Vertical Trade Restraints

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Vertical Trade Restraints

• I. Introduction and definitions
• II. Resale price maintenance
• III. Nonprice restraints
• IV. Summary

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I. Introduction

• A. Def. Devices that sellers at one level of a
  market use to eliminate competition at a lower
  (i.e., downstream) level.
• B. Types 1. Resale price maintenance
• 2. Nonprice restraints

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IC. Not normally in the manufacturers
interest, but...

• 1. May create a retailer cartel
• 2. May enforce a manufacturer cartel
• 3. May enhance a brand image
• 4. Protects franchise investment
• 5. May protect full service from free riding by
  dealers who dont provide service.
• 6. May be a niche for entrants and small fry
• Sandura v. F.T.C., 1964

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II. Resale price maintenanceA. Two classic
principles

• 1. From Dr. Miles Medical Co. v. John D. Park
  Sons, 1911 A seller may not control the resale
  price of anything it has already sold, because
  this
• a. Creates restraint of trade at the retail
  level, and
• b. Violates the common-law ban on
  restraints upon alienation.

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II. Resale Price MaintenanceA. Two classic
principles

• 2. From U. S. v. Colgate Co., 1920 A seller
  may refuse to sell to any buyer for any reason,
  up to failure to observe an announced price.
• (It will be observed that these principles
• are likely to conflict in their effect on
  the question of RPM!)

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II. Resale price maintenance

• B. The Fair Trade era, 1937-1975
• 1. From protection of product image and
  goodwill to protection of small business.
• 2. Miller-Tydings Act, 1937
• McGuire Act, 1953
• 3. Products and channels affected
• 4. Collapse due to (a) Discount houses
• (b) Advertising as a promotional alternative.

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IIC. Current status of RPM

• Monsanto Co. v. Spray-Rite Service, 1984
• Business Electronics Corp. v. Sharp Electronics
  Corp., 1988
• State Oil Co. v. Khan, 1997
• Ebb and flow depend more on private plaintiffs
  and enforcement authorities than on the courts.

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III. Nonprice restraints

• A. Types Territorial and location restrictions
• Customer restrictions.
• B. White Motor Co. v. U. S.,1963
• 1. Nature of the restraints and summary
  judgment
• 2. Rule of Reason as an outcome
• 3. The Schwinn interlude, 1967-1977

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III. Nonprice restraints

• C. Back to the Rule of Reason Continental TV
  v. GTE Sylvania, 1977
• 1. Facts nature of the restraints
• 2. Reconsideration and reinstatement
• D. Protecting competition or collusion the
  strange cases of
• 1. U. S. v. Sealy, 1966
• 2. General Motors v. U. S., 1966.
• 3. Matter of Toys R Us, 1998

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IV. Summary vertical restraints

• Intrabrand v. interbrand competition
• Price v. nonprice restraints
• Minimum v. maximum prices
• Horizontal collusion v. vertical imposition
• Severity and the Rule of Reason
• Related to legitimate business purpose
• Just restrictive enough to accomplish the purpose