[House Report 111-676]
[From the U.S. Government Publishing Office]
111th Congress Report
HOUSE OF REPRESENTATIVES
2d Session 111-676
======================================================================
DISCOUNT PRICING CONSUMER PROTECTION ACT OF 2009
_______
December 8, 2010.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Conyers, from the Committee on the Judiciary, submitted the
following
R E P O R T
together with
ADDITIONAL VIEWS
[To accompany H.R. 3190]
[Including cost estimate of the Congressional Budget Office]
The Committee on the Judiciary, to whom was referred the bill
(H.R. 3190) to restore the rule that agreements between
manufacturers and retailers, distributors, or wholesalers to
set the price below which the manufacturer's product or service
cannot be sold violates the Sherman Act, having considered the
same, report favorably thereon without amendment and recommend
that the bill do pass.
CONTENTS
Page
Purpose and Summary.............................................. 2
Background and Need for the Legislation.......................... 2
Hearings......................................................... 5
Committee Consideration.......................................... 6
Committee Votes.................................................. 6
Committee Oversight Findings..................................... 6
New Budget Authority and Tax Expenditures........................ 6
Congressional Budget Office Cost Estimate........................ 6
Performance Goals and Objectives................................. 7
Constitutional Authority Statement............................... 8
Advisory on Earmarks............................................. 8
Section-by-Section Analysis...................................... 8
Additional Views................................................. 9
Purpose and Summary
H.R. 3190, the Discount Pricing Consumer Protection Act of
2009, is intended to undo the harm to consumers stemming from
the Supreme Court's 2007 decision in Leegin Creative Leather
Products, Inc. v. PSKS, Inc.\1\ In Leegin, the Supreme Court
overturned 96 years of antitrust jurisprudence by reversing its
1911 decision in Dr. Miles Med. Co. v. John D. Park & Sons,
Co.,\2\ which had expressly prohibited agreements between
manufacturers and distributors or retailers establishing a
minimum retail price for the manufacturers' products. Critics
of the Leegin decision expect it to result in increased prices
charged to consumers.\3\ H.R. 3190 would negate the Leegin
decision by again making any such agreements a violation of
section 1 of the Sherman Act.\4\
---------------------------------------------------------------------------
\1\551 U.S. 877 (2007).
\2\220 U.S. 373 (1911).
\3\In his dissent in Leegin, Justice Breyer estimated that even if
only 10 percent of manufacturers engaged in minimum retail price
fixing, the annual retail bill for the average family of four would
increase by between $750 and $1,000. 551 U.S. at 926.
\4\15 U.S.C. Sec. 1.
---------------------------------------------------------------------------
Background and Need for the Legislation
RETAIL PRICE FIXING AND THE LEEGIN DECISION
``Rule of Reason'' Analysis vs. ``Per Se'' Prohibition
Alleged antitrust offenses are generally subject to one of
two classes of review, either a per se or rule-of-reason
analysis. The category of analysis is significant both in terms
of a policy judgment and as an evidentiary burden of proof.
Per se offenses\5\ consist of a limited number of business
practices deemed so harmful to competition that proof of the
practice itself establishes an antitrust violation without
further analysis. Per se prohibitions are generally limited to
``conduct that is manifestly anticompetitive,''\6\ that would
``always or almost always tend to restrict competition and
decrease output.''\7\
---------------------------------------------------------------------------
\5\The Supreme Court first crafted the per se standard in the
context of horizontal agreements, i.e., agreements among competitors.
See e.g., United States v. Joint Traffic Ass'n, 171 U.S. 505 (1898);
United States v. Addyston Pipe & Steel Co., 175 U.S. 211 (1899).
\6\Continental T.V. v. GTE Sylvania, Inc., 433 U.S. 36, 50 (1977).
\7\Broadcast Music, Inc. v. Columbia Broadcasting System, Inc., 441
U.S. 1, 19-20 (1979).
---------------------------------------------------------------------------
On the other hand, rule-of-reason offenses reflect a
recognition that some types of business practices are not
always anticompetitive, and may be, on balance, either
procompetitive or anticompetitive depending upon the factual
circumstances.
