Do the DOJ Vertical Restraints Guidelines provide guidance?

• Author: Alan A. Fisher,Robert H. Lande,Frederick I. Johnson
• DOI: 10.1177/0003603X8703200303
• Date: 01 September 1987
• Published date: 01 September 1987
• Subject Matter: Article

The Antitrust Bulletin/Fall 1987

Do

the DOJ Vertical Restraints

Guidelines provide guidance?

BY ALAN A.

FISHER,·

FREDERICK I.

JOHNSON,·

and ROBERT H.

LANDE"

I. The historical perspective

609

Vertical restraints come in a glittering menu

of

exceptional vari-

ety, including resale price maintenance (RPM), tying, exclusive

dealing, requirements contracts, "best efforts" clauses, full-line

forcing, airtight and nonairtight exclusive territories, customer

restrictions, areas of primary responsibility, profit-passover pro-

Bureau

of

Economics, Federal Trade Commission, Washington,

D.C. 20580.

University

of

Baltimore School of Law.

AUTHORS' NOTE: The opinions in this article are solely those

of

the

authors and do not necessarily express the views

of

our colleagues, the

Bureau

of

Economics, the Commission, or any individual commissioner.

The authors presented an earlier version

of

this article at a Contem-

porary Policy Session at the WesternEconomic Association Conference

in Anaheim, California. We thank James Langenfeld, Howard Marvel,

Thomas Overstreet, Steven Ross, Joe Sims, and Robert Steiner

for

many useful comments on earlier drafts

of

this article.

We

also thank

the late Joseph Fortenberry

for

many useful comments and suggestions

of

case citations to illustrate points in this article.

'S 1987by Federal Legal Publications, Inc.

610 The antitrust bulletin

VISions,

restrictions on locations

of

outlets, and dual distribu-

tion.' Firms sometimes combine vertical restraints into packages.

The great variety of individual and combined vertical restraints

complicates the discovery

of

market effects. Indeed, identifying

what restraint(s) a given firm is using at any particular time can

be difficult. 2

Despite the multiplicity of vertical restraints, both economics

and the law have focused on them singly rather than in combina-

tions. Most cases and theoretical and policy discussions have

examined RPM separately from "airtight" non-price vertical

restraints (exclusive dealing, exclusive territories, and tying), the

vertical restraints typically considered most likely to affect re-

source allocation and consumers, rather than analyzing combina-

tions of restraints.'

I Vertical integration and acquisition

of

a (or several) vertically re-

lated firm(s) are alternative forms

of

vertical control

and

can often

achieve the same results, except for any differences in transaction costs.

For

athorough analysis, including definitions, see

P.

AREEDA,

ANTITRUST

ANALYSIS:

PROBLEMS,

TEXT,

CASES

" 500-74 (3d ed. 1981).

2

For

example, it is often difficult to distinguish exclusive dealing,

full-line forcing, and tying (id. "558-63; Pittman, Tying Without Ex-

clusive Dealing, 30

ANTITRUST

BULL.

279 (1985); Jefferson Parish Hospi-

tal District No. 2 v. Hyde, 104 S. Ct.

1551

(1984); Federal Trade

Commission v. Sinclair

Co.,

261 U.S. 463 (1923», or to differentiate

RPM

from non-price vertical restraints (World

of

Sleep, Inc. v. La-Z-

Boy Chair

Co.,

756 F.2d 1467 (10th Cir. 1985); Lewis Service Center,

Inc. v. Mack Trucks, Inc., 714 F.2d 842 (8th Cir. 1983), cert. denied,

104

U.S. 2678 (1984);

AAA

Liquors, Inc. v. Joseph E. Seagram &Sons, 705

F.2d 1203 (10th Cir. 1982), cert. denied, 103 S. Ct. 1903 (1983); Eastern

Scientific Co. v. Wild Heerbrugg Instruments, Inc., 572 F.2d 883 (1st

Cir.), cert. denied, 439 U.S. 833 (1978); In re Nissan Antitrust Litiga-

tion, 577 F.2d 910 (5th Cir. 1978», or unilateral manufacturer behavior

(Monsanto

Co.

v. Spray-Rite Service

Corp.,

104 S. Ct. 1464 (1984);

Russell Stover Candies, Inc. v. Federal Trade Commission, 718 F.2d 256

(1983); Yentsch v. Texaco, Inc., 630 F.2d 46 (2d Cir. 1980);

Arnott

v.

