551 U.S. 877 LEEGIN CREATIVE LEATHER PRODUCTS v. PSKS, …masonlec.org/site/rte_uploads/files/Leegan...

2705LEEGIN CREATIVE LEATHER PRODUCTS v. PSKS, INC.Cite as 127 S.Ct. 2705 (2007)

551 U.S. 877

electoral process,’’ Automobile Workers,352 U.S., at 570, 77 S.Ct. 529, which for acentury now Congress has repeatedlyfound to be imperiled by corporate, andlater union, money: witness the TillmanAct, Taft–Hartley, FECA, and BCRA. SeePart II, supra. McConnell was our latestdecision vindicating clear and reasonableboundaries that Congress has drawn tolimit ‘‘ ‘the corrosive and distorting effectsof immense aggregations of wealth,’ ’’ 540U.S., at 205, 124 S.Ct. 619 (quoting Austin,494 U.S., at 660, 110 S.Ct. 1391), and theS 536decision could claim the justification ofongoing fact as well as decisional history inrecognizing Congress’s authority to pro-tect the integrity of elections from thedistortion of corporate and union funds.

After today, the ban on contributions bycorporations and unions and the limitationon their corrosive spending when they en-ter the political arena are open to easycircumvention, and the possibilities forregulating corporate and union campaignmoney are unclear. The ban on contribu-tions will mean nothing much, now thatcompanies and unions can save candidatesthe expense of advertising directly, simplyby running ‘‘issue ads’’ without expressadvocacy, or by funneling the moneythrough an independent corporation likeWRTL.

But the understanding of the voters andthe Congress that this kind of corporateand union spending seriously jeopardizesthe integrity of democratic governmentwill remain. The facts are too powerful tobe ignored, and further efforts at cam-paign finance reform will come. It is onlythe legal landscape that now is altered,and it may be that today’s departure fromprecedent will drive further reexaminationof the constitutional analysis: of the dis-tinction between contributions and expen-ditures, or the relation between spendingand speech, which have given structure to

our thinking since Buckley itself was de-cided.

I cannot tell what the future will forceupon us, but I respectfully dissent fromthis judgment today.

,

551 U.S. 877, 168 L.Ed.2d 623

LEEGIN CREATIVE LEATHERPRODUCTS, INC.,

Petitioner,

v.

PSKS, INC., dba Kay’s KlosetTTT Kay’s Shoes.

No. 06–480.

Argued March 26, 2007.

Decided June 28, 2007.

Background: Retailer sued manufacturer,alleging that manufacturer’s policy of re-quiring retailers to follow its suggestedretail prices constituted violation of Sher-man Act. The United States District Courtfor the Eastern District of Texas, afterruling that per se illegality applied to ver-tical minimum-resale-price agreements,entered judgment on jury verdict in retail-er’s favor. The United States Court ofAppeals for the Fifth Circuit affirmed, 171Fed.Appx. 464. Certiorari was granted.

Holdings: The United States SupremeCourt, Justice Kennedy, held that:

(1) application of per se rule is unwarrant-ed as to vertical agreements to fixminimum resale prices, overruling Dr.Miles Medical Co. v. John D. Park &Sons Co., 220 U.S. 373, 31 S.Ct. 376, 55L.Ed. 502;

(2) administrative convenience of per serule cannot justify its application to

2706 127 SUPREME COURT REPORTER 551 U.S. 877

vertical resale price maintenanceagreements;

(3) alleged higher prices caused by verti-cal minimum-resale-price agreementsdid not justify application of per serule; and

(4) stare decisis did not compel continuedapplication of per se rule to verticalresale price maintenance agreements.

Reversed and remanded.

Justice Breyer filed dissenting opinionjoined by Justices Stevens, Souter andGinsburg.

1. Antitrust and Trade RegulationO535

Sherman Act’s prohibition of re-straints of trade outlaws only unreasonablerestraints. Sherman Act, § 1, 15 U.S.C.A.§ 1.


Rule of reason governs whether givenpractice unreasonably restrains competi-tion and therefore violates Sherman Act’sprohibition of restraints of trade. Sher-man Act, § 1, 15 U.S.C.A. § 1.


Factors in determining whether givenpractice unreasonably restrains competi-tion in violation of Sherman Act includespecific information about relevant busi-ness, restraint’s history, nature and effect,and whether businesses involved havemarket power. Sherman Act, § 1, 15U.S.C.A. § 1.


Per se rule, under which category ofrestraint of trade is deemed necessarilyillegal under Sherman Act, eliminates needto study reasonableness of individual re-

straint within that category. ShermanAct, § 1, 15 U.S.C.A. § 1.


Resort to per se rule, under whichcategory of restraint of trade is deemednecessarily illegal under Sherman Act, isconfined to restraints that would always oralmost always tend to restrict competitionand decrease output; showing of manifestlyanticompetitive effects and lack of any re-deeming virtue is required. Sherman Act,§ 1, 15 U.S.C.A. § 1.


Application of per se rule, underwhich category of restraint of trade isdeemed necessarily illegal under ShermanAct, is appropriate only after courts havehad considerable experience with type ofrestraint at issue, and only if courts canpredict with confidence that it would beinvalidated in all or almost all instancesunder rule of reason. Sherman Act, § 1,15 U.S.C.A. § 1.


Application of per se rule, underwhich category of restraint of trade isdeemed necessarily illegal under ShermanAct, is unwarranted as to vertical agree-ments to fix minimum resale prices; bothprocompetitive and anticompetitive effectsare possible, depending on circumstances,and thus it cannot be stated with confi-dence that such agreements always or al-most always tend to restrict competitionand decrease output; overruling Dr. MilesMedical Co. v. John D. Park & Sons Co.,220 U.S. 373, 31 S.Ct. 376, 55 L.Ed. 502.Sherman Act, § 1, 15 U.S.C.A. § 1.


Administrative convenience accompa-nying per se rule, under which category of


551 U.S. 877

restraint of trade is deemed necessarilyillegal under Sherman Act, cannot by itselfjustify application of rule; rule is exceptionto standard rule of reason. Sherman Act,§ 1, 15 U.S.C.A. § 1.

9. Antitrust and Trade RegulationO824, 882

Alleged higher prices caused by verti-cal minimum-resale-price agreements didnot justify application of per se rule tosuch agreements, so as to cause agree-ments to be deemed necessarily illegal un-der Sherman Act; further showing of anti-competitive conduct was required, givenAct’s purpose of protecting interbrandcompetition and lack of any necessary cor-relation between lower prices and procom-petitive effects. Sherman Act, § 1, 15U.S.C.A. § 1.

10. Courts O89Concerns about maintaining settled

law, which support doctrine of stare deci-sis, are strong when question is one ofstatutory interpretation.

11. Courts O89General presumption underlying doc-

trine of stare decisis in context of statutoryinterpretation, that legislative changesshould be left to Congress, has decreasedforce with respect to Sherman Act, whichis treated as common-law statute. Sher-man Act, § 1, 15 U.S.C.A. § 1 et seq.

12. Antitrust and Trade RegulationO535, 824, 882

Courts O90(4)Stare decisis did not compel United

States Supreme Court’s continued applica-tion of per se rule, under which category ofrestraint of trade is deemed necessarilyillegal under Sherman Act, to verticalagreements to fix minimum resale prices;

application of rule of reason was moreappropriate, economists as well as Depart-ment of Justice and Federal Trade Com-mission recommended rule of reason, andCourt’s treatment of vertical restraintshad progressed away from strict approach.Sherman Act, § 1, 15 U.S.C.A. § 1.

S 877Syllabus *

Given its policy of refusing to sell toretailers that discount its goods below sug-gested prices, petitioner (Leegin) stoppedselling to respondent’s (PSKS) store.PSKS filed suit, alleging, inter alia, thatLeegin violated the antitrust laws by en-tering into vertical agreements with itsretailers to set minimum resale prices.The District Court excluded expert testi-mony about Leegin’s pricing policy’s pro-competitive effects on the ground that Dr.Miles Medical Co. v. John D. Park & SonsCo., 220 U.S. 373, 31 S.Ct. 376, 55 L.Ed.502, makes it per se illegal under § 1 ofthe Sherman Act for a manufacturer andits distributor to agree on the minimumprice the distributor can charge for themanufacturer’s goods. At trial, PSKS al-leged that Leegin and its retailers hadagreed to fix prices, but Leegin arguedthat its pricing policy was lawful under§ 1. The jury found for PSKS. On appeal,the Fifth Circuit declined to apply the ruleof reason to Leegin’s vertical price-fixingagreements and affirmed, finding that Dr.Miles’ per se rule rendered irrelevant anyprocompetitive justifications for Leegin’spolicy.

Held: Dr. Miles is overruled, and ver-tical price restraints are to be judged bythe rule of reason. Pp. 2712 – 2725.

(a) The accepted standard for testingwhether a practice restrains trade in viola-

* The syllabus constitutes no part of the opinionof the Court but has been prepared by theReporter of Decisions for the convenience of

the reader. See United States v. Detroit Tim-ber & Lumber Co., 200 U.S. 321, 337, 26 S.Ct.282, 50 L.Ed. 499.


tion of § 1 is the rule of reason, whichrequires the factfinder to weigh ‘‘all of thecircumstances,’’ Continental T. V., Inc. v.GTE Sylvania Inc., 433 U.S. 36, 49, 97S.Ct. 2549, 53 L.Ed.2d 568, including ‘‘spe-cific information about the relevant busi-ness’’ and ‘‘the restraint’s history, nature,and effect,’’ State Oil Co. v. Khan, 522 U.S.3, 10, 118 S.Ct. 275, 139 L.Ed.2d 199. Therule distinguishes between restraints withanticompetitive effect that are harmful tothe consumer and those with procompeti-tive effect that are in the consumer’s bestinterest. However, when a restraint isdeemed ‘‘unlawful per se,’’ ibid., the needto study an individual restraint’s reason-ableness in light of real market forces iseliminated, Business Electronics Corp. v.Sharp Electronics Corp., 485 U.S. 717, 723,108 S.Ct. 1515, 99 L.Ed.2d 808. Resort toper se rules is confined to restraints ‘‘thatwould always or almost always tend torestrict competition and decrease output.’’Ibid. Thus, a per se rule is appropriateonly after courts have had considerableexperience with the type of restraint atissue, see Broadcast Music, Inc. v. Colum-bia Broadcasting S 878System, Inc., 441 U.S.1, 9, 99 S.Ct. 1551, 60 L.Ed.2d 1, and onlyif they can predict with confidence that therestraint would be invalidated in all oralmost all instances under the rule of rea-son, see Arizona v. Maricopa CountyMedical Soc., 457 U.S. 332, 344, 102 S.Ct.2466, 73 L.Ed.2d 48. Pp. 2712 – 2714.

(b) Because the reasons upon whichDr. Miles relied do not justify a per serule, it is necessary to examine, in the firstinstance, the economic effects of verticalagreements to fix minimum resale pricesand to determine whether the per se ruleis nonetheless appropriate. Were thisCourt considering the issue as an originalmatter, the rule of reason, not a per se ruleof unlawfulness, would be the appropriatestandard to judge vertical price restraints.Pp. 2713 – 2720.

(1) Economics literature is repletewith procompetitive justifications for amanufacturer’s use of resale price mainte-nance, and the few recent studies on thesubject also cast doubt on the conclusionthat the practice meets the criteria for aper se rule. The justifications for verticalprice restraints are similar to those forother vertical restraints. Minimum resaleprice maintenance can stimulate inter-brand competition among manufacturersselling different brands of the same type ofproduct by reducing intrabrand competi-tion among retailers selling the samebrand. This is important because the anti-trust laws’ ‘‘primary purpose TTT is toprotect interbrand competition,’’ Khan, su-pra, at 15, 118 S.Ct. 275. A single manu-facturer’s use of vertical price restraintstends to eliminate intrabrand price compe-tition; this in turn encourages retailers toinvest in services or promotional effortsthat aid the manufacturer’s position asagainst rival manufacturers. Resale pricemaintenance may also give consumersmore options to choose among low-price,low-service brands; high-price, high-ser-vice brands; and brands falling in be-tween. Absent vertical price restraints,retail services that enhance interbrandcompetition might be underprovided be-cause discounting retailers can free ride onretailers who furnish services and thencapture some of the demand those servicesgenerate. Retail price maintenance canalso increase interbrand competition by fa-cilitating market entry for new firms andbrands and by encouraging retailer ser-vices that would not be provided even ab-sent free riding. Pp. 2714 – 2716.

(2) Setting minimum resale pricesmay also have anticompetitive effects; andunlawful price fixing, designed solely toobtain monopoly profits, is an ever–pres-ent temptation. Resale price maintenancemay, for example, facilitate a manufacturer


551 U.S. 880

cartel or be used to organize retail cartels.It can also be abused by a powerful manu-facturer or retailer. Thus, the potentialanticompetitive consequences of verticalprice restraints must not be ignored orunderestimated. Pp. 2716 – 2718.

(3) Notwithstanding the risks of un-lawful conduct, it cannot be stated withany degree of confidence that retail pricemaintenance ‘‘alSways879 or almost alwaystend[s] to restrict competition and de-crease output,’’ Business Electronics, su-pra, at 723, 108 S.Ct. 1515. Vertical retailprice agreements have either procompeti-tive or anticompetitive effects, dependingon the circumstances in which they wereformed; and the limited empirical evidenceavailable does not suggest efficient uses ofthe agreements are infrequent or hypo-thetical. A per se rule should not beadopted for administrative conveniencealone. Such rules can be counterproduc-tive, increasing the antitrust system’s totalcost by prohibiting procompetitive conductthe antitrust laws should encourage. Anda per se rule cannot be justified by thepossibility of higher prices absent a fur-ther showing of anticompetitive conduct.The antitrust laws primarily are designedto protect interbrand competition fromwhich lower prices can later result. Re-spondent’s argument overlooks that, ingeneral, the interests of manufacturersand consumers are aligned with respect toretailer profit margins. Resale pricemaintenance has economic dangers. If therule of reason were to apply, courts wouldhave to be diligent in eliminating theiranticompetitive uses from the market.Factors relevant to the inquiry are thenumber of manufacturers using the prac-tice, the restraint’s source, and a manufac-turer’s market power. The rule of reasonis designed and used to ascertain whethertransactions are anticompetitive or pro-competitive. This standard principle ap-plies to vertical price restraints. As courts

gain experience with these restraints byapplying the rule of reason over the courseof decisions, they can establish the litiga-tion structure to ensure the rule operatesto eliminate anticompetitive restraintsfrom the market and to provide more guid-ance to businesses. Pp. 2717 – 2720.

