[Senate Hearing 111-267]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 111-267
 
THE DISCOUNT PRICING CONSUMER PROTECTION ACT: DO WE NEED TO RESTORE THE 
                     BAN ON VERTICAL PRICE FIXING?

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


                                HEARING

                               before the

                       SUBCOMMITTEE ON ANTITRUST,
                 COMPETITION POLICY AND CONSUMER RIGHTS

                                 of the

                       COMMITTEE ON THE JUDICIARY
                          UNITED STATES SENATE

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 19, 2009

                               __________

                          Serial No. J-111-24

                               __________

         Printed for the use of the Committee on the Judiciary



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54-718                    WASHINGTON : 2009
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                  PATRICK J. LEAHY, Vermont, Chairman
HERB KOHL, Wisconsin                 JEFF SESSIONS, Alabama
DIANNE FEINSTEIN, California         ORRIN G. HATCH, Utah
RUSSELL D. FEINGOLD, Wisconsin       CHARLES E. GRASSLEY, Iowa
CHARLES E. SCHUMER, New York         JON KYL, Arizona
RICHARD J. DURBIN, Illinois          LINDSEY O. GRAHAM, South Carolina
BENJAMIN L. CARDIN, Maryland         JOHN CORNYN, Texas
SHELDON WHITEHOUSE, Rhode Island     TOM COBURN, Oklahoma
RON WYDEN, Oregon
AMY KLOBUCHAR, Minnesota
EDWARD E. KAUFMAN, Delaware
ARLEN SPECTER, Pennsylvania
            Bruce A. Cohen, Chief Counsel and Staff Director
                  Matt Miner, Republican Chief Counsel
                                 ------                                

   Subcommittee on Antitrust, Competition Policy and Consumer Rights

                     HERB KOHL, Wisconsin, Chairman
CHARLES E. SCHUMER, New York         ORRIN G. HATCH, Utah
SHELDON WHITEHOUSE, Rhode Island     CHARLES E. GRASSLEY, Iowa
RON WYDEN, Oregon                    TOM COBURN, Oklahoma
AMY KLOBUCHAR, Minnesota
EDWARD E. KAUFMAN, Delaware
ARLEN SPECTER, Pennsylvania
       Carolina Holland, Democratic Chief Counsel/Staff Director
                 Jace Johnson, Republican Chief Counsel


                            C O N T E N T S

                              ----------                              

                    STATEMENTS OF COMMITTEE MEMBERS

                                                                   Page
Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah......     3
Kaufman, Hon. Edward E., a U.S. Senator from the State of 
  Delaware.......................................................     5
Kohl, Hon. Herb, a U.S. Senator from the State of Wisconsin......     1
    prepared statement...........................................   127

                               WITNESSES

Cohen, Tod, Vice President and Deputy General Counsel for 
  Government Relations, eBay, San Jose, California...............     7
Haigney, Stacy John, General Attorney, Burlington Coat Factory, 
  Burlington, New Jersey.........................................     9
Harbour, Pamela Jones, Commissioner, Federal Trade Commission, 
  Washington, D.C................................................     6
Wilson, James A., Partner, Vorys, Sater, Seymour and Pease LLP, 
  Columbus, Ohio, and Chair, Section of Antitrust Law, American 
  Bar Association................................................    10

                         QUESTIONS AND ANSWERS

Responses of American Bar Association to questions submitted by 
  Senator Kohl...................................................    21
Responses of Tod Cohen to questions submitted by Senator Kohl....    28
Responses of Stacy Haigney to questions submitted by Senator Kohl    31
Questions submitted by Senator Kohl to Pamela Harbour (Note: 
  Responses to questions were not received as of the time of 
  printing, February 22, 2010)

                       SUBMISSIONS FOR THE RECORD

Brunell, Richard M., Director of Legal Advocacy, American 
  Antitrust Institute, Washington, D.C., joint letter and 
  statement......................................................    35
Cohen, Tod, Vice President and Deputy General Counsel for 
  Government Relations, eBay, San Jose, California, statement....    80
Collier, Jim, President, ShortOrder.com, letter..................    86
Haigney, Stacy John, General Attorney, Burlington Coat Factory, 
  Burlington, New Jersey, statement..............................   100
Harbour, Pamela Jones, Commissioner, Federal Trade Commission, 
  Washington, D.C., statement....................................   113
Wilson, James A., Partner, Vorys, Sater, Seymour and Pease LLP, 
  Columbus, Ohio, and Chair, Section of Antitrust Law, American 
  Bar Association, statement.....................................   129


THE DISCOUNT PRICING CONSUMER PROTECTION ACT: DO WE NEED TO RESTORE THE 
                     BAN ON VERTICAL PRICE FIXING?

                              ----------                              


                         TUESDAY, MAY 19, 2009

                                       U.S. Senate,
                                 Subcommittee on Antitrust,
                   Competition Policy, and Consumer Rights,
                                Committee on the Judiciary,
                                                     Washington, DC
    The Subcommittee met, pursuant to notice, at 2:33 p.m., in 
room SD-226, Dirksen Senate Office Building, Hon. Herb Kohl, 
Chairman of the Subcommittee, presiding.
    Present: Senators Kohl, Klobuchar, Kaufman, and Hatch.

