*1 v. INC. UNITED ENTERPRISES, FORTNER STEEL CORP. STATES et al. April 7, January 1969. Argued 23, 1969. Decided
No. 306. *2 Kenneth L. argued petitioner. Anderson cause Hamilton, With him on the A. briefs was Scott Jr. Macdonald Flinn argued respondents. the cause for Reutlinger, With him on the Albert brief were F. L. L. Lewis, William H. Buchanan. and
Mr. Justice Black opinion delivered the the Court. This case raises a variety questions concerning the proper applied by standards to be a United States in district court passing summary a motion for judgment in a civil Petitioner, antitrust action. Fortner Enterprises, Inc., filed this suit treble seeking dam- injunction ages against and alleged violations of 1 and Act, 209, §§ Sherman 26 as amended, Stat. C. complaint charged §§ 2. The re- United spondents, Corp. States Steel and its wholly owned subsidiary, United States Steel Homes Credit Corp., engaged contract, combination, had conspiracy monopolize and to trade restrain trade prefabricated alleged the sale of houses. It that there continuing agreement respondents was between “to corporations force individuals, including plain- availing as a condition tiff, themselves of the services Corporation, United States Steel Homes Credit purchase artificially high prices only States United Steel Homes . .” Specifically, . . claimed totaling order to obtain loans over $2,000,000 from the Corp. Credit for the and development certain land the Louisville, Kentucky, area, it had been required agree, as a condition of the loans, to a prefabricated erect house manufactured S. Steel on each of the purchased lots loan proceeds. *3 Petitioner claimed that prefabricated materials were by then supplied unreasonably Steel high prices S. proved and to be defective unusable, thus requiring the expenditure of additional delaying sums and completion development. date sought Petitioner damages treble profits along for the thus lost, with a enjoining respondents decree from enforcing the require- ment of loan agreement that petitioner only use houses manufactured U. S. Steel. pretrial proceedings
After in which a number of affi- davits and answers to interrogatories were filed, the District Court summary entered judgment for respond- holding ents, petitioner’s allegations that had failed to any question raise of fact as a possible violation of Noting antitrust laws. that agreement involved essentially here was a tying arrangement, under which the purchaser was required to take tied —here prefabricated homes —as a condition of being allowed purchase the tying product credit, the District —here Judge petitioner held that had failed to pre- establish the requisites illegality under our tying namely cases, and fore- tying product over the
sufficient in the tied volume of commerce of a substantial closure opin- without Appeals Court of affirmed product. The (1968). granted certiorari, we ion, and summary sustaining judg- no basis for this we find Since proceed reverse and order that the case ment, we trial. agree with the Court the conduct
We
District
primarily
here
involves a
challenged
tying arrangement
Corp.
traditional kind. The Credit
sold its
only
on the condition
of prefabricated
certain number
houses from the
Homes Division of U. S. Steel. Our
have made
cases
clear
at least when
that,
certain
are
prerequisites
met,
arrangements of this
illegal
kind are
them-
selves,
specific
and no
showing of unreasonable competi-
required.
tive
Northern
effect
discussion
States,
R. Co. v. United
.“. . Where [tying] conditions are successfully *4 competition exacted on the merits with respect to the product tied is inevitably curbed. Indeed 'tying agreements hardly serve any purpose beyond the suppression of competition.’ Standard Oil Co. of States, v. United 337 U. S. 293, 305-306. California They deny competitors free access to the market for the tied product, not because party imposing the tying requirements has a better product or a lower but because of his or leverage buyers At time are market. the same another forego competing their free choice between forced to agreements fare products. ‘tying For these reasons forbidding harshly under the laws restraints Publishing Times-Picayune Co. United v. trade.' States, They 345 U. S. 606. are unreasonable party in and of themselves whenever a sufficient has with respect economic to the appreciably competition restrain free market for the tied a ‘not insubstantial’ Inter- amount of interstate commerce is affected. States, national Salt Co. United 392.” v. (Footnote omitted.)
