JUSTICES EASE RULE ON SETTING TOP PRICES; HIGH COURT OVERTURNS ANTITRUST RESTRICTIONS.

Byline: Linda Greenhouse The New York Times

In one of its most important antitrust decisions in years, the Supreme Court ruled unanimously Tuesday that a manufacturer or supplier does not necessarily violate federal antitrust law by placing a ceiling on the retail price a dealer can charge for its products.

The ruling overturned a much-disputed 29-year-old precedent that regarded limits on retail markups as illegal price-fixing, a violation of the Sherman Antitrust Act.

No manufacturers announced any immediate plans to test the ruling, and it is unclear how soon the change might be felt by consumers because the legality of markup limits will now be determined case by case. Some consumer advocates said the court simply shifted some power away from retailers in a decision that could result in diminished competition. But the court's action was widely welcomed by manufacturers, who said it could lead to lower consumer prices eventually.

Under the ruling, for example, automakers, freed to limit markups on popular models, might be able to keep dealers from selling them for more than the amount listed on the sticker. Computer manufacturers might be able to prevent retailers from charging exorbitant prices on hot-selling machines.

``We see this as pro-consumer; this will help to ensure that the benefits of a manufacturer's pricing will be passed on to consumers,'' said Max Gates, a spokesman for the American Automobile Manufacturers Association in Washington.

Writing for the court, Justice Sandra Day O'Connor said there was ``insufficient economic justification'' for prohibiting the practice known as resale price maintenance. A manufacturer's inability to limit markups, she wrote, actually can harm consumers by leading to higher prices and to monopoly behavior by dealers who serve exclusive territories.

O'Connor also noted that it remained illegal for manufacturers to impose minimum prices on dealers - a version of price-fixing that is still automatically prohibited.

The decision grew out of a lawsuit by a gasoline dealer against his supplier, which had sought to limit prices by requiring the dealer to rebate to the supplier any excess over the allowed markup of 3.25 cents a gallon.

Reflecting the stakes involved, an unusually high number of briefs were filed on both sides of the case, State Oil Co. vs. Khan. Organizations including the American Automobile Manufacturers Association, the National Association of Manufacturers and the Business Roundtable, representing the chief executives of 200 large corporations, all urged the court to overturn the 1968 precedent.

The Justice Department and the Federal Trade Commission also urged the court to overturn the 1968 ruling, Albrecht vs. Herald Co. Joel Klein, the assistant attorney general for antitrust, told the court the ruling had done ``considerably more harm than good.'' Ceilings on prices are ``likely to be pro-competitive,'' Klein said during the argument, which took place Oct. 7.

For the court to issue a decision of this significance less than a month after the argument indicates the justices' confidence in repudiating a categorical approach to antitrust law, which already had been deeply eroded in other contexts. For example, in 1977 the court overturned another important antitrust precedent and ruled that a manufacturer's use of exclusive dealer territories did not automatically violate the Sherman Act.

In contrast to the prior rule, which made all markup limits illegal, Tuesday's ruling means such limits will be evaluated by the federal courts under what is known as the rule of reason, which requires a case-by-case examination of the economic and competitive impact.

In other words, the decision Tuesday does not automatically validate all markup limits. The permissible boundaries will be defined gradually as the federal courts decide cases brought by disgruntled retailers.

The American Petroleum Institute, the trade group representing the oil industry, noted in welcoming the ruling that the decision did not mean markup limits were necessarily lawful. But the group said the ruling ``does give the suppliers additional leeway in assuring that their products are marketed in a competitive manner.''

On the retailers' side, organizations of automobile and gasoline dealers as well as the attorneys general of 33 states filed briefs urging the court to hold the line. The Service Station Dealers of America, representing gasoline retailers in 14 states, told the court that abandoning the absolute rule against setting maximum prices would give suppliers ``coercive power over existing franchisees and dealers.''

The states' coalition, led by New York and including Connecticut and New Jersey, told the court that any retreat from its historical ``condemnation of all forms of price-fixing'' would inevitably ``launch buyers and sellers in all markets, now governed by clear rules of conduct, upon a sea of doubt.''

The decision Tuesday overturned a 1996 ruling by the 7th U.S. Circuit Court of Appeals, in Chicago. That court ruled reluctantly that a gasoline supplier's effort to set maximum allowable retail prices was an antitrust violation. The appeals court said that while the Supreme Court's 1968 precedent was ``unsound when decided'' and ``inconsistent with later decisions,'' lower courts had to follow the law until the justices themselves overruled it.