[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]


 
  BYE BYE BARGAINS? RETAIL PRICE FIXING, THE LEEGIN DECISION AND ITS 
                       IMPACT ON CONSUMER PRICES

=======================================================================

                                HEARING

                               BEFORE THE

                       SUBCOMMITTEE ON COURTS AND
                           COMPETITION POLICY

                                 OF THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 28, 2009

                               __________

                           Serial No. 111-37

                               __________

         Printed for the use of the Committee on the Judiciary


      Available via the World Wide Web: http://judiciary.house.gov


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                       COMMITTEE ON THE JUDICIARY

                 JOHN CONYERS, Jr., Michigan, Chairman
HOWARD L. BERMAN, California         LAMAR SMITH, Texas
RICK BOUCHER, Virginia               F. JAMES SENSENBRENNER, Jr., 
JERROLD NADLER, New York                 Wisconsin
ROBERT C. ``BOBBY'' SCOTT, Virginia  HOWARD COBLE, North Carolina
MELVIN L. WATT, North Carolina       ELTON GALLEGLY, California
ZOE LOFGREN, California              BOB GOODLATTE, Virginia
SHEILA JACKSON LEE, Texas            DANIEL E. LUNGREN, California
MAXINE WATERS, California            DARRELL E. ISSA, California
WILLIAM D. DELAHUNT, Massachusetts   J. RANDY FORBES, Virginia
ROBERT WEXLER, Florida               STEVE KING, Iowa
STEVE COHEN, Tennessee               TRENT FRANKS, Arizona
HENRY C. ``HANK'' JOHNSON, Jr.,      LOUIE GOHMERT, Texas
  Georgia                            JIM JORDAN, Ohio
PEDRO PIERLUISI, Puerto Rico         TED POE, Texas
LUIS V. GUTIERREZ, Illinois          JASON CHAFFETZ, Utah
BRAD SHERMAN, California             TOM ROONEY, Florida
TAMMY BALDWIN, Wisconsin             GREGG HARPER, Mississippi
CHARLES A. GONZALEZ, Texas
ANTHONY D. WEINER, New York
ADAM B. SCHIFF, California
LINDA T. SANCHEZ, California
DEBBIE WASSERMAN SCHULTZ, Florida
DANIEL MAFFEI, New York
[Vacant]

       Perry Apelbaum, Majority Staff Director and Chief Counsel
      Sean McLaughlin, Minority Chief of Staff and General Counsel
                                 ------                                

             Subcommittee on Courts and Competition Policy

           HENRY C. ``HANK'' JOHNSON, Jr., Georgia, Chairman

JOHN CONYERS, Jr., Michigan          HOWARD COBLE, North Carolina
RICK BOUCHER, Virginia               JASON CHAFFETZ, Utah
ROBERT WEXLER, Florida               BOB GOODLATTE, Virginia
CHARLES A. GONZALEZ, Texas           F. JAMES SENSENBRENNER, Jr., 
SHEILA JACKSON LEE, Texas            Wisconsin
MELVIN L. WATT, North Carolina       DARRELL ISSA, California
BRAD SHERMAN, California             GREGG HARPER, Mississippi
[Vacant]

                    Christal Sheppard, Chief Counsel

                    Blaine Merritt, Minority Counsel


                            C O N T E N T S

                              ----------                              

                             APRIL 28, 2009

                                                                   Page

                           OPENING STATEMENTS

The Honorable Henry C. ``Hank'' Johnson, Jr., a Representative in 
  Congress from the State of Georgia, and Chairman, Subcommittee 
  on Courts and Competition Policy...............................     1
The Honorable Howard Coble, a Representative in Congress from the 
  State of North Carolina, and Ranking Member, Subcommittee on 
  Courts and Competition Policy..................................     2
The Honorable Brad Sherman, a Representative in Congress from the 
  State of California, and Member, Subcommittee on Courts and 
  Competition Policy.............................................     3
The Honorable Jason Chaffetz, a Representative in Congress from 
  the State of Utah, and Member, Subcommittee on Courts and 
  Competition Policy.............................................     5

                               WITNESSES

Ms. Pamela Jones Harbour, Commissioner, Federal Trade Commission, 
  Washington, DC
  Oral Testimony.................................................     6
  Prepared Statement.............................................     9
Mr. Thomas G. Hungar, Partner, Gibson, Dunn & Crutcher, LLP, 
  Washington, DC
  Oral Testimony.................................................    35
  Prepared Statement.............................................    37
Mr. Tod Cohen, Vice President, Deputy General Counsel for 
  Government Relations, eBay Incorporated, San Jose, CA
  Oral Testimony.................................................    64
  Prepared Statement.............................................    66
Mr. Richard M. Brunell, Director of Legal Advocacy, American 
  Antitrust Institute, Newton, MA
  Oral Testimony.................................................    71
  Prepared Statement.............................................    73

                                APPENDIX

Material Submitted for the Hearing Record........................   127


  BYE BYE BARGAINS? RETAIL PRICE FIXING, THE LEEGIN DECISION AND ITS 
                       IMPACT ON CONSUMER PRICES

                              ----------                              


                        TUESDAY, APRIL 28, 2009

              House of Representatives,    
                 Subcommittee on Courts and
                                 Competition Policy
                                Committee on the Judiciary,
                                                    Washington, DC.

