Source: https://supreme.justia.com/cases/federal/us/394/495/
Timestamp: 2019-04-19 02:20:35+00:00

Document:
Justia › US Law › US Case Law › US Supreme Court › Volume 394 › Fortner Enterprises, Inc. v. United States Steel Corp.
Petitioner filed this action for treble damages and injunctive relief for alleged violations of §§ 1 and 2 of the Sherman Act by respondents, U.S. Steel Corp. and its wholly owned subsidiary, U.S. Steel Homes Credit Corp., alleging an agreement between respondents to force petitioner and others as a condition of obtaining credit on advantageous terms from Credit Corp. to purchase at artificially high prices prefabricated houses manufactured by U.S. Steel. Petitioner claimed that, in order for it to obtain over $2,000,000 in loans to buy and develop land in the Louisville, Ky., area, it was required to agree to erect. a U.S. Steel-fabricated house on each of the lots it bought with the loan proceeds. On the basis of its complaint and affidavits and answers to interrogatories filed in the course of pretrial proceedings, petitioner claimed that, during the 1959-1962 period involved, petitioner could find no other financing in the Louisville area at such cheap terms and on the 100% basis that Credit Corp. offered. The District Court, holding that petitioner's allegations had raised no question of fact as to a possible violation of the antitrust laws, entered summary judgment for respondents. The Court of Appeals affirmed.
1. The District Court incorrectly assumed that the standards in Northern Pacific R. Co. v. United States, 356 U. S. 1, for determining the illegality per se of a tying agreement had to be met before petitioner could prevail on the merits. Pp. 394 U. S. 498-500.
2. In any event, the facts raised by petitioner, if proved at trial, make the per se doctrine applicable to the tying arrangement here. Pp. 394 U. S. 500-501.
3. The volume of commerce allegedly foreclosed was substantial when measured as it should be, not by the portion of the total accounted for by petitioner's contracts, but by the total volume of sales tied by respondents' challenged sales policy. Pp. 394 U. S. 501-502.
with respect to any appreciable number of buyers within the market, and does not require (as the District Court erroneously assumed) a showing of the seller's dominance over the market for the tying product. By this standard, in view of petitioner's showing that houses comparable to U.S. Steel's were sold by its competitors for substantially less and the lack of financing through other sources on terms Credit Corp. made available to petitioner, petitioner should have been allowed to go to trial on the market power issue. Pp. 394 U. S. 502-506.
5. The arrangement here, where credit is provided by one corporation on condition that a product be purchased from another corporation, and where the borrower contracts to obtain a large sum of money beyond that needed to pay the seller for the physical products purchased, is readily distinguishable from the sale of a single product on credit by an individual seller. Pp. 394 U. S. 506-507.
6. Where credit is the source of tying leverage used to restrain competition, it is treated no differently under the antitrust laws from other goods and services. Pp. 394 U. S. 508-509.
404 F.2d 936, reversed and remanded.
"to force corporations and individuals, including the plaintiff, as a condition to availing themselves of the services of United States Steel Homes Credit Corporation, to purchase at artificially high prices only United States Steel Homes. . . ."
Specifically, petitioner claimed that, in order to obtain loans totaling over $2,000,000 from the Credit Corp. for the purchase and development of certain land in the Louisville, Kentucky, area, it had been required to agree, as a condition of the loans, to erect a prefabricated house manufactured by U.S. Steel on each of the lots purchased with the loan proceeds. Petitioner claimed that the prefabricated materials were then supplied by U.S. Steel at unreasonably high prices, and proved to be defective and unusable, thus requiring the expenditure of additional sums and delaying the completion date for the development. Petitioner sought treble damages for the profits thus lost, along with a decree enjoining respondents from enforcing the requirement of the loan agreement that petitioner use only houses manufactured by U.S. Steel.
sufficient market power over the tying product and foreclosure of a substantial volume of commerce in the tied product. The Court of Appeals affirmed without opinion, and we granted certiorari, 393 U.S. 820 (1968). Since we find no basis for sustaining this summary judgment, we reverse and order that the case proceed to trial.
"[T]here are certain agreements or practices which, because of their pernicious effect on competition and lack of any redeeming virtue, are conclusively presumed to be unreasonable, and therefore illegal, without elaborate inquiry as to the precise harm they have caused or the business excuse for their use. . . ."
in another market. At the same time, buyers are forced to forego their free choice between competing products. For these reasons, 'tying agreements fare harshly under the laws forbidding restraints of trade.' Times-Picayune Publishing Co. v. United States, 345 U. S. 594, 345 U. S. 606. They are unreasonable in and of themselves whenever a party has sufficient economic power with respect to the tying product to appreciably restrain free competition in the market for the tied product and a 'not insubstantial' amount of interstate commerce is affected. International Salt Co. v. United States, 332 U. S. 392."