 OPENING STATEMENT OF HON. HERB KOHL, A U.S. SENATOR FROM THE 
                       STATE OF WISCONSIN

    Chairman Kohl. Good afternoon. This hearing will come to 
order.
    Today we will examine an issue with far-reaching impact on 
the prices consumers pay for everything from clothing to 
electronics, and to everyone who likes to get a bargain when 
shopping. Two years ago, we held a hearing on the Supreme 
Court's 5-4 decision in the Leegin case in June 2007 which 
abolished a fundamental antitrust rule that manufacturers 
cannot set minimum retail prices. At that hearing, we heard 
warnings that this decision would imperil discount shopping 
that consumers have learned to take for granted. Our experience 
since the Leegin decision is giving credence to these fears, 
and it comes at exactly the wrong time--just as millions of 
consumers face a serious recession and depend on bargain 
shopping more than ever to balance the family budget. That is 
why I have introduced legislation to overturn what I believe is 
this misguided Supreme Court ruling.
    For nearly a century, the rule against vertical price 
fixing permitted discounters to sell goods at the most 
competitive price. Many credit this rule with the rise of 
today's low-price, discount retail outlets, stores like 
Burlington Coat Factory, and the Internet site eBay--both 
witnesses today--not to mention such retail giants as Target, 
Best Buy, and Walmart, all of which offer consumers a wide 
array of highly desired products at discount prices.
    We have already begun to see the manufacturers set minimum 
retail prices resulting in higher prices for consumers. Some 
antitrust experts suggest that there are an estimated 5,000 
companies using minimum pricing policies. Last year, at the 
outset of the holiday shopping season, Sony announced a no-
discount rule prohibiting discount retailers from cutting the 
price on a number of its most in-demand top end products, 
including some flat screen TVs as well as digital cameras. The 
Wall Street Journal has reported that a new business has 
materialized for companies that scour the Internet in search of 
retailers selling discount products. When such bargain sellers 
are detected, the manufacturer is alerted so that it can demand 
that the discounting stop. Even the discounting of toys at pre-
Christmas sales was targeted.
    I know from my own experiences in the retail industry 
decades ago that established retailers can take advantage of 
vertical price fixing to halt discounting dead in its tracks. 
In order to eliminate low-price competition from smaller 
retailers, large retailers can demand that manufacturers forbid 
discount pricing. These large retailers have the bargaining 
power with manufacturers to make these demands stick, all to 
the detriment of upstart discount competitors and consumers.
    Our common-sense worry that allowing manufacturers to bar 
discounting will lead to higher prices is borne out by basic 
economics. In his dissenting opinion in Leegin, Justice Breyer 
estimated that if only 10 percent of manufacturers engaged in 
vertical price fixing, retail bills would average $750 to 
$1,000 higher for the average family of four annually. For this 
reason, I have introduced the Discount Pricing Consumer 
Protection Act, cosponsored by Senator Whitehouse. Our bill--
which is endorsed by 35 State attorneys general and all major 
consumers' organizations--will simply make it clear that when 
manufacturers prohibit discounting, they violate the antitrust 
laws, and thereby restore a clear legal rule that had stood 
since 1911.
    In the last few decades, millions of consumers have 
benefited from an explosion of retail competition from new 
large discounters in virtually every product, from clothing to 
electronics to groceries, in both ``big box'' stores and on the 
Internet. We have all taken for granted our ability to walk 
into discount retailers and buy brand name products at sharply 
discounted prices. It is essential that Congress act swiftly to 
enact my bill to once again make the setting of minimum retail 
prices illegal.
    I look forward to the testimony today of our distinguished 
witnesses on this important topic.
    Our first witness who will be testifying today is Pamela 
Jones Harbour. Ms. Harbour has been a Commissioner of the FTC 
since 2003. Prior to joining the FTC, Ms. Harbour served as 
partner at Kaye Scholer law firm and was the New York State 
Deputy Attorney General.
    Next, we will have Tod Cohen. Mr. Cohen serves as Vice 
President and Deputy General Counsel of Government Relations at 
eBay. He began his legal career at the law firm of Covington & 
Burling and was Vice President and Counsel for New Media for 
the Motion Picture Association of America before joining eBay.
    Our next witness will be Stacy Haigney. Mr. Haigney is an 
in-house attorney at Burlington Coat Factory. He has almost 4 
years of experience as an antitrust attorney, and he was a 
founding partner of the firm Kassner & Haigney before working, 
as he presently does, for Burlington Coat Factory.
    And, finally, we will have James Wilson. Mr. Wilson is a 
partner at Vorys, Sater, Seymour and Pease in Columbus, Ohio, 
and is the current Chair of the Section of Antitrust Law of the 
American Bar Association. He testifies today on behalf of the 
ABA.
    Before we swear in our witnesses, I would like to call on 
the Ranking Member, Orrin Hatch, for any comments he might 
make.

STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM THE STATE 
                            OF UTAH

    Senator Hatch. Well, thank you, Mr. Chairman. It is always 
a pleasure to work with you, and I really appreciate our 
friendship and our working together.
    Today's topic of vertical price fixing is not new to this 
Subcommittee. It has been almost 2 years since the Supreme 
Court reached its 5-4 decision in Leegin Creative Leather 
Products v. PSKS Inc., Kay's Kloset, and the Subcommittee held 
its subsequent hearing on the Court's ruling.
    Now, this decision has and will have an important effect on 
our Nation's economy, and especially on discount retailers. 
Therefore, Mr. Chairman, with your enormous expertise in this 
area, I look forward to learning more of your thoughts and 
perspectives on the issues behind your legislation, S. 148, the 
Discount Pricing Consumer Protection Act.
    To some the topic of vertical price fixing or minimum 
resale price maintenance is as dry as week-old bread. However, 
the contrary is true. This is an important topic. At stake is 
how and at what price consumers will buy a variety of goods and 
the dynamics by which manufacturers will enter into agreements 
with retailers.
    Mr. Chairman, a bit of background is necessary to fully 
understand the importance of this issue. Nearly 100 years ago, 
the Supreme Court ruled in Dr. Miles Medical Company v. John D. 
Park & Sons that it was per se illegal ``under Section 1 of the 
Sherman Act for a manufacturer and its distributor to agree on 
the minimum price a distributor can charge for the 
manufacturer's goods.'' In other words, vertical pricing was 
against the law. However, this all came to an end nearly 2 
years ago when the Court in Leegin discarded the per se rule 
for the test under the rule of reason. Under this new decision, 
vertical price fixing is permitted as long as it does not 
constitute an unreasonable restraint on trade. Specifically, 
the Court has held under the rule of reason, ``The fact finder 
weighs all of the circumstances of the case in deciding whether 
a restrictive practice should be prohibited as imposing an 
unreasonable restraint on competition. Appropriate factors to 
take into account include specific information about the 
relevant businesses and restraints history, nature, and 
effect.''
    Now, the Court's majority argued that vertical price fixing 
can stimulate ``inter-brand competition, the competition among 
manufacturers selling different brands of the same type of 
product, by reducing intra-brand competition, the competition 
among retailers selling the same brand.''
    Now, the Court goes on further to justify this decision by 
stating, as they held in Kahn, the ``primary purpose of the 
antitrust laws is to protect what really amounts to inter-brand 
competition.'' The Court appeared to be very concerned about 
the activity called ``free riding.'' Free riding can be 
described as when a customer takes advantage of the service as 
an information provided by a full-service retailer and then 
makes the actual purchase of the product for a lesser price at 
a discount retailer. The Court argues that by permitting 
vertical price fixing, retailers would have less of an ability 
to compete on price, thereby diminishing the opportunities for 
free riding to occur.
    It is surmised that retailers would then focus their 
competitive energies on providing better services and shopping 
environments for the customer in order to distinguish 
themselves in the intra-brand competition.
    Clearly, the Court in Leegin is favoring the manufacturer 
over the retailer, especially the discount retailer. Not 
surprisingly, discount retailers argue that this decision will 
have an adverse effect on their businesses since they could 
have additional difficulties in charging a lower price.
    Now, this is a matter with which I am particularly 
concerned. Will the Leegin decision result in the unintended 
consequence of hindering the development of the next generation 
of discount retailers by enabling manufacturers to set a 
minimum price for their goods? And though I do not know the 
position of Stanford's Thomas Sowell on this issue, I am 
mindful of the point, albeit in a different context, that he 
made in his book on economics. He said this: ``Lower costs 
reflected in lower prices is what made A&P the world's leading 
retail chain in the first half of the 20th century. Similarly, 
lower costs reflected in lower prices is what enabled other 
supermarket chains to take A&P's customer away in the second 
half of the 20th century. And while A&P succeeded in one era 
and failed in another, what is far more important is that the 
economy as a whole succeeded in both eras in getting its 
groceries at the lowest prices possible at the time from 
whichever company happened to have the lowest prices. So does 
the economy and consumers succeed in the long run under 
Leegin.''
    Now, that is the crux of the matter and why I will put the 
same question to our witnesses today. I will have to do it in 
writing because of an Intelligence Committee hearing that I 
have to go to. But I asked that question 2 years. Does the 
positive effect on the manufacturer competition created by 
Leegin outweigh the negative effect on the discount retailer?
    So I look forward to the panel answering that question, and 
others as well, and, Mr. Chairman, I really appreciate you 
holding this hearing, and I hope that we can help resolve some 
of these conflicts and problems that exist in the best interest 
of everybody.
    I am very grateful to have all of you folks here. Welcome 
to you, and please forgive me for having to run to the 
Intelligence Committee, but I have got three conflicts right 
now at 2:30. I am going to, as always, leave it in the hands of 
my dear Chairman.
    Thank you, Mr. Chairman.
    Chairman Kohl. Thanks so much, Senator Hatch.
    Senator Kaufman.

