Source: https://case-law.vlex.com/vid/405-u-s-596-606743214
Timestamp: 2019-04-22 22:39:45+00:00

Document:
405 U.S. 596 (1972), 70-82, United States v. Topco Associates, Inc.
Party Name: United States v. Topco Associates, Inc.
The United States brought this injunction action charging a violation of [92 S.Ct. 1128] § 1 of the Sherman Act by appellee, Topco, a cooperative association of 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 of which have brand names owned by Topco. The members' combined retail sales in 1967 were 2.3 billion, exceeded by only three national grocery chains. A member's average market share in its area is about 6%, and its competitive position is frequently as strong as that of any other chain. The members own equal amounts of Topco's common stock (the voting stock), choose its directors, and completely control the association's operations. Topco's bylaws establish an "exclusive" category of territorial licenses, under which most members' licenses are issued, and the two other membership categories have proved to be de facto exclusive. Since no member under this system may sell Topco brand products outside the territory in which it is licensed, expansion into another member's territory is, in practice, permitted only with the other member's consent, and, since a member, in effect, has a veto power over admission of a new member, members can control actual or potential competition in the territorial areas in which they are concerned. Topco members are prohibited from selling any products supplied by the association at wholesale, whether trademarked or not, without securing special permission, which is not granted without the consent of other interested licensees (usually retailers), and then the member must agree to restrict Topco product sales to a specific area, and under certain conditions. The Government charged that Topco's scheme of dividing markets violates the Sherman Act because it operates to prohibit competition in Topco brand products among retail grocery chains, and also challenged Topco's restrictions on wholesaling. Topco contended that it needs territorial divisions to maintain its private label program and to enable it to compete with the larger chains; that the association could not exist if the territorial divisions were not exclusive; and that the restrictions on competition in Topco brand sales enable members to meet larger chain competition.
Held: The Topco scheme of allocating territories to minimize competition at the retail level is a horizontal restraint constituting a per se violation of § 1 of the Sherman Act, and the District Court erred in applying a rule of reason to the restrictive practices here involved. United States v. Sealy Inc., 388 U.S. 350. Topco's limitations upon reselling at wholesale are for the same reason per se invalid under § 1. Pp. 606-612.
MARSHALL, J., delivered the opinion of the Court, in which DOUGLAS, BRENNAN STEWART, and WHITE, JJ., joined. BLACKMUN, J., filed an opinion concurring in the result, post, p. 612. BURGER, C.J., filed a dissenting opinion, post, p. 613. POWELL and REHNQUIST, JJ., took no part in the consideration or decision of the case.
The United States brought this action for injunctive relief against alleged violation by Topco Associates, Inc. (Topco) of § 1 of the Sherman Act, 26 Stat. 209, as amended, 15 U.S.C. § 1. Jurisdiction was grounded in § 4 of the Act, 15 U.S.C. § 4. Following a trial on the merits, the United States District Court for the Northern [92 S.Ct. 1127] District of Illinois entered judgment for Topco, 319 F.Supp. 1031, and the United States appealed directly to this Court pursuant to § 2 of the Expediting Act, 32 Stat. 823, as amended, 15 U.S.C. § 29. We noted probable jurisdiction, 402 U.S. 905 (1971), and we now reverse the judgment of the District Court.
Topco is a cooperative association of approximately 25 small and medium-sized regional supermarket chains that operate [92 S.Ct. 1129] stores in some 33 States.1 Each of the member chains operates independently; there is no pooling of earnings, profits, capital, management, or advertising resources. No grocery business is conducted under the Topco name. Its basic function is to serve as a purchasing agent for its members.2 In this capacity, it procures and distributes to the members more than 1,000 different food and related nonfood items, most of which are distributed under brand names owned by Topco. The association does not itself own any manufacturing, processing, or warehousing facilities, and the items that it procures for members are usually shipped directly from the packer or manufacturer to the members. Payment is made either to Topco or directly to the manufacturer at a cost that is virtually the same for the members as for Topco itself.
trade or commerce among the several States, or with foreign nations, is declared to be illegal. . . .
a continuing agreement, understanding and concert of action among the coconspirator member firms acting through Topco, the substantial terms of which have been and are that each coconspirator member firm will sell Topco controlled brands only within the marketing territory allocated to it, and will refrain from selling Topco controlled brands outside such marketing territory.
(a) Exclusive -- An exclusive territory is one in which the member is licensed to sell all products bearing specified trademarks of the Association, to the exclusion of all other persons.
(b) Non-exclusive -- A non-exclusive territory is one in which a member is licensed to sell all products bearing specified trademarks of the Association, but not to the exclusion of others who may also be licensed to sell products bearing the same trademarks of the Association in the same territory.

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