THE LAW : Despite Court Rulings, States, Discounters Fight Price Fixing

Should the nation’s big manufacturing firms and higher priced retailers be able to fix minimum prices for products--and then prevent discount stores from selling name-brand items at cut rates?

The issue raises basic questions of economic philosophy and fairness. But the answers have practical consequences for consumers. By some estimates, as much as $20 billion a year may be at stake for consumers of everything from computers and cameras to toys and running shoes.

BACKGROUND: Consumer advocates contend that manufacturers and large retailers have been conspiring for years to prevent competitors from discounting name-brand products, sometimes threatening to cut off supplies to stores that do not agree to meet prescribed minimum prices.

And recent Supreme Court rulings have made it more difficult for consumer groups and state officials to challenge price fixing in court. In order to make price-fixing accusations stick, the high court has held, the accuser must prove that the two parties actually conspired to fix a particular price--not just that they cooperated to prevent discounting in general.

In one recent case, for example, Kids “R” Us filed suit against Macy’s, charging that buyers for the department store chain had pressured a manufacturer by threatening to stop selling a brand of children’s swimsuits if Kids “R” Us were permitted to sell the same suits for less.

A New York judge dismissed the suit because the discounter could not prove that Macy’s and the manufacturer had agreed to fix a particular price--the test set by the U.S. Supreme Court.

BATTLE LINES: Now, the issue is being pressed on two fronts.

Consumer advocates and officials in a number of states are fighting back, despite what they see as the legal handicap imposed by the high court. And they have had some success. Last month, Nintendo of America, in settling charges by the Federal Trade Commission and 39 states, agreed to offer customers up to $25 million in rebates to settle charges that it had threatened discounters who refused to charge at least $99.99 for its “Super Mario Brothers” video game.

Aggressive state attorneys have won other victories: Last January, New York state Atty. Gen. Robert Abrams got Panasonic Co. to refund $16 million to his state’s consumers in settlement of complaints that it had bullied retailers into propping up prices. In March, Mitsubishi Electronics agreed to refund about $9 million to consumers in Maryland and New York to settle price-fixing charges.

Potentially more significant, Congress is considering legislation that would overturn the high court rulings, making it easier for discounters or prosecutors to charge big companies with price fixing.

In mid-May, the Senate passed such legislation. The House is expected to approve a similar measure later this summer. Supporters argue that price fixing means consumers have fewer choices than they otherwise would--and must pay higher prices to boot.

But manufacturers argue that they should be permitted to control the marketing of their products, even if it means dropping some discounters. They insist that they cannot conspire to inflate prices--because competing firms would steal the business.

And Bush Administration officials have hinted that the President will veto an anti-price-fixing bill.

James F. Rill, head of the Justice Department’s antitrust division, complained that the bill would permit findings of conspiracy and price fixing “where no one has conspired and prices have not been fixed.”

THE OUTLOOK: Highly uncertain.

Sen. Howard M. Metzenbaum (D-Ohio) and other sponsors of the pending legislation would be hard-pressed to round up enough votes to override a presidential veto.

On the other hand, some Senate aides think the President and his political advisers may get second thoughts. Said one: “This bill has real pocketbook appeal for the average American.”