Common journalistic practice says that a court decision is pro-business when it favors a corporate defendant over a plaintiff. Conservatives are also said to be pro-business while liberals are pro-plaintiff or pro-consumer. This is how the press frames most discussions of tort and regulatory litigation.
In the last Supreme Court term, a 5-4 decision in Leegin Creative Leather Products, Inc. v. PSKS, Inc. was hailed and condemned (depending on who you ask) as a pro-business decision. The conservative majority, led by Justice Kennedy, overruled a 1911 precedent that condemned “resale price maintenance” (RPM)—contracts where a manufacturer conditions sales to distributors on setting a specific retail price—as an automatic violation of the Sherman Act. Most antitrust challenges are subject to the rule of reason, and after years of complaints from mainstream economists, the Leegin majority acquiesced in ending RPM’s special status under the “per se” rule.
From the right, Leegin is pro-business because it subjects RPM challenges to economic analysis, which has demonstrated that the practice is often good for competition. From the left, the decision is pro-business because it deprives consumers of their “day in court” if and when RPM raises retail prices.
The characterization of Leegin as pro-business is odd, however, because both parties to the case were in fact businesses. As I noted below, most antitrust cases are disputes among businesses, usually over competing business models. It’s not unusual in an antitrust complaint for the injured “consumers” to be multi-billion dollar public companies. Even when individual consumers are the nominal plaintiffs, the real beneficiaries of the case are plaintiff’s attorneys, which themselves are businesses.
If anything, Leegin is a pro-manufacturer decision, because those are the firms that stand to benefit from reduced legal restrictions on RPM. But calling a decision “pro-manufacturer” makes poor fundraising copy, especially when you’re an interest group emphasizing the partisan makeup of the current Supreme Court.
But even as a pro-manufacturer decision, Leegin is nothing to cheer. Liberals fear that RPM-based price increases will run amok free of the per se constraint. Yet the rule of reason, while officially more tolerant of business conduct, creates more uncertainty for manufacturers. A per se rule tells you what is forbidden. The rule of reason simply invites judges to solicit the views of paid economic “experts” and cherry-pick what business practices to allow or condemn. Even if there’s less RPM litigation post-Leegin, manufacturers will need to retain even more lawyers and antitrust experts to guess how the lower courts might view particular RPM schemes.
For more on Leegin, see my post at the Mises Economics Blog (“A Victory for Executive Power,” July 4) and the excellent analysis by Josh Wright (June 30) and Thom Lambert (June 29) at Truth on the Market.