifically point to work that was done by the 

FTC staff in the 1980s and the early 1990s that made that finding 

that there are many occasions in which resale price maintenance 

is not anti-competitive. 

Third, manufacturers and suppliers have developed practices of 

achieving the same effects of minimum resale price maintenance 

without actually entering into agreements on resale pricing. This 

testimony that I have heard today about the dramatic shift that 

would be attained by this legislation simply does not square with 

how the market worked before the Leegin decision. The reality is 

that as long as the Colgate doctrine allowing individual manufacturers and distributors to choose to whom they will sell exists, the 

12 

effects that I have heard from the other witnesses today are unlikely to be achieved. 

Finally, the per se prohibition on minimum resale price maintenance, in force for several decades, has had the effect of enhancing 

the market power of very large-scale retailers that carry a wide variety of products. Conversely, it has harmed smaller retailers who 

try to compete with those large retailers not on price, where they 

cannot compete, but on the basis of quality and service. For these 

reasons, the ABA supports the position that under the Federal 

antitrust laws, agreements between a buyer and seller setting the 

resale price should not be per se illegal. 

Thank you, Mr. Chairman. 

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

for the record.] 

Chairman KOHL. Thank you, Mr. Wilson. 

Senator Klobuchar. 

Senator KLOBUCHAR. Thank you very much, Senator Kohl, for 

holding this interesting hearing, and I know you bring to this hearing your perspective as a retailer yourself, as someone who owned 

stores. I bring the perspective of a shopper at stores, so I think we 

make a good pair here looking at this issue. And I think especially 

now when we have consumers who are so strapped, it is very important, Ms. Harbour, to look at this. And I am very glad the FTC 

is holding these workshops to try to figure this out because, for a 

lot of my constituents, every penny counts right now. Every penny 

saved counts. And so they are looking at these things. Even though 

they may not understand what the Leegin decision is or have understood this idea of vertical price fixing, I think we owe it to them 

to look at this very carefully. 

Ms. Harbour, how much do you know right now about the impact 

of the Leegin decision? Your written statement and in what you 

said today mentioned that a number of companies engaged in resale price maintenance has significantly increased, and that some 

suppliers have stopped working with some suppliers. Can you tell 

us more about what hard evidence you have? And do you think 

that this financial crisis also, that we have to look at that separately? 

Ms. HARBOUR. At this point I do not have any additional hard 

evidence, but we are at the Federal Trade Commission holding 

workshops. We will be looking very closely at this issue. Since the 

Leegin decision came down, it has been about 2 years. Maybe we 

will start seeing some natural experiments where we can look at 

the effects of this ruling. But what I testified to, we have seen that. 

There have been some discussions in some of the newspaper articles, the Wall Street Journal, about the use of some of the shopping 

bots that are trolling and policing the Internet and going back to 

the manufacturers and letting them know about price, and then 

those discounters are being disciplined and prices have been increased to the consumer. So the effect that we do know about is 

that prices to the American consumer have indeed been elevated. 

As far as additional effects, we will be looking very closely for some 

of those. 

Senator KLOBUCHAR. OK. Mr. Cohen, do you want to talk, adding 

to what Ms. Harbour said, about just your perspective about 

13 

prices? Do you have any numbers on the rise of resale price maintenance being used against Internet retailers? And are these numbers different for retailers that are 100 percent based on the Internet like amazon.com versus multi-channel retailer stores that have 

an extensive Internet presence? 

Mr. COHEN. Senator Klobuchar, we have two different examples 

that we believe show the pernicious effect of the post-Leegin world. 

First is an increase in the number of takedown reports we receive 

from different companies and agents of rights holders and brand 

owners in which they have increased the number of complaints we 

have received to take down lower-price listings. A company called 

Net Enforcers sent in over 1.2 million notice and takedown requests to our site in which a significant number were based on 

lower prices. We have seen that, in a post-Leegin world, different 

manufacturers have admitted that the reason why they were seeking information on our sellers was because of a violation of MAP 

or retail price minimum standards. 

We are also engaged in research ourselves to see whether there 

has been a change in pricing over time in specific categories. We 

have not completed that research. When that is completed, we will 

submit that immediately to the Committee. 

