Source: https://supreme.justia.com/cases/federal/us/551/877/
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Leegin Creative Leather Products, Inc. v. PSKS, Inc. :: 551 U.S. 877 (2007) :: Justia US Supreme Court Center
Justia › US Law › US Case Law › US Supreme Court › Volume 551 › Leegin Creative Leather Products, Inc. v. PSKS, Inc.
LEEGIN CREATIVE LEATHER PRODUCTS, INC. v. PSKS, INC., dba KAY’S KLOSET … KAY’S SHOES
Given its policy of refusing to sell to retailers that discount its goods below suggested prices, petitioner (Leegin) stopped selling to respondent’s (PSKS) store. PSKS filed suit, alleging, inter alia, that Leegin violated the antitrust laws by entering into vertical agreements with its retailers to set minimum resale prices. The District Court excluded expert testimony about Leegin’s pricing policy’s procompetitive effects on the ground that Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U. S. 373, makes it per se illegal under §1 of the Sherman Act for a manufacturer and its distributor to agree on the minimum price the distributor can charge for the manufacturer’s goods. At trial, PSKS alleged that Leegin and its retailers had agreed to fix prices, but Leegin argued that its pricing policy was lawful under §1. The jury found for PSKS. On appeal, the Fifth Circuit declined to apply the rule of reason to Leegin’s vertical price-fixing agreements and affirmed, finding that Dr. Miles’ per se rule rendered irrelevant any procompetitive justifications for Leegin’s policy.
(a) The accepted standard for testing whether a practice restrains trade in violation of §1 is the rule of reason, which requires the factfinder to weigh “all of the circumstances,” Continental T. V., Inc. v. GTE Sylvania Inc., 433 U. S. 36, 49, including “specific information about the relevant business” and “the restraint’s history, nature, and effect,” State Oil Co. v. Khan, 522 U. S. 3, 10. The rule distinguishes between restraints with anticompetitive effect that are harmful to the consumer and those with procompetitive effect that are in the consumer’s best interest. However, when a restraint is deemed “unlawful per se,” ibid., the need to study an individual restraint’s reasonableness in light of real market forces is eliminated, Business Electronics Corp. v. Sharp Electronics Corp., 485 U. S. 717, 723. Resort to per se rules is confined to restraints “that would always or almost always tend to restrict competition and decrease output.” Ibid. Thus, a per se rule is appropriate only after courts have had considerable experience with the type of restraint at issue, see Broadcast Music, Inc. v. Columbia Broadcasting System, Inc., 441 U. S. 1, 9, and only if they can predict with confidence that the restraint would be invalidated in all or almost all instances under the rule of reason, see Arizona v. Maricopa County Medical Soc., 457 U. S. 332, 344. Pp. 5–7.
(1) Economics literature is replete with procompetitive justifications for a manufacturer’s use of resale price maintenance, and the few recent studies on the subject also cast doubt on the conclusion that the practice meets the criteria for a per se rule. The justifications for vertical price restraints are similar to those for other vertical restraints. Minimum resale price maintenance can stimulate interbrand competition among manufacturers selling different brands of the same type of product by reducing intrabrand competition among retailers selling the same brand. This is important because the antitrust laws’ “primary purpose … is to protect interbrand competition,” Khan, supra, at 15. A single manufacturer’s use of vertical price restraints tends to eliminate intrabrand price competition; this in turn encourages retailers to invest in services or promotional efforts that aid the manufacturer’s position as against rival manufacturers. Resale price maintenance may also give consumers more options to choose among low-price, low-service brands; high-price, high-service brands; and brands falling in between. Absent vertical price restraints, retail services that enhance interbrand competition might be underprovided because discounting retailers can free ride on retailers who furnish services and then capture some of the demand those services generate. Retail price maintenance can also increase interbrand competition by facilitating market entry for new firms and brands and by encouraging retailer services that would not be provided even absent free riding. Pp. 9–12.
(c) Stare decisis does not compel continued adherence to the per se rule here. Because the Sherman Act is treated as a common-law statute, its prohibition on “restraint[s] of trade” evolves to meet the dynamics of present economic conditions. The rule of reason’s case-by-case adjudication implements this common-law approach. Here, respected economics authorities suggest that the per se rule is inappropriate. And both the Department of Justice and the Federal Trade Commission recommend replacing the per se rule with the rule of reason. In addition, this Court has “overruled [its] precedents when subsequent cases have undermined their doctrinal underpinnings.” Dickerson v. United States, 530 U. S. 428, 443. It is not surprising that the Court has distanced itself from Dr. Miles’ rationales, for the case was decided not long after the Sherman Act was enacted, when the Court had little experience with antitrust analysis. Only eight years after Dr. Miles, the Court reined in the decision, holding that a manufacturer can suggest resale prices and refuse to deal with distributors who do not follow them, United States v. Colgate & Co., 250 U. S. 300, 307–308; and more recently the Court has tempered, limited, or overruled once strict vertical restraint prohibitions, see, e.g., GTE Sylvania, supra, at 57–59. The Dr. Miles rule is also inconsistent with a principled framework, for it makes little economic sense when analyzed with the Court’s other vertical restraint cases. Deciding that procompetitive effects of resale price maintenance are insufficient to overrule Dr. Miles would call into question cases such as Colgate and GTE Sylvania. Respondent’s arguments for reaffirming Dr. Miles based on stare decisis do not require a different result. Pp. 19–28.
In Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U. S. 373 (1911), the Court established the rule that it is per se illegal under §1 of the Sherman Act, 15 U. S. C. §1, for a manufacturer to agree with its distributor to set the minimum price the distributor can charge for the manufacturer’s goods. The question presented by the instant case is whether the Court should overrule the per se rule and allow resale price maintenance agreements to be judged by the rule of reason, the usual standard applied to determine if there is a violation of §1. The Court has abandoned the rule of per se illegality for other vertical restraints a manufacturer imposes on its distributors. Respected economic analysts, furthermore, conclude that vertical price restraints can have procompetitive effects. We now hold that Dr. Miles should be overruled and that vertical price restraints are to be judged by the rule of reason.
PSKS sued Leegin in the United States District Court for the Eastern District of Texas. It alleged, among other claims, that Leegin had violated the antitrust laws by “enter[ing] into agreements with retailers to charge only those prices fixed by Leegin.” Id., at 1236. Leegin planned to introduce expert testimony describing the procompetitive effects of its pricing policy. The District Court excluded the testimony, relying on the per se rule established by Dr. Miles. At trial PSKS argued that the Heart Store program, among other things, demonstrated Leegin and its retailers had agreed to fix prices. Leegin responded that it had established a unilateral pricing policy lawful under §1, which applies only to concerted action. See United States v. Colgate & Co., 250 U. S. 300, 307 (1919). The jury agreed with PSKS and awarded it $1.2 million. Pursuant to 15 U. S. C. §15(a), the District Court trebled the damages and reimbursed PSKS for its attorney’s fees and costs. It entered judgment against Leegin in the amount of $3,975,000.80.
Section 1 of the Sherman Act prohibits “[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States.” Ch. 647, 26 Stat. 209, as amended, 15 U. S. C. §1. While §1 could be interpreted to proscribe all contracts, see, e.g., Board of Trade of Chicago v. United States, 246 U. S. 231, 238 (1918), the Court has never “taken a literal approach to [its] language,” Texaco Inc. v. Dagher, 547 U. S. 1, 5 (2006). Rather, the Court has repeated time and again that §1 “outlaw[s] only unreasonable restraints.” State Oil Co. v. Khan, 522 U. S. 3, 10 (1997).
