*1 V., INC., CONTINENTAL T. al. et GTE SYLVANIA INC. February Argued June 1977 Decided
No. 76-15. *2 J., opinion Court, delivered the Powell, J., in which Burger, C. JJ., joined. and Stewart, Blackmun, and Stevens, J., filed an White, opinion concurring judgment, post, in the p. J., filed a Brennan, dissenting statement, J., joined, which Marshall, post, p. 71. Rehn- J., part took or quist, no the consideration decision of the case. Glenn E. Miller for argued petitioners. cause himWith on the briefs were Lawrence A. Choper. Sullivan and Jesse
M. Popofsky argued Laurence for respondent. cause With him on the brief were L. Richard V. Stephen and Goff Bomse.* the opinion of Court. delivered Powell Justice
Mr. agreements Franchise between manufacturers and retailers provisions include frequently barring the from selling retailers products from franchised locations other specified than those in the This agreements. presents important questions case appropriate concerning analysis antitrust restric- these 1 of tions Act, § under Sherman amended, Stat. C. and § U. S. the Court’s decision in United States Arnold, Co., Schwinn & 388 U. (1967). S. 365 urging
*Briefs of amici curiae affirmance were filed T. Lawrence Zimmerman Equipment .Distributors; Lloyd for Associated N. Cutler, Campbell, Lake, James S. William T. and Donald F. Turner for Assn.; by Philip Motor Manufacturers and Vehicle F. Zeidman and A. Dienelt John International Franchise Assn.
I Sylvania Respondent (Sylvania) GTE Inc. manufactures through and sells television sets its Home Entertainment Products Division. Prior like other television most Sylvania independent its televisions to manufacturers, sold company-owned distributors who in turn to large resold and its group Prompted by diverse of retailers. a decline in market relatively insignificant share to a of national 1% 2% Sylvania television sales,1 conducted an intensive reassessment of its marketing strategy, adopted the franchise plan challenged Sylvania here. out dis- phased its wholesale tributors began directly to sell televisions to a smaller An group more select of franchised acknowl- retailers. *3 edged purpose of the to number of change was decrease the Sylvania competing hope attracting retailers in of the the aggressive competent more thought necessary retailers to improvement company's position.2 of the To market Sylvania end, limited the number of for granted franchises any given required area and Syl- each franchisee sell his to products only vania from the location or locations which he was A franchised.3 franchise constitute an exclusive did not Sylvania territory, and retained sole discretion increase the number of retailers in in light an area of the success failure of existing retailers in developing their The market. revised marketing strategy appears to have been successful during period at here, Sylvania’s issue share of national television sales had approximately increased to 5%, and the 1RCA at that time dominant firm with as much as 60% industry national television in an sales with more than 100 70% manufacturers. Sylvania selling. products The number significantly of retailers declined change, as a result of the but 1965 there were at least two franchised Sylvania metropolitan in each retailers center of 100,000 more than population. 3Sylvania imposed right no restrictions on the of the franchisee to sell products competing manufacturers. company ranked as the Nation’s eighth largest manufacturer of color television sets.
This suit is the result rupture of a franchiser- relationship had previously franchisee prospered that under Sylvania revised plan. Dissatisfied with its in the sales city Francisco,4 of San Sylvania decided spring Young franchise an Brothers, San Francisco established of televisions, retailer as an additional San Francisco retailer. proposed location the new franchise was approximately a from mile a operated by retail outlet petitioner Continental Inc. V., (Continental), T. one Sylvania the most successful franchisees.5 protested Continental location new franchise violated Sylvania’s marketing Syl- but policy, persisted plans. vania in its Continental then canceled a Sylvania large placed order and large order with Phillips, Sylvania’s competitors. one of
During this same expressed period, Continental a desire open a store in Sacramento, Cal., Sylvania a desire attributed in part at least to Continental’s displeasure the Young over Sylvania decision. Brothers believed Sacramento was adequately market served the existing Sylvania retail- ers and denied the request.6 the face denial, of this Sylvania Continental advised it early September process of Sylvania was in moving merchandise Jose, San Cal., warehouse new retail location that had *4 in later, leased Sacramento. Two weeks for unre- allegedly reasons, Sylvania’s lated department credit Conti- reduced 4Sylvania’s share in market approximately San Francisco was 2.5%— average. half its national and northern California corporate petitioners: There are in four V., Inc., fact T. Continental Sales, Inc., Sylpac, Industries, A & A. G and S. M. Inc. All are owned by individual, large part in all conducted same business under the style adopt by trade “Continental T. V.” We the convention used referring petitioners collectively court below of as “Continental.” 6Sylvania exceptional had achieved Sacramento, results in where its market exceeded share 15% In $300,000 $50,000.7 response from credit line
nental’s deteriorating rela- generally and the in credit the reduction payments all owed withheld Sylvania, Continental tions with com- Co., (Maguire), the finance & Maguire P. Inc. John Sylvania credit between arrangements pany that handled Sylvania Shortly terminated thereafter, its retailers. diversity filed this Maguire franchises, Continental’s District for the Northern in the United States Court action seeking recovery owed and money District California by held secured merchandise Continental. originated issues before us in cross-claims
The antitrust Sylvania and Most brought by against Maguire. Continental Sylvania important purposes for our was the claim that had by enforcing 1 of Act into and entering § violated the Sherman prohibited Sylvania agreements franchise sale products specified other locations.8 close of than At the jury Sylvania trial of Continental’s claims, evidence requested jury the District Court its loca to instruct the if illegal only tion restriction was it unreasonably restrained suppressed competition. or App. 5-6, Relying 9-15. Arnold, & decision in United States Court’s Co., supra, rejected proffered the District Court instruc following tion favor of the one:
“Therefore, you preponderance if find evi- Sylvania contract, dence that into a combination entered pursuant or with one or of its conspiracy more dealers Sylvania which dominion or control over the exercised findings conjunction In plea its of fact made in with Continental's injunctive relief, rejected Sylvania’s the District Court claim prompted independent actions were concerns over Continental’s credit. jury’s ambiguous point. any event, verdict is on this do not we consider it relevant to the issue before us. Sylvania Although policy contended in the District Court that its unilaterally enforced, it now concedes that its location restriction involved understandings agreements with the retailers.
products the dealer, having parted sold to after with title you and risk to the products, any must find effort there- after restrict outlets or store locations from which its dealers resold they purchased the merchandise which had Sylvania a be violation of Section of the Sher- man Act, regardless of the reasonableness of the location App. restrictions.” special answers to jury interrogatories, found that
Sylvania engaged “in conspir- had a contract, combination or acy in restraint trade violation the antitrust laws respect with to location alone,” and assessed Continental’s damages pursu- which was trebled $591,505, ant to 15 U. produce §C. an award of $1,774,515. S. App. 498, 501.9 for appeal, Appeals
On the Court of the Ninth Circuit, by en sitting banc, reversed a divided vote. 537 2dF. (1976). acknowledged language court there is The Schwinn that could be read to support District Court’s distinguishable instruction but concluded that grounds. Contrasting restrictions, several the nature and shares of fran- competitive impact, their the market Sylvania’s cases, chisers in the two the court concluded that potential competitive had for harm location restriction less invalidated in Schwinn and thus should than the restrictions of reason” rather than the judged be under the “rule in Schwinn. support court found for rule stated The Sylvania Maguire conspired jury The also found that had not with by respect this violation. Other claims made Continental were with rejected by jury important or withdrawn Continental. Most either rejection allegation jury’s that the location restriction was was the prices. pendent Sylvania part larger scheme to fix A claim of a willfully maliciously injury Maguire had caused to Continental’s rejected by jury, of California law also was business violation pendent during claim breach-of-contract was withdrawn Continental eventually proceedings. parties stipulated course of against judgment Maguire on its claim Continental.