 STATEMENT OF HON. EDWARD E. KAUFMAN, A U.S. SENATOR FROM THE 
                       STATE OF DELAWARE

    Senator Kaufman. Thank you, Mr. Chairman, and thank you for 
holding this very important hearing. You know, for a long time 
there has been discussion on the Hill. Conservatives say that 
it is the judges on the left who engage in activism from the 
bench. They say conservative judges stick to calling balls and 
strikes of the law, while more liberal jurists insert their 
political philosophy into their opinions.
    Well, Mr. Chairman, the Leegin case proves that activism is 
in the eyes of the beholder. With respect to vertical price 
fixing, it was the addition of two conservatives to the Court, 
Justices Roberts and Alito, that led to the reversal of 96 
years of unbroken precedent. This case, plain and simple, 
represents the elevation of big manufacturers' interests over 
those of the consumer, and this Court acted because it decided 
to embrace a different economic theory, not because any facts 
or circumstances changed. In my book, that is judicial 
activism.
    For too long, we have had complacent antitrust enforcement. 
During the previous administration, regulators seemed to forget 
that the consumer should be the beneficiary and was designed to 
be the beneficiary of our antitrust laws. And with this poorly 
reasoned and radical departure from precedent in the Leegin 
case, the United States Supreme Court, in my opinion, has 
itself gotten into the act.
    Well, Mr. Chairman, it is time to once again focus 
ourselves on how antitrust law operates to protect or harm the 
consumer. It can come as a surprise to no one that the setting 
of price floors leads to the elevation of consumer prices. It 
prevents price competition out of the paternalistic notion that 
consumers, many of whom are struggling to get by, especially in 
these economic times, do not want the lowest prices possible 
but would rather have a fancy store, even if it means they 
cannot pay all their bills. I reject this notion, and I look 
forward to the testimony from these witnesses on this important 
issue.
    Again, thank you, Mr. Chairman.
    Chairman Kohl. Thank you very much, Senator Kaufman.
    We will start our testimony after you all are sworn in. 
Would you rise and raise your right hand? Do you swear the 
testimony you are about to give before this Committee will be 
the truth, the whole truth, and nothing but the truth, so help 
you God?
    Ms. Harbour. I do.
    Mr. Cohen. I do.
    Mr. Wilson. I do.
    Mr. Haigney. I do.
    Chairman Kohl. Thank you so much.
    We will start with you, Ms. Harbour, and we request that 
you and the other witnesses hold your statements please to 5 
minutes, and we will put into the record anything else that you 
may have to say.
    Ms. Harbour.

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

    Ms. Harbour. Thank you. Chairman Kohl and members of the 
Subcommittee, I appreciate this opportunity to share with you 
my personal views on minimum vertical price fixing. 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 courts' evaluation of RPM under the rule 
of reason will reward price-fixing merchants and manufacturers 
and will further punish 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, and in 
these tough economic times, it is especially wrong to saddle 
consumers with higher prices for daily necessities while 
providing no countervailing benefits.
    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 consumer 
interests first. The Leegin decision cannot be reconciled with 
the legislative history of the antitrust laws. Congress never 
adopted nor endorsed a preference for RPM at the Federal level. 
Congress did create an exemption, an antitrust exemption, for 
RPM under State fair trade statutes. However, Congress 
ultimately graded that a 37-year-old natural experiment--graded 
it a failure, and 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. RPM lowered sales levels. It increased the frequency 
of business failure. RPM created entry barriers. It distorted 
retailer incentives, and RPM 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 someday be called upon to write yet 
another report detailing the disastrous harms inflicted on 
consumers during the Court's current experiment with RPM. And 
we know who is paying for this experiment. Sadly, it is the 
American consumer.
    Indeed, if you believe what you read in the newspapers, 
consumers already are paying that price. The Court's new 
experiment has led many consumers to incur RPM price premiums, 
even in these trying times. Since the Court decided Leegin, the 
number of companies using some version of RPM has increased 
significantly. The use of third-party monitoring services by 
manufacturers to identify, police, and then discipline Internet 
discounting has rapidly expanded. Some discounters have been 
terminated by as many as 25 percent of their suppliers, and 
other discounters, like PSKS, the plaintiff in the Leegin case, 
have gone out of business and have been unable to get the 
courts to consider the merits of their claims under the rule of 
reason.
    Consumers do not realize that they are currently paying 
substantial RPM premiums. Not surprisingly, the manufacturers 
who impose these premiums are unlikely to notify customers that 
the discounts are no longer available, nor are retailers who 
support the RPM premiums particularly interested in telling 
their customers that prices were too low before discounting was 
eliminated.
    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.
    The reality of litigation dictates that when the facts are 
equally probative of guilt or innocence, then depending on 
which theory is adopted to evaluate 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 
will be placed on the victims, not on the defendants who 
imposed the RPM policies to begin with.
    The FTC is doing its best to further the development of the 
real-world effects and the real-world facts about the effects 
of RPM by holding a series of workshops, but any answers may be 
a decade or more 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 appears as a 
submission for the record.]
    Chairman Kohl. Thank you, Ms. Harbour.
    Mr. Cohen.

