Gte Sylvania Incorporated v. Continental T v. Inc., a Corporation

States, 347 Pereira v. United See also

1, 8, L.Ed. 435

Appellant further contends that sec encompass a 2314 does not mere

“forged endorsement.” This contention

overlooks, course, government’s proof the endorsement and the autho

that both signature forged. any event,

rizing were

appellant’s contention devoid merit. held proof forged

We have either a made

security falsely security suffices

for conviction under section Hall v. States, (8th

United 372 F.2d Cir.

1967). The “falsely words made” and section

“forged” as used in 2314 are sub

stantially synonymous. United States v.

Johnson, 1974). 504 F.2d

Affirmed. INCORPORATED,

GTE SYLVANIA

Appellant, V., INC., T.

CONTINENTAL

corporation, al., Appellees. et

No. 71-1705. Appeals,

United States Court of Circuit.

Ninth

April Popofsky (argued),

M. Laurence of Hel- Ehrman, McAuliffe, ler, &White San Fran- cisco, Cal., appellant. for (argued), A. Berkeley, Lawrence Sullivan Cal., appellees.

OPINION CHAMBERS, BROWNING, Before ELY, DUNIWAY, HUFSTEDLER, CHOY, WRIGHT, KILKENNY, GOOD WALLACE, SNEED, WIN, Circuit Judges.* * provision last of 28 Judges of the sentence themselves and Trask recused Koelsch partici- 46(c). Judge Kennedy any aspect did not participate of this U.S.C. § and did judicial Kilkenny Judge pate he did not assume exercised his because appeal. Senior participate, pursuant heard the oral position the full court statutory prerogative until after ELY, Judge: percent market, Circuit of the and the remainder among Sylvania was divided other private to a in a jury Pursuant verdict During manufacturers. the so-called black action, judgment and an equita- antitrust era, and white most television manufactur- favor were entered in ble decree engaged relatively ers in a unselective “sat- collectively, appellees (hereinafter, “Conti- uration” method of distribution. Essential- nental”) against appellant (herein- the and ly, system this involved the of sale televi- appeal by Sylva- On this “Sylvania”). after independent sion sets both to and manufac- nia, issue is whether district critical distributorships, turer-owned without in judge concluding, instructing erred and limit on the number of given dealers in a that, jury accordingly, under the sup- locale. of goal such a system was to Arnold, of posed rationale United States generate possible; as much volume as Schwinn & therefore, manufacturers sought sell to (1967), Sylvania’s practice many possible. as as dealers agreement fixing by of the locations from was Continental authorized to sell By Sylvania’s sales volume had de- was Sylvania’s products se under relatively creased to tiny a portion of the of the Act. For Section market, television between one and two below, many set forth we reasons reverse.1 percent, approximately. Prior to 1962 Syl- was practice vania’s to sell products pri- its Background I. Factual distributors, marily to some of which it Sylvania, corporate a subsidiary of Gener- sold, owned. These turn, distributors in Electric, Telephone al and manufactures retailers. At about time Sylvania de- and sells radios and television sets through termined that its attempt to utilize the its Home Entertainment Products Division. of type saturation distribution in competi- Though emerged Sylvania tion, from World War Zenith, especially with RCA and could major II as one of manufacturers in the not be successful. Hoping to revive itself industry, its television share the market as an effective competitor, interbrand and large. post-war era, never In became to avoid virtually certain possibility when black and white television compelled that it would be to surrender the line, major industry’s product single a manufacturing business of selling and tele- RCA, competitor, enjoyed sixty to seventy sets,2 Sylvania vision decided to abandon its arguments basically of counsel and thereafter conducted elbow room was as a private company its deliberations. result of that as the fact a we were By in trouble. that I mean that we needed majority opinions something, pitch dissenting 1. The and a sales the sales com- pany panel appeal, get concerned with the could use order for first unoffi us to a foot cially 75,072 reported hold in the market. ¶ 1974-1 Trade Cas. May 9, 1974), Basically RCA, competing we were was withdrawn Zenith, Magnavox, Motorola, private brands, full court’s Order of December 1974. The majority opinion very frankly original subject doing good and we has been the were not job. of a number of law review commentaries. See Robinson, Developments— basically Recent So the elbow room is Antitrust a selective (1975), approach and limited distribution 75 Colum.L.Rev. 243 the case that has (1975); companies serving every major metro- by phasing out both its dealers system thorized tribution larger than the of factory politan City and its own market Sali- distributors wholesale replaced by power Syl- had the to veto These were nas. No dealer distributorships. (SLD), to an system approve additional “straight line distribution” vania’s decision given were made from fac- franchise location in a market area. sales which under dealers, agreements way that who in There were no in directly to franchised tory program, Sylva- This the freedom of authorized restricted sold to consumers. turn poli- anyone its room nia to sell to who came to Sylvania called “elbow dealers location, regardless of limit their of the the use franchises franchise involved cy,” of Syl- place dealers. residence. Sylvania of retail customer’s the number willing attract dealers hoped to vania suggesting contains evidence The record Sylvania as authorized identify themselves policy” moder- that this “elbow room was for the exchange opportunity in outlets ately improving Sylvania’s successful profits. fair earn Sylvania that competitive position. asserts of “elbow distribution policy due to its selective An essential element location, practice franchising practice franchising by of of it was the its policy" room effective, Sylvania sold to attract policy aggressive became able location. Under by retailers, growth who of the tele- only to selected dealers. With color its market, Sylvania Sylvania mar- as authorized deal- vision increased its identified were go compete probably go with the out If we were out of the that we would native (Em- majors (Record 2543^44) we would not be successful.” television business.” added). phasis added). (Emphasis William keting 2554) foothold in the market business and room able ers to survive but merely pete given “. feel one-sixth of the profitable we were the elbow room by having for in a policy] ^[*] area. We E. . means (Emphasis compete Sylvania, Boss, Jr., going out of business.” the result we marketplace. really business ^[*] can a limited distribution profitably, got the to enable us and dealers have, policy was: with the the Vice President successful. We added). develop ^[*] testified that there with the retailer. was that onus for place and we were Limited distribution ^[*] are example, perhaps off our back that our big effectively less dealers in a more it ^[*] boys competition, [the (Record our policy did mutually purpose of Mar- ^[*] elbow retail- get com- we 3. late 1950’s crease which held tion, market. terbrand five for unilaterally has policy ment with its franchised movement of television ventory ferred to the At Selective implied purposes argued percent, trial its elbow as above its share involved dealers competitor. By utilizing Sylvania agreement its unauthorized locations. only a distribution was thereby becoming implied findings of this appeal upon noted, Sylvania was room prohibiting another an announcement. any express the market small denied existed between policy appeal this method sets. dealers share of company, Magnavox, that pioneered Sylvania Sylvania assumption of the its shipment an concerning implied agree- approximately the television implemented elbow room effective in- able However, jury Sylvania distribu- has de- insisted to in- of in- Continental percent expanded rapidly. By one or two May, ket share about largest it had become one percent by Syl- of the By to about five country,5 operating Syl- vania dealers emerged vig- had as a mid-1960’s eight vania franchises locations in the ranking competitor, as the nation’s orous Francisco, counties San California Santa largest eighth manufacturer and seller of Mateo, Clara, San and Alameda. In the television sets. color of 1965 spring Syl- Continental learned that Continental, appellees, group planning vania was to franchise another corporations with common affiliated owner- dealer, Brothers, Young at a ship. principal operating officer Francisco, Geary Street San about one Continental, wife, together with his owned one of mile from Continental’s outlets. substantially all the stock corpora- allegedly Continental believed that began tions. Continental business in 1960 franchising of this location would violate aas retail dealer of radios and television spacing concept underlying the “elbow Jose, primary sets in California. Its San policy”. It room therefore strenuously ob- territory sales most of included Santa Clara jected and threatened to reappraise its need County, inventory and its princi- consisted merchandise in its San Fran- pally of television sets manufactured June, 1965, cisco store. Sylvania fran- V., T. prospered, Muntz Inc. Continental Young chised the Brothers store. Conti- replaced and in 1964 it its downtown San thereupon a very large nental canceled Syl- larger store with a facility order, Jose suburban placed vania a half-million dollar or- region a known as area. Sylvania Stevens Creek der with a competitor called Phil- co, Sylvania period In the 1960-64 and advised that Continental had no Continental purchases would reduce its further arrangements credit for floor financing Sylvania. Muntz, inventory its with either or credit institution. It

bank handled its March, 1965, In Continental had notified largely through credits a customer local Sylvania that it wished to enter the Sacra- bank in Jose. San mento, California, market. compliance In Sylvania’s policy, with Continental had ini- May, Sylvania In attracted Conti- tially agreed Sylvania not to sell merchan- Sylvania nental to become an authorized dise from a Sacramento location without granted dealer franchises and to Continen- Sylvania’s prior approval. As previ- he had for July, tal several locations. In ously done when opened Continental a store began financing purchases Continental its location, a new Continental’s principal Sylvania merchandise with “Maguire organized operating officer a corporate new plan,” under which Continental a executed (S.A.M. Industries, Inc.) and, affiliate promissory note the price inventory for affiliate, through that leased a Sacramento purchased Sylvania, payment with se- location about one mile from Sylva- another receipt cured a trust in favor P. of John dealer, In Handy Andy. nia early Septem- Co.,Inc., Maguire & a national finance com- ber, 1965, Continental Sylvania advised obligated pany. Continental to repay the location the new Continental store in Maguire Continental’s cost for each televi- requested approval Sacramento a for immediately set sion after the set was sold Sylvania to franchise sell there. (or six months after receipt Continéntal’s replied that Sylvania approval would be merchandise). Sylvania unsold maintained Thereafter, denied. Continental moved some control over the amount of credit to Sylvania merchandise into the Sacramento Continental, be extended because in the According testimony, store. to some of the default, Maguire event of Continental’s had Sylvania refused Continental’s request for a against Sylvania. full recourse Sylvania’s Sacramento franchise because opened $1,000,000, new Its five stores. sales Continental volume exceeded and it $300,000 Sylvania. had a line of credit with concern, Sylvania’s Because of its credit distri- Sylvania’s management believed that placed a credit hold on department Conti- already sufficient the area was bution 16, 1965, on September orders and nental’s retail outlets Sylvania additional credit line from reduced Continental's September On undesirable. be $50,000. $300,000 In reaction to the cred- it vio- decided that would Continental reduction, all pay- Continental withheld it had agreement the locations late This Maguire. due to refusal ments proceed sell Sylvania with made payment continued over three make with- in Sacramento merchandise Sylvania $62,000 Continental owed weeks until Sylvania’s One of Sylvania’s approval. out by any merchandise. Sylvania, unsecured into is that Continental’s move contentions Maguire instituted suit At time in retalia- area was made the Sacramento due, for the against Continental amount Sylvania’s decision franchise tion for repossessed Sylvania merchandise repre- Francisco and Young Brothers San possession,levied attachments Continental’s pres- attempt by Continental sented places of business and on Continental’s revoking Young into Sylvania sure account, and caused Continental’s bank San franchise. Brothers and central warehouse stores Jose occurring in events were all these While Continental had closed. A bank Sacramento, personnel credit terminated con- business Continental’s done deeply concerned headquarters had become financing and called program for the sumer obliga- ability to meet its Continental’s over Finally, loan. commercial payment financing arrangements. tions under Continental that Conti- Sylvania notified some- received information Sylvania had dealer was franchise as nental’s June, prior to that Continental’s time terminated. operating and chief shareholder principal sought damages from both Continental record. or- had criminal officer Sylvania Maguire, alleging violations of a Dun and Bradstreet and received dered injury laws and tortious to its the antitrust the chief offi- which confirmed report property, pendent claim un- business in military while the conviction cer had alleged California law. Continental der misappropriation for of Corps Marine credit actions were not Sylvania’s that issuing worthless funds and government upon genuine concern about based Conti- alleged for the cause A second checks. solvency, but rather were under- nental’s personnel credit Sylvania’s concern the location restriction and taken enforce substantially had that Continental the fact selling Sylva- from Continental prevent capi- obligations to Philco aby its increased from the unauthorized Sac- nia merchandise $500,000 for Philco and a order tal loan Continental further as- ramento location. was in addition Continen- This products. policy” “elbow room Sylvania’s serted that limit, $300,000, high existing credit tal’s trade, in constitut- policy restraint was a Additionally, Continental Sylvania. with violation of Section of the ing obligations for its pay past due failed had Damages alleged were Act. obli- Sylvania products. These purchase termination resulted have Maguire for Sylvania were held gations relationship with Continental and of its maturity and then passing into and were resulting inability procure Continental’s stages. Finally, September delinquency during period prod- substitute 1965, Sylvania informed sought Continental also shortage. Continental uct dispute of the over pending resolution en- prohibiting Sylvania injunction store, all of new Sacramento Continen- forcing locations restrictions. Continental’s its paid would be claims were sub- obligations antitrust and tort future tal’s its, jury with returned a deposit jury. of checks by the mitted to the matured Continental6 and found in favor of Continental’s, attorneys. verdict own jury’s form of returned verdict was 6. The A. Antitrust Claim interrogatories. special The verdict answers Sylvania Products, 1. Did Electric Inc. en- respect to the antitrust claim as follows: contract, gage combination, conspir- in a or damaged had Continental been On prayer Continental’s equita $591,505. amount of jury decided relief, ble judge district entered find Co., Maguire John P. & other de- ings of fact and conclusions of law. The fendant, engaged combination, had not in a non-jury court found Sylvania had re contract, conspiracy in restraint of trade quested Maguire to sue Continental on its in violation of the antitrust laws. Finally, outstanding part notes as a of Sylvania’s jury exonerated both and Ma- attempt prevent Continental from selling guire pendent on Continental’s tort claim Sylvania products in Sacramento.7 Fur under California law. Trebling the dam- ther, the court found that Sylvania’s credit ages pursuant to 15 U.S.C. § district concerns were true Syl reason for against judge judgment entered Sylvania in vania’s actions. The court entered a limited $1,774,515. addition, the amount of injunction,8 prohibiting Sylvania from en court awarded attorney’s Continental fees forcing its location clause.9 $275,000. in the sum of acy in restraint of first, trade violation of the findings jury tried and the respect antitrust laws with to location re- binding equitable on the trier of the claims. price fixing integral strictions part as an Westover, Beacon Theatres v. 359 U.S. single policy? of a distribution (1959). 3 L.Ed.2d 988 We therefore __X rely upon findings jury they appear if Yes No findings to be inconsistent with of the trial judge. Products, en- Inc. Sylvania Electric Did injunctive 8. Since the granted incidental relief combination, conspir- contract, gage in a predicated upon application below was in violation trade acy in restraint legal (See an erroneous standard re- District respect to locations with laws antitrust 5, quoted Court’s conclusion of law No. infra alone? strictions 9), Decree, equitable note in addition to the _X__ legal Judgment, must be Yes No vacated. See United Co., States v. Parke Davis & 503, 511, (1960); Bev Maguire Co., engage 3. Did P. John & Inc. Distributors, erage Olympia Brewing Inc. v. contract, in a combination or (9th Cir.), denied, 440 F.2d 21 cert. conspiracy: 29 L.Ed.2d 682 a. As described Question above? __X judge findings 9. The district entered of fact and Yes No pertaining equitable conclusions of law significant Decree. The most conclusions are b. As described Question above? as follows: __X Sylvania, during “3. the time involved Yes No herein, and in violation of Section 1 of the Act, contract, engage Sherman did in a com- 1, 2, 4. to 3 is If the answer or Question conspiracy dealers, bination or including Handy Andy with its retail V., Inc., “yes”, T. did Continental sustain Continental, pur- damage property prox- to its business or as a suant to which it restricted and enforced its of imate result such violation of the antitrust policy imposed location distribution system a laws? upon of location restraints its retail _X__ limiting practical purposes dealers for all the Yes No they display areas in which could and sell Sylvania products brand which the dealers purchased Sylvania had from and which “yes”, to 5. If the answer Question by were owned them. damage? of such is the amount what proximate Sylvania’s 4. a As result $591,505 described, conduct as above Continental sus- damage tained its judge’s property to finding business and point trial appears on this by jury. Moreover, equitable as found the finding jury to inbe conflict with the of the having Maguire granted Sylvania Judgment relief that any contract, combination, been in the were not involved in day conspiracy or heretofore entered the 11th to of Decem- ber, 1970, enforce the necessary location restriction. the When issues Court deems it to legal equitable support thereof, common to both Findings claims are enter in of Fact and together, legal to be tried the issues to be Conclusions of Law contained herein. (1967), 18 L.Ed.2d 1249 principal contention here Sylvania’s applicable Sylvania’s location was restric- basing both judge erred district that the tions, rejected the court instructions re- equi- grant and the instructions jury the by which the quested Sylvania jury under theory by seeking to on the table relief Sylvania’s have been told that loca- would from which Continen- the locations restrict only practice was if it unrea- tions products, Sylvania Sylvania sell tal could sonably restrained mar- per se violation a Section had committed ket for television sales.11 Act. Over the incorporating the instruction Once the judge instructed objection, the trial submitted, theory of se per illegality a as follows: jury against Sylvania virtually verdict as- “Therefore, preponder- you if find Sylvania never sured. denied the existence en- Sylvania of the evidence ance practice, its locations which definition contract, con- combination or into tered admittedly outlets or store lo- “restrict[ed] of its or more dealers spiracy with one from which its resold cations dealers Sylvania do- exercised pursuant which they purchased had merchandise over the sold and control minion . Sylvania .” It is not en- dealer, having parted with after to the tirely jury clear from instructions and products, you must risk title and findings of fact and conclusions of law out- thereafter restrict any effort find equitable Syl- on the claim whether entered from which its deal- locations lets or store was found to have vania committed ille- merchandise which resold the ers per merely it gal violation because en- Sylvania to vio- be a purchased had agreement restricting tered Continental Act, of1 the Sherman of Section lation locations, or because specific sub- reasonableness of the regardless sequent agreement. enforcement of restrictions.”10 both, think it irrelevant as to whether We one, of these considerations were se rule of United deciding that In either, applied, since we hold that under Co., Arnold, & v. States foregoing “failing company” rejected restraints are se vio- defense. The in- Act, of Section of the Sherman lations as follows: struction reads Sylvania made sales its retail- inasmuch contract, you “If find such a combination ‘condition, agreement upon or under- ers conspiracy to restrain movement or sale of standing limiting the as to retailers freedom merchandise, practice pre- such a prod- it will resell and to whom where However, you sumptively unlawful. before having ‘subject ucts’, made been these sales it to be a violation can find antitrust upon Unit- restrictions resale.’ to territorial laws, you justi- must consider whether it was Arnold[,] Schwinn & States ed case, fied. In this such a restriction would be 1865-1866, 378-379 [87 proved justified prepon- if had 1259-1260], (1967).” adoption derance of the evidence judge in this was the distin- trial case 10. The reasonably necessary such restriction was (Ret.), guished Associate Justice Tom C. Clark to remain the television enable by designation sitting District Court. business or enable increase instructions, formulating jury Clark Justice strength competitive effectiveness of dissenting adopted apparently own some of his industry. you the television If efforts in find States, Motor Co. v. United White comments shown, you justification has been that such 708, 253, 275, 696, 83 9 L.Ed.2d S.Ct. 372 U.S. Sylvania Maguire that and should find have There, 738, (1963). majority of the the 753 you the antitrust laws. If not' violated find Clark, Court, against will of Mr. Justice the proved justifica- that has not a such per regard- a broad se rule to establish declined evidence, by preponderance the of and tion a ing restraints. vertical all contract, you a if the existence of combi- find conspiracy to restrict movement nation or rejected jury court a instruction 11. The also merchandise, of as I defined sale have it propounded by Sylvania proposed the above, you per should find that has then theory rule if the Schwinn se that even restrictions, (Emphasis Sylva- antitrust laws.” applicable violated the add- to locations were prove ed). a if it could be exonerated nia would 988 resources, prices, highest the lowest clearly law was the of the application

court’s quality greatest progress, and the material erroneous. providing the time while at same an envi- preservation conducive the of ronment Analysis II. political our democratic and social institu- important and intri We confront Ry. Northern Pacific tions.” v. United e., i. question, per whether the rule of guing 1, 4, 517, States, 514, 356 78 2 the illegality established se 545, (1958). 549 L.Ed.2d We therefore hold Arnold, v. States Schwinn United Court of legality that the locations clauses the Co., 365, 1856, 87 S.Ct. 388 U.S. 18 & should be judged here involved under what (1967), should be extended 1249 commonly referred to the “rule of practice” the “locations utilized embrace reason,” illegali- rather than rule of se Sylvania and others as a method of modern ty. We are convinced that contrary hold- systems. product distribution The trial ing “body would constitute an unwarranted the applying language a bit of literal judge, legitimate enterprise blow” business and without reference to its of context place capitalistic system would our free un- case, facts that specific or the of deter restraints, stifling contemplated der never language to extend that to encom mined Congress. the intended of “rule Accordingly, Sylva locations clauses. pass applied, should been permit- reason” have proffered jury “rule of reason” in nia’s into ting inquiry competitive effect and rejected. Our has study con struction agreement reasonableness of locations doubt, us, beyond that the chal vinced in question.12 misinterpreta reflects a lenged conclusion A. The Schwinn Precedent in Context Schwinn, is inconsistent with the

existing permitting law exclusive dealer ruling prac- locations and, importantly, ships, most would serious se, illegal per tice was the trial judge chose undermine, implement, rather than ly literally, apply, following sweeping major purpose of the Act. Sherman That opinion language from the of Mr. Justice purpose is to insure the “unrestrained inter Fortas for Court United States competitive action forces” that “will Arnold, 365, Schwinn & 87 1856, allocation of our yield (1967):13 best economic 1249 noteworthy 394, We think all of law Id. irrelevant formula.” 87 S.Ct. at 1873, generally have review commentators who undertaken a 18 L.Ed.2d at 1268. See Come Moderator, analysis gys, of the decision of our Restraints detailed court’s Distribution: Motors, Sealy Schwinn, original panel Sympo have reached the conclusion General Restrictions, application Ancillary sium on 36 the District Court’s rule ABA Anti (1967); Handler, illegality wholly inappropriate that, Twenty-Fifth trust L.J. 84 An Review, Act, light 415, purposes nual Antitrust 73 Colum.L.Rev. (1973); Handler, applied. have of reason” should been 458-59 The Twentieth Annual “rule 1967, Robinson, Developments— 1667, Recent Antitrust Antitrust 53 Va.L.Rev. Review - 1974, 243, Keck, (1967); Case, (1975); 1680-86 75 278-79 The Schwinn 23 Colum.L.Rev. 641-42, McLaren, Bus.Lawyer (1968); (1975); Marketing Harv.L.Rev. 669 Independent (1975); Limitations on Mercer L.Rev. N.C.L.Rev. Distributors Prices, Territories, (1975); Customers, 784-85 49 N.Y.U.L.Rev. Dealers — Handling Products, Competitive (1975); 53 Texas L.Rev. 134-37 13 Antitrust Orrick, (1968); Marketing Bull. Re thought opinion Imposed If we of Mr. Justice Integrity strictions Protect present Systems, in Schwinn to control our deci- Fortas ‘Franchise’ Distribution Anti ABA sion, duty compel apply Pollack, (1967); our us trust 69-72 L.J. Antitrust do, despite Franchising, And we would Schwinn. Problems 15 N.Y.L.F. 110- opinion Pollack, (1969); of Mr. fact Justice Fortas has Alternative Distribution frequently Schwinn, been criticized the breadth of a After Methods Nw.L.Rev. 595 Sadd, portion language primary (1968); small and its Territorial and Customer Restric upon against Schwinn, Sealy the “ancient rule reliance re- tions After 38 U.Cin.L.Rev. alienation,” Williams, (1969); straints 388 U.S. at Distribution and the 1866, 1261, Motors, a at 18 L.Ed.2d at rule described in Act - The Effects of Sherman General Sealy, 732, Justice Stewart’s dissent as a and Mr. “wooden and 1967 Schwinn Duke L.J. 740