Despite recognition its of this standard, strict District Court held that not made had even jury. respondents out case for the The court held that not power” did have “sufficient economic over credit, although product here, because the Credit Corp.’s evidently terms made the loans attrac- uniquely tive petitioner, petitioner proved had not Corp. enjoyed Credit unique same attractiveness respect economic control with to buyers generally. The court also held that the amount of interstate commerce affected was “insubstantial” only because very percentage small of the land available devel- opment in the area competing was foreclosed to sellers of prefabricated houses by the petitioner. contract with We think plain that the District Court misunderstood the two controlling standards and misconceived the authority extent its to evaluate the ruling evidence in on this summary motion for judgment. preliminary
A error that should pass unnoticed is the District Court’s assumption that the two prerequisites mentioned in Northern are standards that peti- Pacific tioner must meet order to prevail on the merits. On the contrary, these standards necessary only are bring
500 Where the illegality. per se the doctrine play
into Pacific, Northern found satisfied were standards States, 332 United Salt Co. v. International and summary approved (1947), this Court 392 U. S. no means by but defendants against judgment would these standards inability satisfy that implied pre still plaintiff case. A can plaintiff's be fatal to a on the prove, he can basis whenever vail the merits on and purposes thorough examination of of a more general that stand practices involved, effects violated. Accord Act have been ards of the Sherman agree with District Court if we could even ingly, were not satisfied Northern standards Pacific summary still here, against petitioner judgment further examination not be entered without could allegations con respondents petitioner’s general restraining together purpose competi for the spired monopoly for pre acquiring tion and such an examination could houses. And fabricated judgment to a rarely justify summary respect claim as we in Poller v. Columbia kind, for said Broad casting, (1962): that summary procedures “We believe should be used sparingly complex litigation antitrust where play leading motive intent proof and roles, largely in the alleged the hands of and conspirators, only plot. hostile witnesses thicken the It is when present the witnesses are subject cross- credibility examination that their the weight given testimony to be their appraised. can be Trial is no by jury affidavit substitute for trial which long so has been the hallmark of ‘even handed ” (Footnote justice.’ omitted.) need not consider, We however, whether general entitled a trial this more theory, for it is that petitioner questions clear raised of fact which, *6 tying arrangement bring this trial, would proved The require se doctrine. scope per of the within the commerce insubstantial” amount of ment a “not that any to of scope makes no reference be involved of fore or to the share particular market that by approve not of and hence we could tie, closed conclusions on issue even if we judge’s the trial agreed that his definition of the relevant market was the analysis An proper might of market shares become one.1 alleged apparently relevant it were an that small a actually represented dollar-volume business substan part competitors tial for which bidding. sales were normally controlling But simply consideration is a whether total amount business, enough substantial in terms of dollar-volume so as not to merely be de min- imis, is foreclosed to competitors by tie, we as in Salt, said se, International it is “unreasonable, per competitors foreclose any substantial market” by arrangement, 332 S.,U. at 396. complaint and affidavits filed here no leave room
for doubt that the volume of commerce fore allegedly closed was substantial. It true, respondents claim, petitioner’s purchases annual of houses from under the tying arrangement Steel never exceeded agreements obligated Since the loan to erect houses by manufactured TJ. S. Steel acquired, judge on the land the trial thought percentage relevant foreclosure was the of the undevel oped county longer open land that was no for sites on which by competing producers homes made appar could be This built. ently insignificant was availability But of course the .00032%. of numerous vacant lots on which might legally houses be erected would competing producers be small consolation once the eco nomic demand for pre-empted by houses had been respondents. It plain significant seems figure that the most percentage with reference to the tied percentage is the houses, annual sales of prefabricated houses, the area that was foreclosed to other competitors by tying arrangement. $500,000 was in annual sales while more than
$190,000, Inter illegal held tying arrangement involved Salt, respondents agree national but we cannot paltry or “insubstantial.” $200,000 a sum of almost on the volume commerce event, narrow focus in suit or contracts particular contract foreclosed special As the appropriate would not be this context. plain to successful provision damages treble awarding encouraged private tiffs antitrust illustrates, Congress has who have been litigation merely compensate those public important injured but also vindicate directly *7 v. free Perma competition. in interest See Life Mufflers (1968). Corp., 134, 138-139 International Parts 392 of whether the purposes determining For of amount pro warrant foreclosed is too insubstantial commerce therefore, figure relevant practice, of the the hibition under by policy tied the sales is the total volume sales by for portion not the of this total accounted challenge, particular plaintiff the who In International brings suit. of tied $500,000 represented Salt total the volume the although this amount was purchasers, sales to all the brought by involved because the case was directly the the case practice Government against generally, scrutiny no less worthy judicial would have been purchaser one individual who brought had been for a in tied sales. only $500,000 accounted fraction present case, In the the annual fore allegedly sales by respondents’ arrangements throughout the tying closed in country $4,000,000 1960, totaled almost more than $2,300,000 $2,800,000 almost 1962. These scarcely amounts could be regarded as insubstantial. not, The standard of “sufficient does power” economic District held, require Court the defendant have or even dominant monopoly position a throughout product. for the market have Our tie-in cases unmistakably made clear that power economic over the tying product can be sufficient even power though falls far short of dominance and even though power exists only respect to some of the buyers See, g., Salt; market. e. International Pacific; Northern Inc., United States v. Loew’s (1962). U. S. 38 As we said in the Loew’s case, U. S., at 45: “Even absent showing market dominance, the crucial economic power may be inferred from product’s the tying desira- bility to consumers uniqueness its attributes.”