(c) Stare decisis does not compel con-tinued adherence to the per se rule here.Because the Sherman Act is treated as acommon-law statute, its prohibition on ‘‘re-straint[s] of trade’’ evolves to meet thedynamics of present economic conditions.The rule of reason’s case-by-case adjudica-tion implements this common-law ap-proach. Here, respected economics au-thorities suggest that the per se rule isinappropriate. And both the Departmentof Justice and the Federal Trade Commis-sion recommend replacing the per se rulewith the rule of reason. In addition, thisCourt has ‘‘overruled [its] precedents whensubsequent cases have undermined theirdoctrinal underpinnings.’’ Dickerson v.United States, 530 U.S. 428, 443, 120 S.Ct.2326, 147 L.Ed.2d 405. It is not surprisingthat the Court has distanced itself fromDr. Miles’ rationales, for the case wasdecided not long after the Sherman Actwas enacted, when the Court had littleexperience with antitrust analysis. Onlyeight years after Dr. Miles, the Courtreined in the decision, holding that a man-ufacturer can suggest resale prices andrefuse to deal with distributors who do notfollow them, United States v. Colgate &Co., 250 U.S. 300, 307–308, 39 S.Ct. 465, 63L.Ed. 992; and more S 880recently the Courthas tempered, limited, or overruled oncestrict vertical restraint prohibitions, see,e.g., GTE Sylvania, 433 U.S., at 57–59, 97S.Ct. 2549. The Dr. Miles rule is alsoinconsistent with a principled framework,for it makes little economic sense whenanalyzed with the Court’s other verticalrestraint cases. Deciding that procompeti-


tive effects of resale price maintenance areinsufficient to overrule Dr. Miles wouldcall into question cases such as Colgateand GTE Sylvania. Respondent’s argu-ments for reaffirming Dr. Miles based onstare decisis do not require a differentresult. Pp. 2720 – 2725.

171 Fed.Appx. 464, reversed and re-manded.

KENNEDY, J., delivered the opinionof the Court, in which ROBERTS, C.J.,and SCALIA, THOMAS, and ALITO, JJ.,joined. BREYER, J., filed a dissentingopinion, in which STEVENS, SOUTER,and GINSBURG, JJ., joined, post, p. 2725.

Theodore B. Olson, Washington, D.C.,for petitioner.

Thomas G. Hungar, for United States asamicus curiae, by special leave of theCourt, supporting petitioner.

Robert W. Coykendall, for respondent.

Barbara D. Underwood, New York, etal., as amici curiae, by special leave of theCourt, supporting respondent.

Tyler A. Baker, Fenwick & West, LLP,Mountain View, CA, Theodore B. Olson,Counsel of Record, Michael L. Denger,Joshua Lipton, Amir C. Tayrani, Gibson,Dunn & Crutcher LLP, Washington, D.C.,Jeffrey S. Levinger, Carrington, Coleman,Sloman & Blumenthal, LLP, Dallas, TX,Gary Freedman, Law Offices of GaryFreedman, Santa Monica, CA, for petition-er.

Nelson J. Roach, D. Neil Smith, Nix,Patterson & Roach, L.L.P., Daingerfield,Texas, Stephen R. McAllister, Thompson,Ramsdell & Qualseth, P.A., Lawrence,Kansas, Ken M. Peterson, Robert W.Coykendall, Counsel of Record, Tim J.Moore, Luke A. Sobba, Will B. Wohlford,Kristen D. Wheeler, Morris, Laing, Evans,

Brock & Kennedy, Wichita, Kansas, forrespondent.

Justice KENNEDY delivered theopinion of the Court.

S 881In Dr. Miles Medical Co. v. John D.Park & Sons Co., 220 U.S. 373, 31 S.Ct.376, 55 L.Ed. 502 (1911), the Court estab-lished the rule that it is per se illegal under§ 1 of the Sherman Act, 15 U.S.C. § 1, fora manufacturer to agree with its distribu-tor to set the minimum price the distribu-tor can charge for the manufacturer’sgoods. The question presented by the in-stant case is S 882whether the Court shouldoverrule the per se rule and allow resaleprice maintenance agreements to bejudged by the rule of reason, the usualstandard applied to determine if there is aviolation of § 1. The Court has abandonedthe rule of per se illegality for other verti-cal restraints a manufacturer imposes onits distributors. Respected economic ana-lysts, furthermore, conclude that verticalprice restraints can have procompetitiveeffects. We now hold that Dr. Milesshould be overruled and that vertical pricerestraints are to be judged by the rule ofreason.

I

Petitioner, Leegin Creative LeatherProducts, Inc. (Leegin), designs, manufac-tures, and distributes leather goods andaccessories. In 1991, Leegin began to sellbelts under the brand name ‘‘Brighton.’’The Brighton brand has now expandedinto a variety of women’s fashion accesso-ries. It is sold across the United States inover 5,000 retail establishments, for themost part independent, small boutiquesand specialty stores. Leegin’s president,Jerry Kohl, also has an interest in about70 stores that sell Brighton products.Leegin asserts that, at least for its prod-ucts, small retailers treat customers bet-


551 U.S. 884

ter, provide customers more services, andmake their shopping experience more sat-isfactory than do larger, often impersonalretailers. Kohl explained: ‘‘[W]e want theconsumers to get a different experiencethan they get in Sam’s Club or in Wal–Mart. And you can’t get that kind ofexperience or support or customer servicefrom a store like Wal–Mart.’’ 5 Record127.

Respondent, PSKS, Inc. (PSKS), oper-ates Kay’s Kloset, a women’s apparel storein Lewisville, Texas. Kay’s Kloset buysfrom about 75 different manufacturers andat one time sold the Brighton brand. Itfirst started purchasing Brighton goodsfrom Leegin in 1995. Once it began sell-ing the brand, the store promoted Brigh-ton. For example, it ran Brighton adver-tisements and had Brighton days in thestore. S 883Kay’s Kloset became the desti-nation retailer in the area to buy Brightonproducts. Brighton was the store’s mostimportant brand and once accounted for 40to 50 percent of its profits.

In 1997, Leegin instituted the ‘‘BrightonRetail Pricing and Promotion Policy.’’ 4id., at 939. Following the policy, Leeginrefused to sell to retailers that discountedBrighton goods below suggested prices.The policy contained an exception forproducts not selling well that the retailerdid not plan on reordering. In the letterto retailers establishing the policy, Leeginstated:

‘‘In this age of mega stores like Macy’s,Bloomingdales, May Co. and others, con-sumers are perplexed by promises ofproduct quality and support of productwhich we believe is lacking in theselarge stores. Consumers are furtherconfused by the ever popular sale, sale,sale, etc.

‘‘We, at Leegin, choose to break awayfrom the pack by selling [at] specialtystores; specialty stores that can offer

the customer great quality merchandise,superb service, and support the Brigh-ton product 365 days a year on a consis-tent basis.

‘‘We realize that half the equation isLeegin producing great Brighton prod-uct and the other half is you, our retail-er, creating great looking stores sellingour products in a quality manner.’’Ibid.

Leegin adopted the policy to give its retail-ers sufficient margins to provide custom-ers the service central to its distributionstrategy. It also expressed concern thatdiscounting harmed Brighton’s brand im-age and reputation.

A year after instituting the pricing poli-cy Leegin introduced a marketing strategyknown as the ‘‘Heart Store Program.’’See id., at 962–972. It offered retailersincentives to become Heart Stores, and, inexchange, retailers pledged, among otherthings, to sell at Leegin’s suggested prices.Kay’s Kloset became a Heart Store soonafter Leegin created S 884the program. Af-ter a Leegin employee visited the storeand found it unattractive, the parties ap-pear to have agreed that Kay’s Klosetwould not be a Heart Store beyond 1998.Despite losing this status, Kay’s Klosetcontinued to increase its Brighton sales.

In December 2002, Leegin discoveredKay’s Kloset had been marking downBrighton’s entire line by 20 percent.Kay’s Kloset contended it placed Brightonproducts on sale to compete with nearbyretailers who also were undercutting Leeg-in’s suggested prices. Leegin, nonethe-less, requested that Kay’s Kloset ceasediscounting. Its request refused, Leeginstopped selling to the store. The loss ofthe Brighton brand had a considerablenegative impact on the store’s revenuefrom sales.


PSKS sued Leegin in the United StatesDistrict Court for the Eastern District ofTexas. It alleged, among other claims,that Leegin had violated the antitrust lawsby ‘‘enter[ing] into agreements with retail-ers to charge only those prices fixed byLeegin.’’ Id., at 1236. Leegin planned tointroduce expert testimony describing theprocompetitive effects of its pricing policy.The District Court excluded the testimony,relying on the per se rule established byDr. Miles. At trial PSKS argued that theHeart Store program, among other things,demonstrated Leegin and its retailers hadagreed to fix prices. Leegin respondedthat it had established a unilateral pricingpolicy lawful under § 1, which applies onlyto concerted action. See United States v.Colgate & Co., 250 U.S. 300, 307, 39 S.Ct.465, 63 L.Ed. 992 (1919). The jury agreedwith PSKS and awarded it $1.2 million.Pursuant to 15 U.S.C. § 15(a), the DistrictCourt trebled the damages and reim-bursed PSKS for its attorney’s fees andcosts. It entered judgment against Leeginin the amount of $3,975,000.80.

The Court of Appeals for the Fifth Cir-cuit affirmed. 171 Fed.Appx. 464 (2006)(per curiam). On appeal Leegin did notdispute that it had entered into verticalprice-fixing agreements with its retailers.Rather, it contended that the S 885rule ofreason should have applied to those agree-ments. The Court of Appeals rejected thisargument. Id., at 466–467. It was correctto explain that it remained bound by Dr.Miles ‘‘[b]ecause [the Supreme] Court hasconsistently applied the per se rule to [ver-tical minimum price-fixing] agreements.’’171 Fed.Appx., at 466. On this premisethe Court of Appeals held that the DistrictCourt did not abuse its discretion in ex-cluding the testimony of Leegin’s economicexpert, for the per se rule rendered irrele-vant any procompetitive justifications forLeegin’s pricing policy. Id., at 467. Wegranted certiorari to determine whether

vertical minimum resale price maintenanceagreements should continue to be treatedas per se unlawful. 549 U.S. 1092, 127S.Ct. 763, 166 L.Ed.2d 590 (2006).

II

[1] Section 1 of the Sherman Act pro-hibits ‘‘[e]very contract, combination in theform of trust or otherwise, or conspiracy,in restraint of trade or commerce amongthe several States.’’ Ch. 647, 26 Stat. 209,as amended, 15 U.S.C. § 1. While § 1could be interpreted to proscribe all con-tracts, see, e.g., Board of Trade of Chicagov. United States, 246 U.S. 231, 238, 38S.Ct. 242, 62 L.Ed. 683 (1918), the Courthas never ‘‘taken a literal approach to [its]language,’’ Texaco Inc. v. Dagher, 547 U.S.1, 5, 126 S.Ct. 1276, 164 L.Ed.2d 1 (2006).Rather, the Court has repeated time andagain that § 1 ‘‘outlaw[s] only unreason-able restraints.’’ State Oil Co. v. Khan,522 U.S. 3, 10, 118 S.Ct. 275, 139 L.Ed.2d199 (1997).

[2, 3] The rule of reason is the accept-ed standard for testing whether a practicerestrains trade in violation of § 1. SeeTexaco, supra, at 5, 126 S.Ct. 1276. ‘‘Un-der this rule, the factfinder weighs all ofthe circumstances of a case in decidingwhether a restrictive practice should beprohibited as imposing an unreasonablerestraint on competition.’’ Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36,49, 97 S.Ct. 2549, 53 L.Ed.2d 568 (1977).Appropriate factors to take into accountinclude ‘‘specific information about the rel-evant business’’ and ‘‘the restraint’s histo-ry, nature, and effect.’’ Khan, supra, at10, 118 S.Ct. 275. Whether the busiSness-es886 involved have market power is a fur-ther, significant consideration. See, e.g.,Copperweld Corp. v. Independence TubeCorp., 467 U.S. 752, 768, 104 S.Ct. 2731, 81L.Ed.2d 628 (1984) (equating the rule of


551 U.S. 887

reason with ‘‘an inquiry into market powerand market structure designed to assess [arestraint’s] actual effect’’); see also Illi-nois Tool Works Inc. v. Independent Ink,Inc., 547 U.S. 28, 45–46, 126 S.Ct. 1281,164 L.Ed.2d 26 (2006). In its design andfunction the rule distinguishes between re-straints with anticompetitive effect thatare harmful to the consumer and re-straints stimulating competition that are inthe consumer’s best interest.

[4] The rule of reason does not governall restraints. Some types ‘‘are deemedunlawful per se.’’ Khan, supra, at 10, 118S.Ct. 275. The per se rule, treating cate-gories of restraints as necessarily illegal,eliminates the need to study the reason-ableness of an individual restraint in lightof the real market forces at work, Busi-ness Electronics Corp. v. Sharp Electron-ics Corp., 485 U.S. 717, 723, 108 S.Ct. 1515,99 L.Ed.2d 808 (1988); and, it must beacknowledged, the per se rule can giveclear guidance for certain conduct. Re-straints that are per se unlawful includehorizontal agreements among competitorsto fix prices, see Texaco, supra, at 5, 126S.Ct. 1276, or to divide markets, see Palm-er v. BRG of Ga., Inc., 498 U.S. 46, 49–50,111 S.Ct. 401, 112 L.Ed.2d 349 (1990) (percuriam).

[5] Resort to per se rules is confined torestraints, like those mentioned, ‘‘thatwould always or almost always tend torestrict competition and decrease output.’’Business Electronics, supra, at 723, 108S.Ct. 1515 (internal quotation marks omit-ted). To justify a per se prohibition arestraint must have ‘‘manifestly anticom-petitive’’ effects, GTE Sylvania, supra, at50, 97 S.Ct. 2549, and ‘‘lack TTT any re-deeming virtue,’’ Northwest Wholesale Sta-tioners, Inc. v. Pacific Stationery & Print-ing Co., 472 U.S. 284, 289, 105 S.Ct. 2613,86 L.Ed.2d 202 (1985) (internal quotationmarks omitted).