    The Subcommittee met, pursuant to notice, at 3:04 p.m., in 
room 2141, Rayburn House Office Building, the Honorable 
Honorable Henry C. ``Hank'' Johnson, Jr. (Chairman of the 
Subcommittee) presiding.
    Present: Representatives Johnson, Sherman, Coble, Chaffetz, 
Sensenbrenner, and Goodlatte.
    Mr. Johnson. This hearing is now in session. I want to 
thank everybody for being here. This issue has been around from 
before I was born. It is great to be in the time where we can 
deal with this particular issue and other similar issues, 
especially given the economic crisis that has, in part, been 
caused by laissez-faire attitudes.
    And so I am glad to be here today. Got some serious issues, 
of course. One of our big concerns is how our previous policies 
have impacted certain groups, particularly consumers, and have 
we ended up with a situation where prices that consumers pay 
are artificially set, or are those subject to the ``free 
marketplace,'' as has been our financial industry.
    Even former President Ronald Reagan condemned retail price 
fixing because it stifles competition, and adds to inflation. 
His view was that it was completely lacking in any kind of 
benefits to the consumer. Justice Kennedy has stated in the 
Leegin decision that, if we continue to operate as we have been 
doing, it will cost the average consumer anywhere from about 
$750 to $1,000 extra. And so, of course, inflation has taken 
that cost even further for our consumers who can now least 
afford to bear the brunt of our economic crisis that they had a 
very minor role in causing.
    And so what is the benefit to the consumers? This Congress 
has consistently stated over almost the past 100 years that, if 
there is no benefit to consumers, then allowing manufacturers 
to set retail pricing is disfavored.
    After assurances that the Administration had no intention 
of changing the longstanding policy, a dramatic policy shift 
took place in the last Administration. And I believe it harms 
consumers. Of course, I am always ready to listen and be 
educated on all sides of an issue, and I look forward to us 
doing that, starting today.
    While some may argue that there are some competitive 
justifications for resale price maintenance agreements that 
benefit consumers, I am not yet convinced that that 
justification is actually the most prudent one for today's 
times.
    Will manufacturers take advantage of recent court decisions 
and increasingly dictate minimum retail prices? Why would they 
not do that? The consumer is kind of like a drowning person, 
who just reaches out, and it doesn't matter who they grab hold 
to. We have a lot of desperation, quite frankly, that has 
already been felt by the average consumer, and it continues.
    So we really must be careful in making sure that, as we try 
to save the victim who is drowning, that we don't get pulled 
down and drown ourselves.
    So our respected colleagues in the Senate have already 
introduced legislation that would overturn the Leegin decision 
and, once again, make minimum retail price fixing illegal. Not 
that the House follows necessarily in lock-step the Senate. 
Sometimes we would really love for our friends in the Senate to 
yield to us and do what we want them to do. However, it is not 
always possible, but I remain hopeful in that regard.
    Now, thank you all for listening to my comments. And now I 
will turn it over to my colleague, our esteemed Ranking Member, 
Mr. Howard Coble.
    Mr. Coble. Mr. Chairman, thank you for elevating me to the 
``esteemed'' status. I am not sure I deserve that, but I 
appreciate that, nonetheless.
    Good to have you all with us, folks.
    Mr. Chairman, thank you for calling the hearing of the 
Courts and Competitive Competition Policy Subcommittee. Since 
1911, the Supreme Court has held the agreements between a 
manufacturer and their retailer to set the minimum price that 
the retailer can sell the manufacturer's good, also know as 
resale price maintenance, are a per se violation of the 
antitrust laws.
    However, in the 98 years since this decision, the Supreme 
Court has moved away from most per se standards to a rule of 
reason standard. Under the rule of reason standard, both the 
plaintiff and the defendant put forth evidence of the relative 
pro and anti-competitive effects of a given practice and the 
courts decide whether the challenged practice constitutes an 
unreasonable restraint of trade.
    By contrast, under a per se standard, once the plaintiff 
proves the basic elements of its claim, that the manufacturer 
did, in fact, enter into a price agreement with a retailer, 
then the liability, as I understand it, Mr. Chairman, 
automatically attaches.
    In 2007, in a case called Leegin v. PSKS, the Supreme Court 
continued its trend away from per se rules and held that resale 
price maintenance would be evaluated under the rule of reason. 
The decision was not without controversy. The Bush 
administration's Department of Justice, along with the Federal 
Trade Commission, filed an amicus brief in favor of the 
position ultimately adopted by the Supreme Court.
    However, some 37 states filed an amicus brief in favor of 
retaining the per se standard. Following the Supreme Court's 
decision, Senator Kohl introduced a bill to legislatively 
repeal the Leegin decision. He has reintroduced the bill this 
year. And I would note, as best I can tell, Mr. Chairman, there 
is no similar or companion bill in the House, at least at this 
juncture.
    Prior to going back to a per se standard, this Committee 
and the court should take a hard look at the actual facts 
supporting resale price maintenance, it seems to me. It may be 
that there are some occasions where it is justified and some 
where, conversely, it is not. That is where the rule of 
reasoning comes in. It allows the courts to conduct the kind of 
detailed fact-finding necessary to determine the actual harm 
and benefits to consumers of resale price maintenance.
    Whatever the methodology, we benefit when competition is 
protected and promoted. After only 2 years of rule of reason 
analysis, I am not sure that the record has been established to 
warrant a return to the old rule. However, I trust that this 
Committee will continue to keep an eye on the situation to 
ensure that consumers are seeing a benefit from this treatment 
of resale price maintenance.
    And with that, I will conclude and join you, Mr. Chairman, 
and welcome our witnesses today. And I yield back the balance 
of my time.
    Mr. Johnson. Thank you for your opening statement, my good 
friend, Mr. Coble.
    And now, we shall recognize my colleague from California. 
And don't be fooled by the hairstyle that he is employing right 
now, because he is younger than I am.
    So I want to give my friend, Mr. Brad Sherman, an 
opportunity to make an opening statement.
    Mr. Sherman. It is so nice to be younger than someone. As 
to my hairstyle, I actually cut it this way to facilitate the 
fact that I hand out plastic combs throughout my district. And 
given this hairstyle, people then remember the plastic comb. So 
I actually----
    Mr. Johnson. I do appreciate you giving me mine, also.
    Mr. Sherman. Absolutely. And I would ordinarily have as 
much use for it as the gentleman from Utah, except for the fact 
that, in order to raise my name ID in my district, I cut it 
distinctively.
    Now, as to the matter at hand, there are two sides to this 
argument. The side against resale price maintenance is simple, 
but might very well be compelling, and that is discounts mean 
lower prices.
    The arguments against a per se rule are more complex. One 
of those isn't just government should be laissez-faire. One 
counter to that is maybe manufacturers should be laissez-faire 
and let retailers have the freedom to do what they want.
    The second is that, in the absence of true vertical 
integration, the manufacturers' interests are not necessarily 
hostile to those of the consumer. The manufacturer wants to 
move as many products as possible, and if they believe that, 
with resale price maintenance, they get the full panoply of 
services provided to the ultimate consumer, then they may be 
allied with the consumers' arguable long-term interest.
    The argument put forward most commonly is the free rider, 
that consumers will learn about a product, see a demonstration, 
get advice on which model to buy and how to use it from one 
retailer, and then go online or down the street and buy it from 
a discounter. Even if we were to believe that resale price 
maintenance provides consumers with more service, that still 
may mean that we decide, on balance, they would rather have the 
lower prices.
    One could say, if you want a consultant, hire one. Pay them 
by the hour. Don't make everybody in your community pay a 
higher price for this or that product just because some 
consumers want some advice on how to use the product. We don't 
necessarily have to bundle services and advice on the one hand 
with the physical product on the other.
    We have a number of routes we can take here in Congress. 
One is to go back to sleep and let the courts decide 
everything. It is easier that way, but I think that is an 
abdication of our responsibilities. I think it is Congress, 
rather than the courts, that can best decide what is really in 
the interests of consumers.
    A second approach is to just go with a per se rule. That is 
what we had in this country for many years, perhaps imposed by 
the courts, but we in Congress could resurrect that rule that, 
as the Chairman points out, has been pretty much the rule for 
our lifetimes, even his longer lifetime.
    And another approach would be to see if there are 
particular industries where the advantage of resale price 
maintenance outweighs its disadvantage, allow it in those few 
industries or those few products, and prohibit it with the 
rest.
    I would point out that the product we buy most that needs 
the most service, the most demonstration, is the automobile, 
and there we do not see--I have not seen an unwillingness of 
retailers to take me out on a test drive even though there was 
no resale price maintenance. There is a franchise governing a 
certain territory, but the fact that most of us live in urban 
areas means that we can easily go to any of the other 
franchisees, and now we can go online as well.
    So one wonders whether we really need to get away from 
decades of discounting being legal when I have had no trouble 
getting people to want to sell me a car and to spend all the 
time that I ask for showing me how to use it, comparing it to 
their other products, et cetera.
    So I don't know whether the old rule actually deprived us 
of the service, the advice, the attention that consumers want. 
I do know that the old rule maximized discounts for consumers. 
And I look forward to learning more about this issue.
    I yield back.
    Mr. Johnson. Thank you, Mr. Sherman, for your opening 
statement.
    And next, we will have an opening statement from my good 
friend, Jason Chaffetz, newly elected out of Utah. And I am 
going to take Chairman's privilege to reveal some confidential 
communications that he and I have been engaged in. And I know 
that you would not be offended if I were to reveal--I must 
disclose, as a matter of fact, he and I have talked about so 
many things, but I tell you, the biggest thing that I have 
learned from Jason thus far is the products that he uses, Mr. 
Sherman, to ensure that he makes a good appeal to his 
constituents as well.
    So without any further ado--don't believe his hair, either, 
because he has done a good job of his public relations 
projection. So without any further ado, Mr. Chaffetz, please?
    Mr. Chaffetz. Well, thank you, Mr. Chairman. I simply 
wanted to say thank you for calling this hearing. It is an 
important topic in which we need to dive deep, and I do 
appreciate all of you that have contributed to this. I wanted 
to thank the Chairman for recognizing that and this important 
issue and calling this hearing.
    I would note for the record that I have never owned a comb 
in my life, and especially since I learned about the miracle of 
hair styling gel, which has come to serve me well. So, for the 
record, so noted.
    And I appreciate it, and look forward to listening and 
hearing from you rather than being heard. So thank you.
    Mr. Johnson. Thank you, my good friend. By the way, to 
clarify our discussions, though they have included Brylcreem 
and those kind of things, we have also been talking about the 
Just For Men kind of thing. So that is what I really appreciate 
you for, for enlightening me on that, so I appreciate it. Thank 
you.
    Let me introduce our witnesses for today's hearing. First 
is Commissioner Pamela Jones Harbour of the Federal Trade 
Commission. Ms. Harbour was sworn in as a commissioner of the 
FTC on August 4, 2003. Commissioner Harbour was previously a 
partner at the law firm Kaye Scholer, LLP, and she also spent 
11 years as a New York State deputy attorney general, during 
which time she argued before the Supreme Court in a number of 
cases, including State Oil v. Khan, which has been a landmark 
antitrust price fixing case.
    Commissioner Harbour received her law degree from Indiana 
University School of Law, and she obtained her bachelor's 
degree in music from the Indiana University School of Music. 
Welcome, ma'am.
    Next is Mr. Thomas Hungar, a partner in the Washington, DC 
office of Gibson, Dunn & Crutcher. Mr. Hungar served as a US 
deputy solicitor general from 2003 to 2008, and he has argued 
24 times before our Supreme Court. And in fact, he was 
intimately involved as one of the attorneys in the Leegin case 
on behalf of the petitioners.
    Mr. Hungar previously clerked for Justice Kennedy and is a 
graduate of Willamette University and also Yale Law School. 
Welcome, sir.
    Next is Mr. Tod Cohen, who is vice president, deputy 
general counsel for government relations at eBay. Prior to 
eBay, Mr. Cohen was the vice president and counsel of New Media 
for the Motion Picture Association of America. And before that, 
he was European legal counsel and vice president for the 
Business Software Alliance.
    Upon graduating from the University of Utah, Mr. Cohen 
served as a congressional aide prior to attending George 
Washington University law school. We appreciate you being here 
today, Mr. Cohen.
    And finally, we have Mr. Richard Brunell, who is the 
director of legal advocacy for the American Antitrust 
Institute. Mr. Brunell is a guest lecturer at Boston College 
Law School, and he wrote one of the amicus briefs in Leegin.
    Mr. Brunell is a graduate of Swarthmore College and also 
the Harvard Law School, where he was an editor of the Harvard 
Law Review, just like our newly elected President.
    I want to thank you all for your willingness to come today 
and participate in our hearing because, quite frankly, we have 
found it difficult to have--we want to have--well, our goal is 
to always have equality in terms of the views that are 
expressed, because it is an educational process for us. But 
unfortunately, we were unsuccessful at twisting the arms of 
some interests to take a stand today.
    And I am sure that they have stands that they have taken. 
And I am sure that they are watching everything that is going 
on regarding this issue, particularly my appearance here today, 
mine in particular, of course. So I expect that we would be in 
full discussions about things as we proceed, and we will have 
other hearings where we are going to hear more views than we 
will hear today.
    So without objection, your written statements will be 
placed into the record, and we would ask that you limit your 
oral remarks to 5 minutes. And you will note that we have a 
lighting system that starts with a green light. And at 4 
minutes, it turns yellow.
    I know that real connection between green and yellow. I 
learned that in pre-K, I guess, in terms of mixing the paint 
and everything.
    And of course, somewhere about a minute later, you will see 
that ominous red light that appears. And so I know a lot of 
folks don't particular--you get wound up and everything, but we 
shall assist you as best we can in that regard.
    So I appreciate, once again, you all coming. And after each 
witness has presented his or her own testimony, Subcommittee 
Members will be, of course, permitted to ask questions subject 
to the 5-minute rule.
    Commissioner Harbour, please proceed with your testimony.