Rule-of-reason analysis requires a more in-depth look at
the practice in question in order to weigh the competitive
effects.\8\ Such an analysis generally involves expensive and
time-consuming economic research and analysis.
---------------------------------------------------------------------------
\8\Factors to be considered in a rule-of-reason analysis include
the facts peculiar to the business to which the restraint is applied,
the condition of the business before and after the restraint was
imposed, and the nature of the restraint and its actual and probable
effects. The history of the restraint, the threat posted, the reasons
for adopting the remedy, and the ends sought to be obtained are also to
be taken into consideration. Chicago Board of Trade v. United States,
246 U.S. 231, 238 (1918).
---------------------------------------------------------------------------
Leegin Overturns the Per Se Precedent Set By Dr. Miles
In its 1911 decision in Dr. Miles,\9\ the Supreme Court
held that an agreement between a manufacturer of proprietary
medicines and its dealers to fix the minimum price at which its
medicines could be sold was illegal under section 1 of the
Sherman Act.\10\ For the next 96 years, Dr. Miles stood for the
proposition that agreements between manufacturers and retailers
that established a minimum price for the manufacturers'
products were illegal on their face. In antitrust parlance, the
case established a per se prohibition on vertical minimum price
restraints, alternately referred to as ``resale price
maintenance,'' or minimum retail price fixing.
---------------------------------------------------------------------------
\9\220 U.S. 373 (1911).
\10\The Sherman Act, 15 U.S.C. Sec. Sec. 1-7, prohibits contracts,
combinations, and conspiracies in restraint of trade, as well as acts
of monopolization.
---------------------------------------------------------------------------
In its 2007 Leegin decision, the Supreme Court overturned
Dr. Miles, holding that minimum retail price fixing would
henceforth be judged under the rule of reason, on a case-by-
case basis. In a 5-4 decision, Justice Kennedy, writing for the
majority, acknowledged that setting minimum retail prices could
have anticompetitive effects, but concluded that it could also
have procompetitive benefits, and that a per se prohibition
could not be justified, as it could not be ``stated with any
degree of confidence that retail price maintenance `always or
almost always tend[s] to restrict competition and decrease
output.'''\11\ The Federal Trade Commission (FTC) and the
Department of Justice (DOJ) filed a joint amicus brief in favor
of overturning Dr. Miles' per se prohibition; 37 State
attorneys general filed one in favor of affirming it.\12\
---------------------------------------------------------------------------
\11\Leegin, 551 U.S. at 894, quoting Business Electronics, 485 U.S.
at 723.
\12\The State attorneys general who filed the amicus brief were
from AK, AR, CT, DE, FL, HI, ID, IL, IA, KS, KY, LA, ME, MD, MA, MI,
MN, MS, MO, MT, NV, NH, NJ, NM, NY, NC, OH, OK, OR, PA, SC, SD, UT, VT,
WA, WV, and WY.
---------------------------------------------------------------------------
The effect of Leegin is that minimum retail price
agreements are no longer per se prohibited by law. This does
not mean that these agreements are now necessarily always
legal; they are instead subject to a case-by-case rule-of-
reason analysis.
Minimum Retail Price Fixing in the Wake of Leegin
Nearing the 3-year anniversary of Leegin, there are a
number of indications that mandatory minimum retail price
policies are becoming more common, with an adverse impact on
consumer prices.\13\
---------------------------------------------------------------------------
\13\Joseph Pereira, Price-Fixing Makes Comeback after Supreme Court
Ruling, Wall St. J., Aug. 18, 2008, at A1.
LConsumerWorld.org, which provides price comparisons
for consumers, has found numerous minimum retail price policies
imposed upon retailers by manufacturers of baby goods, consumer
electronics, home furnishings, and pet foods.\14\
---------------------------------------------------------------------------
\14\Id.
LBabyAge.com reported that 100 of its 465 suppliers
dictate minimum retail prices.\15\ As a result, the Internet
retailer had to increase prices 20 to 40 percent on several
popular products.\16\
---------------------------------------------------------------------------
\15\Id.
\16\E-Tailers Take on Price Fixing, Consumer Electronics Daily,
Dec. 5, 2008.
