Document: 405 U.S. 596 92 S.Ct. 1126 31 L.Ed.2d 515 UNITED STATES, Appellant,v.TOPCO ASSOCIATES, INC. No. 70—82. Argued Nov. 16, 1971. Decided March 29, 1972. Syllabus The United States brought this injunction action charging a violation of § 1 the Sherman Act by appellee, Topco, cooperative association about 25 small and medium-sized independent regional supermarket chains operating in 33 States. As its members' purchasing agent appellee procures more than 1,000 different items, most which have brand names owned Topco. combined retail sales 1967 were.$2.3 billion, exceeded only three national grocery chains. A member's average market share area is 6% competitive position frequently as strong that any other chain. members own equal amounts Topco's common stock (the voting stock), choose directors, completely control association's operations. bylaws establish an 'exclusive' category territorial licenses, under licenses are issued two membership categories proved to be de facto exclusive. Since no member system may sell Topco-brand products outside territory it licensed, expansion into another practice permitted with consent, since effect has veto power over admission new member, can actual or potential competition areas they concerned. Topco prohibited from selling supplied at wholesale, whether trademarked not, without securing special permission, not granted consent interested licensees (usually retailers) then must agree restrict product specific certain conditions. Government charged scheme dividing markets violates because operates prohibit among chains, also challanged restrictions on wholesaling. contended needs divisions maintain private-label program enable compete larger chains; could exist if were exclusive; meet chain competition. District Court, agreeing upheld restrictive practices reasonable pro-competitive. Held: allocating territories minimize level horizontal restraint constituting per se Act, Court erred applying rule reason here involved. v. Sealy, Inc., 388 350, 87 1847, 18 1238. limitations upon reselling wholesale for same invalid 1. Pp. 606 612. 319 F.Supp. 1031, reversed remanded. Howard E. Shapiro, Washington, D.C., appellant. Victor Grimm, Chicago, Ill., appellee. Mr. Justice MARSHALL delivered opinion Court. injunctive relief against alleged Associates, Inc. (Topco), 26 Stat. 209, amended, 15 U.S.C. Jurisdiction was grounded 4 4. Following trial merits, Northern Illinois entered judgment appealed directly pursuant 2 Expediting 32 823, 29. We noted probable jurisdiction, 402 905, 91 1374, 28 644 (1971), we now reverse * approximately operate stores some States.1 Each independently; there pooling earnings, profits, capital, management, advertising resources. No business conducted name. Its basic function serve members.2 In capacity, distributes food related nonfood distributed does itself manufacturing, processing, warehousing facilities, items usually shipped packer manufacturer members. Payment made either cost virtually itself. 3 All members, stock, having rights, being equally distributed. board controls operation association, drawn normally composed high-ranking executive officers It elects appoints committee principal drawn. Restrictions alienation procedure selecting all important officials within ranks give complete unfettered operations association. founded 1940's group small, local independently operated, desired cooperate obtain high quality merchandise private labels order effectively chains.3 With line canned, dairy, products, began. added frozen foods 1950, fresh produce 1958, general equipment supplies 1960, branded bacon carcass beef selection 1966. By 1964, had $2 billion; 1967, their totaled than.$2.3 figure chains.4 5 Members vary degree possess respective areas. range 1.5% 16%, 6%. While difficult compare these figures shares absence record accurate statistics much evidence strength due, measure, success products. Although 10% total goods sold bear names, profit substantial very existence improved respect large powerful 6 apparent meager beginnings quarter century ago, developed wholly operated economic muscle, individually well cooperatively. II 7 Section provides, relevant part: 8 'Every contract, combination form trust otherwise, conspiracy, trade commerce several States, foreign nations, declared illegal . ..' 9 that, beginning least early 1960 continuing up time complaint filed, conspired violate respects. First, existed: 10 'a agreement, understanding concert co-conspirator firms acting through terms been each co-conspiritor firm will Topco-controlled brands marketing allocated it, refrain such territory.' 11 division refers consists number 12 Article IX, 2, establishes secure association: 13 '(a) Exclusive—An exclusive one licensed bearing specified trademarks Association, exclusion persons. 14 '(b) Non-exclusive—A non-exclusive but others who Association territory. '(c) Coextensive—A coextensive (2) .' 