989 case to which rule of earlier decisions has parted with the manufacturer “Once applied.” to be is risk, parted with domin- he has and title and his effort there- F.2d 79. product, 416 at over ion territory or persons to restrict after to Supreme held In Schwinn Court ille- product may transferred— whom the gal system a per se vertical restraints agreement or si- by explicit whether affecting both wholesale and retail distribu- understanding or with combination lent Arnold, Company Schwinn & had cre- tion. se violation of 1 of § vendee —is geographical exclusive sales territories ated Act.14 the Sherman its 22 bicycle each of wholesaler distrib- 1867, 18 382, at had 87 S.Ct. utors and made each distributor U.S. at 388 outlet for the sole Schwinn distributor’s area. Each distributor was designated pro- language, that this our view reiterate We selling any from retailers located hibited isolation, applied literally, too without Moreover, territory. outside its the restric- reference to the textual context sufficient limited the tions classes cus- Schwinn facts appears or the which it whom wholesale tomers to Schwinn’s dis- Furthermore, a fundamen arose. Schwinn sell, tributors and franchised retailers could principle which our own court antitrust tal selling them from by prohibiting Schwinn Sons, Seagram Joseph E. & Inc. stressed unfranchised retailers. Conse- Liquors, Ltd., 416 Oke & F.2d v. Hawaiian quently, system completely Schwinn’s denied, 1969), cert. 396 U.S. 71 potential purchasers to some barred sales 752, (1970), 24 L.Ed.2d 755 products, regardless of Schwinn where apparently Quoting from overlooked. these customers were located. The Flooring Manufacturers Association Maple on persons classes of Schwinn restrictions States, 563, 579, 268 45 United particular persons whom distributor (1925), L.Ed. we have been termed “customer” may sell Supreme in Hawaiian Oke the emphasized restrictions, against while the restrictions that: admonition Court’s selling a certain to customers outside area arising . case under the . each are classified “territorial” restrictions.15 upon Act must be determined case present imposed In our nei- particular facts disclosed restrictions appro- ther of the that Schwinn record, . opinions priately condemned. Schwinn’s territorial light must be read those cases requiring dealers restrictions confine recognition and of clear their facts pre- their sales exclusive territories in the facts of the essential differences prevented a dealer from scribed Schwinn cases, and in the facts of new those Arrangements Note, (1967); persons Distribution Restrictive areas and confine restrict Case, Schwinn af ter 53 Cornell article be traded after whom an Court, (1967); L.Rev. parted has with dominion manufacturer over Term, Note, (1967); 235-38 81 Harv.L.Rev. Motor, Miles, supra; supra. Doctor it. White Per Se Restrictions and Rules—A Territorial obviously so Such destructive restraints Sealy Doc Re-evaluation the Schwinn their mere existence trines, Comment, (1972); 70 Mich.L.Rev. enough.” Restraints and the Per Se Vertical Territorial added). (Emphasis 18 L.Ed.2d at 1260. Concept, (1969); L.Rev. Buffalo Pollack, Impact Comment, Alternative Distribution Methods Schwinn Case Restrictions, Schwinn, (1968); after Territorial 46 Texas L.Rev. 63 Nw.U.L.Rev. 595 (1968). Williams, Distribution the Sherman Act— Motors, Schwinn The Effects General relied, may also have 14. The District Court Note, Sealy, 732; Vertical Cus- Duke L.J. extent, justification, upon and with some some tomer Territorial Restrictions and Sher- language isolated certain additional Act, Note, (1968); man 63 Nw.U.L.Rev. 262 Schwinn. Arrangements Distribution after the Restrictive Act, unreasonable “Under the Sherman Case, 53 Cornell L.Rev. without more for manufacturer seek competing for customers outside territo- er for his territory. No other wholesaler contrast, ry. Sylvania’s dealers could In compete could by offering a price lower or area, any could ad- sell to customers purchaser. better service to same area, only were any and- limited vertise contrast, Sylvania marked franchised at place of the franchisee’s as to the location major least dealers in the two markets and guaran- restrictions of Schwinn’s business. Sylvania each dealer was free any to sell to teed wholesale distributor it each buyer he preserving intrabrand chose — absolutely be isolated from all com- would competition allowing to every potential from other petition Schwinn wholesalers. of purchaser Sylvania products a reasonable hand, Sylvania, on other franchised competing choice between several dealers. will, dealerships at competing and in the Concurring in White Motor Co. v. United major metropolitan markets in Northern 253, States, 696, L.Ed.2d competing California such dealers were lo- (1963),16 Mr. Justice Brennan noted that cated within the 25 to 30 mile radius of possible while there are no procompetitive selling. volume Schwinn’s re- territorial vendee, benefits be derived from or cus- restrictions, strictions were tied to customer tomer, restrictions, some territorial restric- but a dealer could sell to anyone, may tions on vendors procompetitive have long just so dealer’s store remained effects. Justice wrote: approved location. situations, “There are other very a critical and Thus obvious distinc- presented directly case, by this in which tion between restrictions in Schwinn justification of possibility Sylvania is Schwinn cautions and those of in- against hasty a too volved a restriction on the conclusion that locations and terri- vendees, types permissible while torial limitations are invariably unlawful. imposed permissible restrictions on the Arguments have suggested against been pro- conclusion, locations vendors. When Schwinn’s for example, in the case scription “territory per- of restrictions on starting of a manufacturer out in busi- product may sons to whom the be transfer- marketing ness or a new risky prod- red”, 1867, 388 U.S. S.Ct. at uct; suggestion is that such a manu- persons and on “areas or may essential, facturer find it simply in may traded”, an article with whom order acquire outlets, and retain U.S. at 87 S.Ct. at 18 L.Ed.2d at guarantee his degree distributors some interpreted in Schwinn’s factual insulation as well as exclusive context, it is that “territory” clear us It has suggested franchises. also been vendees, “areas” refer reasonably appear necessary Moreover, than rather vendors. there are for a manufacturer to subdivide his sales very clear and substantial be- differences territory in order to prod- ensure that his tween effect of restrictions advertised, uct be adequately will pro- Schwinn and the effect those of Sylva- moted, and serviced.” nia. In Schwinn a wholesale distributor U.S. at S.Ct. at 9 L.Ed.2d at selling prod- foreclosed Schwinn any purchaser ucts located outside his “I turn next to the customer thus, restric- territory; exclusive intrabrand com- present problem tions. These e., quite (i. dis- petition between sellers of brand) tinct from that of the territorial wholly destroyed. the same A limita- potential purchaser tions. The customer restraints the wholesale level could look to only inherently dangerous one seem the more product two, source authorized deal- serve to suppress all —the States, government White Motor Co. v. United federal state or subdivision (1963), 9 L.Ed.2d 738 in- large thereof and to other customers without precluded volved customer restrictions that dis- permission of the manufacturer. selling irom tributors dealers trucks to course, That, ers outside a certain area. of manufacturer between holding custom of the most our case. The Schwinn for the is not distributors forbidding selling At the same time dealers from accounts. restrictions desirable the countervail- specifically desig- of persons to lack located outside they seem to competition be- to foster exclusive territories and to certain ing tendencies nated accompany the which are se of customers violations tween brands classes short, not, is think, there In Act should we be limitations. the Sherman supposing in that such difficulty encompass Sylvania’s practice more to far stretched justified.” effects, can be pro-competitive produce customer restrictions which can wholly different effects desirable at 272, 83 at 372 U.S. by the restrictions that the produced those Schwinn, sought to prohibit. Court, in Brennan of Mr. Justice The observations significant spotlight another distinction also is rein interpretation Our Schwinn Schwinn. our case and Schwinn between on re fact the decree forced large bicycle share of the extremely had expressly sanctions loca in Schwinn mand however, share, Sylvania’s market market. paraphrasing gen clauses. After tions adopted so when it its locations small language of Court’s eral expul- threatened with it was practice dealing decision with restrictions Schwinn In the television market. sion from persons,” the District Court’s on “areas dominant with a a manufacturer Schwinn “Notwithstanding on remand adds: decree de- imposed share restraints market foregoing provisions, nothing this in compe- stroyed any intrabrand possibility Judgment prevent shall Final Schwinn Here, a manu- territory. in the same tition designating in retailer precarious market share a with facturer the location agreements franchise to agreements which enabled it entered places business place or for which while 5% market share a viable achieve United franchise is issued.” States v. Ar competi- intrabrand significant preserving Co., nold, F.Supp. 564, & Schwinn 565-66 area. When metropolitan ( in each tion N.D.Ill.1968) (Emphasis added). Surely, contexts, factual respective their viewed right has the to choose a if a manufacturer the situation perceive possibly cannot we franchise, to as the Su particular dealer being two cases as analo- presented Schwinn, recognized preme Court similar, remotely. even gous 376, 87 S.Ct. U.S. at designate right the loca 1258,17and the clear that in Schwinn make it The facts valid, recog is the franchise restraint which the tion where the territorial Court remand, absolutely decree a restraint nized in the Schwinn condemned selling purchas- pow- must have the a dealer from then the manufacturer prohibited really distinguished suggest exceptionally commenta- I a word of art —which 17. One Attorney tor, very recently covering Category arrangement de- the Assistant Gen- heading right De- Division of the have the Antitrust a ‘loca- eral scribed earlier —is is, partment and now a United States of Justice a manufacturer clause.’ That must interpreted Judge, appoint Schwinn as has District free another to be his dealer at clearly exempting agree appoint clauses from the given place locations not illegality because a locations rule of dealer within a certain distance. If another right implicit so, of manufacturer clause is ex- a manufacturer would this were right his dealers: select selection —which haust his dealer says appoint- he has —once he Justice Fortas clearly opinion ex- does “Justice Fortas’ Moreover, single First, the auto dealer ed a dealer. types arrangements. it empt two to stand the Gen- location clause —allowed upholds right to se- of manufacturer whom, case —would be Discount House eral Motors ‘to dealers lect —or ‘franchise’ —the alone, goods’ citing outlawed sub silentio.” United he will sell — McLaren, Colgate and Customer Restric- Territorial & States v. tions, (1919) Consignments, Suggested com- Retail Prices L.Ed. 992 —where Deal, readily petitive A available. Refusals 37 Antitrust L.J. omitted). right (1968) (footnote necessary to ‘franchise’ 144—45 element strengthened. We our is further rights these if a franchisee conclusion er to enforce agreement. clause reported his location cases wherein violates have no discovered has been struck down beyond location clause When we move to a fact, contrary, precedent,18 other relevant and to the illegality. consideration significant we reach not inconsistent We conclusion therefore believe that is no there similarity of the United the recent decision States between our situation and that Copper Appeals presented in for the Fifth Circuit in of Coors. In Court Coors territorial re- Co., Adolph Liquor, price Coors 506 F.2d 934 Inc. v. straints were utilized to effect vertical (5th 1975). fixing per Two fundamental distinctions clear se violation Cir. whatever —a Here, present case make the and the is achieved. Coors means there was between reasoning it abso- inapplicable lutely Sylvania engaged to our Coors situa- that of no evidence in price fixing, (1) price fixing any overt or there Coors that was other tion: unlaw- involved per underlying purpose violation of section one of the se clear ful the location clause Judge pointed out agreements. As in his Gee Act. (506 955), concurring opinion F.2d at con- major The second distinction between Coors unnecessary to the present of Schwinn competitive sideration and the the case inheres in (2) restrictions challenged in involved decision Coors. agreements. effects the Schwinn, were, designed like in those in Coors price fixing, In plaintiff claim addition to his competition, intrabrand foreclose all while to in Coors contended that “Coors con- undeniably policy” Sylvania’s room re- “elbow spired or combined with its distributors to cre- and fostered substantial intrabrand com- tained ate and enforce exclusive territories within petition. each distributor to conduct busi- his Coors, plaintiff alleged ness, making impossible plaintiff In that Coors it for the to conspired supply with its distributors to combined obtain a of Coors beer from another price original supply beer the retail of its and caused its fix once his distributor had been distributors, servicing plaintiff’s (Emphasis retail added). li- cut off.” 506 F.2d at 936 store, supply quor discontinue to Coors Mr. Coors himself stated that “unless the dis- plaintiff he when sold below the beer could tributor be assured that he would be not price give competition suggested declined retail and to as- confronted with from another territory would do that he not continue to so in surances Coors distributor within his —assured price 506 F.2d at Vertical the future. fixing, there be no intrabrand would —the course, long recognized unwilling been has as a distributor would be essary capital expenditure, to make the nec- lending of the Sherman Act. United se violation institu- Optical unwilling v. Bausch & Lomb U.S. tions be States would to extend credit to (1944). (Emphasis added). 88 L.Ed. There him.” 506 F.2d at 938 being conspired had to that Coors fix evidence In to the Coors contrast restrictions which Judge prices, agree it we with Gee that was “assured that there would no be intrabrand rely unnecessary upon competition” to promised the court Schwinn for because the distributor practices as to that Coors’ were a so hold to “conduct wholesale distribution exclu- significance sively territory” prescribed (506 antitrust But of more violation. within the F.2d opinion explicitly Sylvania 938), permitted competi- the fact Coors at intrabrand fixing price recites that the evidence of was the sell tion. No retailer was forbidden to persons residing any prescribed foundation for determination that Coors’ to ritory, outside ter- holding: restrictions ran afoul of the Schwinn franchised more than one say major vertically imposed every metropolitan “We do not ter- dealer in in area may impossible comport ritorial restrictions never It was for Northern California. not Act; seller, buyer purchase the Sherman they itself to than conceded more one Thus, might proper plaintiff be in the as case new it was for the in Coors. Coors, highly competitive entrants in a like field ‘fail- restriction the restriction in ing companies’. clauses, And there be Schwinn and other unlike exceptions. sayWe no this record “assured there intrabrand not, law, justifi- provide competition.” a matter does as excepting apply cation for Coors from effect of Similar considerations the Tenth Schwinn, light price fixing Adolph Company evidence.” Circuit’s decision in Coors (Emphasis FTC, original). 1974), F.2d at 945 F.2d Cir. cert. de opinion nied, the court Later the Coors abandoned 42 L.Ed.2d inquiry exceptions (1975). speculate various an into which the We need not how engrafted clauses, might onto Circuit has the Schwinn Tenth that decision relate to locations rule, saying: expressly since the Tenth Circuit considered pursue question legality “But we need no fur- of locations clauses the later case ancillary Corp. (dis Corp., Coors’s restraints were ther here. of Salco v. General Motors price fixing infra) p. scheme.” 506 F.2d cussed at resolved issue as 947-48. we it now. resolve prohibit employed selling dealers from location re widely assumed that been has The Supreme discounters resale. Court reasonable restraints were strictions expressly this,20 although declined to do trade, lawful,19 ever since therefore held the conduct of General Motors and its Corp. Corp., v. General Motors Boro Hall solely unlawful basis dealers of a denied, cert. (2d 1942), F.2d 822 conspiracy among pre- horizontal dealers 87 L.Ed. 556 63 S.Ct. concurring vent sales discounters. Hall, Judge Augustus Hand, writ In Boro wrote, my opinion, Mr. Harlan “In Justice Appeals Court of for the Second ing for the precluded Motors General Circuit, held that a dealer con specifically enforcing the location clause uni- “fix a location for that would clause tract action, I nothing lateral find place at a that did not of used cars the sale Id. opinion contrary.” Court’s dealers” did not consti unduly affect other at 428. In our restraint trade. tute an unreasonable Circuit, own the District Court on remand States v. Gener at 823. In United 124 F.2d “[njeither expressly provided that the in- 127, 1321, Corp., 384 U.S. 86 al Motors Judgment of this junctive provisions Final (1966), Supreme the Court L.Ed.2d provision nor thereof shall any be construed presented with a location clause which was enjoin Motors acting General from uni- moving dealers from Chevrolet prohibited laterally any under Chevrolet dealer fran- new to, establishing, a location the or unilaterally chise from agreement or en- prior the vehicles without sale of Chevrolet such any agreement [including forcing the of Chevrolet. The Government approval clause],” except provided as in a six declare Supreme the Court the urged relating prohibition months to sales to dis- counters.21 United States v. General Mo- illegal, only insofar as was but clause Robinson, Develop- membership Topeo, Recent Antitrust ber 19. See firm’s in if such ac 243, 1974, 75 276 n.207 Colum.L.Rev. tion would clusivity or maintain territorial ex achieve ments — (1975). any in member firm.” United Associates, Inc., Topco States v. 1973 Trade questions these con- need not reach “We 74,391 (N.D.Ill.1973). Cas. ¶ effect, validity meaning, cerning or the appeal judgment from An was taken the en- any provision in clause’ or other ‘location Court, remand, by the District after tered Selling Agreement, we do Dealer not. affirmed, judgment summarily this We do not decide whether the ‘location only Douglas dissenting. 414 Mr. Justice U.S. dealer, may prohibit be clause’ construed a 801, 116, (1973). 94 S.Ct. 38 L.Ed.2d 39 it, discounters, party selling through my dissenting by opinions written broth- by or whether General Motors could unilater- heavily Kilkenny Browning rely upon ers clause, al action enforce the so construed.” opinion language in from the Court’s Corp., United States v. Motors General Topeo unqualified sweeping and conclu- for the 127, 139-40, 86 S.Ct. words, that, Kilkenny’s Judge “restrict- sion in L.Ed.2d justified competition cannot be ed intrabrand by competitive gain.” alleged case, interbrand Topeo 21. Another United States v. Asso- majority interpreta- such a broad believes that ciates, Inc., 405 U.S. Topeo Topeo plainly wrong. is similarly (1972), dealt with loca- L.Ed.2d by had Topeo held that the District Court erred Although Court applying involved tions clauses. hori- limitations, rule reason to a horizontal re- vertical rather than Dis- zontal trict which, noted, “[ojne straint, remand, Court, expressly is the Court allowed the examples per licensees, § se violation of 1.” classic fix locations defendant except doing give 405 U.S. at 92 S.Ct. so would where an exclusive territory to another licensee. The District only Thus, Topeo accepted Judgment provided: for the stands Court’s proposition that a rule reason not be Judgment nothing in this Final per applied se in circumstances wherein a vio- (2) prevent defendant ... shall clearly A has been established. vertical lation device, place designating the location of the employed like the locations clause places for which a of business trademark case, by present issued, no means “classic provided defendant license When, here, example” grant of a se violation. a trademark license shall not refuse previ- liability any has not been issue of or withdraw a license from member determined, way member, any Topeo precludes except ously any in no withdrawal inciden- gains in interbrand bona fide termination of mem- whatever tal to the consideration Corporation, tors Civil No. as a 62-1208-CC restraint of trade. The Tenth Circuit 17, 1966).22 (S.D.Cal. Aug. rejected argument, noting with approv- al the Circuit’s Second conclusion in Boro Appeals Two other Courts of have con Hall, supra, that the right to franchise nec- legality sidered the of location clauses in essarily type validated the of location clause era, post have -Schwinn both con typically included automobile franchise cluded that such clauses are valid. In Salco agreements. The court therefore concluded Corporation Corporation, v. General Motors that a location clause is as a valid matter of Division, Buick Motor 517 F.2d 567 law. 1975), franchisee, relying upon the location clause Schwinn contended nothing “There is complaint, nor within the Buick Automobile standard deal for that matter in the facts subsequently se, er agreement23 illegal per franchise developed Denver in opposition Buick signs premises have resulted from intrabrand re- advertisements on the as an Sylvania strictions. “authorized It dealer.” is obvious to word, “franchise”, us that the should more attempts 22. Continental to circumvent interpreted logically purchase sale, right to mean the Schwinn, precedent Topeo, established television sets from for re- (United General Motors States General conjunction with the above mentioned Corp., Motors benefits; essence, right Sylva- to act as a (1966)) by argu- orders on remand L.Ed.2d415 nia Both dealer. the Schwinn and ing acknowledged right that the manufacturer’s agreements franchises were which authorized to “franchise location” means that a the dealer to sell the manufacturer’s may authorize to hold franchisor self out chisor a dealer him- specific primary purpose from a of location. The agent” “authorized of the fran- as the the franchises both was Thus, cases to authorize only at certain locations. the ar- display the sale and of gument continues, the manufacturer’s right by the to “franchise product, part system as of an overall give of distri- any right location” not does the franchisor bution. prevent opening the franchisee from as Therefore, quoted many we read the above lan- additional outlets as he wishes at unau- guage locations, from the Schwinn decree on pro- thorized vide additional and the remand franchisor must explicitly practice quantities product to authorize the followed of and relat- Sylvania, designating ed services to the the location or dealer at these locations locations. particular “right The which a to franchise location” retailer authorized is con- operate strued to deny the mean that the as manufacturer’s franchisor dealer. The right the term his franchisee “hold “franchise” in the himself Schwinn order on re- agent” similarly interpreted by out of as the authorized the mand manufac- has been law See, g., Pollack, turer at additional these locations. review commentators. e. Al- Schwinn, ternative foregoing argument Distribution Methods After highly We find the to be (1968): 63 spurious. very Nw.U.L.Rev. 603-04 artificial even The fact “Nor does the Schwinn the sets sold doctrine outlaw television from the unauthorized Sylvania clause’, use of so-called implies ‘location location bear the to brand name which designates public place that the store location of the “authorized of busi- dealer”, Sylvania even if the store ness for a cannot ex which franchise is issued and pressly identify requires itself as The such. franchised which the franchisor’s consent to Sylvania advantage company operate dealer has the the business at another location. credit, arranged guaranteed company ship Indeed, agree- . without some such ments, Sylvania’s advertising ment, national it is difficult to see how a franchise product, recognized and his as a name relationship operate. could . Subse- Any dealer at his authorized locations. inher quently final decree the Schwinn advantages being Sylvania ent go franchisee Supreme Court, case on remand from the location, regard with the dealer to the new Judge Perry specifically authorized less of whether he holds himself out at the new use of Schwinn’s location clauses in its fran- location as a franchised dealer or not. agreements.” chise expressly remand in decree on Schwinn provid- 23. The location clause involved Saleo provided nothing prevent therein should ed: designating Schwinn “from agreements its franchise or place “Once dealer is places location of established in facilities and at mutually satisfactory business for the franchise is location issued” Buick, (N.D.Ill.1968). F.Supp. Dealer and Dealer not Continen will move to or “franchise”, applied tal would define as establish a new or different location . here, right mean prior approval facts unauthorized location to of a store at an without written of Buick.” refer itself in its 517 F.2d at 575 n.7. proved Indeed, location. judg- in terms of the summary Motors’ the General wording of the location clause involved and Re- First Claim for motion ment effect, potential competitive its we find Sal- lief, did indicating that General Motors virtually indistinguishable eo to be simply assert other than anything before us. case the terms of the clause under rights right approve a new insisting on the In Kaiser v. General Motors Corp., 530 (3d 1976), aff’g 396 F.Supp. no F.2d Buick. There is for Denver location (E.D.Pa.1975), the Third Circuit affirmed a assigned General Motors allegation that Court’s order granting summary District of which dealers could outside territories judgment in favor a manufacturer sell, appellant in fact admits not challenge that against a a location clause in 57). Accordingly, (Br. the Sec- otherwise agreement its franchise under dis- allegations properly were Act. The the Sherman District Court ex missed, clause is valid since location nothing found pressly in Schwinn that law, and there are no as a matter clauses illegal. makes location amount to an un- allegations that would Looking beyond cases dealing with use of the clause.” lawful clauses, we find numerous decisions F.2d that, Schwinn, applying while have not in- case, present In the like Saleo and unlike establishing terpreted Schwinn Schwinn, assign Sylvania did not discrete against all vertical rule territorial re- outside of which the deal- selling territories variety of A vertical straints.24 permitted were to sell. The dealer ers restraints and customer have been upheld anyone ap- test,25 came sell to who to his rule of reason could under the and some of tendency pass-over clauses); Packaging courts to construe the Plastic Materi- holding narrowly subject als, has been the F.Supp. Inc. v. Dow Chemical Note, discussions. See Territori- (E.D.Pa.1971) (primary of law review responsibility clause); A Toward Brothers, Restrictions: Trend al and Customer Compa- Inc. cf. Reed v. Monsanto but Reason?, Broader Rule Geo.Wash.L. (8th Cir., 1975) ny, (recognizing 525 F.2d 486 Note, (1971); Vertical Territorial and Rev. approved designation that courts have of areas Under the Sherman Act: Restrictions Customer responsibility more”, primary “without but Arnold, United States v. Since Decisions holding that there was “more” in Monsanto’s Co., 22 483 J.Pub.L. Schwinn & policies effectively additional curtailed the ability of its distributors to sell Monsanto Her- a locations clause is common tool 25. While a bicides, purchase, they after to whomever in their distributor manufacturers utilized ship wished). arrangements, no or franchise primary responsibility basically A clause is only vertical restraint that has been means the agreement obligating an a distributor to con- specified geo- subject employed a of distributor retailer centrate his sole efforts in a bearing recognized a trade name graphical primarily for which respon- area he is operations. over his business certain controls sible. use of these clauses was endorsed in controls on dealer territorial ex These other States, 253, v. White Motor Co. United 372 U.S. practices pansion as such exclusive include 696, (1963), by 83 S.Ct. 9 L.Ed.2d 738 Mr. dealerships, primary responsibility of cov area Brennan, Justice concurring who noted his enants, pass-over requirements. profit opinion primary that the lawfulness of area of might limit vertical restraints Each these responsibility recognized covenants has been susceptible, competition, and all are intrabrand (372 many 12, consent decrees. U.S. at 271 n. linguistically, to inclusion within literal lan 706, 751). nevertheless, Schwinn; 83 S.Ct. 9 L.Ed.2d at guage all have been profit pass-over arrangement requires A a upheld against claims that fall within territory dealer who sales prohibition. makes within the per se rule of See Colo Schwinn’s Inc., part profits Supply another to turn dealer over Pump v. Febco 472 his & Co. rado dealer, denied, 987, Cir.), (10th from those sales to that other to com- cert. F.2d 637 pensate 2274, promo- (1973) (primary dealer other for the latter’s 36 L.Ed.2d 965 S.Ct. 93 responsibility clause); territory Joseph Seagram E. tional efforts in the wherein the sale & Ltd., Sons, Liquors, also Oke & 416 occurred. Mr. Justice Brennan discussed Inc. v. Hawaiian 71, denied, (9th 1969), type cert. 396 of restriction in White Motor 76 Cir. F.2d 752, 1062, (1970) “[i]f, supra, noting example, 24 L.Ed.2d such cross- S.Ct. 755 a U.S. (exclusive 90 dealership); obligation (or ‘pass Superior Bedding only v.Co. incurs to share sale over’) Associates, Inc., F.Supp. (N.D. territory profit 353 1143 with the dealer whose Serta often, Ill.1972) responsibility profit appar- (primary has been invaded —as most 996 Moreover, location clauses.27 years