The rule of reason is the accepted standard for testing whether a practice restrains trade in violation of §1. See Texaco, supra, at 5. “Under this rule, the factfinder weighs all of the circumstances of a case in deciding whether a restrictive practice should be prohibited as imposing an unreasonable restraint on competition.” Continental T. V., Inc. v. GTE Sylvania Inc., 433 U. S. 36, 49 (1977). Appropriate factors to take into account include “specific information about the relevant business” and “the restraint’s history, nature, and effect.” Khan, supra, at 10. Whether the businesses involved have market power is a further, significant consideration. See, e.g., Copperweld Corp. v. Independence Tube Corp., 467 U. S. 752, 768 (1984) (equating the rule of reason with “an inquiry into market power and market structure designed to assess [a restraint’s] actual effect”); see also Illinois Tool Works Inc. v. Independent Ink, Inc., 547 U. S. 28, 45–46 (2006). In its design and function the rule distinguishes between restraints with anticompetitive effect that are harmful to the consumer and restraints stimulating competition that are in the consumer’s best interest.
The rule of reason does not govern all restraints. Some types “are deemed unlawful per se.” Khan, supra, at 10. The per se rule, treating categories of restraints as necessarily illegal, eliminates the need to study the reasonableness of an individual restraint in light of the real market forces at work, Business Electronics Corp. v. Sharp Electronics Corp., 485 U. S. 717, 723 (1988); and, it must be acknowledged, the per se rule can give clear guidance for certain conduct. Restraints that are per se unlawful include horizontal agreements among competitors to fix prices, see Texaco, supra, at 5, or to divide markets, see Palmer v. BRG of Ga., Inc., 498 U. S. 46, 49–50 (1990) (per curiam).
Resort to per se rules is confined to restraints, like those mentioned, “that would always or almost always tend to restrict competition and decrease output.” Business Electronics, supra, at 723 (internal quotation marks omitted). To justify a per se prohibition a restraint must have “manifestly anticompetitive” effects, GTE Sylvania, supra, at 50, and “lack … any redeeming virtue,” Northwest Wholesale Stationers, Inc. v. Pacific Stationery & Printing Co., 472 U. S. 284, 289 (1985) (internal quotation marks omitted).
As a consequence, the per se rule is appropriate only after courts have had considerable experience with the type of restraint at issue, see Broadcast Music, Inc. v. Columbia Broadcasting System, Inc., 441 U. S. 1, 9 (1979), and only if courts can predict with confidence that it would be invalidated in all or almost all instances under the rule of reason, see Arizona v. Maricopa County Medical Soc., 457 U. S. 332, 344 (1982). It should come as no surprise, then, that “we have expressed reluctance to adopt per se rules with regard to restraints imposed in the context of business relationships where the economic impact of certain practices is not immediately obvious.” Khan, supra, at 10 (internal quotation marks omitted); see also White Motor Co. v. United States, 372 U. S. 253, 263 (1963) (refusing to adopt a per se rule for a vertical nonprice restraint because of the uncertainty concerning whether this type of restraint satisfied the demanding standards necessary to apply a per se rule). And, as we have stated, a “departure from the rule-of-reason standard must be based upon demonstrable economic effect rather than . . . upon formalistic line drawing.” GTE Sylvania, supra, at 58–59.
The Court has interpreted Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U. S. 373 (1911), as establishing a per se rule against a vertical agreement between a manufacturer and its distributor to set minimum resale prices. See, e.g., Monsanto Co. v. Spray-Rite Service Corp., 465 U. S. 752, 761 (1984). In Dr. Miles the plaintiff, a manufacturer of medicines, sold its products only to distributors who agreed to resell them at set prices. The Court found the manufacturer’s control of resale prices to be unlawful. It relied on the common-law rule that “a general restraint upon alienation is ordinarily invalid.” 220 U. S., at 404–405. The Court then explained that the agreements would advantage the distributors, not the manufacturer, and were analogous to a combination among competing distributors, which the law treated as void. Id., at 407–408.
The reasoning of the Court’s more recent jurisprudence has rejected the rationales on which Dr. Miles was based. By relying on the common-law rule against restraints on alienation, id., at 404–405, the Court justified its decision based on “formalistic” legal doctrine rather than “demonstrable economic effect,” GTE Sylvania, supra, at 58–59. The Court in Dr. Miles relied on a treatise published in 1628, but failed to discuss in detail the business reasons that would motivate a manufacturer situated in 1911 to make use of vertical price restraints. Yet the Sherman Act’s use of “restraint of trade” “invokes the common law itself, … not merely the static content that the common law had assigned to the term in 1890.” Business Electronics, supra, at 732. The general restraint on alienation, especially in the age when then-Justice Hughes used the term, tended to evoke policy concerns extraneous to the question that controls here. Usually associated with land, not chattels, the rule arose from restrictions removing real property from the stream of commerce for generations. The Court should be cautious about putting dispositive weight on doctrines from antiquity but of slight relevance. We reaffirm that “the state of the common law 400 or even 100 years ago is irrelevant to the issue before us: the effect of the antitrust laws upon vertical distributional restraints in the American economy today.” GTE Sylvania, 433 U. S., at 53, n. 21 (internal quotation marks omitted).
Dr. Miles, furthermore, treated vertical agreements a manufacturer makes with its distributors as analogous to a horizontal combination among competing distributors. See 220 U. S., at 407–408. In later cases, however, the Court rejected the approach of reliance on rules governing horizontal restraints when defining rules applicable to vertical ones. See, e.g., Business Electronics, supra, at 734 (disclaiming the “notion of equivalence between the scope of horizontal per se illegality and that of vertical per se illegality”); Maricopa County, supra, at 348, n. 18 (noting that “horizontal restraints are generally less defensible than vertical restraints”). Our recent cases formulate antitrust principles in accordance with the appreciated differences in economic effect between vertical and horizontal agreements, differences the Dr. Miles Court failed to consider.
Though each side of the debate can find sources to support its position, it suffices to say here that economics literature is replete with procompetitive justifications for a manufacturer’s use of resale price maintenance. See, e.g., Brief for Economists as Amici Curiae 16 (“In the theoretical literature, it is essentially undisputed that minimum [resale price maintenance] can have procompetitive effects and that under a variety of market conditions it is unlikely to have anticompetitive effects”); Brief for United States as Amicus Curiae 9 (“[T]here is a widespread consensus that permitting a manufacturer to control the price at which its goods are sold may promote interbrand competition and consumer welfare in a variety of ways”); ABA Section of Antitrust Law, Antitrust Law and Economics of Product Distribution 76 (2006) (“[T]he bulk of the economic literature on [resale price maintenance] suggests that [it] is more likely to be used to enhance efficiency than for anticompetitive purposes”); see also H. Hovenkamp, The Antitrust Enterprise: Principle and Execution 184–191 (2005) (hereinafter Hovenkamp); R. Bork, The Antitrust Paradox 288–291 (1978) (hereinafter Bork). Even those more skeptical of resale price maintenance acknowledge it can have procompetitive effects. See, e.g., Brief for William S. Comanor et al. as Amici Curiae 3 (“[G]iven [the] diversity of effects [of resale price maintenance], one could reasonably take the position that a rule of reason rather than a per se approach is warranted”); F.M. Scherer & D. Ross, Industrial Market Structure and Economic Performance 558 (3d ed. 1990) (hereinafter Scherer & Ross) (“The overall balance between benefits and costs [of resale price maintenance] is probably close”).
The justifications for vertical price restraints are similar to those for other vertical restraints. See GTE Sylvania, 433 U. S., at 54–57. Minimum resale price maintenance can stimulate interbrand competition—the competition among manufacturers selling different brands of the same type of product—by reducing intrabrand competition—the competition among retailers selling the same brand. See id., at 51–52. The promotion of interbrand competition is important because “the primary purpose of the antitrust laws is to protect [this type of] competition.” Khan, 522 U. S., at 15. A single manufacturer’s use of vertical price restraints tends to eliminate intrabrand price competition; this in turn encourages retailers to invest in tangible or intangible services or promotional efforts that aid the manufacturer’s position as against rival manufacturers. Resale price maintenance also has the potential to give consumers more options so that they can choose among low-price, low-service brands; high-price, high-service brands; and brands that fall in between.
