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Supreme Court Takes on Two Cases That Could Clarify Antitrust Law

By Linda Greenhouse


The Supreme Court added two important antitrust cases to its calendar for the current term on Thursday. Both cases, granted at the request of defendants in private antitrust suits, are likely to lead to clarification of areas of antitrust law that have become increasingly unsettled.

One of the cases has been closely watched on Wall Street. It is a class-action lawsuit against more than a dozen leading investment banks and institutional investors that participated in syndicates to underwrite the initial public offerings of hundreds of technology companies during the 1990s.

The lawsuit, brought by purchasers of the stocks, charges that the sharing of information among the underwriters and the way in which they allocated stock to their customers amounted to an antitrust conspiracy.

The U.S. District Court in New York dismissed the lawsuit in 2003, finding that the defendants were entitled to antitrust immunity because much of the conduct they were said to have engaged in was explicitly permitted by the Securities and Exchange Commission. But the 2nd U.S. Circuit Court of Appeals reinstated the suit last year, ruling that Congress had granted no such immunity.

The issue for the Supreme Court in this case, Credit Suisse First Boston Ltd. v. Billing, No. 05-1157, is how to treat the inherently collaborative activity of an underwriting syndicate, activity that — while it would appear to violate the Sherman Antitrust Act — is permitted by the regulatory agency that oversees it.

While the eventual outcome of that case is uncertain, there is little uncertainty about the second antitrust case the court accepted. The question in that case, Leegin Creative Leather Products, Inc. v. PSKS Inc., No. 06-480, is how antitrust law should treat the minimum prices that manufacturers require retailers to charge for their products.

In a 1911 case known as the Dr. Miles precedent, this practice of “resale price maintenance” is always illegal under the Sherman Act. The case asks the justices to re-evaluate the precedent in light of modern economic theory, and instead to make these arrangements subject to case-by-case analysis under what is known as the rule of reason.

In other areas of antitrust law, the court has steadily backed away from the categorical view of antitrust liability and is highly likely to use this case as a vehicle for doing to same thing for resale price maintenance.

Leegin, a privately owned company, manufactures the Brighton line of women’s leather goods and does business only with retailers, mostly small specialty stores, who agree to abide by the suggested retail prices for the products. In 2002, after learning that Kay’s Kloset, a store in Lewisville, Texas, was discounting Brighton products, Leegin suspended shipments.

The store brought an antitrust suit and won more than $1 million in damages, which are tripled under antitrust law. The 5th U.S. Circuit Court of Appeals, in New Orleans, upheld the judgment.