42 in the
position policies in of the Act and deci- Sherman involving nonprice sions of other federal courts vertical restrictions.10 to resolve petition
We Continental's for certiorari granted 429 893 important question of antitrust law. U. S. (1976).11
II
A Sylvania’s We turn contention that first Continental’s 1§ restriction on retail locations is a violation interpreted Sherman Act restrictions at Schwinn. system part issue in Schwinn were of a three-tier distribution Arnold, (Schwinn), addition to Schwinn & comprising, Co. 22 of franchised intermediate distributors and a network retailers. Each distributor had a defined area in geographic which had right supply the exclusive franchised retailers. Sales public only to the were made through franchised retail- who were ers, bicycles only authorized to sell Schwinn from specified In support limitation, locations. of this Schwinn prohibited both distributors from selling and retailers Schwinn bicycles to nonfranchised At level, retailers. retail there- fore, was able to Schwinn control the number of retailers of
10
major
opinions.
Kilkenny
There
dissenting
Judge
argued
were two
present
indistinguishable
that the
jury
ease
from Schwinn
that the
correctly
Agreeing
Kilkenny’s
had been
Judge
interpre
instructed.
with
Schwinn, Judge Browning
tation of
interpretation
stated that he found the
“
responsive
justified by
protect
to and
need
from
‘individual traders
”
unnecessary
upon
freedom
2d,
their
537
action.’
F.
1021. See n.
infra.
given plenary
question
This Court has never
consideration to
analysis
proper
antitrust
of location restrictions. Before Schwinn
Corp.
such restrictions had been
in Boro Hall
General
sustained
Motors
Corp.,
(CA2 1942).
Schwinn,
needs of that market. approximately
As of 1967 total were Schwinn’s sales 75% Acting essentially made under “Schwinn Plan.” as a representative par- manufacturer’s or sales distributor agent, a plan in this ticipating forwarded to the retailers orders factory. shipped bicycles directly then ordered retailer, retailer, paid billed the bore the risk, and credit *7 the distributor a commission on sale. the the Under Schwinn the distributor never had title the Plan, possession of to bicycles. bicycles of The remainder the moved to the retailers through the hands of the distributors. For the most the part, respect with distributors functioned as traditional wholesalers inventory bicycles by of owned them sales, stocking to these an supply requirements. emergency retailers with and “fill-in” A part bicycles physically smaller were distributed that by consignment agency covered distributors were arrangements developed particular with that had been deal problems acquired title certain distributors. Distributors only bicycles they purchased wholesalers; to those as that acquired bicycles to all of the ordered retailers, course, title by them.
In the continu Court, charged the United States District ing conspiracy by co-conspirators other alleged Schwinn and to fix prices, allocate distributors, exclusive territories confine on bicycles Relying Schwinn to franchised retailers. United States Co., v. Bausch & Lomb (1944), U. S. nonprice Government were argued that per se illegal part fixing prices a scheme for the retail bicycles. Schwinn rejected price-fixing The District Court allegation proof because of -a failure of and held Schwinn’s bicycle limitation of retail sales to franchised retailers was permissible under found 1 violation, § 1. The how § court conspiracy in “a to divide certain borderline or over ever, lapping counties territories served four Midwestern cycle Supp. 323, (ND distributors.” 237 F. Ill. 1965). territory-by court the violation as a “division of The described nature,” between the distributors . . . horizontal in agreement participation change and held Schwinn’s did not basic characteristic. Ibid. The District limited Court injunction apply only its to the territorial restrictions on bicycles purchased by the resale of the distributors in their roles as wholesalers. Ibid. appeal by
Schwinn came to this Court the United States the District Court’s Abandoning decision. the Government theories, argued prohibition that Schwinn’s against distributors’ and selling bicycles retailers’ Schwinn nonfranchised retailers was 1§ unreasonable under and that injunction Court’s against District exclusive distributor territories regardless should all such restrictions extend to form of the transaction. The did not chal- Government the District lenge price Court’s decision on fixing, did not challenge decision on distributor exclusive territories. acknowledged Court Government’s abandonment
of its se theories and stated of the case that the resolution require would an of specifics examination of the chal- “the practices lenged impact upon marketplace and their in the judgment order to make a is as to whether the is or restraint not special 'reasonable’ in the sense which of the § Sherman Act must be of purposes type read for of this inquiry.” S., Despite description U. at 374. of its proceeded the Court task, “bright articulate the following line” per se of illegality rule vertical restrictions: “Under Act, Sherman it more for unreasonable without manufacturer seek to restrict persons and confine or areas with may whom an article traded be after the manufacturer parted has with Id., dominion over it.” at 379. But expressly Court of stated the rule reason governs when “the title, manufacturer retains dominion, and with risk
respect product position and function in question dealer are, fact, indistinguishable those an agent Id., salesman of manufacturer.” 380.
Application principles these to the facts of Schwinn produced sharply contrasting depending upon results the role played by the distributor system. the distribution With respect portion to that of Schwinn’s sales for which the dis- tributors acted as ordinary wholesalers, buying reselling Schwinn bicycles, the Court held that the territorial customer restrictions challenged by Government were per se illegal. But, respect with larger portion Schwinn’s sales in which the distributors functioned under the Schwinn Plan and under the less common consignment and agency arrangements, Court held that the same restric- tions should be judged under only the rule of reason. The retail restriction challenged by prevented the Government franchised retailers from supplying nonfranchised retailers. Id., at 377. Court apparently perceived no material distinction between the restrictions on distributors and retail- ers, for it held:
“The principle is, applicable equally to sales to course, retailers, and enjoin the decree should similarly mak- ing any sales upon any to retailers condition, agree- ment or understanding limiting the freedom as retailer’s to where Id., and to whom products.” resell will Applying the rule of reason to the restrictions were imposed in conjunction with the of bicycles, sale the Court difficulty had little finding them all light reasonable in competitive situation in product “the market as a whole.” Id., at 382.
B *9 In present is case, undisputed the to it title tele- the Sylvania vision passed sets from to Continental. the Thus, Schwinn per applies Sylvania’s rule unless restriction on manu- a Schwinn’s prohibition against falls locations outside toas freedom restrict a “retailer’s attempting to facturer’s Id., products.” resell the and to whom will where of Schwinn language conceded, Appeals As the Court case. Unlike present to clearly enough apply is broad find unable to we are Appeals, the Court however, now Schwinn from the case principled distinguishing basis for us. before but not reduce Sylvania sought to
Both Schwinn and through retailers competition respective their among eliminate one it was not adoption system. Although of a franchise presented by District Court of the issues addressed plan franchise appeal by Government, Schwinn challenged to the one restriction similar a location included Sylvania These restrictions allowed Schwinn and here. by their retailers competition among regulate' the amount from products preventing selling a franchisee from franchised agreement. one franchise outlets other than the covered plan included exactly To franchise the Schwinn end, same Sylvania not found in the companion restriction, apparently selling from prohibited retailers plan, that franchised In Schwinn Court products retailers. to nonfranchised under impermissible expressly held that this restriction competitive In principle the broad stated there. intent in Schwinn indis- restriction impact, the retail-customer present in the case. location restriction tinguishable of the limited the freedom both cases the restrictions he desired. purchased products as dispose retailer to territory restriction was addressed The fact that one antitrust to functional the other customers is irrelevant thrust of the broad analysis and, indeed, language to the stated in Hughes Schwinn.'12' As Mr. Chief Justice opinion Appeals and endorsed in the Court of The distinctions drawn opinion in Schwinn. separate have no basis Mr. Justice White's in Schwinn competitive impact The intrabrand the restrictions at issue
47 Coals, Appalachian States, United Inc. v. 288 U. 344, S. 360, (1933): “Realities must judgment. dominate the . . . The Anti-Trust Act aims at substance.”