Absent vertical price restraints, the retail services that enhance interbrand competition might be underprovided. This is because discounting retailers can free ride on retailers who furnish services and then capture some of the increased demand those services generate. GTE Sylvania, supra, at 55. Consumers might learn, for example, about the benefits of a manufacturer’s product from a retailer that invests in fine showrooms, offers product demonstrations, or hires and trains knowledgeable employees. R. Posner, Antitrust Law 172–173 (2d ed. 2001) (hereinafter Posner). Or consumers might decide to buy the product because they see it in a retail establishment that has a reputation for selling high-quality merchandise. Marvel & McCafferty, Resale Price Maintenance and Quality Certification, 15 Rand J. Econ. 346, 347–349 (1984) (hereinafter Marvel & McCafferty). If the consumer can then buy the product from a retailer that discounts because it has not spent capital providing services or developing a quality reputation, the high-service retailer will lose sales to the discounter, forcing it to cut back its services to a level lower than consumers would otherwise prefer. Minimum resale price maintenance alleviates the problem because it prevents the discounter from undercutting the service provider. With price competition decreased, the manufacturer’s retailers compete among themselves over services.
While vertical agreements setting minimum resale prices can have procompetitive justifications, they may have anticompetitive effects in other cases; and unlawful price fixing, designed solely to obtain monopoly profits, is an ever present temptation. Resale price maintenance may, for example, facilitate a manufacturer cartel. See Business Electronics, 485 U. S., at 725. An unlawful cartel will seek to discover if some manufacturers are undercutting the cartel’s fixed prices. Resale price maintenance could assist the cartel in identifying price-cutting manufacturers who benefit from the lower prices they offer. Resale price maintenance, furthermore, could discourage a manufacturer from cutting prices to retailers with the concomitant benefit of cheaper prices to consumers. See ibid.; see also Posner 172; Overstreet 19–23.
Vertical price restraints also “might be used to organize cartels at the retailer level.” Business Electronics, supra, at 725–726. A group of retailers might collude to fix prices to consumers and then compel a manufacturer to aid the unlawful arrangement with resale price maintenance. In that instance the manufacturer does not establish the practice to stimulate services or to promote its brand but to give inefficient retailers higher profits. Retailers with better distribution systems and lower cost structures would be prevented from charging lower prices by the agreement. See Posner 172; Overstreet 13–19. Historical examples suggest this possibility is a legitimate concern. See, e.g., Marvel & McCafferty, The Welfare Effects of Resale Price Maintenance, 28 J. Law & Econ. 363, 373 (1985) (hereinafter Marvel) (providing an example of the power of the National Association of Retail Druggists to compel manufacturers to use resale price maintenance); Hovenkamp 186 (suggesting that the retail druggists in Dr. Miles formed a cartel and used manufacturers to enforce it).
Resale price maintenance, furthermore, can be abused by a powerful manufacturer or retailer. A dominant retailer, for example, might request resale price maintenance to forestall innovation in distribution that decreases costs. A manufacturer might consider it has little choice but to accommodate the retailer’s demands for vertical price restraints if the manufacturer believes it needs access to the retailer’s distribution network. See Overstreet 31; 8 P. Areeda & H. Hovenkamp, Antitrust Law 47 (2d ed. 2004) (hereinafter Areeda & Hovenkamp); cf. Toys “R” Us, Inc. v. FTC, 221 F. 3d 928, 937–938 (CA7 2000). A manufacturer with market power, by comparison, might use resale price maintenance to give retailers an incentive not to sell the products of smaller rivals or new entrants. See, e.g., Marvel 366–368. As should be evident, the potential anticompetitive consequences of vertical price restraints must not be ignored or underestimated.
Notwithstanding the risks of unlawful conduct, it cannot be stated with any degree of confidence that resale price maintenance “always or almost always tend[s] to restrict competition and decrease output.” Business Electronics, supra, at 723 (internal quotation marks omitted). Vertical agreements establishing minimum resale prices can have either procompetitive or anticompetitive effects, depending upon the circumstances in which they are formed. And although the empirical evidence on the topic is limited, it does not suggest efficient uses of the agreements are infrequent or hypothetical. See Overstreet 170; see also id., at 80 (noting that for the majority of enforcement actions brought by the Federal Trade Commission between 1965 and 1982, “the use of [resale price maintenance] was not likely motivated by collusive dealers who had successfully coerced their suppliers”); Ippolito 292 (reaching a similar conclusion). As the rule would proscribe a significant amount of procompetitive conduct, these agreements appear ill suited for per se condemnation.
Respondent contends, nonetheless, that vertical price restraints should be per se unlawful because of the administrative convenience of per se rules. See, e.g., GTE Sylvania, supra, at 50, n. 16 (noting “per se rules tend to provide guidance to the business community and to minimize the burdens on litigants and the judicial system”). That argument suggests per se illegality is the rule rather than the exception. This misinterprets our antitrust law. Per se rules may decrease administrative costs, but that is only part of the equation. Those rules can be counterproductive. They can increase the total cost of the antitrust system by prohibiting procompetitive conduct the antitrust laws should encourage. See Easterbrook, Vertical Arrangements and the Rule of Reason, 53 Antitrust L. J. 135, 158 (1984) (hereinafter Easterbrook). They also may increase litigation costs by promoting frivolous suits against legitimate practices. The Court has thus explained that administrative “advantages are not sufficient in themselves to justify the creation of per se rules,” GTE Sylvania, 433 U. S., at 50, n. 16, and has relegated their use to restraints that are “manifestly anticompetitive,” id., at 49–50. Were the Court now to conclude that vertical price restraints should be per se illegal based on administrative costs, we would undermine, if not overrule, the traditional “demanding standards” for adopting per se rules. Id., at 50. Any possible reduction in administrative costs cannot alone justify the Dr. Miles rule.
Respondent also argues the per se rule is justified because a vertical price restraint can lead to higher prices for the manufacturer’s goods. See also Overstreet 160 (noting that “price surveys indicate that [resale price maintenance] in most cases increased the prices of products sold”). Respondent is mistaken in relying on pricing effects absent a further showing of anticompetitive conduct. Cf. id., at 106 (explaining that price surveys “do not necessarily tell us anything conclusive about the welfare effects of [resale price maintenance] because the results are generally consistent with both procompetitive and anticompetitive theories”). For, as has been indicated already, the antitrust laws are designed primarily to protect interbrand competition, from which lower prices can later result. See Khan, 522 U. S., at 15. The Court, moreover, has evaluated other vertical restraints under the rule of reason even though prices can be increased in the course of promoting procompetitive effects. See, e.g., Business Electronics, 485 U. S., at 728. And resale price maintenance may reduce prices if manufacturers have resorted to costlier alternatives of controlling resale prices that are not per se unlawful. See infra, at 22–25; see also Marvel 371.
Respondent’s argument, furthermore, overlooks that, in general, the interests of manufacturers and consumers are aligned with respect to retailer profit margins. The difference between the price a manufacturer charges retailers and the price retailers charge consumers represents part of the manufacturer’s cost of distribution, which, like any other cost, the manufacturer usually desires to minimize. See GTE Sylvania, 433 U. S., at 56, n. 24; see also id., at 56 (“Economists … have argued that manufacturers have an economic interest in maintaining as much intrabrand competition as is consistent with the efficient distribution of their products”). A manufacturer has no incentive to overcompensate retailers with unjustified margins. The retailers, not the manufacturer, gain from higher retail prices. The manufacturer often loses; interbrand competition reduces its competitiveness and market share because consumers will “substitute a different brand of the same product.” Id., at 52, n. 19; see Business Electronics, supra, at 725. As a general matter, therefore, a single manufacturer will desire to set minimum resale prices only if the “increase in demand resulting from enhanced service . . . will more than offset a negative impact on demand of a higher retail price.” Mathewson & Winter 67.
We do not write on a clean slate, for the decision in Dr. Miles is almost a century old. So there is an argument for its retention on the basis of stare decisis alone. Even if Dr. Miles established an erroneous rule, “[s]tare decisis reflects a policy judgment that in most matters it is more important that the applicable rule of law be settled than that it be settled right.” Khan, 522 U. S., at 20 (internal quotation marks omitted). And concerns about maintaining settled law are strong when the question is one of statutory interpretation. See, e.g., Hohn v. United States, 524 U. S. 236, 251 (1998).
