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[Congressional Record Volume 155, Number 1 (Tuesday, January 6, 2009)]
[Senate]
[Pages S133-S135]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. KOHL:
  S. 148. A bill to restore the rule that agreements between 
manufacturers and retailers, distributors, or wholesalers to set the 
minimum price below which the manufacturer's product or service cannot 
be sold violates the Sherman Act; to the Committee on the Judiciary.
  Mr. KOHL. Mr. President, I rise today to introduce legislation 
essential to consumers receiving the best prices on every product from 
electronics to clothing to groceries. My bill, the Discount Pricing 
Consumer Protection Act, will restore the nearly century old rule that 
it is illegal under antitrust law for a manufacturer to set a minimum 
price below which a retailer cannot sell the manufacturer's product, a 
practice known as ``resale price maintenance'' or ``vertical price 
fixing''. In June 2007, overturning a 96-year-old precedent, a narrow 
5-4 Supreme Court majority in the Leegin case incorrectly interpreted 
the Sherman Act to overturn this basic rule of the marketplace which 
has served consumers well for nearly a century. My bill--identical to 
legislation I introduced in 2007 (S. 2261 in the 110th Congress)--will 
correct this misinterpretation of antitrust law and restore the per se 
ban on vertical price fixing. Our bill has been endorsed by 34 state 
attorneys general as well as numerous antitrust experts, including 
former FTC Chairman Pitofsky and current FTC Commissioner Harbour.
  The reasons for this legislation are compelling. Allowing 
manufacturers to set minimum retail prices will threaten the very 
existence of discounting and discount stores, and lead to higher prices 
for consumers. For nearly a century the rule against vertical price 
fixing permitted discounters to sell goods

[[Page S134]]

at the most competitive price. Many credit this rule with the rise of 
today's low price, discount retail giants--stores like Target, Best 
Buy, Walmart, and the Internet sites Amazon and EBay, which offer 
consumers a wide array of highly desired products at discount prices.
  From my own personal experience in business I know of the dangers of 
permitting vertical price fixing. My family started the Kohl's 
department stores in 1962, and I worked there for many years before we 
sold the stores in the 1980s. On several occasions, we lost lines of 
merchandise because we tried to sell at prices lower than what the 
manufacturer and our rival retailers wanted. For example, when we 
started Kohl's and were just a small competitor to the established 
retail giants, we had serious difficulties obtaining the leading brand 
name jeans. The traditional department stores demanded that the 
manufacturer not sell to us unless we would agree to maintain a certain 
minimum price. Because they didn't want to lose the business of their 
biggest customers, that jeans manufacturer acquiesced in the demands of 
the department stores--at least until our lawyers told them that they 
were violating the rule against vertical price fixing.
  So I know firsthand the dangers to competition and discounting of 
permitting the practice of vertical price fixing. But we don't need to 
rely on my own experience. For nearly 40 years until 1975 when Congress 
passed the Consumer Goods Pricing Act, Federal law permitted States to 
enact so-called ``fair trade'' laws legalizing vertical price fixing. 
Studies Department of Justice conducted in the late 1960s indicated 
that prices were between 18-27 percent higher in the States that 
allowed vertical price fixing than the States that had not passed such 
``fair trade'' laws, costing consumers at least $ 2.1 billion per year 
at that time.
  Given the tremendous economic growth in the intervening decades, the 
likely harm to consumers if vertical price fixing were permitted is 
even grater today. In his dissenting opinion in the Leegin case, 
Justice Breyer estimated that if only 10 percent of manufacturers 
engaged in vertical price fixing, the volume of commerce affected today 
would be $ 300 billion, translating into retail bills that would 
average $ 750 to $ 1,000 higher for the average family of four every 
year.
  And the experience of the last year and a half since the Leegin 
decision is beginning to confirm our fears regarding the dangers from 
permitting vertical price fixing. In December 2008, for example, Sony 
announced that it would implement a no-discount rule to retailer's 
selling some of its most in-demand products, including some models of 
high-end flat screen TVs and digital cameras. On December 4, 2008, the 
Wall Street Journal reported that a new business has materialized for 
companies that scour the Internet in search of retailers selling 
products at a bargain. When such bargain sellers are detected, the 
manufacturer is alerted so that they can demand the seller end the 
discounting of its product. The chilling effect on discounting of such 
tactics is clear--in one example, the Wall Street Journal reported that 
Circuit City was forced to raise its retail price for an LG flat screen 
TV by $ 170 to nearly $ 1,600 after its discount price was discovered 
on the Internet.
  Defenders of the Leegin decision argue that today's giant retailers 
such as Walmart, Best Buy or Target can ``take care of themselves'' and 
have sufficient market power to fight manufacturer efforts to impose 
retail prices. Whatever the merits of that argument, I am particularly 
worried about the effect of this new rule permitting minimum vertical 
price fixing on the next generation of discount retailers. If new 
discount retailers can be prevented from selling products at a discount 
at the behest of an established retailer worried about the competition, 
we will imperil an essential element of retail competition so 
beneficial to consumers.
  In overturning the per se ban on vertical price fixing, the Supreme 
Court in Leegin announced this practice should instead be evaluated 
under what is known as the ``rule of reason.'' Under the rule of 
reason, a business practice is illegal only if it imposes an 
``unreasonable'' restraint on competition. The burden is on the party 
challenging the practice to prove in court that the anti-competitive 
effects of the practice outweigh its justifications. In the words of 
the Supreme Court, the party challenging the practice must establish 
the restraint's ``history, nature and effect.'' Whether the businesses 
involved possess market power ``is a further, significant 
consideration'' under the rule of reason.
  In short, establishing that any specific example of vertical price 
fixing violates the rule of reason is an onerous and difficult burden 
for a plaintiff in an antitrust case. Parties complaining about 
vertical price fixing are likely to be small discount stores with 
limited resources to engage in lengthy and complicated antitrust 
litigation. These plaintiffs are unlikely to possess the facts 
necessary to make the extensive showing necessary to prove a case under 
the ``rule of reason.'' In the words of FTC Commissioner Pamela Jones 
Harbour, applying the rule of reason to vertical price fixing ``is a 
virtual euphemism for per se legality.''
  In July 2007, our Antitrust Subcommittee conducted an extensive 
hearing into the Leegin decision and the likely effects of abolishing 
the ban on vertical price fixing. Both former FTC Chairman Robert 
Pitofsky and current FTC Commissioner Harbour strongly endorsed 
restoring the ban on vertical price fixing. Marcy Syms, CEO of the Syms 
discount clothing stores, did so as well, citing the likely dangers to 
the ability of discounters such as Syms to survive after abolition of 
the rule against vertical price fixing. Ms. Syms also stated that ``it 
would be very unlikely for her to bring an antitrust suit'' challenging 
vertical price fixing under the rule of reason because her company 
``would not have the resources, knowledge or a strong enough position 
in the marketplace to make such action prudent.'' Our examination of 
this issue has produced compelling evidence for the continued necessity 
of a ban on vertical price fixing to protect discounting and low prices 
for consumers.
  The Discount Pricing Consumer Protection Act will accomplish this 
goal. My legislation is quite simple and direct. It would simply add 
one sentence to Section 1 of the Sherman Act--the basic provision 
addressing combinations in restraint of trade--a statement that any 
agreement with a retailer, wholesaler or distributor setting a price 
below which a product or service cannot be sold violates the law. No 
balancing or protracted legal proceedings will be necessary. Should a 
manufacturer enter into such an agreement it will unquestionably 
violate antitrust law. The uncertainty and legal impediments to 
antitrust enforcement of vertical price fixing will be replaced by 
simple and clear legal rule--a legal rule that will promote low prices 
and discount competition to the benefit of consumers every day.
  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. Our legislation will correct the 
Supreme Court's abrupt change to antitrust law, and will ensure that 
today's vibrant competitive retail marketplace and the savings gained 
by American consumers from discounting will not be jeopardized by the 
abolition of the ban on vertical price fixing. I urge my colleagues to 
support this bill.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the text of the bill was ordered to be 
printed in the Record, as follows:

