The Curious Price-Fixing Case of Kay's Kloset Makes a Return to the Supreme Court

By Robert Wilonsky Tue., Nov. 16 2010 at 8:41 AM

Categories: Biz

Harvard prof Einer Elhauge

A couple of years back we noted that the price-fix was back in, thanks in large part to a 2007 U.S. Supreme Court ruling that eventually put a Flower Mound business out of business. Perhaps you recall that case: Leegin Creative Leather Products, Inc. v. Kay's Kloset -- or Leegin, as it's now known by consumer advocates who hate the thing. Long story short: In 1995, Kay's Kloset started selling products under the Brighton name -- purses, charms and other assorted tchotchkes and whatnots. Two years later, Leegin instituted a "Retail Pricing and Promotion Policy" that told Mom-n-Pops they couldn't sell below suggested retail. Kay's Kloset did -- by a good 20 percent -- and in '02, Leegin stopped selling the Brighton products to Kay's Kloset.

At that point Kay's sued in federal court, claiming anti-trust violations. The Flower Mound retailer won big --a judgment worth $3,975,000.80, which was upheld by the Court of Appeals for the Fifth Circuit. To which the Supremes said, 5-4: Overturned! Or, more to the point: "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." Its massive judgment wiped out, Kay's Kloset was eventually forced to close.

At which point price-fixing made a comeback as retailers, now freed from a 100-year-old law that kept them from being able to set minimum prices, went back to the good ol' days of telling stores where to set their prices. Which is why the case of Kay's Kloset has made a return appearance on the Supreme Court's to-do list: The Wall Street Journal notes this morning that Harvard law professor Einer R. Elhauge has taken the case pro bono and is appealing the '07 decision, should the Supremes choose to accept. From the story:

Mr. Elhauge defends the high court's decision, but he says that the lower courts took it too far, depriving retailers of the chance to challenge manufacturers. An appeals court ruling against Kay's Kloset "is not just a problem for vertical price-fixing law but also for antitrust law generally," he said, warning that it would "drastically restrict" any attempt to scrutinize the details of an allegedly anticompetitive action.

There is no guarantee that the Supreme Court will take the case. But the outcome of the battle could affect such companies as Tempur-Pedic International Inc., Mack Trucks Inc., garden-fertilizer maker Scotts Miracle-Gro Co. and others that have sought to block discounting of their products.

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