Right to private contract

In a less-heralded but equally significant 5-4 decision, the Supreme Court on Thursday expanded the right to private contract by overturning a nearly century-old decision that had prevented manufacturers from mandating minimum product prices for retailers.

Way back in 1911, the high court held that such pacts were tantamount to price fixing and violated newly passed federal antitrust law. Since then, the American economy has changed in ways that were inconceivable at the turn of the 20th century. Not only do consumers have a multitude of choices for most every household staple, hundreds of new products land on store shelves every year. And buyers have dozens of options in how and where to purchase them.

Despite this explosion in consumer choice, it has remained illegal for a manufacturer to sell its product to a retailer with a condition that it be priced at a minimum or specific amount.

California-based Leegin Creative Leather Products Inc. entered such agreements with several retailers in Dallas for Brighton brand women's fashion accessories. When some of these retailers broke their agreements and lowered their prices below what Leegin demanded, the company cut off its supply. One store, Kay's Kloset, sued and prevailed in lower court under the 1911 precedent.

But the Supreme Court wisely overturned that decision, holding that companies are free to enter such contracts at their own peril. If a retail store owner familiar with his customer base and existing inventory believes that a certain product won't sell at a mandatory minimum price, he can simply choose to not stock that product and do business with competing manufacturers.

If enough retailers determine that the market won't support what a product maker is demanding, the manufacturer will have no choice but to bring down its price or go out of business.

It's certainly possible that consumers could see the costs of some goods increase as a result of this ruling. If that happens, they can cast their own vote in the case -- with their pocketbook -- by sticking with the brand or buying something else they deem of greater value.

It's encouraging to see the Supreme Court embrace free-market economics in an age of hypercompetitive global commerce, when companies everywhere are developing new and better ways to make and deliver their products. Thursday's ruling was a victory for American businesses and consumers.