Leegin Creative Leather Products v. PSKS, Inc.,
Opinion No. 06-480

Decided June 28, 2007

Summary By: Norton T. Gappy

On June 28, 2007, the United States Supreme Court decided
Leegin Creative Leather Products v. PSKS, INC., DBA Kay’s Kloset, Opinion No. 06-480.  At issue in the case was the Sherman Act and the most recent from the United States Supreme Court determined that it is no longer per se Illegal for manufacturers to agree with distributors on a minimum price for which to sell its products as a vertical price restraint, and it is now to be judged by the so-called “Rule of Reason.” 

In a 5-4 (opinion by Kennedy and dissent by Breyer) that a per se rule should not be used under the Sherman Act to
prohibit all manufacturers from setting fixed minimum prices on their products with distributors and the Court has now adopted the “rule of reason,” which looks at the circumstances of each individual case to determine whether such price fixing should be allowed.

PSKS, Inc. operated a store selling women’s apparel.  The store, Kay’s Kloset, made a considerable amount of its profit selling shoes made by Petitioners (Leegin). Leegin then instituted a policy stating that retailers could not
sell its products for less than a certain specified price. PSKS continued to sell products made by Leegin for less than the specified price and Leegin stopped selling products to the store. PSKS brought suit in the District Court for the Eastern District of Texas, which held that Leegin violated the per se rule set forth in Dr. Miles Medical Co. v. John D.  Park & Sons Co., noting that a manufacturer cannot agree with a distributor to set minimum prices on the sale of its products.  The United States Court of Appeals for the Fifth Circuit affirmed.  The United States Supreme Court reversed and remanded, in effect overruling Dr. Miles. The Court decided to overrule the per se rule denying a manufacturer the ability to set minimum prices on its products with distributors and decided to adopt the “rule of reason” in this manner. Under the rule of reason, each case is looked at individually and the circumstances of each case is used to make a determination as to whether the price setting should be allowed. The Court went on to hold that stare decisis does not compel adherence in this instance.