TESTIMONY OF PAMELA JONES HARBOUR, COMMISSIONER, FEDERAL TRADE 
                   COMMISSION, WASHINGTON, DC

    Ms. Harbour. Thank you.
    Chairman Johnson, Ranking Member Coble and Members of the 
Subcommittee, I appreciate this opportunity to share with you 
my personal views on minimum vertical price fixing, sometimes 
referred to as resale price maintenance (``RPM''), or margin 
maintenance.
    During my oral remarks, there are three points that I would 
like to make.
    First, the Supreme Court has decided to repeat an already 
failed experiment with RPM that flaunts congressional intent 
and harms consumers.
    Second, the lower court's evaluation of RPM under the rule 
of reason will reward price fixing merchants and manufacturers, 
and will further punish the victims, i.e., consumers and non-
conspiring merchants.
    Third, RPM should be presumed to be harmful to competition 
until a manufacturer has factually shown that its use of RPM 
benefits consumers more than it harms them.
    The Supreme Court's 2007 Leegin decision gave manufacturers 
the right to set minimum resale prices for consumer goods, 
guaranteeing higher consumer prices. This is bad economic and 
legal policy. It gives excessively short shrift to consumer 
preferences, the supposed driving force behind the market.
    Post-Leegin and absent action by Congress, consumer 
preferences will be subordinated to the interests of 
manufacturers and merchants of branded consumer goods. In these 
tough economic times, it is especially wrong to saddle 
consumers with higher prices for daily necessities while 
providing no countervailing benefit.
    RPM advocates essentially ask us to believe that consumers 
are better off when they pay higher prices for the daily 
necessities of life because the benefits to manufacturers and 
retailers eventually will trickle down to consumers. According 
to the logic of the Leegin court, it is preferable to maximize 
the welfare of conspiring manufacturers and merchants even 
though the antitrust laws are designed to put consumers' 
interests first.
    The Leegin decision cannot be reconciled with the 
legislative history of the antitrust laws. Congress has never 
adopted nor endorsed a preference for RPM at the Federal level.
    Congress did create an antitrust exception for RPM under 
the state fair trade statutes. However, Congress ultimately 
graded its 37-year natural experiment with RPM as a monumental 
failure. In fact, in 1975, the fair trade exemptions were 
repealed in favor of per se illegality. Congress did so because 
RPM had been a dismal, if not disastrous, detour from sound 
public policy.
    RPM raised consumer prices by as much as 37 percent. It 
lowered sales levels. It increased the frequency of business 
failures. It created entry barriers. It distorted retailer 
incentives, and it generally retarded retail competition.
    Even if the Leegin majority can overlook these 
congressional findings, I cannot. I ask, are we falling into a 
Groundhog Day vortex where we are doomed to endlessly repeat 
the same mistakes over and over again? Competition policy can 
and should do a better job of protecting consumers, but I do 
worry that Congress may some day be called upon to write yet 
another report detailing the disastrous harms inflicted on 
consumers during the Supreme Court's current experiment with 
RPM.
    And we know who is paying for this experiment. Sadly, it is 
the American consumer. Both intra-brand competition and inter-
brand competition provide important benefits to consumers. 
Existing case law, however, consistently denigrates the 
importance of intra-brand competition.
    Justice Powell's footnote in GTE Sylvania declaring the 
primacy of inter-brand competition, finds no support in the 
legislative history of the antitrust laws, but the courts 
routinely, even rotely, cite it as authority.
    In GTE Sylvania, the court was rebelling against the 
Warren's court's alleged formalistic line drawing to support 
liability. Yet the Leegin opinion, the Leegin majority, appears 
to have drawn similarly formalistic lines to short-circuit the 
RPM inquiry in the opposite direction and, in doing so, has 
effectively created the very presumption of per se legality 
that the court purports to disclaim.
    This court's line drawing is devoid of substance. Labels 
have again replaced rigorous analysis, and the law and the 
American consumer are suffering because of it.
    The Leegin court claimed that it intended the rule of 
reason to weed out competitively harmful uses of RPM, but good 
intentions will not cure a bad rule of law. The rule of reason 
tends to be a euphemism for the absence of liability. 
Potentially good RPM cases are already being dismissed without 
any hearing on the merits. These threshold presumptions must be 
established before the rule of reason can become a workable 
tool for combating harmful uses of RPM.
    There are economic theories praising RPM and other theories 
condemning it, but none of theories on either side of the aisle 
are supported by any systematic body of empirical evidence. At 
best, we have strongly held beliefs about the effects of RPM, 
sometimes bordering on the almost religious, but we are missing 
facts, which are the building blocks of litigation.
    The realities of litigation dictate that, when the facts 
are equally probative of guilt or innocence, depending on which 
theory is adapted to advocate them, then usually the party that 
has the burden of proof loses. If full-blown rule of reason 
analysis is applied in RPM cases, the burden of proof would be 
placed on the victims, or the burden of proof will be placed on 
the victim, but it won't be placed on the defendants who impose 
the RPM policy.
    The FTC is doing its best to further the development of 
real-world facts about the effects of RPM by holding a series 
of workshops, but any answers will be more than a decade away. 
Consumers need relief today.
    In conclusion, when it comes to the RPM debate, one simple 
fact is indisputable: RPM guarantees that consumers will pay 
higher prices. And until it is proven otherwise, I will 
continue to believe that consumers are very unlikely to gain 
any countervailing benefits in return for these higher prices.
    Thank you.
    [The prepared statement of Ms. Harbour follows:]

               Prepared Statement of Pamela Jones Harbour

























                              ATTACHMENT 1









                              ATTACHMENT 2





















                               __________

    Mr. Johnson. Thank you.
    And now we will move on to Mr. Hungar. You ready, sir?