                                 S. 148

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Discount Pricing Consumer 
     Protection Act''.

     SEC. 2. STATEMENT OF FINDINGS AND DECLARATION OF PURPOSES.

       (a) Findings.--Congress finds the following:
       (1) From 1911 in the Dr. Miles decision until June 2007 in 
     the Leegin decision, the Supreme Court had ruled that the 
     Sherman Act forbid in all circumstances the practice of a 
     manufacturer setting a minimum price below which any 
     retailer, wholesaler or distributor could not sell the 
     manufacturer's product (the practice of ``resale price 
     maintenance'' or ``vertical price fixing'').

[[Page S135]]

       (2) The rule of per se illegality forbidding resale price 
     maintenance promoted price competition and the practice of 
     discounting all to the substantial benefit of consumers and 
     the health of the economy.
       (3) Many economic studies showed that the rule against 
     resale price maintenance led to lower prices and promoted 
     consumer welfare.
       (4) Abandoning the rule against resale price maintenance 
     will likely lead to higher prices paid by consumers and 
     substantially harms the ability of discount retail stores to 
     compete. For 40 years prior to 1975, Federal law permitted 
     states to enact so-called ``fair trade'' laws allowing 
     vertical price fixing. Studies conducted by the Department of 
     Justice in the late 1960s indicated that retail prices were 
     between 18 and 27 percent higher in states that allowed 
     vertical price fixing than those that did not. Likewise, a 
     1983 study by the Bureau of Economics of the Federal Trade 
     Commission found that, in most cases, resale price 
     maintenance increased the prices of products sold.
       (5) The 5-4 decision of the Supreme Court majority in 
     Leegin incorrectly interpreted the Sherman Act and improperly 
     disregarded 96 years of antitrust law precedent in 
     overturning the per se rule against resale price maintenance.
       (b) Purposes.--The purposes of this Act are--
       (1) to correct the Supreme Court's mistaken interpretation 
     of the Sherman Act in the Leegin decision; and
       (2) to restore the rule that agreements between 
     manufacturers and retailers, distributors or wholesalers to 
     set the minimum price below which the manufacturer's product 
     or service cannot be sold violates the Sherman Act.

     SEC. 3. PROHIBITION ON VERTICAL PRICE FIXING.

       (a) Amendment to the Sherman Act.--Section 1 of the Sherman 
     Act (15 U.S.C. 1) is amended by adding after the first 
     sentence the following: ``Any contract, combination, 
     conspiracy or agreement setting a minimum price below which a 
     product or service cannot be sold by a retailer, wholesaler, 
     or distributor shall violate this Act.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall take effect 90 days after the date of enactment of this 
     Act.
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