   STATEMENT OF TOD COHEN, VICE PRESIDENT AND DEPUTY GENERAL 
  COUNSEL FOR GOVERNMENT RELATIONS, EBAY, SAN JOSE, CALIFORNIA

    Mr. Cohen. Chairman Kohl, I am Tod Cohen, Vice President 
and Deputy General Counsel for Government Relations at eBay. 
Thank you for the invitation to speak today about S. 148, the 
Discount Pricing Consumer Protection Act, and the impact of the 
Supreme Court's Leegin decision in particular on small and mid-
size retailers who use the Internet. eBay and our users support 
your legislation to reinstate 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 benefits of 
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 can be 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 
catalogue 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 customers 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 
further from the reality. In short, everyone in retail uses the 
Internet, but there are big differences in how the Internet is 
used.
    On one side are established networks of manufacturers and 
retailers who want to reinforce or enhance established retail 
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 mid-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 a primary target of aggressive RPM policies.
    eBay's own experiences confirm that many large established 
businesses attempt to limit low-price, intra-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 the seller and stop low-price competition. 
Many eBay sellers have been targeted by manufacturers and large 
retail partners with various tactics to take down their 
listings and discredit their sales. The Leegin decision has 
clearly been interpreted by many as a legal ``green light'' to 
more aggressively thwart low-price competition.
    Established retailers and manufacturers attempting to 
enforce traditional business models contend that the 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 
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 be argued that the most established manufacturers and 
largest retail partners are free-riding on the tremendous 
consumer information tools created by Internet innovators.
    From a competition policy and consumer benefit perspective, 
the traditional free-rider argument for RPM policies as applied 
to the Internet should be put to rest. Innovative 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 that is even more true in the Internet age. 
This Committee should aggressively scrutinize the Leegin 
decision and enact S. 148 to reinstate a per se rule against 
retail price fixing and protect consumers and retail 
innovators.
    Thank you, Mr. Chairman and members of the Subcommittee.
    [The prepared statement of Mr. Cohen appears as a 
submission for the record.]
    Chairman Kohl. Thank you, Mr. Cohen.
    Mr. Haigney.

 STATEMENT OF STACY JOHN HAIGNEY, GENERAL ATTORNEY, BURLINGTON 
              COAT FACTORY, BURLINGTON, NEW JERSEY

    Mr. Haigney. Good afternoon, Mr. Chairman and members of 
the Subcommittee. I am Stacy Haigney, general attorney at the 
Burlington Coat Factory. I am personally in charge of our trade 
regulation. I am very delighted to have this opportunity to 
come here and express my company's support for S. 148, which 
will address an extremely serious competitive issue in the 
market and foster consumer welfare immeasurably.
    I believe that the story of Burlington Coat Factory is the 
best evidence I know for why S. 148 should pass. Burlington 
Coat Factory was founded by Monroe G. Milstein in 1972. He had 
one store at that time. It was a discount store. What he did 
was at that point sold coats 25 percent below what they would 
be available in department stores. Then in 1975, Congress 
repealed the so-called fair trade laws. This opened up a world 
of opportunity for Mr. Milstein and his company. He not only 
sold coats thereafter; Burlington Coat Factory sold every kind 
of apparel and accessory that you can think of. And we sold 
them all according to Mr. Milstein's original philosophy, 
namely, give the customer full lines of in-season merchandise 
such as one would find at a department store for 25 percent 
below, approximately, what was being charged at the full-price 
retailers. This philosophy was the basis of Burlington Coat 
Factory's success, and we have gone from the one store in 1972 
to approximately 400 today, including at least one in the State 
of every Senator on this Subcommittee.
    But there was no possibility that this approach would have 
worked had the fair trade laws not been repealed. In fact, 
there were no retailers like Burlington Coat Factory prior to 
that repeal--retailers of the size of Burlington Coat Factory.
    There is no doubt in my mind--or in Mr. Milstein's mind 
when he still ran the company, or in Tom Kingsbury's mind, who 
is now our CEO--that had the Leegin case been in force in 1975, 
we probably would have stayed in one store on Route 130 in 
Burlington, New Jersey.
    Now, I feel that the retail market has done pretty well in 
the intervening years, and all of a sudden, in the year 2007, 
apropos of no need that I can see, the Supreme Court decided to 
deep-six 98 years of antitrust jurisprudence by the Leegin 
decision. And in aid of what? As I understand them, the concept 
is that maybe if you fix prices at a high level, perhaps the 
retailer will take some of the extra money the retailer earns 
and maybe apply it to services which might be of use to the 
manufacturer. For this, we throw away 98 years of antitrust 
jurisprudence and what the Congress has stated over and over 
again. Many times, the question of whether or not this per se 
rule should remain the rule has come before Congress, as it did 
in 1975, and on every occasion Congress has adhered to the per 
se rule. And in 1975, it had tremendous bipartisan support 
before President Ford signed the bill. And the reason was that 
the empirical evidence was overwhelming that retail price 
fixing, as Ms. Harbour pointed out, was a catastrophe for 
competition and for the consumer.
    Now, I have to say that it is grotesque from the point of 
view of an off-price retailer to even hear someone say that 
higher prices can lead to more competition. I frankly do not 
get that point. It certainly is not--in the apparel industry, 
it is a complete non sequitur.
    Finally, let me just state--I see my time is running out--
that there are no free riders in the apparel industry. People 
do not need advance services to help them put on a coat and try 
on a dress. Our customers are well educated, and what they want 
is the best bargain available. And that is what Burlington Coat 
Factory gives them, and that is what S. 148 will guarantee that 
Burlington Coat Factory will continue to give them in the 
future.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Haigney appears as a 
submission for the record.]
    Chairman Kohl. Thank you, Mr. Haigney.
    Now we call on Mr. Wilson.