Ill Sylvania if argues that Schwinn cannot be distinguished, it should be reconsidered. Although Schwinn is supported by principle decisis, of stare Illinois, Brick Illinois Co. v. 431 U. S. we are (1977), convinced that the need for clarification of the law in this justifies area reconsideration. Schwinn itself abrupt was an unexplained depar and largely from Motor ture States, v. United White Co. 372 U. S. (1963), only four years where earlier the had refused Court per endorse a se rule for vertical its restrictions. Since announcement, Schwinn subject has been the continuing controversy and both in the confusion, scholarly journals and in the federal courts. great weight scholarly opinion ranged complete reduction; yet, elimination mere the Court any did not even ground. Similarly, hint at distinction on this there suggestion is no rule applied was because of Schwinn’s prominent position industry. position in its That was the same whether bicycles quite consigned, analysis were sold or but the Court’s light In emphasis “superior different. Justice White’s on the Mr. enjoyed by acceptance” name, post, consumer the Schwinn brand at rejected precisely premise we note that the Court in Schwinn. Applying imposed the rule of reason trans- to the restrictions nonsale actions, showing [competitive the Court stressed that there was “no bicycles respects reasonably all interchangeable not as articles were] competitive it did product” commerce with the Schwinn and that establishing regard product claim “not Schwinn’s excellence as contrary.” S., did hint Although n. 7. U. failing firms, the preferential treatment entrants and District new Sylvania’s failing below did even submit claim that it was Court jury. position appears Accordingly, Mr. Justice White’s regard. Having crossed the an of Schwinn reflect extension attempts line, firm” Justice neither draw a “failing White Mr. why should be drawn at all. one explain one nor to new of the federal a number decision,13 critical of has been have vertical analogous with confronted courts experience view, reach.14 our to limit sought *11 13 Attorney charge of the Antitrust Division A former Assistant General that is “artificial in barren formalism” Schwinn as “an exercise described has Baker, Ver the real world.” competitive needs of unresponsive to the Where?, 44 to Schwinn to Change: Times From White of tical Restraints Handler, Annual See, g., The Twentieth (1975). e. L. J. Antitrust 537 (1967); McLaren, Terri 1967, 1667 53 L. Rev. Va. Antitrust Review— Consignments, Suggested Retail Prices Restrictions, and Customer torial (1968); Pollock, Deal, Alternative 37 Antitrust L. J. 137 and Refusals to (1968); Schwinn, 595 63 Rev. Nw. U. L. Distribution Methods After Analysis An of Posner, Policy Supreme Court: Antitrust and the Competition Distribution, Merger and Potential Horizontal Restricted Robinson, Antitrust Decisions, (1975); Recent Colum. L. Rev. 282 75 Note, Ter (1975); 1974, 243 Vertical Developments: 75 Colum. L. Rev. Industry, Franchising 10 Colum. in the Customer Restrictions ritorial and (1974); Note, Territorial and Customer Restric L. & J. Soc. Prob. 497 Reason?, 40 L. Geo. Wash. A Trend Toward a Broader Rule tions: Rules—-A (1971); Note, and Per Se Territorial Restrictions 123 Rev. Sealy Doctrines, 616 Mich. L. Rev. of the Schwinn and 70 Re-evaluation Schwinn Under (1972). Louis, Distributional Restraints But see Vertical Partial Per Se Sylvania: Argument Continuing Use of a An Re Zimmerman, Approach, (1976); Distribution 75 Mich. L. Rev. 275 (1967). For Sealy Schwinn, 12 Antitrust Bull. 1181 After strictions 2d, comments, at 988 n. list articles and see 537 more inclusive F. 14 many strug observed, courts “have Indeed, has as one commentator judicial ways distinguish Schwinn in that are a tribute gled to or limit supra, 13, Thus, the statement ingenuity.” Robinson, n. at 272. post-sale as customers or territories Schwinn that restrictions vertical interpreted more,” S., 379, been U. has are “unreasonable without proves per manufacturer exception to se rule where the to allow an protect against by showing will consumers “more” restraints g., liability See, injury against product claims. e. and the manufacturer banc). (CA3 1970) (en Tripoli Corp., Co. Wella 425 F. 2d 936-938 v. had Similarly, statement that Schwinn’s enforcement of its restrictions “ ” resolute,’ S., upon to ‘firm and 388 U. has been relied been Corp. g., lacking See, Janel Sales distinguish cases that element. e. (CA2 1968). Parfums, Inc., Other factual Lanvin 396 F. 2d justify upholding drawn to territorial distinctions have been years should be on past brought subject to bear this importance. considerable commercial 1 of the analysis § traditional framework of under Sherman Act is familiar and extended require does “[e]very 1 prohibits contract, discussion. Section combina tion ... , or restraint trade or commerce.” conspiracy, in the early years judicial Since of this on century gloss statutory language has established “rule of reason” as the Standard Oil v. United prevailing analysis. standard Co. States, 1 (1911). U. S. Under this the factfinder rule, weighs all deciding of a case in whether circumstances practice prohibited imposing a restrictive be an should Per se rules of unreasonable il competition.15 restraint See, scope would seem to fall within the rule. *12 g., Carter-Wallace, States, 35, 44-46, e. Inc. v. United 196 Ct. Cl. 449 F. 2d 1374, (1971) (per inapplicable purchaser 1379-1380 se rule when can avoid Pump electing buy product higher price); restraints Colorado & 1973) Supply Febco, Inc., (CA10 (apparent Co. v. 472 2d 637 territorial F. clause). primary responsibility characterized as One Court restriction Appeals expressly urged the need in this area of has us consider flexibility. Adolph FTC, 1178, greater Co. 497 F. 2d 1187 Coors v. 1974). (CA10 developments in the lower The decision in Schwinn and the Section, exhaustively surveyed ABA Mono courts have been Antitrust Limiting Competition graph Restrictions Intrabrand No. Vertical (1977) (ABA 2). Monograph No. 15 is frequently of of reason One of the most cited statements the rule Chicago States, Trade United 246 that of Mr. Justice Brandéis in Bd. v. of (1918): S. 238 U. imposed is such as legality test of is the restraint “The true whether merely regulates thereby competition or whether perhaps promotes and may destroy competition. determine suppress it is or even To such question ordinarily peculiar to the court must facts the consider the after applied; which before and business to the restraint is its condition effect, imposed; the the nature of the restraint and its restraint exist, history restraint, probable. believed to actual or The evil sought remedy, purpose end adopting particular reason for or attained, good to be are relevant facts. This not because a intention all is reverse; objectionable regulation because will save an otherwise or the but they relate to conduct only when legality appropriate are explained As the Court anticompetitive. manifestly States, (1958), U. United S. Northern Pac. R. Co. because or which practices agreements “there certain are any redeem competition on and lack their pernicious effect presumed be unreasonable ing conclusively virtue are precise to the inquiry as illegal without elaborate therefore use.” for their business excuse harm have caused they per se Schwinn’s issue us is whether essence, the before North justified demanding standards rule can be under a R. endorse ern Co. Court’s refusal Pac. uncertainty as on its rule in White Motor Co. was based standards. those whether vertical satisfied stated) Court time, for the first Addressing question the actual know than we do about “We need to more decide competition to on impact arrangements these competi- 'pernicious effect they whether have such Pac. (Northern any redeeming . virtue’ tion and lack . . States, 5) therefore should supra, p. v. United R. Co. predict may interpret facts and to knowledge help intent the court to consequences.” generalizations require to make broad Per se rules thus the Court proba particular practices. The commercial utility about social bility consequences practice anticompetitive result from will against pro- severity consequences be balanced of those must generalization may competitive consequences. fit Cases that do not *13 per not arise, judgment such are se rule reflects the cases but expense necessary sufficiently important justify common or the time and established, per provide guidance them. se rules identify Once tend community litigants and to the business and to minimize the burdens judicial system complex trials, Northern of the more rule-of-reason see Topco States, S., 5; v. Pac. Co. v. United 356 U. at United States R. Inc., (1972), advantages Associates, 596, 609-610 but those 405 U. S. per justify of se rules. If are not sufficient in themselves to creation per rules, otherwise, law be reduced to se were all of antitrust would introducing rigidity and the law. thus an unintended undesirable