These decisions rejecting the need proof of truly power dominant over the have all been based on a recognition that because tying arrangements generally serve no legitimate purpose business that cannot be achieved in some less restrictive way, presence any appreciable competition restraint on provides a suffi- cient reason for invalidating the appreciable tie. Such restraint results whenever the seller can power exert some over some of the buyers in the market, even if his complete is not over them and over all other buyers market. fact, complete dominance throughout the market, concept ap- District Court parently had in mind, would never exist even under a pure monopoly. Market is usually stated to be *8 the of ability a single seller to raise price and restrict out- put, for reduced output is the almost inevitable result of prices. higher Even complete a monopolist can sel- dom raise price his without losing some sales; many buyers will buy cease to product, the or buy less, the as price rises. power Market is therefore a source of serious concern for essentially the same reason, regardless whether the seller has the greatest power economic pos- sible or merely some lesser degree of appreciable eco- power. nomic In both instances, despite the freedom of some or many buyers from the seller’s power, other buyers few or many, whether scattered through- —whether part out the market or of some group within the market— of their price because accept higher can be forced to and seller could preferences product, for the stronger tying to a accept force them choose instead to therefore for competition free prevent that would arrangement Ac- product. in the market for the tied patronage their of concern is whether cordingly, proper focus or bur- impose other prices, has the raise seller any tie-in, respect with terms such a densome buyers number of within market. appreciable entitle put by clearly forward affidavits under standard. A construction day it to its in court competitors S. president of U. company stated prefabricated sold houses built conventional Steel price S. $400 for at least less than U. Steel’s homes freely situ- competitive models. Since a comparable buyers a obli- accept arrangement ation would not buy price higher them a tied gating going price this substantial differ- rate, than respect (prefabricated to the tied ential houses) respondents itself had suggest special economic some credit market. petitioner’s B. addition, president, Fortner, A. stated accepted respondents’ that he condition on solely provide the offer to financing, loan because 100% lending equal amount to the full acquired, unusually the land to be uniquely was advantageous him. found that no financing He such any corporation cheap was available to his terms such any from other source during period. 1959-1962 supported by His views on this were president company area, finance the Louisville who stated type advantageous an affidavit that the financing plan offered U. S. Steel “was available to Fortner Enterprises potential or other from or borrower through Mortgage Louisville Service Company *9 through any mortgage or other institution or lending company period.” to knowledge during this affiant’s do accept petitioner’s apparent
We not mean to argu- ment that simply market can be inferred because the kind of lending terms offered a financing company “unique are and mean, unusual.” We do however, uniquely unusually terms advantageous can reflect unique a creditor’s economic over his advantages com- petitors.2 summary judgment Since in antitrust cases Poller, disfavored, supra, uniqueness claims this case should read in be most favorable to light petitioner. well They could mean that U. S. Steel’s subsidiary Corp. Credit had unique a economic ability provide financing at cheap rates. affidavits 100% show that for a no three-to-four-year period other financial in the institution willing Louisville area was match the special credit terms and rates of interest available from U. Steel. possibility S. Since the of a decline in property values, along with the difficulty recovering full value in sale, foreclosure makes desirable for creditor obtain collateral greater value than the loan it secures, unwillingness competing financial institutions in the area to offer 100% financing probably reflects their they could feeling not profitably money lend on the risks involved. U. S. subsidiary Corp., Steel’s Credit on the other hand, may 2 Uniqueness power only competitors confers economic other when way prevented offering are some product the distinctive may legal, themselves. Such patented barriers be case copyrighted g., products, Salt; Loew’s, e. International physical, land, g., as when the e. Northern It is Pacific. true that also economic, competitors barriers as when simply produce are unable product profitably, the distinctive but uniqueness confusing test such situations is somewhat since real source of economic is not the itself but advantage rather the in producing seller’s cost it.
506 competitive advantage had a substantial
well have of economies financing of because type this providing operations. character of its from the nationwide resulting competitors such as banks and addition, potential In prohibited may have been and loan associations savings federal by state or law.3 offering financing from 100% and affidavits pleadings circumstances the Under these power of over possibility the market sufficiently disclose go market to entitle to borrowers the credit on this to trial issue. allegations of that these will may be, course,
It also trial. goes when the case to It not be sustained here turn that the involved serves arrangement out purposes and that Steel’s sub- legitimate business competitive in the sidiary advantage does not have on us it credit market. But the record before would be to reach such conclusions as a matter of impossible speculate it is our to as the law, and function ultimate of fact. We therefore conclude that findings by petitioner was on showing made sufficient issue. given respond- should also be
Brief consideration argument unique even if ents’ additional that their kind financing economic of reflected credit if a market, and even substantial volume commerce affected, arrangement credit involving was should held under normal tie-in illegal principles. not be support respondents of this, suggest every that sale argue effect involves a tie. They offering simply of favorable credit terms a form of price competition equivalent offering com- parable price product. reduction cash tied they not, say, deprived Consumers should of such 3 g., e. 24, See, Federal Reserve Act amended, Stat. § §371; (c). S. C. 12 CFR §545.6-14 advantageous they no harm services, suffer because they buy tangible product can with credit obtained elsewhere the combined of the seller’s credit- product package is than less favorable the cost purchasing components separately.
