This morning, the Supreme Court heard oral arguments in Leegin Creative Leather Products, Inc. v. PSKS, Inc.  This case has been discussed at some length at Antitrust Review, on other blogs, and elsewhere.

The Supreme Court has released the transcript.

Four attorneys appeared before the Court. Ted Olson argued for Leegin; he was followed by Deputy U.S. Solicitor General Thomas G. Hunger; Robert W. Coykendall then argued for PKSK; finally, New York State Solicitor General Barbara D. Underwood argued for 37 states that want the Court to preserve the Dr. Miles rule.

Below are a few quick thoughts about the arguments, based on the transcript (page cites are to the page of the .pdf document; also please forgive the poor formatting, linking to an article I co-authored three times, etc.).

Justice Ginsberg began the questioning by focusing on the possibility that this case involved horizontal and vertical restraints (page 3).  Although the Court is unlikely to avoid addressing the continued vitality of Dr. Miles by finding this case insufficiently on point, this is an important issue to PKSK.  Even if the Court overturns Dr. Miles, if it finds (or suggests) that this case might involve horizontal and vertical restraints, it strengthens PKSK’s case on remand.

Justice Stevens then posed a series of questions involving a hypothetical group of regional dealers who jointly ask a manufacturer to set a price (pages 4-6).  Justice Roberts then asked when the Rule of Reason “would find a violation” in a resale price maintenance case.  Olsen used this softball question to argue that such a situation would be, according to “economists,” ”very rare, and would require retailers with a strong powerful market power to impose a situation where the manufacturer would do that to help facilitate a horizontal cartel.”  (pages 6-7).

Justice Breyer than focuses on economists and asks (page 7-8):

Which economists? I know the Chicago school tends to want rule of reason and so forth. Professor Sherer is an economist, isn’t he? Worked at the FTC for a long time. A good expert in the field. He points out the drug industry after you got rid of — after you got rid of resale price maintenance, the margins fell 40 percent. The drug stores it went down 20 percent. He says with blue jeans, alone, it saved American consumers $200 million to get rid of it.  And his conclusion is, as in the uniform enforcement of resale price maintenance, the restraints can impose massive anti-consumer benefits. Massive. … What that sounds like is that if at least he, who is an economist, thinks if you get rid of Dr. Miles, every American will pay far more for the goods that they buy at retail. Now that’s one economist, of course. There are other whose think differently. So how should we decide this?  MR. OLSON: In, in the vast majority of the economist whose have looked at this have come out to the opposite conclusion, Justice Breyer. Secondly - JUSTICE BREYER: We’re supposed to count economists? MR. OLSON: No. No. I think that - JUSTICE BREYER: Is that how we decide it? (Laughter.)

Olsen goes on the note that listen to economists is only one factor that the Court can consider and that the FTC and DOJ also support overturning Dr. Miles.  This leads Justice Ginsberg to ask about Congressional involvement in this issue (page 9-10).

Then follows a bizarre (IMHO) exchange in which Justice Roberts and Stevens appear to argue that the Dr. Miles rule is what allowed Wal-Mart and Target to grow (pages 11-12).

Justice Breyer reveals he uses Google as a legal search tool.  (top of page 13).

Justice Scalia then gets involved and discussed consumer welfare (pages 15-16):

Is it the object of the — is the sole object of the Sherman Act to produce low prices? MR. OLSON: No. JUSTICE SCALIA: I thought it was consumer welfare. MR. OLSON: Yes, yes, it is. JUSTICE SCALIA: And I thought some consumers would prefer more service at a higher price. MR. OLSON: Precisely. JUSTICE SCALIA: So the mere fact that it would increase prices doesn’t prove anything. It doesn’t prove that it’s serving consumer welfare. If, in fact, it’s giving the consumer a choice of more service at a somewhat higher price, that would enhance consumer welfare, so long as there are competitive products at a lower price, wouldn’t it? MR. OLSON: That’s — that’s absolutely correct. JUSTICE SCALIA: So I don’t know why, why we should have to focus our entire attention on whether it’s going to — going to produce higher prices or not. The market out there has different goods at different prices which have different qualities that attract different consumers.

Scalia’s line of “questions” (statements really) is setting forth the basis for applying the rule of reason to resale price maintenance. 

Deputy U.S. Solicitor General Thomas G. Hungar then argued.  After two sentences, Justice Breyer interrupts and asks a lengthy question about stare decisis (pages 17-18).  And Hungar largely avoids answering it.

Justice Stevens returns to his hypothetical example of a regional group of retailers (pages 20-21).  Justice Souter then suggests that Congress would be better equipped to deal with the case and this leads back to Wal-Mart and Target (pages 22- 24):

We do have empirical evidence, though, don’t we, that the decision of this case is going to be very significant in the sort of battle between Wal-Mart and the Main Street stores; and why should this Court in effect take a shot in the dark at resolving that, as distinct from leaving it to Congress, which is in a position to know more about where the shot is going to land than we are? MR. HUNGAR: This Court — I’m sorry. There’s no empirical evidence that I’m aware of about what impact eliminating Dr. Miles would have on the Wal-Marts of the world. JUSTICE SOUTER: That’s my point. But it seems to me there is a body of some empirical evidence that the success of the Wal-Marts and the Targets and the Home Depots was a success which was correlated with the elimination of price maintenance by the States. MR. HUNGAR: I don’t think so, Your Honor. In fact, as Mr. Olson pointed out, the K-Marts of the world began during the fair trade era. JUSTICE SOUTER: They began, but they have flourished in the post-fair trade era. MR. HUNGAR: Yes, Your Honor, but I think considerations likes the opening up of international trade and the development of markets like China to supply low-cost goods have a lot more to do with the success of the Wal-Marts of the world than a rule like Dr. Miles.