LDemand Inc., an Internet-only retailer of ergonomic
office accessories, reported that at least 50 percent of its
products now have a manufacturer-imposed minimum retail price,
compared to 10 percent in 2006.\17\
---------------------------------------------------------------------------
\17\Don Davis, How the Supreme Court Fractured Online Pricing,
InternetRetailer.com, Nov. 2008, http://www.Internetretailer.com/
article.asp?id=28293.
LSeventy-five percent of eHobbies' products now have a
manufacturer-imposed minimum retail price.\18\
---------------------------------------------------------------------------
\18\Id.
LHomeCenter.com has lost millions of dollars in sales
because of minimum retail price policies imposed by
manufacturers, such as lighting manufacturer L.D. Kichler, that
have made the Internet-based retailer less competitive than it
used to be.\19\
---------------------------------------------------------------------------
\19\Id.
LTwo lawsuits have been brought against eBay by
manufacturers for selling their products below a manufacturer-
dictated minimum price.\20\
---------------------------------------------------------------------------
\20\Greg Beck, Companies Claim Right to Interfere with eBay
Auctions for Charging Too Little, Consumer Law & Policy Blog, July 17,
2007, http://pubcit.typepad.com/clpblog/2007/07/leegin-and-ebay/
comments/page/2/.
Congress' Previous Involvement in the Retail Price-Fixing Issue
Congress has involved itself directly in the formulation of
enforcement policy in the area of minimum retail price fixing
on a number of occasions.
First, during the Depression, a number of States, as part
of a general move toward price controls in response to the
distressed business climate, enacted so-called ``fair trade''
laws permitting a manufacturer to enter into agreements with
retailers stipulating the minimum price at which its products
could be sold. Congress passed the Miller-Tydings Act\21\ in
1937 to exempt agreements permitted under the State fair trade
laws from the antitrust laws, followed by the McGuire Act\22\
to extend coverage of the exemption to imposition of a ``fair
trade'' price agreement even on retailers who had not signed
it.
---------------------------------------------------------------------------
\21\50 Stat. 693 (1937).
\22\66 Stat. 632 (1952).
---------------------------------------------------------------------------
By the 1970's, State fair trade laws had come under
increasing disrepute as anticompetitive, and unwarranted by any
legitimate business purpose.\23\ Studies conducted by the DOJ
under President Nixon indicated that retail price fixing
sheltered by State fair trade laws inflated prices for the
affected goods by between 18 and 27 percent, and that
eliminating the fair trade laws would save consumers $1.2
billion.\24\ The Ford Administration's DOJ called for repealing
the fair trade laws, as did the FTC. Ronald Reagan, then a
columnist for the Copley News Service, condemned retail price
fixing in a column reprinted in the Congressional Record,
arguing that it stifled competition, added to inflation, and
was bereft of consumer benefits.\25\
---------------------------------------------------------------------------
\23\In the interim, many States had repealed or curbed their fair
trade statutes; in four States, the statutes had been declared
unconstitutional; and in five States, ``non-signer'' clauses had been
declared unconstitutional. See P. Areeda, Antitrust Analysis, 517
(1974).
\24\S. Rep. No. 94-466, 94th Cong., 1st Sess., pp. 1-3 (1975).
\25\1212 Cong. Rec. 1268 (Jan. 23, 1975).
---------------------------------------------------------------------------
In the Consumer Goods Pricing Act of 1975, Congress
repealed the Miller-Tydings Act and the McGuire Act.\26\ In
doing so, it examined and rejected various asserted
justifications for minimum retail price fixing, including
assertions that it helped encourage retailers to provide
additional services, helped protect small businesses, and
helped new businesses enter the market. Congress concluded that
minimum retail price fixing served little purpose other than to
inflate prices.
---------------------------------------------------------------------------
\26\89 Stat. 801 (1975).
---------------------------------------------------------------------------
Congress strongly reaffirmed its bipartisan support for the
per se prohibition against minimum retail price fixing during
the 1980's. After the Reagan Administration DOJ filed an amicus
brief in Monsanto Co. v. Spray-Rite Service Co.\27\ urging the
Supreme Court to overturn Dr. Miles, Congress, as part of the
FY 1984 appropriations bill that included DOJ funding,
expressly prohibited the DOJ from using any funds to advocate
overturning the per se prohibition.\28\ The prohibition was
reinstated as part of the FY 1986 appropriations resolution\29\
and remained in every DOJ-funding appropriations bill
thereafter until FY 1992, when the prohibition was dropped only
after personal assurances from the Assistant Attorney General
for Antitrust that the Department would not revive its effort
to undermine the per se prohibition.
