If a membership and licensing agreement permits a member to sell at wholesale, such member shall control the resale of products bearing trademarks of the Association so that such sales are confined to the territories granted to the member, and the method of selling shall conform in all respects with the Association's policies. But the restriction remained the same in all other cases.
It is apparent that this bylaw, on its face, applies whether or not the products sold are trademarked by Topco. Despite the fact that Topco's general manager testified at trial that, in practice, the restriction is confined to Topco-branded products, the District Court found that the bylaw is applied as written. We find nothing clearly erroneous in this finding.
Assuming, arguendo, however, that the restriction is confined to products trademarked by Topco, the result in this case would not change. The District Court apparently agreed with Topco that the complaint did not cover customer limitations, but permitted the Government to pursue this line on the basis that, if the limitations were proved, the complaint could later be amended.
Topco acquiesced in this procedure, and both sides dealt with customer limitations in examining witnesses. The District Court made specific findings and conclusions with respect to the totality of the restraints on wholesaling. In light of these facts, the additional fact that the complaint was never formally amended should not bar our consideration of the issue. Topco expands on this conclusion in its brief by asserting that "the evidence is uncontradicted that a member has never failed to build a new store because it was unable to obtain a license.
The problem with the conclusion of the District Court and the assertion by Topco is that they are wholly inconsistent with the notion that territorial divisions are crucial to the existence of Topco, as urged by the association and found by the District Court.
From the filing of its answer to the argument before this Court, Topco has maintained that, without a guarantee of an exclusive territory, prospective licensees would not join Topco and present licensees would leave the association. It is difficult to understand how Topco can make this argument and simultaneously urge that territorial restrictions are an unimportant factor in the decision of a member on whether to expand its business. To the extent that Sealy casts doubt on whether horizontal territorial limitations, unaccompanied by price-fixing, are per se violations of the Sherman Act, we remove that doubt today.
An Analysis and Prognosis, 15 N. Without the per se rules, businessmen would be left with little to aid them in predicting in any particular case what courts will find to be legal and illegal under the Sherman Act. Should Congress ultimately determine that predictability is unimportant in this area of the law, it can, of course, make per se rules inapplicable in some or all cases, and leave courts free to ramble through the wilds of economic theory in order to maintain a flexible approach.
The conclusion the Court reaches has its anomalous aspects, for surely, as the District Court's findings make clear, today's decision in the Government's favor will tend to stultify Topco members' competition with the great and larger chains. The bigs, therefore, should find it easier to get bigger and, as a consequence, reality Page U. The per se rule, however, now appears to be so firmly established by the Court that, at this late date, I could not oppose it.
Relief, if any is to be forthcoming, apparently must be by way of legislation. This case does not involve restraints on inter-brand competition or an allocation of markets by an association with monopoly or near-monopoly control of the sources of supply of one or more varieties of staple goods.
Rather, we have here an agreement among several small grocery chains to join in a cooperative endeavor that, in my view, has an unquestionably lawful principal purpose; in pursuit of that purpose, they have mutually agreed to certain minimal ancillary restraints that are fully reasonable in view of the principal purpose, and that have never before today been held by this Court to be per se violations of the Sherman Act.
In joining in this cooperative endeavor, these small chains did not agree to the restraints here at issue in order to make it possible for them to exploit an already established line of products through noncompetitive pricing. There was no such thing as a Topco line of products until this cooperative was formed.
The restraints to which the cooperative's members have agreed deal only with the marketing of the products in the Topco line, and the only function of those restraints is to permit each member chain to establish, within its own geographical area and through its own local advertising and marketing efforts, a local consumer awareness of the trademarked family of products as that member's "private label" line.
The goal sought was the enhancement of the individual members' abilities to compete, albeit to a modest degree, with the large national chains which had been successfully marketing private label lines for Page U. The sole reason for a cooperative endeavor was to make economically feasible such things as quality control, large quantity purchases at bulk prices, the development of attractively printed labels, and the ability to offer a number of different lines of trademarked products.
