I have seen no discussion of this here on ScubaBoard, but a rather important anit-trust case was heard by the Fifth Circuit of the United States Court of Appeals in March of this year. Early in December, the United States Supreme Court agreed to hear this case, possibly settling the issue on the establishment of minimum retail price policies by manufacturers and establishing if such violations should AUTOMATICALLY (per se) be viewed as illegel, regardless of the actual impact of the particular violation on the market.
Several major scuba diving companies has long established, as one of their conditions of trade, a requirement that local scuba stores can not discount below some established minimum retail price. Violation of this policy could result in termination of the rights of the retailer to continue to carry the line. In the late 1990's and very early 2000's, this provision was written into the dealer agreements signed each year by the retailer. Around 2002, most of the scuba companies got scared to putting this in the dealer agreements and opted, instead, to make such a violation a standard part of their operating rules. They didn't require dealer agreement; they simply said if you violate any of their rules, the would withhold product.
While there have been a large number of price-related court decisions since the passing of the Anti-Trust Act of 1890, none have come as close to matching the exact practices used by the scuba manufacturers as does PSKS, Inc v Leegin Creative Leather Products, Inc. When the Fifth Circuit heard this case, they agreed that the vertical price fixing scheme operated by Leegin was in fact illegel and was governed by the per se rule established by the Supreme Court for such violations. The per se rule simply states that violations of this sort are automatically a violation of the anti-trust laws and there is no need to consider other evidence, such as specific market interruption or economic impact on any particular market.
When the Supreme Court rules on this case, it will result in MASSIVE change in the scuba industry, regardless of how the court rules. If they affirm the Firth District's finding, we will know ONCE AND FOR ALL that the rules used by the major scuba manufacturers to maintain high scuba equipment prices is illegal and such schemes must end at once. If the court overturns the Fifth District, it will put in place a "rule of reason" condition, where EACH person that challenges a manufacturer must demonstrate that the PARTICULAR violation causes economic harm to the market. In this case, you will see the couple of remaining companies that are strident in their position getting even stronger. Their control over how the local store operates will grow stronger. So, no matter what happens, things are about to change in the marketing of scuba diving equipment in the United States.
The United States Supreme Court, with only a few exceptions, tends to judge issues like this one rather narrowly. While they are free to opine widely on the issues presented by this case, most would expect them to look only at the "per se" verses the "rule of reason" portion of the settled cases. While I am certainly not an attorney or expert on the law, I think we will see a narrow ruling.
It is already difficult (if not almost impossible) for a small scuba retailer to challenge the legality of the practices of the much larger scuba manufacturers, a ruling that the "rule of reason" must be applied to any such case, will effective end any possibility of a local scuba store challenging a major scuba manufacturer. In light of such a decision, the local scuba store would need to supply endless economic, marketing, and damage information to prevail. This burden will be almost impossible for the little guy. If the Supreme Court overturns, the local scuba store (and the scuba consumer) will effectively lose their ability to challenge in court.
In the case of Monsanto Co v Spray-Rite Service Corp in 1984, Justice Brennan commented on the issue of the illegality of vertical minimum price agreements and the application of the per se rule to such cases. He said
"As the Court notes, the Solicitor General has filed a brief......urging us to overrule the Court's decision in the Dr. Miles Medical Co case. That decision has stood for 73 years, and the Congress has certainly been aware of its existance throughout that time. Yet the Congress has never anacted legislation to overrule the interpertation of the Sherman Act adopted in that case. Under these circmstances, I see no reason for us to depart from our longstanding interpretation of the Act."
For a century, minimum retail price control schemes by a manufacturer have been a per se violation of the Sherman Anti-Trust Act. Our ELECTED officials know this. While perfectly able and legally positioned to do so if they feel it necessary, they have never passed any legislation to the contrary. Let us hope that the United States Supreme Court doesn't do it for them.
This is a big deal. This is important.
Phil Ellis
Several major scuba diving companies has long established, as one of their conditions of trade, a requirement that local scuba stores can not discount below some established minimum retail price. Violation of this policy could result in termination of the rights of the retailer to continue to carry the line. In the late 1990's and very early 2000's, this provision was written into the dealer agreements signed each year by the retailer. Around 2002, most of the scuba companies got scared to putting this in the dealer agreements and opted, instead, to make such a violation a standard part of their operating rules. They didn't require dealer agreement; they simply said if you violate any of their rules, the would withhold product.
While there have been a large number of price-related court decisions since the passing of the Anti-Trust Act of 1890, none have come as close to matching the exact practices used by the scuba manufacturers as does PSKS, Inc v Leegin Creative Leather Products, Inc. When the Fifth Circuit heard this case, they agreed that the vertical price fixing scheme operated by Leegin was in fact illegel and was governed by the per se rule established by the Supreme Court for such violations. The per se rule simply states that violations of this sort are automatically a violation of the anti-trust laws and there is no need to consider other evidence, such as specific market interruption or economic impact on any particular market.
When the Supreme Court rules on this case, it will result in MASSIVE change in the scuba industry, regardless of how the court rules. If they affirm the Firth District's finding, we will know ONCE AND FOR ALL that the rules used by the major scuba manufacturers to maintain high scuba equipment prices is illegal and such schemes must end at once. If the court overturns the Fifth District, it will put in place a "rule of reason" condition, where EACH person that challenges a manufacturer must demonstrate that the PARTICULAR violation causes economic harm to the market. In this case, you will see the couple of remaining companies that are strident in their position getting even stronger. Their control over how the local store operates will grow stronger. So, no matter what happens, things are about to change in the marketing of scuba diving equipment in the United States.
The United States Supreme Court, with only a few exceptions, tends to judge issues like this one rather narrowly. While they are free to opine widely on the issues presented by this case, most would expect them to look only at the "per se" verses the "rule of reason" portion of the settled cases. While I am certainly not an attorney or expert on the law, I think we will see a narrow ruling.
It is already difficult (if not almost impossible) for a small scuba retailer to challenge the legality of the practices of the much larger scuba manufacturers, a ruling that the "rule of reason" must be applied to any such case, will effective end any possibility of a local scuba store challenging a major scuba manufacturer. In light of such a decision, the local scuba store would need to supply endless economic, marketing, and damage information to prevail. This burden will be almost impossible for the little guy. If the Supreme Court overturns, the local scuba store (and the scuba consumer) will effectively lose their ability to challenge in court.
In the case of Monsanto Co v Spray-Rite Service Corp in 1984, Justice Brennan commented on the issue of the illegality of vertical minimum price agreements and the application of the per se rule to such cases. He said
"As the Court notes, the Solicitor General has filed a brief......urging us to overrule the Court's decision in the Dr. Miles Medical Co case. That decision has stood for 73 years, and the Congress has certainly been aware of its existance throughout that time. Yet the Congress has never anacted legislation to overrule the interpertation of the Sherman Act adopted in that case. Under these circmstances, I see no reason for us to depart from our longstanding interpretation of the Act."
For a century, minimum retail price control schemes by a manufacturer have been a per se violation of the Sherman Anti-Trust Act. Our ELECTED officials know this. While perfectly able and legally positioned to do so if they feel it necessary, they have never passed any legislation to the contrary. Let us hope that the United States Supreme Court doesn't do it for them.
This is a big deal. This is important.
Phil Ellis
