STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTIONS -- (Senate - October 30, 2007)
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Mr. KOHL. Mr. President, I use today to introduce legislation essential to consumers receiving the best prices on every product from electronics to clothing to groceries. My bill, Discount Pricing Consumer Protection Act, will restore the nearly century old rule that it is illegal under antitrust law for a manufacturer to set a minimum price below which a retailer cannot sell the manufacturer's product, a practice known as ``resale price maintenance'' or ``vertical price fixing''. Last June, overturning a 96-year-old precedent, a narrow 5-4 Supreme Court majority in the Leegin case incorrectly interpreted the Sherman Act to overturn this basic rule of the marketplace which has served consumers well for nearly a century. My bill will correct this misinterpretation of antitrust law and restore the per se ban on vertical price fixing.
The reasons for this legislation are compelling. Allowing manufacturers to set minimum retail prices will threaten the very existence of discounting and discount stores, and lead to higher prices for consumers. 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 giants--stores like Target, Best Buy, Walmart, and the internet site Amazon, which offer consumers a wide array of highly desired products at discount prices.
From my own personal experience in business I know of the dangers of permitting vertical price fixing. My family started the Kohl's department stores in 1962, and I worked there for many years before we sold the stores in the 1980s. On several occasions, we lost lines of merchandise because we tried to sell at prices lower than what the manufacturer and our rival retailers wanted. For example, when we started Kohl's and were just a small competitor to the established retail giants, we had serious difficulties obtaining the leading brand name jeans. The traditional department stores demanded that the manufacturer not sell to us unless we would agree to maintain a certain minimum price. Because they didn't want to lose the business of their biggest customers, that jeans manufacturer acquiesced in the demands of the department stores--at least until our lawyers told them that they were violating the rule against vertical price fixing.
So I know first hand the dangers to competition and discounting of permitting the practice of vertical price fixing. But we don't need to rely on my own experience. For nearly 40 years until 1975 when Congress passed the Consumer Goods Pricing Act, Federal law permitted States to enact so-called ``fair trade'' laws legalizing vertical price fixing. Studies the Department of Justice conducted in the late 1960s indicated that prices were between 18-27 percent higher in the states that allowed vertical price fixing than the states that had not passed such ``fair trade'' laws, costing consumers at least $2.1 billion per year at that time.
Given the tremendous economic growth in the intervening decades, the likely harm to consumers if vertical price fixing were permitted is even greater today. In his dissenting opinion in the Leegin case, Justice Breyer estimated that if only 10 percent of manufacturers engaged in vertical price fixing, the volume of commerce affected today would be $300 billion dollars, translating into retail bills that would average $750 to $ 1,000 dollars higher for the average family of four every year.
Defenders of the Leegin decision argue that today's giant retailers such as Wal-Mart, Best Buy or Target can ``take care of themselves'' and have sufficient market power to fight manufacturer efforts to impose retail prices. Whatever the merits of that argument, I am particularly worried about the effect of this new rule permitting minimum vertical price fixing on the next generation of discount retailers. If new discount retailers can be prevented from selling products at a discount at the behest of an established retailer worried about the competition, we will imperil an essential element of retail competition so beneficial to consumers.
In overturning the per se ban on vertical price fixing, the Supreme Court in Leegin announced this practice should instead be evaluated under what is known as the ``rule of reason.'' Under the rule of reason, a business practice is illegal only if it imposes an ``unreasonable'' restraint on competition. The burden is on the party challenging the practice to prove in court that the anti-competitive effects of the practice outweigh its justifications. In the words of the Supreme Court, the party challenging the practice must establish the restraint's ``history, nature and effect.'' Whether the businesses involved possess market power ``is a further, significant consideration'' under the rule of reason.
In short, establishing that any specific example of vertical price fixing violates the rule of reason is an onerous and difficult burden for a plaintiff in an antitrust case. Parties complaining about vertical price fixing are likely to be small discount stores with limited resources to engage in lengthy and complicated antitrust litigation. These plaintiffs are unlikely to possess the facts necessary to make the extensive showing necessary to prove a case under the ``rule of reason.'' In the words of FTC Commissioner Pamela Jones Harbour, applying the rule of reason to vertical price fixing ``is a virtual euphemism for per se legality.''
In July, our Antitrust Subcommittee conducted an extensive hearing into the Leegin decision and the likely effects of abolishing the ban on vertical price fixing. Both former FTC Chairman Robert Pitofsky and current FTC Commissioner Harbour strongly endorsed restoring the ban on vertical price fixing. Marcy Syms, CEO of the Syms discount clothing stores, did so as well, citing the likely dangers to the ability of discounters such as Syms to survive after abolition of the rule against vertical price fixing. Ms. Syms also stated that ``it would be very unlikely for her to bring an antitrust suit'' challenging vertical price fixing under the rule of reason because her company ``would not have the resources, knowledge or a strong enough position in the market place to make such action prudent.'' Our examination of this issue has produced compelling evidence for the continued necessity of a ban on vertical price fixing to protect discounting and low prices for consumers.
The Discount Pricing Consumer Protection Act will accomplish this goal. My legislation is quite simple and direct. It would simply add one sentence to Section 1 of the Sherman Act--the basic provision addressing combinations in restraint of trade--a statement that any agreement with a retailer, wholesaler or distributor setting a price below which a product or service cannot be sold violates the law. No balancing or protracted legal proceedings will be necessary. Should a manufacturer enter into such an agreement it will unquestionably violate antitrust law. The uncertainty and legal impediments to antitrust enforcement of vertical price fixing will be replaced by simple and clear legal rule--a legal rule that will promote low prices and discount competition to the benefit of consumers every day.
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. Our legislation will correct the Supreme Court's abrupt change to antitrust law, and will ensure that today's vibrant competitive retail marketplace and the savings gained by American consumers from discounting will not be jeopardized by the abolition of the ban on vertical price fixing. I urge my colleagues to support this bill.
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