The Antitrust Laws: An Overview

The antitrust laws govern economic relationships between or among
competitors and between a firm and its individual customers and
suppliers. If a firm does not sell products directly to consumers, the
antitrust laws will apply to the relationship between the firm and its
resellers, whether distributors, dealers, or franchisees. As a general
matter, the laws provide private remedies for persons injured as a result
of an antitrust violation. They may also be enforced criminally by the
United States Department of Justice or state attorneys general or in civil
proceedings by the Department of Justice, the Federal Trade
Commission, or state attorneys general. This introductory chapter will
focus on the federal antitrust laws.
A. Federal Antitrust Statutes: What Do They Prohibit?
The federal antitrust laws of primary importance in the distribution
of products and services, whether through distributors, dealers, or
franchisees, are the Sherman Act, the Clayton Act, the Federal Trade
Commission Act, and the Robinson-Patman Act. State antitrust laws
closely parallel the federal laws and, in most cases, are interpreted
consistently with the federal courts’ interpretation of the federal laws.
This Chapter will describe the federal antitrust laws applicable to
distribution and franchising and then consider state antitrust laws to the
extent they may differ in significant respects from the federal laws.
The federal antitrust laws reach agreements by two or more firms
and certain conduct by a single firm. These broad categories of conduct
are considered in turn.
1. Conspiracies in Restraint of Trade
Section 1 of the Sherman Act1 declares unlawful contracts,
combinations, or conspiracies in restraint of trade. Enacted in 1890, the
operative text has remained unchanged for over 118 years:
1. 15 U.S.C. § 1.
4 Antitrust Handbook for Franchise and Distribution Practitioners
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. . . . 2
Even though the statutory test is absolute —”[e]very contract,
combination . . . or conspiracy”—the prohibition reaches only restraints
that are unreasonable.3
a. Rule of Reason versus Per Se Illegality
In the course of applying Section 1, the Supreme Court has
recognized two broad classifications of unreasonable restraints—those
which are presumptively unreasonable and those that are determined
unreasonable only after case by case evaluation of impact and
justification. The former restraints are per se illegal, and the latter are
subject to evaluation under the rule of reason.4 The per se category is
narrow and reaches only conduct that has been proved through long
experience to be consistently anticompetitive, such as price fixing,
bid rigging, market allocations among competitors, certain tying
arrangements, and certain group boycotts. All other restraints are
evaluated under the rule of reason.5
The dividing line between the per se test and rule of reason is not
nearly as clear as it may once have been, and some courts have observed
that reasonableness analysis is a continuum, not dichotomous.6
2. Id. Section 1 provides as follows:
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 hereby declared to be illegal.
Every person who shall make any contract or engage in any
combination or conspiracy hereby declared to be illegal shall be
deemed guilty of a felony, and, on conviction thereof, shall be
punished by fine not exceeding $100,000,000 if a corporation, or,
if any other person, $1,000,000, or by imprisonment not exceeding
10 years, or by both said punishments, in the discretion of the
3. See, e.g., Standard Oil Co. v. United States, 221 U.S. 1, 63-66 (1911).
4. For analysis of the relationship of the per se and rule of reason standards,
LAW ¶¶ 1500-1511 (2d ed. 2003).
5. For a detailed overview of the rule of reason, see generally ABA SECTION
6. See PolyGram Holding v. FTC, 416 F.3d 29, 35 (D.C. Cir. 2005) (Supreme
Court “has backed away from any reliance upon fixed categories and
The Antitrust Laws: An Overview 5
Ultimately, in all cases, the question is whether the challenged agreement
enhances, or injures, competition.7
There is also no bright-line test for whether a restraint is lawful
under the rule of reason. Under the rule, “the factfinder weighs all of the
circumstances of a case in deciding whether a restrictive practice should
be prohibited as imposing an unreasonable restraint on competition.”8
Most distribution restraints are analyzed under the rule of reason,
including a supplier’s nonprice restrictions on a dealer’s resale of
products,9 prohibition against a dealer handling competing brands10 or
reselling products above11 a fixed price, a purchaser’s decision to change
suppliers,12 and, most recently, minimum resale price maintenance. 13
Two approaches have emerged under the rule of reason analysis—
conventional and “quick look.” Short of established per se offenses, if
the anticompetitive impact of a restraint is obvious but procompetitive
justifications are proffered by the defendant, an abbreviated, or quick-
look, analysis may be sufficient to arrive at a judgment on
reasonableness.14 If the anticompetitive impact is not obvious, because
toward a continuum” (citing Cal. Dental Ass’n v. FTC, 526 U.S. 756
(1999))); Cont’l Airlines v. United Airlines, 277 F.3d 499, 509 (4th Cir.
2002) (methods of reasonableness analysis “are best viewed as a
7. See, e.g., Cal. Dental Ass’n, 526 U.S. at 779-80.
8. Cont’l T.V. v. GTE Sylvania Inc., 433 U.S. 36, 49 (1977).
9. See, e.g., id. at 54-58 (restriction barring dealers from reselling
manufacturer’s television sets from any location than that authorized by
manufacturer was subject to rule of reason analysis).
10. See, e.g., Roland Mach. Co. v. Dresser Indus., 749 F.2d 380, 393 (7th Cir.
1984) (exclusive dealing agreements are “judged under the Rule of
Reason, and thus condemned only if found to restrain trade
11. See, e.g., State Oil Co. v. Khan, 522 U.S.3, 22 (1997) (“rule-of-reason
analysis will effectively identify those situations in which vertical
maximum price fixing amounts to anticompetitive conduct”).
12. See, e.g., NYNEX Corp. v. Discon, Inc., 525 U.S. 128, 135 (1998).
13. See Leegin Creative Leather Prods. v. PSKS, Inc., 127 S. Ct. 2705, 2725
(2007) (“[v]ertical price restraints are to be judged according to the rule of
reason”). While Leegin overturned application of the per se rule to
minimum resale price agreements, some states may continue to prohibit
the practice.
14. See, e.g., FTC v. Ind. Fed’n of Dentists, 476 U.S. 447, 461 (1986) (finding
of “actual, sustained adverse effects on competition” was sufficient “to
support a finding that the challenged restraint was unreasonable even in the

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