Stare decisis is not as significant in this case, however, because the issue before us is the scope of the Sherman Act. Khan, supra, at 20 (“[T]he general presumption that legislative changes should be left to Congress has less force with respect to the Sherman Act”). From the beginning the Court has treated the Sherman Act as a common-law statute. See National Soc. of Professional Engineers v. United States, 435 U. S. 679, 688 (1978); see also Northwest Airlines, Inc. v. Transport Workers, 451 U. S. 77, 98, n. 42 (1981) (“In antitrust, the federal courts … act more as common-law courts than in other areas governed by federal statute”). Just as the common law adapts to modern understanding and greater experience, so too does the Sherman Act’s prohibition on “restraint[s] of trade” evolve to meet the dynamics of present economic conditions. The case-by-case adjudication contemplated by the rule of reason has implemented this common-law approach. See National Soc. of Professional Engineers, supra, at 688. Likewise, the boundaries of the doctrine of per se illegality should not be immovable. For “[i]t would make no sense to create out of the single term ‘restraint of trade’ a chronologically schizoid statute, in which a ‘rule of reason’ evolves with new circumstance and new wisdom, but a line of per se illegality remains forever fixed where it was.” Business Electronics, 485 U. S., at 732.
Stare decisis, we conclude, does not compel our continued adherence to the per se rule against vertical price restraints. As discussed earlier, respected authorities in the economics literature suggest the per se rule is inappropriate, and there is now widespread agreement that resale price maintenance can have procompetitive effects. See, e.g., Brief for Economists as Amici Curiae 16. It is also significant that both the Department of Justice and the Federal Trade Commission—the antitrust enforcement agencies with the ability to assess the long-term impacts of resale price maintenance—have recommended that this Court replace the per se rule with the traditional rule of reason. See Brief for United States as Amicus Curiae 6. In the antitrust context the fact that a decision has been “called into serious question” justifies our reevaluation of it. Khan, supra, at 21.
Other considerations reinforce the conclusion that Dr. Miles should be overturned. Of most relevance, “we have overruled our precedents when subsequent cases have undermined their doctrinal underpinnings.” Dickerson v. United States, 530 U. S. 428, 443 (2000). The Court’s treatment of vertical restraints has progressed away from Dr. Miles’ strict approach. We have distanced ourselves from the opinion’s rationales. See supra, at 7–8; see also Khan, supra, at 21 (overruling a case when “the views underlying [it had been] eroded by this Court’s precedent”); Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U. S. 477, 480–481 (1989) (same). This is unsurprising, for the case was decided not long after enactment of the Sherman Act when the Court had little experience with antitrust analysis. Only eight years after Dr. Miles, moreover, the Court reined in the decision by holding that a manufacturer can announce suggested resale prices and refuse to deal with distributors who do not follow them. Colgate, 250 U. S., at 307–308.
In more recent cases the Court, following a common-law approach, has continued to temper, limit, or overrule once strict prohibitions on vertical restraints. In 1977, the Court overturned the per se rule for vertical nonprice restraints, adopting the rule of reason in its stead. GTE Sylvania, 433 U. S., at 57–59 (overruling United States v. Arnold, Schwinn & Co., 388 U. S. 365 (1967)); see also 433 U. S., at 58, n. 29 (noting “that the advantages of vertical restrictions should not be limited to the categories of new entrants and failing firms”). While the Court in a footnote in GTE Sylvania suggested that differences between vertical price and nonprice restraints could support different legal treatment, see 433 U. S., at 51, n. 18, the central part of the opinion relied on authorities and arguments that find unequal treatment “difficult to justify,” id., at 69–70 (White, J., concurring in judgment).
Continuing in this direction, in two cases in the 1980’s the Court defined legal rules to limit the reach of Dr. Miles and to accommodate the doctrines enunciated in GTE Sylvania and Colgate. See Business Electronics, supra, at 726–728; Monsanto, 465 U. S., at 763–764. In Monsanto, the Court required that antitrust plaintiffs alleging a §1 price-fixing conspiracy must present evidence tending to exclude the possibility a manufacturer and its distributors acted in an independent manner. Id., at 764. Unlike Justice Brennan’s concurrence, which rejected arguments that Dr. Miles should be overruled, see 465 U. S., at 769, the Court “decline[d] to reach the question” whether vertical agreements fixing resale prices always should be unlawful because neither party suggested otherwise, id., at 761–762, n. 7. In Business Electronics the Court further narrowed the scope of Dr. Miles. It held that the per se rule applied only to specific agreements over price levels and not to an agreement between a manufacturer and a distributor to terminate a price-cutting distributor. 485 U. S., at 726–727, 735–736.
The manufacturer has a number of legitimate options to achieve benefits similar to those provided by vertical price restraints. A manufacturer can exercise its Colgate right to refuse to deal with retailers that do not follow its suggested prices. See 250 U. S., at 307. The economic effects of unilateral and concerted price setting are in general the same. See, e.g., Monsanto, 465 U. S., at 762–764. The problem for the manufacturer is that a jury might conclude its unilateral policy was really a vertical agreement, subjecting it to treble damages and potential criminal liability. Ibid.; Business Electronics, supra, at 728. Even with the stringent standards in Monsanto and Business Electronics, this danger can lead, and has led, rational manufacturers to take wasteful measures. See, e.g., Brief for PING, Inc., as Amicus Curiae 9–18. A manufacturer might refuse to discuss its pricing policy with its distributors except through counsel knowledgeable of the subtle intricacies of the law. Or it might terminate longstanding distributors for minor violations without seeking an explanation. See ibid. The increased costs these burdensome measures generate flow to consumers in the form of higher prices.
There is yet another consideration. A manufacturer can impose territorial restrictions on distributors and allow only one distributor to sell its goods in a given region. Our cases have recognized, and the economics literature confirms, that these vertical nonprice restraints have impacts similar to those of vertical price restraints; both reduce intrabrand competition and can stimulate retailer services. See, e.g., Business Electronics, supra, at 728; Monsanto, supra, at 762–763; see also Brief for Economists as Amici Curiae 17–18. Cf. Scherer & Ross 560 (noting that vertical nonprice restraints “can engender inefficiencies at least as serious as those imposed upon the consumer by resale price maintenance”); Steiner, How Manufacturers Deal with the Price-Cutting Retailer: When Are Vertical Restraints Efficient?, 65 Antitrust L. J. 407, 446–447 (1997) (indicating that “antitrust law should recognize that the consumer interest is often better served by [resale price maintenance]—contrary to its per se illegality and the rule-of-reason status of vertical nonprice restraints”). The same legal standard (per se unlawfulness) applies to horizontal market division and horizontal price fixing because both have similar economic effect. There is likewise little economic justification for the current differential treatment of vertical price and nonprice restraints. Furthermore, vertical nonprice restraints may prove less efficient for inducing desired services, and they reduce intrabrand competition more than vertical price restraints by eliminating both price and service competition. See Brief for Economists as Amici Curiae 17–18.
This is not so. The text of the Consumer Goods Pricing Act did not codify the rule of per se illegality for vertical price restraints. It rescinded statutory provisions that made them per se legal. Congress once again placed these restraints within the ambit of §1 of the Sherman Act. And, as has been discussed, Congress intended §1 to give courts the ability “to develop governing principles of law” in the common-law tradition. Texas Industries, Inc. v. Radcliff Materials, Inc., 451 U. S. 630, 643 (1981); see Business Electronics, 485 U. S., at 731 (“The changing content of the term ‘restraint of trade’ was well recognized at the time the Sherman Act was enacted”). Congress could have set the Dr. Miles rule in stone, but it chose a more flexible option. We respect its decision by analyzing vertical price restraints, like all restraints, in conformance with traditional §1 principles, including the principle that our antitrust doctrines “evolv[e] with new circumstances and new wisdom.” Business Electronics, supra, at 732; see also Easterbrook 139.