All of respondents’ arguments essentially amount the same opinion namely, will somehow claim — prevent who those manufacture ever goods selling *11 them credit. But our will holding this case have no is, such effect. There at the outset of every tie-in the case, familiar including cases involving physical goods, problem the of determining prod- whether two separate are in ucts fact In involved. the usual sale on credit the seller, a or single corporation, individual simply makes agreement determining when and how much he will paid product. be for In his such a sale may the credit inseparable constitute such an part price for the item that entire transaction could be only product. considered to involve a single It will be pass time on the enough issue of credit sales when a case involving actually arises. as Sales such that are a cry far from the arrangement involved here, where the credit provided one corporation on condition product purchased separate corporation,4 a a and where the borrower contracts obtain large a sum money over and above that needed pay the seller the physical products purchased. for Whatever determining standards for exactly when a transaction only “single involves a product,” we cannot see how an arrangement present as such in this case could ever only single be said to involve product. 4 S., 141-142; Mufflers, Cf. 392 U. v. Perma Timken Co. Life (1951); 593, U. 341 S. 598 v. States, United Co. Kiefer-Stewart 211, (1951); 215
Seagram Sons, 340 U. S. United States v. Yellow & (1947). Co., S. Cab serve respondents’ arguments
Nor anything does goods kinds of from other distinguish credit products, services, may, tying when used all of which markets and to new extend the economic seller’s The asserted product. the tied competition foreclose essen- tie of credit are not justifications business ad- that can be from the tially justifications different service product is some other tying vanced when the terms commodity. advantageous Although in the tied competition form of price be viewed as a product on tying other product, so is the offer seller can instances, advantageous terms. both eco- extending his his without alleged purpose, achieve tied power, by simply reducing nomic product itself.5 when essentially the same potential harm is also may have buyer credit. The but commodity separately, tangible
choice of buying his over as in can use other cases the seller would otherwise to win customers that *12 pro- to competing have available constituted market “ on the merits product. ompetition tied ducers [C] inevitably respect with to the tied is curbed.” product Pacific, Northern 6. Nor can it be assumed S., 356 U. product money is needed that because the involved purchase, not have been able buyer finance a would purchase else without seller’s at- anyone buyer might pref- tractive credit. A have a strong eliminate erence a seller’s credit because would lay personal the need for him to out borrow from funds, relatives, put up collateral, additional obtain guaran- product Where reductions the tied are made difficult practice by market, in the structure of that the seller can still objective by offering fringe alleged his achieve other kinds of benefits over he no power. has economic which tors, expedients but of these have been chosen might purchase producer to finance a from a if the competing seller captured had not the sale means of his arrangement.
In addition, for the entry barriers tied are since, raised order to sell to certain buyers, a new not company only must be able to manu- facture tied but also must have sufficient financial strength comparable pro- offer credit to that by larger competitors vided tying arrangements. under If larger companies have achieved economies scale in their credit operations, they can of exploit course these legitimately by economies lowering their credit charges to consumers who only, credit but econ- omies in financing not, any should more than economies in other business, lines of be used to exert economic power over other products company produces no more efficiently competitors. than its
For all these reasons we can find no for treating basis differently principle from goods other and serv- Although ices. money fungible is a commodity —like or, wheat for that matter, unfinished steel —credit mar- kets, like other are markets, often imperfect, and it easy to see big company how a money vast sums of treasury its could wield very substantial in a credit market. Where this true, tie-ins involving credit can cause all the evils that the always antitrust laws have been intended to prevent, other crippling companies that are equally, more, efficient in their own producing products. Therefore, same inquiries must be made as to economic power over the tying product and sub- stantial effect the tied market, but where these factors *13 present special are no treatment justified can be solely because credit, rather than some other product, is the source of the used tying leverage to restrain competition.
510 Appeals reversed, of is of the Court
The judgment with directions to let this suit case remanded is proceed trial.
Reversed and remanded. Mr. Justice Harlan White, Justice with whom Mr. joins, dissenting. of certain developed proscription kinds judicially
The arrangements commonly has been understood tying of who avail- antitrust defendant ties the to be this: an of violates ability purchase to the another product one 1 Act he both has sufficient market of the Sherman § product affects tying a substantial power product. the tied This case quantity commerce degree power of market which is further defines provide invoke the rule. Prior sufficient to cases guidance dispositive. are some but Admittedly, in the monopoly tying market, or dominance power States, Times-Picayune Publishing Co. v. United 345 594, (1953), necessary; enough U. S. 608-611 is not it is if there “sufficient economic an power impose appreciable competition restraint free in the tied States, Northern R. Co. v. product,” United Pacific (1958). 11 The in United 1, 356 S. Court indicated Inc., v. States Loew’s (1962), that product’s be inferred from “the tying desirability could or from uniqueness consumers in its attributes.” purport does not to abandon general Court market rule some applies §
