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Consumer protection collided with modern economic theory yesterday as the Supreme Court wrestled with a 96-year-old standard intended to promote competition. At issue is a 1911 Supreme Court ruling that is based on an assumption that any agreement between a manufacturer and stores to set minimum retail prices for products is almost always anti-competitive.

Not so, said Washington attorney Theodore Olson, representing a manufacturer of women's accessories.

The idea that such agreements are automatically illegal is "outdated, misguided" and the restriction itself is anti-competitive, Olson argued.

The case stands at the intersection of discount chains and such niche retailers as Kay's Kloset in Texas, which lowered its prices below an agreed-upon minimum with manufacturer Leegin Creative Leather Products Inc. Leegin cut off its shipments to the family owned business when Phil and Kay Smith refused to raise their prices.

Leegin said that by maintaining price consistency among its retailers, stores can offer improved customer service. The extra service, said the manufacturer, enables smaller stores to compete against rival brands sold by bigger cut-rate competitors.

If the old standard is abandoned, what about the argument that every American will pay far more, asked Justice Stephen Breyer.

Representing the Bush administration, Deputy Solicitor General Thomas Hungar said that there is a consensus among economists that such agreements are not necessarily anti-competitive.

Consumers "want other things besides cheap," said Justice Antonin Scalia. Some consumers prefer more service at a higher price, said Scalia, and the fact that such price-floor agreements might raise prices "does not prove anything."

The Smiths successfully sued Leegin, and the 5th U.S. Circuit Court of Appeals affirmed the jury's finding that Leegin and its retailers agreed to fix retail pric-es on the manufacturer's Bright-on brand.

If Leegin can get the 1911 Supreme Court ruling overturned, it would be much more difficult for the Smiths to prevail because they would have to show that the Leegin agreement is anti-competitive.


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