Supreme Court Hears Pricing Case; Future of Discounts Threatened

Why Judges (and who appoints them) Matter

Your ability to buy discounted goods -- either online or at your local discount mall -- is threatened by a case the Supreme Court heard today.

A family-owned Texas boutique sued Leegin Creative Leather Products (Brighton brand) because Brighton stopped supplying products to the company in 2002. The Texas boutique's offense? It sold the products at 20 percent off, violating the "Brighton Retail Pricing and Promotion Policy."

An obscure (to most consumers) but wide-reaching 1911 Supreme Court decision said that a manufacturer cannot mandate the price a product sells for at retail. The Court ruled that such a restriction is anti-competitive. (Doh.)

Thus Brighton lost, to the tune of a $4 million penalty. The company appealed.

The Bush Administration, along with the National Association of Manufacturers, is supporting Brighton. Most of the Justices on the Supreme Court were appointed by Republicans, traditionally a party that is biased towards business. The fact that the Court agreed to hear the case suggests it is willing to revise or reverse the decision in Dr. Miles Medical Co v John D. Park & Sons Co.

On the side of the boutique: 36 state attorneys general and the Consumer Federation of America.

Back Story
The 1911 case got a boost from Congress in 1975. According to the wire story, in 1975 Congress passed a bill that President Ford said, in his signing statement, would “make it illegal for manufacturers to fix the prices of consumer products sold by retailers.”

Nevertheless, many manufacturers have found ways around the decision. (With help from the FTC, perhaps?)

Note that many states regulate the minimum retail price of milk; these laws were passed to protect dairy farmers from having the bear the brunt of grocery store loss-leader pricing. Many states also regulate how rapidly the price of goods and services can rise during crises. These regulations are deemed to be for the public good.

If the Court overrules the jury verdict in this case, "MSRP" (manufacturer suggested retail price) could become not a "suggestion" but a "requirement." And folks, there ain't nothing we could do about it -- except petition Congress to make a law. (Heck, that's what Bush after losing all his Gitmo cases before the Supremes.)

I really don't get it. If the manufacturer requires retailers to sell at more costly prices, fewer items will be sold. Someone help me see how the manufacturer benefits in this scenario. (No, I don't buy the arguments presented by Brighton, below.)

The Legal Players
Who's arguing the case for Brighton? Washington lawyer Theodore Olson, who represented Texas Gov. George W. Bush in Bush vs. Gore, the Supreme Court case that decided the 2000 presidential election. Later, President Bush appointed Olson to be a US solicitor general; he is now in private (more lucrative) practice.

Oh, and Ping golf clubs is one of the firms weighing in on Brighton's behalf. They (cough-cough) claim that retail discounters are one of the reasons that US manufacturers are going offshore. With a straight face, no less!

Ping reportedly is operating under a section of anti-trust law (Colgate doctrine) that allows it to punish retailers who don't toe the line on its minimum pricing policy. In a perfect world, the Court would decide not that the Mile decision is wrong, but that Ping shouldn't have that kind of hold on the retailers that sell its products.

It looks like the anti-trust law is widely ignored. The attorney arguing the case for Kay's Kloset is Ken M. Peterson and the firm of Morris, Laing, Evans, Brock & Kennedy of Wichita, KS. Peterson was the attorney "for three independently owned stores that sold Nine West shoes, including one in Houston. In 2000, Nine West Group agreed to pay $34 million to settle civil charges brought by federal and state investigators who contended that it had illegally fixed shoe prices since 1988."

The State of Texas was on the side of consumers in the Nine West case. It is not one of the 36 states on the side of consumers in this battle.

Brighton's Actions and Arguments
Here's what happened (who gets to set the discount price), from WFAA, Dallas

While retailers were struggling after the 9/11 terrorist attacks, Leegin [Brighton] started giving discounts to airline and airport employees at a store at the Dallas/Fort Worth International Airport.

Mr. Smith and his wife wanted Kay's Kloset customers, many of them schoolteachers and homemakers, to get the discount too, Mr. Smith said.

Kay's Kloset dropped prices on Brighton-branded leather handbags, shoes and accessories, roughly matching the discount at the airport store. The store carried lots of Brighton inventory and promoted it heavily.

Then Leegin cut off the Smiths.

Wanna hear the argument Brighton is making? One argument is that the law is "premised upon the antiquated common-law rule" and that it "squarely conflicts with the modern economic understanding that resale price-maintenance agreements can have significant procompetitive effects."

Right. Manufacturer mandated retail price controls = "pro-competitive" market for consumers.

[This team has a score of economists lined to to parrot these arguments.]

More from San Diego Tribune:

[Brighton] says that by maintaining price consistency among its retailers, stores can offer improved customer service. The extra service, says the manufacturer, enables smaller stores to compete against rival brands sold by bigger cut-rate competitors.

Brighton has decided it knows better than its customers what their costs are and what profit margins are acceptable. It's treating a small boutique in a low-cost area exactly the same as a large chain or a boutique on Rodeo Drive or Madison Avenue. Give Me A Break.

Both arguments are, in my opinion, spurious. Iron-fisted control from the manufacturer gives them de facto vertical integration -- without the cost or risk.

Today we have far more -- not less -- concentration in "manufacturing" than we had in 1911. This is due not only to global corporations but to the buying up of brands by conglomerates. For example, today Dr. Miles would probably be a subsidiary of P&G.

Brighton says it doesn't want its brand to "degrade" and its "customers to feel cheated when they buy at the wrong moment." Oh -- they want to protect us from ourselves. How paternal.

I owe several Brighton items -- the first was a gift. I've even purchased Brighton on sale and at (gasp) a discount store. But I've now bought my last Brighton product.

What do you think?