All these things, of course, are feasible for the large national chains operating individually, but they are beyond the reach of the small operators proceeding alone. This Court has not today determined, on the basis of an examination of the underlying economic realities, that the District Court's conclusions are incorrect. I do not believe that our prior decisions justify the result reached by the majority. Nor do I believe that a new per se rule should be established in disposing of this case, for the judicial convenience and ready predictability Page U.
I I deal first with the cases upon which the majority relies in stating that "[t]his Court has reiterated time and time again that '[h]orizontal territorial limitations. United States, U. Indeed, it was in White Motor that this Court reversed the District Court's holding that vertically imposed territorial limitations were per se violations, explaining that "[w]e need to know more than we do about the actual impact of these arrangements on competition to decide whether they.
The statement from the White Motor opinion quoted by the majority today was made without citation of authority, and was apparently intended primarily to make clear that the facts then before the Court were not to be confused with horizontally imposed territorial limitations. To treat dictum in that case as controlling here would, of course, be unjustified. Having quoted this dictum from White Motor, the Court then cites eight cases for the proposition that horizontal territorial limitations are per se violations of the Sherman Act.
One of these cases, Northern Pacific R. Timken Roller Bearing Co. Price-fixing is, of course, not a factor in the instant case. Another of the cases relied upon by the Court, United States v. In still another case on which the majority relies, United States v. Indeed, in dealing with the issues that were before it, this Court followed an approach markedly different from that of the District Court. First, in reviewing the case here, the Court made it clear that it was proceeding under the "rule of Page U.
Finally, there remains the eighth of the cases relied upon by the Court -- actually, the first in its list of "authorities" for the purported per se rule. But neither he, nor this Court in affirming, made any pretense of establishing a per se rule against all agreements involving horizontal territorial limitations.
The defendants in that case were manufacturers and vendors of cast-iron pipe who had "entered into a combination to raise the prices for pipe" throughout a number of States "constituting considerably more than three-quarters of the territory of the United States, and significantly called. The associated defendants in Page U.
Outside the "reserved" cities, all sales by the defendants to customers in the "pay territory" were, again, at prices determined by the association and were allocated to the association member who offered, in a secret auction, to pay the largest "bonus" to the association itself. The effect was, of course, that the buying public lost all benefit of competitive pricing.
Although the case has frequently -- and quite properly -- been cited as a horizontal "allocation of markets" case, the sole purpose of the secret customer allocations was to enable the members of the association to fix prices charged to the public at noncompetitive levels. Judge Taft rejected the defendants' argument that the prices actually charged were "reasonable"; he held that it was sufficient for a finding of a Sherman Act violation that the combination and agreement of the defendants gave them such monopoly power that they, rather than market forces, fixed the prices of all cast-iron pipe in three-fourths of the Nation's territory.
The case unquestionably laid important groundwork for the subsequent establishment of the per se rule against price-fixing. It did not, however, establish that a horizontal division of markets is, without more, a per se violation of the Sherman Act. II The foregoing analysis of the cases relied upon by the majority indicates to me that the Court is not merely following prior holdings; on the contrary, it is establishing Page U.
In doing so, the Court virtually invites Congress to undertake to determine that impact. Ante at U. I question whether the Court is fulfilling the role assigned to it under the statute when it declines to make this determination; in any event, if the Court is unwilling on this record to assess the economic impact, it surely should not proceed to make a new rule to govern the economic activity.
When one of his versions of the proposed Act was before the Senate for consideration in , Senator Sherman, in a lengthy, and obviously carefully prepared, address to that body, said that the bill sought "only to prevent and control combinations made with a view to prevent competition, or for the restraint of trade, or to increase the profits of the producer at the cost of the consumer.