51 per be classified se of the Act.” as violations Sherman 372 U. at 263. S.,
Only years four later the Court in Schwinn announced to Northern sweeping per se rule without even a reference explanation no of its change Pac. R. Co. and with sudden position.17 We now to consider Schwinn in of light turn Northern R. Co. Pac. impact complex restrictions18 is
The market vertical potential because of their for simultaneous reduction of comp competition intrabrand of interbrand stimulation 17 Co., After Appeals White Motor continued to evaluate Courts of Co. according territorial of reason. Sandura v. restrictions the rule FTC, (CA6 Snap-On Corp. FTC, 1964); 2d 321 2d 339 F. Tools F. (CA7 1963). analysis exposition history an of the antitrust For Schwinn, Monograph 2, pp. vertical 6-8. restrictions before ABA No. see Schwinn, only nonprice As in with vertical we are concerned here per illegality price restrictions. The se restrictions has been established firmly many years significantly questions for and involves different analysis notes, post, 69-70, policy. As Mr. Justice at some White argued impos have commentators manufacturer’s motivation may ing price nonprice vertical restrictions be the same as for restrictions. are, however, easily justify significant There that could different differences States, concurring opinion Motor Co. v. United treatment. his in White restrictions, that, nonprice Mr. Justice BreNNAN noted unlike “[r]esale invariably price only designed to, does in maintenance is not but almost among prod competition only fact, price reduce sellers of the affected uct, quite competing product much between that brands.” but “industry-wide S., recognized Professor Posner also U. 268. Posner, supra, price might cartelizing.” facilitate resale maintenance (footnote omitted); Posner, Cases, Antitrust: Eco 13, n. at 294 see R. Gellhorn, (1974); Law and Other Materials 134 E. Antitrust nomic Notes Prob., supra, Note, (1976); 10 Colum. J. L. & Soc. and Economics 252 recently Furthermore, Congress expressed its 13, has n. at 498 n. analysis price repealing of vertical approval of a allowing fair- Miller-Tydings and Acts provisions McGuire those option States. Consumer Goods pricing of the individual trade (a). No amending 15 U. S. C. Pricing Act of 89 Stat. §§ nonprice intent exists for restrictions. expression congressional similar *14 did not dis the Court Significantly, etition.19 the basis challenged the tinguish among harm or interbrand for intrabrand potential individual their intrabrand completely eliminated benefit. Restrictions analyzed no were Schwinn distributors competition among intrabrand moderated merely those that differently from the pivotal factor was The retailers. competition among illegal were to be All restrictions held passage of title: sustained were evaluated and passed, and all where title had The location not. of reason where it had under the rule subject pattern the same here would be restriction at issue analysis Schwinn. under and nonsale this distinction sale appears between It Court’s effort accommodate resulted transactions benefit of ver- intrabrand harm perceived interbrand per se rule for sale transactions The tical restrictions. obviously that vertical restrictions are “so reflected the view competition20 intrabrand that their use would destructive” of of outlets of ter- “open exclusivity door to and limitation competition competition among is Interbrand manufacturers generic product sets in is the the same this case—and —television law. deficiency example primary The of a concern of antitrust extreme only monopoly, competition is where there is one manu of interbrand contrast, competition competition is intrabrand between facturer. product particular retail —of of a the distributors —wholesale manufacturer. wholly degree competition independent of intrabrand of the level confronting Thus, competition
of interbrand manufacturer. there may competition among the product be fierce distributors of intrabrand a produced by monopolist competition among a and no intrabrand firm product produced highly competitive a distributors a a industry. exists, competition among But when interbrand it does provides significant manufacturers, exploita- check on the television power ability market because tion of intrabrand consumers product. brand of the same substitute different specifically competition, The Court did not refer to intrabrand but meaning is from the context. clear *15 prudence further than ritory permits.” 388 U. S., at 379- Conversely, 380.21 adherence continued to the traditional of reason for rule nonsale transactions reflected the view that the restrictions too great potential have a promotion competition of interbrand to justify complete prohibition.22 21The impose Court also stated that vertical restrictions in sale transactions would “violate the against ancient rule restraints on aliena S., tion.” 388 U. at 380. This isolated provoked reference sharp has virtually criticism all of the decision, commentators on the most of regarded whom apparent have Court’s reliance on the “ancient rule” misreading legal history as both a of perversion and a analysis. of antitrust g., See, Handler, supra, 13, 1684-1686; Posner, e. n. at supra, 13, n. at 295-296; Robinson, supra, 270-271; n. at Louis, supra, but see n. quite at 276 n. 6. agree We with Me. Justice dissenting Stewaet’s comment in Schwinn that “the state of the common law even years ago is irrelevant to the issue before us: the effect of the antitrust laws upon vertical distributional economy today.” restraints the American S., 388 U. at 392. similarly accept Judge
We are unable Browning’s interpretation of Schwinn. argued In his dissent below he the decision reflects the prohibit view the Sherman Act was intended to restrictions on the autonomy independent they of businessmen though impact even have no “price, quality, quantity goods services,” 2d, of 537 F. at certainly explicit Schwinn, 1019. This view purports which be based “impact on an examination of the upon [of restrictions] marketplace.” S., Competitive 388 U. at 374. economies have political advantages, g., social and as well as economic see e. Northern States, S., R. Co. policy Pac. v. United 356 U. at but an antitrust any objective from market considerations divorced would lack bench- “Every Mr. agreement marks. As Justice Brandéis reminded us: concern- ing trade, every regulation trade, bind, restrain, of restrains. To is of Chicago very States, S., their Bd. essence.” Trade United at U. Although opinion Judge Browning’s 238. endorses Mr. Justice White’s interpretation, post, 66-68, purports distinguish grounds at Schwinn on post, interpretation, with that inconsistent 71. regard, specifically complete In that the Court stated that a more severely prohibition “might hamper enterprises resorting smaller to rea competition giants meeting merchandising sonable methods broadly through independent S., 388 U. at 380. The dealers.” Court also recognize exceptions per it would additional to the se hinted that analytical support for these opinion provides no Court’s assertion in Nor is even an positions. there contrasting restrictions is impact of vertical competitive opinion Non- form of the transaction. affected significantly rule, from the to be excluded