American Oil

Co.,

609 F.2d 873 (8th Cir. 1979), cert. denied, 446 U.S.

918 (1980».

3In effect, analysts have been studying checkers because chess is

too

difficult. However, business necessity forces the private

bar

to puz-

zle over the more complex questions. See, e.g., M. Denger &W. Tom,

Vertical

Guidelines 611

RPM has generally been per se illegal, except per se legal until

1975 in fair-trade states;' tying was per se illegal under certain

circumstances;' exclusive dealing was subject to a rule

of

reason

analysis;" and territorial and customer restrictions were generally

Relationships With Suppliers, Customers

and

Franchisees (May 29-30,

1986) (unpublished notes for Practising Law Institute, 27th Annual An-

titrust Law Institute); M. Denger &R. Joseph, Hypothetical Problems

(May 7, 1985) (unpublished material for International Franchising Asso-

ciation, 18th Annual Legal Symposium, Workshop on Vertical Price

and

Nonprice Restrictions). We

thank

Michael Denger for making these in-

sightful materials available to us.

4

For

details, see Overstreet &Fisher, Resale Price Maintenance

and Distributional Efficiency: Some Lessons From the Past, 3

CONTEMP.

Pot'v

ISSUES

43, 44-45 (1985).

The

courts have determined some prac-

tices to be essentially devoid

of

any redeeming value

and

thus

"per

se"

or automatically illegal.

For

such practices, courts will condemn aprac-

tice without requiring an examination

of

the user's market power or

of

the actual effects

of

the practice.

For

practices where significant socially

desirable effects are plausible enough, courts require adetailed exami-

nation

of

actual

effects-i.e.,

rule

of

reason. In practice, however, this

distinction is often unclear. See, e.g., Areeda, The Changing Contours

of

the Per Se Rule, 54

ANTITRUST

L.J.

27 (1985). Further, the

Court

may

be moving away from using a per se

standard

in

many

situations where

it has done so in the past. See, e.g., Gellhorn &

Tatham,

Making Sense

Out

of

the Rule

of

Reason, 35

CASE

W.

RES.

L.

REV.

155 (1984-85);

Northwest Wholesale Stationers, Inc. v. Pacific Stationery &Printing

Co.,

105 S.

Ct.

2613 (1985); National Collegiate Athletic

Ass'n

v. Board

of

Regents

of

University

of

Oklahoma,

104 S.

Ct.

2948 (1984); Broad-

cast Music v. Columbia Broadcasting System, 441 U.S. 1 (1979).

5Illegal tying generally requires ademonstration that there are two

distinct products

and

that

a firm with

monopoly

power in the tying

product

affects a"quantitatively substantial"

amount

of

the tied prod-

uct's market. In essence, then, one must

perform

a rule

of

reason analy-

sis to apply the so-called per se test.

For

arecent discussion, see Sims &

Lande,

Vertical

Restraints Guidelines: A Step Forward, Legal Times,

Mar. 4, 1985, at 16.

6Although the

Court

did not understand how

RPM

or tying could

yield

any

efficiencies, since

Standard

Oil Co. v. United States (Standard

Stations), 337 U.S. 293 (1949), it has recognized

the

possibility

of

effi-

ciencies from exclusive dealing. See D.

PEGRUM,

PUBLIC

REGULATION

OF

BUSINESS

403-08 (1965), for

the

early development

of

the legal status

of

exclusive dealing. The concurring opinions in Continental T.V., Inc. v.