Senator KLOBUCHAR. Very good. This is when Justice Breyer 

issued his dissent in the case, I know that this is—I know when 

he issued his dissent, he talked about that the only safe predictions 

to make about today’s decisions are that it will likely raise the 

price of goods at retail. And to me, right now when we are in this 

difficult consumer market, especially when there is actually slashing of prices going on because of the market, if we are seeing increases, I think they could be even worse if we were not in hard 

economic times. So I think it is important when we look at these 

numbers we consider that as well. 

Mr. Wilson, I listened to your testimony, and I guess I would 

have one question. If we, in fact, found out that the prices have increased, as Ms. Harbour believes they have, would that be enough 

for you to believe that we need to reexamine this Leegin decision 

and look at legislation, as Senator Kohl has introduced? 

Mr. WILSON. Senator, I guess the question I would ask is whether the prices had increased and the current law was ineffective, because, after all, resale price maintenance is not per se legal today. 

It is simply evaluated under the standard by which most anti-competitive conduct is evaluated—the rule of reason. 

If resale price maintenance is as pernicious as the other witnesses have said, it should be very difficult to present a defense to 

a rule of reason case. After all, the defense in a rule of reason case 

is proof that there are pro-competitive effects here. 

What I have seen is that the courts since Leegin—there have 

been about 60 decisions citing it, less than half of them in actually 

applying the rule of reason, but they have not created some awkward or weak rule of reason test here. They have applied a rule 

of reason test that is consistent with how it is applied in other 

areas. We look forward as a Section to offering our comments to 

the FTC in their workshops on exactly that area. 

Senator KLOBUCHAR. And I appreciate that, that the courts may 

have been reasonable in doing their rule of reason. But I think our 

14 

role here and our duty and the FTC’s duty is beyond that, and it 

is really looking at if there has been a bad effect on consumers because of this. And right now, my view is we just cannot hit on consumers anymore, that they have had it. They are having very difficult economic times, and so that is why I think the workshops 

that the FTC does and other evidence that we have here is very 

important, because if—you know, this was a very close Supreme 

Court decision with a vigorous dissent, and this is really in the end 

a policy matter for the Congress to consider. 

So I appreciate what you have said about the rules, but I think 

if we saw some pattern here of increased prices, as we saw back 

in—who was bringing up 1975 and what had happened? Mr. 

Haigney. 

Mr. HAIGNEY. Yes, in 1975, there was extensive empirical evidence presented to the Congress to show—and I think Ms. Harbour 

actually cited the figures—to show a drastic increase in prices in 

States that continued to free trade, so-called, and a diminution in 

sales in those States. These were hard-core numbers, not just economic—— 

Senator KLOBUCHAR. Do you think it would be useful if we want 

to have that kind of clear, empirical comparison? Maryland has 

just passed their law and gone back to the old way. Do you think 

it would be useful to have more States do this? 

Mr. HAIGNEY. It would certainly be better than nothing, but I 

would much prefer—— 

Senator KLOBUCHAR. You would prefer it done nationally, federally. It would be a lot easier than creating a national study for us 

to look at. 

Mr. HAIGNEY. That is right. 

Senator KLOBUCHAR. OK. Anyone want to add to any of that? 

Mr. WILSON. Senator, if I could, I would just point out that if you 

adopt the rule that the legislation proposes, then pro-competitive 

effects are no longer considered. And so you have in effect lost any 

pro-competitive effects that exist today. 

Ms. HARBOUR. May I address the pro-competitive effects and the 

statement about the empirical evidence that is out there and also 

the Federal Trade Commission and some of the empirical work it 

has done as well. 

None of the empirical studies to date are definitive, and there is 

an acknowledged empirical vacuum that leaves all of these competing theories untested. It was referenced about a Federal Trade 

Commission study. It was done by a very well-respected economist, 

Pauline Ippolito. That study basically found that there was no 

basis for concluding that minimum RPM is anti-competitive. But I 

want to note that Pauline Ippolito herself acknowledged that her 

study did very little to fill the empirical vacuum, and her study did 

not test for the hypothesized consumer benefits directly. So it did 

not test for the consumer benefits. It only determined whether the 

pro-competitive explanations had what she said ‘‘limited plausibility.’’ 