 STATEMENT OF JAMES A. WILSON, PARTNER, VORYS, SATER, SEYMOUR 
AND PEASE LLP, COLUMBUS, OHIO, AND CHAIR, SECTION OF ANTITRUST 
                 LAW, AMERICAN BAR ASSOCIATION

    Mr. Wilson. Thank you, Mr. Chairman, members of the 
Subcommittee. On behalf of the American Bar Association, which 
has over 400,000 members, I thank you for the opportunity to 
appear this morning. As Chair of the Antitrust Section of the 
American Bar Association, I have been authorized to express the 
views of the ABA on this important issue.
    In contrast to the other witnesses this afternoon, Mr. 
Chairman, the ABA's position is that the Leegin decision was 
correctly decided.
    In February of 2007, the House of Delegates of the American 
Bar Association adopted the resolution proposed by our Section, 
which stated that Section 1 of the Sherman Act should not be 
interpreted to apply a rule of per se illegality to agreements 
between a buyer and a seller setting the price at which a buyer 
may resell goods or services purchased from the seller.
    You may ask: Why did we propose that position? And why did 
the ABA adopt it? We derived this position from the basic 
principle of antitrust jurisprudence that the rule of reason 
identified in Standard Oil of Ohio v. United States in 1911 is 
the fundamental standard that governs the evaluation of all 
restraints of trade. Any departure from the rule of reason 
standard must be based on a demonstrable economic effect rather 
than formalistic line drawing. Only when a specific type of 
restraint produces a predictable and pernicious anti-
competitive effect and has limited potential for pro-
competitive benefit will and should the Supreme Court deem it 
unlawful per se.
    The Supreme Court's decisions over nearly a century since 
adopting the rule of reason standard have carefully examined 
the pro-competitive and anti-competitive effects of special 
practices to determine whether they warrant treatment as anti-
competitive behavior under all circumstances and are thus 
classified as per se, or if they in some situations show pro-
competitive benefits and, therefore, should be evaluated under 
the rule of reason.
    Like many of these vertical restraints that the Supreme 
Court in recent years--that is, over the last 30 years--has 
found should be evaluated under a rule of reason test, minimum 
resale price maintenance agreements may stimulate competition 
among resellers in ways that produce material benefits to 
consumers which would not otherwise be available absent the 
ability of manufacturers and distributors to set resale prices.
    As outlined in our report to the House of Delegates, there 
are several reasons that the Section on Antitrust Law believes 
that the issue of resale price maintenance should not be a per 
se violation of the antitrust laws.
    First, most of the significant economic literature 
regarding minimum resale price maintenance finds that it is 
more likely to be used by manufacturers to achieve efficiencies 
in distribution of their products rather than to enable dealers 
to maintain significant margins.
    Second, empirical studies of minimum resale price 
maintenance have not established that the practice is 
invariably anti-competitive. And I would specifically point to 
work that was done by the FTC staff in the 1980s and the early 
1990s that made that finding that there are many occasions in 
which resale price maintenance is not anti-competitive.
    Third, manufacturers and suppliers have developed practices 
of achieving the same effects of minimum resale price 
maintenance without actually entering into agreements on resale 
pricing. This testimony that I have heard today about the 
dramatic shift that would be attained by this legislation 
simply does not square with how the market worked before the 
Leegin decision. The reality is that as long as the Colgate 
doctrine allowing individual manufacturers and distributors to 
choose to whom they will sell exists, the effects that I have 
heard from the other witnesses today are unlikely to be 
achieved.
    Finally, the per se prohibition on minimum resale price 
maintenance, in force for several decades, has had the effect 
of enhancing the market power of very large-scale retailers 
that carry a wide variety of products. Conversely, it has 
harmed smaller retailers who try to compete with those large 
retailers not on price, where they cannot compete, but on the 
basis of quality and service. For these reasons, the ABA 
supports the position that under the Federal antitrust laws, 
agreements between a buyer and seller setting the resale price 
should not be per se illegal.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Wilson appears as a 
submission for the record.]
    Chairman Kohl. Thank you, Mr. Wilson.
    Senator Klobuchar.
    Senator Klobuchar. Thank you very much, Senator Kohl, for 
holding this interesting hearing, and I know you bring to this 
hearing your perspective as a retailer yourself, as someone who 
owned stores. I bring the perspective of a shopper at stores, 
so I think we make a good pair here looking at this issue. And 
I think especially now when we have consumers who are so 
strapped, it is very important, Ms. Harbour, to look at this. 
And I am very glad the FTC is holding these workshops to try to 
figure this out because, for a lot of my constituents, every 
penny counts right now. Every penny saved counts. And so they 
are looking at these things. Even though they may not 
understand what the Leegin decision is or have understood this 
idea of vertical price fixing, I think we owe it to them to 
look at this very carefully.
    Ms. Harbour, how much do you know right now about the 
impact of the Leegin decision? Your written statement and in 
what you said today mentioned that a number of companies 
engaged in resale price maintenance has significantly 
increased, and that some suppliers have stopped working with 
some suppliers. Can you tell us more about what hard evidence 
you have? And do you think that this financial crisis also, 
that we have to look at that separately?
    Ms. Harbour. At this point I do not have any additional 
hard evidence, but we are at the Federal Trade Commission 
holding workshops. We will be looking very closely at this 
issue. Since the Leegin decision came down, it has been about 2 
years. Maybe we will start seeing some natural experiments 
where we can look at the effects of this ruling. But what I 
testified to, we have seen that. There have been some 
discussions in some of the newspaper articles, the Wall Street 
Journal, about the use of some of the shopping bots that are 
trolling and policing the Internet and going back to the 
manufacturers and letting them know about price, and then those 
discounters are being disciplined and prices have been 
increased to the consumer. So the effect that we do know about 
is that prices to the American consumer have indeed been 
elevated. As far as additional effects, we will be looking very 
closely for some of those.
    Senator Klobuchar. OK. Mr. Cohen, do you want to talk, 
adding to what Ms. Harbour said, about just your perspective 
about prices? Do you have any numbers on the rise of resale 
price maintenance being used against Internet retailers? And 
are these numbers different for retailers that are 100 percent 
based on the Internet like amazon.com versus multi-channel 
retailer stores that have an extensive Internet presence?
    Mr. Cohen. Senator Klobuchar, we have two different 
examples that we believe show the pernicious effect of the 
post-Leegin world. First is an increase in the number of 
takedown reports we receive from different companies and agents 
of rights holders and brand owners in which they have increased 
the number of complaints we have received to take down lower-
price listings. A company called Net Enforcers sent in over 1.2 
million notice and takedown requests to our site in which a 
significant number were based on lower prices. We have seen 
that, in a post-Leegin world, different manufacturers have 
admitted that the reason why they were seeking information on 