    TESTIMONY OF THOMAS G. HUNGAR, PARTNER, GIBSON, DUNN & 
                 CRUTCHER, LLP, WASHINGTON, DC

    Mr. Hungar. Thank you, Chairman Johnson, Ranking Member 
Coble and Members of the Committee. It is a great honor to 
testify before you today on the subject of resale price 
maintenance, or RPM.
    I note that I am pretty seriously outnumbered on this panel 
by opponents of RPM, but it is important to remember that among 
those in the best position to understand the true effects of 
RPM, namely economists who have actually studied the issue, 
there is an even more lopsided breakdown, except it runs in the 
opposite direction. There is a widespread consensus among 
economists that RPM can achieve pro-competitive ends and 
advance the interests of consumers in obtaining better 
services, more information, and wider selection.
    The evidence is overwhelming that RPM can, and often does, 
have pro-comprehensive effects that benefit consumers. It can 
encourage inter-brand competition, prevent free riding, 
facilitate brand entry, ensure that retailers provide costly 
but beneficial point-of-sale services, encourage retailers to 
maintain adequate inventories despite uncertain demand, and 
give customers peace of mind.
    In fact, Pauline Ippolito, who currently heads the Bureau 
of Economics at Commissioner Harbour's agency, did an extensive 
study of RPM a few years ago and concluded that the principal 
anti-competitive explanation for RPM, namely that it can 
facilitate or conceal cartel activity, lacks explanatory power 
for the vast majority of RPM uses, while the pro-competitive, 
service and sales enhancing explanations, potentially explain 
the vast majority of RPM uses.
    She concluded, ``These findings are consistent with the 
view that a relaxation of the broad per se standard prohibiting 
RPM was warranted.'' And again, she is the acting head of the 
Bureau of Economics at the FTC.
    Most of the counter-arguments advanced by my fellow 
panelists today rest at bottom on the unstated assumption that, 
as a result of the Leegin decision, RPM will become universal, 
or at least widespread in the economy. But there isn't the 
slightest reason to believe that is true. Wal-Mart, Costco, 
Amazon.com and other large discounters dominate the retail 
scene in today's economy, and that is not going to change.
    Where consumers value price over service, discount 
strategies will thrive and RPM strategies will fail, along with 
those manufacturers that adopt them. But in those markets where 
RPM is an efficient means of meeting the demands of a 
particular segment of the consuming public, there is no basis, 
in logic or experience, for denying that flexibility to a 
manufacturer.
    Arguments against RPM also fail to take account of the fact 
that manufacturers could achieve the same price effects through 
other means, even under the old Dr. Miles rule: through Colgate 
policies or vertical integration. So the effect of Leegin is 
only to make it possible for manufacturers to achieve the same 
results more efficiently, and efficiency gains are pro-
competitive by any measure.
    Commissioner Harbour and other opponents complain that it 
will be too difficult for parties challenging RPM to satisfy 
the rule of reason test under Leegin, but, if true, that is 
merely a concession that RPM can't be shown to be anti-
competitive, which is hardly a good reason for banning or 
restricting it. Under the rule of reason, a plaintiff can meet 
its burden either by showing actual anti-competitive effects or 
by means of a market analysis.
    And plaintiffs, including the FTC, do prevail in 
challenging vertical practices under the rule of reason. Even 
the cases cited by Mr. Brunell show that plaintiffs don't 
always lose.
    There is no basis for departing from the rule of reason 
approach that the courts use to analyze all other vertical 
restraints, especially since it is undisputed that non-price 
restraints can have the same price effects as RPM. Congress 
should not legislate hastily on the basis of rhetoric and 
speculation rather than actual experience and evidence.
    I urge you to preserve the flexibility of the Sherman Act, 
and let the courts do their jobs and gain experience judging 
RPM under the rule of reason.
    Thank you.
    [The prepared statement of Mr. Hungar follows:]

                 Prepared Statement of Thomas G. Hungar























































                               __________

    Mr. Johnson. Thank you, Mr. Hungar.
    Now, Mr. Cohen, will you proceed, sir?

TESTIMONY OF TOD COHEN, VICE PRESIDENT, DEPUTY GENERAL COUNSEL 
   FOR GOVERNMENT RELATIONS, eBAY INCORPORATED, SAN JOSE, CA

    Mr. Cohen. Chairman Johnson, Ranking Member Coble and 
Members of the Subcommittee, my name is Tod Cohen, Vice 
President and Deputy General Counsel for Government Relations 
for eBay. Thank you for the invitation to speak today about the 
negative impact of the Supreme Court's Leegin decision, in 
particular on small and mid-size retailers who use the Internet 
and whose benefits to help consumers are being crippled by the 
very visibility created by the Internet.
    We support Congress legislatively intervening and 
reinstating a per se rule prohibiting retail price fixing.
    Founded in 1995, eBay connects hundreds of millions of 
people around the world every day. The company's online 
platforms empower individuals and small businesses to meet and 
engage in open trade on a local, national and international 
basis.
    We believe that the efficiency and consumer benefit to the 
open Internet can be immense. Businesses use it to offer lower 
prices, greater choice, and great values to consumers. 
Consumers use it to more easily find, compare and purchase 
products.
    Unleashed, it is a game-changer, and we are still in the 
innovation stage of retail on the Internet, with new retail 
business models benefiting consumers, retailers and the overall 
economy. The Internet is part of every serious 21st century 
retail strategy, whether massive brick-and-click retailers with 
websites and big box stores, large remote Internet and catalog 
retailers with nationally known brand names or small businesses 
who are building new Internet businesses or integrating the 
Internet into an existing small shop to survive and grow in 
today's highly competitive retail environment.
    The Internet is also used by manufacturers, including the 
most elite and specialized, to reach consumers with 
information, and more and more with products. And the Internet 
is critical to more consumers every day. It is the greatest 
source of product information ever created.
    I mention these facts because sometimes people paint this 
issue as being about Internet retailers and discounters on one 
side and non-Internet retailers on the other. Nothing could be 
farther from reality. In short, everyone in retail uses the 
Internet, but there are big differences on how the Internet is 
used.
    On one side are established networks of manufacturers and 
retailers who want to reinforce or enhance established and 
highly profitable retailing business models. They are 
threatened by the Internet when it is harnessed to offer 
consumers better deals and more information outside the 
established incumbent retail networks.
    On the other side are innovators with new business models. 
They are almost always small to medium-size businesses. They 
use new technologies to offer consumers better deals, more 
information, and new services.
    We believe that the Leegin decision is undermining consumer 
benefits delivered by innovative retailers, especially on the 
Internet. There is evidence that small and mid-size Internet 
retailers are the primary target of aggressive post-Leegin 
retail price fixing policies.
    EBay's own experiences confirm that many large, established 
businesses attempt to limit low price intra- and inter-brand 
competition by continually scanning our platforms to identify 
sellers offering their products at lower prices. They then use 
a range of tools to identify these sellers and stop low-price 
competition using different tactics, depending on the 
circumstances of the sellers. The Leegin decision has clearly 
been interpreted as a legal green light to more aggressively 
thwart low-price competition.
    Established retailers and manufacturers attempting to 
enforce traditional business models contend that innovative 
Internet retailers are able to offer lower prices to consumers 
because they ``free ride'' on their traditional retail 
counterparts.
    The truth is that the Internet turns the traditional free-
rider justification for RPM on its head. Internet retailers and 
services provide significant pre-sale price information to 
consumers. The open Internet has completely revolutionized the 
consumer information experience.
    Consumers regularly turn to the Internet to search for 
product information, make product comparisons, and check prices 
before visiting and purchasing from established retailers. In 
fact, it could even be argued that the largest and most 
established retailers and their largest retailer partners are 
free riding on the tremendous consumer information tools 
created by Internet innovators.
    From a competition policy and consumer benefit perspective, 
the traditional rider free argument for RPM policies as applied 
to the Internet should be put to rest. Innovation Internet 
retail models simply expose incumbents to new competitive 
threats and more innovative forms of retailing.
    Protection from new and innovative retail models was always 
a likely reason for RPM, and we think it is even more true in 
the Internet age. Therefore, we ask this committee to 
aggressively scrutinize the Leegin decision and adopt 
appropriate measures to protect consumers and retail 
innovators.
    Thank you, Mr. Chairman, and Members of the Subcommittee.
    [The prepared statement of Mr. Cohen follows:]

                    Prepared Statement of Tod Cohen











                               __________

    Mr. Johnson. Thank you, Mr. Cohen.
    And last but not least, we will ask Mr. Brunell to commence 
your opening statement.