these were far more burdensome restraints after Schwinn, the Department Justice clause here at refused than the location which is to characterize location clauses as issue. Anderson v. Automo See American se, treating them instead as restrictions Association, 1240, (9th 454 bile F.2d 1246 governed by to be rule reason.28 And 1972); Tripoli Company, Cir. Inc. v. Wella year, a spokesman last for the Anti- 932, (3d Cir.), 936 cert. de Corp., 425 F.2d trust Division stated that locations clauses 831, 91 nied, 62, 27 400 L.Ed.2d 62 U.S. illegal standing by “are not themselves” (1970);26 Corp. Janel Sales Par v. Lanvin “[tjhey since reflect the manufacturer’s le- fums, Inc., 398, Cir.), (2d 396 F.2d cert. gitimate interest in having goods dis- denied, U.S. efficiently throughout tributed particular a Carter-Wallace, (1968); L.Ed.2d 275 Inc. v. area.” Address K. Clearwaters before States, United 449 F.2d Association, the International Franchising (1971); Dairy Ct.Cl. 35 National Products Franchising Laws, and the Antitrust May Employees Corp. Dairy v. Milk Drivers & Federal Trade Commission (S.D.N.Y. F.Supp. Union Local recognized has also that Schwinn did not 1970); Ebie, La Fortune 1972 Trade Cas. against establish rule vertical terri- ¶ 74,090 (Calif.Ct.App.). See also Good In Report torial restrictions. In its of the Ad Promotions, Corning vestment Inc. v. Glass Franchising, Hoc Committee on the Com- Works, 1974). F.2d Cir. reached the mission conclusion that: light the cases upholding Schwinn, “. . the Court left legality of location clauses and the fact that enough leeway in its initial threshold test expressly decree on remand in Schwinn of the overall reasonableness of vertical permitted manufacturers to designate the arrangements enable manufacturer issued, for which franchise is it is justify arrangement such an by estab- hardly surprising that Schwinn been has lishing that it could not have entered the interpreted by learned commentators expanded market market share leaving undisturbed legality basic ently here, practical recently, the case—then the effect suggested More the Third Circuit has upon competition may of a territorial limitation principle Tripoli may that the established not typical be no more harmful than that of the safety justifications, be limited health and exclusive franchise —the lawfulness of which may encompass but extend to the broader dispute does Government here.” 372 proposition that “. where a manufac- 270-71, 696, 706, legitimate turer’s restriction is related busi- J., (Brennan, concurring). purpose, inapplicable.” ness Circuit, banc, sitting Scooper Dooper, Corp., 26. The Third en held in Inc. v. Kraftco 494 F.2d Tripoli (3rd 1974). that a cosmetic manufacturer’s restric- n.13 products, tion on its distributor’s resale of in- Jentes, 27. See Permissible Vertical Restraints use, professional non-profession- tended for to Relations, in Manufacturer-Distributor 8 A.B.A. per als was se not a violation of Sherman 97, (Summer 1972), Antitrust Law Notes 102 Act, although challenged practice fell with- which the author advises that a location clause language pertaining in the Schwinn restric- to only legal, preferred type is not but a of manu- product passes tions on resale after title to the facturer restraint under Schwinn. See also applied The the distributor. court the rule of Symposium 1968 Antitrust Law of the New reason and held the restrictions reasonable as a Association, 62-64; Pollack, York State Bar potential protecting public means of Alternative Distribution Methods After harm. The court chose to restrict Schwinn to Schwinn, 595, (1968); 63 Nw.U.L.Rev. 603-4 facts, stating: Hanson, Symposium American Bar Association not, plaintiff “That case does as [Schwinn] Marketing Franchising: Prog- on Antitrust proposes, per as establish a se violation ev- 70’s, 502, for the nosis 39 Antitrust L.J. 516 ery attempt by a manufacturer to restrict the (1970). persons any to whom wholesaler resell whatsoever, product title to has left which Robinson, Rather, Develop- the read, 28. See manufacturer. must Recent Antitrust Schwinn 1974, cases, 243, as antitrust must all in its factual 75 Colum.L.Rev. 276 n.207 ments — (1975). (3rd 1970). F.2d context.” 425 at 936 Cir.

997 1972); (6th on 459 F.2d 138 Cir. Ad Hoe Committee v. FTC, Report of the Scanlan 2, 1969). See, Busch, Inc., (9th Coca 388 (June 30 Anheuser F.2d 918 Cir. Franchising 21,010 denied, Co., Reg.Rep. 1968), 916, cert. 391 3 Trade U.S. 88 CCH H Cola 1810, man- 1975) (Sustaining (1968); a soft drink 20 8, L.Ed.2d 654 Walker Dis (Oct. Co., imposition tributing Lucky Lager of exclusive territo- Co. v. Brewing ufacturer’s bottlers). 1, 1963), (9th denied, 7 licensed 323 F.2d Cir. cert. upon ries 507, 17 385 U.S. 87 S.Ct. L.Ed.2d 438 analyzed summary, when Schwinn Distributors, Kohn, Ace (1966); Beer Inc. v. readily it is distin- context its factual Inc., (6th Cir.), denied, 318 F.2d 283 cert. us, before in terms from the case guishable 375 U.S. 84 S.Ct. 11 L.Ed.2d 166 the kind restrictions involved of both (1963); Packard Motor Car Co. v. Webster competitive effect. This operative their Co., U.S.App.D.C. Motor Car 100 243 reference to the reinforced conclusion (D.C. Cir.), denied, F.2d 418 cert. 355 U.S. remand, Hall, Boro decree Schwinn 29, 2 (1957); 78 S.Ct. L.Ed.2d 38 Inter Kaiser, Saleo, uphold all of loca- borough v. Publishing News Co. Curtis like the one before us now. clauses tion Company, (2d 1955); 225 289 F.2d Cir. Nai cases decided after Finally, in both Works, feh v. Ronson Art Metal 218 F.2d types vertically involving other Schwinn (10th 1954); Corp. 202 Bascom Launder restraints, customer and territorial imposed Corp., (2d Cir.), v. Telecoin 204 F.2d 331 pronouncements of post-Schwinn denied, 345 73 cert. Anti- Commission and Trade the Federal (1953); Fargo L.Ed. Glass & Paint Co. Justice, Department Division of the trust Corp., American v. Globe F.2d 534 against interpreting a clear see trend we denied, Cir.), cert. per establishing se rule (1953); Potter’s Photographic 97 L.Ed. indiscriminately invalidating all illegality, Ealing Applications Corp., Co. v. restraints without vertical (E.D.N.Y.1968); F.Supp. L. Good & S. of their reasonableness consideration Sons, Inc., F.Supp. Co. v. H. Daroff & competitive their effect. overall terms (N.D.W.Va.1968); Sup Dental Peerless ply Manufacturing v. Weber Dental Co. Dealership The Precedents B. Exclusive F.Supp. (E.D.Pa.1968); Top-All Va validity judge’s trial decision of the rieties, Cards, Inc., Inc. Hallmark Sylva se illegality a rule of apply ¶ 72,850 (S.D.N.Y.). gener Trade Cas. See is further under practice locations nia’s Note, ally Restricted Channels of Distribu upholding a many authorities mined Act, Under the 75 Harv.L. grant “exclusive right manufacturer’s Rev. 795 much more restric dealerships,” practice clearly than legality established of exclu- tive of dealership dealerships ar logically compels In an exclusive sive the con- clauses. with a agrees manufacturer location clauses cannot be rangement clusion any competing legal deal If for a illegal. authorize it is manufacturer dealer any he products the manufacturer’s one dealer that will promise to sell have ers territory right sell the within the exclusive manufacturer’s where exclusive designated territory, is a veritable avalanche within a dealer. There then first that, suf obviously legal to the effect absent it is for that precedent manufacturer monopolization, promise a manu keep exclusivity by deny- evidence of ficient grant exclu may legally ing power such an other dealers like facturer Continental the franchise, this elimi even if effects the from outlets at sive to sell retail unauthorized Joseph of another distributor. See within the first dealer’s exclusive nation locations Sons, & Seagram territory. accepted principle & Inc. Hawaiian Oke that a E. Ltd., 1969), grant may legally 416 F.2d an exclu- Liquors, manufacturer denied, dealership meaningless is rendered if cert. sive (1970); a legally Elder-Beerman Stores use location clause to he cannot Inc., Stores, Department opening his dealers prevent v. Federated other from Corp. in the their own retail outlets same area. grievous have implications common for the include a location If a manufacturer cannot practices franchising29 and established of agreement, in a franchise he restriction of granting dealerships. and the exclusive exclusive dealership cannot do what judge’s approach Under the district a man e., promise legal, hold is i. that “I will cases legally prevented ufacturer from imposing your dealer in not franchise another area.” enforcing a location restriction could legally If location restriction cannot a lawfully prevent its franchisee from creat enforced, and, example, a franchisee is any ing new outlets at unauthorized loca Francisco, California, established in San might tions the franchisee choose and dis opens Angeles, who then a store Los tributing franchisor’s merchandise California, the manufacturer cannot fulfill words, therefrom. other under the rule promise original his Los Angeles to his if a illegality, of dealer is franchised recognize that he will not franchisee anoth- anywhere he franchised everywhere. Therefore, Angeles. er dealer in Los we granted has Once manufacturer a fran of conclude that the rule se illegality location, any chise for he legally would be applied logically below is inconsistent obligated to enable the franchisee to sell decision in irreconcilable with our Hawaiian product the manufacturer’s from all other many and the cases upholding Oke other locations into which the might franchisee right of manufacturers establish ex- expand, regardless wish to dealerships. clusive prejudi cial effect this would existing have on adopted by If the rule the trial distribution in those areas.30 law, judge this case were it would Department According Commerce, location, regardless of whether he holds him- 445,281 there were franchised businesses in the self out at the new location as a franchised Dept, United States in 1972. of Com- Sylvania dealer. The franchised dealer who merce, Economy Franchising 1972-1974 company’s policy violates the elbow room still franchise, will retain all the benefits of his eliminating company while the benefits to the if, Schwinn, argued It has been under market, having spaced a reliable distri- Sylvania legally prevent could not Continental bution. The ultimate economic result of retailer, selling from to another unfranchised approach likely spell below would doom thereupon who location, from resells an unauthorized Sylvania longer all franchised dealers. No why no reason then there is Continen- Sylvania primary to its could advantage offer dealers the (by shipping tal could to itself not sell televi- promise of a not to franchise more sion sets to unauthorized locations for resale particular dealers than a market could reason- there). any attempt by It be true ably support. promise Sylvania’s part This Sylvania to restrict sales its franchisees to nearly was not as restrictive as an exclusive unfranchised dealers would constitute a viola- dealership, many which our court and others However, Sylvania tion of the antitrust laws. upheld, prevent have did tend but it the kind problem by allowing was careful to avoid this of “cut-throat” between fran- anyone. Allowing its dealers to sell to a fran- ultimately chisees that could result in the de- a chised dealer to sell to non-franchised retailer competi- struction as an interbrand upon has a far different effect the franchisor policy tor. The elbow room was never used franchisee, allowing than contract, in violation of a Sylvania severely compe- restrict intrabrand open a store location he tition or to divide markets. No dealer had chooses. The unfranchised retailer would ordi- entry power veto over the of other dealers into instance, narily, pay higher price first area, Syl- and locations were authorized Sylvania product for the because the unfran- solely expandabili- basis of vania on the market buying through chised dealer would be a mid- ty. dleman, dealer, the franchised rather than di- Taking approach, rectly Sylvania. hand, another On the other Continental also as we argues previously emphasized, that “Continental sold in itself’, have Sacramento franchised dealer’, company arranged not ‘to namely, dealer has the benefit credit, but to ‘unfranchised Industries, fact, guaranteed company shipments, to S.A.M. Inc.” In and a Sylvania franchisee, recognized thoroughly belies record name as a contention and advantage buying directly conclusively well as the demonstrates that Continental price. shipping lower manufacturer at a And all was indeed to itself in Sacramento Industries, Inc., advantages sepa- of the status fran- because S.A.M. was not a rate, independent chisee attend the dealer’s move to the new dealer.