So, basically, these studies are not definitive, and also Justice 

Breyer in the Leegin dissent discounted the study by saying that 

it equated the failure of plaintiffs to allege collusion with the absence of collusion, and basically it overlooked the tacit form that 

15 

collusion may take. So these studies are not definitive, and they 

have been cited as being so, but they are not. 

Senator KLOBUCHAR. All right. Thank you very much. I appreciate that. 

Thank you, Senator Kohl. 

Chairman KOHL. Thank you very much, Senator Klobuchar. 

Well, you all know where I am coming from on this piece of legislation, obviously. I am the sponsor of it. But I want to take a look 

at it from another point of view, and that is the point of view of 

the manufacturer who goes to great pains and at great length and 

at great expense to build a product and a brand into something 

that is desired by consumers, in many cases regardless of the high 

price, but the manufacturer has done such a good job of appealing 

to consumers on the basis of the quality of his brand that consumers go way out of their way to find that product and buy it, regardless of its price. And that adds to the manufacturer’s prosperity as well as to the store that is selling it because they are not 

discounting it. But it is a model, a way of doing business, you 

know, it is a free country, and people have a right to do that. They 

can be successful. 

Now, under our legislation, what is likely to happen? Well, discounters will buy the merchandise and beat the hell out of the 

price, you know, and draw customers thereby, but also make it 

very, very difficult for the traditional retailer to maintain their 

price and for the manufacturer to have the price maintained as he 

or she might wish to do; after all, it is their product. 

And the manufacturer, by virtue of, let’s say, discounters selling 

maybe 10 percent of the brand, but driving the price so low in the 

minds of customers and thereby making it very difficult for traditional retailers to carry that brand at a maintained price, that the 

manufacturer could lose an enormous amount of business just by 

virtue of the fact that a very limited amount of discount retailers 

are driving the price of that particular brand, merchandise on that 

brand, a category in that brand, right down into the basement. 

Now, is that fair? Is that fair to the manufacturer, you know, 

who, after all, built his business, certain ideas, certain concepts, 

does business with traditional retailers who maintain the price, 

and here he is in a position whereby a limited amount of discounters can almost kill that category for the manufacturer at a 

profitable price? Is that fair? Doesn’t the manufacturer have a 

right, once he produces a product, to have that product sold at a 

price that he regards as fair? What is wrong with that, Mr. 

Haigney. 

Mr. HAIGNEY. Well, Mr. Chairman, long before Leegin was decided, the Supreme Court decided the case of Sylvania, and in that 

case it gave the manufacturer all the power anyone could reasonably want to control its distribution. The only power that it did not 

give to the manufacturer was the power to control price. But it 

overruled the Schwinn case, which had made vertical restraints per 

se violation, and the Sylvania case made effectively all vertical restraints except price fixing into per se legal restraints. 

The result is that the manufacturers, if they want their merchandise sold in only the fanciest stores, just sell to the fanciest 

stores, cutoff dealers who try and depart from this distribution 

16 

scheme. There is nothing wrong with it under Sylvania, and there 

are plenty of products out there that Burlington Coat Factory cannot have because those manufacturers want to maintain the snob 

appeal of their product. Perfectly legitimate, and I have no argument with it. But the important point is that this right was given 

to the manufacturers by Sylvania in 1977. The Leegin case is a 

complete non sequitur. The additional power to fix the price adds 

nothing to the powers of vertical restraint that were given to the 

manufacturers by Sylvania. 

Chairman KOHL. All right. But let me follow that up. So you are 

saying that even prior to Leegin, manufacturers had a way of keeping their goods out of the hands of discount retailers if that is what 

they wanted to do? 

Mr. HAIGNEY. That is correct, Mr. Chairman. 

Chairman KOHL. And yet you said during your testimony that 

had Leegin been in effect, Burlington would not be here today. But 

what is the difference? If manufacturers had the power prior to 

Leegin to keeping whatever merchandise they want out of the 

hands of discount retailers, then what did Leegin do except to certify that? 