[6] As a consequence, the per se rule isappropriate only after courts have hadconsiderable experience with the type ofrestraint at issue, see Broadcast Music,Inc. v. Columbia Broadcasting System,Inc., 441 U.S. 1, 9, 99 S.Ct. 1551, 60L.Ed.2d 1 (1979), and only if courts canpredict with confidence that it would beinvaliSdated887 in all or almost all instancesunder the rule of reason, see Arizona v.Maricopa County Medical Soc., 457 U.S.332, 344, 102 S.Ct. 2466, 73 L.Ed.2d 48(1982). It should come as no surprise,then, that ‘‘we have expressed reluctanceto adopt per se rules with regard to re-straints imposed in the context of businessrelationships where the economic impact ofcertain practices is not immediately obvi-ous.’’ Khan, supra, at 10, 118 S.Ct. 275(internal quotation marks omitted); seealso White Motor Co. v. United States, 372U.S. 253, 263, 83 S.Ct. 696, 9 L.Ed.2d 738(1963) (refusing to adopt a per se rule for avertical nonprice restraint because of theuncertainty concerning whether this typeof restraint satisfied the demanding stan-dards necessary to apply a per se rule).And, as we have stated, a ‘‘departure fromthe rule-of-reason standard must be basedupon demonstrable economic effect ratherthan TTT upon formalistic line drawing.’’GTE Sylvania, supra, at 58–59, 97 S.Ct.2549.

III

The Court has interpreted Dr. MilesMedical Co. v. John D. Park & Sons Co.,220 U.S. 373, 31 S.Ct. 376, as establishinga per se rule against a vertical agreementbetween a manufacturer and its distributorto set minimum resale prices. See, e.g.,Monsanto Co. v. Spray–Rite Service Corp.,465 U.S. 752, 761, 104 S.Ct. 1464, 79L.Ed.2d 775 (1984). In Dr. Miles theplaintiff, a manufacturer of medicines, soldits products only to distributors who


agreed to resell them at set prices. TheCourt found the manufacturer’s control ofresale prices to be unlawful. It relied onthe common-law rule that ‘‘a general re-straint upon alienation is ordinarily inval-id.’’ 220 U.S., at 404–405, 31 S.Ct. 376.The Court then explained that the agree-ments would advantage the distributors,not the manufacturer, and were analogousto a combination among competing distrib-utors, which the law treated as void. Id.,at 407–408, 31 S.Ct. 376.

The reasoning of the Court’s more re-cent jurisprudence has rejected the ratio-nales on which Dr. Miles was based. Byrelying on the common-law rule againstrestraints on alienation, id., at 404–405, 31S.Ct. 376, the Court justified its decisionS 888based on ‘‘formalistic’’ legal doctrinerather than ‘‘demonstrable economic ef-fect,’’ GTE Sylvania, 433 U.S., at 58–59, 97S.Ct. 2549. The Court in Dr. Miles reliedon a treatise published in 1628, but failedto discuss in detail the business reasonsthat would motivate a manufacturer situat-ed in 1911 to make use of vertical pricerestraints. Yet the Sherman Act’s use of‘‘restraint of trade’’ ‘‘invokes the commonlaw itself, TTT not merely the static contentthat the common law had assigned to theterm in 1890.’’ Business Electronics, su-pra, at 732, 108 S.Ct. 1515. The generalrestraint on alienation, especially in theage when then-Justice Hughes used theterm, tended to evoke policy concerns ex-traneous to the question that controlshere. Usually associated with land, notchattels, the rule arose from restrictionsremoving real property from the stream ofcommerce for generations. The Courtshould be cautious about putting disposi-tive weight on doctrines from antiquity butof slight relevance. We reaffirm that ‘‘thestate of the common law 400 or even 100years ago is irrelevant to the issue beforeus: the effect of the antitrust laws uponvertical distributional restraints in the

American economy today.’’ GTE Sylva-nia, supra, at 53, n. 21, 97 S.Ct. 2549(internal quotation marks omitted).

Dr. Miles, furthermore, treated verticalagreements a manufacturer makes with itsdistributors as analogous to a horizontalcombination among competing distribu-tors. See 220 U.S., at 407–408, 31 S.Ct.376. In later cases, however, the Courtrejected the approach of reliance on rulesgoverning horizontal restraints when de-fining rules applicable to vertical ones.See, e.g., Business Electronics, supra, at734, 108 S.Ct. 1515 (disclaiming the ‘‘notionof equivalence between the scope of hori-zontal per se illegality and that of verticalper se illegality’’); Maricopa County, su-pra, at 348, n. 18, 102 S.Ct. 2466 (notingthat ‘‘horizontal restraints are generallyless defensible than vertical restraints’’).Our recent cases formulate antitrust prin-ciples in accordance with the appreciateddifferences in economic effect between ver-tical and horizontal agreements, differ-ences the Dr. Miles Court failed to consid-er.

S 889The reasons upon which Dr. Milesrelied do not justify a per se rule. As aconsequence, it is necessary to examine, inthe first instance, the economic effects ofvertical agreements to fix minimum resaleprices, and to determine whether the perse rule is nonetheless appropriate. SeeBusiness Electronics, 485 U.S., at 726, 108S.Ct. 1515.

A

[7] Though each side of the debate canfind sources to support its position, it suf-fices to say here that economics literatureis replete with procompetitive justificationsfor a manufacturer’s use of resale pricemaintenance. See, e.g., Brief for Econo-mists as Amici Curiae 16 (‘‘In the theoret-ical literature, it is essentially undisputed


551 U.S. 891

that minimum [resale price maintenance]can have procompetitive effects and thatunder a variety of market conditions it isunlikely to have anticompetitive effects’’);Brief for United States as Amicus Curiae9 (‘‘[T]here is a widespread consensus thatpermitting a manufacturer to control theprice at which its goods are sold maypromote interbrand competition and con-sumer welfare in a variety of ways’’); ABASection of Antitrust Law, Antitrust Lawand Economics of Product Distribution 76(2006) (‘‘[T]he bulk of the economic litera-ture on [resale price maintenance] sug-gests that [it] is more likely to be used toenhance efficiency than for anticompetitivepurposes’’); see also H. Hovenkamp, TheAntitrust Enterprise: Principle and Exe-cution 184–191 (2005) (hereinafter Hoven-kamp); R. Bork, The Antitrust Paradox288–291 (1978) (hereinafter Bork). Eventhose more skeptical of resale price main-tenance acknowledge it can have procom-petitive effects. See, e.g., Brief for Wil-liam S. Comanor et al. as Amici Curiae 3(‘‘[G]iven [the] diversity of effects [of re-sale price maintenance], one could reason-ably take the position that a rule of reasonrather than a per se approach is warrant-ed’’); F. Scherer & D. Ross, IndustrialMarket Structure and Economic Perform-ance 558 (3d ed.1990) (hereinafter Scherer& Ross) (‘‘The overall balSance890 betweenbenefits and costs [of resale price mainte-nance] is probably close’’).

The few recent studies documenting thecompetitive effects of resale price mainte-nance also cast doubt on the conclusionthat the practice meets the criteria for aper se rule. See Bureau of EconomicsStaff Report to the FTC, T. Overstreet,Resale Price Maintenance: Economic The-ories and Empirical Evidence 170 (1983)(hereinafter Overstreet) (noting that ‘‘[e]f-ficient uses of [resale price maintenance]are evidently not unusual or rare’’); seealso Ippolito, Resale Price Maintenance:

Empirical Evidence From Litigation, 34 J.Law & Econ. 263, 292–293 (1991) (herein-after Ippolito).

The justifications for vertical price re-straints are similar to those for other ver-tical restraints. See GTE Sylvania, 433U.S., at 54–57, 97 S.Ct. 2549. Minimumresale price maintenance can stimulate in-terbrand competition—the competitionamong manufacturers selling differentbrands of the same type of product—byreducing intrabrand competition—the com-petition among retailers selling the samebrand. See id., at 51–52, 97 S.Ct. 2549.The promotion of interbrand competition isimportant because ‘‘the primary purpose ofthe antitrust laws is to protect [this typeof] competition.’’ Khan, 522 U.S., at 15,118 S.Ct. 275. A single manufacturer’suse of vertical price restraints tends toeliminate intrabrand price competition;this in turn encourages retailers to investin tangible or intangible services or pro-motional efforts that aid the manufactur-er’s position as against rival manufactur-ers. Resale price maintenance also hasthe potential to give consumers more op-tions so that they can choose among low-price, low-service brands; high-price, high-service brands; and brands that fall inbetween.

Absent vertical price restraints, the re-tail services that enhance interbrand com-petition might be underprovided. This isbecause discounting retailers can free rideon retailers who furnish services and thencapture some of the increased demandthose services generate. GTE Sylvania,supra, at 55, 97 S.Ct. 2549. Consumersmight learn, for example, about S 891the ben-efits of a manufacturer’s product from aretailer that invests in fine showrooms,offers product demonstrations, or hiresand trains knowledgeable employees. R.Posner, Antitrust Law 172–173 (2ded.2001) (hereinafter Posner). Or consum-ers might decide to buy the product be-


cause they see it in a retail establishmentthat has a reputation for selling high-quali-ty merchandise. Marvel & McCafferty,Resale Price Maintenance and QualityCertification, 15 Rand J. Econ. 346, 347–349 (1984) (hereinafter Marvel & McCaf-ferty). If the consumer can then buy theproduct from a retailer that discounts be-cause it has not spent capital providingservices or developing a quality reputation,the high-service retailer will lose sales tothe discounter, forcing it to cut back itsservices to a level lower than consumerswould otherwise prefer. Minimum resaleprice maintenance alleviates the problembecause it prevents the discounter fromundercutting the service provider. Withprice competition decreased, the manufac-turer’s retailers compete among them-selves over services.

Resale price maintenance, in addition,can increase interbrand competition by fa-cilitating market entry for new firms andbrands. ‘‘[N]ew manufacturers and manu-facturers entering new markets can usethe restrictions in order to induce compe-tent and aggressive retailers to make thekind of investment of capital and labor thatis often required in the distribution ofproducts unknown to the consumer.’’GTE Sylvania, supra, at 55, 97 S.Ct. 2549;see Marvel & McCafferty 349 (noting thatreliance on a retailer’s reputation ‘‘will de-cline as the manufacturer’s brand becomesbetter known, so that [resale price mainte-nance] may be particularly important as acompetitive device for new entrants’’).New products and new brands are essen-tial to a dynamic economy, and if marketscan be penetrated by using resale pricemaintenance there is a procompetitive ef-fect.

Resale price maintenance can also in-crease interbrand competition by encour-aging retailer services that would not S 892beprovided even absent free riding. It may

be difficult and inefficient for a manufac-turer to make and enforce a contract witha retailer specifying the different servicesthe retailer must perform. Offering theretailer a guaranteed margin and threaten-ing termination if it does not live up toexpectations may be the most efficient wayto expand the manufacturer’s marketshare by inducing the retailer’s perform-ance and allowing it to use its own initia-tive and experience in providing valuableservices. See Mathewson & Winter, TheLaw and Economics of Resale Price Main-tenance, 13 Rev. Indus. Org. 57, 74–75(1998) (hereinafter Mathewson & Winter);Klein & Murphy, Vertical Restraints asContract Enforcement Mechanisms, 31 J.Law & Econ. 265, 295 (1988); see alsoDeneckere, Marvel, & Peck, Demand Un-certainty, Inventories, and Resale PriceMaintenance, 111 Q.J. Econ. 885, 911(1996) (noting that resale price mainte-nance may be beneficial to motivate retail-ers to stock adequate inventories of a man-ufacturer’s goods in the face of uncertainconsumer demand).

B

While vertical agreements setting mini-mum resale prices can have procompetitivejustifications, they may have anticompeti-tive effects in other cases; and unlawfulprice fixing, designed solely to obtain mo-nopoly profits, is an ever–present tempta-tion. Resale price maintenance may, forexample, facilitate a manufacturer cartel.See Business Electronics, 485 U.S., at 725,108 S.Ct. 1515. An unlawful cartel willseek to discover if some manufacturers areundercutting the cartel’s fixed prices. Re-sale price maintenance could assist thecartel in identifying price-cutting manufac-turers who benefit from the lower pricesthey offer. Resale price maintenance, fur-thermore, could discourage a manufacturerfrom cutting prices to retailers with theconcomitant benefit of cheaper prices to


551 U.S. 894

consumers. See ibid.; see also Posner172; Overstreet 19–23.

S 893Vertical price restraints also ‘‘mightbe used to organize cartels at the retailerlevel.’’ Business Electronics, supra, at725–726, 108 S.Ct. 1515. A group of retail-ers might collude to fix prices to consum-ers and then compel a manufacturer to aidthe unlawful arrangement with resale pricemaintenance. In that instance the manu-facturer does not establish the practice tostimulate services or to promote its brandbut to give inefficient retailers higher prof-its. Retailers with better distribution sys-tems and lower cost structures would beprevented from charging lower prices bythe agreement. See Posner 172; Over-street 13–19. Historical examples suggestthis possibility is a legitimate concern.See, e.g., Marvel & McCafferty, The Wel-fare Effects of Resale Price Maintenance,28 J. Law & Econ. 363, 373 (1985) (herein-after Marvel) (providing an example of thepower of the National Association of RetailDruggists to compel manufacturers to useresale price maintenance); Hovenkamp186 (suggesting that the retail druggists inDr. Miles formed a cartel and used manu-facturers to enforce it).

A horizontal cartel among competingmanufacturers or competing retailers thatdecreases output or reduces competition inorder to increase price is, and ought to be,per se unlawful. See Texaco, 547 U.S., at5, 126 S.Ct. 1276; GTE Sylvania, 433 U.S.,at 58, n. 28, 97 S.Ct. 2549. To the extent avertical agreement setting minimum resaleprices is entered upon to facilitate eithertype of cartel, it, too, would need to beheld unlawful under the rule of reason.This type of agreement may also be usefulevidence for a plaintiff attempting to provethe existence of a horizontal cartel.

