RPM as exclusion: did the U.S. Supreme Court stumble upon the missing theory of harm?(resale price maintenance)(Symposium: A Continuing Symposium on Antitrust and the Roberts Court)

I. LEGAL AND ECONOMIC BACKGROUND

Resale price maintenance--the practice whereby upstream wholesalers or manufacturers fix the prices at which their products can be sold at retail--has been a matter of economic and legal debate for at least a century. Until very recently in the United States, resale price maintenance (RPM) had been per se illegal, albeit with an expanding set of qualifications. In 1911, the U.S. Supreme Court found that a manufacturer of "proprietary medicines, prepared by means of secret methods and formulas, and identified by distinctive packages, labels, and trademarks," could not fix wholesale and retail sales prices for its products. (1) The court found that this practice, later to be called RPM,

 
   falls within the principle which condemns [combinations between 
   dealers having for their sole purpose the destruction of 
   competition and the fixing of prices]. It in effect creates a 
   combination for the prohibited purposes. No distinction can 
   properly be made by reason of the particular character of the 
   commodity in question. It is not entitled to special privilege or 
   immunity. It is an article of commerce, and the rules concerning 
   the freedom of trade must be held to apply to it. (2) 

The manufacturer, Dr. Miles Medical Co., argued that fixing downstream prices was necessary to prevent discounting which (with the Court quoting Dr. Miles's arguments)

 
   caused "much confusion, trouble, and damage" to the complainant's 
   business, and "injuriously affected the reputation" and "depleted 
   the sales" of its remedies; that this injury resulted "from the 
   fact that the majority of retail druggists as a rule cannot, or 
   believe that they cannot, realize sufficient profits" by the sale 
   of the medicines "at the cut-prices announced by the cut-rate and 
   department stores," and therefore are "unwilling to, and do not 
   keep" the medicines "in stock," or, "if kept in stock, do not urge 
   or favor sales thereof, but endeavor to foist off some similar 
   remedy or substitute, and from the fact that in the public mind an 
   article advertised or announced at 'cut' or 'reduced' price from 
   the established price suffers loss of reputation and becomes of 
   inferior value and demand." (3) 

Dr. Miles Medical's arguments were insufficient to overcome the Court's determination that "no distinction can properly be made by reason" from illegal price fixing. The Court also was not swayed by Justice Holmes's dissenting observation that

 
   by a slight change in the form of the contract, the plaintiff can 
   accomplish the result in a way that would be beyond successful 
   attack. If it should make the retail dealers also agents in law as 
   well as in name, and retain the title until the goods left their 
   hands, I cannot conceive that even the present enthusiasm for 
   regulating the prices to be charged by other people would deny that 
   the owner was acting within his rights. (4)