---------------------------------------------------------------------------
\27\465 U.S. 752, 762-63 (1984).
\28\Departments of Commerce, Justice, and State, the Judiciary, and
Related Appropriations Act, 1984, Sec. 510, Pub. L. No. 98-166, 97
stat. 1102-03 (1983).
\29\Department of Commerce, Justice, and State, the Judiciary, and
Related Agencies Appropriation Act, 1986, Sec. 605, Pub. L. No. 99-180,
99 stat. 1169-71.
---------------------------------------------------------------------------
With the change of Administration in 1993, the Department
quieted the issue by reaffirming its support for the per se
prohibition and its intent to actively enforce it.\30\ Only
two-and-a-half years before the Court decided Leegin, the
Antitrust Modernization Commission, tasked in legislation
sponsored by then-House Judiciary Committee Chairman James
Sensenbrenner with conducting a comprehensive review of the
state of the antitrust laws,\31\ declined to examine retail
price fixing because there was ``a relatively low level of
controversy on the subject.''\32\
---------------------------------------------------------------------------
\30\Antitrust Enforcement, Some Initial Thoughts and Actions,
Address by Assistant Attorney General Anne K. Bingaman before Antitrust
Section of the American Bar Association, August 10, 1993.
\31\Pub. L. No. 107-273, Sec. Sec. 11051-60, 116 Stat. 1856.
\32\The Leegin Decision: The End of the Consumer Discounts or Good
Antitrust Policy? Before the Subcomm. On Antitrust, Competition Policy
and Consumer Rights of the H. Comm. On the Judiciary, 110th Cong. 6
(statement of Richard M. Brunell, Director of Legal Advocacy, American
Antitrust Institute), available at http://www.antitrustinstitute.org/
archives/files/aai-%20Leegin,%20'senate%20test%20by%20RB,%207-30-
07_080120071016.pdf (quoting Memorandum from the Antitrust
Modernization Comm. Single-Firm Conduct Working Group 16 (December 21,
2004)).
---------------------------------------------------------------------------
Hearings
On April 28, 2009, the Judiciary Committee's Subcommittee
on Courts and Competition Policy held 1 day of hearings on the
effect of the Leegin decision on competition in the retail
environment. Testimony was received from Pamela Jones Harbour,
Commissioner, Federal Trade Commission; Thomas G. Hungar,
Partner, Gibson, Dunn & Crutcher LLP; Tod Cohen, Vice President
and Deputy General Counsel, Government Relations, eBay, Inc.;
and Richard Brunell, Director of Legal Advocacy, American
Antitrust Institute, with additional material submitted by the
National Consumers League; the Consumer Federation of America;
Consumers Union; U.S. Public Interest Research Group;
Amazon.com, Inc.; the American Bar Association Section of
Antitrust Law; and the Consumer Electronics Association.
Committee Consideration
On July 30, 2009, the Subcommittee on Courts and
Competition Policy met in open session and ordered the bill
H.R. 3190 favorably reported, with an amendment, by voice vote,
a quorum being present. On January 13, 2010, the Committee met
in open session and ordered the bill H.R. 3190 favorably
reported without amendment, by a voice vote, a quorum being
present.
Committee Votes
In compliance with clause 3(b) of rule XIII of the Rules of
the House of Representatives, the Committee advises that there
were no recorded votes during the Committee's consideration of
H.R. 3190.
Committee Oversight Findings
In compliance with clause 3(c)(1) of rule XIII of the Rules
of the House of Representatives, the Committee advises that the
findings and recommendations of the Committee, based on
oversight activities under clause 2(b)(1) of rule X of the
Rules of the House of Representatives, are incorporated in the
descriptive portions of this report.
New Budget Authority and Tax Expenditures
Clause 3(c)(2) of rule XIII of the Rules of the House of
Representatives is inapplicable because this legislation does
not provide new budgetary authority or increased tax
expenditures.
