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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.

Mayer Brown Supreme Court Docket Reports provide information and comments on legal issues and developments of interest to our clients and friends. They are not a comprehensive treatment of the subject matter covered and are not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed.

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