16 When membership, designate type license desires. Membership first approved thereafter affirmative vote 75% If, however, whose closest those applicant, located 100 miles votes approval, 85% required approval. Bylaws, Art. I, 5. Because, indicated record, accommodating other's wishes, approval essence, sorts 17 signs agreement designating licensed. Most exclusive, even denominated 'coextensive' 'non-exclusive' prove Exclusive often do theory wish expand indefinite future would likely direction provisions exclusivity work insulate goods. Should terminated IV, §§ (a) 2(b) bylaws. Once classified formally facto, extremely unlikely classification ever changed. See IX. maintains engaged makes subsidiary challenge regarding licensing wholesale. Under bylaws, receiving permission so.6 Before granted, retailers), interests potentially affected operations, consulted wishes matter. If obtained, sale geographic conditions imposed Permission sought denied contends restriction violative customers Act.7 19 From inception lawsuit, accepted true Government's allegations wholesaling, although differed greatly conclusions, both factual legal, facts. 20 answer illustrative posture before Court: 21 'Private label merchandising way life retailing industry, essence program; exclusivity, private. addition nationally advertised sell. relies differentiate competitors attract retain repeat loyalty consumers. Smaller unable offering 22 'The feasible method procure assure thereof trademark specifying products.' Answer, App. 11. 23 essentially anything restricting Topcobrand goods, actually increases enabling successfully 24 considering things decision, agreed recognized panoply restraints worked prevent products,8 concluded '(w)hatever anti-competitive far outweighed increased ability supermarkets territories.' 1043 (1970). court held procompetitive and, therefore, consistent purposes antitrust laws. But conclude used improper analysis reaching result. III 27 On face, appears bar entrepreneurs so long 'in trade.' Theoretically, manufacturers, distributors, merchants, sellers, buyers considered other. Were read narrowest possible way, commercial contract deemed it. Chicago Board Trade 246 231, 238, 38 242, 243, 62 L.Ed. 683 (1918) (Brandeis, J.). history underlying formulation laws led conclude, Congress did intend contracts, nor contracts might insignificant attenuated sense restrain lieu reading 1, adopted 'rule reason' determining combinations prohibitions Act. Standard Oil Co. 221 502, 55 619 (1911). An reasonableness particular includes consideration facts peculiar applied, nature effects, reasons adoption. supra, U.S., S.Ct., 243. utilized evaluating legality doctrine relationships violations regard reasonableness. Pacific R. 356 5, 78 514, 518, 545 (1958), Black explained appropriateness of, need for, rules: 29 '(T)here agreements pernicious lack redeeming virtue conclusively presumed unreasonable therefore elaborate inquiry precise harm caused excuse use. This principle unreasonableness proscribed benefit everyone concerned, avoids necessity incredibly complicated prolonged investigation entire industry involved, industries, effort determine unreasonable—an fruitless when undertaken.' 30 after considerable experience courts classify them generally Van Cise, Future Per Se Antitrust Law, 50 Va.L.Rev. 1165 (1964). One classic examples between structure allocate Such concerted termed 'horizontal' restraint, contradistinction persons levels structure, e.g., manufacturers 'vertical' restraints. reiterated again '(h)orizontal naked purpose except stifling competition.' White Motor 372 253, 263, 83 696, 702, 738 (1963). Addyston Pipe & Steel 175 211, 96, 44 136 (1899), aff'g 85 F. 271 (C.A.6 1898) (Taft, J.); National Lead Co., 332 319, 67 1634, 2077 (1947); Timken Roller Bearing 341 593, 71 971, 95 1199 (1951); supra; Citizen Publishing 394 131, 89 927, 148 (1969); 1238 (1967); Arnold, Schwinn 365, 390, 1856, 1871, 1249 (1967) (Stewart, J., concurring part dissenting part); Serta 393 534, 870, 753 (1969), 296 1121, 1128 (N.D.Del.1968). think clear case one, failed make determination simply applied conclusions illegal. See, Comment, Horizontal Territorial Restraints Rule, Wash. Lee L.Rev. 457, 469 (1971). doing, erred. is, fact, fours case. Sealy mattresses bedding using trademark. Like corporation almost entirely licensees, elected Directors controlled business. Just case, sellers Sealy-brand designated exchange promise licensee beyond demarcated Sealy. Act.9 Whether decide irrelevant issue us. fact limited utility examining problems.10 Our inability weigh, meaningful sense, destruction sector economy promotion formulated rules. 34 rigid rules, consistently rejected notion tolerated intended allegedly increase E.g., General Motors Corp., 384 127, 146—147, 86 1321, 1331, 415 (1966); Masonite 316 265, 1070, 1461 (1942); Fashion Originators' Guild FTC, 312 61 703, 949 (1941). 35 general, particular, Magna Carta free enterprise. They preservation freedom our free-enterprise Bill Rights protection fundamental personal freedoms. And guaranteed every business, matter how compete—to assert vigor, imagination, devotion, ingenuity whatever muscle muster. Implicit cannot foreclosed citizens groups believe foreclosure promote greater economy. Cf. Philadelphia Bank, 374 321, 371, 1715, 1745, 915 36 determined limiting individual other, doing good fostering But, fallacy authority values various sectors contrary, gives prospective right ascertain desirable Without restrictions, indeed '(cut) throats.' 