Respondent also relies on several congressional appropriations in the mid-1980’s in which Congress did not permit the Department of Justice or the Federal Trade Commission to use funds to advocate overturning Dr. Miles. See, e.g., 97 Stat. 1071. We need not pause long in addressing this argument. The conditions on funding are no longer in place, see, e.g., Brief for United States as Amicus Curiae 21, and they were ambiguous at best. As much as they might show congressional approval for Dr. Miles, they might demonstrate a different proposition: that Congress could not pass legislation codifying the rule and reached a short-term compromise instead.
Reliance interests do not require us to reaffirm Dr. Miles. To be sure, reliance on a judicial opinion is a significant reason to adhere to it, Payne v. Tennessee, 501 U. S. 808, 828 (1991), especially “in cases involving property and contract rights,” Khan, 522 U. S., at 20. The reliance interests here, however, like the reliance interests in Khan, cannot justify an inefficient rule, especially because the narrowness of the rule has allowed manufacturers to set minimum resale prices in other ways. And while the Dr. Miles rule is longstanding, resale price maintenance was legal under fair trade laws in a majority of States for a large part of the past century up until 1975.
For these reasons the Court’s decision in Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U. S. 373 (1911), is now overruled. Vertical price restraints are to be judged according to the rule of reason.
In Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U. S. 373, 394, 408–409 (1911), this Court held that an agreement between a manufacturer of proprietary medicines and its dealers to fix the minimum price at which its medicines could be sold was “invalid . . . under the [Sherman Act, 15 U. S. C. §1].” This Court has consistently read Dr. Miles as establishing a bright-line rule that agreements fixing minimum resale prices are per se illegal. See, e.g., United States v. Trenton Potteries Co., 273 U. S. 392, 399–401 (1927); NYNEX Corp. v. Discon, Inc., 525 U. S. 128, 133 (1998). That per se rule is one upon which the legal profession, business, and the public have relied for close to a century. Today the Court holds that courts must determine the lawfulness of minimum resale price maintenance by applying, not a bright-line per se rule, but a circumstance-specific “rule of reason.” Ante, at 28. And in doing so it overturns Dr. Miles.
The Court justifies its departure from ordinary considerations of stare decisis by pointing to a set of arguments well known in the antitrust literature for close to half a century. See ante, at 10–12. Congress has repeatedly found in these arguments insufficient grounds for overturning the per se rule. See, e.g., Hearings on H. R. 10527 et al. before the Subcommittee on Commerce and Finance of the House Committee on Interstate and Foreign Commerce, 85th Cong., 2d Sess., 74–76, 89, 99, 101–102, 192–195, 261–262 (1958). And, in my view, they do not warrant the Court’s now overturning so well-established a legal precedent.
The Sherman Act seeks to maintain a marketplace free of anticompetitive practices, in particular those enforced by agreement among private firms. The law assumes that such a marketplace, free of private restrictions, will tend to bring about the lower prices, better products, and more efficient production processes that consumers typically desire. In determining the lawfulness of particular practices, courts often apply a “rule of reason.” They examine both a practice’s likely anticompetitive effects and its beneficial business justifications. See, e.g., National Collegiate Athletic Assn. v. Board of Regents of Univ. of Okla., 468 U. S. 85, 109–110, and n. 39 (1984); National Soc. of Professional Engineers v. United States, 435 U. S. 679, 688–691 (1978); Board of Trade of Chicago v. United States, 246 U. S. 231, 238 (1918).
Nonetheless, sometimes the likely anticompetitive consequences of a particular practice are so serious and the potential justifications so few (or, e.g., so difficult to prove) that courts have departed from a pure “rule of reason” approach. And sometimes this Court has imposed a rule of per se unlawfulness—a rule that instructs courts to find the practice unlawful all (or nearly all) the time. See, e.g., NYNEX, supra, at 133; Arizona v. Maricopa County Medical Soc., 457 U. S. 332, 343–344, and n. 16 (1982); Continental T. V., Inc. v. GTE Sylvania Inc., 433 U. S. 36, 50, n. 16 (1977); United States v. Topco Associates, Inc., 405 U. S. 596, 609–611 (1972); United States v. Socony-Vacuum Oil Co., 310 U. S. 150, 213–214 (1940) (citing and quoting Trenton Potteries, supra, at 397–398).
To best explain why the question would be difficult were we deciding it afresh, I briefly summarize several classical arguments for and against the use of a per se rule. The arguments focus on three sets of considerations, those involving: (1) potential anticompetitive effects, (2) potential benefits, and (3) administration. The difficulty arises out of the fact that the different sets of considerations point in different directions. See, e.g., 8 P. Areeda, Antitrust Law ¶¶1628–1633, pp. 330–392 (1st ed. 1989) (hereinafter Areeda); 8 P. Areeda & H. Hovenkamp, Antitrust Law ¶¶1628–1633, pp. 288–339 (2d ed. 2004) (hereinafter Areeda & Hovenkamp); Easterbrook, Vertical Arrangements and the Rule of Reason, 53 Antitrust L. J. 135, 146–152 (1984) (hereinafter Easterbrook); Pitofsky, In Defense of Discounters: The No-Frills Case for a Per Se Rule Against Vertical Price Fixing, 71 Geo. L. J. 1487 (1983) (hereinafter Pitofsky); Scherer, The Economics of Vertical Restraints, 52 Antitrust L. J. 687, 706–707 (1983) (hereinafter Scherer); Posner, The Next Step in the Antitrust Treatment of Restricted Distribution: Per Se Legality, 48 U. Chi. L. Rev. 6, 22–26 (1981); Brief for William S. Comanor and Frederic M. Scherer as Amici Curiae 7–10.
On the one hand, agreements setting minimum resale prices may have serious anticompetitive consequences. In respect to dealers: Resale price maintenance agreements, rather like horizontal price agreements, can diminish or eliminate price competition among dealers of a single brand or (if practiced generally by manufacturers) among multibrand dealers. In doing so, they can prevent dealers from offering customers the lower prices that many customers prefer; they can prevent dealers from responding to changes in demand, say falling demand, by cutting prices; they can encourage dealers to substitute service, for price, competition, thereby threatening wastefully to attract too many resources into that portion of the industry; they can inhibit expansion by more efficient dealers whose lower prices might otherwise attract more customers, stifling the development of new, more efficient modes of retailing; and so forth. See, e.g., 8 Areeda & Hovenkamp ¶1632c, at 319–321; Steiner, The Evolution and Applications of Dual-Stage Thinking, 49 The Antitrust Bulletin 877, 899–900 (2004); Comanor, Vertical Price-Fixing, Vertical Market Restrictions, and the New Antitrust Policy, 98 Harv. L. Rev. 983, 990–1000 (1985).
In respect to producers: Resale price maintenance agreements can help to reinforce the competition-inhibiting behavior of firms in concentrated industries. In such industries firms may tacitly collude, i.e., observe each other’s pricing behavior, each understanding that price cutting by one firm is likely to trigger price competition by all. See 8 Areeda & Hovenkamp ¶1632d, at 321–323; P. Areeda & L. Kaplow, Antitrust Analysis ¶¶231–233, pp. 276–283 (4th ed. 1988) (hereinafter Areeda & Kaplow). Cf. United States v. Container Corp. of America, 393 U. S. 333 (1969); Areeda & Kaplow ¶¶247–253, at 327–348. Where that is so, resale price maintenance can make it easier for each producer to identify (by observing retail markets) when a competitor has begun to cut prices. And a producer who cuts wholesale prices without lowering the minimum resale price will stand to gain little, if anything, in increased profits, because the dealer will be unable to stimulate increased consumer demand by passing along the producer’s price cut to consumers. In either case, resale price maintenance agreements will tend to prevent price competition from “breaking out”; and they will thereby tend to stabilize producer prices. See Pitofsky 1490–1491. Cf., e.g., Container Corp., supra, at 336–337.