999 illegali- contractors, independent se of rather rule than the of adoption The undoubtedly employees this would from of a vast chain.’31 as such a case ty in the Ameri- disappearance the of franchis- hasten invalidation Indiscriminate independent small the of place market can their arrangements would eliminate ing franchisee, al- and merchant, now often competition to and creative contributions The entrepreneur. endangered an ready ‘suppliers force to franchising abandon the concern recognized has Court integrate and forward to the detriment disap- the over expressed has Congress that words, In of small business. other we mer- independent small pearance compel inadvertently concentration larger, much with to due chant misguided result, by zealousness. As a of the words In firms. integrated vertically less and place less for ‘[t]here [would be] Stewart, Mr. Justice independent.’ Standard Oil Co. v. franchising pro- promises “. States, 293, 315, United 337 U.S. independent merchant with vide the 1051, 1062, 93 (separate L.Ed. effec- efficient and means to become Mr. opinion Douglas). of Justice ‘The large integrated firms. competitor of tive small, independent businessman [would] franchising, of Through forms various Id., supplanted be clerks.’ at qualified and assured the manufacturer at 1067 L.Ed. S.Ct. [93 1386].” products, for his and the outlets effective Arnold, States Schwinn & United of enjoys backing form franchisee 386-87, U.S. S.Ct. financial assistance. and know-how (Stewart, J., and concurring at 1264-65 dis- arrangements also make franchise These senting) (footnotes omitted). and economic contribu- social significant we adopt approach If were of per importance society, to the whole tions illegality, might the ultimate result be to federal court has noted: at least one as franchising as a undermine tool to enable operation method of has franchise ‘The small, independent businessman to com- standpoint from the advantage, large pete vertically integrated with the system competitive our American many industries. giants of One danger enabling groups economy, of numerous franchisee, single be that a allowed capital be- of individuals small expand into chain of stores and sell ... If our entrepreneurs. come over everywhere objec- the manufacturer’s economy developed system had not contract, violation of the might tion and in operation these individuals would it other impossible make small single- to have merely have turned out been outlet franchisees of same manufactur- system cre- employees. franchise effectively. compete loyal Thus the er independent a class of business- ates men; independent small network of businessmen public it with an provides desired for his get manufacturer fran- opportunity product a uniform might supplanted be points “gi- of sale small chisees several at numerous Counterclaim, original Answer In the answer irrefutable to Continental’s alternate it, S.A.M.) (including alleges that Continental judge approach, district found as a fact affiliates, group business in did Califor- group are a of affiliated “Cross claimants cor- style name the firm of “Conti- nia under substantially porations ownership common Throughout its Answer S.A.M. T.V.” nental under the name which did business ‘Continen- corporations the other affiliated referred George wife Shahood were tal T.V.’ themselves, collectively, as “Continental.” principal corporations all the owners of jury, attor- Continental’s his statements principal operating was the Mr. Shahood offi- part ney that S.A.M. made clear cer.” op- store and that Sacramento Continental was doomed to a link erated S.A.M. Quoting Corp., F.Supp. Susser v. Carvel testimony chain. the Continental aff'd, (S.D.N.Y.1962), (2d F.2d 505 Shahood, George the President and General granted, 1964), cert. T.V., Manager also shows Continental dismissed, cert. part of Continental Sacramento store 14 L.Ed.2d 284 Finally, enterprise. and as the whole T.V.’s franchisees, having sarily always numerous each and involves an ant” unreasonable that a small upon risk would be competition,34 outlets. Another restraint and thus can to not afford inte- presumed who could conclusively manufacturer illegal be to be with- offering prohibited if vertically, grate inquiry into the out nature and history protection any degree of industry of the involved and a determina- room”, competition or “elbow intrabrand precise manner par- a attract and able to dealers might not be restraint has competition. ticular affected to an effec- might unable establish thus be per inflexible and se rules Harsh should be product. system distribution for its tive when, when, a applied court has Congress that intended cannot believe We threshold examination of made a the eco- rigid per illegality se rule of implement challenged practice nomic effects portends that such serious risk to franchis- that clear has determined is that ing made arrangements, methods that have practice per to be declared illegal se has had worthy contributions our significantly competition” effect on “pernicious and a economy.32 Nation’s any redeeming “lack of virtue.” See Pacific Co. Railway

Northern v. United 1, 5, States, Policy of the Act C. The (1958). conclusion, A final reason for our record On the before us Continental has one, compelling most is our perhaps the that the proved by Sylva- enforcement agreements like the belief that nia its location clause has worked a net adopted Sylvania may in some in ones effect, anticompetitive or that the facts promote, impede, rather than com stances presented in this one case warrant the con- petition. Consequently, we think that there inquiry further into clusion the eco- inquiry case must be a case under impact of Sylvania’s nomic location clauses competi to determine the “rule of reason” competition upon would be irrelevant. We policy restraints tive effect of such if the course, recognize, of establishing is to be the Sherman Act effectuated. practice, Sylvania locations did check in- anticompetitive true evil of the restraints trabrand to some extent. per declared to se This which Schwinn be Sylvania’s was an inevitable incident to proscription competi at- was their total of all promote and tempt the same maintain tion between dealers for interbrand However, ignore geographical competition. the same customers or within Here, Sylvania’s practice purpose areas. involved ultimate in the remain market competitor, no such total com thereby destruction intraband as a viable fostering petition.33 Implicit application competition, of a interbrand and to consider only per analysis se rule in antitrust the con practice the fact slightly limited challenged practice clusion that neces- competition, intrabrand overlook the Brown, generally Franchising H. 32. See practices, experience analysis have estab- —Reali- (1973); ties and Small Business Ad- Remedies justification lished utter lack of to excuse ministration Senate Select on Committee competition. gauge its inherent threat To Business, Sess., Cong., Report 92d Small 1st appropriateness of a se test for the Franchising (Comm. Effects of Economic case, then, of restraint involved forms Hancock, 1971); Print Lewis R. The Fran- E. & experience we must determine whether war- Zeidman, System (1963); chise of Distribution rants, stage, inquiry at this conclusion Importance Franchising— The Growth and upon competition jus- into effect economic Business, Impact Its on Small 12 Antitrust Bull. similarly tification irrelevant.” (1967). States, Motor White Co. v. United 265-66, 696, 703, accompanying supra. 33. See text notes 14 to (Brennan, J., (1963) concurring) (footnotes “Specifically, prohibition rule of omitted). Kalinowski, generally See von applied price-fixing agreements, has been Emerging Philosophy Per Se Doctrine —An group boycotts, tying arrangements, and hori- Law, Antitrust U.C.L.A.L.Rev. zontal division markets. As to each of these (1911), The free was stated form Mr. watching while the trees.35 its classic forest would Brandeis in of Trade Chicago of antitrust laws Justice Board policy the market States, which by fashioning rules served United not be (1918). point to the 62 L.Ed. competition intrabrand foster competition. interbrand extinguishing trade, agreement concerning of ev- “Every of more insidious evil trade, lead the of regulation This would ery restrains. To connection, it restrain, monopolization. bind, In this is very total of their essence. following emphasize the important legality of is whether the is test The true in a market dominated imposed merely regu- that is as considerations: such restraint (RCA), pos- single company Sylvania perhaps thereby promotes a and com- lates total a fraction of the may minor whether is such as petition sessed market, many were avail- that other brands To destroy competition. or even suppress consumer, dealers Sylvania that question that the court must able determine fran- against veto the power no possessed ordinarily peculiar consider the facts any given in chising of additional dealers the restraint the business which and did area, Sylvania dealers could that after applied; its condition before and brands, the loca- competing and carry imposed; restraint was the nature of no on dealers had Sylvania effect, restriction and restraint actual or volume of prices, restraint, effect on history probable. demonstrable available, or consumer quality, exist, products the evil believed reason for Syl- Additionally, in no did particular pur- market adopting remedy, choice. any consumer practice sought attained, foreclose vania’s or end to be are all pose among Syl- several choice facts. is not because a from substantial This relevant who dealers, dealer any Sylvania and will vania intention save an otherwise ob- good prices reverse; his regulation have been inclined to set might jectionable or the but inadequate knowledge service high provide may help or to intent too because of strong inter- interpret predict facts and to into both the court headlong run manufacturers consequences.” other competition from brand one or competition from and intrabrand Id., 62 L.Ed. Sylvania dealers. more other incorporat- holding that an instruction Where, here, been be said with have as it cannot reason” should “rule ing the practice is in- certainty challenged that a we note jury, given unreasonable, anticompetitive herently evidence substantial presented reasonably concluded commonly referred to as the standard have might jury rather is, be, practice, applied. should of reason” “rule competitive restricting rule, unreasonably Act in read into the Sherman That than States, procompeti- forces, actually had Co. v. United Oil Standard market marginal 619, 646 in that it enabled L.Ed. tive effect36 princi- explained Arrangements: one economist has 35. As Anal- Distribution Economic analysis pal point Standards, in the ysis Policy course of Public 30 Law. & ar- distribution effects of restrictive economic Contemp. Prob. rangements: Preston, Jr., Egan professor at 36. Lee marketing arrangements “Restrictive Management University at the State School respect. competition in some thus limit sort Buffalo, of New York testified as to competi- However . limitations study after a mar- conclusions of the television may strengthen activity in one direction tive ket: competitive forces another Now, Sylvania occupies “A: since a relative- analysis question for ... is whether ly position in the market and small television competitive departure structure this competitive in that it is therefore element marketing organization is count- one within market, I think the television market would by an increase in the number of erbalanced competitive less if would be out marketing organizations be availa- brands, all, it, vigor after particular because the number in the markets or ble Preston, competitive Restrictive behavior.” are 10 to producer did not eventuate apparently to achieve tice the status of a viable normally with an associated competitor industry in an evils that threatened trade, since oligopolistic restraint tendencies. unreasonable true, It experienced industry as a whole Sylvania claimed, television location restric- in volume and a decrease tions employed by Sylvania both an increase attracted deal- period.36a Whether during ers to carry promote .price Sylvania’s prod- ucts, competition in intrabrand and ultimately some diminution fortified its market position averts the loss of one when justified with other brands. it. Perhaps industry already that some limit an competitor ruinous intrabrand competition ultimately question be a should necessary oligopolistic to induce a suffi- choice of a cient the facts. Our number of the finder of otherwise reluctant dealers per se rule of to sell the test over product. of reason It is rule undisput- that, policy ed the critical as we means noted, illegality have previously Sylva- nia’s be asked and answere share of will at least the market question increased from view, Act de less than the Sherman 2% in 1962 to In our 5% d.37 1965. Any mands no less. reduction of intrabrand competition that may have resulted prac- from the locations theory specif- or in the context economic They is in there. are at the bot- indicated, previously ic this case. As facts of tom, but in there. question under of reason the the rule ultimate Now, squeeze if we out the bottom firms must be answered the trier of fact. market, I from that then think we would see among competition in all a decline in brands major justification Perhaps the offered for country. major There- the fore, markets they is that such restrictions enable a manufac- policy any particu- or if this distribution access to markets that are oth- turer to obtain policy lar distribution has the effect of altogether probable erwise closed to him. It is strengthening Sylvania other smaller unwilling that distributors will be to handle a competitive among force firm as a the other product they unless manufacturer’s ed some competition. are afford- market, many of firms in that which are against protection ruinous intrabrand larger, then I think much we have to look justifiably Dealers could believe carefully policy at that as an element com- restrictions, of vertical the absence indeed, petition, procompetitive policy as a competition “cutthroat” intrabrand from other among the brands and manufacturers as prices dealers would drive down and render a whole. operation unprofitable, endanger their you Q: opinion just In the have de- capital their investment. sir, us, you scribed for did ascertain whether argument in favor of A second vertical re- type policy you of distribution have theory. “free ride” is the so-called strictions employed any way to be was in assumed necessary Vertical restrictions are said to competition beyond beneficial to in the sense invading prevent territories of dealers just given? you the one A: I think I that I think that range have by choosing rely promo- on the other dealers tional efforts of those undertaking just responded by saying to that that other dealers rather than anything maintains costly selling activities themselves. throughout alternatives significant logic, argued, that in the It is strengthens competitive the market there.” forces restrictions, territorial deal- absence of vertical ers will not advertising repair provide facili- extensively they would if could ties as “Q: Assuming practice a distribution of the invading pirate dealers will not be assured that assume, you type that are asked to is there promotional the benefits of these activities. any anticompetitive you characteristics that justification for vertical re- A third asserted identify? can they encourage total sales is that strictions any, I see I A: petition large don’t because feel that com- by facilitating part more dealer’s effort on a has resulted in the market from the coverage geo- intense of each concentrated of brands and number dealers available market, leading graphic thus to increased sales Preston, throughout system.” Compare products. large Sales to manufacturer’s of the supra note at 506. usually close to the dealer located customers require Note, See 36a. Texas L.Rev. costs than sales to lower distribution smaller, Accordingly, distant customers. justifications more A number have been offered restraints, if all customers are vertically-imposed benefits the manufacturer for few of which can be price briefly charged and the dealer’s sav- identical summarized. We express validity ings choice customers offset no view as to the from sales these justifications, higher in sales to others. either as a matter incurred of abstract costs wrote, Hughes once in dis partial, though imposes perhaps Chief Justice because reasonable, on intrabrand compe- “The limitation Act: restrictions cussing Sherman tition, significant possibility when there is a not mechanical or arti imposes the Act promote its overall effect is to compe- phrases, interpreted to general ficial. Its application If the between brands. tition objects, up set its fundamental attain illegality se in this case the rule were Ap of reasonableness.” essential standard stand, Sylvania would inevita- permitted Coals, States, v. United Inc. palachian stripped a tool which it bly be claims 471, 474, 77 L.Ed. 825 compete effectively it to with the enabled just holding that (1933).38 In result industry. Its “giants” few market controversy absolutely present might precarious shrink to the well share Schwinn, foreordained that a rule of prior existed institution of its level that have analysis applied, should been reason altogether possi- It is policy. room” “elbow that we hope further we believe foreclosing competitive benefits ble that goal protecting the con Act’s like the agreements one of vertical here dangers that result when sumer from rule, of a by means without involved suppressed. the competition is Since free possibility of an any inquiry into the overall underlying the the relevant legislative intent Sherman effect in indus- procompetitive might signal similarly the death of try, well goal promotion the of con Act had as its with small market situated manufacturers welfare,39 blindly we decline to con sumer per industries.40 If a se rule shares other practice demn a business as per se Act, dissenting opinion restrictions are often Vertical territorial thus Sherman see the of Mr. designed dealers to their to motivate increase Justice Holmes in Northern Securities Co. v. narrowly coverage States, 197, 400-411, depth defined areas of United “skimming” 436, 486-487, choice over rather than customers (1904). 48 L.Ed. 726-730 a wider area. major justification legality for the of A fourth study legislative history A39. of the of the necessary is that are restraints vertical conclusively Sherman Act “establishfes] that provide high to motivate dealers incentives legislative underlying the intent the Sherman quality of dealer services such as and character guided Act was that courts should be exclusive- credit, repairs, prompt and efficient consumer ly by consumer welfare and economic crite- theory post-sale The services. is that and other premise implies.” Bork, ria which that value willing, persuaded, and be dealers can provide Legislative Policy Intent and the of the Sher- exchange better services these Act, (1966). man Econ. J.Law & The ruinous intrabrand com- some insulation current also noted Solicitor General that: petition. “It is difficult to resist the conclusion that justi discussion of a more detailed these For judicial the most faithful reflection of Senator Bork, others, see and The Rule of fications colleague’s policy Sherman’s his and inten- Concept: Fixing and the Per Se Price Reason reason enunciated tions the rule of Division, 75 Yale L.J. 430 — 453 and Market (1966); Chief White in the 1911 Standard Justice Oil Comanor, Vertical Territorial and Cus opinions. and Tobacco There American Motor White and its After tomer Restrictions: speeches opinions in Sherman’s White’s as math, (1968); 81 Harv.L.Rev. 1426-33 concerned the idea statute was ex- that the Preston, Arrange Restrictive Distribution clusively welfare and that with consumer Analysis Policy Economic Public ments: discourage meant the must restriction law of Standards, Contemp. 30 Law. & Prob. efficiency. output hampering without White (1965). 511-12 appears incorporated have into also to present In the words of the Solicitor General major rules of law rule of those reason States, inescapable “. United implied by envisaged as consum- agreement an which eliminates fact is that implied by policy. rules er-welfare The every productive competition to almost is basic analysis policy as economic are alterable consisting single person. more than a unit clearly progresses, White foresaw however. or, may spelled agreement be more out principle incorporated that this and tacit, but, often, may degree change rule of reason.” into the productive per- activities of of the coordination Id. at 47. achieved, potential competi- actual sons is that, Bork, acknowledge supra 40. We as a matter of n.37 at eco- tion must be eliminated.” sharp divergence cautioning theory, nomic there is a For a classic discussion 377 against overly opinion alleged procompetitive literal of the as construction effects genu- replace permitted judgment illegality is of the District Court and eco- the reasonableness inquiry reversed, into ine and the cause is remanded for arrangements of business effect nomic proceedings not inconsistent with further strengthen which, reality, expressed.41 the views herein welfare, economic Nation’s promote Reversed Remanded.42 Act is under- of the Sherman purpose BROWNING, KILKENNY, whom with monopoly, promote This mined. WRIGHT, Judges, Circuit DUNIWAY our enterprise, and victimize hamstring free (dissenting). part or in in whole concur con- Hopefully, our consumers. country’s bars such subversion in this case clusion statement so majority factual With the weighted welfare. national irrelevancies fraught with Perhaps per applicable. se rule would territorial restrictions. not be We of vertical competing arguments exposition requote classic appear the Court’s remarks: discussions, by So- one written in two “We first observe that the facts of this case Bork, and the other William General licitor specific do not come within the illustrations Bork, n.37, supra Compare Comanor. in White Motor which the Court articulated Comanor, supra We do not further sum- n.37. possible showing to a factors relevant competing major aspects of the marize the views, challenged vertical restraint is sheltered reasoning in the inasmuch as our reason because it the rule of is not anti- present neither of the views. case endorses newcomer, competitive. Schwinn was disagree- simply the fact that a believe that We stay bicycle seeking into or to break exists, corresponding possibility and the ment ” ‘failing company.’ It was not a business. involved here the locations clauses 388 U.S. at 18 L.Ed.2d at effect, procompetitive renders whol- had a have However, because we have determined application ly inappropriate the of a se rule applying the trial court erred in illegality. The ultimate consideration of illegality Schwinn rule Sylvania’s practice procompetitive merits of locations clauses and that a new trial is there- under the rule of reason. must be conducted required, unnecessary we find it fore now to vigorously there was sufficient Sylvania decide whether evidence to contends that even if its 41. instructing jury illegal per failing practice Schwinn, held to be warrant on the com- could be locations guidance pany then it should have had the For future to the under defense. Dis- se however, “failing compa- Court, presently ap- on the of an instruction trict we think it benefit quoted prof- ny” emphasize propriate have hitherto its defense. We that even if a manufac- respect. jury prosperous operation, in this See note fered instruction turer is in its whole argues supra. Sylvania that at the time its failing company applicable 11 defense is if the instituted, Sylvania policy company failing room” “elbow is in the manufacture and dis- compelled to abandon its tele- significant products. would have been tribution of one of its In manufacturing business if it did not in- “prod- vision Fortas wrote of the Schwinn Mr. Justice of the market in the manner 382, 1867, its share crease uct market.” 388 U.S. at 87 failing company The defense has that it did. 1262. 18 L.Ed.2d at mergers applied acquisi- generally been Similarly, determination that our the rule otherwise violate the anti- tions which would inap- illegality established in Schwinn is States v. Buffalo laws. United Greater trust Press, Sylvania practice plicable chal- 1692, 402 U.S. 91 S.Ct. unnecessary lenged makes it for us to here also Publishing (1971); United Co. v. 170 Citizen Sylvania’s argument consider the merits that States, 89 S.Ct. L.Ed.2d 394 U.S. believing basis for it had no reasonable practices its FTC, (1969); International Shoe Co. v. the antitrust violated laws because (1930); Hale 74 L.Ed. 50 S.Ct. question occurred the conduct in before the Hale, Merger Failing Provi- Firms and the Schwinn decision. Laws, Ky.L.J. Antitrust of the sions (1964); disposition present While the case Connor, Clayton 7 of the Act: Section court, under consideration full Company Myth, Failing Geo.L.J. panel opinion McClatchy issued its in Noble v. Arnold, However, United States v. Newspapers, 1975). 533 F.2d 1081 & Schwinn majority quarrel here has no with (1967) indicates that the defense court; however, by the result reached Noble in cases wherein a vertical also available is language opinion any being challenged. in the Noble that The Court in is restraint majority’s of the clearly inconsistent with lan- intent that indicated its defense, shown, hereby guage present disap- case is company once would failing proved. to the rule of reason and subject the case then ap- adversely pro- decided on its retailers and issues restrictions factual cation with reselling it is our firm jury,1 belief them from its television by the hibited pellant helpful statement would be locations. separate unauthorized from sets understanding principal of the to a full Continental, one Sylvania’s largest re- offer this at the risk We presented. issue tailers, composed of a chain of retail repetition. of some' opened stores. In it a new store in

