EcommerceBytes-NewsFlash, Number 1573 - July 02, 2007     1 of 4

Will eBay Sellers Be Hurt by Supreme Court Pricing Decision?

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The Supreme Court ruled last week that in some cases, manufacturers have the right to force retailers to minimum retail prices (price floors). Retailers have expressed concern that the ruling may make it more difficult for them, and discount retailers and online sellers may be impacted the hardest.

The case involved Leegin Creative Leather Products Inc., a manufacturer, who stopped selling to Kay's Kloset when the retailer discounted the Leegin products. Kay's Kloset sued Leegin for anti-competitive practices.

According to the New York Times, "The Supreme Court adopted the flat ban on resale price agreements between manufacturers and retailers in 1911, when it founded that the Dr. Miles Medical Company had violated the Sherman act. The company had sought to sell medicine only to distributors who agreed to resell them at set prices. The court said such agreements benefit only the distributors, not consumers, and set a rule making such agreements unlawful."

Last week, the Supreme Court ruled 5-4 that such price agreements aren't necessarily illegal. But Justice Breyer wrote in his dissent, "The only safe predictions to make about today’s decision are that it will likely raise the price of goods at retail and that it will create considerable legal turbulence as lower courts seek to develop workable principles. I do not believe that the majority has shown new or changed conditions sufficient to warrant overruling a decision of such long standing. All ordinary stare decisis considerations indicate the contrary. For these reasons, with respect, I dissent."

Breyer cited a report showing that the top five supermarket companies had increased their market share from less than 20 percent to over 50 percent of all grocery sales by 2003. He wrote, "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."

The Wall Street Journal wrote, "But even those who believe the decision is anticonsumer say the market will resist efforts to raise prices. Patrick Byrne, CEO of discount Web retailer Overstock.com Inc., calls the ruling "a bad decision," but insists manufacturers won't be able to impose a minimum price on sites such as Overstock.com. "Manufacturers need a channel like ours to exist," he said."

According to the Dallas News newspaper, lawyers for Kay's Kloset believe they still have a strong antitrust case. "The Supreme Court's ruling takes away vertical price restrictions, but horizontal cartels are still illegal."

What do you think? Post a comment on the AuctionBytes Blog (http://tinyurl.com/35m78t).

Dallas News:
http://www.dallasnews.com/sharedcontent/dws/bus/stories/062907dnbusscotusretail.36da27a.html

New York Times (registration required):
http://www.nytimes.com/2007/06/29/business/28cnd-bizcourt.html

PDF file of the decision & dissent on the New York Times website:
http://graphics8.nytimes.com/packages/pdf/business/28scotus_LeeginvPSKS.pdf

Wall Street Journal (Paid subscription requird):
http://online.wsj.com/article/SB118304237881551572.html

Blogger:
http://www.sirened.com/crack-open-the-bubbly-big-business

Report on supermarkets cited by Justice Breyer:
http://www.oaklandinstitute.org/pdfs/facing_goliath.pdf


About the author:

Ina Steiner is co-founder and Editor of EcommerceBytes and has been reporting on ecommerce since 1999. She's a widely cited authority on marketplace selling and is author of "Turn eBay Data Into Dollars" (McGraw-Hill 2006). Her blog was featured in the book, "Blogging Heroes" (Wiley 2008). Follow her on Twitter at @ecommercebytes and send news tips to ina@ecommercebytes.com.


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