278, 710 (Clark, J. dissenting). never found possibility sufficient warrant condoning trade. 37 previously price fixing, that: fixed today changes become to-morrow. established, maintained unchanged secured fixed.' Trenton Potteries 273 392, 397, 47 377, 379, 700 (1927). 39 similar observation limitations. 265 n. 703 (Brennan, concurring). 40 There tremendous departures originally conceived country. These congressional people. decision sacrifice portion too forces courts. Private keenly aware making decisions ill-equipped ill-situated decisionmaking. To analyze, interpret, evaluate myriad competing endless data surely decisions, delicate relative society economy, representatives people required. 41 fall, considerations same, requires identical results. 42 strike down amount regulation whom limit intra-brand inter-brand For discussed, arena left choice absent contrary determination. cf. Potteries, supra. also, 281—283, 711—712 43 remand entry appropriate decree. ordered. 45 Reversed 46 POWELL REHNQUIST took BLACKMUN, 48 conclusion reaches anomalous aspects, surely, Court's findings clear, today's favor tend stultify great bigs, should find easier get bigger consequence, reality seems odds public interest. rule, firmly established late date, I oppose Relief, forthcoming, apparently legislation. 49 Chief BURGER, dissenting. involve interbrand allocation monopoly near-monopoly sources supply varieties staple Rather, join endeavor my view, unquestionably lawful purpose; pursuit mutually minimal ancillary fully view 51 joining endeavor, exploit already non-competitive pricing. thing until formed. cooperative's deal line, permit esand trough efforts, consumer awareness family 'private label' line. goal enhancement abilities compete, albeit modest degree, lines years. sole economically control, quantity purchases bulk prices, development attractively printed labels, offer things, course, individually, reach operators proceeding alone.1 52 After careful review 'the government seeks brands'; 'would substantially diminish field.' 1043. determined, basis examination realities, incorrect. majority holds reason'; meaning Act; 'horizontal markets' are, 53 prior justify result reached majority. Nor disposing judicial convenience ready predictability rules overriding law promulgation realities light policy goals 54 cases stating '(t)his (1963).' Motor, laid rule; involved Indeed, holding vertically violations, explaining '(w)e know impact arrangements Act.' 702. statement quoted citation primarily confused horizontally treat dictum controlling would, unjustified. Having cites eight proposition cases, dealt exclusively tying arrangement improperly cited concerned markets.2 Of remaining seven four aggregation included price-fixing agreements. (1967);3 1121 (N.D.Ill.1968). Price fixing factor instant 56 Another relied (1947), world-wide arrangement4 territories, patents, exchanging technological information. reliance rule;5 affirming, remedies ordered attempt declare govern merits 57 still relies, (1967), had, indeed, providing latter were, such, 237 323, 342—343. appeal taken order,6 dealing issues followed approach markedly reviewing here, reason,' rule;7 second, saw presented involving vertical, horizontal, restraints.8 hardly precedent application prohibits effects. 58 Finally, remains eighth Court—actually, list 'authorities' purported rule. Circuit Judge (later Justice) Taft's (CA6 1898), aff'd, (1899) recognized—and properly so—as authoritative exposition law. neither he, pretense establishing defendants vendors cast-iron pipe 'entered raise prices pipe' throughout 'constituting considerably three-quarters significantly called 'pay territory." F., 291. associated two-thirds manufactured output territory'; cities ('reserved' cities) assigned submitting ficititious bids paying 'bonus' sale. Outside 'reserved' cities, territory' again, offered, secret auction, pay largest was, buying lost frequently—and quite properly—been allocation-of-markets customer allocations fix levels. Taft defendants' argument 'reasonable'; he finding gave they, rather forces, three-fourths Nation's groundwork subsequent establishment fixing. more, 59 foregoing indicates me merely following holdings; face supported effects adverse welfare,9 lays condemned so, invites undertake impact. Ante, 611—612. question fulfilling role statute declines determination; event, unwilling assess impact, proceed activity. 60 his versions proposed Senate 1890, Senator Sherman, lengthy, obviously carefully prepared, address body, said bill 'only competition, trade, profits producer consumer. unlawful combination, tested human experience, aimed bill, useful combination. 'I admit define legal language combinations. we, lawmakers, principles, assured apply carry out Cong.Rec. 2457, 2460. 63 'carry(ing) law' 'determin(ations) case,' Congress' intent case-by-case determinations. 