Despite its recognition of this strict standard, the District Court held that petitioner had not even made out a case for the jury. The court held that respondents did not have "sufficient economic power" over credit, the tying product here, because, although the Credit Corp.'s terms evidently made the loans uniquely attractive to petitioner, petitioner had not proved that the Credit Corp. enjoyed the same unique attractiveness or economic control with respect to buyers generally. The court also held that the amount of interstate commerce affected was "insubstantial" because only a very small percentage of the land available for development in the area was foreclosed to competing sellers of prefabricated houses by the contract with petitioner. We think it plain that the District Court misunderstood the two controlling standards and misconceived the extent of its authority to evaluate the evidence in ruling on this motion for summary judgment.
"We believe that summary procedures should be used sparingly in complex antitrust litigation where motive and intent play leading roles, the proof is largely in the hands of the alleged conspirators, and hostile witnesses thicken the plot. It is only when the witnesses are present and subject to cross-examination that their credibility and the weight to be given their testimony can be appraised. Trial by affidavit is no substitute for trial by jury, which so long has been the hallmark of 'even-handed justice.'"
proved at trial, would bring this tying arrangement within the scope of the per se doctrine. The requirement that a "not insubstantial" amount of commerce be involved makes no reference to the scope of any particular market or to the share of that market foreclosed by the tie, and hence we could not approve of the trial judge's conclusions on this issue even if we agreed that his definition of the relevant market was the proper one. [Footnote 1] An analysis of market shares might become relevant if it were alleged that an apparently small dollar volume of business actually represented a substantial part of the sales for which competitors were bidding. But normally the controlling consideration is simply whether a total amount of business, substantial enough in terms of dollar volume so as not to be merely de minimis, is foreclosed to competitors by the tie, for, as we said in International Salt, it is "unreasonable per se to foreclose competitors from any substantial market" by a tying arrangement, 332 U.S. at 332 U. S. 396.
$190,000, while more than $500,000 in annual sales was involved in the tying arrangement held illegal in International Salt, but we cannot agree with respondents that a sum of almost $200,000 is paltry or "insubstantial." In any event, a narrow focus on the volume of commerce foreclosed by the particular contract or contracts in suit would not be appropriate in this context. As the special provision awarding treble damages to successful plaintiffs illustrates, Congress has encouraged private antitrust litigation not merely to compensate those who have been directly injured, but also to vindicate the important public interest in free competition. See Perma Life Mufflers v. International Parts Corp., 392 U. S. 134, 392 U. S. 138-139 (1968). For purposes of determining whether the amount of commerce foreclosed is too insubstantial to warrant prohibition of the practice, therefore, the relevant figure is the total volume of sales tied by the sales policy under challenge, not the portion of this total accounted for by the particular plaintiff who brings suit. In International Salt, the $500,000 total represented the volume of tied sales to all purchasers, and although this amount was directly involved because the case was brought by the Government against the practice generally, the case would have been no less worthy of judicial scrutiny if it had been brought by one individual purchaser who accounted for only a fraction of the $600,000 in tied sales. In the present case, the annual sales allegedly foreclosed by respondents' tying arrangements throughout the country totaled almost $4,000,000 in 1960, more than $2,800,000 in 1961, and almost $2,300,000 in 1962. These amounts could scarcely be regarded as insubstantial.
"Even absent a showing of market dominance, the crucial economic power may be inferred from the tying product's desirability to consumers or from uniqueness in its attributes."
can be forced to accept the higher price because of their stronger preferences for the product, and the seller could therefore choose instead to force them to accept a tying arrangement that would prevent free competition for their patronage in the market for the tied product. Accordingly, the proper focus of concern is whether the seller has the power to raise prices, or impose other burdensome terms such as a tie-in, with respect to any appreciable number of buyers within the market.
or through any other lending institution or mortgage company to this affiant's knowledge during this period."
well have had a substantial competitive advantage in providing this type of financing because of economics resulting from the nationwide character of its operations. In addition, potential competitors such as banks and savings and loan associations may have been prohibited from offering 100% financing by state or federal law. [Footnote 3] Under these circumstances, the pleadings and affidavits sufficiently disclose the possibility of market power over borrowers in the credit market to entitle petitioner to go to trial on this issue.