Congressional Budget Office Cost Estimate
In compliance with clause 3(c)(3) of rule XIII of the Rules
of the House of Representatives, the Committee sets forth, with
respect to the bill, H.R. 3190, the following estimate and
comparison prepared by the Director of the Congressional Budget
Office under section 402 of the Congressional Budget Act of
1974:
U.S. Congress,
Congressional Budget Office,
Washington, DC, March 5, 2010.
Hon. John Conyers, Jr., Chairman,
Committee on the Judiciary,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 3190, the
``Discount Pricing Consumer Protection Act of 2009.''
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Mark
Grabowicz, who can be reached at 226-2860.
Sincerely,
Douglas W. Elmendorf,
Director.
Enclosure
cc:
Honorable Lamar S. Smith.
Ranking Member
H.R. 3190--Discount Pricing Consumer Protection Act of 2009.
H.R. 3190 would prohibit agreements between manufacturers
and wholesalers, distributors, or retailers to set minimum
prices for a product or service. The bill would negate the
effects of a 2007 Supreme Court decision (Leegin Creative
Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877 (2007)) that
permits minimum price agreements in certain cases.
Based on information from the Department of Justice, CBO
estimates that implementing the bill would have no significant
effect on the department's spending to handle cases involving
minimum price agreements.
Pay-as-you-go procedures would apply to the legislation
because violators of the bill's provisions could be subject to
civil and criminal fines. Criminal fines are deposited as
revenues in the Crime Victims Fund and later spent. However,
CBO estimates that any additional revenues and direct spending
would not be significant in each year.
H.R. 3190 contains no intergovernmental mandates as defined
in the Unfunded Mandates Reform Act (UMRA) and would not affect
the budgets of state, local, or tribal governments.
Prohibiting contracts between manufacturers and
wholesalers, distributors, or retailers to set minimum retail
prices would impose a private-sector mandate as defined in
UMRA. Any existing or future contracts that set such prices
would be a violation of anti-trust law.
The cost of that mandate would be any forgone net income
resulting from prohibiting such agreements; however, how such
prohibitions would affect industry income is uncertain for
several reasons. Although a large number of firms could be
affected by the mandate, contracts involving pricing policies
are confidential and can vary widely across markets. Further,
the cost of the legislation would be mitigated to some extent
because several states already prohibit such contracts and
because firms could continue to use noncontractual policies
that have the effect of setting minimum resale prices. Because
of those uncertainties, CBO cannot determine whether the costs
would exceed the annual threshold established in UMRA for
private-sector mandates ($141 million in 2010, adjusted
annually for inflation).
The CBO staff contacts for this estimate are Mark Grabowicz
(for Federal costs) and Marin Randall (for the private-sector
impact). The estimate was approved by Theresa Gullo, Deputy
Assistant Director for Budget Analysis.
Performance Goals and Objectives
The Committee states that pursuant to clause 3(c)(4) of
rule XIII of the Rules of the House of Representatives, H.R.
3190 will negate the Supreme Court's decision in Leegin
Creative Leather Products, Inc. v. PSKS, Inc. and restores the
per se prohibition established in Dr. Miles Med. Co. v. John D.
Park & Sons., Co., holding any agreement between a manufacturer
and a retailer, wholesaler, or distributor establishing a
minimum price for the sale of a product or service is a
violation of section 1 of the Sherman Act.
Constitutional Authority Statement
Pursuant to clause 3(d)(1) of rule XIII of the Rules of the
House of Representatives, the Committee finds the authority for
this legislation in article I, section 8, clause 3 of the
Constitution.
Advisory on Earmarks
In accordance with clause 9 of rule XXI of the Rules of the
House of Representatives, H.R. 3190 does not contain any
congressional earmarks, limited tax benefits, or limited tariff
benefits as defined in clause 9 of rule XXI.
Section-by-Section Analysis
The following discussion describes the bill as reported by
the Committee.
Sec. 1. Short title. Section 1 designates the short title
of the bill as the ``Discount Pricing Consumer Protection Act
of 2009.''
Sec. 2. Prohibition on Minimum Resale Price Maintenance.
Section 2 makes any agreement between a manufacturer and a
retailer, wholesaler, or distributor establishing a minimum
price for the manufacturer's product or service a violation of
section 1 of the Sherman Act.