Resale price maintenance, furthermore,can be abused by a powerful manufactureror retailer. A dominant retailer, for exam-

ple, might request resale price mainte-nance to forestall innovation in distributionthat decreases costs. A manufacturermight consider it has little choice but toaccommodate the retailer’s demands forvertical price restraints if the manufactur-er believes it needs access to the retailer’sS 894distribution network. See Overstreet31; 8 P. Areeda & H. Hovenkamp, Anti-trust Law 47 (2d ed.2004) (hereinafter Ar-eeda & Hovenkamp); cf. Toys ‘‘R’’ Us, Inc.v. FTC, 221 F.3d 928, 937–938 (C.A.72000). A manufacturer with market pow-er, by comparison, might use resale pricemaintenance to give retailers an incentivenot to sell the products of smaller rivals ornew entrants. See, e.g., Marvel 366–368.As should be evident, the potential anti-competitive consequences of vertical pricerestraints must not be ignored or underes-timated.

C

Notwithstanding the risks of unlawfulconduct, it cannot be stated with any de-gree of confidence that resale price main-tenance ‘‘always or almost always tend[s]to restrict competition and decrease out-put.’’ Business Electronics, supra, at 723,108 S.Ct. 1515 (internal quotation marksomitted). Vertical agreements establish-ing minimum resale prices can have eitherprocompetitive or anticompetitive effects,depending upon the circumstances inwhich they are formed. And although theempirical evidence on the topic is limited,it does not suggest efficient uses of theagreements are infrequent or hypothetical.See Overstreet 170; see also id., at 80(noting that for the majority of enforce-ment actions brought by the FederalTrade Commission between 1965 and 1982,‘‘the use of [resale price maintenance] wasnot likely motivated by collusive dealerswho had successfully coerced their suppli-ers’’); Ippolito 292 (reaching a similar con-


clusion). As the rule would proscribe asignificant amount of procompetitive con-duct, these agreements appear ill suitedfor per se condemnation.

[8] Respondent contends, nonetheless,that vertical price restraints should be perse unlawful because of the administrativeconvenience of per se rules. See, e.g.,GTE Sylvania, supra, at 50, n. 16, 97 S.Ct.2549 (noting ‘‘per se rules tend to provideguidance to the business community and tominimize the burdens on litigants and thejudicial system’’). That argumentsugSgests895 per se illegality is the rule rath-er than the exception. This misinterpretsour antitrust law. Per se rules may de-crease administrative costs, but that isonly part of the equation. Those rules canbe counterproductive. They can increasethe total cost of the antitrust system byprohibiting procompetitive conduct the an-titrust laws should encourage. See East-erbrook, Vertical Arrangements and theRule of Reason, 53 Antitrust L.J. 135, 158(1984) (hereinafter Easterbrook). Theyalso may increase litigation costs by pro-moting frivolous suits against legitimatepractices. The Court has thus explainedthat administrative ‘‘advantages are notsufficient in themselves to justify the cre-ation of per se rules,’’ GTE Sylvania, 433U.S., at 50, n. 16, 97 S.Ct. 2549, and hasrelegated their use to restraints that are‘‘manifestly anticompetitive,’’ id., at 49–50,97 S.Ct. 2549. Were the Court now toconclude that vertical price restraintsshould be per se illegal based on adminis-trative costs, we would undermine, if notoverrule, the traditional ‘‘demanding stan-dards’’ for adopting per se rules. Id., at50, 97 S.Ct. 2549. Any possible reductionin administrative costs cannot alone justifythe Dr. Miles rule.

[9] Respondent also argues the per serule is justified because a vertical pricerestraint can lead to higher prices for the

manufacturer’s goods. See also Over-street 160 (noting that ‘‘price surveys indi-cate that [resale price maintenance] inmost cases increased the prices of prod-ucts sold’’). Respondent is mistaken inrelying on pricing effects absent a furthershowing of anticompetitive conduct. Cf.id., at 106 (explaining that price surveys‘‘do not necessarily tell us anything conclu-sive about the welfare effects of [resaleprice maintenance] because the results aregenerally consistent with both procompeti-tive and anticompetitive theories’’). For,as has been indicated already, the antitrustlaws are designed primarily to protect in-terbrand competition, from which lowerprices can later result. See Khan, 522U.S., at 15, 118 S.Ct. 275. The Court,moreover, has evaluated other vertical re-straints under the rule of reason eventhough prices can be S 896increased in thecourse of promoting procompetitive ef-fects. See, e.g., Business Electronics, 485U.S., at 728, 108 S.Ct. 1515. And resaleprice maintenance may reduce prices ifmanufacturers have resorted to costlier al-ternatives of controlling resale prices thatare not per se unlawful. See infra, at2721 – 2724; see also Marvel 371.

Respondent’s argument, furthermore,overlooks that, in general, the interests ofmanufacturers and consumers are alignedwith respect to retailer profit margins.The difference between the price a manu-facturer charges retailers and the priceretailers charge consumers representspart of the manufacturer’s cost of distribu-tion, which, like any other cost, the manu-facturer usually desires to minimize. SeeGTE Sylvania, 433 U.S., at 56, n. 24, 97S.Ct. 2549; see also id., at 56, 97 S.Ct.2549 (‘‘Economists TTT have argued thatmanufacturers have an economic interestin maintaining as much intrabrand compe-tition as is consistent with the efficientdistribution of their products’’). A manu-


551 U.S. 898

facturer has no incentive to overcompen-sate retailers with unjustified margins.The retailers, not the manufacturer, gainfrom higher retail prices. The manufac-turer often loses; interbrand competitionreduces its competitiveness and marketshare because consumers will ‘‘substitute adifferent brand of the same product.’’ Id.,at 52, n. 19, 97 S.Ct. 2549; see BusinessElectronics, supra, at 725, 108 S.Ct. 1515.As a general matter, therefore, a singlemanufacturer will desire to set minimumresale prices only if the ‘‘increase in de-mand resulting from enhanced service TTT

will more than offset a negative impact ondemand of a higher retail price.’’ Mathew-son & Winter 67.

The implications of respondent’s positionare far reaching. Many decisions a manu-facturer makes and carries out throughconcerted action can lead to higher prices.A manufacturer might, for example, con-tract with different suppliers to obtain bet-ter inputs that improve product quality.Or it might hire an advertising agency topromote awareness of its goods. Yet noone would think these actions violate theS 897Sherman Act because they lead to high-er prices. The antitrust laws do not re-quire manufacturers to produce genericgoods that consumers do not know aboutor want. The manufacturer strives to im-prove its product quality or to promote itsbrand because it believes this conduct willlead to increased demand despite higherprices. The same can hold true for resaleprice maintenance.

Resale price maintenance, it is true,does have economic dangers. If the ruleof reason were to apply to vertical pricerestraints, courts would have to be diligentin eliminating their anticompetitive usesfrom the market. This is a realistic objec-tive, and certain factors are relevant to theinquiry. For example, the number ofmanufacturers that make use of the prac-

tice in a given industry can provide impor-tant instruction. When only a few manu-facturers lacking market power adopt thepractice, there is little likelihood it is facili-tating a manufacturer cartel, for a cartelthen can be undercut by rival manufactur-ers. See Overstreet 22; Bork 294. Like-wise, a retailer cartel is unlikely when onlya single manufacturer in a competitivemarket uses resale price maintenance. In-terbrand competition would divert consum-ers to lower priced substitutes and elimi-nate any gains to retailers from theirprice-fixing agreement over a single brand.See Posner 172; Bork 292. Resale pricemaintenance should be subject to morecareful scrutiny, by contrast, if many com-peting manufacturers adopt the practice.Cf. Scherer & Ross 558 (noting that ‘‘ex-cept when [resale price maintenance]spreads to cover the bulk of an industry’soutput, depriving consumers of a meaning-ful choice between high-service and low-price outlets, most [resale price mainte-nance arrangements] are probably innocu-ous’’); Easterbrook 162 (suggesting that‘‘every one of the potentially-anticompeti-tive outcomes of vertical arrangements de-pends on the uniformity of the practice’’).

The source of the restraint may also bean important consideration. If there isevidence retailers were the impetus S 898fora vertical price restraint, there is a greaterlikelihood that the restraint facilitates aretailer cartel or supports a dominant, in-efficient retailer. See Brief for William S.Comanor et al. as Amici Curiae 7–8. If,by contrast, a manufacturer adopted thepolicy independent of retailer pressure, therestraint is less likely to promote anticom-petitive conduct. Cf. Posner 177 (‘‘Itmakes all the difference whether minimumretail prices are imposed by the manufac-turer in order to evoke point-of-sale ser-vices or by the dealers in order to obtainmonopoly profits’’). A manufacturer alsohas an incentive to protest inefficient re-


tailer-induced price restraints becausethey can harm its competitive position.

As a final matter, that a dominant manu-facturer or retailer can abuse resale pricemaintenance for anticompetitive purposesmay not be a serious concern unless therelevant entity has market power. If aretailer lacks market power, manufactur-ers likely can sell their goods through rivalretailers. See also Business Electronics,supra, at 727, n. 2, 108 S.Ct. 1515 (noting‘‘[r]etail market power is rare, because ofthe usual presence of interbrand competi-tion and other dealers’’). And if a manu-facturer lacks market power, there is lesslikelihood it can use the practice to keepcompetitors away from distribution outlets.

The rule of reason is designed and usedto eliminate anticompetitive transactionsfrom the market. This standard principleapplies to vertical price restraints. A par-ty alleging injury from a vertical agree-ment setting minimum resale prices willhave, as a general matter, the informationand resources available to show the exis-tence of the agreement and its scope ofoperation. As courts gain experience con-sidering the effects of these restraints byapplying the rule of reason over the courseof decisions, they can establish the litiga-tion structure to ensure the rule operatesto eliminate anticompetitive restraintsfrom the market and to provide more guid-ance to businesses. Courts can, for exam-ple, devise rules over time for offeringproof, or even presumptions S 899where jus-tified, to make the rule of reason a fair andefficient way to prohibit anticompetitiverestraints and to promote procompetitiveones.

For all of the foregoing reasons, wethink that were the Court considering theissue as an original matter, the rule ofreason, not a per se rule of unlawfulness,would be the appropriate standard tojudge vertical price restraints.

IV

[10] We do not write on a clean slate,for the decision in Dr. Miles is almost acentury old. So there is an argument forits retention on the basis of stare decisisalone. Even if Dr. Miles established anerroneous rule, ‘‘[s]tare decisis reflects apolicy judgment that in most matters it ismore important that the applicable rule oflaw be settled than that it be settledright.’’ Khan, 522 U.S., at 20, 118 S.Ct.275 (internal quotation marks omitted).And concerns about maintaining settledlaw are strong when the question is one ofstatutory interpretation. See, e.g., Hohnv. United States, 524 U.S. 236, 251, 118S.Ct. 1969, 141 L.Ed.2d 242 (1998).

[11] Stare decisis is not as significantin this case, however, because the issuebefore us is the scope of the Sherman Act.Khan, supra, at 20, 118 S.Ct. 275 (‘‘[T]hegeneral presumption that legislativechanges should be left to Congress hasless force with respect to the ShermanAct’’). From the beginning the Court hastreated the Sherman Act as a common-lawstatute. See National Soc. of ProfessionalEngineers v. United States, 435 U.S. 679,688, 98 S.Ct. 1355, 55 L.Ed.2d 637 (1978);see also Northwest Airlines, Inc. v. Trans-port Workers, 451 U.S. 77, 98, n. 42, 101S.Ct. 1571, 67 L.Ed.2d 750 (1981) (‘‘Inantitrust, the federal courts TTT act moreas common-law courts than in other areasgoverned by federal statute’’). Just as thecommon law adapts to modern understand-ing and greater experience, so too does theSherman Act’s prohibition on ‘‘restraint[s]of trade’’ evolve to meet the dynamics ofpresent economic conditions. The case-by-case adjudication contemplated by the ruleof reason has implemented this common-law approach. See National Soc. of Pro-fessional S 900Engineers, supra, at 688, 98S.Ct. 1355. Likewise, the boundaries of


551 U.S. 901

the doctrine of per se illegality should notbe immovable. For ‘‘[i]t would make nosense to create out of the single term‘restraint of trade’ a chronologically schiz-oid statute, in which a ‘rule of reason’evolves with new circumstances and newwisdom, but a line of per se illegality re-mains forever fixed where it was.’’ Busi-ness Electronics, 485 U.S., at 732, 108S.Ct. 1515.

A

[12] Stare decisis, we conclude, doesnot compel our continued adherence to theper se rule against vertical price restraints.As discussed earlier, respected authoritiesin the economics literature suggest the perse rule is inappropriate, and there is nowwidespread agreement that resale pricemaintenance can have procompetitive ef-fects. See, e.g., Brief for Economists asAmici Curiae 16. It is also significantthat both the Department of Justice andthe Federal Trade Commission—the anti-trust enforcement agencies with the abilityto assess the long-term impacts of resaleprice maintenance—have recommendedthat this Court replace the per se rule withthe traditional rule of reason. See Brieffor United States as Amicus Curiae 6. Inthe antitrust context the fact that a deci-sion has been ‘‘called into serious question’’justifies our reevaluation of it. Khan, su-pra, at 21, 118 S.Ct. 275.

Other considerations reinforce the con-clusion that Dr. Miles should be over-turned. Of most relevance, ‘‘we have over-ruled our precedents when subsequentcases have undermined their doctrinal un-derpinnings.’’ Dickerson v. United States,530 U.S. 428, 443, 120 S.Ct. 2326, 147L.Ed.2d 405 (2000). The Court’s treat-ment of vertical restraints has progressedaway from Dr. Miles ’ strict approach.We have distanced ourselves from theopinion’s rationales. See supra, at 2713 –

2714; see also Khan, supra, at 21, 118S.Ct. 275 (overruling a case when ‘‘theviews underlying [it had been] eroded bythis Court’s precedent’’); Rodriguez deQuijas v. Shearson/American Express,Inc., 490 U.S. 477, 480–481, 109 S.Ct. 1917,104 L.Ed.2d 526 (1989) (same). This isunsurprising, for the case was decided notlong after enactment of the S 901ShermanAct when the Court had little experiencewith antitrust analysis. Only eight yearsafter Dr. Miles, moreover, the Courtreined in the decision by holding that amanufacturer can announce suggested re-sale prices and refuse to deal with distrib-utors who do not follow them. Colgate,250 U.S., at 307–308, 39 S.Ct. 465.