Glad to see that someone pointed out (one of) the more likely reasons for the success of Wal-Mart and Target. 

Hungar, obviously having read the bottom of page 6 and the top of page 7 of this article, states that:

Remember, it’s perfectly legal under current law for manufacturers to impose the same sort of constraints as long as they do it by fiat and unilateral enforcement rather than by agreement. So the suggestion that somehow this is going to revolutionize the economy if Dr. Miles is overruled is simply unsupportable.

Justice Souter, obviously having not read the bottom of page 6 and the top of page 7 of the article mentioned above, takes issue with this.  He asks “Isn’t it fair to say that there is reason to believe that there may be a massive reorientation in the retail economy if Dr. Miles goes? And that gets to my problem, why should we be the people to make a guess as opposed to the Congress as the institution to make the guess?”  (page 25).  Hungar, of course, thinks that it is not fair to say that. 

Justice Ginsberg asks a series of questions about how PKSK would fare in this case under a rule of reason; the answer: poorly (pages 26-27).

Robert W. Coykendall then argued for PKSK.  He begins by stating “As recently as last month, this Court restated a guiding principle of antitrust jurisprudence: Discouraging price cuts and depriving consumers of low prices is bad antitrust policy” (page 27-28).  Scalia takes issue with this statement: “Is that right? I mean, You really think that antitrust policy means when — any arrangement that produce a higher price is bad?”  (page 28).

Justice Roberts then tries to pretend that Dr. Miles benefits Wal-Mart and Target (page 30):

CHIEF JUSTICE ROBERTS: … as we’ve already heard, the dealers who engage in the discount policy are [stores] like Target and Wal-Mart. Those aren’t small dealers. Those are behemoths in the retailing industry. MR. COYKENDALL: I would suggest that those are not the people that really are being protected by this particular per se prohibition.

There is then a lengthy series of questions and answers involving Justices Alito and Scalia about whether Dr. Miles protects smaller dealers or larger retailers (pages 30-32).  Coykendall then argues that reversing Dr. Miles would not correct inefficiencies resulting from Colgate and that this case resale price maintenance facilitated cartel development as Leegin’s retail outlets benefited from resale price maintenance (pages 32-38).  Justice Ginsberg then points out that the cartel facilitation issue was not developed at trial because of the trial judge’s ruling (pages 38-39).  Again, this is important to PKSK as it could help them on remand even if the Court overturns Dr. Miles.

In response to several Scalia questions about the benefits of resale price maintenance, Coykendall makes a point I can’t recall seeing the briefs (which I admittedly have not read in over a month) but which is interesting:

MR. COYKENDALL: Well, there are more efficient ways than RPM to achieve any benefits of efficiency, such as contracts with the retailers to provide those additional demand creating services. He could pay the retailers to provide those services. He could provide those services directly, I would suggest. CHIEF JUSTICE ROBERTS: Why would you argue that those are more efficient than resale price maintenance? MR. COYKENDALL: The resale price maintenance amounts to nothing more than throwing money at the problem. You’re guaranteeing a margin and you’re hoping that it’s going to be used somehow for the consumer’s benefit, and you’ve got no guarantee that any dealer is going to use the margin that they’re guaranteed in any way to service the consumers.

New York State Solicitor General Barbara D. Underwood then argued for 37 states that want the Court to preserve the Dr. Miles rule.  She takes issue with Chief Justice Roberts, and later Justice Scalia, who suggest that repealing Dr. Miles will simply allow for more efficient means of accomplishing what Colgate already allows (pages 44-45). 

She then discusses Congressional support of Dr. Miles (pages 45-46) and why “price is different” (pages 47-48): “price is different. This Court has said that price competition is the central nervous system of the economy. Other restraints, to be sure, might indirectly affect price, but not with the same absolute force.”

Underwood and Chief Justice Roberts than go back-and-forth on whether it would be better/more efficient for manufacturers to require that the retailer provide service rather than assuming that the retailer will provide service (pages 48-49).

Underwood then dealt with the issue of Congress preventing the Solicitor General from arguing about Dr. Miles in 1984 (see footnote 27 of this amazing useful article):

JUSTICE STEVENS: Am I correct on the congressional point that there was a period when Congress would have prohibited the Solicitor General from making the argument he made today? MS. UNDERWOOD: Yes, there was such a period. And this Court noted that fact in - JUSTICE STEVENS: So there was a legislative expression of a position on this particular issue? MS. UNDERWOOD: There was a legislative expression of position on this particular issue. CHIEF JUSTICE ROBERTS: And that no longer is applicable? MS. UNDERWOOD: That is — the Solicitor General is no longer barred from making that argument, as is evidenced today. What he - JUSTICE SCALIA: I guess Congress changed its mind then. MS. UNDERWOOD: No, I think Congress found it unnecessary or perhaps questioned the wisdom or constitutionality of barring the Solicitor General from making particular arguments. JUSTICE SCALIA: I find it hard to believe that. (Laughter.)

Olsen then had a brief, three minute rebuttal in which he was permitted to speak almost without interruption.

[Update: SCOTUSblog has a post about the oral arguments here; the AP report is here.]

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