updated 6/28/2007 12:07:00 PM ET 2007-06-28T16:07:00

The Supreme Court on Thursday abandoned a 96-year-old ban on manufacturers and retailers setting price floors for products.

In a 5-4 decision, the court said that agreements on minimum prices are legal if they promote competition.

The ruling means that accusations of minimum pricing pacts will be evaluated case by case.

The Supreme Court declared in 1911 that minimum pricing agreements violate federal antitrust law.

Supporters said that allowing minimum price floors would hurt upstart discounters and Internet resellers seeking to offer new, cheaper ways to distribute products.

The principle that past decisions should be left alone “does not compel our continued adherence” in this instance, Justice Anthony Kennedy wrote.

Respected authorities in the economics literature suggest that the long-standing decision “is inappropriate, and there is now widespread agreement” that price floors can help promote competition, Kennedy added.

“The only safe predictions to make about today’s decision are that it will likely raise the price of goods at retail,” Justice Stephen Breyer wrote in dissent.

It is the fourth antitrust ruling by the court in the last four months. In each instance, the court sided with defendants that were sued for anticompetitive conduct, including Wall Street investment banks and an international forest products company.

In recent decades, the Supreme Court has chipped away at what many economists traditionally regarded as vital consumer protections against anticompetitive conduct. For example, exclusive dealer territories and setting price ceilings are no longer automatically unlawful.

The current case involves Leegin Creative Leather Products Inc., based in City of Industry, Calif. The company entered agreements with retailers setting minimum prices for the Brighton brand of women’s fashion accessories.

Leegin said that by maintaining price consistency among niche retailers it sells to, businesses can offer improved customer service. This enables smaller stores to compete against rival brands sold by discounters, Leegin argues.

Several retailers in Dallas selling Leegin’s products lowered prices below the minimum. Family-operated Kay’s Kloset said it followed suit to stay competitive. Phil and Kay Smith say that when they refused to raise prices back up, Leegin cut off their supply.

Kay’s Kloset sued and the Smiths won a $3.6 million judgment following a trial that laid out details of the price floor arrangement between Leegin and many of its retailers. The 5th U.S. Circuit Court of Appeals upheld the lower court’s finding.

Joining Kennedy in the majority were Chief Justice John Roberts and Justices Antonin Scalia, Clarence Thomas and Samuel Alito. With Breyer in dissent were Justices John Paul Stevens, David Souter and Ruth Bader Ginsburg.

The case is Leegin v. PSKS, 06-480.

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