In more recent cases the Court, follow-ing a common-law approach, has continuedto temper, limit, or overrule once strictprohibitions on vertical restraints. In1977, the Court overturned the per se rulefor vertical nonprice restraints, adoptingthe rule of reason in its stead. GTE Syl-vania, 433 U.S., at 57–59, 97 S.Ct. 2549(overruling United States v. Arnold,Schwinn & Co., 388 U.S. 365, 87 S.Ct.1856, 18 L.Ed.2d 1249 (1967)); see also 433U.S., at 58, n. 29, 97 S.Ct. 2549 (noting‘‘that the advantages of vertical restric-tions should not be limited to the catego-ries of new entrants and failing firms’’).While the Court in a footnote in GTESylvania suggested that differences be-tween vertical price and nonprice re-straints could support different legal treat-ment, see id., at 51, n. 18, 97 S.Ct. 2549,the central part of the opinion relied onauthorities and arguments that find un-equal treatment ‘‘difficult to justify,’’ id., at69–70, 97 S.Ct. 2549 (White, J., concurringin judgment).

Continuing in this direction, in two casesin the 1980’s the Court defined legal rulesto limit the reach of Dr. Miles and toaccommodate the doctrines enunciated in


GTE Sylvania and Colgate. See BusinessElectronics, supra, at 726–728, 108 S.Ct.1515; Monsanto, 465 U.S., at 763–764, 104S.Ct. 1464. In Monsanto, the Court re-quired that antitrust plaintiffs alleging a§ 1 price-fixing conspiracy must presentevidence tending to exclude the possibilitya manufacturer and its distributors actedin an independent manner. Id., at 764,104 S.Ct. 1464. Unlike Justice Brennan’sconcurrence, which rejected argumentsthat Dr. Miles should be overruled, see465 U.S., at 769, 104 S.Ct. 1464, the Court‘‘decline[d] to reach the question’’ whethervertical agreements fixing resale prices al-ways should be unlawful because neitherparty suggested otherwise, id., at 761–762,n. 7, 104 S.Ct. 1464. In S 902Business Elec-tronics the Court further narrowed thescope of Dr. Miles. It held that the per serule applied only to specific agreementsover price levels and not to an agreementbetween a manufacturer and a distributorto terminate a price-cutting distributor.485 U.S., at 726–727, 735–736, 108 S.Ct.1515.

Most recently, in 1997, after examiningthe issue of vertical maximum price-fixingagreements in light of commentary andreal experience, the Court overruled a 29–year–old precedent treating those agree-ments as per se illegal. Khan,, 522 U.S.,at 22, 118 S.Ct. 275 (overruling Albrecht v.Herald Co., 390 U.S. 145, 88 S.Ct. 869, 19L.Ed.2d 998 (1968)). It held instead thatthey should be evaluated under the tradi-tional rule of reason. 522 U.S., at 22, 118S.Ct. 275. Our continued limiting of thereach of the decision in Dr. Miles and ourrecent treatment of other vertical re-straints justify the conclusion that Dr.Miles should not be retained.

The Dr. Miles rule is also inconsistentwith a principled framework, for it makeslittle economic sense when analyzed withour other cases on vertical restraints. Ifwe were to decide the procompetitive ef-

fects of resale price maintenance were in-sufficient to overrule Dr. Miles, then casessuch as Colgate and GTE Sylvania them-selves would be called into question.These later decisions, while they may re-sult in less intrabrand competition, can bejustified because they permit manufactur-ers to secure the procompetitive benefitsassociated with vertical price restraintsthrough other methods. The other meth-ods, however, could be less efficient for aparticular manufacturer to establish andsustain. The end result hinders competi-tion and consumer welfare because manu-facturers are forced to engage in second-best alternatives and because consumersare required to shoulder the increased ex-pense of the inferior practices.

The manufacturer has a number of legit-imate options to achieve benefits similar tothose provided by vertical price restraints.A manufacturer can exercise its Colgateright to refuse to deal with retailers thatdo not follow its suggested prices. See250 U.S., at 307, 39 S.Ct. 465. The eco-nomic effects of uniSlateral903 and concertedprice setting are in general the same.See, e.g., Monsanto, 465 U.S., at 762–764,104 S.Ct. 1464. The problem for the man-ufacturer is that a jury might conclude itsunilateral policy was really a verticalagreement, subjecting it to treble damagesand potential criminal liability. Ibid.;Business Electronics, supra, at 728, 108S.Ct. 1515. Even with the stringent stan-dards in Monsanto and Business Electron-ics, this danger can lead, and has led,rational manufacturers to take wastefulmeasures. See, e.g., Brief for PING, Inc.,as Amicus Curiae 9–18. A manufacturermight refuse to discuss its pricing policywith its distributors except through coun-sel knowledgeable of the subtle intricaciesof the law. Or it might terminate long-standing distributors for minor violationswithout seeking an explanation. See ibid.The increased costs these burdensome


551 U.S. 905

measures generate flow to consumers inthe form of higher prices.

Furthermore, depending on the type ofproduct it sells, a manufacturer might beable to achieve the procompetitive benefitsof resale price maintenance by integratingdownstream and selling its products di-rectly to consumers. Dr. Miles tilts therelative costs of vertical integration andvertical agreement by making the formermore attractive based on the per se rule,not on real market conditions. See Busi-ness Electronics, supra, at 725, 108 S.Ct.1515; see generally Coase, The Nature ofthe Firm, 4 Economica, New Series 386(1937). This distortion might lead to inef-ficient integration that would not other-wise take place, so that consumers mustagain suffer the consequences of the su-boptimal distribution strategy. And inte-gration, unlike vertical price restraints,eliminates all intrabrand competition.See, e.g., GTE Sylvania, supra, at 57, n.26, 97 S.Ct. 2549.

There is yet another consideration. Amanufacturer can impose territorial re-strictions on distributors and allow onlyone distributor to sell its goods in a givenregion. Our cases have recognized, andthe economics literature confirms, thatthese vertical nonprice restraints have im-pacts similar to S 904those of vertical pricerestraints; both reduce intrabrand compe-tition and can stimulate retailer services.See, e.g., Business Electronics, supra, at728, 108 S.Ct. 1515; Monsanto, supra, at762–763, 104 S.Ct. 1464; see also Brief forEconomists as Amici Curiae 17–18. Cf.Scherer & Ross 560 (noting that verticalnonprice restraints ‘‘can engender ineffi-ciencies at least as serious as those im-posed upon the consumer by resale pricemaintenance’’); Steiner, How Manufactur-ers Deal with the Price–Cutting Retailer:When Are Vertical Restraints Efficient? 65Antitrust L.J. 407, 446–447 (1997) (indicat-

ing that ‘‘antitrust law should recognizethat the consumer interest is often betterserved by [resale price maintenance]—con-trary to its per se illegality and the rule-of-reason status of vertical nonprice re-straints’’). The same legal standard (perse unlawfulness) applies to horizontal mar-ket division and horizontal price fixing be-cause both have similar economic effect.There is likewise little economic justifica-tion for the current differential treatmentof vertical price and nonprice restraints.Furthermore, vertical nonprice restraintsmay prove less efficient for inducing de-sired services, and they reduce intrabrandcompetition more than vertical price re-straints by eliminating both price and ser-vice competition. See Brief for Econo-mists as Amici Curiae 17–18.

In sum, it is a flawed antitrust doctrinethat serves the interests of lawyers—bycreating legal distinctions that operate astraps for the unwary—more than the in-terests of consumers—by requiring manu-facturers to choose second-best options toachieve sound business objectives.

B

Respondent’s arguments for reaffirmingDr. Miles on the basis of stare decisis donot require a different result. Respondentlooks to congressional action concerningvertical price restraints. In 1937, Con-gress passed the Miller–Tydings FairTrade Act, 50 Stat. 693, which made verti-cal price restraints legal if authorized by afair trade law S 905enacted by a State. Fif-teen years later, Congress expanded theexemption to permit vertical price-settingagreements between a manufacturer and adistributor to be enforced against otherdistributors not involved in the agreement.McGuire Act, 66 Stat. 632. In 1975, how-ever, Congress repealed both Acts. Con-sumer Goods Pricing Act, 89 Stat. 801.That the Dr. Miles rule applied to vertical


price restraints in 1975, according to re-spondent, shows Congress ratified therule.

This is not so. The text of the Consum-er Goods Pricing Act did not codify therule of per se illegality for vertical pricerestraints. It rescinded statutory provi-sions that made them per se legal. Con-gress once again placed these restraintswithin the ambit of § 1 of the ShermanAct. And, as has been discussed, Congressintended § 1 to give courts the ability ‘‘todevelop governing principles of law’’ in thecommon-law tradition. Texas Industries,Inc. v. Radcliff Materials, Inc., 451 U.S.630, 643, 101 S.Ct. 2061, 68 L.Ed.2d 500(1981); see Business Electronics, 485 U.S.,at 731, 108 S.Ct. 1515 (‘‘The changing con-tent of the term ‘restraint of trade’ waswell recognized at the time the ShermanAct was enacted’’). Congress could haveset the Dr. Miles rule in stone, but it chosea more flexible option. We respect itsdecision by analyzing vertical price re-straints, like all restraints, in conformancewith traditional § 1 principles, includingthe principle that our antitrust doctrines‘‘evolv[e] with new circumstances and newwisdom.’’ Business Electronics, supra, at732, 108 S.Ct. 1515; see also Easterbrook139.

The rule of reason, furthermore, is notinconsistent with the Consumer GoodsPricing Act. Unlike the earlier congres-sional exemption, it does not treat verticalprice restraints as per se legal. In thisrespect, the justifications for the prior ex-emption are illuminating. Its goal ‘‘was toallow the States to protect small retailestablishments that Congress thoughtmight otherwise be driven from the mar-ketplace by large-volume discounters.’’California Retail Liquor Dealers Assn. v.Midcal Aluminum, Inc., 445 U.S. S 90697,102, 100 S.Ct. 937, 63 L.Ed.2d 233 (1980).The state fair trade laws also appear to

have been justified on similar grounds.See Areeda & Hovenkamp 298. The ratio-nales for these provisions are foreign tothe Sherman Act. Divorced from competi-tion and consumer welfare, they were de-signed to save inefficient small retailersfrom their inability to compete. The pur-pose of the antitrust laws, by contrast, is‘‘the protection of competition, not compet-itors.’’ Atlantic Richfield Co. v. USA Pe-troleum Co., 495 U.S. 328, 338, 110 S.Ct.1884, 109 L.Ed.2d 333 (1990) (internal quo-tation marks omitted). To the extent Con-gress repealed the exemption for somevertical price restraints to end its priorpractice of encouraging anticompetitiveconduct, the rule of reason promotes thesame objective.

Respondent also relies on several con-gressional appropriations in the mid–1980’sin which Congress did not permit the De-partment of Justice or the Federal TradeCommission to use funds to advocate over-turning Dr. Miles. See, e.g., 97 Stat. 1071.We need not pause long in addressing thisargument. The conditions on funding areno longer in place, see, e.g., Brief for Unit-ed States as Amicus Curiae 21, and theywere ambiguous at best. As much as theymight show congressional approval for Dr.Miles, they might demonstrate a differentproposition: that Congress could not passlegislation codifying the rule and reached ashort-term compromise instead.

Reliance interests do not require us toreaffirm Dr. Miles. To be sure, relianceon a judicial opinion is a significant reasonto adhere to it, Payne v. Tennessee, 501U.S. 808, 828, 111 S.Ct. 2597, 115 L.Ed.2d720 (1991), especially ‘‘in cases involvingproperty and contract rights,’’ Khan, 522U.S., at 20, 118 S.Ct. 275. The relianceinterests here, however, like the relianceinterests in Khan, cannot justify an ineffi-cient rule, especially because the narrow-ness of the rule has allowed manufacturers


551 U.S. 908

to set minimum resale prices in otherways. And while the Dr. Miles rule islongstanding, resale price maintenancewas legal under fair trade laws S 907in amajority of States for a large part of thepast century up until 1975.

It is also of note that during this time‘‘when the legal environment in the [Unit-ed States] was most favorable for [resaleprice maintenance], no more than a tinyfraction of manufacturers ever employed[resale price maintenance] contracts.’’Overstreet 6; see also id., at 169 (notingthat ‘‘no more than one percent of manu-facturers, accounting for no more than tenpercent of consumer goods purchases, everemployed [resale price maintenance] inany single year in the [United States]’’);Scherer & Ross 549 (noting that ‘‘[t]hefraction of U.S. retail sales covered by[resale price maintenance] in its heydayhas been variously estimated at from 4 to10 percent’’). To the extent consumersdemand cheap goods, judging verticalprice restraints under the rule of reasonwill not prevent the market from providingthem. Cf. Easterbrook 152–153 (notingthat ‘‘S.S. Kresge (the old K–Mart) flour-ished during the days of manufacturers’greatest freedom’’ because ‘‘discountstores offer a combination of price andservice that many customers value’’ andthat ‘‘[n]othing in restricted dealing threat-ens the ability of consumers to find lowprices’’); Scherer & Ross 557 (noting that‘‘for the most part, the effects of the [Con-sumer Goods Pricing Act] were impercep-tible because the forces of competition hadalready repealed the [previous antitrustexemption] in their own quiet way’’).

For these reasons the Court’s decisionin Dr. Miles Medical Co. v. John D. Park& Sons Co., 220 U.S. 373, 31 S.Ct. 376, 55L.Ed. 502 (1911), is now overruled. Verti-cal price restraints are to be judged ac-cording to the rule of reason.

V

Noting that Leegin’s president has anownership interest in retail stores that sellBrighton, respondent claims Leegin partic-ipated in an unlawful horizontal cartel withcompeting S 908retailers. Respondent didnot make this allegation in the lowercourts, and we do not consider it here.

The judgment of the Court of Appeals isreversed, and the case is remanded forproceedings consistent with this opinion.

It is so ordered.

Justice BREYER, with whom JusticeSTEVENS, Justice SOUTER, and JusticeGINSBURG join, dissenting.

In Dr. Miles Medical Co. v. John D.Park & Sons Co., 220 U.S. 373, 394, 408–409, 31 S.Ct. 376, 55 L.Ed. 502 (1911), thisCourt held that an agreement between amanufacturer of proprietary medicines andits dealers to fix the minimum price atwhich its medicines could be sold was ‘‘in-valid TTT under the [Sherman Act, 15U.S.C. § 1].’’ This Court has consistentlyread Dr. Miles as establishing a bright-linerule that agreements fixing minimum re-sale prices are per se illegal. See, e.g.,United States v. Trenton Potteries Co., 273U.S. 392, 399–401, 47 S.Ct. 377, 71 L.Ed.700 (1927); NYNEX Corp. v. Discon, Inc.,525 U.S. 128, 133, 119 S.Ct. 493, 142L.Ed.2d 510 (1998). That per se rule isone upon which the legal profession, busi-ness, and the public have relied for close toa century. Today the Court holds thatcourts must determine the lawfulness ofminimum resale price maintenance by ap-plying, not a bright-line per se rule, but acircumstance-specific ‘‘rule of reason.’’Ante, at 2725. And in doing so it over-turns Dr. Miles.

