Antitrust Law

• Author: Barkoff, Rupert M., Selden, Andrew C.
• Pages: 213-273

213

Antitrust Law

CHAPTER 6

Robert T. Joseph and Lee N. Abrams

Contents

I. Basic Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215

A. The Governing Statutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215

B. Preliminary Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 216

1. Rule of Reason versus Per Se Violation . . . . . . . . . . . . . . . . . 216

2. Horizontal versus Vertical . . . . . . . . . . . . . . . . . . . . . . . . . . . 217

3. Unilateral versus Concerted Action . . . . . . . . . . . . . . . . . . . . 217

4. Interbrand versus Intrabrand Competition . . . . . . . . . . . . . . . 217

II. Vertical Price and Non-Price Restraints . . . . . . . . . . . . . . . . . . . . . . 218

A. Proof of Contract, Combination, or Conspiracy . . . . . . . . . . . . . . . 218

1. Basic Standard for Finding Concerted Action . . . . . . . . . . . . 218

2. Common Situations in Which the Concerted Action Issue

Is Raised—Concerted Action Theories . . . . . . . . . . . . . . . . . 219

B. Vertical Price Restraints . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225

1. Definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225

2. Different Treatment of Minimum versus Maximum Resale

Price Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225

3. Proof of Agreement: Permissible Suggestion of Resale

Prices Versus Impermissible Coercion . . . . . . . . . . . . . . . . . . 228

4. Special Situations: Price Promotions and Temporary

Distributor Assistance; Cooperative Advertising

Programs; National Accounts Programs . . . . . . . . . . . . . . . . . 230

C. Vertical Non-Price Restraints . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233

1. Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233

2. Exclusive Dealing Requirements . . . . . . . . . . . . . . . . . . . . . . 234

3. Covenants Not to Compete . . . . . . . . . . . . . . . . . . . . . . . . . . . 236

4. Full Line Forcing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237

5. Allocation Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237

214 Fundamentals of Franchising

6. Exclusive Distributorships . . . . . . . . . . . . . . . . . . . . . . . . . . . 237

7. Location Clauses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 238

8. Area of Primary Responsibility Clauses . . . . . . . . . . . . . . . . 239

9. Profit Passover Arrangements . . . . . . . . . . . . . . . . . . . . . . . . 240

10. Territorial and Customer Restrictions . . . . . . . . . . . . . . . . . . . 240

III. Selling to Franchisees: Antitrust Tie-In Issues . . . . . . . . . . . . . . . . . 244

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

Quality, Consistency and Regularity of Supply . . . . . . . . . . . . . . . 244

B. Tying Arrangements in the Franchising Context . . . . . . . . . . . . . . 245

1. Introductory Concepts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245

2. The Requirements of Two Separate and Distinct Products . . . 249

a, The Jefferson Parish Formulation . . . . . . . . . . . . . . . . . . . 249

b. The Kodak Case and the Two-Product Issue . . . . . . . . . . . 249

c. “Two Product Tests” in Pre-Jefferson Parish Cases . . . . . 250

d. Post-Jefferson Parish Analysis of the Separate

Product Issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253

3. Sufficient Economic Power Over the Tying Product . . . . . . . 255

a. Fortner II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 255

b. Jefferson Parish . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 255

c. Kodak . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 256

d. The “Market Power” Inquiry in Franchising Cases . . . . . 257

e. Pre-Fortner II Cases Addressing Power of Trademark . . . 258

f. Cases Decided After Fortner II and Before Jefferson

Parish . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 258

g. Cases Decided After Jefferson Parish . . . . . . . . . . . . . . . . 259

h. Possible Impact of Kodak on the Market Power Issue . . . 261

i. Post-Kodak Decisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 262

4. Coercion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 266

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

Market Foreclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 268

6. “Defenses” or “Justifications” . . . . . . . . . . . . . . . . . . . . . . . . 269

7. Proof of Injury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 270

C. Approved Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271

D. Full Line Forcing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 272

Chapter 6 Antitrust Law 215

I. Basic Principles

A. The Governing Statutes

Section 1 of the Sherman Act:1

Every contract, combination in the form of trust or otherwise, or con-

spiracy, 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 com-

bine 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 exceeding $10,000,000 if a corporation,

or, if any other person, $350,000, or by imprisonment not exceeding

three years, or by both said punishments, in the discretion 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 de-

clared 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, merchandise, 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, machin-

ery, supplies, or other commodities of a competitor or competitors of

the lessor or seller, where the effect . . . may be to substantially lessen

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

Enforcement

Although the Department of Justice and the Federal Trade Commission are prima-

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

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

. 1. 15 U.S.C. § 1.

2. 15 U.S.C. § 2.

3. 15 U.S.C. § 45.

4. 15 U.S.C. § 14.