our sellers was because of a violation of MAP or retail price 
minimum standards.
    We are also engaged in research ourselves to see whether 
there has been a change in pricing over time in specific 
categories. We have not completed that research. When that is 
completed, we will submit that immediately to the Committee.
    Senator Klobuchar. Very good. This is when Justice Breyer 
issued his dissent in the case, I know that this is--I know 
when he issued his dissent, he talked about that the only safe 
predictions to make about today's decisions are that it will 
likely raise the price of goods at retail. And to me, right now 
when we are in this difficult consumer market, especially when 
there is actually slashing of prices going on because of the 
market, if we are seeing increases, I think they could be even 
worse if we were not in hard economic times. So I think it is 
important when we look at these numbers we consider that as 
well.
    Mr. Wilson, I listened to your testimony, and I guess I 
would have one question. If we, in fact, found out that the 
prices have increased, as Ms. Harbour believes they have, would 
that be enough for you to believe that we need to reexamine 
this Leegin decision and look at legislation, as Senator Kohl 
has introduced?
    Mr. Wilson. Senator, I guess the question I would ask is 
whether the prices had increased and the current law was 
ineffective, because, after all, resale price maintenance is 
not per se legal today. It is simply evaluated under the 
standard by which most anti-competitive conduct is evaluated--
the rule of reason.
    If resale price maintenance is as pernicious as the other 
witnesses have said, it should be very difficult to present a 
defense to a rule of reason case. After all, the defense in a 
rule of reason case is proof that there are pro-competitive 
effects here.
    What I have seen is that the courts since Leegin--there 
have been about 60 decisions citing it, less than half of them 
in actually applying the rule of reason, but they have not 
created some awkward or weak rule of reason test here. They 
have applied a rule of reason test that is consistent with how 
it is applied in other areas. We look forward as a Section to 
offering our comments to the FTC in their workshops on exactly 
that area.
    Senator Klobuchar. And I appreciate that, that the courts 
may have been reasonable in doing their rule of reason. But I 
think our role here and our duty and the FTC's duty is beyond 
that, and it is really looking at if there has been a bad 
effect on consumers because of this. And right now, my view is 
we just cannot hit on consumers anymore, that they have had it. 
They are having very difficult economic times, and so that is 
why I think the workshops that the FTC does and other evidence 
that we have here is very important, because if--you know, this 
was a very close Supreme Court decision with a vigorous 
dissent, and this is really in the end a policy matter for the 
Congress to consider.
    So I appreciate what you have said about the rules, but I 
think if we saw some pattern here of increased prices, as we 
saw back in--who was bringing up 1975 and what had happened? 
Mr. Haigney.
    Mr. Haigney. Yes, in 1975, there was extensive empirical 
evidence presented to the Congress to show--and I think Ms. 
Harbour actually cited the figures--to show a drastic increase 
in prices in States that continued to free trade, so-called, 
and a diminution in sales in those States. These were hard-core 
numbers, not just economic----
    Senator Klobuchar. Do you think it would be useful if we 
want to have that kind of clear, empirical comparison? Maryland 
has just passed their law and gone back to the old way. Do you 
think it would be useful to have more States do this?
    Mr. Haigney. It would certainly be better than nothing, but 
I would much prefer----
    Senator Klobuchar. You would prefer it done nationally, 
federally. It would be a lot easier than creating a national 
study for us to look at.
    Mr. Haigney. That is right.
    Senator Klobuchar. OK. Anyone want to add to any of that?
    Mr. Wilson. Senator, if I could, I would just point out 
that if you adopt the rule that the legislation proposes, then 
pro-competitive effects are no longer considered. And so you 
have in effect lost any pro-competitive effects that exist 
today.
    Ms. Harbour. May I address the pro-competitive effects and 
the statement about the empirical evidence that is out there 
and also the Federal Trade Commission and some of the empirical 
work it has done as well.
    None of the empirical studies to date are definitive, and 
there is an acknowledged empirical vacuum that leaves all of 
these competing theories untested. It was referenced about a 
Federal Trade Commission study. It was done by a very well-
respected economist, Pauline Ippolito. That study basically 
found that there was no basis for concluding that minimum RPM 
is anti-competitive. But I want to note that Pauline Ippolito 
herself acknowledged that her study did very little to fill the 
empirical vacuum, and her study did not test for the 
hypothesized consumer benefits directly. So it did not test for 
the consumer benefits. It only determined whether the pro-
competitive explanations had what she said ``limited 
plausibility.''
    So, basically, these studies are not definitive, and also 
Justice Breyer in the Leegin dissent discounted the study by 
saying that it equated the failure of plaintiffs to allege 
collusion with the absence of collusion, and basically it 
overlooked the tacit form that collusion may take. So these 
studies are not definitive, and they have been cited as being 
so, but they are not.
    Senator Klobuchar. All right. Thank you very much. I 
appreciate that.
    Thank you, Senator Kohl.
    Chairman Kohl. Thank you very much, Senator Klobuchar.
    Well, you all know where I am coming from on this piece of 
legislation, obviously. I am the sponsor of it. But I want to 
take a look at it from another point of view, and that is the 
point of view of the manufacturer who goes to great pains and 
at great length and at great expense to build a product and a 
brand into something that is desired by consumers, in many 
cases regardless of the high price, but the manufacturer has 
done such a good job of appealing to consumers on the basis of 
the quality of his brand that consumers go way out of their way 
to find that product and buy it, regardless of its price. And 
that adds to the manufacturer's prosperity as well as to the 
store that is selling it because they are not discounting it. 
But it is a model, a way of doing business, you know, it is a 
free country, and people have a right to do that. They can be 
successful.
    Now, under our legislation, what is likely to happen? Well, 
discounters will buy the merchandise and beat the hell out of 
the price, you know, and draw customers thereby, but also make 
it very, very difficult for the traditional retailer to 
maintain their price and for the manufacturer to have the price 
maintained as he or she might wish to do; after all, it is 
their product.
    And the manufacturer, by virtue of, let's say, discounters 
selling maybe 10 percent of the brand, but driving the price so 
low in the minds of customers and thereby making it very 
difficult for traditional retailers to carry that brand at a 
maintained price, that the manufacturer could lose an enormous 
amount of business just by virtue of the fact that a very 
limited amount of discount retailers are driving the price of 
that particular brand, merchandise on that brand, a category in 
that brand, right down into the basement.
    Now, is that fair? Is that fair to the manufacturer, you 
know, who, after all, built his business, certain ideas, 
certain concepts, does business with traditional retailers who 
maintain the price, and here he is in a position whereby a 
limited amount of discounters can almost kill that category for 
the manufacturer at a profitable price? Is that fair? Doesn't 
the manufacturer have a right, once he produces a product, to 
have that product sold at a price that he regards as fair? What 