Sacramento, shipped sets from another store, offered them for sale in that city FACTS September, Sylvania in concedes that television agreement share it had an Continental un- Sylvania’s By one approximately it was prohibited der which moving déclined had market meth- changed its then brand Sylvania It merchandise to an unap- percent. two share of larger resale, obtain location for proved without Sylva- effort in an ods Sylvania policy, prior approval. Sylvania its new nia’s Under refused to market. through and, wholesalers franchise the new store beyond ques- distribution abandoned retailers tion, to selected hampered sell Continental’s resale efforts decided It brand. Sylvania case, In this it promote Sacramento. is clear would who sets to the television Sylvania’s purpose title was to prevent more re- undisputed plan, by This competition Sacramento, retailers. tail intrabrand to these passed given in a franchises of its where most sales were limiting impor- the number one intrabrand tant retailer. area, reduce as an incentive and serve among retailers outgrowth As an dispute, of this Sylvania Sylvania product. its promote carry and set motion series of maneuvers which policy” and room the “elbow called seriously affected Continental’s ability to would allow methods these believed resell television sets. To that position. competitive its improve time, Continental’s credit limitation with policy, it increased fact, this new under $300,000.00 Sylvania had been Septem- On 1965, and, so it to 5% share market 16th, ber the credit limit was reduced to permitted it to remain claims, this increase $50,000.00, at which time cancelled restricted neither market. pending orders and severed other friendly other carrying retailers franchised ties with Continental. About the same retailers to sell brands, require did nor time, Sylvania payment demanded only to customers who lived partic- receivable, within a accounts which had not been its territory. However, ular it did practice past. enforce lo- in The following October passing grant 1. In on whether contract, or not to conspiracy alleged by combination or injunction appellant’s practices, on the dis- part parcel Continental and was thereof findings trict court entered elaborate of fact Sylvania’s co-conspirator and at the instance of many which are in direct contradiction to Handy Andy; and as a result thereof Continen- majority opinion. the statements For prevented selling Sylvania tal was from its example, majority opinion footnote 30 of the brand in its store in Sacramento.” policy states that elbow “[t]he room was never September The district court also found that on by Sylvania severely used to restrict intrabrand 7, 1965, Sylvania’s manager area sales advised competition or to divide markets. No dealer principal operating Continental’s officer “that power entry had a veto over the of other deal- prior Sylvania due to ‘commitments’ which had area, into ers and locations were authorized Andy, Handy impossible Sylva- with it was by Sylvania solely on the basis of market ex- nia to franchise Continental Sacramento.” However, pandability.” finding in its 16th say, findings Needless to of the district fact the district court concluded that “the ac- implicit grow jury’s court are in and out of the Sylvania [reducing tion of line, Continental’s credit general response verdict and its affirmative orders, cancelling Continental’s and cut- previously special interrogato- maintained Continental, ting off all communication with ry- among things] pursuant other was taken to the 13th, it cancelled Continental’s franchise. antitrust laws with respect to loca- day, company the same through On restrictions alone?” Sylvania previously which extended credit way There is no of pinpointing per- to Continental sued the latter to collect centage Sylvania’s subsequent behavior which were allegedly Sylva- accounts due. jury that the attributed to enforcement ef- nia then accelerated collection of the However, forts. it is obvious the jury con- indebtedness, remaining repossessed all of Sylvania cluded that attempted to and did sets, Sylvania Continental’s attached its restrict Continental’s business pur- location bank accounts and caused main store contract, combination, suant to a conspir- and warehouse to be locked and closed. At acy in violation of the Sherman Act and to time, Sylvania about the same notified Phil- damage of Continental. co, major supplier Continental, another Despite what is page said on one of the doing. of what it was majority opinion, the district judge did not Sylvania jury instruct the claims it acted for practice reasons unre- fixing by agreement policy to its locations lated and not in locations retali- which Continental However, ation. authorized it is manifest to sell that some or Sylvania products all of se under these actions had something to do 1 of the § Sherman Act. To the contrary, it with the agreement enforcement of the is clear judge presented that the district restrict locations. This follows since the the jury the issue of whether Sylvania en- jury was instructed: contract, tered into a combination or con- “Therefore, you if find preponder- spiracy with one or more of its dealers ance of Sylvania the evidence that en- pursuant to which it exercised dominion contract, tered into a combination or con- and control product over the sold to the spiracy one or more of its dealers having parted dealer after with title and pursuant to which exercised do- risk products, to the to restrict the territo- minion or control over the products sold ries in which the dealers may resell the dealer, having to the after parted with merchandise. title and risk products, you must The paragraph from the instructions find effort thereafter to restrict out- quoted above is upon by relied the majority lets or store locations from which its deal- as a statement to the jury that ers resold the merchandise clauses are se illegal. This is one of purchased had to be a vio- several interrelated paragraphs in the in lation Act, of Section 1 of the Sherman dealing structions subject with the of terri regardless of the reasonableness of the torial or customer restrictions. Standing location restrictions.” [Emphasis sup- alone, paragraph requires proof both of plied.] contract, combination, or conspiracy, and On the basis of the evidence and the of an exercise of control Sylvania after quoted instruction, the jury answered the title and passed risk has to the dealers. following special interrogatory in the af- This paragraphs and related read together firmative. clearly also jury informed the that Sylvania Sylvania “Did Products, Inc., Electric en- would only be liable if it exercised its con contract, gage in a combination or con- trol to restrict the territories in which the spiracy in restraint of trade in violation dealers resold.1a 1a. pertinent acy, instructions read: restricts the territories within which a may purchased too, dealer resell merchandise “So concerted action in the form of manufacturer, dividing from the such a may territories which restriction is a dealer regardless purchased unlawful of whether resell merchandise or not from the that man- good practice price restriction is business ufacturer without resale from maintenance point likely manufacturer’s of view constitutes a violation of and is the antitrust laws. adequate say, manufacturer, profits. Any assure by That is to volume of where a contract, agreement, conspir- conspiracy by means of a combination or combination or THE Sylvania for both and Continen CONSPIRACY

Counsel the instructions. In clos understood tal so It if the arrangement is sufficient or arguments Continental’s counsel told ing put together through combination had committed a jury Sylvania that coercive tactics of manufacturer alone. Act if Sylvania of the Sherman se violation v. Gilliland, Hobart Bros. Co. Malcolm T. imposed or by conspiracy had (5th Inc., 1973). 471 F.2d Cir. See also maintenance restrictions on the resale price Co., Refining Osborn Sinclair 324 F.2d products purchased Sylvania.1b 1963), 573-574 n. 13 discussing agreed, telling jury Sylvania’s counsel v. Parke Davis & United States 4 L.Ed.2d 505 only required it was to decide whether U.S. prices or controlled ter Sylvania had fixed ISSUE ritories, unlawful, which would be had location, by franchised which would be lawf form, simplest its principal issue ul.1c before us is whether the district court com- which manufacturer interferes with the pernicious, or- policies perni- so are so dinary competition usual forces of competition, anti-competitive cious to so territories within which dealers restrict impact economy their on our the law they pur- merchandise have resell possible way justify states there is no keep manufacturer or to chased from the one And, gentlemen, them. ladies and the two competing for customers or sales dealer from restrictions involved this case are such territory or area served another deal- in a marketing, distribution restrictions: Territo- a violation of the antitrust er also constitutes price rial restrictions and maintenance re- laws, resulting territories whether or not the lawyers strictions are what and courts call reasonable or unreasonable. seem they se violations of the act if are en- “Therefore, by preponderance you if find contract, conspir- forced combination or Sylvania entered into a of the evidence that contract, acy. conspiracy with one combination or despite Popofsky “So what you Mr. told pursuant to which of its dealers or more argument, opening despite his what Prof. Sylvania dominion or control over exercised stand, to on Preston testified the facts are dealer, having after sold only necessary find, that it is in this case to you products, parted and risk to the with title one, policy by number had a any effort thereafter to restrict must find territory which it restricted the in which locations from which its deal- outlets or store and/or customers which Continental could the merchandise which had ers resold purchased Sylvania products purchased sell after it had to be a violation of Sylvania. Act, them from regardless 1 of the Sherman Section part policy, Syl- “As a distribution of the location restric- the reasonableness prices tions. vania maintained minimum and en- hand, question prices.” “On the other on this forced those minimum [Tr. 3338] restrictions, you are territorial or customer 1c. counsel said: manufacturer, Syl- instructed that a such as asked, pointed “You will not be as counsel vania, right, acting indepen- has a alone and out, to make decision about the reasona- interests, dently its business to select for own practice customers, bleness of the distribution purpose, or wheth- for the man- being may grant er or not is or is not bet- ufacturer an exclusive ‘franchise’ whom, alone, to certain dealers to he will sell tered or furthered. Also, products. it is lawful for the manu- “You will be asked to decide what is designate facturer to the location or locations Sylvania practice. of the the true character place places for which business sug- Was it the character that Continental said dealer or dealers are franchised. It is really price-fixing gests? involve Did it also lawful the manufacturer to decline or and control over territories on the one hand grant request refuse to a dealer’s for a fran- it, other, suggest, we involve no or did chise at different or additional locations.” practice? more than a franchise 3446-48] [Tr. we contend the instruc- “If it is the latter you 1b. counsel said: Continental’s lawful. So will be asked tions make it identify Gentlemen, only prac- the character the there are also “Ladies and cases, is, types of antitrust which this which 3378] tice.” [Tr. dominion over it. the mentioned in giving in Such re- mitted error obviously straints are so applicabil destructive of The answer lies in struction. competition that their mere existence is stated in United per se rule ity of the enough. parts If the manufacturer with Arnold, Co.,& 388 U.S. Schwinn States product over his or dominion transfers 1856, 18 (1967), L.Ed.2d another, he may of loss to not risk reserve jury in this case. findings of destiny or over its control conditions resale.” Id. at 87 S.Ct. at of its DISCUSSION 1260. [Emphasis supplied.] 18 L.Ed.2d at I. point, the Court emphasized At this opinion does the in its elaborate Nowhere prepared adopt not rule majority grips come to with the fundamen- prohibit vertical restrictions of antitrust law established tal tenet of territory franchising and all in instances it abso- Court made Schwinn. Schwinn where the manufacturer retained owner- a manufacturer has lutely clear that once goods saying ship of such a rule parting property, all control over the lost severely hamper might enterprises small re- risk, thereafter effort on with title and sorting meeting to reasonable methods of territory persons part to restrict giants competition and of merchan- sold, property may whether whom dising through independent dealers. After combination or under- contract or silent observation, the Court went on say: vendee, is a se viola- standing with the “But to allow this freedom where the 1 of the Act. The tion of Sherman Section parted manufacturer has with dominion stating language of the Schwinn Court usual goods marketing over the sit —the importance: the issue is of violate the uation —would ancient rule truly against open with restraints on alienation and are here concerned ver- “We exclusivity door to arrangement, raising the fundamen- outlets tical territory degree pru limitation of further than question tal of the to which a Id. at 87 S.Ct. at may only permits.” dence manufacturer select 1866, 18 [Emphasis sup at 1261. sell, also, L.Ed.2d customers to whom he will but plied.] allocate territories for resale and confine selected, product access to his or fran- Further emphasizing against its ban re- chised retailers. We conclude that product alienation of a once full straint on

proper 1 of the application § the Court said: passed, title had problem requires Act to this differentia- title, the manufacturer retains “Where situation between the where the dominion, respect risk with to the title, parts dominion, manufacturer with position product and the and function of article, respect or risk with are, question fact, indis- the dealer he completely ownership where retains agent from those of an tinguishable risk of loss.” manufacturer, only salesman it is 1260. [Em- impact of the confinement if the is ‘un- supplied.] phasis reasonably’ restrictive a violation of 1 results from such § Here, Sylvania parted it is conceded that by culpable unencumbered confinements to, over, with title dominion and risk in fixing.” Id. at price S.Ct. at with the television connection sets. [Emphasis at 1261. supplied.] Speaking subject, same It is in these limited circumstances Court said: Schwinn reason”, strongly urged that the “rule of so Act, it “Under the Sherman is unreason- majority, applied. should be without more for a manufacturer able per- seek to restrict and confine areas or majority suggests vertically “that whom an article be traded only” sons with restrictions were imposed customer parted has after the manufacturer and that the Court’s involved court injunctive territorial lim- on the type with reference statements restraints to It is clear that the placed upon were dicta. Schwinn. itations thought otherwise. majority Schwinn foregoing, From the we can arrive at no quote: We conclusion other than that any type of re- then, legal come, the issues in this “We by straint on alienation a manufacturer here confronted with chal- case. We are retailer, over a distributor or a be it territo- territory as to lenged vertical restrictions personal, rial title or after and dominion source of The the restric- and dealers. passed, per have is a se violation of the Act. Id. at tions is the manufacturer.” [Em- II. supplied.] phasis majority urges The that the rule per se Supreme Court decisions did Some earlier illegality established in Schwinn should not per illegality not attach a rule of be applied to a location restriction as uti- on alienation antitrust con- restraints by Sylvania. lized It is forcefully argued Court has radically text. The Schwinn the location clauses here involved Again position. speaking to changed this judged should be under what is commonly restraint on prohibition against aliena- of reason,” referred to as the “rule rather relationship, in a vertical than a rule of se illegality. As we see page page Court said at it, majority’s “critical and very obvious page 1262. L.Ed.2d at distinctions” between restrictions parted has the manufacturer with “Once Sylvania insignifi- Schwinn and those of risk, parted he has with domin- title and cant. in the present The district court case and his effort product, ion over the there- did not extend Schwinn location clauses territory persons or after to restrict by literal “applying language a bit of the may be transferred— product whom the to its without reference context Schwinn ” agreement by explicit whether si- facts of case. . specific understanding lent combination or simply took the holding The court se violation his vendee —is a of 1 of § applied at face value and it to a Schwinn [Emphasis supplied.] Act.” logically encompasses. set of facts which the breadth clarify To further argued that in Schwinn It is a wholesal- decision, quote page we from Schwinn was foreclosed er-distributor from selling 1865, 18 L.Ed.2d from page 87 S.Ct. from any purchaser products to Schwinn located 1259: page territory outside his exclusive and it is thus remand, the decree should be “[U]pon But, distinguishable. essentially the same any upon limitation enjoin revised thing Sylvania. can be said of the retailer in dispose of distributors freedom Schwinn defined the territorial boundaries products, they have Schwinn within which each distributor could resell. Schwinn, where and to bought precise Sylvania specified the location from is, principle choose. whomever which its retailer could resell. The Schwinn to sales to re- applicable course, equally prohibited distributor was from selling be- tailers, similarly should the decree yond territory. boundaries of any making sales to retail- enjoin the prohibited retailer is from resell- condition, agreement or upon any ers ing designated not limiting the retailer’s understanding free- had a manufacturer. territorial and to whom it will to where dom as geographically. Sylvania line fixed has a [Emphasis products.” sup- resell territorial line fixed economic limita- plied.] upon marketing tions an effective area. jurisdiction While it is true that the assumed Court The Schwinn clearly subject line not be as defined as that in territo- only spoke Schwinn, against aliena- the overall territorial restriction restraints personal rial upon competition just to the district as effective. tion, a directive but issued majority’s Sylvania’s contention that Schwinn principal distributor, Sacramento applied not be in this case because should “resulted in the number of Sylvania fran- imposed neither Sylvania territorial nor being chises in Sacramento reduced from impossible to recon- customer restrictions seven in 1963 to three in 1965 with Handy verdict and jury cile with the the district Andy selling all of the Sylvania color TV fact, findings of which establish that court’s sets sold Sacramento percent and 80 operated clause as a territorial the location the black and white ones during the first fact, findings In its restraint. dis- six of 1966.” months The majority does not quoted Sylvania trict court sales manu- question accuracy any of these find- al as follows: ings.3 The district court thus examined the impact Sylvania of the states, alia, practice, inter locations

The manual that concluding that it amounted to a good profitable “franchise contains a territorial sell- prevented restriction that ing by Continental from creating climate ‘elbow room’ in a competing Sacramento, a market territory based on sensible market and which only there was one significant Sylva- potential. dealer competi- ‘Same brand’ nia distributor. More importantly, these tion is eliminated.” findings implicit in the jury’s verdict. “[a]lthough The district court found that expressly Schwinn did not outlaw loca- Sylvania retail sales of brand merchandise did, by however, tion clauses name. It out- anyone, could be made to the sales could be any law and all territorial restrictions on approved made from the store location resale to others. This necessarily includes by Sylvania. By ... reason of the devices, all practical the inevitable effect of respecting inherent limitations advertising which is to restrict a retailer’s territory. promotion delivery and service of We are convinced that Sylvania-type loca- sold, territory of a retail sets dealer for tion Schwinn-type clauses and was, practical purposes, all sales limited restrictions are identical in effect and are to a radius 25-50 miles from a dealer’s both under the command of store location.”2 It be true in theory Schwinn. that, majority argues, as the “Sylvania’s dealers could sell to customers from It is a cardinal rule of antitrust law that area.” But since none of Continental’s purpose and effect of certain conduct— dealers were within located 50 miles of Sac- governs not its its legality. Simpson form — ramento, practical as a matter Continental 13, 17, 24, v. Union Oil could not sell televisions in that city. 1051, 1054, 1058, 98, 102, district court further found that the con- (1964), teaches that when a court is faced spiracy Sylvania between and Handy Andy, restricting device, with a new the effect of Compare descriptions Professor Industry, Schmitt’s Hastings mobile L.J. 903-04 employed by the effects of the location clause automobile manufacturers: only finding ques- 3. The of the district court inherently The location clause limits the majority finding Sylva- tioned is the ability dealer’s to reach customers outside requested Maguire nia to sue Continental on its marketing segment. seg- The size of this outstanding part notes as a at- according shopping ment varies habits tempt prevent selling Syl- Continental customers, popula- traffic connections and vania in Sacramento. We do not density. though Even a dealer is free to agree finding is “in conflict with the they may sell to customers wherever be lo- finding jury Maguire Sylvania cated, the location clause secured market any contract, were not involved in combina- segmentation effectively which allows the tion, conspiracy to enforce the location re- degree manufacturer to control of intra- Majority Opinion, striction.” footnote 7. The competition. brand The location clause factu- jury’s Maguire part conclusion that was not ally restricts the dealer’s business activities impose conspiracy resale restrictions on directly in terms of territorial freedom and finding Continental is consistent with a indirectly in terms of freedom of customer Maguire carrying used out the con- choice. spiracy Handy between Andy Schmitt, Antitrust & Distribution explicitly by Problems in judge by impli- found the trial Tight Oligopolies Study jury Case of the Auto- cation as well. —A substantially through the same as that of a on the Schwinn command is made illegal, condemned previously method clear the following language of its judg- the new applied must be per se rule ment: is Hobart the same effect To device. “Defendant Schwinn and the Association Gilliland, Inc., T. v. Malcolm Brothers Co. jointly severally enjoined each 1973).4 894, (5th This 899-901 Cir.

