Leegin says that by maintaining price consistency among niche retailers it sells to, stores can offer improved customer service. That, says the manufacturer, enables smaller stores to compete against rival brands sold by bigger cut-rate competitors.
At issue is whether price floors such as Leegin's always should be treated as illegal or evaluated case by case to see if they are pro-competitive.
The Smiths say they lowered prices by up to 20 percent because several other retailers selling Leegin's Brighton brand also were lowering prices. The Smiths say they and the competing stores were threatened by Leegin with being cut off unless they raised their prices again. Alone among the threatened stores, the Smiths refused to cave in.
"When Leegin stopped shipping to us, my wife and I lost half our business," Phil Smith said in an interview. "Kay and I are back to the same size store we started with 21 years ago."
Discounters and consumer groups say consumers will suffer if the Smiths lose.
"In the Internet age, this is a dagger at the heart of the most consumer-friendly environment we've seen in generations," said Mark Cooper, a spokesman for the Consumer Federation of America.
"Would there ever have been a Sears & Roebuck, an A&P, a Walgreens, a Kmart or a Wal-Mart" absent a ban on minimum pricing agreements? the federation asked in court papers filed in support of Kay's Kloset.
In Leegin v. Kay's Kloset, the Bush administration says it is inappropriate to automatically prohibit price floor agreements when they are not necessarily anticompetitive.
Thirty-seven state attorneys general oppose the administration.