essential to a violation. But it the rule to of a permit proscription extension seller’s of favorable conditioned on credit terms agreed of the seller’s any proof without offer of quantity seller has the credit market itself. extended Although pur- was for the development chase and land on which purchased *14 dictates the built, logic houses were to be Court’s the. attractive credit terms had been unusually same result for the of the houses themselves. simply offered of credit as Proscription goods easy of the sale terms proof power of market in credit not illegal tie without in departs my from established doctrine but also only se per illegal view not be outlawed as under the should may of favorable credit terms Sherman Act. Provision vigorous competition less than in nothing be more or very nearly approaching on a basis product, the tied always policy been the price competition which it has encourage. Act it is far Moreover, of the Sherman in power market, from absent the credit that, clear purchases regarded credit should be financing products more a tie of two distinct than commodity price. should be viewed as tied to its own may provision Since sellers facilitate com- working or provide since it essential risk petition, or capital entrepreneurs businessmen, since in opinion away does logic majority’s practice with the requirement showing retaining in tying product requirement form, while that se I majority’s per inappropriate. rule dissent. no offer to prove monopoly this case there is in And no tying product money. dominance — money provided petitioner unique, sense is the even though on which it was to was furnished and terms repaid may have been and indeed the advantageous, money on equally itself available no other source good inter- principally terms. United States Steel was in the sale of houses, ested the eco- development project. nomical of its Before housing concluding financing arrangements on which houses to anything S. Steel sold its amounted more easy than a reduction on the or that houses, financing provider terms show that has market their have in should money market, the Court illegality on which the rationale
mind the arrangements is based. among cases1 and general agreement
There is against restraint the fundamental commentators2 *15 guard to the proscription is meant tying which the over attain product over one use of of and distort freedom trade otherwise to another, or product. This distortion in the second competition be product, the second who buyers the of injures of the for seller’s brand preference of their the cause artificially optimal a less than are to make first forced even if customer is indif in And the choice the second. product the and therefore among brands of second ferent of by agreeing to use the seller’s brand nothing loses tying get first,3 in his brand of the such second order United, Inc., (1962); g., 38, 1 E. States v. Loew’s S. 44-45 371 U. (1958) ; States, 1, R. Co. S. Northern v. United 356 U. 6-7 Pacific (1953). Times-Picayune States, 594, Pub. Co. v. United 345 U. S. 611 g., Attorney Report 2 E. National General’s Committee Study (1955); Tying Arrange Austin, The the Antitrust Laws 145 88; Critique Thoughts, A and 1967 Rev. ment: Some New Wis. L. Bowman, Arrangements Tying Leverage Problem, and the 67 Yale (1957); Day, Tying Reciprocity 19 Dealing, L. J. and Exclusive —A (1968); Reappraisal, 539, Turner, 29 The Ohio St. L. J. 540-541 Validity Tying Laws, 72 Arrangements of Under the Antitrust (1958). Harv. L. 60-61 Rev. may Theoretically, good do the tie the tier little unless the buyer position. monop if complete in that Even has a seller oly in tying product, monopolist this is the case. The can exact price people willing pay product. the maximum which are his By price up definition, if his went he lose If he would customers. tying product product, then refuses to sell the tied and without the price product market, raises the of the tied above he lose will also tying difficulty magic. However, customers. The fink works no extracting profit in monopoly tie, Burstein, the full without Theory Forcing, A of Full-Line (1960), Nw. U. L. Rev. 62 marginal advantage guaranteed aof first refusal from otherwise product, advantages indifferent customers the tied or other men may in text, tioned originator. make the tie beneficial to its agreements may significant compe work restraints product. tying tition the tied seller be working monopoly position product4 toward the tied and, not, practice even he is forecloses product other sellers the tied and makes more difficult for new firms They to enter that market. must prepared only existing to match sellers of the tied but quality, to offset the tying product attraction of the Even if itself. this is possible through entry production simultaneous into entry product, signifi into both markets is cantly more expensive simple entry than into the tied market, shifting buying habits in tied is considerably more cumbersome and less responsive to competitive variations offers.5 addition to these anticompetitive effects in product, tying arrange the tied may be *16 price ments used to evade control in the product through clandestine transfer of the profit to the product;6 they may counting tied be used as a device price to effect discrimination;7 they may and be used 8 a products to force full line of on the customer as so 4 monopolist If monopoly profits uses his in the first market underwrite price second, monopoly sales below market in the his profitable. business becomes less There do remains incentive to so nonetheless monopoly when he thinks he can a obtain in the tied product well, permitting as him prices later to raise without fear entry recoup monopoly profit forgone. just he has But as firm deep pocket whose monopoly profits stems from in the product may takeover, may anyone make this deep so else with a pocket, from whatever source. 5 Even when competitor the terms of the tie allow a to obtain product by in simply offering business the tied price lower than, equal to, tier’s, rather than the Court has found sufficient restriction in product, the tied in Northern case. Pacific 6 Bowman, Tying Arrangements Leverage Problem, and the 67 19, (1957). Yale L. J. 21-23 7Id., at 23-24. 8 Burstein, Theory Forcing, A of Full-Line 55 Nw. U. 62 L. Rev.
(1960). 514 him return on easily monopoly from more
to extract in the line.9 unique one depend upon the existence All of these distortions apart tying product quite in the of some market to the any might which it bear tied relationship proof what case, product. Only alleged? been tying product
in has not available elsewhere tying product money—was — not at all. Let us good perhaps and equally terms, in possibilities these turn. consider enough money proceed if was available else- First, simply offering was credit at a lower where and U. S. Steel loss, repayment terms, of risk of and price, terms surely this does rate, interest not establish that U. S. 9 may economy. Apart Tie-ins also at times be beneficial to the justifications They following. from the discussed text are the may entry facilitate new into fields where established sellers have wedded their customers to them ties of habit Brown and custom. States, 294, 330 (1962); Note, Shoe Co. v. United 370 U. S. Newcomer Tie-ins, Franchises, Territorials, Defenses: Reasonable Use of (1966). They may Exclusives, permit 18 Stan. L. Rev. 457 clandes cutting products price which tine otherwise would have no competition at all because fear of retaliation from the few other dealing They producers may protect reputation the market. tying product conjunction if failure to use the tied Compare with it cause it to misfunction. International Business Corp. States, Machines v. United 131, (1936), 298 U. S. 138-140 States, Standard Oil Co. United (1949), v. 337 U. S. 306 Mfg. Corp., (C. Pick Co. General Motors v. 2d 641 F. A. 7th Cir. And, aff’d, (1936). 1935), tying products the tied and functionally related, they may through are reduce costs economies *17 joint production may of and distribution. These benefits which flow tie-ins, though perhaps in potential some cases a basis for an defense, affirmative were not imposition sufficient to avoid the of a per proscription, power se once market has been demonstrated. But determining market-power requirement in whether even the should eliminated, logic majority be of opinion do, as the the would ex tending per dimensions, se the rule to absolute the fact that tie-ins are entirely unmitigated not evils should be borne mind. power by any money