471 F.2d from, directly restrained or indirect applicable Sylvania. especially is principle ly, imposing, inducing, or securing any present, restraint in if the It is sufficient any agreement condition or or under fact, outgrowth express of an whether the standing that limits the freedom of any understanding. Hobart implied an or distributor or retailer of Schwinn prod 900; Co., Beverage Dis- supra, at Brothers ucts as to where and to whom it may Co., tributors, Brewing 440 Olympia Inc. v. products, by resell such oral or written (9th 1971). 28 Cir. F.2d statements or acts of retaliation.” 291 Schwinn, says majority, the involved F.Supp. (N.D.Ill.1968). 565 types on the locations and restriction the It is true remand decree allowed vendees, Sylvania only imposed while re- designate Schwinn to in its retail franchise permissible locations strictions on the place the agreements of business for which attempting to limit the effect vendors. a franchise issued. Obviously provi- Schwinn, majority completely over- must read in light sion be of the language language outlawing any the Schwinn looks of the entire decree and of Schwinn itself. a restraint on alienation after the type of read, only it means that a So manufacturer title and dominion. Without passage of specify can location at which a retailer reason, majority, in inter- giving a its is the manufacturer’s authorized represent- Schwinn, says: “It is clear to pretation assign ative and primary areas of responsi- ‘territory us that and areas’ refer to the bility, but that manufacturer cannot im- vendees, location of rather than vendors.” resale pose forbidding restrictions retailers nothing suggest There is such Schwinn selling from product manufacturer’s ex- Moreover, a distinction. since Sylvania’s cept where the manufacturer allows. clause, enforcement of coupled its location Clark, We that Justice writing feel facts, with hard prevented economic con- Court, properly interpreted the overall sumers Sacramento from buying Sylva- judgment effect of the district court Continental, nia on televisions Brothers, remand in Reed present case involves a direct limitation on Schwinn Inc. v. Chemical, permissible (8th the location of Monsanto vendees. F.2d 1975). He there Cir. said: [A] III. may properly designate manufacturer geo- graphic areas in which distributors shall be majority’s emphasis upon strained primarily responsible for distributing its the decree of the district court on the may products and terminate those who do futility remand demonstrates the Schwinn adequately represent promote it or ready to find a answer to the search all, products sale of its in such First of the district areas.” Citing directive. Schwinn remand, change F.Supp. 567, decree could not alter or court Bros, fully supports effect of the Schwinn decision. More im- The Reed decision our the district court followed portantly, conclusion Schwinn controls on our Gilliland, arrangement In Hobart Bros. Co. Malcolm T. concluded that an “[s]uch must Inc., manufacturer, Hobart, supra, operated practice used an be treated as it rather than primary responsibility arranged drafting.’ Simpson clause to limit area of skillful ‘as Cf. territory which Gilliland would sell Ho- v. Union Oil U.S. products. (1964).” Hobart not manu- bart’s Since Id. 471 L.Ed.2d 98 F.2d at 899. See Co., Bros., on the same factured but also sold level as its Reed Inc. v. Monsanto 525 F.2d dealers, 489, 490, 1975); Interphoto Corp. restriction the effect of the was a hori- Cir. eliminating competi- Corp., (2d of markets zontal division v. Minolta 417 F.2d 1969). and its dealers. The tion between Hobart court later again, time the Reed Bros. affirmed without facts. Time and comment the Su- preme precept once Court.6 court echoes the Schwinn parts with and do- a manufacturer title to Topeo,7 Upon remand the district court product, over the is a minion forepart of its carefully decision fol- restrict violation of the Sherman Act lowed the decision of the Court by which, whom, persons or an areas within prohibiting any type defendant from arrangement article resold. would restrict within which persons territories to whom support also seeks for its majority might firm sell pro- member on re provision views in a of the decree through Topeo, cured then Associates, Topco mand in United States v. engage in gobbledygook, a lot of went on to Inc., introducing what a meaningless seems to be fact, Topeo strengthened Y with reference to paragraph locations se rule per and extended the Schwinn reads; which, pertinent part, in against Topeo, territorial restrictions.5 which struck down horizontal division “V territories, the for explained reason the Notwithstanding foregoing provi- approach per Schwinn se sions, nothing in this Judgment Final rules, “Without businessmen (2) ... prevent shall defendant with little would be left to aid them in designating place from the location of the predicting any particular in case what places or of business for which a trade- legal courts will find to be issued, is provided mark license that de- under the Act. Con- Should grant shall not refuse fendant trade- gress ultimately predict- determine that any or mark license member withdraw unimportant ability is in of the this area member, any except any license law, course, can, it make se rules in incident to the bona fide ter- withdrawal cases, some or all and leave courts to any mination of member firm’s member- through ramble the wilds of economic Topeo, if action ship in such would theory in order maintain a flexible exclusivity or maintain achieve territorial approach.” Id. 609-10 n. firm; . .” any in member Id. at 31 L.Ed.2d at 527. 174,391. The majority downgrade Topeo by provision with ambigui- While the is loaded insisting severely that it was limited its clearest it no more ty, even at can mean remand, judgment on which judgment Topeo to desig- than that could be entitled 5. See 6. United States v. 7. United States pra. 506 F.2d 1973-1 Trade brand commerce in unreasonable the territories to whom the member Sherman Act engaged The defendant and its member firms have Copper ^[*] products. in a combination and [Territories; Restrictions ] Liquor, ^[*] Cases, 941-43 restraint [Bylaws; within violation (15 Topco Associates, U.S.C. § ^[*] Inc. v. ¶ Topco III which or the customers 74,391 (N.D.Ill.). I of interstate trade and firms Rules] of Section 1 of the ^[*] Adolph Associates, 1) by restricting may 1975). ^[*] conspiracy sell Coors Inc., ^[*] Topeo Inc., Co., su whom the territories ment, program tering procured brand lation and adopting whom regulations to eliminate therefrom territories ment, sions which Licensing Agreements, Defendant Defendant days into products. arrangement, any any amend its any bylaw, from or from the within which or the or member in which member is ordered and within which enforcing any way enjoined [Agreements ] maintaining, through Topeo bylaws, Membership entry firm resolution, understanding, IV firm resolutions, limits any and restrained from limits Topeo. or may contract, directed, adhering to, the Final or restricts the sell rule or or persons sell persons any provi- rules and products restricts plan within agree- Topeo Judg- regu- en- or place places ‘failing companies’ briefly nate the location mentioned in which a mark license is trade Id. at business for Schwinn.” issued, granting of such provided persuaded by the We are not majority’s restricting not result did analysis of Copper Liquor. exhaustive No persons which or territories within digested, matter how is it reaffirms the might products firm sell whom member dogma Court Topeo, through in viola- procured from against face has its both horizontal “set Topeo Supreme Court decision tion of the restrictions, vertical with the I, III, IV of the Paragraphs district exception possible vertically imposed re- on remand. court decision ‘failing strictions ‘new entrants’ and ” attorneys Topeo on ap- That the companies.’ “failing is neither a peal judgment placed from the on remand company” nor a newcomer seeking to break no such construction on the district court into television business. judgment made the following evident recently 15, 1975, As as November language pages taken from and 6 of their Aviation, Fifth Circuit Eastex Inc. v. The appeal, brief on to-wit: Hutchison Sperry & F.2d court in Paragraph “The district outlined position where reaffirmed a manu- V the activities defendant facturer sells to distributors sub- engage violating could without ject resale, to territorial restrictions on government injunction. court’s The ar- a se violation of there is the Sherman gues Paragraph V renders the de- unreasonable, Antitrust Act and that it is inadequate creed ‘because it fails to relief more, for a without manufacturer to seek protect permits against and in fact con- persons to restrict and confine areas of with renewal of the collective allo- tinuation or whom may an article be traded after the among competing territories cation of parted manufacturer has with dominion (Juris. Topeo products’ branded sellers of over the article. Statement, 5) it p. By In fact does not. V Paragraph forbids very its terms IV. ‘directly if or practices of these majority conveniently The confuses and used to or maintain’ indirectly achieve location integrates clauses and exclusive territorial restrictions. prohibited dealerships, claiming them to be so interde XX.) were p. Topeo engage If (App.C, pendent as to make exclusive dealerships effect, having an viola- activity such a resale-type useless without location clauses result.” the decree would [Em- option. as an enforcement The two are phasis supplied.] distinguishable. clearly In an exclusive concession, making Topeo With this is dealership, distributor, dealer, or fran why Court easy to understand chisee obtains manufacturer’s self-im affirmed without comment. not posed promise to contract with another year Circuit in Early Cop- the Fifth general in the distributor area. A location Coors per Liquor, Adolph Inc. v. a restraint clause with on alienation deals 1975), commenting on (5th F.2d 934 Cir. with control the manufacturer’s over the Topeo said: and Schwinn distributor, dealer, place which a “Notwithstanding, may product. Oil Co. v. franchisee resell a Standard States, 1911, expressly dealership ordains the exclusive United Schwinn, acceptable Topco practice, as do 55 L.Ed. to be an cases on relies, suggest point majority that at this together, example, read which the Bu accept Corp., (9th the fact that the Court shie v. 460 F.2d 116 we must Stenocord against 1972), Joseph Seagram face both horizontal E. & has set its Cir. Sons restrictions, Ltd., Liquors, with Oke & and vertical Hawaiian F.2d 71 1969), denied, cert. possible exception vertically im 396 752, 24 posed by restrictions ‘new entrants’ and L.Ed.2d 755 Neither approv extend somewhere into a Seagram every- Sons nor Bushie dealer franchised & clauses, as those argument such under where. This is al to location similar to the solely They deal with exclusive scrutiny. majority’s contention if a manufactur- thing for a dealerships. right designate It is one manufac er has the location valid, is its own behavior. It franchise is “then manu- turer to restrict where a try power to restrict that of must have the quite another facturer to enforce entity. rights if independent business these a franchisee loca- violates his agreement.” tion clause According agreed utility It generally is the distinction majority, right between the dealerships ability exclusive resides approve right locations and the to limit density of manipulate sales outlets. the freedom of a distributor as to where it grant dealership of an but exclusive “spurious.” sell “artificial” promise by the manufacturer not to sell nearby This majority to other distributors. serves commits the same mistakes product marketing respect right for active stimulus both the to franchise However, Schwinn, if a by right grant under and the dealers. exclusive grant prevent dealerships. uses the device manufacturer Neither is rendered reselling goods dealer in which the to sell permitting useless Continental dominion, Sylva- full is Sylvania dealer has title and he televisions in Sacramento. prohibited employing restraint aliena- nia can insure that are effec- ap- by granting tion. Just because the courts have tively marketed exclusive dis- proved dealerships, in- tributorships, itself, exclusive such as thereby limiting Bushie, Seagram assigning spaced volved in & Sons does locations of pri- and areas can employ mary responsibility, thereby mean that manufacturers imposing obli- place location clause to a restraint on alien- on its gations dealers. But Schwinn bars to limit ation order territories territorial and customer on re- restrictions Thus, can resell. We which their distributors sale. once legitimate in- agree who commentator described terest in full distribution of its is satisfied, lo- as “fallacious” “contention that the it has right prevent no Conti- long is lawful as as the manu- selling cation clause nental in Sacramento. An lawfully grant analogous facturer can exclusive fran- distinction was made in Hobart types Gilliland, two of restrictions are Inc., chises. These Brothers Co. v. Malcolm T. vastly impact. in terms market The court supra. different stated that the manufac- agreement, turer, Hobart, By an franchise exclusive restricts voluntarily manufacturer itself. “. could refuse to deal with Gilli- However, imposes when manufacturer land, did right give but that Hobart resale it exercises control over restrictions immunity so that it could use an competitive most crucial one of the deci- Id. territorial restraint.” at 900. independent truly sions which trades- Aviation, in The court Fontana Inc. v. and to he man must make —where whom Corp., 432 Beech Aircraft F.2d granting wares. will sell his To claim 1970), if right said is franchise is a lawful an exclusive restraint accompanied by agreement an unlawful “or on the part on manufacturer’s alienation control,” conceived market deny any analytical difference and to right “transgresses” then the the antitrust imposed on restraints on alienation mem- Similarly, present case, laws. Sylva- legal level is bers of the next economic grant exclusive right nia’s distributor- Schmitt, note 2 supra, nonsense.” at 907- locations, approve ships, assign and to OS. primary responsibility areas of does not majority argues applying give immunity impose a rule it re- per illegality Arguments se to location clauses ren- on resale. straints to the con- distributorship tool trary nothing ders exclusive use- amount more than veiled dealer less it turns a franchised because on Schwinn. attacks V. each other’s ‘[cut] throats.’ But, we have never found this possibility Although operate location clauses to se- sufficient to warrant condoning horizon- verely reduce or eliminate intrabrand com- tal restraints of trade.” 405 U.S. at 610- petition, majority argues that the conse- S.Ct. L.Ed.2d at 527. inter- improved clauses is quence of such [Emphasis supplied.] a desirable end under competition, brand reasoning, Act. That this from an Though case, a horizontal Topeo restraint policy viewpoint, antitrust is fallacious is stands for the rule that restricted intra- following language demonstrated brand justified cannot al- Topeo: leged interbrand competitive gain. This general, “Antitrust laws in and the only causes the majority rule not rationale particular, Mag- Sherman Act in are the fail, provides but excellent econom- enterprise. They na Carta of free are as justification ic for the per rule, se important preservation of econom- preservation encouragement of in- free-enterprise ic freedom and our system competition, trabrand as a desirable end in Rights protection as the Bill of is to the itself. Under the Schwinn per rule, personal of our fundamental freedoms. business, enterprise, small free and the free guaranteed And the freedom each and necessary market are all beneficiaries. business, small, every no matter how compete the freedom to assert with —to VI. devotion, vigor, imagination, ingenui- ty whatever economic muscle it can mus- A few words about the majority’s cases. ter. Implicit such freedom is the no- cases, The exclusive dealership including tion that it cannot be foreclosed with Bushie, Hawaiian Oke and have already respect to one economy sector be- distinguished. been Great weight placed private cause certain groups citizens or States, White Motor Co. v. United might believe that such foreclosure pro- (1963), U.S. L.Ed.2d 738 greater competition mote in a more im- case in which Court declined portant economy. sector of the Cf. Unit- apply se rule to vertical restric- Philadelphia Bank, ed States v. National tions, somewhat similar to those 321, 371, 1715, 1745, White, simply Schwinn. Court said yet ready it was not to apply the rule. “The District Court determined that That the White Court- did not refuse to limiting the freedom of its individual apply se rule or reach the plateau other, compete members to with each by to it attributed Justice Stewart in his Topeo doing greater good was fostering dissent is made Schwinn manifest the competition between members and other following pertinent language: But, large supermarket chains. the falla- “We do not know enough of the eco- Topeo incy authority this is that has no nomic and business stuff out of which under the Act to determine the Sherman arrangements emerge these to be certain. respective competition values of vari- . We need to know more than we economy. ous sectors the On the con- actual impact do about the of these ar- trary, gives the Act to each Sherman rangements competition on Topeo and decide prospective member to each ‘pernicious whether have such a right member the to ascertain ef- for itself competition fect on and lack competition whether or not with other any redeeming virtue’ . . supermarket chains is more desirable and than should be per in the sale of thereafter classified as Topco- products. brand Without territorial re- violations of Sherman Act.” Id. at strictions, Topeo may members indeed at at 83 S.Ct. 746.8 majority 8. The cites Justice Brennan’s concur- primary responsibility lawfulness of area of ring opinion supporting covenants, agree- in White Motor as majority which the defines restraint, unlike outrage at the breadth the manufacturers Justice Stewart’s Sylvania and, in his and capsulized Schwinn finally, of the decision General Schwinn decision and majority antitrust Motors other previous citations are expression, “No Instead, suspect highly its action. due justifies age. to their of this Court case repudiates completely A which is not case old on which the 388-89, 388 U.S. at Motor.” White point, heavily majority Corp. relies is Salco That L.Ed.2d at 1266. 87 S.Ct. Corp., Motors General F.2d 567 per se of the core Schwinn the fundamental 1975).9 Although involving a Cir. franchise risk is of title and is the residence rule clause, with a location the authority of the dis by Justice Stewart’s clearly established point fatally on our decision weakened ground can find no valid he in which sent of the court to recognize failure to a the rule of reason apply on which to resale, prohibition on even make apply relationship and not principal-agent such a prohibition part known that was vendor relationship of the same rule to the parcel dogma. of the Schwinn The only focus on Justice’s vendee. mention Schwinn is in connection with dichotomy certainly demon sales/agency the well known tenet that a manufacturer of the on the essence his view strates product equivalent of a for which brands The consent decree Schwinn decision. readily available market may Motor, United States the remand of White select his customers purpose Co., 1964 Trade Cas. ¶ v. White Motor whom, franchise certain dealers to 71,-195 eliminating (N.D.Ohio), alone, goods. will sell his he No one dis- from the franchised customer restraints putes rule. Boro Corp. that Hall v. General to the insight gives contract us considerable Corp., (2d Motors 1942), F.2d 822 of the company’s interpretation Saleo, relatively cited in is a ancient case Court’s decision. long decided before Schwinn. Additionally, argues employ- point. is not in majority case There the record on the clearly se rule shows there was no of the Schwinn restriction ment wholly on the used car preventing case would be dealer present of the facts sale v. General with United States automobiles outside the “zone of influ- inconsistent matter, For Corp., ence.” dealer was Motors point- that he (1966). The Schwinn Court notified could even establish a L.Ed. loca- was, all, Motors first tion outside his zone of ed out that General influence as long that, “unduly prejudicial case. More than as it not a horizontal restraint the dealers initiated interests of other dealers.” This General Motors is a far cry “obligating case, ments a distributor to concentrate product Stearns in the instant sells his specified geographical his sole efforts in a area. distributor, Sleep, to a such as World of provisions ap- of the The thrust ‘firmly in connection such sale and reso- Brennan, proved however, “only Justice subjects lutely’ the distributor to territorial adequately represent the dealer must resale, upon by ‘explicit whether restrictions assigned area, manufacturer that he agreement or silent combination or under- stay must other out of areas.” 372 U.S. at vendee,’ standing with his se violation 271-72, n. Act results.” Id. at 44. body It is ****** mentioned in the of our dissent that recognize Saleo failed to or even mention the proposition “Schwinn also stands for that prohibition on demon- resale. To prod- a manufacturer where does sell his fully recog- strate that this restriction now dealer, contrary a uct to but on the retains nized in the later 10th Circuit case of World of title, respect dominion and with risk Sleep Company, Foster Stearns & 525 F.2d product, position of and the the dealer is akin (1975) quote: we agent of an to that or salesman of the manu- played “The Schwinn case a role in dominant facturer, type a territorial limitation on such case, the trial of the instant and the trial dealer is violative of the Sherman a Act judge attempted to tailor his instructions only impact if the limitation such is ‘unrea- Schwinn, teaching fit the that case. In sonably’ competition. restrictive of manufacturer, a held that where such as Id. at lines, however, in which in those concrete mold instances in place Continental. clauses are attempted which such in fact used as a impose a territorial means restriction Hall and is fur- of Boro Saleo The force sales, would, Department couse, a recent exhaustive undermined ther illegal.” (Clearwater, consider them in the auto- practices distribution study of Laws, Franchising and the Antitrust May Schmitt, 2.10 supra, n. industry. mobile 16, 1974). [Emphasis supplied.] study concludes The author “[i]n dealerships, the of automobile Since, the context the jury as both and the district a flat territorial constitutes clause found, location the location court clauses involved in Any other conclusion would be prohibition. by Sylvania case were used impose of the hard economic gross distortion sales, restriction on Depart- territorial “the He further concludes Id. at 904. facts.” would, course, ment consider them ille- through is a device the location clause gal.” manufacturers ef- which “the automobile control over intra- fectively have achieved VII. competition,” which has no economic brand Initially, Sylvania urged that it was enti- “merely and which substitutes

justification, an instruction on the “failing compa- tled to decisions for those the manufacturers’ ny” Publishing rule stated Citizens Co. v. make on the dealer should basis which a States, United the market.” Id. at 905-06. the dictates of The majority does not Finally, comment should be made some an press application now of that rule. majority’s quotation from an address on the understandable. This is The evidence of- Deputy Attorney Assistant by a General by Sylvania fered shows that by 1965 it had quotation Division. The the Antitrust recovery made a remarkable from its unsta- majority opinion is: “And last position early ble sixties. agree We spokesman for the Antitrust Divi- year, a judge the trial that there was insuffi- locations clauses ‘are not stated that sion cient evidence to submit this issue to the standing by ‘[t]hey themselves’ since illegal jury. legitimate inter- the manufacturer’s reflect efficient- having goods his distributed est in CONCLUSION ” through particular area.’ The con- ly analysis A and study close of the majority quotation of Mr. Clear- text from which the patterned reveals that it is opinion after taken is as follows: water was closely follows Justice Stewart’s ‘primary responsibility’ “‘Location’ and lengthy and exhaustive dissent in Schwinn. designates a seller clauses —under which perspective, in broad When viewed the ma- purchaser-cus- location of his specific jority holds Schwinn is bad law and tomer, geographic or the area which adopt the approach. that we should Stewart re- purchaser-customer primarily join which, opinion We decline to in an we prod- for the sale of the seller’s sponsible believe, would sub silentio overrule a deci- illegal standing by them- ucts —are not sion of the Court. the manufacturer’s They reflect selves. urging affirmance, legitimate having goods go interest we do not be- efficiently throughout par- yond jury’s verdict distributed en- agreement purchaser-customer, area. The forced its to create ticular however, selling restricting is not restricted from restraint elsewhere once the interests of the manu- locations from Continental could sell Reading facturer are satisfied. between We do not need products. to decide reviewing authorities, 10. After Schwinn and several other rendered unlawful in United States v. Gener- the author relevant states that thereby concluding Corp. al Motors that “the nothing change pri- Schwinn decision does Hall deci- to dust off old Boro subject” questionable is at best. or law on the sion and add that the location clause was not clause, more, a location without turer whether to designate the location for which a per se violation of the creates dealer is franchised. Precisely to the con- Act. trary, it was instructed that location clauses lawful. case was submitted to the WOULD AFFIRM.

WE jury on theory that a violation of the antitrust laws is to be found CHAMBERS, only if Sylva- Judge (concurring Circuit conspired nia to control the territories dissenting): which its dealers resold pur- merchandise judgment the majority. I concur in the Sylvania. chased from This was the under- I dissent from the stream of words used to standing of counsel parties. for both point Naturally, at the of reversal. arrive Judge Kilkenny’s opinion further brought demon- elongated this river of words forth legal strates that the theory reflected in dissents. fully instructions is supported by Schwinn, will One note author of the and is consistent with the line of authorities opinion cites the Texas Law majority Re- upholding exclusive dealerships. law view and other review comments in his purpose It is the opinion this footnote No. 1. These are notes on to deal the majority’s third contention by Law reviews used to wait case. until the showing major that a purpose of judicial process complete a case was be- Sher- man Act is served the rule entering fray. prohibiting they chaper- fore Now seller from restricting the during pendency territory us one case. This purchaser resells the purchased right. is their First Amendment merchandise. opinion This will also seek to practice citing But if this their current establish that appropriate to classify continues, comment then we shall be out such territorial restrictions as se illegal, lining up law support reviews to our views. rather than to illegality base upon an ad After that we shall be taking step judicial hoc determination of unreasonable- quoting the York Times and New the Chi- ness in the circumstances of each case. cago Tribune. And it will easy jump be an opinions then to include in our the current I Bugle

comments of the Abilene and Bis- Brewery bee’s Gulch Gazette. jury’s verdict determined that Sylva- nia restricted the territory in which Conti- BROWNING, Judge, Circuit with whom nental could resell television sets purchased WRIGHT, Judge, (dissent- Circuit concurs Sylvania. Where to sell is a crucial ing): question. business The answer determines premise

It is the majority opinion the markets in which the seller will com- jury Thus, was instructed pete. Sylvania interfered with the clauses are under the Sherman exercise of Continental’s judgment business instruction, Act. majority Such ar- in a way that significantly impaired Conti- (1) gues: supported by is not United States nental’s freedom to compete. Arnold, & Sylvania’s conduct toward Continental 1856, 18 (1967); (2) L.Ed.2d 1249 important thwarted an purpose of the Sher-

inconsistent with the rule permitting exclu- Legislative man Act. history dealerships; (3) sive is at odds with the Court decisions establish that a principal purpose of the Sherman Act. objective of the Sherman Act was to pro- Judge Kilkenny’s opinion right demonstrates independent tect the business enti- majority’s premise that the is not substanti- ties to make competitive their own deci- ated the record. The jury was sions, coercion, not in- collusion, free of or exclu- structed that it is for a manufac- sionary practices.1 unlawful majority’s legisla- 1. If goal promotion statement that “the of consumer welfare” underlying tive intent the Sherman Act 1003) had as (Majority Opinion, p. to exclude is meant