On the other hand, those favoring resale price maintenance have long argued that resale price maintenance agreements can provide important consumer benefits. The majority lists two: First, such agreements can facilitate new entry. Ante, at 11–12. For example, a newly entering producer wishing to build a product name might be able to convince dealers to help it do so—if, but only if, the producer can assure those dealers that they will later recoup their investment. Without resale price maintenance, late-entering dealers might take advantage of the earlier investment and, through price competition, drive prices down to the point where the early dealers cannot recover what they spent. By assuring the initial dealers that such later price competition will not occur, resale price maintenance can encourage them to carry the new product, thereby helping the new producer succeed. See 8 Areeda & Hovenkamp ¶¶1617a, 1631b, at 193–196, 308. The result might be increased competition at the producer level, i.e., greater inter-brand competition, that brings with it net consumer benefits.
Second, without resale price maintenance a producer might find its efforts to sell a product undermined by what resale price maintenance advocates call “free riding.” Ante, at 10–11. Suppose a producer concludes that it can succeed only if dealers provide certain services, say, product demonstrations, high quality shops, advertising that creates a certain product image, and so forth. Without resale price maintenance, some dealers might take a “free ride” on the investment that others make in providing those services. Such a dealer would save money by not paying for those services and could consequently cut its own price and increase its own sales. Under these circumstances, dealers might prove unwilling to invest in the provision of necessary services. See, e.g., 8 Areeda & Hovenkamp ¶¶1611–1613, 1631c, at 126–165, 309–313; R. Posner, Antitrust Law 172–173 (2d ed. 2001); R. Bork, The Antitrust Paradox 290–291 (1978) (hereinafter Bork); Easterbrook 146–149.
Moreover, where a producer and not a group of dealers seeks a resale price maintenance agreement, there is a special reason to believe some such benefits exist. That is because, other things being equal, producers should want to encourage price competition among their dealers. By doing so they will often increase profits by selling more of their product. See Sylvania, 433 U. S., at 56, n. 24; Bork 290. And that is so, even if the producer possesses sufficient market power to earn a super-normal profit. That is to say, other things being equal, the producer will benefit by charging his dealers a competitive (or even a higher-than-competitive) wholesale price while encouraging price competition among them. Hence, if the producer is the moving force, the producer must have some special reason for wanting resale price maintenance; and in the absence of, say, concentrated producer markets (where that special reason might consist of a desire to stabilize wholesale prices), that special reason may well reflect the special circumstances just described: new entry, “free riding,” or variations on those themes.
The upshot is, as many economists suggest, sometimes resale price maintenance can prove harmful; sometimes it can bring benefits. See, e.g., Brief for Economists as Amici Curiae 16; 8 Areeda & Hovenkamp ¶¶1631–1632, at 306–328; Pitofsky 1495; Scherer 706–707. But before concluding that courts should consequently apply a rule of reason, I would ask such questions as, how often are harms or benefits likely to occur? How easy is it to separate the beneficial sheep from the antitrust goats?
Economic discussion, such as the studies the Court relies upon, can help provide answers to these questions, and in doing so, economics can, and should, inform antitrust law. But antitrust law cannot, and should not, precisely replicate economists’ (sometimes conflicting) views. That is because law, unlike economics, is an administrative system the effects of which depend upon the content of rules and precedents only as they are applied by judges and juries in courts and by lawyers advising their clients. And that fact means that courts will often bring their own administrative judgment to bear, sometimes applying rules of per se unlawfulness to business practices even when those practices sometimes produce benefits. See, e.g., F.M. Scherer & D. Ross, Industrial Market Structure and Economic Performance 335–339 (3d ed. 1990) (hereinafter Scherer & Ross) (describing some circumstances under which price-fixing agreements could be more beneficial than “unfettered competition,” but also noting potential costs of moving from a per se ban to a rule of reasonableness assessment of such agreements).
To be more specific, one can easily imagine a dealer who refuses to provide important presale services, say a detailed explanation of how a product works (or who fails to provide a proper atmosphere in which to sell expensive perfume or alligator billfolds), lest customers use that “free” service (or enjoy the psychological benefit arising when a high-priced retailer stocks a particular brand of billfold or handbag) and then buy from another dealer at a lower price. Sometimes this must happen in reality. But does it happen often? We do, after all, live in an economy where firms, despite Dr. Miles’ per se rule, still sell complex technical equipment (as well as expensive perfume and alligator billfolds) to consumers.
All this is to say that the ultimate question is not whether, but how much, “free riding” of this sort takes place. And, after reading the briefs, I must answer that question with an uncertain “sometimes.” See, e.g., Brief for William S. Comanor and Frederic M. Scherer as Amici Curiae 6–7 (noting “skepticism in the economic literature about how often [free riding] actually occurs”); Scherer & Ross 551–555 (explaining the “severe limitations” of the free-rider justification for resale price maintenance); Pitofsky, Why Dr. Miles Was Right, 8 Regulation, No. 1, pp. 27, 29–30 (Jan./Feb. 1984) (similar analysis).
How easily can courts identify instances in which the benefits are likely to outweigh potential harms? My own answer is, not very easily. For one thing, it is often difficult to identify who—producer or dealer—is the moving force behind any given resale price maintenance agreement. Suppose, for example, several large multibrand retailers all sell resale-price-maintained products. Suppose further that small producers set retail prices because they fear that, otherwise, the large retailers will favor (say, by allocating better shelf-space) the goods of other producers who practice resale price maintenance. Who “initiated” this practice, the retailers hoping for considerable insulation from retail competition, or the producers, who simply seek to deal best with the circumstances they find? For another thing, as I just said, it is difficult to determine just when, and where, the “free riding” problem is serious enough to warrant legal protection.
I recognize that scholars have sought to develop check lists and sets of questions that will help courts separate instances where anticompetitive harms are more likely from instances where only benefits are likely to be found. See, e.g., 8 Areeda & Hovenkamp ¶¶1633c–1633e, at 330–339. See also Brief for William S. Comanor and Frederic M. Scherer as Amici Curiae 8–10. But applying these criteria in court is often easier said than done. The Court’s invitation to consider the existence of “market power,” for example, ante, at 18, invites lengthy time-consuming argument among competing experts, as they seek to apply abstract, highly technical, criteria to often ill-defined markets. And resale price maintenance cases, unlike a major merger or monopoly case, are likely to prove numerous and involve only private parties. One cannot fairly expect judges and juries in such cases to apply complex economic criteria without making a considerable number of mistakes, which themselves may impose serious costs. See, e.g., H. Hovenkamp, The Antitrust Enterprise 105 (2005) (litigating a rule of reason case is “one of the most costly procedures in antitrust practice”). See also Bok, Section 7 of the Clayton Act and the Merging of Law and Economics, 74 Harv. L. Rev. 226, 238–247 (1960) (describing lengthy FTC efforts to apply complex criteria in a merger case).
We write, not on a blank slate, but on a slate that begins with Dr. Miles and goes on to list a century’s worth of similar cases, massive amounts of advice that lawyers have provided their clients, and untold numbers of business decisions those clients have taken in reliance upon that advice. See, e.g., United States v. Bausch & Lomb Optical Co., 321 U. S. 707, 721 (1944); Sylvania, 433 U. S., at 51, n. 18 (“The per se illegality of [vertical] price restrictions has been established firmly for many years . . .”). Indeed a Westlaw search shows that Dr. Miles itself has been cited dozens of times in this Court and hundreds of times in lower courts. Those who wish this Court to change so well-established a legal precedent bear a heavy burden of proof. See Illinois Brick Co. v. Illinois, 431 U. S. 720, 736 (1977) (noting, in declining to overrule an earlier case interpreting §4 of the Clayton Act, that “considerations of stare decisis weigh heavily in the area of statutory construction, where Congress is free to change this Court’s interpretation of its legislation”). I am not aware of any case in which this Court has overturned so well-established a statutory precedent. Regardless, I do not see how the Court can claim that ordinary criteria for over-ruling an earlier case have been met. See, e.g., Planned Parenthood of Southeastern Pa. v. Casey, 505 U. S. 833, 854–855 (1992). See also Federal Election Comm’n v. Wisconsin Right to Life, Inc., ante, at 19–21 (Scalia, J., concurring in part and concurring in judgment).
