DECEMBER 7, 2006
Today the Supreme Court granted certiorari in two cases of
interest to the business community.
Antitrust
Law—Implied Immunity. This case concerns the application of
the implied immunity doctrine to antitrust complaints based on
the conduct of investment banks and institutional investors
during initial public offerings. The Supreme Court granted
certiorari in Credit Suisse First Boston Ltd. v. Billing,
No. 05-1157, to decide whether immunity should be implied from
the antitrust laws where the complaint challenges conduct that
is actively regulated by the SEC and creates the potential for
conflict with the federal securities laws.
Plaintiffs, who purchased stock issued by
internet and technology companies during the late 1990s, filed
putative class actions against sixteen investment banks and
institutional investors, seeking treble damages under the
antitrust laws. Plaintiffs allege that the banks violated the
Sherman Act by conspiring to require investors in IPOs to pay
certain “anti-competitive charges” in addition to the IPO
price—requiring investors to buy the security in the aftermarket
at escalating prices or to buy other less attractive
securities—and that the institutional investors engaged in
commercial bribery in violation of the Robinson-Patman Act by
paying those charges. Agreeing with an amicus brief submitted by
the SEC and rejecting the Justice Department’s contrary
position, the district court dismissed the complaints under the
implied immunity doctrine. The court noted that much of the
challenged conduct—including the collaboration of banks in
underwriting “syndicates”—is permitted by the securities laws.
Moreover, the SEC has actively regulated the anti-competitive
charges alleged by plaintiffs, creating the potential for
conflict between the securities laws and plaintiffs’ antitrust
complaints. The Second Circuit reversed, holding that immunity
could not be implied because there was no evidence that Congress
intended to repeal the antitrust laws with respect to the
specific anti-competitive charges alleged here. In an amicus
brief supporting the petition for certiorari, the Solicitor
General argued that immunity should be implied from the
antitrust laws when, as here, plaintiffs base their claims on
conduct that is either permitted under the securities laws or is
inextricably intertwined with such permissible conduct.
This case is important to all businesses
involved in the public offering of securities. If the Second
Circuit’s decision is upheld, it would allow plaintiffs to seek
treble damages while evading the strictures of the Private
Securities Litigation Reform Act by repackaging securities
claims under the antitrust laws. The threat of massive treble
damages awards would in turn render virtually meaningless the
nuanced distinctions drawn by the expert agencies and chill
conduct that is essential to the formation of capital in the
United States.
Mayer Brown Rowe & Maw LLP is counsel of record
for the petitioners in this case. Amicus briefs in support of
the petitioners will be due on January 22, 2007, and amicus
briefs in support of the respondents will be due 35 days from
the date petitioners file their opening brief. Any questions
about this case should be directed to Tim Bishop (312-701-7829)
in our Chicago office.
Sherman Act—Vertical Maintenance of a Minimum
Resale Price. Almost a century ago, the Supreme Court held
that an agreement between a manufacturer and its retailers
establishing a minimum resale price for the manufacturer’s
products constitutes a per se violation of the Sherman
Act. See Dr. Miles Medical Co. v. John D. Park & Sons Co.,
220 U.S. 373 (1911). In the 1960s, the Court announced similar
per se rules regarding the illegality of vertical maximum
pricing agreements and vertical nonprice restraints. See
Albrecht v. Herald Co., 390 U.S. 145 (1968); United
States v. Arnold, Schwinn & Co., 388 U.S. 365 (1967). In
1977 and 1997, however, the Court overturned Schwinn and
Albrecht based on economic research showing that vertical
agreements affecting intrabrand competition often have
procompetitive effects on interbrand competition. See State
Oil Co. v. Khan, 522 U.S. 3 (1997); Cont’l T.V., Inc. v.
GTE Sylvania Inc., 433 U.S. 36 (1977). The Supreme Court
granted certiorari in Leegin Creative Leather Products, Inc.
v. PSKS, Inc., No. 06-480, to decide whether to overturn—in
whole or in part—the Dr. Miles rule establishing the
per se illegality of vertical minimum price maintenance.
Leegin Creative Leather Products, Inc., is a
small, family-owned business that manufactures women’s
accessories and retails its products exclusively in boutique
stores. In 1997, Leegin entered into price maintenance
agreements with its retailers. Through such agreements, Leegin
says, it hoped to encourage its retailers to obtain increased
resale profits that they could then invest in Leegin product
promotion and customer service, thereby increasing the
manufacturer’s share of the crowded women’s accessories market.
One of Leegin’s retailers, PSKS, Inc., sued Leegin under the
Sherman Act. The district court, in an unpublished decision,
held that Dr. Miles not only prevented Leegin from claiming at
trial that its policy promoted interbrand competition, but also
required the trial court to instruct the jury that Leegin’s
retail policy was per se illegal. The Fifth Circuit
affirmed. PSKS, Inc. v. Leegin Creative Leather Products,
Inc., 171 Fed. Appx. 464, 466 (5th Cir. 2006).
This case is important to all businesses that
would profit from entering into vertical price maintenance
agreements, as well as all businesses that might be affected by
a competitor’s attempt to grow its share of the marketplace
through such agreements. If Leegin prevails, many or all
vertical price maintenance agreements would be reviewed under
the so-called “rule of reason,” which asks courts to evaluate on
a case-by-case basis whether a given contract or business
arrangement is unreasonable and anticompetitive. See, e.g.,
Texaco Inc. v. Dagher, 126 S. Ct. 1276 (2006)
Amicus briefs in support of the petitioner will
be due on January 22, 2007, and amicus briefs in support of the
respondents will be due 35 days from the date petitioners file
their opening brief. Any questions about this case should be
directed to appellate@mayerbrown.com.
--------------------------------------------------------------------------------
We have attached two documents to this Docket
Report that we hope our readers will find interesting. The first
is an article by Andy Frey, a partner who splits his time
between our New York and Washington offices, entitled
Amici Curiae: Friends of the Court or Nuisances? In this
piece, which was recently published in the ABA journal
Litigation, Andy espouses a liberal view toward the allowance
and consideration of amicus briefs. The second is an interview
conducted by Judge Jeffrey Cole with Steve Shapiro, a partner in
our Chicago office. Entitled
The Art of Appellate Advocacy, this interview was
recently published in Circuit Rider, the journal of the
Seventh Circuit Bar Association.