 TESTIMONY OF RICHARD M. BRUNELL, DIRECTOR OF LEGAL ADVOCACY, 
            AMERICAN ANTITRUST INSTITUTE, NEWTON, MA

    Mr. Brunell. Chairman Johnson, Ranking Member Coble and 
Members of the Subcommittee, I am Richard Brunell, director of 
legal advocacy for the American Antitrust Institute. Thank you 
for this opportunity to present the views of AAI on the Leegin 
decision.
    We believe that consumer welfare and economic innovation 
are best served when retailers are free to engage in 
discounting, and therefore we urge Congress to restore some 
version of the per se rule. We have had 22 months since the 
Leegin decision, and we have learned a few things since then.
    As expected, the use of resale price maintenance programs 
appears to have increased even though antitrust counselors have 
advised caution because some state attorneys general have taken 
the position that RPM remains per se illegal under state laws, 
and other states have passed, or may pass, their own Leegin 
repealer bills.
    We also believe that there has been a greater use of 
Colgate policies and minimum advertised price policies to 
enforce minimum resale prices. Allowing manufacturers to 
forestall discounting by legitimate retailers is problematic at 
any time, but we agree that it is particularly unfortunate 
during this time of deep recession when consumers depend on 
discounts to make ends meet, and manufacturers may be more 
pressured than ever to use RPM to forestall retail price wars.
    Another thing we have learned in the 22 months since Leegin 
is that the so-called rule of reason adopted by the Supreme 
Court is, in effect, a rule of virtual per se legality. Now, 
the court said that RPM agreements were to be evaluated on a 
case-by-case basis, and courts would have to be diligent in 
eliminating anti-competitive uses from the market.
    However, in most of the cases decided since the Leegin 
decision, the lower courts have summarily dismissed the 
complaints because the alleged relevant markets were said to be 
too narrow as a matter of law. Plaintiffs were not even allowed 
to try to prove their cases.
    Now, the problem with the rule of reason is not just that 
it requires a plaintiff to prove a relevant market, to prove 
that the defendant has market power, which is a difficult and 
expensive proposition even if the plaintiff gets by a motion to 
dismiss. The problem is that the Supreme Court fundamentally 
misunderstood the nature of the anti-competitive harm from 
resale price maintenance.
    The court and its Chicago School supporters look at higher 
prices that result from RPM and they say, ``So what?'' They 
assume that the manufacturers' and consumers' interests are 
congruent. The manufacturer would prefer its retailers to sell 
at lower prices, and therefore, if the manufacturer adopts RPM, 
well, it must be because it will somehow increase demand for 
its product, notwithstanding the higher prices.
    Under this view, higher prices are only anti-competitive 
when they result from collusion among manufacturers or 
retailers. And if that is the anti-competitive theory, then no 
plaintiffs will ever win a resale price maintenance case.
    The critics of RPM, notably including Congress when it 
repealed the fair trade laws in 1975, look at higher prices, 
and they see harm to consumers. When a manufacturer announces 
that it will not permit prices to fall below a certain level, 
they are rightly suspicious. They know that manufacturers are 
not fond of retail discounting when it puts downward pressure 
on wholesale prices, and that a fixed retail price on one 
product can put a floor under the price of competing products 
that are not even subject to RPM.
    So when they see higher prices that result from RPM, they, 
and Commissioner Harbour and many others, say, ``Show me the 
consumer benefit.'' Yet, the business justifications generally 
offered for RPM, including those suggested by Mr. Hungar, 
provide no real benefits to consumers. Economists may see a 
theoretical benefit, but, in reality, there are no real 
benefits.
    A common justification is that RPM allows a manufacturer to 
buy better distribution or shelf space from retailers that 
carry competing brands. But while this may increase the 
manufacturer's sales, it does not benefit consumers. On the 
contrary, it can give retailers an incentive to push the 
product with the largest margin protected by RPM even when the 
product may be inferior to competing products.
    Another common justification, of course, is the free rider 
theory. But even if this is a plausible concern in some cases, 
RPM is a poor mechanism for addressing it.
    RPM is also frequently touted as a tool to maintain the 
brand image of high-end products. And if one looks at the Wall 
Street Journal in the series they have had on RPM, you see that 
a lot of the manufacturers that are interested in RPM are the 
high-end manufacturers of fashion products.
    Let me just conclude by noting that, even where RPM could 
have some possible justifications, it has one anti-competitive 
effect that is universal. And that is it tends to prevent more 
efficient retailers, who have expert local knowledge of the 
needs and shopping behavior of their customers, from passing on 
the benefits of their lower costs to consumers.
    This centralization of decision-making not only harms 
consumers in the short run, it slows down innovation and 
productivity in the retail sector by impairing this essential 
competitive tool for innovative retailers to gain market share.
    Thank you, and I look forward to answering your questions.
    [The prepared statement of Mr. Brunell follows:]