1019 of exclusive territories can also be made on passing in general purpose Congress’ price of resale behalf maintenance.”3 and restrain ac- was to limit Act Sherman represented by power, economic cumulated price In the first resale maintenance deci- trusts, preserve and and to restore sion, Dr. Miles Medical Co. v. John D. Park competitive enterprise. of free system 373, 220 376, & 31 Sons concern not reflect a debates congressional (1911), L.Ed. 502 contracts between a manu- price, interest consumer with the and its facturer dealers setting minimum services, goods and quantity and quality, at which the prices product retail could be pro- society’s interest also with but part held sold were because they businessman, independent for of the tection upon alienation,” a “restraint created political as well as and of social reasons described as “restricting the Court the free- policy.2 economic part of trade on the dom dealers who implemented the has Supreme Court they 407-08, what sell.” Id. at own independ- policy protecting statutory 384, 55 L.Ed. at 518. The Court conclud- units in a series business individual ence of that after Dr. Miles “sold product ed banning price resale mainte- decisions satisfactory itself, prices the public is particu- These cases are agreements. nance whatever advantage may entitled to be de- for, re- like territorial here larly relevant competition in the subsequent rived straints, justi- maintenance price resale 409, 31 385, traffic.” Id. at S.Ct. at to en- necessary as by manufacturers fied L.Ed.at competition intrabrand them to control able Agreements requiring purchasing dealers in the interest of independent dealers by prices by to observe resale fixed the vendor Indeed, competition. interbrand effective illegal per were held United States v. that can be made on behalf “any argument legislative purposes, competition,’ protect public is refuted against it full other history to in the authorities cited here- protect referred high prices, and to small business and contemporary assuming that some in. Even against corporate individual freedom wealth given might in a case maintain that economists broad, general power. In the terms of the might served be better consumer interests debates, appeared regard the Senators these independent eliminating competition between social, political, purposes and economic as con- businessmen, is little evidence that “There sistent, Bohling, collateral thrusts of the Act.” any impos- had idea of the others Sherman and Terminations Under the Franchise ing an economist’s model of Power, Populism and Relational Act: Texas industry. They did not consult econ- American (1975). legislators “The L.Rev. time; so, they and if had done omists of the well aware of the common were law on re- support little would have found trade, powers monopo- and of the straints of Neale, The Antitrust Laws of course.” A. such public raising price, lists to hurt the deterio- (2d 1970). America 13 the United States of ed. rating product, restricting production. At striking contrast views of the Con- time, equal the same there was at least concern gress, of the late 1800’s considered economists producers, with the fate of small business, driven out of other combinations to be a natural “trusts” and evolutionary deprived opportunity advance, monopolies en- to be it, by powerful aggregations potentially ter ‘all beneficial. Let- both inevitable ” win, Kaysen Turner, Congress capital.’ and the Sherman Antitrust Law: & D. C. Antitrust 1887-1890, (1956). Policy (1959). 237-38 23 U.Chi.L.Rev. See also United States v. thought pre- Considering America, the level of economic Aluminum Co. of 148 F.2d vailing inconceivable that Neale, Con- (2d 1945); supra A. note at 12- gress passed the Sherman Act “out of an exclu- Thorelli, 13; Policy The Federal H. Antitrust prices preoccupation with the idea that sive Jones, (1954); Blake Toward a & Three-Di- always equal marginal costs.” Blake should & Policy, mensional Antitrust 65 Colum.L.Rev. Antitrust, Jones, 65 Colum.L.Rev. In Defense of Jones, (1965); supra Blake & 422-24 note (1965). 382-84. debates, congressional the Sherman 2. “In the Posner, Policy Antitrust and the dealing great urged a means of Act was Analysis of the Restricted Court: An Distribu- power had accumulated tremendous trusts that threatening tion, Merger, Compe- businessmen, Horizontal and Potential consuming small Decisions, purpose public, the social Its tition Colum.L.Rev. order. variously preserve conceived to be to ‘free and 85, Son, Inc., 252 40 U.S. S.Ct. Act A. because its purpose Schrader’s was to “coerce” 251, (1920), 471 because such 64 L.Ed. independent theater submitting owners into “designed away to take agreements arrangements to “unusual which unreason own of their affairs and dealers’ control ably suppress normal competition.” Id. at . . . .” destroy thereby 45, 43, 51 at 75 L.Ed. at S.Ct. 150. ofUse 253, 64 L.Ed. at 475. 100, 40 at Id. at S.Ct. boycott “style piracy” to end was outlawed 13, 17, v. Union Oil 377 U.S. Simpson In Originators’ Fashion FTC, Guild v. 312 1051, 98, 1054, 12 102 L.Ed.2d 84 S.Ct. 457, 703, 61 S.Ct. (1941), U.S. 85 L.Ed. 949 system struck down a of (1964), the Court part away because the freedom “[took] agreements produc between consignment participants, 465, of action” of id. at 61 independent service sta gasoline er of 707, 953, 85 at L.Ed.at S.Ct. and forced stating, ‘consign “If operators, accept to “a them rival method competi of price achieves resale agreement ment’ tion,” 467, 707, id. at 61 at S.Ct. 85 L.Ed. at in violation of the Sherman maintenance Similarly, group boycott 954. was banned Act, are being the lease used to it and Klor’s, Inc. v. Broadway-Hale Stores, injure depriving commerce in interstate Inc., 207, 705, 359 79 U.S. S.Ct. 3 L.Ed.2d of dependent dealers of exercise free (1959), though even it might 741 lower consignees whether judgment to become at prices temporarily stimulate competition, all, and, event, consignees, any or remain “[f]or, as this Court said Kiefer-Stewart 16, competitive at prices.” to sell at Id. 84 Sons, & Seagram 211, 213, Co. v. 340 U.S. 71 1054, 12 at at 104. The Court S.Ct. 260, 259, 219, 95 L.Ed. 223 agree S.Ct. ‘such the consignment program condemned “[for] ments, than no less those to fix minimum destroying competition in retail sales of prices, cripple freedom of traders and these gasoline by ‘consignees’ nominal who thereby ability restrain their to sell in ac- reality competitors small struggling are in ” with their judgment.’ cordance own 359 21, gas at seeking retail customers.” Id. 84 212, 709, at 79 S.Ct. U.S. at 3 L.Ed.2d at 1057, 12 at L.Ed.2d at 105. In Kiefer S.Ct. The Act was 745. violated because the Sons, Seagram v. E. & Joseph Co. Stewart boycott “takes from Klor’s its freedom to Inc., 211, 259, 71 S.Ct. 95 L.Ed. 219 buy appliances in an open competitive mar- (1951), agreement among Court held an ket and drives it out of business as a dealer prices competitors to fix maximum resale products. in defendants’ It deprives the agreements, illegal because “such no less manufacturers and distributors of their than to fix prices, cripple those minimum at freedom to sell Klor’s prices the same the freedom of traders and restrain thereby conditions made available Broadway- to sell in ability their accordance with their Hale, and in some instances forbids them 213, 260, 71 judgment.” own Id. at at S.Ct. to it selling from terms whatsoev- 223. 95 L.Ed. at 213, 710, er.” Id. at S.Ct. at 3 L.Ed.2d at protecting right theme same 745. independent compete business entities to contexts, many In other the Supreme through Supreme runs Court decisions hold- upon has Court rested decisions the premise illegal ing boycotts per se. In the group protection of the freedom compete cases, Montague first Co. v. of these & separate business entities is an important 38, 307, Lowry, U.S. 24 S.Ct. 48 L.Ed. objective of the Sherman Act. In Silver v. (1904), emphasized Court Exchange, York New Stock U.S. indepen- impact upon the restraint (1963), 10 L.Ed.2d S.Ct. for exam- dealers, precluded dent who had been ple, the Court reasoned that the antitrust conducting “their business as had appropriate are an upon laws check anti- done.” Id. at 24 S.Ct. theretofore at competitive exchanges, at conduct market 48 L.Ed. Paramount Fa- Corp. States, serve, Lasky among mous v. United the antitrust laws “[s]ince (1930), protect 75 L.Ed. 145 things, competitive other free- agreement dom, violate i.e., held to section the freedom of individual business policy.” counter antitrust group Id. at compete unhindered

units ” 359-60, 14 L.Ed.2d . Id. at at 635. of others. action A holdings and From the rationale of these General Motors and between combination decisions, Supreme Court “it and other sales dealers eliminate some protection of individual seems clear that houses” was held through “discount unnecessary upon traders restrictions Motors in United General States a significant action is inde- their freedom 127, 1321, 86 S.Ct. 16 Corp., 384 U.S. of As pendent objective policy.”4 antitrust (1966), “to 415 because served L.Ed.2d it, recently put “The a most commentator competitors by a termi eliminate class of objectives policy the social important of dealings between them and nating business are antitrust decisions found in the Court’s dealers to de minority of and Chevrolet independence and concepts of business of their to dealers freedom franchised prive opportunity.”5 freedom of business through they if so choose.” discounters deal words, Judge Congress well-known Hand’s 140, 1328, at 16 at 86 L.Ed.2d at S.Ct. Id. economic motives not “actuated Co., Brown Shoe 384 U.S. In FTC v. 423. possible, alone. of its indirect It is because 1501, 16 (1966), 587 316, L.Ed.2d 86 S.Ct. effect, of prefer system social moral to or upon as follows Brown commented Court producers, dependent small each his suc- for Company’s program requiring retail character, Shoe upon skill and to one cess his own for agree buy to shoes resale engaged dealers mass great in which the of those Company the Brown Shoe and not from These accept must the directions of a few. competitors: program “This considerations, its obvi- we as suggested which have Act, central ously policy possible conflicts with the of of we think purposes its prove 1 to have been in fact of Act and 3 of the decisions both Sherman § § purposes.”6 Act Clayton against contracts which take away purchasers buy freedom of in an In Schwinn the relied Court 321, 1504, market.” at 86 open Id. S.Ct. at cases to above referred upon several In United 591. Mine Workers 16 (Dr. v. D. Park & Medical Co. John Miles 657, 1585, Pennington, v. 381 U.S. S.Ct. Klor’s, Broadway- Co., Inc. v. supra; Sons (1965), the Court 14 L.Ed.2d 626 held the Inc., Stores, supra; Originat- Hale Fashion agreement an Act violated be- FTC, supra; and United States ors’ Guild v. group union of employees tween a and holding Corp., supra) v. Motors General upon uniform labor standards all impose the free- “any upon limitation noting industry, “the sali- employers dispose of dom of distributors agreements of such ent characteristic bought they have products, the union surrenders freedom Schwinn, where to whomever and bargaining respect policy. is, course, to its action principle The choose. upon retailers, restraints just It is such and equally to sales to applicable according units to act similarly enjoin economic the mak- freedom decree should own that run eondi- ing upon any their choice and discretion to retailers sales 2, Jones, supra up independent, note at 436. See also economy Blake & 4. com- An made Jones, Importance The of Fran- Growth condition peting units fulfils the business Law, chising Bull. Role of Antitrust making be dis- decision should that economic 717, persed the holders of economic renders power It is mutual encroachment. liable to 2, Bohling, supra at 1190. note 5. conception important that the individ- to this engage in right business activities ual’s America, Aluminum Co. of United States v. preserved and that no shall own choice 416, 1945). (2d 148 F.2d unit, single in the form of whether economic foreign suggests perceptive observer A combination, monopoly shall be able system independent, preference its own behest and so ren- rivals at exclude competing reflects Ameri- entities business power from invasion. der immune its own pow- distrust “of all sources unchecked can 1, Neale, supra note at 430. A. er”: tion, understanding limiting agreement in the sale of the manufactur- er’s products. majority argues, retailer’s freedom to where and to how- upon products.” (in part ever the authority will resell the whom it United of Mr. Arnold, concurring Justice Brennan’s opinion supra, Schwinn & v. States States, White Motor Co. United 378, 18 L.Ed.2d at U.S. 9 L.Ed.2d (1963)), that a upon restraint suggested The rationale in this and other “redeeming have the dealers virtue” of passages fully forcefully Schwinn is competition in enhancing the sale of the Topco reiterated United States v. Associ products of different manufacturers. ates, Inc., 596, 610, majority concludes that the “rule of reason” (1972): applies, therefore and the reasonableness general, Antitrust laws in legality and hence the of territorial dealer particular, Mag- Sherman Act restraints should be left to the jury de- enterprise. They na Carta of free are as cide in each ease. preservation of important to the econom- major The flaw in this argument is that free-enterprise ic our system freedom and it ignores the two most relevant and recent Rights is protection as the Bill of cases, Topeo. Schwinn and As Judge Kil- personal of our fundamental freedoms. kenny’s opinion demonstrates, jury the found guaranteed And the freedom each and Sylvania conspired to control the terri- business, small, every no matter how is tories in which Continental Sylva- and other compete freedom assert with’ —to products nia dealers sold purchased from devotion, vigor, imagination, and ingenui- Sylvania. Topeo Schwinn and hold such ty whatever economic muscle can mus- illegal per conduct be se under the Sher- ter. man Act. apparent It is the Schwinn-Topco This should end the matter for an inter- contract, outlawing any doctrine combina- court, appellate mediate even if the correct- tion, conspiracy impose territorial re- Schwinn-Topco ness of the analysis were upon independent straints traders is found- A doubtful. reexamination of the Schwinn- upon important long ed recognized Topco analysis in light of the facts of of purpose the Sherman Act. case, however, demonstrates that analysis is sound. II Court did merely resur- remaining question is re- whether against rect rule restraints on alienation upon territory straints in which inde- drawing the line separating vertical ter- pendent may dealers resell should be con- ritorial restraints that are per illegal se regard demned without to the reasonable- prohibited those if shown to un- ness of the restraint in a particular case. reasonably competition. restrict Quoting from Northern Railway Pacific The naked transfer of title is not a deter- States, Co. United per may minative fact. The se rule 514, 518, 2 L.Ed.2d (1958), though applicable the manufacturer retains majority argues that the rule of per se position applies title. It unless “the illegality apply only should a restraint are, of in question function the dealer “pernicious that has a competi- effect on fact, indistinguishable from those of an any tion” and also “lacks redeeming vir- agent or salesman of manufacturer majority recognizes tue.” The that a terri- 388U.S.at380,87S.Ct.at . .” upon restraint torial dealers Thus, does eliminate 18 L.Ed.2d at 1261.7 the line drawn juggling “a ships independent Under Schwinn of labels or of the with economic in the entities place passage business, of title will not suffice to distribution whose business decisions invoke rule of reason treatment. Nor will the on the sale of the func- reflect casting consignment investments, tions, goals into the mold of relation- which in fact dif- imposed principal promote restraint separates competi- restraints imposed by one held agent, from those The Court upon his tion. such a restraint per imposed se entity upon another.8 when business is nonetheless independent independent (1) upon se rule business entities be- applicability Even if title, “obviously such restraint destruc- cause entirely upon passage depended among independent competition tive” usually distinguish serves to in- that event dealers, (2) appro- because it not an operating on dependent business entities judicial public function to distribution; priate strike functional levels different between the interest balance certain loss of Schwinn, for, the Court noted “most among independent competition dealers and pur- means merchandise is distributed gain of possible competition at some other 87 S.Ct. at chase sale.” marketing process. point at 1260. It is therefore has located the the Court evident The fact that territorial restrictions inevi- boundary application rule eliminate tably intrabrand the Sherman Act’s way in a that serves independent is, dealers among as the Su- competitive free- preserving purpose said, preme obvious.9 Sylvania Court con- independent businessmen. dom of cedes as much. Continental’s efforts Handy compete Andy in the sale of majority’s contention that a Despite the Sylvania products the Sacramento area only if the re- appropriate per se rule is by Sylvania’s were frustrated enforcement virtue,” redeeming straint “lacks location clause. The district court holding Schwinn and Supreme Court’s found that after Continental’s effort upon territory a Topeo that restriction aborted, Handy compete Andy sold all may traders resell is independent which in color television sets that depend upon not a conclu- illegal did per se in were sold Sacramento. no this restraint has affirmative sion that Supreme Supreme Court contrary, On the The Court knew that value. benefits to competition in some circumstances recognized that interbrand were asserted to producer, Co., 13, to 20-22, fer from those of the serve immu- Union Oil fact, form, as well as in 1056-1058, nize restrictions. 1051, 98, 104-105 consignee’s be to function must close that (1964). producer, for of mere salesman for the 8. Professor Averill writes that behind Schwinn producer-imposed to tolerate restrictions law separate is “the idea that each unit of a distri- consignee’s decision-making.” on the Zimmer- system capital which risks its and bution relies man, Sealy Distribution and Restrictions After upon product its own initiative market a Schwinn, 1181, 12 Antitrust Bull. 1188-89 Johnson, authority (1967); Agency deserves have commensurate see The Role of and how, Electric, Simpson, freely and Sale in Schwinn, decide where to whom will Antitrust: General 57, (1968). Averill, Sealy, 53 Minn.L.Rev. 67 When Schwinn and sell.” Sherman supplier asked whether a could avoid the im- Analysis Prognosis, An 15 One: N.Y.L.F. pact by switching of Schwinn distribution (1969). in 64 Other commentaries which (then consignment, Professor Turner Assistant purpose pro- is Schwinn identified with Attorney charge General in of the Antitrust independent preserve the freedom of mote and Division) replied: Jones, supra note units include at economic position any we be time see [0]ur Term, 746; Court, Supreme 1966 81 Harv. maintenance, price fixing price and resale Note, (1967); Law 236 Antitrust L.Rev. restrictions, or territorial customer limita Application An State: The New Industrial imposed though they on tions distributors — Practices, 4 Automobile Distribution U.S.F.L. consignees performing called be significant —who Rev. selling functions in addition to a function, and there is no excuse of the kind 9. 388 U.S. at L.Ed.2d reasonable, we have indicated we think such Copper Liquor, Adolph Inc. v. at 1260. See entrants, we attack as new will those restric 1975) n.5 F.2d Coors tions. (“Vertically imposed territorial restraints have Discussion, Orderly Marketing, Panel Franchis- reducing eliminating the obvious effect They Licensing: ing Trademark Have Been competition, Sealy? whatever their intrabrand effect 1968 Antitrust Routed Symposium Simpson competition”). 44. See also on Law interbrand volved in deciding given control mar- flow from manufacturer in a case whether in dealers sold. It was elimination keting areas competition intrabrand among through dealers such benefits Court territorial because of restric produced tions in applied restrictions fact compensating gains territorial sustained competition producers. were in fact in interbrand among dealers who indis- to Schwinn’s As the Court said in United States v. Topco position and function from tinguishable Associates, Inc., supra, 609-10, 405 U.S. at agent salesman” of Schwinn.10 “an However, to consider at 526: the Court declined competition benefits to interbrand asserted The fact courts are of limited case, where, as in this effect of utility examining difficult economic to eliminate territorial restrictions inability Our problems. weigh, any competition among were dealers who inde- sense, meaningful of competi- destruction Thus, entities.11 pendent business economy tion in one sector of the against Topeo Schwinn invoked a Court both promotion competition in another against per se rule restraints important reason we one have formulated because in- resale are destructive of rules. competition in spite benefi- trabrand If required the courts were to review such impact they might have on interbrand cial reason,” under a issues “rule of unpredicta- competition. ad ble hoc determinations as to what is or is has Supreme Court held it is not under the Sherman Act would judicial weigh appropriate function to an result. The Court suggested that competition against loss intrabrand rule reason should be applied in this alleged in interbrand gain Congress area if were to decide that determining whether Act has predictability is unimportant and that violated for two related reasons. The been courts should be “free to through ramble re- ill-equipped first is that courts are the wilds of economic theory in order to complex problems economic in- solve Id. at 610 maintain a approach.” flexible 380-81, 1866-67, S.Ct. at considering Topco’s justification economic explicitly L.Ed.2d at 1260-62. The Court stifling competition applied intrabrand not whole,” “product looked to the market as a only to in the horizontal division of territories interbrand, applying intrabrand and in the rule Topco-brand which members could retail through of reason Schwinn’s distribution goods, but also to territorial and customer re- consignees under which Schwinn retained own- wholesaling by Top- members of strictions on 382, ership 1867, and risk. Id. at 87 S.Ct. at 1135, at at eo. Id. at 92 S.Ct. L.Ed.2d at 1262. reasoned that: 528. The Court fully For restrictions, further that evidence Court territorial limitations on [l]ike alleged aware of the benefits to interbrand customers are intended limit intra-brand competition program, of Schwinn’s distribution competition promote and to inter-brand com- Keck, Case, see The Schwinn Bus.Law. previously petition. the reasons For dis- (1968). cussed, Topeo in which the arena members compete must be left their unfettered Topeo defended its use of territorial division contrary congressional choice absent deter- nearly employed by in terms identical to those mination. United States v. General Motors Sylvania: Schwinn and Arnold, Corp., supra; cf. United States v. Topeo essentially maintains that it needs ter- Co., supra Schwinn & .... compete larger ritorial divisions to with per held Like the restraints Id. in chains; that the association could not exist if vertically Topeo, Sylvania’s imposed territorial anything the territorial divisions were but Continental was restriction on intended to limit exclusive; by restricting competi- and that competition promote intrabrand competition. interbrand Topco-brand goods, tion in the sale of Thus, given by the reasons actually competition by association increases Topeo examining in for not enabling compete Court “difficult its members to successful- problems” ly larger regional attempting involved economic in and national chains. Associates, Inc., competition Topco supra, balance losses United States one sector economy against alleged gains at 405 U.S. at 92 S.Ct. L.Ed.2d another equally The Court’s rationale for not relevant in this case. n.10, n.10, marketing 31 L.Ed.2d at 527 practices at 1134 one level of a mar- ket will have at other n.10.12 levels.14 majority majority quotes would submit The question portions of the testi- mony whether of Professor the fact finder is not the chal- Preston as “substantial competition, from which the jury might restrains but evidence lenged conduct have reasonably Sylvania’s concluded that restraint on intra- loca- the admitted whether rather than practice, produces unreasonably net economic re- brand forces, stricting competitive market actual- through enhanced interbrand com- benefits ly procompetitive had a effect in that words, petition. majority’s In the “Wheth- marginal producer enabled a to achieve the competi- in intrabrand er some diminution competitor status of a viable in an industry justified tion is when it averts the loss of by oligopolistic tendencies.” threatened Ma- competitor industry one in an that is al- Opinion at 1001-1002 & n.36. jority But Pro- ready oligopolistic ultimately be a should Preston did not testify permit- fessor of the facts.” question for the finder ting Sylvania to limit dealer locations would frankly acknowledges majority competition among producers. enhance He “that, theory, of economic there as a matter guarded made assertion that “if we divergence opinion as to the sharp ais squeeze out the bottom firms ... we effect of vertical alleged procompetitive a decline in competition,” would see and “if restrictions,”13 regards but policy this distribution particular submitting as a reason for disagreement policy distribution has effect legality of such restraints to question of strengthening Sylvania or any other small- judge fact-finding jury. (Majority competitive er firm as a force majority’s view of 40) The note' Opinion we then I think have to look carefully at judicial function is odds with competition, an element in in- policy Schwinn, Topeo, and the traditions and ” . procompetitive policy as a . deed they rest. It is also an precedent on which added). (emphasis Even this predic- limited enterprise. invitation to a fruitless dependent on tion was a number of assump- witness, expert own Professor tions, at least one of which the jury verdict Preston, that in present testified Lee E. Professor found to be untrue: Preston con- analysis it is possible state of economic change ceded the whole “[i]t changes the effect if analysis” to determine restricted the territo- quoted expla- Act, 12. The Court Mr. Justice Black’s in the Sherman Question U.Chi.L.Rev. Schmitt, nation need for se rules in such (1963); Antitrust and Distribution Ry. situations in Northern Pac. v. United Tight Oligopolies Study Problems Case—A States, Industry, Hastings of the Automobile L.J. (1958): principle “This noting, It 904-05 worth only type se unreasonableness not makes the example, that there is substantial economic proscribed restraints which are the Sherman opinion that because restrictions everyone Act certain to the benefit more upon franchising product dealers enhance dif- concerned, necessity but it also avoids the for ferentiation, such restrictions eliminate not incredibly complicated prolonged an eco- intrabrand, competition, competition but investigation history nomic into the entire Comanor, supra, as well. between brands at involved, industry as well as related indus- 1437; Zimmerman, supra 1183-85; note at tries, large to determine at in an effort whether Schmitt, supra, at 906. particular restraint has been unreasonable— justifications sup- wholly The economic offered in inquiry so often fruitless when un- carefully port restraints are at of vertical exam- dertaken.” 92 S.Ct. at rejected by Judge Copper 31 L.Ed.2d at 525. ined and Wisdom in Adolph Liquor, Inc. v. Coors 506 F.2d justifi- 13. Refutations claimed economic 1975). n.5 941-43 vertical restraints can be cations for such Preston, 14. See also Restrictive Distribution Comanor, in Vertical Territorial and Cus- found Analysis Arrangements: Economic and Public White Motor and Its After- tomer Restrictions: Standards, Stone, math, (1968); Policy Contemp.Prob. 30 Law & 81 Harv.L.Rev. Opening (1965). An Territorial Distribution: 508-09 Closed reasons besides (R.T. practice the locations would resell that in which dealers ríes explain Sylvania’s could four to percent five 2917-18).15 2910-11, important, market share. Most as noted value of Professor Moreover, limited earlier, Professor Preston conceded that Sylvania testimony to was dissi- Preston’s specify impossible is the impact of The relevant on cross-examination. pated at the changes retail level on competition at margin.16 Pro- testimony quoted manufacturing level. there no neces- admitted Preston fessor judge jury A or be expected should not the use of location between connection sary Sylvania’s determine whether locations Sylvania’s ability to maintain clauses practice Sylvania’s contributed to success in recognized market share. He present its interbrand when ex- were, course,” many “of other there that pert was unable to so.17 witness do Because course, firm, assumptions say, Other critical made Profes- Of if a 15. A. I Sylvania up pricing product way competitive Preston were that did not set sor its out level, patterns response requests to dealer at the retail then it limits would show a 2904); Sylvania (R.T. marketing that did demands at or decline in shares the manufac- prohibit turing coercive means to dealer one use level. selling territory (R.T. territory say article, you in another starting Didn’t in this Q. 2905-07); greater page that no dealer relied to a in Duke Law Review: Sylvania product closely than normal on extent “A related matter is the interac- 2907-09); (R.T. and that no excluded dealer between horizontal and vertical mar- vigorous (R.T. especially competitor relationships. present was an 2929-30). ket state of eco- analysis general permit doesn’t nomic us impact changes specify the of one of vertically reasons, related market several upon levels could There be other Q. couldn’t there, structure and behavior at another.” was able to maintain a 4 Yes, you quoting my percent nationally A. own are to 5 share of the market writing. particular besides the use of this distribution Right, policy? was true at Q. the time you this article? wrote Oh, many reasons, A. other of course. A. Yes. words, product? quality of In other Q. And it is still true? Q. A. Of course. working IA. have been on that since then That could be a reason. Q. and have written more about it. I I think A. Yes. have a few more ideas but don’t answer Promotion? Q. yet. questions A. Yes. Basically still true? Q. Advertising? Q. Yes, right. A. I think that is A. Yes. R.T. at 2955-58. fact, saying you today generally accepted So are not that it necessari- there is Q. no ly particular body follows that these distribution of economic doctrine that could serve as a necessary policies guide applying or are in order were the Sherman Act and other See, present g., Neale, able to supra be maintain mar- antitrust statutes. e. A. share, you? 429; Bohling, supra 1188; ket note note No, certainly Bernhard, Competition A. am not. I in Law and in Econom- tell, way ics, is no (1967); There is there? Q. 12 Antitrust Bull. 1156-61 suppose given enough imagination Theory Dewey, A. I The Economic of Antitrust: money spending enough might Religion?, we con- Science U.Va.L.Rev. 430- satisfy duct some kind of research to our- it, selves but I think don’t we productivi- set Commentators who maximum able to. sole, central, ty objective “as for the competitive argue law’s rules of behavior” and really way you provide There is no can tell Q. that the science of economics can stan- competitive judgment from the you effect at a retail level— in dards for antitrust cases have been type by rely upon can’t tell of information said one economist economic competitive “is, theory unfortunately, what effect at the the manufac- elementary so be, turing going you? is, extent, is large level can that it hard, irrelevant.” Bern- They thing. agree 1115-17, supra, A. not same I are the 1151. See also Samu- that, they elson, Monopolistic with are not the Competition same. Revolu- tion, Monopolistic seem Competition And there doesn’t direct cor- Theory: Q. in Stu- Impact the (1967). relation between two? dies in 105-36