Mr. HAIGNEY. Well, first of all, Mr. Chairman, they had the 

power, they had the right, but they did not exercise it. They wanted to sell—there are a few manufacturers who do not want to see 

their merchandise in off-price stories, and that is their right. But 

most do want to see—most people are very happy to sell us their 

merchandise. We pay the same price as any full-price retailer, and 

most manufacturers are happy to get that price, particularly in a 

time like the present. And so, yes, they could have, theoretically, 

prevented us from getting the merchandise, but they did not because they did not want to. 

Chairman KOHL. Well, they do not have to, even under Leegin. 

What has changed? 

Mr. HAIGNEY. Absolutely. They could still—— 

Chairman KOHL. I guess what I am trying to understand from 

the point of view of a retailer, if prior to Leegin the manufacturer 

could keep the merchandise out of the hands of a discounter and 

now that we have Leegin they can still keep their merchandise out 

of the hands of the discounter, what has changed? 

Mr. HAIGNEY. Well, what has changed is that those manufacturers, who are the majority, who do sell to stores like Burlington 

Coat Factory would have the power suddenly—or have the power 

under Leegin to fix our retail prices. Now we are an ‘‘off-price retailer.’’ Our entire competitive philosophy is based on giving value 

and low prices. So if the manufacturer can now, in addition, he can 

let us have the merchandise, but we must sell it at the same price 

that it is carried at a full-price retailer, that would put us out of 

business, at least with respect to that line of goods. 

Chairman KOHL. Yes, but—and I do not want to push this too 

far. I just want to make it clear. Prior to Leegin, he still, as you 

have said, could decide not to sell the merchandise to a discounter. 

Mr. HAIGNEY. That is right, or to anybody. 

Chairman KOHL. Yes, Ms. Harbour, what has changed? Why is 

Leegin such a poisonous thing if prior to Leegin that merchandise 

17 

could still be kept out of the hands of a discounter by a manufacturer acting in an intelligent way? 

Ms. HARBOUR. What is poisonous about Leegin is that going forward there will be no more Burlington Coat Factories. There will 

be no more Costcos. There will be no more Walmarts. 

Chairman KOHL. OK. 

Ms. HARBOUR. That is the danger. These innovators, these lowcost retailers, these Internet innovators, they will not exist now because they will not have the opportunity to enter the market. That 

is what has changed. 

Chairman KOHL. That is a good point. You are saying Leegin 

cuts off or seriously damages the possibility of the new discounter 

even getting a foothold. 

Ms. HARBOUR. For instance, if you are on the Internet and you 

want to sell a branded product below cost to get a consumer following, the manufacturer can cut you off at the knees, and you 

never can get a toehold into the market. That is what is so pernicious about Leegin. 

Chairman KOHL. That is a good point. 

Mr. Cohen. 

Mr. COHEN. Mr. Chairman, I also think that the internet created 

the very visibility and price transparency that manufacturers need 

to police the internet in a way that would have been impossible in 

the pre-Leegin world. We believe the ability to see pricing every 

day in real time has put a dampening effect on inflation, and really 

drives prices down. But that has also allowed people who want to 

enforce their pricing schemes to go after discounters and, more importantly from our perspective, find out where there were leaks in 

their distribution chain. Manufacturers are under intense pressure 

from other larger retailers to not allow any discounting, and then, 

therefore, they go after our small sellers and try to find out exactly 

who those small sellers are, which they would not have been able 

to do in a pre-Leegin world. 

Chairman KOHL. Mr. Wilson. 

Mr. WILSON. Yes, Senator. I guess I do not fully agree with the 

economic premise that the other witnesses have suggested exists 

here. 

First of all, let us remember that this manufacturer in your hypothetical is presumably working in a competitive marketplace. 

Therefore, that manufacturer has to make certain decisions as to 

how they are going to go to market. Are they going to go to market 

as the lowest cost, or are they going to try to create the perception 

of quality in your hypothetical? If it is the latter, then their perception of quality gives every other manufacturer either the incentive 

to increase their quality or decrease their price. So overall in the 

marketplace, in your hypothetical, prices should decrease or quality 

should increase or both. 