The Court justifies its departure fromordinary considerations of stare decisis by


pointing to a set of arguments well knownin the antitrust literature for close to half acentury. See ante, at 2715 – 2716. Con-gress has repeatedly found in these argu-ments insufficient grounds for overturningthe per se rule. See, e.g., Hearings onH.R. 10527 et al. before the Subcommitteeon Commerce and Finance of the HouseCommittee on Interstate and ForeignCommerce, 85th Cong., 2d Sess., 74–76, 89,99, 101–102, 192–195, 261–262 (1958).And, S 909in my view, they do not warrantthe Court’s now overturning so well-estab-lished a legal precedent.

I

The Sherman Act seeks to maintain amarketplace free of anticompetitive prac-tices, in particular those enforced byagreement among private firms. The lawassumes that such a marketplace, free ofprivate restrictions, will tend to bringabout the lower prices, better products,and more efficient production processesthat consumers typically desire. In deter-mining the lawfulness of particular prac-tices, courts often apply a ‘‘rule of reason.’’They examine both a practice’s likely anti-competitive effects and its beneficial busi-ness justifications. See, e.g., NationalCollegiate Athletic Assn. v. Board of Re-gents of Univ. of Okla., 468 U.S. 85, 109–110, and n. 39, 104 S.Ct. 2948, 82 L.Ed.2d70 (1984); National Soc. of ProfessionalEngineers v. United States, 435 U.S. 679,688–691, 98 S.Ct. 1355, 55 L.Ed.2d 637(1978); Board of Trade of Chicago v. Unit-ed States, 246 U.S. 231, 238, 38 S.Ct. 242,62 L.Ed. 683 (1918).

Nonetheless, sometimes the likely anti-competitive consequences of a particularpractice are so serious and the potentialjustifications so few (or, e.g., so difficult toprove) that courts have departed from apure ‘‘rule of reason’’ approach. Andsometimes this Court has imposed a rule

of per se unlawfulness—a rule that in-structs courts to find the practice unlawfulall (or nearly all) the time. See, e.g.,NYNEX, supra, at 133, 119 S.Ct. 493;Arizona v. Maricopa County Medical Soc.,457 U.S. 332, 343–344, and n. 16, 102 S.Ct.2466, 73 L.Ed.2d 48 (1982); Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36,50, n. 16, 97 S.Ct. 2549, 53 L.Ed.2d 568(1977); United States v. Topco Associates,Inc., 405 U.S. 596, 609–611, 92 S.Ct. 1126,31 L.Ed.2d 515 (1972); United States v.Socony–Vacuum Oil Co., 310 U.S. 150,213–214, 60 S.Ct. 811, 84 L.Ed. 1129 (1940)(citing and quoting Trenton Potteries, su-pra, at 397–398, 47 S.Ct. 377).

The case before us asks which kind ofapproach the courts should follow whereminimum resale price maintenance is atissue. Should they apply a per se rule (ora variation) that S 910would make minimumresale price maintenance always (or almostalways) unlawful? Should they apply a‘‘rule of reason’’? Were the Court writingon a blank slate, I would find these ques-tions difficult. But, of course, the Court isnot writing on a blank slate, and that factmakes a considerable legal difference.

To best explain why the question wouldbe difficult were we deciding it afresh, Ibriefly summarize several classical argu-ments for and against the use of a per serule. The arguments focus on three setsof considerations, those involving: (1) po-tential anticompetitive effects, (2) potentialbenefits, and (3) administration. The diffi-culty arises out of the fact that the differ-ent sets of considerations point in differentdirections. See, e.g., 8 P. Areeda, Anti-trust Law ¶¶ 1628–1633, pp. 330–392 (1sted.1989) (hereinafter Areeda); 8 P. Areeda& H. Hovenkamp, Antitrust Law ¶¶ 1628–1633, pp. 288–339 (2d ed.2004) (hereinafterAreeda & Hovenkamp); Easterbrook, Ver-tical Arrangements and the Rule of Rea-son, 53 Antitrust L.J. 135, 146–152 (1984)


551 U.S. 912

(hereinafter Easterbrook); Pitofsky, InDefense of Discounters: The No–FrillsCase for a Per Se Rule Against VerticalPrice Fixing, 71 Geo. L.J. 1487 (1983)(hereinafter Pitofsky); Scherer, The Eco-nomics of Vertical Restraints, 52 AntitrustL.J. 687, 706–707 (1983) (hereinafterScherer); Posner, The Next Step in theAntitrust Treatment of Restricted Distri-bution: Per Se Legality, 48 U. Chi. L.Rev.6, 22–26 (1981); Brief for William S. Co-manor et al. as Amici Curiae 7–10.

On the one hand, agreements settingminimum resale prices may have seriousanticompetitive consequences. In respectto dealers: Resale price maintenanceagreements, rather like horizontal priceagreements, can diminish or eliminateprice competition among dealers of a sin-gle brand or (if practiced generally bymanufacturers) among multibrand dealers.In doing so, they can prevent dealers fromoffering customers the lower prices thatmany customers prefer; they can preventdealers from responding to changes S 911indemand, say, falling demand, by cuttingprices; they can encourage dealers to sub-stitute service, for price, competition,thereby threatening wastefully to attracttoo many resources into that portion of theindustry; they can inhibit expansion bymore efficient dealers whose lower pricesmight otherwise attract more customers,stifling the development of new, more effi-cient modes of retailing; and so forth.See, e.g., 8 Areeda & Hovenkamp ¶ 1632c,at 319–321; Steiner, The Evolution andApplications of Dual–Stage Thinking, 49The Antitrust Bulletin 877, 899–900 (2004);Comanor, Vertical Price–Fixing, VerticalMarket Restrictions, and the New Anti-trust Policy, 98 Harv. L.Rev. 983, 990–1000(1985).

In respect to producers: Resale pricemaintenance agreements can help to rein-

force the competition-inhibiting behavior offirms in concentrated industries. In suchindustries firms may tacitly collude, i.e.,observe each other’s pricing behavior, eachunderstanding that price cutting by onefirm is likely to trigger price competitionby all. See 8 Areeda & Hovenkamp¶ 1632d, at 321–323; P. Areeda & L. Ka-plow, Antitrust Analysis ¶¶ 231–233, pp.276–283 (4th ed.1988) (hereinafter Areeda& Kaplow). Cf. United States v. Contain-er Corp. of America, 393 U.S. 333, 89 S.Ct.510, 21 L.Ed.2d 526 (1969); Areeda &Kaplow ¶¶ 247–253, at 327–348. Wherethat is so, resale price maintenance canmake it easier for each producer to identi-fy (by observing retail markets) when acompetitor has begun to cut prices. And aproducer who cuts wholesale prices with-out lowering the minimum resale price willstand to gain little, if anything, in in-creased profits, because the dealer will beunable to stimulate increased consumerdemand by passing along the producer’sprice cut to consumers. In either case,resale price maintenance agreements willtend to prevent price competition from‘‘breaking out’’; and they will thereby tendto stabilize producer prices. See Pitofsky1490–1491. Cf., e.g., Container Corp., su-pra, at 336–337, 89 S.Ct. 510.

S 912Those who express concern about thepotential anticompetitive effects find em-pirical support in the behavior of pricesbefore, and then after, Congress in 1975repealed the Miller–Tydings Fair TradeAct, 50 Stat. 693, and the McGuire Act, 66Stat. 631. Those Acts had permitted (butnot required) individual States to enact‘‘fair trade’’ laws authorizing minimum re-sale price maintenance. At the time ofrepeal minimum resale price maintenancewas lawful in 36 States; it was unlawful in14 States. See Hearings on S. 408 beforethe Subcommittee on Antitrust and Mo-nopoly of the Senate Committee on theJudiciary, 94th Cong., 1st Sess., 173 (1975)


(hereinafter Hearings on S. 408) (state-ment of Thomas E. Kauper, Assistant At-torney General, Antitrust Division). Com-paring prices in the former States withprices in the latter States, the Departmentof Justice argued that minimum resaleprice maintenance had raised prices by19% to 27%. See Hearings on H.R. 2384before the Subcommittee on Monopoliesand Commercial Law of the House Com-mittee on the Judiciary, 94th Cong., 1stSess., 122 (1975) (hereinafter Hearings onH.R. 2384) (statement of Keith I. Clear-waters, Deputy Assistant Attorney Gener-al, Antitrust Division).

After repeal, minimum resale pricemaintenance agreements were unlawfulper se in every State. The Federal TradeCommission (FTC) staff, after studyingnumerous price surveys, wrote that collec-tively the surveys ‘‘indicate[d] that [resaleprice maintenance] in most cases increasedthe prices of products sold with [resaleprice maintenance].’’ Bureau of Econom-ics Staff Report to the FTC, T. Overstreet,Resale Price Maintenance: Economic The-ories and Empirical Evidence 160 (1983)(hereinafter Overstreet). Most economiststoday agree that, in the words of a promi-nent antitrust treatise, ‘‘resale price main-tenance tends to produce higher consumerprices than would otherwise be the case.’’8 Areeda & Hovenkamp ¶ 1604b, at 40(finding ‘‘[t]he evidence TTT persuasive onthis point’’). See also Brief for William S.Comanor et al. as Amici Curiae 4 (‘‘It isuniSformly913 acknowledged that [resaleprice maintenance] and other vertical re-straints lead to higher consumer prices’’).

On the other hand, those favoring resaleprice maintenance have long argued thatresale price maintenance agreements canprovide important consumer benefits. Themajority lists two: First, such agreementscan facilitate new entry. Ante, at 2715 –

2716. For example, a newly entering pro-ducer wishing to build a product namemight be able to convince dealers to help itdo so—if, but only if, the producer canassure those dealers that they will laterrecoup their investment. Without resaleprice maintenance, late-entering dealersmight take advantage of the earlier invest-ment and, through price competition, driveprices down to the point where the earlydealers cannot recover what they spent.By assuring the initial dealers that suchlater price competition will not occur, re-sale price maintenance can encouragethem to carry the new product, therebyhelping the new producer succeed. See 8Areeda & Hovenkamp ¶¶ 1617a, 1631b, at193–196, 308. The result might be in-creased competition at the producer level,i.e., greater inter-brand competition, thatbrings with it net consumer benefits.

Second, without resale price mainte-nance a producer might find its efforts tosell a product undermined by what resaleprice maintenance advocates call ‘‘free rid-ing.’’ Ante, at 2715 – 2716. Suppose aproducer concludes that it can succeedonly if dealers provide certain services,say, product demonstrations, high qualityshops, advertising that creates a certainproduct image, and so forth. Without re-sale price maintenance, some dealersmight take a ‘‘free ride’’ on the investmentthat others make in providing those ser-vices. Such a dealer would save money bynot paying for those services and couldconsequently cut its own price and in-crease its own sales. Under these circum-stances, dealers might prove unwilling toinvest in the provision of necessary ser-vices. See, e.g., 8 Areeda & Hovenkamp¶¶ 1611–1613, S 9141631c, at 126–165, 309–313; R. Posner, Antitrust Law 172–173 (2ded.2001); R. Bork, The Antitrust Paradox290–291 (1978) (hereinafter Bork); Easter-brook 146–149.


551 U.S. 915

Moreover, where a producer and not agroup of dealers seeks a resale price main-tenance agreement, there is a special rea-son to believe some such benefits exist.That is because, other things being equal,producers should want to encourage pricecompetition among their dealers. By do-ing so they will often increase profits byselling more of their product. See Sylva-nia, 433 U.S., at 56, n. 24, 97 S.Ct. 2549;Bork 290. And that is so, even if theproducer possesses sufficient market pow-er to earn a supernormal profit. That is tosay, other things being equal, the producerwill benefit by charging his dealers a com-petitive (or even a higher-than-competi-tive) wholesale price while encouragingprice competition among them. Hence, ifthe producer is the moving force, the pro-ducer must have some special reason forwanting resale price maintenance; and inthe absence of, say, concentrated producermarkets (where that special reason mightconsist of a desire to stabilize wholesaleprices), that special reason may well re-flect the special circumstances just de-scribed: new entry, ‘‘free riding,’’ or varia-tions on those themes.

The upshot is, as many economists sug-gest, sometimes resale price maintenancecan prove harmful; sometimes it can bringbenefits. See, e.g., Brief for Economistsas Amici Curiae 16; 8 Areeda & Hoven-kamp ¶¶ 1631–1632, at 306–328; Pitofsky1495; Scherer 706–707. But before con-cluding that courts should consequentlyapply a rule of reason, I would ask suchquestions as, how often are harms or bene-fits likely to occur? How easy is it toseparate the beneficial sheep from the an-titrust goats?

Economic discussion, such as the studiesthe Court relies upon, can help provideanswers to these questions, and in doingso, economics can, and should, inform anti-trust law. But antitrust law cannot, and

should not, precisely replicateS 915economists’ (sometimes conflicting)views. That is because law, unlike eco-nomics, is an administrative system theeffects of which depend upon the contentof rules and precedents only as they areapplied by judges and juries in courts andby lawyers advising their clients. Andthat fact means that courts will often bringtheir own administrative judgment to bear,sometimes applying rules of per se unlaw-fulness to business practices even whenthose practices sometimes produce bene-fits. See, e.g., F. Scherer & D. Ross,Industrial Market Structure and EconomicPerformance 335–339 (3d ed.1990) (herein-after Scherer & Ross) (describing somecircumstances under which price-fixingagreements could be more beneficial than‘‘unfettered competition,’’ but also notingpotential costs of moving from a per se banto a rule of reasonableness assessment ofsuch agreements).