is wrong with that, Mr. Haigney.
    Mr. Haigney. Well, Mr. Chairman, long before Leegin was 
decided, the Supreme Court decided the case of Sylvania, and in 
that case it gave the manufacturer all the power anyone could 
reasonably want to control its distribution. The only power 
that it did not give to the manufacturer was the power to 
control price. But it overruled the Schwinn case, which had 
made vertical restraints per se violation, and the Sylvania 
case made effectively all vertical restraints except price 
fixing into per se legal restraints.
    The result is that the manufacturers, if they want their 
merchandise sold in only the fanciest stores, just sell to the 
fanciest stores, cutoff dealers who try and depart from this 
distribution scheme. There is nothing wrong with it under 
Sylvania, and there are plenty of products out there that 
Burlington Coat Factory cannot have because those manufacturers 
want to maintain the snob appeal of their product. Perfectly 
legitimate, and I have no argument with it. But the important 
point is that this right was given to the manufacturers by 
Sylvania in 1977. The Leegin case is a complete non sequitur. 
The additional power to fix the price adds nothing to the 
powers of vertical restraint that were given to the 
manufacturers by Sylvania.
    Chairman Kohl. All right. But let me follow that up. So you 
are saying that even prior to Leegin, manufacturers had a way 
of keeping their goods out of the hands of discount retailers 
if that is what they wanted to do?
    Mr. Haigney. That is correct, Mr. Chairman.
    Chairman Kohl. And yet you said during your testimony that 
had Leegin been in effect, Burlington would not be here today. 
But what is the difference? If manufacturers had the power 
prior to Leegin to keeping whatever merchandise they want out 
of the hands of discount retailers, then what did Leegin do 
except to certify that?
    Mr. Haigney. Well, first of all, Mr. Chairman, they had the 
power, they had the right, but they did not exercise it. They 
wanted to sell--there are a few manufacturers who do not want 
to see their merchandise in off-price stories, and that is 
their right. But most do want to see--most people are very 
happy to sell us their merchandise. We pay the same price as 
any full-price retailer, and most manufacturers are happy to 
get that price, particularly in a time like the present. And 
so, yes, they could have, theoretically, prevented us from 
getting the merchandise, but they did not because they did not 
want to.
    Chairman Kohl. Well, they do not have to, even under 
Leegin. What has changed?
    Mr. Haigney. Absolutely. They could still----
    Chairman Kohl. I guess what I am trying to understand from 
the point of view of a retailer, if prior to Leegin the 
manufacturer could keep the merchandise out of the hands of a 
discounter and now that we have Leegin they can still keep 
their merchandise out of the hands of the discounter, what has 
changed?
    Mr. Haigney. Well, what has changed is that those 
manufacturers, who are the majority, who do sell to stores like 
Burlington Coat Factory would have the power suddenly--or have 
the power under Leegin to fix our retail prices. Now we are an 
``off-price retailer.'' Our entire competitive philosophy is 
based on giving value and low prices. So if the manufacturer 
can now, in addition, he can let us have the merchandise, but 
we must sell it at the same price that it is carried at a full-
price retailer, that would put us out of business, at least 
with respect to that line of goods.
    Chairman Kohl. Yes, but--and I do not want to push this too 
far. I just want to make it clear. Prior to Leegin, he still, 
as you have said, could decide not to sell the merchandise to a 
discounter.
    Mr. Haigney. That is right, or to anybody.
    Chairman Kohl. Yes, Ms. Harbour, what has changed? Why is 
Leegin such a poisonous thing if prior to Leegin that 
merchandise could still be kept out of the hands of a 
discounter by a manufacturer acting in an intelligent way?
    Ms. Harbour. What is poisonous about Leegin is that going 
forward there will be no more Burlington Coat Factories. There 
will be no more Costcos. There will be no more Walmarts.
    Chairman Kohl. OK.
    Ms. Harbour. That is the danger. These innovators, these 
low-cost retailers, these Internet innovators, they will not 
exist now because they will not have the opportunity to enter 
the market. That is what has changed.
    Chairman Kohl. That is a good point. You are saying Leegin 
cuts off or seriously damages the possibility of the new 
discounter even getting a foothold.
    Ms. Harbour. For instance, if you are on the Internet and 
you want to sell a branded product below cost to get a consumer 
following, the manufacturer can cut you off at the knees, and 
you never can get a toehold into the market. That is what is so 
pernicious about Leegin.
    Chairman Kohl. That is a good point.
    Mr. Cohen.
    Mr. Cohen. Mr. Chairman, I also think that the internet 
created the very visibility and price transparency that 
manufacturers need to police the internet in a way that would 
have been impossible in the pre-Leegin world. We believe the 
ability to see pricing every day in real time has put a 
dampening effect on inflation, and really drives prices down. 
But that has also allowed people who want to enforce their 
pricing schemes to go after discounters and, more importantly 
from our perspective, find out where there were leaks in their 
distribution chain. Manufacturers are under intense pressure 
from other larger retailers to not allow any discounting, and 
then, therefore, they go after our small sellers and try to 
find out exactly who those small sellers are, which they would 
not have been able to do in a pre-Leegin world.
    Chairman Kohl. Mr. Wilson.
    Mr. Wilson. Yes, Senator. I guess I do not fully agree with 
the economic premise that the other witnesses have suggested 
exists here.
    First of all, let us remember that this manufacturer in 
your hypothetical is presumably working in a competitive 
marketplace. Therefore, that manufacturer has to make certain 
decisions as to how they are going to go to market. Are they 
going to go to market as the lowest cost, or are they going to 
try to create the perception of quality in your hypothetical? 
If it is the latter, then their perception of quality gives 
every other manufacturer either the incentive to increase their 
quality or decrease their price. So overall in the marketplace, 
in your hypothetical, prices should decrease or quality should 
increase or both.
    With respect to the notion of what difference does Leegin 
make in this, where I believe it makes a difference is it 
allows the manufacturer to continue the relationship with the 
discounting retailer. Under the pre-existing law, the 
manufacturer in effect had to execute the death penalty in its 
relationship with that retailer. It had to say, ``You have sold 
at below the prices I have suggested. I am no longer going to 
do business with you, period.'' And those manufacturers were at 
risk if they did that and then reestablished a relationship 
because courts would presume an agreement from that back-and-
forth relationship.
    After Leegin, what the relationship is in effect is that 
the manufacturer can again say, ``You do not have my permission 
to do that. You have violated our agreement. We have a 
contractual dispute here. I can terminate you or I can simply 
have a contractual dispute with you and continue to do business 
with you.''
    Chairman Kohl. Ms. Harbour.
    Ms. Harbour. May I address that? I think that RPM protects 
inefficient retailers. If you have a minimum resale price 
policy, you could have Retailer 1 selling a quality good, but 
Retailer 2, because they would be protected in that intra-brand 
competition, the quality could be sub-par, yet they could still 
charge the resale price, maintained price, and not in effect 
keep the product at top quality. So I think it has the 
potential to protect retailers who are not selling top-quality 
intra-brand merchandise.