I can find no change in circumstances in the past several decades that helps the majority’s position. In fact, there has been one important change that argues strongly to the contrary. In 1975, Congress repealed the McGuire and Miller-Tydings Acts. See Consumer Goods Pricing Act of 1975, 89 Stat. 801. And it thereby consciously extended Dr. Miles’ per se rule. Indeed, at that time the Department of Justice and the FTC, then urging application of the per se rule, discussed virtually every argument presented now to this Court as well as others not here presented. And they explained to Congress why Congress should reject them. See Hearings on S. 408, at 176–177 (statement of Thomas E. Kauper, Assistant Attorney General, Antitrust Division); id., at 170–172 (testimony of Lewis A. Engman, Chairman of the FTC); Hearings on H. R. 2384, at 113–114 (testimony of Keith I. Clearwaters, Deputy Assistant Attorney General, Antitrust Division). Congress fully understood, and consequently intended, that the result of its repeal of McGuire and Miller-Tydings would be to make minimum resale price maintenance per se unlawful. See, e.g., S. Rep. No. 94–466, pp. 1–3 (1975) (“Without [the exemptions authorized by the Miller-Tydings and McGuire Acts,] the agreements they authorize would violate the antitrust laws. . . . [R]epeal of the fair trade laws generally will prohibit manufacturers from enforcing resale prices”). See also Sylvania, supra, at 51, n. 18 (“Congress recently has expressed its approval of a per se analysis of vertical price restrictions by repealing those provisions of the Miller-Tydings and McGuire Acts allowing fair-trade pricing at the option of the individual States”).
Have there been any such changes? There have been a few economic studies, described in some of the briefs, that argue, contrary to the testimony of the Justice Department and FTC to Congress in 1975, that resale price maintenance is not harmful. One study, relying on an analysis of litigated resale price maintenance cases from 1975 to 1982, concludes that resale price maintenance does not ordinarily involve producer or dealer collusion. See Ippolito, Resale Price Maintenance: Empirical Evidence from Litigation, 34 J. Law & Econ. 263, 281–282, 292 (1991). But this study equates the failure of plaintiffs to allege collusion with the absence of collusion—an equation that overlooks the superfluous nature of allegations of horizontal collusion in a resale price maintenance case and the tacit form that such collusion might take. See H. Hovenkamp, Federal Antitrust Policy §11.3c, p. 464, n. 19 (3d ed. 2005); supra, at 4–5.
The other study provides a theoretical basis for concluding that resale price maintenance “need not lead to higher retail prices.” Marvel & McCafferty, The Political Economy of Resale Price Maintenance, 94 J. Pol. Econ. 1074, 1075 (1986). But this study develops a theoretical model “under the assumption that [resale price maintenance] is efficiency-enhancing.” Ibid. Its only empirical support is a 1940 study that the authors acknowledge is much criticized. See id., at 1091. And many other economists take a different view. See Brief for William S. Comanor and Frederic M. Scherer as Amici Curiae 4.
Petitioner and some amici have also presented us with newer studies that show that resale price maintenance sometimes brings consumer benefits. Overstreet 119–129 (describing numerous case studies). But the proponents of a per se rule have always conceded as much. What is remarkable about the majority’s arguments is that nothing in this respect is new. See supra, at 3, 12 (citing articles and congressional testimony going back several decades). The only new feature of these arguments lies in the fact that the most current advocates of overruling Dr. Miles have abandoned a host of other not-very-persuasive arguments upon which prior resale price maintenance proponents used to rely. See, e.g., 8 Areeda ¶1631a, at 350–352 (listing “ ‘[t]raditional’ justifications” for resale price maintenance).
The one arguable exception consists of the majority’s claim that “even absent free riding,” resale price maintenance “may be the most efficient way to expand the manufacturer’s market share by inducing the retailer’s performance and allowing it to use its own initiative and experience in providing valuable services.” Ante, at 12. I cannot count this as an exception, however, because I do not understand how, in the absence of free-riding (and assuming competitiveness), an established producer would need resale price maintenance. Why, on these assumptions, would a dealer not “expand” its “market share” as best that dealer sees fit, obtaining appropriate payment from consumers in the process? There may be an answer to this question. But I have not seen it. And I do not think that we should place significant weight upon justifications that the parties do not explain with sufficient clarity for a generalist judge to understand.
No one claims that the American economy has changed in ways that might support the majority. Concentration in retailing has increased. See, e.g., Brief for Respondent 18 (since minimum resale price maintenance was banned nationwide in 1975, the total number of retailers has dropped while the growth in sales per store has risen); Brief for American Antitrust Institute as Amicus Curiae 17, n. 20 (citing private study reporting that the combined sales of the 10 largest retailers worldwide has grown to nearly 30% of total retail sales of top 250 retailers; also quoting 1999 Organisation for Economic Co-operation and Development report stating that the “ ‘last twenty years have seen momentous changes in retail distribution including significant increases in concentration’ ”); Mamen, Facing Goliath: Challenging the Impacts of Supermarket Consolidation on our Local Economies, Communities, and Food Security, The Oakland Institute, 1 Policy Brief, No. 3, pp. 1, 2 (Spring 2007), http://www.oaklandinstitute.org/pdfs/facing_goliath.pdf (as visited June 25, 2007, and available in Clerks of Court’s case file) (noting that “[f]or many decades, the top five food retail firms in the U. S. controlled less than 20 percent of the market”; from 1997 to 2000, “the top five firms increased their market share from 24 to 42 percent of all retail sales”; and “[b]y 2003, they controlled over half of all grocery sales”). That change, other things being equal, may enable (and motivate) more retailers, accounting for a greater percentage of total retail sales volume, to seek resale price maintenance, thereby making it more difficult for price-cutting competitors (perhaps internet retailers) to obtain market share.
With the preceding discussion in mind, I would consult the list of factors that our case law indicates are relevant when we consider overruling an earlier case. Justice Scalia, writing separately in another of our cases this Term, well summarizes that law. See Wisconsin Right to Life, Inc., ante, at 19–21. (opinion concurring in part and concurring in judgment). And every relevant factor he mentions argues against overruling Dr. Miles here.
First, the Court applies stare decisis more “rigidly” in statutory than in constitutional cases. See Glidden Co. v. Zdanok, 370 U. S. 530, 543 (1962); Illinois Brick Co., 431 U. S., at 736. This is a statutory case.
Second, the Court does sometimes overrule cases that it decided wrongly only a reasonably short time ago. As Justice Scalia put it, “[o]verruling a constitutional case decided just a few years earlier is far from unprecedented.” Wisconsin Right to Life, ante, at 19 (emphasis added). We here overrule one statutory case, Dr. Miles, decided 100 years ago, and we overrule the cases that reaffirmed its per se rule in the intervening years. See, e.g., Trenton Potteries, 273 U. S., at 399–401; Bausch & Lomb, 321 U. S., at 721; United States v. Parke, Davis & Co., 362 U. S. 29, 45–47 (1960); Simpson v. Union Oil Co. of Cal., 377 U. S. 13, 16–17 (1964).
Third, the fact that a decision creates an “unworkable” legal regime argues in favor of overruling. See Payne v. Tennessee, 501 U. S. 808, 827–828 (1991); Swift & Co. v. Wickham, 382 U. S. 111, 116 (1965). Implementation of the per se rule, even with the complications attendant the exception allowed for in United States v. Colgate & Co., 250 U. S. 300 (1919), has proved practical over the course of the last century, particularly when compared with the many complexities of litigating a case under the “rule of reason” regime. No one has shown how moving from the Dr. Miles regime to “rule of reason” analysis would make the legal regime governing minimum resale price maintenance more “administrable,” Wisconsin Right to Life, ante, at 20 (opinion of Scalia, J.), particularly since Colgate would remain good law with respect to unreasonable price maintenance.
Fourth, the fact that a decision “unsettles” the law may argue in favor of overruling. See Sylvania, 433 U. S., at 47; Wisconsin Right to Life, ante, at 20–21 (opinion of Scalia, J.). The per se rule is well-settled law, as the Court itself has previously recognized. Sylvania, supra, at 51, n. 18. It is the majority’s change here that will unsettle the law.
