In December 2006, the Supreme Court decided to hear two more antitrust cases this term. In Leegin Creative Leather Products, Inc. v. PSKS, Inc., the Court will review the vitality of the long-standing per se prohibition on vertical price fixing. Credit Suisse First Boston Ltd. v. Billing, presents the Court with an opportunity to define the scope of antitrust immunity in the face of a conflict between antitrust law and federal securities regulations.
Leegin Creative Leather Products, Inc. v. PSKS, Inc.
Leegin presents the Court with an opportunity to abandon the per se prohibition on vertical price fixing agreements, which has been a firmly established principle of antitrust law since the Court’s decision in the 1911 case of Dr. Miles Medical Co. v. John D. Park & Sons, Co. Since that time, agreements between suppliers and distributors that establish a minimum resale price have been deemed illegal by Section 1 of the Sherman Act without further inquiry into the potential procompetitive effects of such agreements or the relevant market.
PSKS was a retailer of leather products manufactured by Leegin. Leegin instituted a policy stating that it would only do business with retailers that adhered to its suggested retail prices. Upon learning that PSKS had placed Leegin’s products on sale below the suggest retail prices, Leegin suspended sales to PSKS.
PSKS sued, claiming that Leegin and its retailers had agreed to fix the prices of its products. The jury agreed and awarded PSKS nearly $4.5 million in damages, after trebling. On appeal to the Fifth Circuit, Leegin attempted to distinguish Dr. Miles and its progeny to argue that the court should apply the rule of reason instead of the per se rule. The Fifth Circuit rejected this argument and affirmed the jury award.
Recent Supreme Court decisions have marked a shift away from inflexible per se prohibitions on categories of conduct under the antitrust laws in favor of more comprehensive economic analysis under the rule of reason. Given the Court’s apparent preference for the rule of reason, many expect the Court to abandon the per se rule in the context of vertical price fixing. The Court also could review the "Colgate doctrine," which insulates unilateral conduct from liability under Section 1 of the Sherman Act, and clearly define the contours of permissible actions that suppliers may take to manage the resale prices of their products.
Credit Suisse First Boston Ltd. v. Billing
Following on the heels of Twombly, the Supreme Court will have another opportunity this term to define the appropriate standards for analyzing motions to dismiss involving antitrust claims in Credit Suisse First Boston Ltd. v. Billing. In Credit Suisse, plaintiffs, who represented a class of investors who purchased stocks from the defendant underwriting firms, challenged certain practices employed by the underwriting firms. Specifically, plaintiffs alleged that the defendants engaged in "tie-ins", a requirement that a buyer give consideration in excess of the stated offering price of a security to buy shares, and in "laddering", or inducing investors to place aftermarket orders at prearranged escalating prices in exchange for receiving shares in the IPO. Plaintiffs claimed that these agreements violated Section 1 of the Sherman Act.
The district court granted defendants’ motion to dismiss on the ground that implied immunity from the antitrust laws was appropriate because the SEC expressly permits some of the challenged conduct and the SEC has the power to regulate the remaining challenged conduct so that failure to find implied immunity would ‘conflict with an overall regulatory scheme that empowers the [SEC] to allow conduct that the antitrust laws would prohibit." On appeal, the Second Circuit stated that for antitrust immunity to attach, a specific showing of congressional intent to immunize the challenged conduct must be present along with a showing that the agency can compel the challenged conduct. The Second Circuit vacated the opinion of the district court because no specific conflict existed between the antitrust and securities laws and the securities laws are not sufficiently "pervasive" to immunize defendants’ conduct. The Second Circuit concluded by noting that Congress "knows how to immunize regulated conduct from the antitrust laws" but that it has not done so either expressly or impliedly.
Interestingly, while the SEC and the Department of Justice disagreed on whether immunity should be found, the SEC and the DOJ jointly filed an amicus curiae brief in support of defendants’ petition for a writ of certiorari. Despite their disagreement, however, the DOJ and the SEC argue that tests for immunity articulated by the district court and the Second Circuit are inappropriate. Instead, the DOJ and SEC propose their own standard for analyzing immunity claims on a motion to dismiss: "the complaint must allege facts providing concrete notice and giving rise to a reasonably grounded expectation that the alleged antitrust offense can be established without relying on activities that are authorized under the regulatory scheme or inextricably intertwined with such immune activities." Regardless of the test ultimately articulated by the Supreme Court, the Court’s opinion in Credit Suisse should provide useful insight into the appropriate standard for assessing immunity claims under the antitrust laws.
Briefing in both Leegin and Credit Suisse will be completed in late February, and oral arguments are expected in March or April.