    Chairman Kohl. Mr. Cohen.
    Mr. Cohen. Mr. Chairman, may I submit to the record a 
letter one of our sellers received from a company called 
Captive Works, where they said, ``Dear David, Please do not 
list the receiver less than $149; otherwise, it will be 
reported and taken off. We need to have a steady price from all 
the sellers so everybody will be making money. Your prices were 
less than everybody else, and if you see someone else with a 
lower price, be sure that they will be taken down soon. Thanks. 
Raffi.''
    So that is the real-world experience that our sellers are 
experiencing every day, rather than the hypothetical and 
theoretical viewpoint of antitrust experts about inter-brand 
versus intra-brand competition. We have to live with the 
reality that lower prices are not being able to be delivered to 
buyers.
    Chairman Kohl. Yes, Mr. Haigney.
    Mr. Haigney. Yes, Mr. Chairman, just quickly to respond to 
Mr. Wilson, his hypothetical does not coincide with the real 
world that I know, at least speaking in the apparel off-price 
world. He said that the manufacturer could fix a high price 
with the consent of the retailer and go on and do business 
afterwards. And the reality is that when your principal means 
of competition is low prices, you simply cannot continue to do 
business with that person. I mean, the fact of the matter is 
Burlington Coat Factory cannot sell at those prices and be 
Burlington Coat Factory. And I do not think any other off-price 
merchants who roughly have our business model could either.
    I also question the whole idea that the manufacturer's 
notion of distribution should always be paramount and that 
retailers--who, after all, are the ones who actually sell the 
product and know the customers--somehow under the Leegin 
majority, our views are not considered legitimate. Only the 
manufacturer has the right to determine what is going to happen 
to a product, which is our property by the time that we are 
reselling it to the public.
    Chairman Kohl. You know, Mr. Wilson, historically we have 
been a consumer-driven society, a consumer-driven economy--we 
still are; 80 percent of our economy are--people who are buying 
goods on a daily basis, and competition has very much defined 
the growth of the American economy. It very much defines 
capitalism, competition. Naturally, people who are in a 
position to try and do business without having to deal with 
competition, that is the way they want it. But in our 
capitalistic society we try to encourage competition, thinking 
that is the best way, although not perfect, the best way to 
proceed.
    And that is what pre-Leegin--or if we ever get to post-
Leegin, that is the premise, that competition is the best way 
to drive the American economy and serve the American consumer 
while still preserving the rights of all manufacturers to try 
and make a profit in that kind of a context. And pre-Leegin, as 
we have now established, there is still a way--or was a way or 
would be a way even under our legislation for a manufacturer to 
elect not to do business with a discounter as long as they cut 
off that discounter without saying it is because of price and 
price only. You know that.
    But isn't that a reasonable balance, to encourage 
competition, to set up rules and regulations that will allow 
for competition based on price, among other things--service, 
quality, but also price? But also preserve the right of a 
manufacturer when he or she decides that they do not want to do 
business because that person is cutting the price too much? 
They can find a way not to do business. Isn't that a decent 
balance? What is your problem with that?
    Mr. Wilson. Well, Senator, let me first of all say that our 
Section and the ABA fully endorsed the notion that competition 
needs to be the basis for our economy and our society, and I 
think notwithstanding recent events, we have proven that 
competition is the best way to have a thriving economy.
    Our concern in the legislation is that in establishing a 
per se test, it eliminates the ability for courts to recognize 
situations in which the pro-competitive benefits of a 
particular resale price maintenance arrangement outweigh the 
anti-competitive effects. In situations where such pro-
competitive benefits outweigh the anti-competitive effects, 
consumers benefit from the resale price maintenance.
    The Section and the ABA have never taken the position that 
resale price maintenance should be per se legal. Our view is 
simply that the sound rule of antitrust, that the balancing of 
anti-competitive and pro-competitive effects should apply in 
this arena as it does in virtually every other arena of our 
economy.
    Chairman Kohl. Ms. Harbour.
    Ms. Harbour. I would just like to respond to that. Mr. 
Wilson was talking about the pro-competitive benefit of resale 
price maintenance. I guess what I would say is then the 
proponents of them should prove it. That is really all I am 
asking here. Why put the thumb on the scale on the side of the 
business that is imposing this RPM? Give the consumer the 
benefit of the doubt. And that is what we have not seen. We 
have not seen the proof of the pro-competitive benefits of 
those manufacturers who are imposing the RPM. What we get is we 
get theoretical assumptions about what those benefits are. All 
we are asking, prove it. Even in Leegin, the Supreme Court did 
not make, you know, the proponents of the RPM in Leegin to 
prove what those benefits were for the ladies' handbags. So 
going forward, if you shift the burden of proof, shift it from 
the victim, shift it from the consumer. Shift it onto the 
manufacturer who is imposing the RPM. Let them bear the burden 
of proof for the elevated prices that they are foisting on the 
American consumer.
    Chairman Kohl. Good. Anybody else have another comment to 
make?
    Mr. Haigney.
    Mr. Haigney. Yes, Mr. Chairman, just briefly on the rule of 
reason now, let me say this: Plaintiffs do not win rule of 
reason cases in this field. The rule of reason requires the 
plaintiff to prove an immense amount of economic data. He has 
to prove what the market is. He has to prove that the defendant 
has power in that market. He has to prove that competition as a 
whole within that market was somehow harmed by the individual 
act harming this plaintiff.
    Now, most plaintiffs in these cases are small companies who 
are starting out trying to get a foothold. They have their most 
important line cut off because of their unwillingness to live 
up to a price-fixing agreement.
    They go to court. Now, when it was per se, all they had to 
do was prove the existence of the price-fixing agreement and 
the fact that they were cut off because they did not follow it, 
and then add up their damages of how much they lost. That 
little company could probably bring that lawsuit with the local 
lawyer, and probably that guy might take it on spec. To win a 
rule of reason case, that local company would have to hire--I 
do not know--ten economists, really high-level attorneys, and 
launch a 2-, 3-, 4-year exploration of whatever market it 
happened to be. That is, if he could satisfy the very strict 
pleading requirements of the Twombly case and other decisions 
of the Supreme Court that have pretty much put plaintiffs out 
of business at the pleading stage.
    So the per se rule is not the way to go--I am sorry. The 
rule of reason is not the way to go. The per se rule is the 
only way that a small plaintiff could ever get a remedy for 
RPM's anti-competitiveness.
    Chairman Kohl. Thank you.
    Anything else, folks?
    [No response.]
    Chairman Kohl. I think it has been a good hearing. I think 
we have laid out the pros and cons of the issue, and it is 
really important to our American economy to try and come up 
with the right decision on this. In that sense, this hearing 
has been very informative. I appreciate your coming.
    Thank you so much.
    [Whereupon, at 3:40 p.m., the Subcommittee was adjourned.]
    [Questions and answers and submissions for the record 
follow.]

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