60, 515, Act's protect 'public interests.' American Tobacco 106, 179, 632, 648, 663 similarly directed welfare; complementary to, inconsistent with, reason. advantages flow use first, enforcement enhanced unncessary avoided where falling scope found. 64 use.' formulating tell us what 'pernicious competition' outlawed perceived have; show 'lack virtue.' emphasizes importance predictability, asserting 'courts problems' yet 'ramble wilds flexible approach.'10 65 respect, fallacies here. while characterize 'rambl(ing) wilds,' 'examin(ation of) problems.' undoubtedly ease take, abdicate justification reduction investigation. Second, play necessary law, follow promulgated one. proper formulate limitations, necessarily blanket prohibition More specifically, why cover division-of-market brands. presents agreement; rule.11 66 specifically positively supremarket field lower costs implicitly accept determination, says 'whether suprmarket 611. overlooks further namely, invalidation brands.' F.Supp., seemed lead demise time. appear conclusion. demand brands, impracticable financial resources, convert distributor distributors existing Furthermore, grant hold replacements present who, pattern past, eventually grow sufficiently size able leave organization develop Moreover, once full course time, efforts available 68 rarely simple resolve reason; require alone, overly zealous excess zeal detrimental welfare consumers generally. clear: unless intervenes, staples marketed privatelabel soon patronize referred times 'association,' retailers retailer- wholesalers. performs functions: insures adequate purchases; assists developing specifications types (e.g., supplies); aids sources. founding difficulty attributable capable programs. Private-label differ brand-name easily ascertainable stores. A&P, example, pioneer series A&P obvious achieve significant economies purchasing, transportation, warehousing, promotion, advertising. afford opportunities band-name This, turn, provides many are: store national-brand stores, simultaneously desirable, priced alternative; or, margin private-brand reduced price. Other include: bargain favorably creating broader base thereby decreasing dependence few, manufacturers; create 'price-mix' whereby lowered items; creation goodwill priced, higher Safeway, Kroger. named defendant, clearly defendants, coconspirators 8, 'Unless Association. permits shall resale confined conform respects Association's policies.' Shortly trial, amended bylaw retailed. remained cases. applies Despite manager testified practice, Topco-branded written. nothing erroneous finding. Assuming, arguendo, change. raised point objected ground variance charge complaint. pursue proved, later amended. 141. acquiesced procedure, sides witnesses. totality facts, additional issue. '(t)he introduced indicating applications denied,' 1042, appreciable influence expand. expands brief uncontradicted build license.' Brief Appellee 18. problem assertion crucial urged filing guarantee territory, understand urge unimportant restrictions. extent casts doubt unaccompanied remove today. recent commentary wisdom 457 (1971); Averill, One: Analysis Prognosis, N.Y.L.F. Note, Selected Problems Franchisor: Arrangements, Restrictions, Franchise Termination, U.Fla.L.Rev. 260, 286 Sadd, Symposium: Customer Schwinn, U.Cin.L.Rev. 249, 252—253 Bork, Rule Reason Concept, pt. Fixing Market Division, 74 Yale L.J. 775 (1965). businessmen little aid predicting ultimately can, inapplicable ramble approach. include following: '33. competitively effective undertaken single retailer annual volume $250 million optimum efficiency, probably twice amount.' 1036. 'division 518. show, thing; description 'on case.' 609. support imposed. Beyond intimately policing fell together: '(T) activity refutes appellee's claim mere incidents licensing. (341 (1951)). policing.' 356, 1852. summarizing findings, statements: 'When story seen whole, blinking titanium. Every pound trammelled privately regulation. channels formed winds currents artificial canals constructed. '. titanium pigments enter NL (defendant Lead). move interstate like pigment produced ports points Western Hemisphere.' 513, 521—522. decided reason.' conspiracy trade; unreasonable. 523 (emphasis added). defense permissible validates covenants reasonably (T)he measured actualities.' Id., 524 appellees invalidating (territorial) 368, 1860. contend .. Accordingly, remitted appraisal practices. (W)e look specifics challenged makretplace 'reasonable' inquiry.' 373—374, 1862. 'We confronted vertical dealers. restraints, actors manufacturer's participation.' 372, Among merchandising, definition depends merchandiser 'lower quality' 'to manufacturers'; fosters relatively enables '(s)maller source name recognition (to) assurance 1035. ironical today, Ford 562, 1142, 492, contrast handling goes commend treatment 'predictions assumptions concerning events.' 578, 1149. nowhere else chain, engage chain's serious suggestion otherwise. fail see difference whatsoever methods rangement Topco-the True, involves 'combination,' integrated corporation. consideration, offended, benefit, detriment, consuming public.

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