Antitrust Developments: Distribution Practices
| Publication year | 1982 |
| Pages | 2996 |
1982, December, Pg. 2996. Antitrust Developments: Distribution Practices
The relationship between manufacturer and distributor and between franchisor and franchisee is shaped in large part by the antitrust laws. The Supreme Court's decision in Continental T. V., Inc. v. GTE Sylvania, Inc.(fn1) has effected many changes in that relationship in the past five years, and the future holds potential for even more changes. This article outlines the effect this case is having on manufacturer-distributor relationships and attempts to suggest steps companies may wish to consider in the future.(fn2)
The following antitrust "catchwords" should be understood at the outset:
Rule of Reason: Although the Sherman Act by its terms proscribes every "restraint of trade," the courts have recognized that only unreasonable restraints should be barred. The "Rule of Reason" is the balancing analysis used in determining whether a particular restraint unreasonably affects interstate commerce.(fn3)
Per Se Violations: Certain categories of restraints, such as cartel price-fixing, have been found to have such a "pernicious" effect on commerce that a Rule of Reason analysis of the restraint is no longer needed.(fn4) The plaintiff must only prove the existence of the restraint and the fact of damage to establish liability.
Horizontal and Vertical: Since antitrust analysis focuses heavily on the relationship between parties, generalizations have been developed to describe those relationships. Horizontal restraints are those that are entered into between competitors; i.e., between those at the same level of the distribution chain. Vertical restraints are those entered into between entities at different levels of the distribution chain; e.g., between manufacturer and distributor.
Price Restraints: This term describes agreements that relate to prices at which products are sold.
Non-price Restraints: All other agreements, including territories in, locations from and customers to which distributors sell are referred to as "non-price restraints."
Resale Price Maintenance: The exercise or attempted exercise by a manufacturer of control over the price at which a distributor resells its products.
Resale price maintenance was addressed by the Supreme Court as early as 1911 in the Dr. Miles case,(fn5) in which the Court held that a manufacturer's requirement that its distributors sell its products at a prescribed price violated § 1 of the Sherman Act. The Court has extended the per se rule against resale price maintenance not only to instances where manufacturers imposed and enforced floor prices, but also where maximum prices were established.(fn6) However, just eight years after Dr. Miles, in the Colgate decision,(fn7) the Court held that a manufacturer could announce a suggested resale price and refuse to deal with distributors who would not comply with that price. The Court subsequently narrowed the so-called Colgate exception severely by bringing virtually any action by the manufacturer beyond the mere announcement of price back within the per se rule of Dr. Miles.(fn8)
By the mid-1960s, the commentators wondered whether anything remained of the Colgate ruling.(fn9) It was also clear that if there were any horizontal elements to the restraint---for example, if competing distributors complained to the manufacturer about a discounter---the restraint would be subject to antitrust liability.(fn10)
The courts had been much less active in extending per se analysis to non-price agreements. As late as 1963, an agreement in which a manufacturer prohibited a distributor from selling to a certain class of customers and restricted the distributor to a territory was held by the Court not to be a per se violation because "we know too little of the actual impact [of the restrictions] . . . ."(fn11) That position changed abruptly in 1967 with the decision in Schwinn, where the Court held that non-price restraints...
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