The term ``agreement'' is to be read synonymously with
``contract, combination, or conspiracy'' as used in section 1
of the Sherman Act, and is intended to be read consistently
with the limitations on intra-enterprise conspiracy as held in
Copperweld Corp. v. Independence Tube Corp.\33\
---------------------------------------------------------------------------
\33\467 U.S. 752 (1984).
---------------------------------------------------------------------------
Sec. 3. Effective Date. This section establishes the bill's
effective date as 90 days after the date of enactment. Thus,
agreements subject to challenge under the bill will be per se
illegal if entered into, or still in effect, 90 days after the
date of enactment.
Additional Views
I have strong reservations about the effect of H.R. 3190 on
the market. I believe this legislation is imprudent. It is a
wholesale prohibition against any price agreements between a
manufacturer and a retailer. This change in law lumps together
all market participants, without regard to their pricing power
in the marketplace. It is unfortunate, since there is a simple
and effective solution to this shortcoming of the original bill
that would provide for protection of consumers against unfair
market practices while recognizing the needs of businesses, big
and small, to protect their products in the marketplace.
At the time of the mark up of H.R. 3190, I offered an
amendment to provide two standards of review for minimum price
agreements between manufacturers and retailers. If the price
setter had market power, the price agreement would be a per se
violation of the Sherman Antitrust Act. If the price setter did
not have market power, then the court must apply the rule of
reason standard set by the Supreme Court in Leegin Creative
Leather Products, Inc. v. PSKS, Inc. in 2007.
I think Leegin got it right, partially. But the court can
only use the tools it is given. My amendment was the middle
ground. It refined and curtailed the Supreme Courts'
application of the rule of reason standard to recognize
antitrust concerns regarding market participants with market
power who negotiate minimum price agreements with retailers. My
amendment recognized our desire and the need to protect the
consumers from unfair price-setting and promote competitive
pricing process.
On the other hand, my amendment also recognized that there
more than one dynamic in the marketplace, not just consumer as
a price-taker. Another dynamic is between the retailer/
distributor and the manufacturer. A manufacturer in retail
environment has but one product (i.e. a suitcase, a computer,
an iPod). The retailer, on the other hand, has a plethora of
choices. Normally, a retailer, if you don't go to the Apple
store, has Apple, BlackBerry, Samsung, and so on. In fact, most
retailers, particularly the large retailers and the retailers
that are in support of this legislation, have all the brands.
If you are a retailer and you have the ability to take the
most expensive brand, the best brand, the one that has the most
demand and advertize it in limited quantities at a reduced
price, and then when shoppers come in your store enticed by the
low price, you have created traffic at the expense of the
perceived value of that product. You have diluted the perceived
value of the product in the process. You also, of course, have
the ability to raise and lower that price to suit your whim.
You have all the options.
A manufacturer, again, has but one product, the product
that they are presenting in the way that they would like to
present it. If that manufacturer--and this was the crux of my
amendment--has market power, then we should hold that
manufacturer to the higher standard. But for a small
manufacturer, a start-up, the little guy, it may be the only
way to get the attention of the market to price their product
where it belongs, realizing that it may sell less but it will
sell to a discerning customer who appreciates the advantage,
the quality, the unique characteristics of their product. If
that is the decision of the manufacturer with their product,
their intellectual property, the thing that they created and
brought to market, if that manufacturer does not have antitrust
considerations, if they have no market power, why shouldn't
they be given some reasonable control over their own product,
with a standard of review different from the standard of review
we apply to manufacturer which has real market power? Under
these circumstances, I believe the rule of reason standard set
by the Supreme Court in Leegin is the right way to analyze the
antitrust implications of the pricing agreements. The courts
are well equipped to make this determination. Market power is
not a vague standard. There is a huge body of settled antitrust
law that tells us what market power is.
The unfortunate effect of this legislation is that it will
decrease competition in the marketplace by benefitting large
retailers and manufacturers to the detriment of the small
retailers and manufacturers, with the ultimate result of less
consumer choice and lower product quality. It is my hope that
this Committee will reconsider this matter in the future to
correct its shortcomings.
Darrell E. Issa.