appear transactions sale or a harm greater danger intrabrand not because of because but rather greater promise of interbrand benefit, pro- per se complete unexplained Court’s belief that Id., hibition be too would “inflexibl[e].” competition *16 restrictions intrabrand Vertical reduce com- product particular number of of a limiting the sellers buyers. Location group for of a peting given the business constraints practical restrictions have this effect because Although of retail outlets. marketing area effective ability retailers competition may be reduced, intrabrand by both may limited resulting market be exploit franchised loca- to other ability of consumers travel com- purchase the perhaps importantly, more and, tions key None of these products of other manufacturers. peting the form the transaction variables, by is affected however, to the retailers. conveys products which his a manufacturer competition promote interbrand Vertical certain efficiencies manufacturer to achieve allowing virtues” “redeeming products. the distribution of his These vertical restrictions every sustaining decision implicit are num- identified a under the rule of reason. Economists have industry failing firms, both of which and for rule for new entrants an exceptions. such Motor candidates for were mentioned in White as exceptions might to the S., have limited U. at 374. The Court strongest arguments for the situations, present which rule to these competition. Signifi- competition interbrand sacrifice of intrabrand exception for extensive nonsale cantly, it to create the more chose instead businesses, regardless size, of their is available to all transactions which exception health, This demonstrates financial or market share. broader “redeeming clearly virtues” of the Court’s awareness of even more vertical restrictions. ways
ber of in which manufacturers can use such restrictions to compete more effectively against other manufacturers. g., See, e. Preston, Restrictive Distribution Arrangements: Economic Analysis and Public Policy Standards, Law & Contemp. Prob. (1965).23 For example, new manu- facturers and manufacturers entering new markets can use the restrictions in order to induce competent aggressive retailers to make the kind of capital investment of and labor often required in the products distribution of unknown to the consumer. Established manufacturers can use them to induce engage retailers to in promotional pro- activities toor vide service and repair necessary facilities to the efficient marketing of products. their Service and repair are vital for many such products, as major automobiles and household appliances. availability quality of such services affect a goodwill competitiveness manufacturer’s and the product. of his Because of imperfections market such so-called “free rider” effect, might these services not be provided by in purely retailers competitive despite situation, the fact that each retailer’s if greater benefit would be all provided the than if none did. Posner, supra, services n. *17 285; at cf. P. Samuelson, (10th Economics 506-507 1976). ed. 23Marketing efficiency only legitimate is not reason for a manu products facturer’s desire to control manner in exert over the which his statutory are sold and serviced. develop As a result of and common-law society ments, increasingly demands that manufacturers assume direct safety responsibility and quality products. example, for the of their For level, specialized requirements, apart at the federal from more manu products safety responsibilities facturers of consumer have under seq. (1970 ed., et Safety Act, Consumer Product Supp. 15 IT. S. C. 2051 § V), obligations and for under the Product warranties Consumer Warranties seq. (1970 ed., et V). Act, Supp. obligations 15 U. S. C. Similar §2301 g., seq. e. 1790 et by See, imposed state law. Cal. Civ. Code Ann. are § 1973). (West recognized legitimacy of these concerns has been g., Tripoli Corp., Co. v. Wella See, restrictions. e. involving cases vertical (CA3 1970). 2d 425 F. 932
56 argued also have an
Economists have manufacturers as much com maintaining interest intrabrand economic with petition distribution of their as is consistent the efficient products. Rule and Con Bork, The Reason the Per Se L. J. [II], Market Division 75 Yale cept: Price Fixing supra, 287-288.24 (1966); Posner, 13, 283, 403 n. 373, neces the manufacturer's interest Although the view that universally public sarily corresponds with that is not leading critic of vertical restrictions even the shared, nonsale between sale and Schwinn’s distinction concedes that any unrelated to relevant economic essentially is transactions and Customer Restric Territorial impact. Comanor, Vertical Its 81 Aftermath, L. Rev. tions: White Motor Harv. form of the Indeed, to the extent (1968).25 dis benefits, is to interbrand the Court’s transaction related for the with its articulated concern is inconsistent tinction larger compete effectively with smaller firms ability of may expenses Capital administrative requirements ones. exception nonsale prevent using smaller firms 538; g., n. Baker, supra, 13, at See, transactions. e. of Vertical Schwinn Rules and the “New Economics” Phillips, pos price “Generally prefer the lowest retail would manufacturer price set, retail sible, price has been because lower once its to dealers Note, Harv. higher revenues.” increased sales and manufacturer means likely (1975). context, L. a' manufacturer Rev. price retailers and difference at which sells to its view the between distribution,” it would as its “cost of which price their to the consumer Posner, supra, prefer n. to minimize. encouraged promotional argues activities Professor Comanor and, therefore, a product differentiation restrictions result vertical argument competition. This is flawed in interbrand decrease resulting large necessary assumption part promotional efforts that a convey socially information will desirable from vertical *18 quality, availability, price, is it clear product services. Nor about anything per than a efficient a rule would result more shift to less se promotional obtaining effects. the same methods
57 44 Relation, Antitrust L. J. 573, (1975); supra, Pollock, n. 13, 610.26
We conclude that the distinction drawn in Schwinn between sale and nonsale transactions is not justify sufficient to application per of a se rule in one situation and a rule of reason in the question other. The whether per remains se rule stated in Schwinn should be non- expanded include sale transactions or abandoned in return favor rule of reason. We have found persuasive support no per se expanding rule. As above, noted Court recognized the undesirability of “prohibit [ing] all vertical of territory restrictions franchising and all . S., . . 388 U. at 379-380.27 And even urge Continental does not us hold that all such per illegal. restrictions are se
We revert to the R. standard articulated in Northern Pac. Co., and reiterated in White Motor, for determining whether vertical restrictions be “conclusively presumed must to be unreasonable and therefore without illegal inquiry elaborate precise as to the harm they have caused the business excuse for their S., use.” U. at 5. restrictions, varying Such widely are used in forms, economy. our free As indi- market cated above, scholarly judicial there substantial au- per may note se rules in We also this area work to ultimate operate small detriment of the businessmen who as franchisees. To the prevents using system extent that a rule a firm from the franchise perceives important efficiencies to achieve to its successful operation, the rule creates an integration incentive for vertical into the system, thereby eliminating distribution to that role of inde extent the pendent See, g., Keck, Case, businessmen. e. The Schwinn 23 Bus. Law. Pollock, supra, (1968); n. at 608-610. balancing Continental’s contention that intrabrand interbrand competitive “proper part effects vertical is not a judicial function,” Brief for Petitioners is refuted Schwinn itself. Topco Associates, Inc., S., United States 405 U. is not to contrary, among for it involved horizontal restriction ostensible competitors.