Fifth, the fact that a case involves property rights or contract rights, where reliance interests are involved, argues against overruling. Payne, supra, at 828. This case involves contract rights and perhaps property rights (consider shopping malls). And there has been considerable reliance upon the per se rule. As I have said, Congress relied upon the continued vitality of Dr. Miles when it repealed Miller-Tydings and McGuire. Supra, at 12–13. The Executive Branch argued for repeal on the assumption that Dr. Miles stated the law. Ibid. Moreover, whole sectors of the economy have come to rely upon the per se rule. A factory outlet store tells us that the rule “form[s] an essential part of the regulatory background against which [that firm] and many other discount retailers have financed, structured, and operated their businesses.” Brief for Burlington Coat Factory Warehouse Corp. as Amicus Curiae 5. The Consumer Federation of America tells us that large low-price retailers would not exist without Dr. Miles; minimum resale price maintenance, “by stabilizing price levels and preventing low-price competition, erects a potentially insurmountable barrier to entry for such low-price innovators.” Brief for Consumer Federation of America as Amicus Curiae 5, 7–9 (discussing, inter alia, comments by Wal-Mart’s founder 25 years ago that relaxation of the per se ban on minimum resale price maintenance would be a “ ‘great danger’ ” to Wal-Mart’s then-relatively-nascent business). See also Brief for American Antitrust Institute as Amicus Curiae 14–15, and sources cited therein (making the same point). New distributors, including internet distributors, have similarly invested time, money, and labor in an effort to bring yet lower cost goods to Americans.
This Court’s overruling of the per se rule jeopardizes this reliance, and more. What about malls built on the assumption that a discount distributor will remain an anchor tenant? What about home buyers who have taken a home’s distance from such a mall into account? What about Americans, producers, distributors, and consumers, who have understandably assumed, at least for the last 30 years, that price competition is a legally guaranteed way of life? The majority denies none of this. It simply says that these “reliance interests . . . , like the reliance interests in Khan, cannot justify an inefficient rule.” Ante, at 27.
The Court minimizes the importance of this reliance, adding that it “is also of note” that at the time resale price maintenance contracts were lawful “ ‘no more than a tiny fraction of manufacturers ever employed’ ” the practice. Ibid. (quoting Overstreet 6). By “tiny” the Court means manufacturers that accounted for up to “ ‘ten percent of consumer goods purchases’ ” annually. Ibid.. That figure in today’s economy equals just over $300 billion. See Dept. of Commerce, Bureau of Census, Statistical Abstract of the United States: 2007, p. 649 (126th ed.) (over $3 trillion in U. S. retail sales in 2002). Putting the Court’s estimate together with the Justice Department’s early 1970’s study translates a legal regime that permits all resale price maintenance into retail bills that are higher by an average of roughly $750 to $1000 annually for an American family of four. Just how much higher retail bills will be after the Court’s decision today, of course, depends upon what is now unknown, namely how courts will decide future cases under a “rule of reason.” But these figures indicate that the amounts involved are important to American families and cannot be dismissed as “tiny.”
Sixth, the fact that a rule of law has become “embedded” in our “national culture” argues strongly against overruling. Dickerson v. United States, 530 U. S. 428, 443–444 (2000). The per se rule forbidding minimum resale price maintenance agreements has long been “embedded” in the law of antitrust. It involves price, the economy’s “ ‘central nervous system.’ ” National Soc. of Professional Engineers, 435 U. S., at 692 (quoting Socony-Vacuum Oil, 310 U. S., at 226, n. 59). It reflects a basic antitrust assumption (that consumers often prefer lower prices to more service). It embodies a basic antitrust objective (providing consumers with a free choice about such matters). And it creates an easily administered and enforceable bright line, “Do not agree about price,” that businesses as well as lawyers have long understood.
The only contrary stare decisis factor that the majority mentions consists of its claim that this Court has “[f]rom the beginning . . . treated the Sherman Act as a common-law statute,” and has previously overruled antitrust precedent. Ante, at 20, 21–22. It points in support to State Oil Co. v. Khan, 522 U. S. 3 (1997), overruling Albrecht v. Herald Co., 390 U. S. 145 (1968), in which this Court had held that maximum resale price agreements were unlawful per se, and to Sylvania, overruling United States v. Arnold, Schwinn & Co., 388 U. S. 365 (1967), in which this Court had held that producer-imposed territorial limits were unlawful per se.
The Court decided Khan, however, 29 years after Albrecht—still a significant period, but nowhere close to the century Dr. Miles has stood. The Court specifically noted the lack of any significant reliance upon Albrecht. 522 U. S., at 18–19 (Albrecht has had “little or no relevance to ongoing enforcement of the Sherman Act”). Albrecht had far less support in traditional antitrust principles than did Dr. Miles. Compare, e.g., 8 Areeda & Hovenkamp ¶1632, at 316–328 (analyzing potential harms of minimum resale price maintenance), with id., ¶1637, at 352–361 (analyzing potential harms of maximum resale price maintenance). See also, e.g., Pitofsky 1490, n. 17. And Congress had nowhere expressed support for Albrecht’s rule. Khan, supra, at 19.
In Sylvania, the Court, in overruling Schwinn, explicitly distinguished Dr. Miles on the ground that while Congress had “recently . . . expressed its approval of a per se analysis of vertical price restrictions” by repealing the Miller-Tydings and McGuire Acts, “[n]o similar expression of congressional intent exists for nonprice restrictions.” 433 U. S., at 51, n. 18. Moreover, the Court decided Sylvania only a decade after Schwinn. And it based its overruling on a generally perceived need to avoid “confusion” in the law, 433 U. S., at 47–49, a factor totally absent here.
The Court suggests that it is following “the common-law tradition.” Ante at 26. But the common law would not have permitted overruling Dr. Miles in these circumstances. Common-law courts rarely overruled well-established earlier rules outright. Rather, they would over time issue decisions that gradually eroded the scope and effect of the rule in question, which might eventually lead the courts to put the rule to rest. One can argue that modifying the per se rule to make an exception, say, for new entry, see Pitofsky 1495, could prove consistent with this approach. To swallow up a century-old precedent, potentially affecting many billions of dollars of sales, is not. The reader should compare today’s “common-law” decision with Justice Cardozo’s decision in Allegheny College v. National Chautauqua Cty. Bank of Jamestown, 246 N. Y. 369, 159 N. E. 173 (1927), and note a gradualism that does not characterize today’s decision.
Moreover, a Court that rests its decision upon economists’ views of the economic merits should also take account of legal scholars’ views about common-law overruling. Professors Hart and Sacks list 12 factors (similar to those I have mentioned) that support judicial “adherence to prior holdings.” They all support adherence to Dr. Miles here. See H. Hart & A. Sacks, The Legal Process 568–569 (W. Eskridge & P. Frickey eds. 1994). Karl Llewellyn has written that the common-law judge’s “conscious reshaping” of prior law “must so move as to hold the degree of movement down to the degree to which need truly presses.” The Bramble Bush 156 (1960). Where here is the pressing need? The Court notes that the FTC argues here in favor of a rule of reason. See ante, at 20–21. But both Congress and the FTC, unlike courts, are well-equipped to gather empirical evidence outside the context of a single case. As neither has done so, we cannot conclude with confidence that the gains from eliminating the per se rule will outweigh the costs.
In sum, every stare decisis concern this Court has ever mentioned counsels against overruling here. It is difficult for me to understand how one can believe both that (1) satisfying a set of stare decisis concerns justifies over-ruling a recent constitutional decision, Wisconsin Right to Life, Inc., ante, at 19–21 (Scalia, J., joined by Kennedy and Thomas, JJ., concurring in part and concurring in judgment), but (2) failing to satisfy any of those same concerns nonetheless permits overruling a longstanding statutory decision. Either those concerns are relevant or they are not.
Leegin Creative Leather Products, Inc.
PSKS, Inc., dba Kay's Kloset . . . Kay's Shoes
551 U.S. 877