                Prepared Statement of Richard M. Brunell

















































































                               __________

    Mr. Johnson. You are quite welcome, Mr. Brunell.
    At this time, we will begin the questioning, and I will 
grant myself as much time as I may consume.
    I want to ask you all about some written testimony by Mr. 
Hungar. And Mr. Hungar says that ``Sales efforts focused on 
factors other than price may be more effective at serving the 
interest of consumers.'' And if I could get you all to respond 
to that statement with your concise response, we would 
appreciate it, starting with Commissioner Harbour, and then to 
Mr. Cohen, and also Mr. Brunell. And if necessary, we will give 
Mr. Hungar an opportunity to clarify anything that may need to 
be clarified.
    Proceed.
    Ms. Harbour. I believe that, in Mr. Hungar's written 
testimony, the sentence before that talked about how consumers 
who don't value the services, but would prefer lower prices, 
would be inclined to shop at discount stores. But there are 
consumers who would value those services, and then would be 
willing to pay a higher price.
    The consumer should vote with his or her pocketbook. They 
should not be dictated to about which prices they should buy 
consumer goods at.
    Also, Mr. Hungar talked about how parties--how those who 
are against RPM basically talked about how the rule of reason 
was very difficult to satisfy and thought that that was in 
favor of the argument that it was very difficult and it inured 
against them. I guess what I would like to say there is there 
should be a presumption of illegality, and it should be on the 
part of the manufacturers to overcome that presumption. Let's 
shift the burden away from the American consumer, away from the 
victim of the higher prices, and let the manufacturers who are 
proposing the higher prices have the burden of proof.
    Mr. Johnson. Thank you, Commissioner.
    Before we go to Mr. Cohen, I want to recognize the fact 
that we have been joined by the distinguished gentleman from 
Virginia, Mr. Goodlatte. Welcome, sir.
    Mr. Goodlatte. Thank you, Mr. Chairman.
    Mr. Cohen. Mr. Chairman, I think that factors other than 
price, one of the concerns we have is that price uniformity is 
what exists across for small- and medium-sized companies who 
want to use and sell goods, they are forced into a price 
uniformity. Consumers don't get a choice any longer as to where 
they want to choose, if price is taken out of the equation, and 
that large retailers have a lower price but may not be able to 
deliver the services also.
    So that at least if we have price transparency and price 
elasticity and the allowance for people to choose where they 
want to buy, then that is the key measurement that should occur 
here. That is what is being limited by retailers and retail 
price maintenance post-Leegin.
    Mr. Brunell. I would just concur that, when retailers are 
free to decide what price they will sell at, you end up with a 
market that has both high service and high-price retailers, and 
low service and low-price retailers, and that ultimately is for 
the benefit of consumers.
    Mr. Johnson. Thank you.
    Mr. Hungar, do you wish to be in line for a response or 
anything?
    Mr. Hungar. Thank you, Mr. Chairman. Just a couple brief 
points.
    First of all, the concerns that are expressed seem to 
assume that RPM will be somehow enacted across the entire 
relevant market, and therefore somehow people's choices will be 
limited. But of course, the reality is there is no reason to 
believe that. We saw, even at the height of the fair trade era 
when the law was much more favorable to RPM than it is under a 
rule of reason test, at most, 5 to 10 percent of the economy 
was affected by RPM.
    So the idea that consumer choice will be limited because 
everyone will adopt RPM has yet to be seen. And experience 
suggests the opposite. And if consumers don't value what the 
RPM system is producing in terms of extra services, they will 
go elsewhere, and the RPM manufacturer will fail or change its 
policy. That is consumer choice.
    And then, the other point is, the fact of the matter is, as 
the economic analysis indicates in some of the testimony before 
the FTC, retailers and manufacturers have different incentives, 
and RPM can encourage the retailers to focus on providing the 
benefits and the services and the promotional activities that 
will advance the interests of the manufacturer in inter-brand 
competition.
    Thank you.
    Mr. Johnson. Thank you, Mr. Hungar.
    And my dear great-great-great grandmother has always been 
known as a impulse buyer, and so yesterday she was looking at--
shopping on the Internet, as the elderly usually do, and in her 
spare time while she is home from work. And she came across a 
deal on a laptop computer, and then that impulse kicked in. 
Instead of just ordering it online, she put on her tennis shoes 
and decided, ``I am going to go right now to the retail outlet, 
and I am going to purchase my item there, because I want it 
now.''
    And so I have two questions. Tell me who is the free rider, 
if any, in that instance? And also, isn't it the retail store 
that is getting the free ride off the Internet? And to use your 
words, sir, isn't it the service provider free riding off of 
the discounter, as well?
    Mr. Hungar. I haven't seen any analysis of the question 
whether you would call that a free-riding situation. But 
certainly, that context is one in which the free-rider issue 
can arise because, although as Mr. Cohen pointed out, there are 
many circumstances in which there is every reason to think that 
Internet sales are most advantageous at the lowest price 
possible, there are certainly circumstances with complex goods, 
such as a computer, where many consumers value the opportunity 
to go actually see the product, have it explained to them by a 
live person rather than by computer-ese, and have an 
opportunity to touch and feel and decide whether it is the 
right thing for them.
    And of course, the problem is it costs money to do that, 
and not everyone is an impulse buyer, as you suggested. And so 
for those people who aren't impulse buyers--and frankly, I have 
done this myself, go and decide which product you want at the 
showroom and then purchase it online where it is cheaper. But 
of course, if enough people do that in enough length of time, 
then of course it becomes prohibitively expensive to have 
showrooms, and we are all worse off.
    Mr. Johnson. Anyone else have a response to Mr. Hungar?
    Ms. Harbour. Yes, I would like to respond.
    Chairman Johnson, I think you hit it exactly on the head. I 
do think that, when your grandmother went to the Internet----
    Mr. Johnson. No, no, no, my great-great-great grandmother.
    Ms. Harbour. Right. Excuse me, so your great-great-great 
grandmother, when she went to the Internet----
    Mr. Johnson. Yesterday.
    Ms. Harbour [continuing]. And she did the research. She 
probably learned quite a bit about that computer. And then she 
went to her electronics store and looked at it, and maybe 
purchased it.
    I believe that the electronics store was free riding on the 
Internet, and that is precisely what Mr. Cohen from eBay was 
talking about. These forms of innovative retailing, if RPM is 
allowed to remain in place, I believe that prices on the 
Internet will be elevated.
    There are things called shop-bots that troll the Internet 
looking for prices, and manufacturers are using these shop-bots 
to police their pricing. And if they see that a price is below 
the resale price, they will contact the store and tell them to 
raise the price of the goods. I don't think that this is in the 
interests of the American consumer, so I do think it is a free 
ride, and I agree with you.
    Mr. Johnson. Thank you.
    Mr. Cohen?
    Mr. Cohen. Yes. I want to follow up a little bit on what 
the Commissioner was saying with regard to how they are 
policing and going after lower price sellers.
    One of the concerns we have had was a company called Net 
Enforcers, which represents brand owners and others and large 
retailers. They scan our platform and identify sellers who are 
offering at lower prices.
    And last year, the Net Enforcer people attempted to shut 
down more than 1.2 million listings on eBay claiming that there 
were trademark or copyright infringements. In general, they 
were most around the area of copyright infringement on the 
images that were used by the seller, the text. That is true 
that those were copyright infringements.
    But we have seen an acceleration by those who use these 
trademark and copyright violation claims when they are asking 
us to take down the seller pages. When the sellers we examined, 
the sellers they are going after, they are the sellers that are 
at the lower prices, not at the MAP prices. And the MAP price 
sellers who are using the same photos, same copyrights, same 
trademark, are not being asked to have their listings taken 
down.
    So we are certain that the concern is is that it is a 
pricing issue. It is not a copyright or trademark issue. And 
that is where our interest has been in, to show that, post-
Leegin, aggressive MAP pricing schemes are being attempted 
across the Internet.
    Mr. Johnson. All right. Thank you.
    And last, Mr. Brunell?
    Mr. Brunell. I would just point out that this whole free 
rider argument has been around for a long time, and it was 
before the Congress in 1975 when Congress outlawed a fair 
trade.
    And the usual response is, well, if services for brick-and-
mortar retailers are necessary and important, then why can't 
the manufacturer just pay the retailers, provide promotional 
allowances or what have you for those services?
    Mr. Johnson. Thank you, Mr. Brunell.
    And now, I will ask Mr. Coble to commence his questions.
    Mr. Coble. Thank you, Mr. Chairman, and you can call me 
into a halt whenever you think the time is appropriate, in view 
of the vote.
    Mr. Hungar, you noted a number of justifications for RPM, 
but you also stated that there could be good RPM and bad RPM. I 
want to ask you to give us an example of a bad RPM.
    And I want to ask you also your opinion as to whether you 
favor a statute to address those circumstances, or do you 
believe that the courts are better suited to devise those rules 
on a case-by-case basis?
    Mr. Hungar. Thank you.
    An example of bad RPM would be resale price maintenance 
that is used to enforce and permit policing of a manufacturer 
cartel, where they can easily tell whether there has been any 
cheating because each of the manufacturers has a stated resale 
price maintenance policy for its retailers, and so the 
retailers are all forced to price at the same level, thereby 
concealing a cartel.
    And of course, a horizontal cartel is, per se, illegal, and 
resale price maintenance in conjunction with that activity 
would certainly violate the rule of reason.
    I don't think that there is any need for a statute, nor is 
there any basis for legislating at this point. Much of the bad 
RPM, such as the example I gave, comes in conjunction with 
activity that the courts are already very well equipped to deal 
with.
    But we have not had sufficient experience with the wide 
range of RPM policies that can be imposed to make any sort of 
informed judgment about precisely where, as a legislative 
matter, to draw the line, which is exactly why we should 
benefit from the genius of the Sherman Act, which is the 
flexibility it provides the courts to carefully examine 
different situations in the particular context in which they 
arise and determine what the appropriate response is.
    And on this line, I would just point out that Commissioner 
Harbour, in her written testimony, actually has, I think, a 
very forthright admission that is very probative on the point 
that this is not the time for Congress to legislate. She says, 
``The lack of empirical research regarding the effects of RPM 
is a further complication.'' And she says, ``There are economic 
theories praising RPM and other theories condemning it, but 
none of these theories on either side are supported by any 
systematic body of empirical evidence.''
    Now, I would say there is evidence, such as the Ippolito 
article I pointed to on the side that RPM is not generally or 
primarily anti-competitive. But putting that aside, she says, 
``At best, we have strongly held beliefs about the effects of 
RPM, sometimes bordering almost on the religious, but we are 
missing facts, which are the building blocks of litigation.''
    Well, I would submit that facts should also be the building 
blocks of legislation. And it would be unwise and inappropriate 
and premature for this body to act until sufficient facts have 
been generated, and the judicial system is the best forum for 
doing that.
    Mr. Coble. Thank you.
    Commissioner Harbour, let me put a quick question to you, 
in view of the time. If a prominent manufacturer of handbags 
engages in RPM, does not that give an incentive to other 
handbag manufacturers to enter that market and sell their goods 
for a little below that which the RPM manufacturer is selling 
his goods? Does this not, in fact, enhance competitive between 
brands for sales of handbags?
    Ms. Harbour. Not if you are a woman who loves a particular 
brand of handbag, and I will call it Handbag X. If that is the 
only handbag you want to buy because it is designer, and you 
only want to carry that, if Handbag Y is selling for less 
money, you don't want that.
    This is called intra-brand competition. Once you decide, as 
a consumer, what handbag you want, then it doesn't matter what 
other brands are selling. You are going to buy the one you 
want. So I disagree with that premise.