It is the unlawful combination, tested by the rules of common law and human experience, that is aimed at by this bill, and not the lawful and useful combination. This must be left for the courts to determine in each particular case. All that we, as lawmakers, can do is to declare general principles, and we can be assured that the courts will apply them so as to carry out the meaning of the law.
In "carry[ing] out the meaning of the law" by making its "determin[ations] in each particular case," this Court early concluded that it was Congress' intent that a "rule of reason" be applied in making such case-by-case determination. And that rule of reason was to be applied in light of the Act's policy to protect the "public interests.
The per se rules that have been developed are similarly directed to the protection of the public welfare; they are complementary to, and in no way inconsistent with, the rule of reason. The principal advantages that flow from their use are, first, that enforcement and predictability are enhanced and, second, that unnecessary judicial investigation is avoided in those cases where practices falling within the scope of such rules are found. As the Court explained in Northern Pacific R.
United States, supra, at U. First, while I would not characterize our role under the Sherman Act as one of "rambl[ing] through the wilds," it is indeed one that requires our "examin[ation of] difficult economic problems.
Second, from the general proposition that per se rules play a necessary role in antitrust law, it does not follow that the particular per se rule promulgated today is an appropriate one. Although it might well be desirable in a proper case for this Court to formulate a per se rule dealing with horizontal territorial limitations, it would not necessarily be appropriate for such a rule to amount to a blanket prohibition against all such limitations.
More specifically, it is far from clear to me why such a rule should cover those "division of market" agreements that involve no price-fixing and which are concerned Page U.
The instant case presents such an agreement; I would not decide it upon the basis of a per se rule. The Court seems implicitly to accept this determination, but says that the Sherman Act does not give Topco the authority to determine for itself "whether or not competition with other supermarket chains is more desirable than competition in the sale of Topco brand products.
But the majority overlooks a further specific determination of the District Court, namely, that the invalidation of the restraints here at issue "would not increase competition in Topco private label brands. Indeed, the District Court seemed to believe that it would, on the contrary, lead to the likely demise of those brands in time. And the evidence before the District Court would appear to justify that conclusion. It would be impracticable for Topco, with its limited financial resources, to convert itself into a national brand distributor in competition with distributors of existing national brands.
Furthermore, without the right to grant exclusive licenses, it could not attract and hold new members as replacements for those of its present members who, following the pattern of the past, eventually grow sufficiently in size to be able to leave the cooperative organization and develop their own individual private label brands.
Moreover, Topco's present members, once today's decision has had its full impact over the course of time, will have no more reason to promote Topco products through local advertising and merchandising efforts than they will have such reason to promote any other generally available brands. The issues presented by the antitrust cases reaching this Court are rarely simple to resolve under the rule of reason; they do indeed frequently require us to make difficult economic determinations.
We should not, for that reason alone, however, be overly zealous in formulating new per se rules, for an excess of zeal in that regard is both contrary to the policy of the Sherman Act and detrimental to the welfare of consumers generally.
Indeed, the economic effect of the new rule laid down by the Court today seems clear: As I will show, however, Addyston Pipe established no such thing; it was primarily a price-fixing case. Sealy does support the proposition that the restraints on the Topco licensees are horizontally imposed.
Beyond that, however, Sealy is hardly controlling here. The territorial restrictions in Sealy were found by this Court to be so intimately a part of an unlawful price-fixing and policing scheme that the two arrangements fell together: United States, [ U. The territorial restraints were a part of the unlawful price-fixing and policing. Every pound of it is trammeled by privately imposed regulation. The channels of this commerce have not been formed by the winds and currents of competition.
They are, in large measure, artificial canals privately constructed. No foreign titanium pigments move in interstate commerce except with like approval. No titanium pigment produced by NL may leave the ports of the United States for points outside the Western Hemisphere. As such, it is outlawed by Section 1 of the Sherman Act. The court rejected the argument made by the defense that the basic agreement on which the arrangement was founded was permissible under "the doctrine which validates covenants in restraint of trade when reasonably ancillary to a lawful principal purpose.