Steel market measure in had the market. about U. S. Steel’s nothing unique There was A money petitioner. price its low cost to low except power. is ordinarily no reflection of proves power It neither the existence of nor its such power be the more absence, although absence of reasonable inference. One who has such benefits precisely from it him prices, because it allows to raise lower he them, ordinarily does so. price tying product money,
A low the most — of fungible by item trade since it is definition an eco- poor especially proof nomic of market counter —is when credit is case, untied available elsewhere. of price functionally low credit equivalent to a price reduction in the of the houses Since sold. buyer has credit untied available he can com- elsewhere, pare package houses-credit U. S. Steel as com- petitive price plus with the of the untied credit the cost By houses from another source. cutting price of houses, competitor his compete of U. S. Steel can U. S. Steel houses on equal terms S. since U. Steel’s money more purchaser is no desirable to the money than point from another source except price. The same money willing which U. S. Steel forgo to risk or by providing credit better terms could sacrifice cutting the price good of houses. There is no why reason always Steel should required make the cut rather one form than another, which its purchaser prefers. financing by
Provision of credit the seller of a com- modity buyer very to its is a common event economy. American Often seller is not willing to supply generally credit business and personal public large, needs of but restricts his commodity purchasers which he is principally selling. In all in the business such cases, the com- *18 all credit. as tied to the modity may viewed from is no more desirable money itself cases, the such cases, in all But such than from another. one source fact the mere majority opinion, under makes advantageous terms on uniquely credit offered 1 of the per § se violation of Sherman transaction accept chosen buyer has to long And so as Act. any over others available credit the seller’s terms must have viewed petitioner here, like him, buyer, logic him. of advantageous uniquely them casts doubt on credit then, great majority opinion, financ- financing by proscribe I would not credit sellers. independently no demonstrable by sellers who had ing am market. I majority, the credit Unlike years petitioner’s affidavits, to read the fruit of unable any independent proof to offer pretrial of discovery, power.10 of such market whatever adopting the other Second, sufficient assumption, enterprise to go simply forward with the was petitioner any from other all, unavailable source at is even worse. Were for the result this case it not by S. Steel, petitioner the credit extended would development. have been unable to out carry its anyone selling Steel would not have foreclosed agree majority 10 I with the that the affidavits are not inconsistent “possibility power” power might with a and that such by showing “unique ability.” be shown kinds certain economic petitioner prove this, I although But cannot see how offers to taking judicial possibility notice of S. that U. Steel have legal operated willing free restraints other lenders otherwise provide financing possibility by peti not mentioned 100% —a majority petitioner suggests to tioner —the element of the sort description market.which, of detailed one facet of the credit much information market, more about the whole of the would be petitioner was basis on relevant. But this not the which offered to go to trial and I would remand trial even under applicable Poller standard.
houses to since no one have would sold *19 petitioner. willing A seller who is to take houses which no acceptable simply credit risks one else finds is engaging risky in the hard and which it competition is the policy of the And encourage. Sherman Act may if so, he not do then those businesses and entre- preneurs depend growth who for their survival and or for enterprises the initiation of new on avail- ability financing of credit from sellers well fail for lack of availability credit from other sources. Of course, if the credit was unavailable elsewhere because S.U. monopolist Steel was a market— relevant which petitioner does not assert —the tie illegal. would be evidently But here it was simply unavailable elsewhere because others willing were not to match U. S. Steel’s relatively price low for acceptance of high risk.
Neither nor the Court asserts that under prior antitrust doctrine U. S. Steel would have vio- lated of the § Sherman Act or Clayton § 3 of the Act11 if it had simply contracted to supply all the houses Fortner required to develop particular tract of land involved here —a requirements develop- contract for the price ment —even the houses was particularly advantageous. triggers What application of the antitrust laws tying is the asserted arrangement, sale of product one conditioned on the purchase of another. And it is not all tying transactions in general but only those where leverage in one market been has used to distort another which so far have been held illegal restraints of trade. The basis for the rule is clear where the seller is dominant the tying product market, where the is product patented, where it is in short supply. these cases the competitors restraint on the tied product as well as on buyers of the product
11 38Stat. S. 14. C. § tO rH buyers I reasonably apparent. question But there are simple of the tie-in —the fact
acceptance prove market always customers —will suffice no Where the seller exercises tying product. in the prefer the buyers item but on the seller offers the tying tie-in because unusually low or favorable terms —where on product away where the seller conditioned gives merely other merchandise —the seller effect is buying Buyers in the tied market. are not competing They may buy tying products both tied and burdened. Nor elsewhere normal terms. are the seller’s com- petitors restrained. The economic advantage buyers tie-in to can be matched other sellers of the *20 product by prices product. tied lower offering that Promotional tie-ins effected underpricing do not product prove themselves there is market power in to exercise that unless the market, profit economic resources to withstand lower margins compete and the in this willingness to manner are them- suspect. If they are, however, they selves should as muffle hard surely competition taint and in the which, tied a result itself, violation, market short a 2§ it would be difficult to reach under the Sherman Act. complete