I have already described studies andanalyses that suggest (though they cannotprove) that resale price maintenance cancause harms with some regularity—andcertainly when dealers are the drivingforce. But what about benefits? Howoften, for example, will the benefits towhich the Court points occur in practice?I can find no economic consensus on thispoint. There is a consensus in the litera-ture that ‘‘free riding’’ takes place. But‘‘free riding’’ often takes place in the econ-omy without any legal effort to stop it.Many visitors to California take free rideson the Pacific Coast Highway. We allbenefit freely from ideas, such as that ofcreating the first supermarket. Dealersoften take a ‘‘free ride’’ on investmentsthat others have made in building a prod-uct’s name and reputation. The questionis how often the ‘‘free riding’’ problem isserious enough significantly to deter dealerinvestment.


To be more specific, one can easilyimagine a dealer who refuses to provideimportant presale services, say, a detailedexplanation of how a product works (orwho fails to provide a proper atmospherein which to sell expensive perfume or alli-gator billfolds), lest customers use that‘‘free’’ service (or S 916enjoy the psychologi-cal benefit arising when a high-priced re-tailer stocks a particular brand of billfoldor handbag) and then buy from anotherdealer at a lower price. Sometimes thismust happen in reality. But does it hap-pen often? We do, after all, live in aneconomy where firms, despite Dr. Miles ’per se rule, still sell complex technicalequipment (as well as expensive perfumeand alligator billfolds) to consumers.

All this is to say that the ultimate ques-tion is not whether, but how much, ‘‘freeriding’’ of this sort takes place. And, afterreading the briefs, I must answer thatquestion with an uncertain ‘‘sometimes.’’See, e.g., Brief for William S. Comanor etal. as Amici Curiae 6–7 (noting ‘‘skepti-cism in the economic literature about howoften [free riding] actually occurs’’);Scherer & Ross 551–555 (explaining the‘‘severe limitations’’ of the free-rider justi-fication for resale price maintenance); Pi-tofsky, Why Dr. Miles Was Right, 8 Regu-lation, No. 1, pp. 27, 29–30 (Jan./Feb.1984)(similar analysis).

How easily can courts identify instancesin which the benefits are likely to outweighpotential harms? My own answer is, notvery easily. For one thing, it is oftendifficult to identify who—producer or deal-er—is the moving force behind any givenresale price maintenance agreement. Sup-pose, for example, several large multib-rand retailers all sell resale-price-main-tained products. Suppose further thatsmall producers set retail prices becausethey fear that, otherwise, the large retail-ers will favor (say, by allocating better

shelf space) the goods of other producerswho practice resale price maintenance.Who ‘‘initiated’’ this practice, the retailershoping for considerable insulation from re-tail competition, or the producers, whosimply seek to deal best with the circum-stances they find? For another thing, as Ijust said, it is difficult to determine justwhen, and where, the ‘‘free riding’’ prob-lem is serious enough to warrant legalprotection.

S 917I recognize that scholars have soughtto develop checklists and sets of questionsthat will help courts separate instanceswhere anticompetitive harms are morelikely from instances where only benefitsare likely to be found. See, e.g., 8 Areeda& Hovenkamp ¶¶ 1633c–1633e, at 330–339.See also Brief for William S. Comanor etal. as Amici Curiae 8–10. But applyingthese criteria in court is often easier saidthan done. The Court’s invitation to con-sider the existence of ‘‘market power,’’ forexample, ante, at 2720, invites lengthytime-consuming argument among compet-ing experts, as they seek to apply abstract,highly technical, criteria to often ill-definedmarkets. And resale price maintenancecases, unlike a major merger or monopolycase, are likely to prove numerous andinvolve only private parties. One cannotfairly expect judges and juries in suchcases to apply complex economic criteriawithout making a considerable number ofmistakes, which themselves may imposeserious costs. See, e.g., H. Hovenkamp,The Antitrust Enterprise 105 (2005) (liti-gating a rule of reason case is ‘‘one of themost costly procedures in antitrust prac-tice’’). See also Bok, Section 7 of theClayton Act and the Merging of Law andEconomics, 74 Harv. L.Rev. 226, 238–247(1960) (describing lengthy FTC efforts toapply complex criteria in a merger case).


551 U.S. 919

Are there special advantages to abright-line rule? Without such a rule, it isoften unfair, and consequently impractical,for enforcement officials to bring criminalproceedings. And since enforcement re-sources are limited, that loss may temptsome producers or dealers to enter intoagreements that are, on balance, anticom-petitive.

Given the uncertainties that surroundkey items in the overall balance sheet,particularly in respect to the ‘‘administra-tive’’ questions, I can concede to the ma-jority that the problem is difficult. And, ifforced to decide now, at most I mightagree that the per se rule should be slight-ly modified to allow an exception for themore easily identifiable S 918and temporarycondition of ‘‘new entry.’’ See Pitofsky1495. But I am not now forced to decidethis question. The question before us isnot what should be the rule, starting fromscratch. We here must decide whether tochange a clear and simple price-relatedantitrust rule that the courts have appliedfor nearly a century.

II

We write, not on a blank slate, but on aslate that begins with Dr. Miles and goeson to list a century’s worth of similarcases, massive amounts of advice that law-yers have provided their clients, and un-told numbers of business decisions thoseclients have taken in reliance upon thatadvice. See, e.g., United States v. Bausch& Lomb Optical Co., 321 U.S. 707, 721, 64S.Ct. 805, 88 L.Ed. 1024 (1944); Sylvania,433 U.S., at 51, n. 18, 97 S.Ct. 2549 (‘‘Theper se illegality of [vertical] price restric-tions has been established firmly for manyyears TTT’’). Indeed, a Westlaw searchshows that Dr. Miles itself has been citeddozens of times in this Court and hundredsof times in lower courts. Those who wishthis Court to change so well-established a

legal precedent bear a heavy burden ofproof. See Illinois Brick Co. v. Illinois,431 U.S. 720, 736, 97 S.Ct. 2061, 52L.Ed.2d 707 (1977) (noting, in declining tooverrule an earlier case interpreting § 4 ofthe Clayton Act, that ‘‘considerations ofstare decisis weigh heavily in the area ofstatutory construction, where Congress isfree to change this Court’s interpretationof its legislation’’). I am not aware of anycase in which this Court has overturned sowell-established a statutory precedent.Regardless, I do not see how the Courtcan claim that ordinary criteria for over-ruling an earlier case have been met. See,e.g., Planned Parenthood of SoutheasternPa. v. Casey, 505 U.S. 833, 854–855, 112S.Ct. 2791, 120 L.Ed.2d 674 (1992). Seealso Federal Election Comm’n v. Wiscon-sin Right to Life, Inc., 551 U.S. 449, at500 – 501, 127 S.Ct. 2652, 168 L.Ed.2d 329,2007 WL 1804336 (SCALIA, J., concurringin part and concurring in judgment).

S 919A

I can find no change in circumstances inthe past several decades that helps themajority’s position. In fact, there hasbeen one important change that arguesstrongly to the contrary. In 1975, Con-gress repealed the McGuire and Miller–Tydings Acts. See Consumer Goods Pric-ing Act of 1975, 89 Stat. 801. And itthereby consciously extended Dr. Miles’per se rule. Indeed, at that time the De-partment of Justice and the FTC, thenurging application of the per se rule, dis-cussed virtually every argument presentednow to this Court as well as others nothere presented. And they explained toCongress why Congress should rejectthem. See Hearings on S. 408, at 176–177(statement of Thomas E. Kauper, Assis-tant Attorney General, Antitrust Division);id., at 170–172 (testimony of Lewis A.Engman, Chairman of the FTC); Hear-ings on H.R. 2384, at 113–114 (testimony


of Keith I. Clearwaters, Deputy AssistantAttorney General, Antitrust Division).Congress fully understood, and conse-quently intended, that the result of itsrepeal of McGuire and Miller–Tydingswould be to make minimum resale pricemaintenance per se unlawful. See, e.g.,S.Rep. No. 94–466, pp. 1–3 (1975),U.S.Code Cong. & Admin.News 1975, pp.1569, 1570–71 (‘‘Without [the exemptionsauthorized by the Miller–Tydings andMcGuire Acts,] the agreements they au-thorize would violate the antitrustlawsTTTT [R]epeal of the fair trade lawsgenerally will prohibit manufacturers fromenforcing resale prices’’). See also Sylva-nia, supra, at 51, n. 18, 97 S.Ct. 2549(‘‘Congress recently has expressed its ap-proval of a per se analysis of vertical pricerestrictions by repealing those provisionsof the Miller–Tydings and McGuire Actsallowing fair-trade pricing at the option ofthe individual States’’).

Congress did not prohibit this Courtfrom reconsidering the per se rule. Butenacting major legislation premised uponthe existence of that rule constitutes im-portant public S 920reliance upon that rule.And doing so aware of the relevant argu-ments constitutes even stronger relianceupon the Court’s keeping the rule, at leastin the absence of some significant changein respect to those arguments.

Have there been any such changes?There have been a few economic studies,described in some of the briefs, that argue,contrary to the testimony of the JusticeDepartment and the FTC to Congress in1975, that resale price maintenance is notharmful. One study, relying on an analy-sis of litigated resale price maintenancecases from 1975 to 1982, concludes thatresale price maintenance does not ordi-narily involve producer or dealer collusion.See Ippolito, Resale Price Maintenance:Empirical Evidence from Litigation, 34 J.

Law & Econ. 263, 281–282, 292 (1991).But this study equates the failure of plain-tiffs to allege collusion with the absence ofcollusion—an equation that overlooks thesuperfluous nature of allegations of hori-zontal collusion in a resale price mainte-nance case and the tacit form that suchcollusion might take. See H. Hovenkamp,Federal Antitrust Policy § 11.3c, p. 464, n.19 (3d ed.2005); supra, at 2711 – 2713.

The other study provides a theoreticalbasis for concluding that resale price main-tenance ‘‘need not lead to higher retailprices.’’ Marvel & McCafferty, The Politi-cal Economy of Resale Price Maintenance,94 J. Pol. Econ. 1074, 1075 (1986). Butthis study develops a theoretical model‘‘under the assumption that [resale pricemaintenance] is efficiency-enhancing.’’Ibid. Its only empirical support is a 1940study that the authors acknowledge ismuch criticized. See id., at 1091. Andmany other economists take a differentview. See Brief for William S. Comanor etal. as Amici Curiae 4.

Regardless, taken together, these stud-ies at most may offer some mild supportfor the majority’s position. But they can-not constitute a major change in circum-stances.

Petitioner and some amici have alsopresented us with newer studies that showthat resale price maintenance someStimes921

brings consumer benefits. Overstreet119–129 (describing numerous case stud-ies). But the proponents of a per se rulehave always conceded as much. What isremarkable about the majority’s argu-ments is that nothing in this respect isnew. See supra, at 2711, 2716 (citing arti-cles and congressional testimony goingback several decades). The only new fea-ture of these arguments lies in the factthat the most current advocates of overrul-ing Dr. Miles have abandoned a host of


551 U.S. 922

other not-very-persuasive arguments uponwhich prior resale price maintenance pro-ponents used to rely. See, e.g., 8 Areeda¶ 1631a, at 350–352 (listing ‘‘ ‘[t]raditional’justifications’’ for resale price mainte-nance).

The one arguable exception consists ofthe majority’s claim that ‘‘even absent freeriding,’’ resale price maintenance ‘‘may bethe most efficient way to expand the man-ufacturer’s market share by inducing theretailer’s performance and allowing it touse its own initiative and experience inproviding valuable services.’’ Ante, at2716. I cannot count this as an exception,however, because I do not understandhow, in the absence of free riding (andassuming competitiveness), an establishedproducer would need resale price mainte-nance. Why, on these assumptions, woulda dealer not ‘‘expand’’ its ‘‘market share’’as best that dealer sees fit, obtaining ap-propriate payment from consumers in theprocess? There may be an answer to thisquestion. But I have not seen it. And Ido not think that we should place signifi-cant weight upon justifications that theparties do not explain with sufficient clari-ty for a generalist judge to understand.

No one claims that the American econo-my has changed in ways that might sup-port the majority. Concentration in re-tailing has increased. See, e.g., Brief forRespondent 18 (since minimum resaleprice maintenance was banned nationwidein 1975, the total number of retailers hasdropped while the growth in sales perstore has risen); Brief for American Anti-trust Institute as Amicus Curiae 17, n. 20(citing private study reporting that thecombined sales of the 10 largestS 922retailers worldwide has grown to nearly30% of total retail sales of top 250 retail-ers; also quoting 1999 Organisation forEconomic Co-operation and Developmentreport stating that the ‘‘ ‘last twenty years

have seen momentous changes in retaildistribution including significant increasesin concentration’ ’’); Mamen, Facing Goli-ath: Challenging the Impacts of Super-market Consolidation on our Local Econo-mies, Communities, and Food Security,The Oakland Institute, 1 Policy Brief, No.3, pp. 1, 2 (Spring 2007), http://www.oaklandinstitute.org/pdfs/facing goliath.pdf(as visited June 25, 2007, and available inClerk of Court’s case file) (noting that‘‘[f]or many decades, the top five food re-tail firms in the U.S. controlled less than20 percent of the market’’; from 1997 to2000, ‘‘the top five firms increased theirmarket share from 24 to 42 percent of allretail sales’’; and ‘‘[b]y 2003, they con-trolled over half of all grocery sales’’).That change, other things being equal,may enable (and motivate) more retailers,accounting for a greater percentage of to-tal retail sales volume, to seek resale pricemaintenance, thereby making it more diffi-cult for price-cutting competitors (perhapsinternet retailers) to obtain market share.

Nor has anyone argued that concentra-tion among manufacturers that might useresale price maintenance has diminishedsignificantly. And as far as I can tell, ithas not. Consider household electricalappliances, which a study from the late1950’s suggests constituted a significantportion of those products subject to resaleprice maintenance at that time. See Hol-lander, United States of America, in Re-sale Price Maintenance 67, 80–81 (B.Yamey ed.1966). Although it is somewhatdifficult to compare census data from 2002with that from several decades ago (be-cause of changes in the classification sys-tem), it is clear that at least some subsetsof the household electrical appliance in-dustry are more concentrated, in terms ofmanufacturer market power, now thanthey were then. For instance, the topeight domestic manufacturers of house-hold cooking appliances accounted for 68%


S 923of the domestic market (measured byvalue of shipments) in 1963 (the earliestdate for which I was able to find data),compared with 77% in 2002. See Dept. ofCommerce, Bureau of Census, 1972 Cen-sus of Manufactures, Special Report Ser-ies, Concentration Ratios in Manufactur-ing, No. MC72(SR)–2, p. SR2–38 (1975)(hereinafter 1972 Census); Dept. of Com-merce, Bureau of Census, 2002 EconomicCensus, Concentration Ratios: 2002, No.EC02–31SR–1, p. 55 (2006) (hereinafter2002 Census). The top eight domesticmanufacturers of household laundryequipment accounted for 95% of the do-mestic market in 1963 (90% in 1958), com-pared with 99% in 2002. 1972 Census, atSR2–38; 2002 Census, at 55. And the topeight domestic manufacturers of house-hold refrigerators and freezers accountedfor 91% of the domestic market in 1963,compared with 95% in 2002. 1972 Cen-sus, at SR2–38; 2002 Census, at 55. In-creased concentration among manufactur-ers increases the likelihood that producer-originated resale price maintenance willprove more prevalent today than in yearspast, and more harmful. At the veryleast, the majority has not explained howthese, or other changes in the economy,could help support its position.