1027 ment of representatives the elected loca- effects the interbrand measured, required. people a deci- be cannot practice tions of the net effect whether the as to sion tradition, dating judicial A at least from would be sheer proeompetitive practice opinion Addyston Pipe Taft’s in in Judge shown, been Finally, as has guesswork. 1898,18 weighing bars the courts from con- terms purely in economic gain if a net even flicting predictions economic to determine established, such restraints could be could public litigation.19 interest in antitrust Schwinn, consistent be sustained not applying reason,” when the “rule of Even “ Act purpose of the Sherman Topeo, and inquired courts have not whether ‘on of in- competitive freedom to maintain reckoning ultimate of social or eco- some units. business dependent or credits’ the conduct nomic debits be beneficial. ‘A value choice of such deemed Supreme given by the The second reason beyond ordinary limits magnitude holding support of Topeo in Court judicial competence . .’”20 for the task of are unsuitable courts competition intrabrand deciding whether founded, This tradition is as the sacri dealers should be among independent Topeo, both upon Court said the inade competition interbrand promote judicial process ficed quacy of to deal with question is one is that among producers, disputes, upon such conviction that by determined policy properly policy of economic are for public questions legisla said, judicial 405 at 611— than The Court U.S. tive rather determination. Congress. 1135, courts have shown that get 31 L.Ed.2d at 528: can 12, 92 S.Ct. “[T]he agreement facts of at the restrictive to be made to sacrifice a decision is If truly justiciable cannot find a intent but portion of the econo- competition one between rival issue in the choice economic another greater my As the Court said in predictions.”21 United must too is a decision that be portion, this Singer Co., Manufacturing 374 States private Congress and not made 174, 196, 83 1773, 1785, 10 U.S. Private forces by the courts. forces or 823, (1963), “Whether economic conse of their own inter- keenly too aware are this character warrant quences of relaxa and courts making such decisions ests scope of the of enforcement of the for such and ill-situated ill-equipped laws, however, is a policy antitrust matter decisionmaking. analyze, interpret, To congressional or executive committed competing myriad and evaluate province It is not within the resolution. the endless data that would interests courts, whose function is to apply brought to bear on such deci- surely be existing law.”22 sions, judgment to make the delicate society of com- Finally, values to there is no substance in the ma- the relative judg- economy, jority’s prophesy catastrophic conse- areas of petitive 321, Co., 371, 1715, 1745, Addyston Pipe U.S. & Steel 10 L.Ed.2d United States v. 283-84, 1898), 915, 271, (1963). aff'd 175 F. 96, (1899). 211, 44 L.Ed. 136 20 S.Ct. Neale, 1, supra note at 440. 21. A. Neale, supra at 435. Illustrative note 19. A. Brewster, Jr., States v. Trenton Potter- Kingman include United cases 22. Professor wrote that 377, 379, 392, 398, 47 S.Ct. having ies 273 U.S. act like “the values served courts (1927); Standard Oil Co. v. Unit- just legislative important L.Ed. bodies are as 293, 308-14, States, 337 U.S. 69 S.Ct. society might ed are the values which served (1949); 1059-62, 1383-86 United every by economically 93 L.Ed. by having decided case Bank, Philadelphia essentially Nat’l States v. hoc but ad determinations rational 1715, 1745, good- public interest. The net economic (1963). proper of effects is not sub- ness or badness Brewster, ject judicial En- determination.” Unruly Competition: Loevinger, Reason or Rea- in Antitrust forceable The Rule of Reason Rules?, Law, (1964), quoting 46 Am.Econ.Rev. sonable 50 U.Va.L.Rev. Bank, Philadelphia Nat’l States v. United vigor against of the ment quences competitive competition. Chain stores prohibited of be if use location claus- cannot in the economy name of free inde- If competition. territorial restrictions on chain impose es to franchisees succeed competition among se. free independent dealers held pendent making decisions, businessmen their own predicts majority The that if sellers are conduct, predatory and without neither the restricting the areas in prevented spirit of letter nor the Sherman Act will be resell, “giant may fran- purchasers offended. replace might “loyal networks of chisees” majority The offers no sup- evidence to businessmen”; small manufacturers small port producers its assertion that might be might inability to perish due to attract develop unable system distribution un- dealers; larger might manufacturers they permitted guarantee are less dealers by integrating eliminate franchisees verti- market; protected and there is substan- of cally. end result all this would be The the contrary. tial evidence to monopolization.” “[HJundreds evil of total “the insidious years of have for manufacturers been suc- Majority Opinion 1000-1Ó01,1003-1004. cessfully operating under antitrust decrees speculation. majority’s The concerns are forbidding precisely type prod- the same rest, moreover, They premise. on a false uct se illegal Arnold, control held “franchising” if it majority refers to Injunctive provisions Schwinn & Co. phenomenon uniformly af- unitary awere type long this have been standard in De- by Schwinn and case. But there fected partment of litigated Justice consent and many types franchising. Trademark decrees.”24 franchising, franchising or an entire “Predictions, of integration” vertical be- service, example, “perhaps business cause of antitrust condemnation of vertical dynamic segment the most of contractual proved restrictions “have remarkably be systems,” does not involve the sale of a past.”25 unreliable in the It is unlikely subject not be product, would be more reliable in this restrictions at all.23 Schwinn’s through instance. Producers distribute in- majority’s suggestion that elimina- dependent dealers rather than through might of territorial restrictions lead to employees their own because it is economi- large creation of franchisees with sever- cally do advantageous to so. Vertical inte- outlets, and that this result al would gration by producer into retail distribu- nothing argu- more than an particularly undesirable tion is uneconomic. Distribu- Thompson, Sys Marketing uniformity 23. D. Contractual product of the trademarked Pollack, (1971). See also tems 21 Alternative preserve rights and thus in the trade- Schwinn, Distribution Methods After 63 Nw.U. Nothing mark. of the Court’s four supra Jones, (1968); 601-02 & n.35 L.Rev. opinions suggest that even in the case FTC, 741-42; Report note of Ad Hoc outright products sales of trademarked Franchising, Committee on at 31 In the modify Court intended established trade- report respect latter it is said with to the rele requires mark law which the trademark own- vant Court decisions that: er to maintain sufficient control over his li- laying principles, down these the Court censees to assure that his mark will not be directing arrange- was not its attention to abandoned and that deemed the licensee will involving franchising ments an entire apply products the mark either to the same promoted business or service which is na- substantially qual- the same tionally under a trademarked name and asso- ity public past that the has associated public highly ciated in the mind awith dis- mark. appearance tinctive external or with a stan- Williams, Distribution and the Sherman operation. dardized uniform There in- is no Motors, Effects of Act —The General Court dication intended these deci- Sealy, 1967 Duke L.J. 735. See also apply sions across the board trademark- supra note Zimmerman, at 1186-87 & n.8. licensing arrangements, frequently also sub- franchising, under the sumed term in which Schmitt, supra imposes 911-12; see Wil- licensor restrictions the licen- note identity supra origin, liams, quality, sees to ensure note at 735. industriousness, profit responsibility, relatively low attention is tion activity.26 costs are costs desire to earn a operating profit,” and and which are capital Both high.27 retail in required ordinarily most not found “mix” salaried product The employees.30 single franchising Finally, significant offers ad- cannot be furnished operations vantages avoiding going up problems, to set local labor “Nobody is producer: burdens, toothpaste, no variety to sell administrative and a system distribution laws These additional substantial eco- what antitrust matter taxes.31 say.”28 among advantages the “vast nomic franchising be will re- sets also Television producers for “it is if prevented which main even are of commodities” numbers up territory to set dictating a distri- which hopelessly independent inefficient just commodity only to handle that The system predic- dealers resell. reasonable bution 29 Continental, example, tion, therefore, sold is that if the district court only.” case, manufacturers. More- were in this producers of several affirmed bring often over, continue to distribute independent through independent businessmen integrate as a “sense of than qualities such dealers rather to distribution forward.32 14, Preston, Schmitt, supra supra 13, at 512. in the note future. note 26. at 913. industry, In the oil the substantial disecono- distribution, cost automobile 27. “[T]he integration (Miller, mies result that would capital, great as the cost is almost labor Dealing Industry: Exclusive Petroleum Note, 8, supra manufacturing note them.” Relationship, Dealer The Refiner-Lessee 3 Yale Schmitt, 13, supra at also note 110. See at 223, Essays (1963)) significant Econ. are a 870-71. through company- disincentive to distribution Comanor, 13, supra owned See outlets. note at 7, Discussion, (re- supra note at 57 Panel 28. 1435-36 n.32. & Turner). Donald marks of following judgments The are illustrative of id. 29. prohibition that the net effect Schwinn of vertical territorial restraints will be to bene- 724; see, 4, Jones, supra g., at e. Zim- note 30. independent fit small businesses: merman, supra note at 1186. Therefore, saying, all this is decision really person is what it means in a that a See, Brown, g., Franchising e. H. —Realities position benefits Jones, dominant cannot have the (1973); supra note and Remedies vii-viii 4, system, accruing franchise 723-24; Note, to a and at the Restricted Channels of Dis- at Act, being retain the benefit of able to same time Under 75 Harv.L. tribution the Sherman disposition of those control the ultimate Rev. goods. Schmitt, 912-13; supra note at See decision, you you make a So have to either 315-16; Zimmerman, Stone, supra note system independent distribution have you 1186-87; Discussion, supra Panel note long run it ... In the don’t. (remarks Jerry supra of S. note 55-56 probably be more will beneficial [Schwinn] Cohen); (remarks id. at 57-58 of Donald Turn- businessman than it will be the smaller Note, supra er); note at 109-10. harmful. Shortly Supreme Court’s after the Schwinn Discussion, supra (remarks Panel note at 56 Arnold, decision, took Schwinn & Co. over the Cohen). Jerry of S. independent dis- of its nine wholesale functions Therefore, elimination of the loca- however, case, typical. is The tributors. contracts, tion from franchise the free- clause dealers; independent company had few as to where and to whom dom of dealers by consignment of its distribution 75% probably be This will will will increased. sell upheld by Schwinn decision. which sporadic changes lead in the distribu- published extensive literature on viability pattern will not affect the decision, no the decade since that evidence system. The distribution the franchised integration producers that forward offered principal demise of the location result been accelerated distribution has into preservation free- will of the dealer’s be the ruling. Court’s automobile areas, At do business. least in some dom to industries, for two which account thirds of oil enhanced, competition will be intrabrand sales, franchising examples of industries all stifling intrabrand manufacturers’ following integrated have not antitrust replaced by operation will requiring the abandonment of vertical decisions independent market forces. dealers. Such inte- restraints industry, Schmitt, unlikely, supra gration note in the automobile at 909. DUNIWAY, Circuit Judge (dissenting): Richard (argued), Brobeck, Haas Phleger Harrison, Francisco, Cal., & San for defend- I dissent solely on the ground that, as ants-appellants. Judge Kilkenny parts demonstrates in I and II dissenting of his opinion, the case of Timothy (argued), Francisco, H. Fine San Arnold, United States v. Schwinn & Cal., plaintiffs-appellees. for 1856, 18 1249 is squarely in point. I agree with

Judge Browning when he says that ORDER “[t]his should end the matter for an intermediate appellate TRASK, court.” I Before BROWNING express no Circuit views as to the conflicting policy arguments Judges, GRAY,* Judge. District ap pear in the respective opinions Judges petition rehearing pend- was held Browning, Ely and Kilkenny. cannot, I ing the decision in GTE Sylvania, Inc. v. however, refrain making one small V., Inc., Continental T. 537 F.2d 980 observation. I puzzled am by the notion 1976). It is now denied. that because the courts are very well opinion As noted in the (see equipped to case decide between conflicting no 14), tions of note this case and policy, economic GTE deal pick should one side of such an argument questions. with different This case erect into a rule of per se illegality. legality involve of restrictions

upon territory in which a purchasing may dealer resell. The majority opinion in “Sylva GTE considers whether practice fixing by nia’s agreement locations from which Continental was au Sylvania’s products thorized sell was ille gal per se under Section 1 of the Sherman opinion at 982. The majority Act.” Id. Noble, Willard M. NOBLE and Etta M. Sylvania approves GTE the result reached Plaintiffs-Appellees, However, in this case. it disapproves “any v. language opinion in the Noble v. [Noble NEWSPAPERS, corpora McCLATCHY Cir., McClatchy Newspapers, 9 533 F.2d tion, al., Defendants-Appellants. et be inconsistent 1081] majority’s language” in GTE. Id. at Noble, Willard M. NOBLE and Etta M. we Accordingly, 1004 n.42. have reexam Plaintiffs-Appellants, opinions ined the in both cases. We con clude that there are no inconsistencies be NEWSPAPERS, corpora McCLATCHY tween them and therefore make no modifi tion, al., Defendants-Appellees. et language cation of the opinion in this Nos. 72-2021 and 72-2042. case. Appeals,

United States Court of

Ninth Circuit.

May * Gray, Honorable Judge, William P. California, United States District Central sitting District of by designation. notes Harv.L.Rev. been used other at 88 Mercer busi- ness, (1975); Magnavox, (1975); example, Frigidaire, for L.Rev. 629 53 N.C.L.Rev. 775 (1975); longer we we decided that could N.Y.U.L.Rev. 53 Tex.L.Rev. 127 no have a (1975); approach me too 10 Colum.J.L. & Social Prob. 497 dealers. approach Because if were in we a me too type approach or the same as RCA or Zenith, basically testimony Sylvania there was no Certain reason for the indicated that in- policy dealers to handle our line stituted its elbow room order because could to avoid being Ray handle other lines. out of the driven television market. Steiner, J. the time of Vice trial the President

Notes

[******] America, Sony Corporation prior pro- We knew that if the advent of this April, Manager Syl- gram, National Sales keep if it work didn’t and we didn’t our vania, Batavia, plant running as follows: testified there was the alter- ers, Sylva- who were distribution authorized sell saturation method of former products only designated locations. distribu- nia selective begin program management apparently agreements Sylvania between There were tion.3 dealer a more effec- become and its dealers that it could believed expand- merchandise to a new rapidly Sylvania then move brand competitor tive resale unapproved if it location for without television could for color ing market image Sylvania. a network of prior approval prestige develop loyalty Sylvania with sufficient dealers avoid Sylvania specific made efforts to products aggressively. Sylvania market No practices. dealer anticompetitive dealership particu- for a of its exclusive reorganization given part California, Division, exam- In Northern Products lar area. Entertainment Home had least two or au- dis- more implemented ple, new selective

Case Details

Case Name: Gte Sylvania Incorporated v. Continental T v. Inc., a Corporation

Court Name: Court of Appeals for the Ninth Circuit

Date Published: Apr 9, 1976

Citation: 537 F.2d 980

Docket Number: 71--1705

Court Abbreviation: 9th Cir.