I cannot such a join evisceration the re power that market quirement tying product be tie-in illegal § shown before a becomes under 1. Cer 1 tainly unnecessary per pro § it erect a se ban on protect motional tie-ins order to the tied If resulting market. exclusion of competitors is of sufficient significance competition to threaten that the transaction market, require reached as ments contract under 3 of the If Clayton § Act.12
12 arrangements proscribed by only “goods, wares, 3 relate § merchandise, machinery, supplies, or other commodities . . . .” 38 731, 15 Stat. U. S. C. 14. §
519 promotional tie is in price discrimination, effect too can be purp examined under statutes designed Moreover, transaction could be dealt with ose.13 as unfair of competition § method under 5 of the Federal Trade Act, Commission 38 amended, Stat. 15 U. S. C. 45. For example, Hastings Mfg. § Co. FTC, v. (C. 153 F. 2d Cir.), A. 6th denied, cert. alia, (1946), U. S. 853 it inter was, held an unfair method of competition for a piston seller of rings, ranking sixth or seventh in industry, to attempt to obtain exclusive preferential dealers or dealers by guaranteeing profits to the dealers and making loans them, tied to piston rings. Relying expertise on the precedents FTC and the of this Court, Appeals Court of concluded that although “is not illegal for a manufacturer to finance his retail (a outlets,” 2d, 153 F. proposition called into question by today’s decision) tying this to or exclusive preferential dealing was an unfair competition. method of
The principal evil at which proscription aims is the use of one market to acquire power in, otherwise distort, a second market. This evil simply does not exist if there is no in the first market. The first market here is money, a completely fungible I item. would not apply per se rule here without independent proof of power. Cutting *21 prices likely credit market is more to reflect a competitive attempt to offset the market power of others in the tied than it is to existing reflect market power the credit market. Those with real power do advantageous not offer uniquely deals to their customers,- they prices. raise not, say
This is to course, that if power market were proved tying product per se rule would 13 Act, Robinson-Patman Price Discrimination 49 Stat. amended, seq. 15 U. S. 13 et C. § 520 necessarily impossible or that it is to inapplicable, in the credit market. There power market
prove in a market, of credit certain relevant suppliers be so few they power among them to that have the example, for necessarily price credit, and terms manipulate by parallel Through proof but behavior. conspiracy, through proof of some existed, that such situation plaintiff might an antitrust be able to other show sort, market, in the credit this were cou- arrangement per I se with a tie would consider the pled illegal under conventional antitrust doctrine. However, petitioner’s allegations I not consider do S. Steel U. lowered its credit sufficient establish market in credit and I can find no offer by necessary supplementary proof. Fortas, Mr. Justice with whom Mr. Justice Stewart joins, dissenting. my inability share Brother White’s
I agree majority case, in this I and, general, subscribe to I opinion. separate add his statement of the reasons my for dissent. materially
The facts of this Case are different from any tying case that this Court has heretofore decided. originated doctrine in situations where the seller of A offers only it for sale on the condition buyer agree buy also product B from the International Co. States, Salt v. United seller. S. 392 (1947), example, the company leased its patented machines on the condition agree that the lessee only use International’s products salt in the ma- In Northern R. States, Co. v. United chines. Pacific the railroad leased (1958), land from its vast holdings on condition that the accept lessee “preferential routing” compelling clauses the lessee to ship on the *22 railroad’s lines all produced commodities or manufac- tured the land unless another railroad offered more favorable terms.
Although originated doctrine under spe- language Clayton cific of 3 of § Northern Act, Pacific necessarily was a Sherman Act case, Clayton because the provision Act applies only to “goods, wares, merchandise, machinery, supplies, or other commodities,” and not to land. Northern applied But in effect, the same Pacific, standards to tying arrangements under the Sherman Act Clayton as under the Act, theory on the the anti- competitive of a effect tie-in was such as to make the language difference in in the two statutes immaterial. present case, Pacific, like Northern is also exclu- sively a Sherman Act proceeding. But, here, U. S. selling Steel is not leasing subject land an agree- ment its prefabricated houses used thereon. If these were the facts, and U. S. Steel controlled enough economically land within an demarcated area or “market,” however defined, might the case gov- well be by erned Northern But, here, S.U. Steel is not Pacific. selling or providing land. It selling prefabricated is steel houses to be erected in a subdivision pro- and it is viding financing for land acquisition, improvement, development, and erection costs. Most of the financing related not the land cost but to the installation of the houses.
U. S. Steel neither owned nor controlled land involved in the venture. On the contrary, building lots constituting the subdivision on which the houses were to be built were owned another company of which principal owner was Mr. Fortner, who petitioner. owned the Nor is U. S. Steel selling credit in any general sense. The financing which agrees provide solely and entirely ancillary to its sale of *23 of a familiar in sub- contract terms
houses. Under sort geared the credit advances are development, division development and progressive stages of the subdivision resale of houses. purchase, erection, and petitioner to sell approached seeking U. S. Steel to be on the land prefabricated steel houses erected company which Mr. Fortner’s other owned. In October lengthy discussions, offered, after U. S. Steel Corporation, petitioner its Credit to lend about through by mortgages This sum was to be secured $2,000,000. The mortgage on the lots. notes carried interest, 6% agreed pay and also a “Service Fee” of y2 principal amount of the notes. Provisions 1% were made to insure that the funds would be pro- gressively and for acquisition (from advanced used land Mr. other company), development Fortner’s for of the area improvement preparatory to construction, and for the and erection of them- the houses selves. Petitioner was to erect on each lot obligated prefabricated house manufactured S. Steel. U. Of the total of about to be $2,000,000 advanced, $1,700,000 against was to be disbursed purchase and installation of the houses from S. Steel and the balance for land acquisition development.