    But I must respond to Mr. Hungar. He made a few comments 
that I just feel compelled to respond to.
    Mr. Coble. Well, let me weigh in on your answer.
    I guess, because of my frugality, Mr. Chairman, I would opt 
for the cheaper good, but that is the difference in males and 
females, I guess.
    Ms. Harbour. But that is your right as a consumer, and you 
should be able to do that. But let me just say for the record 
that this is the time to legislate. You can mischaraterize my 
testimony however you want to, but I want to make it perfectly 
clear: it is definitely time to legislate.
    There is another thing that Mr. Hungar said that I want to 
push back on. He basically said that RPM is not going to be 
enacted across all of the relevant markets, and that it really 
only affects about 5 to 10 percent of the economy.
    Well, back in 1975 when Congress looked at this issue, 
Congress determined that the dollar amount was in the millions 
of dollars. That was back in--actually, no, they said it was in 
the billions of dollars, back in 1975. The effect of RPM was in 
the billions of dollars.
    Now, we are looking at 2009. That is more than 33 years 
later. So the effect of RPM, if one could do an empirical 
analysis, would probably be much greater in this day and age. 
So I wanted to definitely talk about that.
    And Mr. Hungar was asked about his opinion of the good uses 
of RPM. Well, that is what the question is. We know what the 
anti-competitive effects of RPM are. They are higher prices. 
What is the pro-competitive benefit of RPM?
    Mr. Johnson. And I want to stop you right there.
    Mr. Coble, along with every other Congressperson, has been 
called to the floor for three votes. And those three should not 
take more than about 35 minutes or so for us to get back here. 
So if you would hang out, we would appreciate it, and we will 
see you as soon as we can.
    We will now take a recess.
    [Recess.]
    Mr. Johnson. We are now back in this hearing, and I am 
going to turn it back over to the Ranking Member, Mr. Coble, if 
you have any follow ups or anything like that.
    Mr. Coble. I think I am okay.
    Mr. Johnson. Okay. All right. Thank you.
    So we will now yield the floor to Mr. Brad Sherman.
    Mr. Sherman. Mr. Hungar, one thing I never thought I would 
do in Congress is to disagree with someone who used the phrase, 
``Genius of the Sherman Act.'' And in fact, we are much better 
off that that act passed than the regime that applied before.
    But you have put forward the genius of the Sherman Act as 
the concept that we will have the courts decide, and, 
ultimately, the Supreme Court decide what economic policy is in 
the interest of consumers. And to have the idea that our 
economic policy would be determined by an entity that has no 
economists on staff, that obtains no information except what is 
presented to them inside their own building, and hears orally 
from no one except an attorney, that that would be the entity 
that would devise economic policy is absurd on its face.
    In fact, it is one that only lawyers would even think of 
countenancing. I think it is obvious that Congress has 
delegated its responsibility and its authority by passing a 
rather vague statute, and that what we are engaged in here is 
the idea of perhaps drafting a more precise statute.
    And to think that we should defer to an entity that takes 
pride in the fact that they never talk to real consumers--God 
forbid a Supreme Court justice should talk to somebody at 
Costco. That would be ex parte. They would vilify the concept 
that it could affect them.
    We here in Congress are in Costco every day, at least one 
of us. We talk to real consumers. And oh, by the way, we are 
accountable to them. And to think that the right form of 
government is one where nine people who take pride in never 
talking to any consumer, who take pride in the fact that they 
are immune from any accountability to any consumer, that that 
is the body that should make economic policy, that concept is a 
blot on the Sherman family name.
    And the idea here is that, somehow, consumers benefit 
because, up until the recent court decision, we didn't have 
legal resale price maintenance agreements. And so if someone 
wanted higher prices and more service, they might be denied 
that opportunity.
    Now, I, unlike the Supreme Court, talk to a lot of 
consumers about public policy and have those conversations 
influence my decision. But I can't talk to all of them. Do you 
know of any poll or market survey where Americans said, ``Damn 
it, we are being deprived of the opportunity to find some 
retailer that will charge us higher prices and provide better 
service?'' Is there any evidence that this unavailable, 
mythical, more-service, higher-price retailer is desired by 
consumers? They just can't find it?
    Mr. Hungar. Well, I think, first, on the genius of the 
Sherman Act, which I continue to adhere to, my point about the 
genius of the Sherman Act is that Congress did not attempt, in 
writing the Sherman Act, to proscribe a detailed code of 
conduct that addresses every particular type of practice.
    Mr. Sherman. Well, excuse me. Businesses have to deal with 
a real world where they have to know what the rules are. The 
vaguer those rules, the higher the attorney's fees and the more 
vagueness they have to operate with.
    And if Congress doesn't provide detailed rules, then either 
there are no rules and you have to guess at them, or nine 
people, deprived intentionally of any contact with normal 
humans in terms of gathering information about public policy, 
are going to make those rules. And in fact, the antitrust law 
fills tens of volumes, and the portion of it written by 
Congress is barely a pamphlet.
    So to say that businesses are going to operate without 
rules is absurd. And to say that those rules should be written 
by those who we defer to because we are unwilling to do our 
job, I just hope that concept is not associated with my 
surname.
    Mr. Hungar. Well, with all due respect, Section 1 of the 
Sherman Act, I believe, is one sentence long, and that is what 
we are talking about here, the fact that----
    Mr. Sherman. Exactly. And if Congress----
    Mr. Hungar [continuing]. Of the law.
    Mr. Sherman [continuing]. Would do its job, it would be 
several pages long and the rules that business operated under 
would be decided by democracy instead of an institution that 
prides itself on being removed from the reach of consumers.
    Your theory of government is fundamentally anti-democratic.
    Mr. Hungar. I am not suggesting that Congress doesn't have 
the power. Of course it has the power to prescribe detailed----
    Mr. Sherman. But you praised those who went before us for 
not exercising that power, for deferring----
    Mr. Hungar. Well, Congress did exercise the power in the 
Sherman Act, and the genius of the Sherman Act is that it bans 
unreasonable restraints on trade. But Congress recognized that 
you can't possibly identify and try to legislate regarding the 
infinite number of different possible situations in which 
different arrangements can be imposed. And therefore the 
courts, because they can do a case-by-case careful analysis 
that considers all the facts, that has economists come and 
testify in the courts, and they do that in all these cases----
    Mr. Sherman. Well, we are not here--sir, reclaiming my 
time, we are here dealing with a Supreme Court decision, 
ultimately the rules. I mean, the rule for a business isn't, 
``Well, we will go to court, and we will figure it out what it 
is, because you can't run a business that way.
    And the only rule that you can adhere to is one set forth 
by the highest court in the land. And to say that this anti-
democratic institution should be deferred to by the elected 
representatives of the people is certainly not genius. It is 
what has happened.
    But I would ask you to use my time to address my question, 
and that is, can you identify a circumstance in which the vast 
majority of consumers have said, ``Well, at least in this 
circumstance, we are deprived of the opportunity to pay higher 
prices. We want to pay higher prices, and we want more service 
than is available at the highest priced retailer in our 
community.''
    Mr. Hungar. Well, I think that the variety of types of 
sales efforts made by different types of retailers and 
manufacturers show that some consumers clearly do value the--
service.
    Mr. Sherman. Oh, clearly. I mean, up until this case, there 
was a wide variety of different stores offering different 
levels of service and different prices. We didn't have resale 
price maintenance agreements. And if I wanted to go to 
Nordstrom's instead of Shirts 'R Us, I was free to do so.
    Do you have proof that 2006 was a terrible year for 
consumers because they were being deprived of the benefit of 
greater service and greater information about a product, and 
greater prices? I mean, what was the matter with 2006? 
Nordstrom's was there.
    Mr. Hungar. As Commissioner Harbour said in her testimony, 
we don't have empirical evidence either way, and therefore 
there is, in my view, no basis for the Congress to legislate.
    Mr. Sherman. Ah, but we do, because we are not a court. We 
actually talk to real people. Got 535 of us. And it may not be 
a scientific poll, but it is probably better than most real 
pollsters.
    I have never had a constituent complain that prices were 
too low. I have heard them complain about bad service at this 
or that store, but they were always aware, and before the 
decision, that there was a higher-priced store they could go 
to.
    I have received at least 1,000 complaints about high 
prices, and not a single consumer has ever said, ``I want to 
pay even more than is being charged at the highest-priced store 
in the San Fernando Valley because I want better service than 
is being provided at the most exclusive store in the San 
Fernando Valley,'' let alone anybody--they could always drive 
to Beverly Hills if they wanted to.
    But even people who were confined to my own community, is 
there any evidence that 2006 was a year in which consumers 
could not find the high-price, high-service combination that 
you say they often want?
    Mr. Hungar. Well, you need to remember that, even under the 
Dr. Miles regime, manufacturers could impose minimum retail 
prices through either vertical integration or through the 
Colgate policy, which allowed them to terminate any discounting 
retailer. So it is not really----
    Mr. Sherman. But the law we had in 2006 is what I am 
talking about, because we could pass the 2006 Law Restoration 
Act and put resale price maintenance agreements back where they 
were in 2006. Is there any evidence that there is any group of 
consumers that would be disadvantaged by such a policy?
    Mr. Hungar. Well, again----
    Mr. Sherman. Given the fact that, in 2006, at least in the 
San Fernando Valley, there were plenty of high-priced stores 
with great service.
    Mr. Hungar. There is no evidence that there would be any 
group of consumers who would be advantaged, either. Remember 
that, in 2006, the law was that a manufacturer could impose 
minimum prices through a Colgate policy and terminate any----
    Mr. Sherman. In 2006, we went on eBay and we got great 
prices.
    Mr. Hungar. And you do today, as well.
    Mr. Sherman. Ah, but we have, what, Mr. Cohen, how many 
different things have you been asked to take down?
    Mr. Cohen. From the Net Enforcers, just one company that 
was seeing to enforce MAP pricing on our site, there were 1.2 
million listings that they claimed that they sought to have 
taken down last year in 2008.
    Mr. Sherman. Hmm.
    Now, I would point out that this whole idea of free riding 
was a concept invented and discussed before the Internet. Now, 
when I want information, I go to the Internet. When some new 
company wants to start and they want access to the market, they 
often start as an e-retailer. And in terms of investing in 
inventories, which is some justification for retail price--I 
mean, if you only need one inventory to service the whole 
country because you are an Internet retailer.
    Mr. Cohen, your testimony talks about how the Internet is 
changing the concept of free riding. Do you have any data that 
back up the assertion that there has been a change? And is it 
now the case that, with the Internet, there are ways to get 
information and to deal with inventory maintenance and market 
access that substitute for the perceived benefits, or alleged 
benefits, of retail price agreements?
    Mr. Cohen. Congressman Sherman, a Wall Street Journal 
article highlights the new generation of how consumers are 
benefiting in this, and that they are looking it up online 
first and then buying it offline.
    And the article references that cars, homes, personal 
computers, medical care, are areas where nearly four out of 
five shoppers say they gather information on their own from the 
Web before buying--92 percent of the respondents said that they 
had more confidence in the information they seek out online 
than anything coming from the traditional sales clerk or the 
offline. So--that there is even more value to the information 
they find online, and that nearly 70 percent of Americans say 
they consult product reviews or consumer ratings before they 
make their buying decisions, and spend at least 30 minutes 
online every week to help them decide what and whether to buy.
    I would ask the Chairman and the Ranking Member to submit 
to the record the article that has the background data that was 
used by the Wall Street Journal in this article.
    Mr. Sherman. So moved. I assume there is no objection and 
it will be made part of the record.
    Mr. Johnson. Without any objection, so ordered.
    [The information referred to follows:]