58
thority supporting utility. relatively their economic There is authority little has contrary.28 Certainly, there been showing generally respect no in or with case, either Sylvania’s have or are restrictions agreements, that vertical likely competition” or that “pernicious to have a effect on Accordingly, they . Ibid.29 any redeeming “lack . virtue.” . in Schwinn mtrstnbs' we rule per conclude that se stated possibility holding not foreclose the overruled.30 we do so might jus- particular restrictions applications of vertical we Pac. Co. But tify per Northern R. prohibition se under standard rule-of-reason departure do from the make clear that 28 differentiating restric may problems in vertical be There occasional among the originating agreements iS tions from horizontal category would There is in the latter retailers. no doubt that restrictions Corp., per se, g., Motors 384 illegal see, e. United States General be v. supra, Associates, Inc., Topco but (1966); U. S. 127 United States v. sufficiently justify great regard proof problems we do of per a se rule. least nor the by Sylvania was neither the The restriction used location Monograph have See ABA provision that used. most restrictive it could judgment Schwinn that 2, implicit pp. agree No. 20-25. But we with is, general, undesira restriction a rule based on the nature frequently among used Although ble. can be drawn distinctions degree and restrictions, are them as differences we inclined view Sealy, 279-280; Averill, supra, Robinson, form. n. See L. Analysis 15 N. Y. F. Prognosis, and Sherman One: An and gain from significant chan (1969). perceive social are unable to We Finally, agree with the we neling form another. one transactions into should not of vertical restrictions advantages in Schwinn that Court Sylvania failing firms. categories be new entrants and limited to the unduly be artificial to failing, and think it would faltering, if not we deny competitive of valuable tools. the use unquestioned, but is, course, as Mr. stare importance decisis Helvering Hallock, 309 U. S. stated Justice Frankfurter- (1940), not a formula principle policy mechanical “stare decisis is questionable, decision, when recent latest however adherence to prior embracing doctrine such collision with adherence involves more by experience.” intrinsically sounder, verified scope, in its be based upon must demonstrable economic effect rather than —as in upon formalistic drawing. line Schwinn —
In sum, we' appropriate conclude that decision is return to the rule of reason governed vertical restrictions *20 prior to Schwinn. When anticompetitive effects are shown to result particular vertical restrictions they can be ade- quately policed under the rule of the tradi- standard reason, tionally applied for majority the anticompetitive prac- challenged tices under 1§ Act. Accordingly, decision of Appeals is Court
Affirmed. Rehnquist Mr. Justice took part no in the consideration or decision of this case.
Mr. Justice White, concurring judgment. I
Although agree majority with the the location clause that at issue in this per se violation of the Sherman case is not a Act and should judged I be the rule of reason, under cannot agree that this of United requires result overruling Arnold, States v. Schwinn Co.,& 365 (1967). U. S. my view case is'distinguishable from Schwinn because this there is potential less for restraint of competition intrabrand potential more for stimulating competition. interbrand As to intrabrand Sylvania, did Schwinn, unlike competition, not restrict the customers to whom or where the territories purchasers its could sell. Syl- competition, interbrand As vania, unlike Schwinn, had an insignificant market share the time it adopted challenged practice its distribution enjoyed no preference consumer that would its retailers allow to charge premium over para- other brands. In two short graphs, the majority disposes of view, adopted after careful analysis by the Ninth Circuit en banc below, these dif- provide ferences a “principled for distinguishing basis Schwinn,” ante, at 46, despite holdings by three Courts of Appeals and the District Court on remand in Schwinn apply does that case rule established reach overrule Sylvania’s. To out to location clauses such as Act, interpretations of the Sherman recent one this Court’s doing necessity for cursory examination after such a considerations surely principle an so, affront weight in given particularly strong be of stare decisis are to Il Illinois Brick statutory construction. Co. v. area McCrary, 427 linois, (1977); Runyon 736-737 431 U. S. Jordan, Edelman v. 415 U. S. (1976); U. S. (1974). restraints system of interrelated vertical One element pro- in Schwinn a retail-customer restriction invalidated products from selling franchised retailers hibiting to dis- inability nonfranchised retailers. The Court rests entirely restriction, tinguish Schwinn retail-customer finding . competitive impact intent . indistin- . “[i]n *21 case,” from guishable present the location in the restriction freedom because both cases the limited the “[i]n he dispose purchased products the retailer of Ante, may well 46. desired.” The customer restriction im- very competitive a and have, however, different “intent stores pact” prevents than the location restriction: It discount getting product prevents from the and manufacturer’s thus in- price competition. that Suppose, example, intrabrand for sufficiently that franchised competition terbrand is weak the substantially charge price a above retailers are able to these are restriction, wholesale. Under a location franchisers potential seeking exploit the free sell to discount stores of prevailing the retail level. One prices for sales at below tempted price may be to lower its and the franchised retailers in as a wholesaler for the discount house order to act effect prices profits lowering the be from share in had expanding volume.1 prevented engaging be would in dis 1The franchised retailers Colgate
counting if, doctrine, infra, 67, see themselves under Under a retail customer on the hand, other restriction, to discounters, franchised dealers cannot sell who are cut off from the altogether product oppor- manufacturer’s and the tunity for competition. price precisely intrabrand This on theory challenged which the Government successfully Schwinn’s customer restrictions this Court. District The Court that that case found one of “[e]ach [Schwinn’s franchised also he is knows not a wholesaler retailers] he sell agent cannot as a wholesaler or act as an for some other unfranchised dealer, such as a discount house who retailer has not been franchised aas dealer Schwinn.” Supp. (ND 1965). F. Ill. Government The on with argued appeal, record; extensive citations to the effect of keep products this restriction was “to out hands houses other price discount cutters so price as to discourage competition in . . .” retailing . Brief States, id., United O. p. T. No. See at 29-37.2 It that, majority states, is true as the Sylvania’s location restriction inhibited degree to some “the freedom to dispose purchased retailer products” by requiring retailer to sell from particular place one of business. But retailer still any type free sell to including customer — discounters and other any unfranchised dealers —from area. I think this implies significant freedom for the difference effect competition. location clause intrabrand lawfully manufacturer could terminate who did not adhere to his dealers suggested price. retail *22 emphasis Given the inhibiting Government’s on of the effect discounting Schwinn may bn activities, restrictions well Court have referring been to this effect when it condemned the as restrictions “obvi ously competition.” destructive of S., 388 U. at 379. But Court heavily was also by influenced its concern for the freedom of dealers to control the disposition products they purchased from See Schwinn. infra, at any 66-69. event, poten the record in Schwinn illustrates tially greater competition posed by threat to intrabrand customer as opposed to location restrictions. evidently so as in Schwinn thought on remand Court District customer restrictions enjoining Schwinn’s for after well, clauses, location expressly sanctioned by this Court it directed franchise in its retailer “designate] Schwinn permitting for places place business location agreements the Supp. 564, 565-566 291 F. is issued.” which the franchise (ND 1968). Ill. of intrabrand for less restraint finding
An additional basis Ninth en Circuit emphasized in this competition case, competition Schwinn involved restrictions on is that banc, Ely Judge As level. distributors at the wholesale among below: wrote for the six-member majority ter- sales geographical had created exclusive “[Schwinn] distributors bicycle ritories for each of its wholesaler outlet had distributor the Schwinn sole made each Each distributor designated area. distributor’s its outside prohibited selling any from retailers located . territory. . . requiring dealers
“. . territorial restrictions . Schwinn’s prescribed confine sales to exclusive territories their for customers prevented competing a dealer Schwinn guar- . . . territory. outside his Schwinn’s it would be distributor anteed each wholesale competition from other absolutely isolated from all (1976). 989-990 wholesalers.” 537 2dF. distributors retailers, Schwinn’s Moreover, like franchised retail- selling barred from to nonfranchised absolutely were price possibilities intrabrand limiting further ers, competition. majority apparently gives weight no to the Court competitive
Appeals’ reliance the difference between Sylvania’s interlocking clause and effects location Schwinn’s both “system affecting vertical restraints wholesale and Id., ignores post-Schwinn retail distribution.” at 989. also It
63 decisions of the and Tenth Third Circuits upholding validity of location clauses similar to Sylvania’s here. Salco Corp. v. General Motors 517 F. Corp., (CA10 ; 2d 567 1975) Kaiser v. General Corp., Motors 530 2d 964 (CA3 1976), F. aff’g Supp. 396 (ED 1975). F. 33 many Pa. Finally, authorities scholarly majority cites in of support its over ruling Schwinn have not had strain to distinguish location clauses from the restrictions invalidated Robin g., there. E. son, Recent Antitrust Developments: L. Colum. 1974, 75 (1975) Rev. (outcome Sylvania not preordained by Schwinn because marked differences in the vertical restraints in the two cases); McLaren, Territorial and Cus tomer Restrictions, Consignments, Suggested Retail Prices and Refusals to Deal, (1968) Antitrust L. J. 144M45 (by implication exempts Schwinn location from its clauses rule); Pollock, Alternative After Distribution Methods Schwinn, 63 L.U. (“Nor Nw. Rev. does the (1968) Schwinn doctrine outlaw a so-called ‘location the use clause’. . .”).