It may also be, of course, that these allegations will not be sustained when the case goes to trial. It may turn out that the arrangement involved here serves legitimate business purposes, and that U.S. Steel's subsidiary does not have a competitive advantage in the credit market. But, on the record before us, it would be impossible to reach such conclusions as a matter of law, and it is not our function to speculate as to the ultimate findings of fact. We therefore conclude that the showing made by petitioner was sufficient on the market power issue.
advantageous services, and they suffer no harm because they can buy the tangible product with credit obtained elsewhere if the combined price of the seller's credit-product package is less favorable than the cost of purchasing the components separately.
All of respondents' arguments amount essentially to the same claim -- namely, that this opinion will somehow prevent those who manufacture goods from ever selling them on credit. But our holding in this case will have no such effect. There is, at the outset of every tie-in case, including the familiar cases involving physical goods, the problem of determining whether two separate products are, in fact, involved. In the usual sale on credit, the seller, a single individual or corporation, simply makes an agreement determining when and how much he will be paid for his product. In such a sale, the credit may constitute such an inseparable part of the purchase price for the item that the entire transaction could be considered to involve only a single product. It will be time enough to pass on the issue of credit sales when a case involving it actually arises. Sales such as that are a far cry from the arrangement involved here, where the credit is provided by one corporation on condition that a product be purchased from a separate corporation, [Footnote 4] and where the borrower contracts to obtain a large sum of money over and above that needed to pay the seller for the physical products purchased. Whatever the standards for determining exactly when a transaction involves only a "single product," we cannot see how an arrangement such as that present in this case could ever be said to involve only a single product.
but any of these expedients might have been chosen to finance a purchase from a competing producer if the seller had not captured the sale by means of his tying arrangement.
In addition, barriers to entry in the market for the tied product are raised, since, in order to sell to certain buyers, a new company not only must be able to manufacture the tied product, but also must have sufficient financial strength to offer credit comparable to that provided by larger competitors under tying arrangements. If the larger companies have achieved economics of scale in their credit operations, they can, of course, exploit these economics legitimately by lowering their credit charges to consumers who purchase credit only, but economics in financing should not, any more than economics in other lines of business, be used to exert economic power over other products that the company produces no more efficiently than its competitors.
For all these reasons, we can find no basis for treating credit differently in principle from other goods and services. Although money is a fungible commodity -- like wheat or, for that matter, unfinished steel -- credit markets, like other markets, are often imperfect, and it is easy to see how a big company with vast sums of money in its treasury could wield very substantial power in a credit market. Where this is true, tie-ins involving credit can cause all the evils that the antitrust laws have always been intended to prevent, crippling other companies that are equally, if not more, efficient in producing their own products. Therefore, the same inquiries must be made as to economic power over the tying product and substantial effect in the tied market, but where these factors are present, no special treatment can be justified solely because credit, rather than some other product, is the source of the tying leverage used to restrain competition.
The judgment of the Court of Appeals is reversed, and the case is remanded with directions to let this suit proceed to trial.
Since the loan agreements obligated petitioner to erect houses manufactured by U.S. Steel on the land acquired, the trial judge thought the relevant foreclosure was the percentage of the undeveloped land in the county that was no longer open for sites on which homes made by competing producers could be built. This apparently was an insignificant .00032%. But, of course, the availability of numerous vacant lots on which houses might legally be erected would be small consolation to competing producers once the economic demand for houses had been preempted by respondents. It seems plain that the most significant percentage figure with reference to the tied product is the percentage of annual sales of houses, or prefabricated houses, in the area that was foreclosed to other competitors by the tying arrangement.
Uniqueness confers economic power only when other competitors are in some way prevented from offering the distinctive product themselves. Such barriers may be legal, as in the case of patented and copyrighted products, e.g., International Salt; Loew's, or physical, as when the product is land, e.g., Northern Pacific. It is true that the barriers may also be economic, as when competitors are simply unable to produce the distinctive product profitably, but the uniqueness test in such situations is somewhat confusing, since the real source of economic power is not the product itself, but rather the seller's cost advantage in producing it.
See, e.g., Federal Reserve Act § 24, 3 Stat. 273, as amended, 12 U.S.C. § 371; 12 CFR § 545.14(c).
Cf. Perma Life Mufflers, 392 U.S. at 392 U. S. 141-142; Timken Co. v. United States, 341 U. S. 593, 341 U. S. 598 (1951); Kiefer-Stewart Co. v. Seagram & Sons, 340 U. S. 211, 340 U. S. 215 (1951); United States v. Yellow Cab Co., 332 U. S. 218, 332 U. S. 227 (1947).
Where price reductions on the tied product are made difficult in practice by the structure of that market, the seller can still achieve his alleged objective by offering other kinds of fringe benefits over which he has no economic power.
