Antitrust Law

• Author: Rupert M. Barkoff, Andrew C. Selden
• Pages: 227-288

227

Antitrust Law

CHAPTER 6

Robert T. Joseph and Lee N. Abrams

Contents

I. Basic Antitrust Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 9

A. The Governing Statutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229

B. Preliminary Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 230

1. Rule of Reason v. Per Se Violation . . . . . . . . . . . . . . . . . . . . 230

2. Vertical v. Horizontal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 1

3. Unilateral v. Concerted Action . . . . . . . . . . . . . . . . . . . . . . . 231

4. Interbrand v. Intrabrand Competition . . . . . . . . . . . . . . . . . . 231

II. Vertical Price and Non-Price Restraints . . . . . . . . . . . . . . . . . . . . . . 23 2

A. Proof of Contract, Combination, or Conspiracy . . . . . . . . . . . . . . 232

1. Basic Standard For Finding Concerted Action . . . . . . . . . . . 232

2. Common Situations in Which the Concerted Action Issue Is

Raised—Concerted Action Theories . . . . . . . . . . . . . . . . . . . 233

B. Vertical Price Restraints . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239

1. Definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239

2. Treatment of Minimum v. Maximum Resale Price

Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 9

a. Minimum Resale Price Maintenance . . . . . . . . . . . . . . . . 239

b. Maximum Resale Price Maintenance . . . . . . . . . . . . . . . . 24 1

3. Proof of Agreement: Permissible Suggestion of Resale

Prices Versus Impermissible Coercion . . . . . . . . . . . . . . . . . . 242

4. Special Situations: Price Promotions and Temporary

Distributor Assistance; Cooperative Advertising

Programs; National Accounts Programs . . . . . . . . . . . . . . . . 244

C. Vertical Non-Price Restraints . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247

1. Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247

2. Exclusive Dealing Requirements . . . . . . . . . . . . . . . . . . . . . . 247

3. Covenants Not to Compete . . . . . . . . . . . . . . . . . . . . . . . . . . 2 49

4. Full Line Forcing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250

5. Allocation Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 251

6. Exclusive Distributorships . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 1

7. Location Clauses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 52

8. Area of Primary Responsibility Clauses . . . . . . . . . . . . . . . . 253

9. Profit Passover Arrangements . . . . . . . . . . . . . . . . . . . . . . . . 253

10. Territorial and Customer Restrictions . . . . . . . . . . . . . . . . . . 254

228 Fundamentals of Franchising

A large element of many franchise programs is the supply chain, the means by

which equipment, inventory and supplies used in the franchised business are pro-

cured and delivered. While franchisors must take steps to assure that goods and

services offered from franchised businesses meet the franchisor’s standards of

“nature and quality,” franchisees often want to procure conforming supplies at

the lowest possible delivered costs. These goals sometimes conflict, and some-

times the conflict gives rise to claims of violation of state or federal antitrust laws.

III. Selling to Franchisees: Antitrust Tie-in Issues . . . . . . . . . . . . . . . . . . 25 8

A. The Basic Choices: Methods of Achieving System Goals of

Quality, Consistency and Regularity of Supply . . . . . . . . . . . . . . 258

B. Tying Arrangements in the Franchising Context . . . . . . . . . . . . . . 25 9

1. Introductory Concepts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 259

a. Definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 59

b. Why Some Tying Arrangements Are Illegal . . . . . . . . . . 2 60

c. Methods of Attacking Tie-ins . . . . . . . . . . . . . . . . . . . . . . 260

d. Per Se Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 61

e. Relationship Between Tie-ins and Exclusive Dealing . . . 26 2

2. The Requirements of Two Separate and Distinct Products . . . 262

a. The Jefferson Parish Formulation . . . . . . . . . . . . . . . . . . 263

b. The Kodak Case and the Two-Product Issue . . . . . . . . . . 263

c. “Two Product Tests” in Pre-Jefferson Parish Cases . . . . 264

d. Post-Jefferson Parish Analysis of the Separate Product

Issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 266

3. Sufficient Economic Power Over the Tying Product . . . . . . . 269

a. Fortner II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269

b. Jefferson Parish . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269

c. Kodak . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 270

d. Independent Ink . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271

e. The “Market Power” Inquiry in Franchising Cases . . . . 272

f. Pre-Fortner II Cases Addressing Power of Trademark . . 272

g. Cases Decided After Fortner II and Before Jefferson

Parish . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273

h. Cases Decided After Jefferson Parish . . . . . . . . . . . . . . . 273

i. Possible Impact of Kodak on the Market Power Issue . . 27 6

j. Post-Kodak Decisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 277

4. Coercion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 281

5. “Not Insubstantial” Effect on Commerce and Proof of Actual

Market Foreclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 283

6. “Defenses” or “Justifications” . . . . . . . . . . . . . . . . . . . . . . . . 284

7. Proof of Injury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 285

C. Approved Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 286

D. Full Line Forcing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 7

Chapter 6 Antitrust Law 229

I. Basic Antitrust Principles

A. The Governing Statutes

Section 1 of The Sherman Act:1

Every contract, combination in the form of trust or otherwise, or conspiracy, in

restraint of trade or commerce among the several States, or with foreign nations, is

declared to be illegal.

Section 2 of The Sherman Act:2

Every person who shall monopolize, or attempt to monopolize, or combine or

conspire with any other person or persons, to monopolize any part of the trade or

commerce among the several States, or with foreign nations, shall be deemed

guilty of a felony, and, on conviction thereof, shall be punished by fine not ex-

ceeding $100,000,000 if a corporation, or, if any other person, $1,000,000, or by

imprisonment not exceeding ten years, or by both said punishments, in the discre-

tion of the court.

Section 5 of The Federal Trade Commission Act:3

(a)(1) Unfair methods of competition in or affecting commerce, and unfair or

deceptive acts or practices in or affecting commerce, are declared unlawful.

Section 3 of The Clayton Act: 4

It shall be unlawful for any person engaged in commerce, in the course of such

commerce, to lease or make a sale or contract for sale of goods, wares, merchan-

dise, machinery, supplies, or other commodities . . . on the condition, agreement,

or understanding that the lessee or purchaser thereof shall not use or deal in the

goods, wares, merchandise, machinery, supplies, or other commodities of a com-

petitor or competitors of the lessor or seller, where the effect . . . may be to sub-

stantially lessen competition or tend to create a monopoly in any line of commerce.

Enforcement

Although the Department of Justice and Federal Trade Commission are primarily

responsible for federal antitrust enforcement, government suits are far outnum-

bered by private actions, particularly in the distribution area. Damages may be

obtained under Section 4 of the Clayton Act5 by “any person . . . injured in his

. 1. 15 U.S.C. § 1.

2. 15 U.S.C. § 2.

3. 15 U.S.C. § 45.

4. 15 U.S.C. § 14.

5. 15 U.S.C. § 15(a).