The Court holds that a “tying” was agreement, and that, therefore, extraordinarily onerous incidents se per illegality which this Court has attached to “tying” agreements apply must here as well.
I agree. cannot is a single This sale of a product with provision the incidental of financing. It is not a sale of one buyer condition that will not deal competitors for another product or will buy other exclusively from the seller.
myAs Brother White shows, to treat the financing of the housing development as a “tying” product the houses tois distort the doctrine depart and to the reason for its existence. an extension of the Such doctrine entirely departs pattern from the factual which is described in Clayton § Act and which has been the basis of this Court’s extension the doctrine to the Sherman development Act and its of the rule per se such arrangements illegal are on a e., basis —i. without any showing they constitute an unreasonable restraint of trade or tend to create a monopoly. The Court has established this rule because the kind of tying arrangement prior issue in cases involved the use of position leverage the tying *24 patented machine, copyrighted the film, —the unique the land —to buyer purchase force the to the tied product. apply To this rule to a situation where the only “leverage” price is a lower for the article sold or more or advantageous financing credit terms for the article sold and for ancillary costs connected with the sale is to distort the doctrine, and, indeed, to convert into instrument penalizes price competition which for the article that is sold. is,
It of course, not inconceivable that a case might arise where 1 or 2 § § of the Sherman Act would outlaw a combination of sale specific and credit on a show power of market ing anticompetitive effect. It possible also that such a combination in some might, situations, constitute “unfair competition” methods of § violation of 5 of the Federal Trade Commission Act, or furnishing discrimination or services on discrimina
tory terms, Clayton § violation of of the my as Act, suggests. Brother White The majority, however, does rely analysis such of the actualities of market anticompetitive or effect, sweeps but this kind of per se ban.* arrangement credit within the for *The case is remanded trial. I find it difficult to learn from majority opinion just the what is to be determined at that trial. parts suggest Some of the discussion that must establish as distortion, of this extension —this effect novel I doctrine be vast and destruc- view it—of the for a seller to extend economy tive. It is common our him to or franchisee to enable financing to a distributor rent retail, seller’s goods and handle the machinery retail fixtures or for serv- facilities, acquire distribution of the ice to connection with customers prepare land for and to or, here, seller’s as goods, for sale acquire and erect the seller’s houses conceivable, except opin- public. hardly today’s It is part ion of extension of credit as a Court, such method could general sale transaction distribution credit, to the regarded “tying” goods of the seller’s so the credit receiving agrees that where businessman product, arrangement to handle seller-lender’s merely amount per se unlawful because the or terms were more favorable could be credit obtained than banking Arrangements institutions area. throughout They economy. this sort run frequently, by showing that U. had S. Steel the market over way suggested stage pleadings. facts in no at this At another point majority suggests even Steel can show *25 “legitimate “competitive of purposes” business and absence the (ante, 506) advantage” market, will at in the credit have made out says part opinion, majority in an of a defense. But earlier the the questions explicitly petitioner that “it is clear that raised of fact trial, arrangement which, bring proved if at would this within per 500-501.) scope (Ante, se If it is this of the doctrine.” range open of on remand there sentence which determines the issues or trial of the business economic back- will no examination at the arrangements effects, here or of ground attacked of the credit prefabricated arrangement competition in any, of house to do show that U. did market. will need S. Steel All subsidiary’s agree- of its credit on an the extension indeed condition prefabricated and S. houses it will have U. Steel ment illegality arrangement. of automatic demonstrated the perhaps characteristically, represent indispensable and financing method of distributive and service trades, today they not until has it been held that are arrangements per and therefore se unlawful. Cf. Stand States, ard Oil v. United S. 293, 315, Co. (1949) (separate opinion J., and dissenting Douglas, opinion J.). of Jackson, present every case in respect, provision
credit for construction of the houses and other associated costs of developing the subdivision, was, point ancillary view, Steel’s and subordinated to the sale of the houses. Corporation The Credit did not operate profit at a but its loss, comparatively was low. special Provision of financing to the prospective pur- prefabricated chaser of by houses Corporation Credit intimately was exclusively related to the end object of the sale by of the houses the Homes Division. was It separate not a item of “sale.” pattern This no means provisions limited to the nor can financing, impact of the majority’s opinion be so all limited. modern selling pro- Almost involves viding ancillary some services in making connection with delivery, installation, supplying fixtures, serv- sale— icing, training personnel customer’s in use of the material sold, furnishing display material and sales aids, extension of credit. Customarily almost invari- —indeed ably seller offers these ancillary only services —the connection with the sale of his own products, and they are often offered without cost at bargain rates. It is possible some such situations, arrangements could be used to competition restrain or might have that effect, to condemn but them out-of-hand under the “tying” I rubric, is, to use the suggest, antitrust laws themselves competition. as an instrument restraint of I reasons, For these dissent.