With respect to the notion of what difference does Leegin make 

in this, where I believe it makes a difference is it allows the manufacturer to continue the relationship with the discounting retailer. 

Under the pre-existing law, the manufacturer in effect had to execute the death penalty in its relationship with that retailer. It had 

to say, ‘‘You have sold at below the prices I have suggested. I am 

no longer going to do business with you, period.’’ And those manuVerDate Nov 24 2008 09:21 Feb 23, 2010 Jkt 054718 PO 00000 Frm 00021 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\54718.TXT SJUD1 PsN: CMORC
18 

facturers were at risk if they did that and then reestablished a relationship because courts would presume an agreement from that 

back-and-forth relationship. 

After Leegin, what the relationship is in effect is that the manufacturer can again say, ‘‘You do not have my permission to do that. 

You have violated our agreement. We have a contractual dispute 

here. I can terminate you or I can simply have a contractual dispute with you and continue to do business with you.’’ 

Chairman KOHL. Ms. Harbour. 

Ms. HARBOUR. May I address that? I think that RPM protects inefficient retailers. If you have a minimum resale price policy, you 

could have Retailer 1 selling a quality good, but Retailer 2, because 

they would be protected in that intra-brand competition, the quality could be sub-par, yet they could still charge the resale price, 

maintained price, and not in effect keep the product at top quality. 

So I think it has the potential to protect retailers who are not selling top-quality intra-brand merchandise. 

Chairman KOHL. Mr. Cohen. 

Mr. COHEN. Mr. Chairman, may I submit to the record a letter 

one of our sellers received from a company called Captive Works, 

where they said, ‘‘Dear David, Please do not list the receiver less 

than $149; otherwise, it will be reported and taken off. We need to 

have a steady price from all the sellers so everybody will be making 

money. Your prices were less than everybody else, and if you see 

someone else with a lower price, be sure that they will be taken 

down soon. Thanks. Raffi.’’ 

So that is the real-world experience that our sellers are experiencing every day, rather than the hypothetical and theoretical 

viewpoint of antitrust experts about inter-brand versus intra-brand 

competition. We have to live with the reality that lower prices are 

not being able to be delivered to buyers. 

Chairman KOHL. Yes, Mr. Haigney. 

Mr. HAIGNEY. Yes, Mr. Chairman, just quickly to respond to Mr. 

Wilson, his hypothetical does not coincide with the real world that 

I know, at least speaking in the apparel off-price world. He said 

that the manufacturer could fix a high price with the consent of the 

retailer and go on and do business afterwards. And the reality is 

that when your principal means of competition is low prices, you 

simply cannot continue to do business with that person. I mean, 

the fact of the matter is Burlington Coat Factory cannot sell at 

those prices and be Burlington Coat Factory. And I do not think 

any other off-price merchants who roughly have our business model 

could either. 

I also question the whole idea that the manufacturer’s notion of 

distribution should always be paramount and that retailers—who, 

after all, are the ones who actually sell the product and know the 

customers—somehow under the Leegin majority, our views are not 

considered legitimate. Only the manufacturer has the right to determine what is going to happen to a product, which is our property by the time that we are reselling it to the public. 

Chairman KOHL. You know, Mr. Wilson, historically we have 

been a consumer-driven society, a consumer-driven economy—we 

still are; 80 percent of our economy are—people who are buying 

goods on a daily basis, and competition has very much defined the 

19 

growth of the American economy. It very much defines capitalism, 

competition. Naturally, people who are in a position to try and do 

business without having to deal with competition, that is the way 

they want it. But in our capitalistic society we try to encourage 

competition, thinking that is the best way, although not perfect, 

the best way to proceed. 

And that is what pre-Leegin—or if we ever get to post-Leegin, that is the premise, that competition is the best way to drive the 

American economy and serve the American consumer while still 

preserving the rights of all manufacturers to try and make a profit 

in that kind of a context. And pre-Leegin, as we have now established, there is still a way—or was a way or would be a way even 

under our legislation for a manufacturer to elect not to do business 

with a discounter as long as they cut off that discounter without 

saying it is because of price and price only. You know that. 