Just as significant there Schwinn are differences between respect and this case with to intrabrand competition, there are significant also respect compe- differences with to interbrand tition. Schwinn, Sylvania clearly Unlike had no economic power generic product they At market. the time respective instituted their distribution policies, Schwinn was leading bicycle producer “the Nation,” in the with a national market share of 22.5%, 368, 374, Syl- U. S., whereas vania a “faltering, failing” if producer of television sets, with “a relatively insignificant share 1% 2%” national in which market the dominant manufacturer had a Ante, share. 38, 58 n. Moreover, 60% 70% name enjoyed superior brand consumer acceptance premium commanded a as, price Court’s District words, bicycle “the Cadillac industry.” 237 F. Supp., premium at 335. This gave Schwinn margin dealers a *24 pos- competition and created from interbrand the protection cutting Government price by for discounters that the sibilities restrictions.3 by customer were forestalled Schwinn’s argued measure market by use to criteria economists Thus, judged the differentiation and share4 —Schwinn power -product market — bicycle market position enjoyed substantially stronger a the This Court market. television Sylvania than did the not as one reason position relied on market Schwinn’s challenged of reason to the vertical restraints apply the rule to break into newcomer, seeking was not a there. “Schwinn com- 'failing It was a stay bicycle business. in the it practices, of these contrary, initiation pany.’ On at the S., bicycle in the Nation.” U. leading producer was “another Appeals below found Court of at 374. And the Syl- and Schwinn” distinction our case significant between when share,” which “was so small “precarious market vania’s with it threatened adopted practice it its locations 991.5 2d, at expulsion from market.” 537 F. the television argued: Court, Relying finding District the Government franchising system to es purpose declared of the Schwinn [was] “[T]he acceptance identity superior exploit consumer tablish and distinctive a thereby enabling bicycles, for the Schwinn brand name as the Cadillac of possibly charging price a could not premium .... This scheme succeed, abandoned, long ago been if in would have doubtless bicycles just good Brief consumer’s mind other were as as Schwinn’s.” States, 25, p. for United O. T. No. 4 See, g., e. Scherer, F. Per Industrial Market Structure Economics (10th (1970); ed. Samuelson, formance 10-11 P. Economics 485-491 1976). years in the 10 market share Schwinn’s national declined 12.8% following program, at which time it of its institution distribution S., ranked behind a firm 388 U. at 368-369. second with share. 22.8% years following adoption Syl- practice, In the three locations 5%, placing eighth among vania’s it national market share increased to Ante, at 38-39. At time manufacturers of color sets. television Sylvania’s Francisco,, Sacramento, shares of the San and northern Cali-
In my view are there least both two considerations, Schwinn, upon by majority relied justify overruling provide a “principled would basis” refusing instead to extend Schwinn to a vertical restraint is imposed a “faltering” manufacturer with “precarious” position in a generic product market dominated another firm. The first that, majority puts it, competition “when interbrand exists, as it does among television manufacturers, provides a significant exploitation check on the market intrabrand power because the ability of consumers to substitute a *25 product.” Ante, different brand of the same at 52 n. 19. ante, also See at 54.6 Second is view, argued forcefully the the economic cited poten- the majority, literature the tial benefits vertical restraints in promoting interbrand competition are particularly where strong the manufacturer imposing the restraints is seeking enter a new market or to expand a small Ibid.7 majority market share. even Schwinn recognizes exception “hinted” at an for new per Ante, failing entrants and se rule. firms from its at 53-54, 22. n.
In other law, areas antitrust this Court has not hesi- per se tated to base its rules of illegality part on the defend- ant’s power. market in the from case which Indeed, very per the majority draws its standard for se Northern rules, States, R. Pac. Co. v. United 356 U. 51, (1958), S. respectively 2.5%, 15%, Ante, fomia markets were 4, at 39 im. 5%. findings 6. The Court made District no as to Schwinn’s share local bicycle markets. 6For an competition, extensive discussion of effect of interbrand see ABA Section, Monograph 2, Antitrust No. Limiting Vertical Restrictions Competition (1977). Intrabrand 60-67 7Preston, Arrangements: Analysis Restrictive Distribution Economic Policy Standards, Contemp. and Public 30 Law (1965); & Prob. 511 Posner, Policy Supreme Antitrust and the Analysis Court: An Re Distribution, stricted Merger Horizontal Competition Potential Deci sions, 75 L. (1975); Colum. Rev. 293 Scherer, supra, 4,n. at 510. tie-ins under against per the reach se rule Court stated with defendants extending to all Act as 1 of the Sherman § product respect tying with power “sufficient economic for the competition in free market appreciably restrain subse And Court S., product ...” 356 U. tied for “infant per rule exception an to this quently approved Jerrold v. United States product. new marketing industries” (ED 1960), aff’d Supp. F. Electronics Pa. Corp., States (1961). United curiam, See also 365 U. S. where Bank, (1963), 374 U. S. Philadelphia Nat. pro “which illegal merger presumptively held the Court share controlling percentage a firm an undue duces exclud I no doctrinal obstacle market see relevant Sylvania’s power as ing firms with minimal market such Schwinn rule.8 the reach of the approach about misgivings
I substantial have, moreover, for the reason Schwinn. The overruling takes to majority nonsale transactions between sale and distinction “the majority it, Court’s effort was as the would not, have interbrand perceived harm and accommodate the intrabrand ante, 52; reason restrictions,” of vertical benefit *26 notion below, the rather, Browning argued in dissent Judge inde- in restraints many involving of our cases vertical 8 1964) (territorial FTC, 847, (CA6 Cf. Sandura Co. v. 339 F. 2d "competing imposed by small manufacturer restrictions on distributors industry” losing ground 'giants’ floor-covering with and to the of the Change: illegal); Baker, Restraints in Times From Vertical of (1975) Where?, White to Schwinn to 44 Antitrust L. J. 545-547 illegality imposed by (presumptive manufacturer of territorial restrictions “any degree power”). majority’s with market the of failure to use Sylvania distinguishing market share of as a basis for these reliance, infra, 68-70, cases is the more anomalous for see at on the analysis distinguish anticompetitive economic who the those effects of on the distribution restraints basis of the market the shares of distributors. Posner, supra, 299; Bork, The See Rule of Reason and the Per Se Con [II], cept: Fixing and Market Division Price 75 Yale J. 391-429 L. (1966). pendent businessmen have the freedom dispose should goods they they own as see fit. first Thus case cited by the Court in Schwinn for the proposition that “restraints upon . . alienation . beyond power are manufac impose turer to upon its and ... vendees are violations of 1 of § the Sherman Act,” 388 atS.,U. was this Court’s seminal decision holding resale-price-maintenance a series of agreements per se illegal, Dr. Miles Medical John D. Co. v. Co., & Park Sons S. 373 In (1911). U. Dr. Miles the Court stated that “a general upon restraint alienation is ordi narily invalid,” citing Coke emphasized Littleton, the case involved “agreements restricting the freedom trade part on the they dealers who Id., own what sell.” at 404, 407-408. Mr. Justice Holmes in “If stated dissent: [the should manufacturer] make the agents retail dealers also law as well as name and retain the until the left goods title I their hands cannot present conceive that even the enthusiasm prices regulating charged by be would people other deny that the Id., owner was acting rights.” within his