In sum, there is no relevant change.And without some such change, there is noground for abandoning a well-establishedantitrust rule.

B

With the preceding discussion in mind, Iwould consult the list of factors that ourcase law indicates are relevant when weconsider overruling an earlier case. Jus-tice SCALIA, writing separately in anoth-er of our cases this Term, well summarizesthat law. See Wisconsin Right to Life,Inc., 551 U.S. at 499 – 503, 127 S.Ct. 2652,2684 –2686, 2007 WL 1804336 (opinion con-

curring in part and concurring in judg-ment). And every relevant factor he men-tions argues against overruling Dr. Mileshere.

First, the Court applies stare decisismore ‘‘rigidly’’ in statutory than in consti-tutional cases. See Glidden Co. v.S 924Zdanok, 370 U.S. 530, 543, 82 S.Ct.1459, 8 L.Ed.2d 671 (1962); Illinois BrickCo., 431 U.S., at 736, 97 S.Ct. 2061. Thisis a statutory case.

Second, the Court does sometimes over-rule cases that it decided wrongly only areasonably short time ago. As JusticeSCALIA put it, ‘‘[o]verruling a constitu-tional case decided just a few years earlieris far from unprecedented.’’ WisconsinRight to Life, 551 U.S., at 501, 127 S.Ct.2652, 2685, 2007 WL 1804336 (emphasisadded). We here overrule one statutorycase, Dr. Miles, decided 100 years ago, andwe overrule the cases that reaffirmed itsper se rule in the intervening years. See,e.g., Trenton Potteries, 273 U.S., at 399–401, 47 S.Ct. 377; Bausch & Lomb, 321U.S., at 721, 64 S.Ct. 805; United States v.Parke, Davis & Co., 362 U.S. 29, 45–47, 80S.Ct. 503, 4 L.Ed.2d 505 (1960); Simpsonv. Union Oil Co. of Cal., 377 U.S. 13, 16–17, 84 S.Ct. 1051, 12 L.Ed.2d 98 (1964).

Third, the fact that a decision creates an‘‘unworkable’’ legal regime argues in favorof overruling. See Payne v. Tennessee,501 U.S. 808, 827–828, 111 S.Ct. 2597, 115L.Ed.2d 720 (1991); Swift & Co. v. Wick-ham, 382 U.S. 111, 116, 86 S.Ct. 258, 15L.Ed.2d 194 (1965). Implementation ofthe per se rule, even with the complicationsattendant the exception allowed for inUnited States v. Colgate & Co., 250 U.S.300, 39 S.Ct. 465, 63 L.Ed. 992 (1919), hasproved practical over the course of the lastcentury, particularly when compared withthe many complexities of litigating a caseunder the ‘‘rule of reason’’ regime. Noone has shown how moving from the Dr.Miles regime to ‘‘rule of reason’’ analysis


551 U.S. 926

would make the legal regime governingminimum resale price maintenance more‘‘administrable,’’ Wisconsin Right to Life,551 U.S., at 501 – 502, 127 S.Ct. 2652, 2685,2007 WL 1804336 (opinion of SCALIA, J.),particularly since Colgate would remaingood law with respect to unreasonableprice maintenance.

Fourth, the fact that a decision ‘‘unset-tles’’ the law may argue in favor of over-ruling. See Sylvania, 433 U.S., at 47, 97S.Ct. 2549; Wisconsin Right to Life, 551U.S., at 501 – 502, 127 S.Ct. 2652, 2685 –2686, 2007 WL 1804336 (opinion of SCA-LIA, J.). The per se rule is well-settledlaw, as the Court itself has previously rec-ognized. Sylvania, supra, at 51, n. 18, 97S.Ct. 2549. It is the majority’s changehere that will unsettle the law.

S 925Fifth, the fact that a case involvesproperty rights or contract rights, wherereliance interests are involved, arguesagainst overruling. Payne, supra, at 828,111 S.Ct. 2597. This case involves con-tract rights and perhaps property rights(consider shopping malls). And there hasbeen considerable reliance upon the per serule. As I have said, Congress relied uponthe continued vitality of Dr. Miles when itrepealed Miller–Tydings and McGuire.Supra, at 2716 – 2717. The ExecutiveBranch argued for repeal on the assump-tion that Dr. Miles stated the law. Supra,at 2716 – 2717. Moreover, whole sectors ofthe economy have come to rely upon theper se rule. A factory outlet store tells usthat the rule ‘‘form[s] an essential part ofthe regulatory background against which[that firm] and many other discount retail-ers have financed, structured, and operat-ed their businesses.’’ Brief for BurlingtonCoat Factory Warehouse Corp. as AmicusCuriae 5. The Consumer Federation ofAmerica tells us that large low-price retail-ers would not exist without Dr. Miles;minimum resale price maintenance, ‘‘bystabilizing price levels and preventing low-

price competition, erects a potentially in-surmountable barrier to entry for suchlow-price innovators.’’ Brief for ConsumerFederation of America as Amicus Curiae5, 7–9 (discussing, inter alia, comments byWal–Mart’s founder 25 years ago that re-laxation of the per se ban on minimumresale price maintenance would be a‘‘ ‘great danger’ ’’ to Wal–Mart’s then-rela-tively-nascent business). See also Brieffor American Antitrust Institute as Ami-cus Curiae 14–15, and sources cited there-in (making the same point). New distribu-tors, including internet distributors, havesimilarly invested time, money, and laborin an effort to bring yet lower cost goodsto Americans.

This Court’s overruling of the per serule jeopardizes this reliance, and more.What about malls built on the assumptionthat a discount distributor will remain ananchor tenant? What about home buyerswho have taken a home’s distance S 926fromsuch a mall into account? What aboutAmericans, producers, distributors, andconsumers, who have understandably as-sumed, at least for the last 30 years, thatprice competition is a legally guaranteedway of life? The majority denies none ofthis. It simply says that these ‘‘relianceinterests TTT, like the reliance interests in[State Oil Co. v. ]Khan, 522 U.S. 3, 118S.Ct. 275, 139 L.Ed.2d 199 (1997) cannotjustify an inefficient rule.’’ Ante, at 2724.

The Court minimizes the importance ofthis reliance, adding that it ‘‘is also ofnote’’ that at the time resale price mainte-nance contracts were lawful ‘‘ ‘no morethan a tiny fraction of manufacturers everemployed’ ’’ the practice. Ibid. (quotingOverstreet 6). By ‘‘tiny’’ the Court meansmanufacturers that accounted for up to‘‘ ‘ten percent of consumer goods pur-chases’ ’’ annually. Ante, at 907, 127 S.Ct.2705, 168 L.Ed.2d 623. That figure in to-day’s economy equals just over $300 bil-


lion. See Dept. of Commerce, Bureau ofCensus, Statistical Abstract of the UnitedStates: 2007, p. 649 (126th ed.) (over $3trillion in U.S. retail sales in 2002). Put-ting the Court’s estimate together with theJustice Department’s early 1970’s studytranslates a legal regime that permits allresale price maintenance into retail billsthat are higher by an average of roughly$750 to $1,000 annually for an Americanfamily of four. Just how much higherretail bills will be after the Court’s decisiontoday, of course, depends upon what isnow unknown, namely, how courts will de-cide future cases under a ‘‘rule of reason.’’But these figures indicate that theamounts involved are important to Ameri-can families and cannot be dismissed as‘‘tiny.’’

Sixth, the fact that a rule of law hasbecome ‘‘embedded’’ in our ‘‘national cul-ture’’ argues strongly against overruling.Dickerson v. United States, 530 U.S. 428,443–444, 120 S.Ct. 2326, 147 L.Ed.2d 405(2000). The per se rule forbidding mini-mum resale price maintenance agreementshas long been ‘‘embedded’’ in the law ofantitrust. It involves price, the economy’s‘‘ ‘central nervous system.’ ’’ NationalSoc. of Professional Engineers, 435S 927U.S., at 692, 98 S.Ct. 1355 (quoting So-cony–Vacuum Oil, 310 U.S., at 226, n. 59,60 S.Ct. 811). It reflects a basic antitrustassumption (that consumers often preferlower prices to more service). It embodiesa basic antitrust objective (providing con-sumers with a free choice about such mat-ters). And it creates an easily adminis-tered and enforceable bright line, ‘‘Do notagree about price,’’ that businesses as wellas lawyers have long understood.

The only contrary stare decisis factorthat the majority mentions consists of itsclaim that this Court has ‘‘[f]rom the be-ginning TTT treated the Sherman Act as acommon-law statute,’’ and has previouslyoverruled antitrust precedent. Ante, at

2720, 2721 – 2722. It points in support toState Oil Co. v. Khan, 522 U.S. 3, 118 S.Ct.275, 139 L.Ed.2d 199 (1997), overrulingAlbrecht v. Herald Co., 390 U.S. 145, 88S.Ct. 869, 19 L.Ed.2d 998 (1968), in whichthis Court had held that maximum resaleprice agreements were unlawful per se,and to Sylvania, overruling United Statesv. Arnold, Schwinn & Co., 388 U.S. 365, 87S.Ct. 1856, 18 L.Ed.2d 1249 (1967), inwhich this Court had held that producer-imposed territorial limits were unlawfulper se.

The Court decided Khan, however, 29years after Albrecht—still a significant pe-riod, but nowhere close to the century Dr.Miles has stood. The Court specificallynoted the lack of any significant relianceupon Albrecht. 522 U.S., at 18–19, 118S.Ct. 275 (Albrecht has had ‘‘little or norelevance to ongoing enforcement of theSherman Act’’). Albrecht had far less sup-port in traditional antitrust principles thandid Dr. Miles. Compare, e.g., 8 Areeda &Hovenkamp ¶ 1632, at 316–328 (analyzingpotential harms of minimum resale pricemaintenance), with id., ¶ 1637, at 352–361(analyzing potential harms of maximum re-sale price maintenance). See also, e.g.,Pitofsky 1490, n. 17. And Congress hadnowhere expressed support for Albrecht’srule. Khan, supra, at 19, 118 S.Ct. 275.

In Sylvania, the Court, in overrulingSchwinn, explicitly distinguished Dr.Miles on the ground that while Congresshad ‘‘recently TTT expressed its approval ofa per se analysis of vertical price restric-tions’’ by repealing the Miller–STydings928

and McGuire Acts, ‘‘[n]o similar expressionof congressional intent exists for nonpricerestrictions.’’ 433 U.S., at 51, n. 18, 97S.Ct. 2549. Moreover, the Court decidedSylvania only a decade after Schwinn.And it based its overruling on a generallyperceived need to avoid ‘‘confusion’’ in the


551 U.S. 929

law, 433 U.S., at 47–49, 97 S.Ct. 2549, afactor totally absent here.

The Court suggests that it is following‘‘the common-law tradition.’’ Ante, at2724. But the common law would not havepermitted overruling Dr. Miles in thesecircumstances. Common-law courts rarelyoverruled well-established earlier rulesoutright. Rather, they would over timeissue decisions that gradually eroded thescope and effect of the rule in question,which might eventually lead the courts toput the rule to rest. One can argue thatmodifying the per se rule to make an ex-ception, say, for new entry, see Pitofsky1495, could prove consistent with this ap-proach. To swallow up a century-old prec-edent, potentially affecting many billions ofdollars of sales, is not. The reader shouldcompare today’s ‘‘common-law’’ decisionwith Justice Cardozo’s decision in Alleghe-ny College v. National Chautauqua Cty.Bank of Jamestown, 246 N.Y. 369, 159N.E. 173 (1927), and note a gradualismthat does not characterize today’s decision.

Moreover, a Court that rests its decisionupon economists’ views of the economicmerits should also take account of legalscholars’ views about common-law overrul-ing. Professors Hart and Sacks list 12factors (similar to those I have mentioned)that support judicial ‘‘adherence to priorholdings.’’ They all support adherence toDr. Miles here. See H. Hart & A. Sacks,The Legal Process 568–569 (W. Eskridge& P. Frickey eds.1994). Karl Llewellynhas written that the common-law judge’s‘‘conscious reshaping’’ of prior law ‘‘mustso move as to hold the degree of move-ment down to the degree to which needtruly presses.’’ The Bramble Bush 156(1960). Where here is the pressing need?The Court notes that the FTC argues herein favor of a rule of reason. See ante, at2720 – 2721. But both Congress and theFTC, S 929unlike courts, are well equipped to

gather empirical evidence outside the con-text of a single case. As neither has doneso, we cannot conclude with confidencethat the gains from eliminating the per serule will outweigh the costs.

In sum, every stare decisis concern thisCourt has ever mentioned counsels againstoverruling here. It is difficult for me tounderstand how one can believe both that(1) satisfying a set of stare decisis con-cerns justifies over-ruling a recent consti-tutional decision, Wisconsin Right to Life,Inc., 551 U.S., at 499 – 503, 127 S.Ct. 2652,2684 – 2686, 2007 WL 1804336 (SCALIA,J., joined by KENNEDY and THOMAS,JJ., concurring in part and concurring injudgment), but (2) failing to satisfy any ofthose same concerns nonetheless permitsoverruling a longstanding statutory deci-sion. Either those concerns are relevantor they are not.

* * *

The only safe predictions to make abouttoday’s decision are that it will likely raisethe price of goods at retail and that it willcreate considerable legal turbulence aslower courts seek to develop workableprinciples. I do not believe that the ma-jority has shown new or changed condi-tions sufficient to warrant overruling adecision of such long standing. All ordi-nary stare decisis considerations indicatethe contrary. For these reasons, with re-spect, I dissent.

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