    
    
    
    
    
    
                               __________

    Mr. Sherman. Now, a lot of this Internet information is not 
free rider in the sense that I am going to one retailer, 
getting all this wonderful information that they paid thousands 
of dollars to put up on the Internet, and then going to another 
retailer. Usually, at least in my case, I am going to a 
manufacturer's website, or I am going to articles that are 
written.
    When you describe this gathering of information, is much of 
it a circumstance where one retailer is providing the 
information and another retailer is getting the sale?
    Mr. Cohen. It is literally every possible permutation you 
can think of. So for example, people use our sites to gather 
pricing information, right? They will search on eBay. They will 
search on shopping.com to find all the different prices that 
are available for the product that they want.
    They will use Amazon to look at product reviews, and then 
purchase off of eBay. They will purchase on Amazon. So there is 
both--within different Internet retailers, within different 
marketplaces, we all have the example of doing it ourselves to 
go online to gather up information.
    We know from our own empirical evidence that a staggering 
percentage of people that come and use our site never purchase 
on our site. So there is some information that they are 
gathering from that that they are finding useful in their 
purchasing decision. And we can also submit to the record some 
of that information, too.
    Mr. Sherman. Mr. Brunell, is there any way to identify 
particular niches of products where perhaps we should the 
current court's decision to persist, or must we paint with a 
broad brush here and have one rule for golf tees and computers?
    Mr. Brunell. I don't really think there is a basis to have 
a separate rule for different industries, but there may be 
instances, for example the one that Justice Breyer cites in the 
dissent in Leegin, of resale price maintenance as being used by 
a new entrant in a business as being an example where he 
suggests that perhaps you should have an exception to the per 
se rule.
    So there might be particular instances where Congress could 
define specific types of instances where a different rule might 
apply, but there is no basis for treating industries 
differently.
    Mr. Sherman. So whether it is CAT scan machines or 
nuclear--there is no particular product which you are 
convinced, ``Aha, there we need the manufacturer to control,'' 
although usually there is not a retailer for a nuclear plant.
    Mr. Brunell. The answer is typically that there are other 
tools that manufacturers can use to ensure that services are 
provided, promotional allowances and so forth that are, indeed, 
quite common so that the purported benefit of resale price 
maintenance, even under the Chicago School theory, is not so 
much that the services are provided under their theory, but 
that it might be, in their view, perhaps more costly for a 
manufacturer to pay for promotional services, let's say, rather 
than have resale price maintenance. There is no evidence, of 
course, that that is the case, but that is the theory.
    Mr. Sherman. Commissioner Harbour, I have got an unusual 
question for you. Were you appointed by President Bush?
    Ms. Harbour. I am an Independent, and I was nominated by 
the majority leader, Senator Daschle at the time, Majority 
Leader Daschle. Then, my name went to the White House, and 
President Bush passed on it. And then, my name went to 
Congress, and I was confirmed by the full Congress.
    Mr. Sherman. That is a process that might have yielded a 
different result if President Bush had simply selected without 
Mr. Daschle's input. And I think in this case, the process was 
quite successful.
    I will yield back.
    Mr. Johnson. Thank you, Mr. Sherman.
    And do we have any more questions coming from any of our 
many Members of the panel who are here today? Seeing nobody, 
and hearing from no one, Mr. Coble, do you have any objections 
to us concluding this hearing at this time?
    Mr. Coble. Much to the satisfaction of probably the 
witnesses, I have no objection at all, Mr. Chairman.
    Mr. Johnson. Well, I agree. I think they have been tortured 
long enough, and not by any one particular person, but just by 
being here as long as you have. And we do sincerely appreciate 
your coming today.
    This hearing is adjourned.
    [Whereupon, at 5:09 p.m., the Subcommittee was adjourned.]

                            A P P E N D I X

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