This concern for freedom of dispose the businessman to of his own goods as fit explana sees is most probably he tion for subsequent two cases in which Court allowed manufacturers to achieve results similar to that economic Dr. they Miles where did not impose on dealers purchased who had products. their United States v. Colgate Co.,& S. (1919), found no anti U. the Court trust violation in a policy of to sell to refusing manufacturer’s dealers who failed to manufacturer’s charge suggested price retail terminating did not dealers who adhere to price. stated that It Sherman did not “restrict Act long recognized right engaged trader manufacturer entirely private in an freely his business, exercise own *27 independent parties discretion to with whom as will deal.” he In Id., Co., States General at 307. United v. Electric 272 (1926), upheld resale-price-maintenance U. 476 the Court S. 68 with its dealers who obtained a patentee made
agreements by distinguished The Court consignment goods on a basis. its were agreements there ground that Dr. Miles “an involved agency” than rather “contracts sale to hold Company ... Miles Medical by the attempt to price, obligation full to an purchase at purchasers, after By 487. S., 272 at a resale them.” U. prices on maintain agents with his to contract was free contrast, a manufacturer which transfer the title price by agents his “[fix] comprehensive consumer . . . however directly him to [the] Id., whole effect these contracts].” a mass or [the] [of ques into been Although these two cases have at 488. called Parke, Davis States v. subsequent decisions, see United tion Co., Oil Co., 29 Union Simpson 362 U. v. (1960), & S. law through their our case (1964), runs 377 U. S. rationale Co. of distributional restraints. in the area Kiefer-Stewart Sons, (1951), Joseph Seagram 211, E. & 340 U. S. fix prices agreement Court held that an resale than those “such no less illegal agreements, § under because cripple fix minimum freedom traders prices, with their ability to accordance thereby restrain their sell Co., Albrecht 390 U. S. Accord, v. Herald judgment.” own Judge Browning’s dissent (1968). generally See Mono Section, ABA 2d, 1018-1022; 537 F. at Antitrust below, Com Limiting Vertical Restrictions Intrabrand graph 2,No. (1977); Jones, Blake & 29-31, 87-91, 96-97 petition 82-83, L. Antitrust 65 Colum. Policy, Toward a Three-Dimensional (1965). Rev. 427-436 concern, in our summarily rejecting this reflected
After Act, autonomy for “the interpretations of the Sherman ante, majority independent businessmen,” n. distinction justification” “no for Schwinn’s surprisingly finds because the distinction and nonsale transactions between sale any impact.” economic “essentially unrelated relevant weight Ante, according some business- while But *28 man’s interest on which in controlling the terms trades he his own goods may be those anathema to who view Sherman Act solely as directed to economic this efficiency,9 principle question is without deeply our more eHrbeHded'ia cases than the notions of rider” effects and “free distrmtK tional majority efficiencies borrowed the “new Ante, economics of relationships.” Perhaps vertical at 54^-57. partially the Court is right abandoning and principle judging nonprice solely by vertical instant restraints their “relevant economic precedents but the impact”; which reflect this principle should lightly rejected by be so Court. The rationale no is doubt difficult discern from the be how- wrong; not, opinion, it may is ever, the aberration majority makes it out to be here.
I have majority’s a further reservation on about reliance impact” “relevant per economic as the for se retaining test regarding rules vertical It is ground restraints. common among leading purely approach advocates of a economic to the question of distribution restraints economic arguments in favor of allowing nonprice vertical restraints generally apply price to vertical as well.10 Although restraints g., Bork, Legislative Policy A. Act, Intent and the of the Sherman (1966); Bork, 9 J. Law & Econ. 7 The Rule of Reason and Se the Per Concept: Fixing [I], Price (1965). and Market 74 Yale Division L. J. 775 writes, example: Professor Posner for choosing fixing “There is [price no basis for between and market division] grounds. price fixing, social If resale price maintenance is like dealer bad, and therefore assignment a manufacturer’s of exclusive sales terri- division, tories is like market too therefore bad .... helping good justification new break entrants is a
“[If into market] justification territories, equally good price exclusive it is an for resale maintenance, dealing simply which as we have seen another method of any with the problem. argument free-rider ... In fact, that can be made on behalf price territories exclusive can also be made on behalf of resale (Footnote Posner, supra, omitted.) maintenance.” n. at 292-293. Bork, supra, See 391-464. n. price restric- illegality majority asserts that “the analysis significantly questions . . . different
tions involves ante, suspect I this purported at 51 n. policy,” *29 of justify Schwinn may be difficult to as as distinction Professor analysis. Thus majority’s of the terms the under con- by five times the majority, in an article cited Posner, nonprice and price “I law treat cludes: believe that the should no restrictions and that it should distinction the same make in contract and imposition of a sale between the supra, 7,n. imposition Posner, an contract.” agency their in resale already Indeed, recognized at 298. the Court has may by inducing “demand- price output increase maintenance outlets, (such retail creating activity” by as additional dealers out- servicing) that advertising promotion, product and and prices from lower weighs the additional that would result sales Albrecht v. price competition. brought about dealer Co., output-enhancing supra, 151 n. These same Herald upon by relied possibilities nonprice of restraints are vertical utility of their and economic majority the as evidence social ante, for them soundness, justification judging and as intention, if not the effect, of under rule reason. question into opinion necessarily of the is call Court’s price rule restraints. firmly per against established case law in the of distributional restraints Although the area satisfactory, Court would do perhaps been less than has deliberately improve it. proceed attempting well more Schwinn ample distinguishing view the reasons contrary action, congressional in the case and absence I principle would adhere to Act deter- arising under must be
“each case the Sherman upon particular record, facts disclosed mined opinions . . cases must be in the . those and read recognition a clear light their facts cases, in the in the facts essential differences those any to which rule of earlier decisions facts new case aplied.” is to be Maple Flooring Assn. v. United Mfrs. States, 268 U. (1925). S.
In order to decide this case, the Court need only that a hold imposed location clause aby negligible manufacturer with power product economic in the competitive market has a impact sufficiently less than the Schwinn restrictive restraints justify a rule-of-reason even if weight the same standard, given I here to dealer therefore autonomy. concur in judgment.
Mr. Justice with whom Brennan, Mr. Justice Marshall joins, dissenting.
I would not overrule in United se rule stated Arnold, Co., States v. Schwinn & (1967), U. S. 365 would reverse the Appeals therefore decision of the Court of *30 for the Ninth Circuit.