Justice Breyer on Free Riding

Leegin Creative Leather v. PSKS (Supreme Court 2007)

[updated] In today’s Sherman Act decision, the Supreme Court found that the antitrust effect of vertical minimum-price restraints should be judged under a rule of reason. This overturns a longstanding per se rule.

An interesting aspect of the opinion is Justice Breyer’s dissent where he focuses on benefits of free riding.

[F]ree riding often takes place in the economy without any legal effort to stop it. Many visitors to California take free rides on the Pacific Coast Highway.  We benefit freely from ideas, such as that of creating the first supermarket. Dealers often take free rides on investments that others have made in building a product’s name and reputation.  The question is how often the free riding problem is enough significantly to deter dealer investment.

Despite Breyer’s dissent, this case continues the trend to allow increased downstream control (through both property and contract) of the use of a company’s goods and services.

6 thoughts on “Justice Breyer on Free Riding

  1. A couple of weeks ago in another post, I pointed out that the uber-reactionary majority on the present Court had no care for stare decisis. This case and the desegregation case of the same day constitute more than ample proof that these five truly have become an imperial judiciary. This conclusion is corroborated by the Court’s recent recognition of free-speech rights for antiabortionists but not for high school students.

    “The life of the law is not logic, it is experience.” When a court issues illogical opinions like these, one is compelled to conclude that the true basis for them lies elsewhere than in law.

  2. With respect to the question on trademarks, Leegin, the manufacturer in this case, did justify its practice of forbidding retailer discounting by the need to protect the brand and the image of its product. While the Court does not directly address this justification, it certainly would be consistent with other rationales for imposing a minimum RPM.

    Another interesting point about the decision is the majority’s discussion about restraints on alienation. The Court overrules Dr Miles in part because it rested on, what the Court calls, an outmoded notion of restraints on alienation that applied historically to land rather than chattels, according to the Court. This language is telling and is a good sign of what the Court might do if a patent licensing case, like Monsanto, made its way to the Court’s docket.

  3. I’m no expert in antitrust law, but wonder about this from a trademark perspective. Specifically, is selling price a legitimate part of a brand image?

    For example, BMW may be capable of selling a high-quality car for $20,000, but they probably don’t want to because it would hurt their reputation as a maker of premium automobiles (that sell at a premium price). Likewise, Sony may by capable of selling a 42″ high-definition LCD television for $800, but they probably don’t want to because such a price point would throw them in the mix with some of the “lesser” manufacturers of LCD televisions.

  4. In response to the 1:04 post above, Dr. Miles did in fact hold that vertical minimum price fixing (i.e. retail price maintenance) was a per se violation of § 1.

    The per se rule was very narrow: other cases affirmed that a manufacturer has a right to independently refuse to deal with dealers (Colgate), and that a finding of per se RPM required evidence that a manufacturuer was not acting independently (more than “evidence of complaints” of pricecutting by other dealers) (Spray-Rite) and had agreed “expressly or impliedly” with other dealers on retail price (Sharp).

    Further, vertical non-price restrictions were already judged under the ROR (GTE). The economic theory grounding the difference was that RPM was more likely to facilitate industry cartelization than non-price restraints like territorial restrictions. The Leegin majority rejects this theory (the dissent is skeptical about their reasoning) and overturns the rule.

  5. Opampman,

    Under Dr. Miles, vertical agreements to establish a minimum price had been per se illegal (until today). But ever since Business Electronics, it seemed that Dr. Miles was breathing on vapors. I guess this means no more law school exams that force students to go through mental gymnastics distinguishing Dr. Miles from the rest of the Court’s vertical restraints jurisprudence. I guess I took Antitrust one year too early.

  6. “In today’s Sherman Act decision, the Supreme Court found that the antitrust effect of vertical price restraints should be judged under a rule of reason. This overturns a longstanding per se rule.”

    Correct me if I’m wrong–it’s been a long time since Antitrust class in law school–but I think vertical price restraints have been analyzed under the ROR for a long time. It’s horizontal price restraints that are analyzed under the per se rule.

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