But isn’t that a reasonable balance, to encourage competition, to 

set up rules and regulations that will allow for competition based 

on price, among other things—service, quality, but also price? But 

also preserve the right of a manufacturer when he or she decides 

that they do not want to do business because that person is cutting 

the price too much? They can find a way not to do business. Isn’t 

that a decent balance? What is your problem with that? 

Mr. WILSON. Well, Senator, let me first of all say that our Section and the ABA fully endorsed the notion that competition needs 

to be the basis for our economy and our society, and I think notwithstanding recent events, we have proven that competition is the 

best way to have a thriving economy. 

Our concern in the legislation is that in establishing a per se 

test, it eliminates the ability for courts to recognize situations in 

which the pro-competitive benefits of a particular resale price 

maintenance arrangement outweigh the anti-competitive effects. In 

situations where such pro-competitive benefits outweigh the anticompetitive effects, consumers benefit from the resale price maintenance. 

The Section and the ABA have never taken the position that resale price maintenance should be per se legal. Our view is simply 

that the sound rule of antitrust, that the balancing of anti-competitive and pro-competitive effects should apply in this arena as it 

does in virtually every other arena of our economy. 

Chairman KOHL. Ms. Harbour. 

Ms. HARBOUR. I would just like to respond to that. Mr. Wilson 

was talking about the pro-competitive benefit of resale price maintenance. I guess what I would say is then the proponents of them 

should prove it. That is really all I am asking here. Why put the 

thumb on the scale on the side of the business that is imposing this 

RPM? Give the consumer the benefit of the doubt. And that is what 

we have not seen. We have not seen the proof of the pro-competitive benefits of those manufacturers who are imposing the RPM. 

What we get is we get theoretical assumptions about what those 

benefits are. All we are asking, prove it. Even in Leegin, the Supreme Court did not make, you know, the proponents of the RPM 

in Leegin to prove what those benefits were for the ladies’ handbags. So going forward, if you shift the burden of proof, shift it 

from the victim, shift it from the consumer. Shift it onto the manuVerDate Nov 24 2008 09:21 Feb 23, 2010 Jkt 054718 PO 00000 Frm 00023 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\54718.TXT SJUD1 PsN: CMORC
20 

facturer who is imposing the RPM. Let them bear the burden of 

proof for the elevated prices that they are foisting on the American 

consumer. 

Chairman KOHL. Good. Anybody else have another comment to 

make? 

Mr. Haigney. 

Mr. HAIGNEY. Yes, Mr. Chairman, just briefly on the rule of reason now, let me say this: Plaintiffs do not win rule of reason cases 

in this field. The rule of reason requires the plaintiff to prove an 

immense amount of economic data. He has to prove what the market is. He has to prove that the defendant has power in that market. He has to prove that competition as a whole within that market was somehow harmed by the individual act harming this plaintiff. 

Now, most plaintiffs in these cases are small companies who are 

starting out trying to get a foothold. They have their most important line cut off because of their unwillingness to live up to a pricefixing agreement. 

They go to court. Now, when it was per se, all they had to do 

was prove the existence of the price-fixing agreement and the fact 

that they were cut off because they did not follow it, and then add 

up their damages of how much they lost. That little company could 

probably bring that lawsuit with the local lawyer, and probably 

that guy might take it on spec. To win a rule of reason case, that 

local company would have to hire—I do not know—ten economists, 

really high-level attorneys, and launch a 2-, 3-, 4-year exploration 

of whatever market it happened to be. That is, if he could satisfy 

the very strict pleading requirements of the Twombly case and 

other decisions of the Supreme Court that have pretty much put 

plaintiffs out of business at the pleading stage. 

So the per se rule is not the way to go—I am sorry. The rule of 

reason is not the way to go. The per se rule is the only way that 

a small plaintiff could ever get a remedy for RPM’s anti-competitiveness. 

Chairman KOHL. Thank you. 

Anything else, folks? 

[No response.] 

Chairman KOHL. I think it has been a good hearing. I think we 

have laid out the pros and cons of the issue, and it is really important to our American economy to try and come up with the right 

decision on this. In that sense, this hearing has been very informative. I appreciate your coming. 

Thank you so much. 

[Whereupon, at 3:40 p.m., the Subcommittee was adjourned.] 

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

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