The judicially developed proscription of certain kinds of tying arrangements has been commonly understood to be this: an antitrust defendant who ties the availability of one product to the purchase of another violates § 1 of the Sherman Act if he both has sufficient market power in the tying product and affects a substantial quantity of commerce in the tied product. This case further defines the degree of market power which is sufficient to invoke the tying rule. Prior cases provide some guidance, but are not dispositive. Admittedly, monopoly power or dominance in the tying market, Times-Picayune Publishing Co. v. United States, 345 U. S. 594, 345 U. S. 608-611 (1953), is not necessary; it is enough if there is "sufficient economic power to impose an appreciable restraint on free competition in the tied product," Northern Pacific R. Co. v. United States, 356 U. S. 1, 356 U. S. 11 (1958). The Court indicated in United States v. Loew's Inc., 371 U. S. 38, 371 U. S. 45 (1962), that this could be inferred from "the tying product's desirability to consumers or from uniqueness in its attributes."
houses were to be built, the Court's logic dictates the same result if unusually attractive credit terms had been offered simply for the purchase of the houses themselves. Proscription of the sale of goods on easy credit terms as an illegal tie without proof of market power in credit not only departs from established doctrine, but also, in my view, should not be outlawed as per se illegal under the Sherman Act. Provision of favorable credit terms may be nothing more or less than vigorous competition in the tied product, on a basis very nearly approaching the price competition which it has always been the policy of the Sherman Act to encourage. Moreover, it is far from clear that, absent power in the credit market, credit financing of purchases should be regarded as a tie of two distinct products any more than a commodity should be viewed as tied to its own price. Since provision of credit by sellers may facilitate competition, since it may provide essential risk or working capital to entrepreneurs or businessmen, and since the logic of the majority's opinion does away in practice with the requirement of showing market power in the tying product while retaining that requirement in form, the majority's per se rule is inappropriate. I dissent.
power in the money market, the Court should have in mind the rationale on which the illegality of tying arrangements is based.
All of these distortions depend upon the existence of some market power in the tying product quite apart from any relationship which it might bear to the tied product. In this case, what proof of any market power in the tying product has been alleged? Only that the tying product -- money -- was not available elsewhere on equally good terms, and perhaps not at all. Let us consider these possibilities in turn.
First, if enough money to proceed was available elsewhere, and U.S. Steel was simply offering credit at a lower price, in terms of risk of loss, repayment terms, and interest rate, surely this does not establish that U.S.
"low price on a product is ordinarily no reflection of market power. It proves neither the existence of such power nor its absence, although absence of power may be the more reasonable inference. One who has such power benefits from it precisely because it allows him to raise prices, not lower them, and ordinarily he does so."
A low price in the tying product -- money, the most fungible item of trade since it is by definition an economic counter -- is especially poor proof of market power when untied credit is available elsewhere. In that case, the low price of credit is functionally equivalent to a reduction in the price of the houses sold. Since the buyer has untied credit available elsewhere, he can compare the houses-credit package of U.S. Steel as competitive with the price of the untied credit plus the cost of houses from another source. By cutting the price of his houses, a competitor of U.S. Steel can compete with U.S. Steel houses on equal terms, since U.S. Steel's money is no more desirable to the purchaser than money from another source except in point of price. The same money which U.S. Steel is willing to risk or forgo by providing better credit terms it could sacrifice by cutting the price of houses. There is no good reason why U.S. Steel should always be required to make the price cut in one form, rather than another, which its purchaser prefers.
houses to petitioner, since no one would have sold any houses to petitioner. A seller who is willing to take credit risks which no one else finds acceptable is simply engaging in the hard and risky competition which it is the policy of the Sherman Act to encourage. And if he may not do so, then those businesses and entrepreneurs who depend for their survival and growth or for the initiation of new enterprises on the availability of credit financing from sellers may well fail for lack of credit availability from other sources. Of course, if the credit was unavailable elsewhere because U.S. Steel was a monopolist of credit in a relevant market -- which petitioner does not assert -- the tie would be illegal. But here it was evidently unavailable elsewhere simply because others were not willing to match U.S. Steel's relatively low price for acceptance of high risk.
is reasonably apparent. But I question that buyers' acceptance of the tie-in -- the simple fact that there are customers -- will always suffice to prove market power in the tying product. Where the seller exercises no market power in the tying item but buyers prefer the tie-in because the seller offers the tying product on favorable terms -- where the price is unusually low or where the seller gives the product away conditioned on buying other merchandise -- the seller in effect is merely competing in the tied product market. Buyers are not burdened. They may buy both tied and tying products elsewhere on normal terms. Nor are the seller's competitors restrained. The economic advantage of the tie-in to buyers can be matched by other sellers of the tied product by offering lower prices on that product. Promotional tie-ins effected by underpricing the tying product do not themselves prove there is any market power to exercise in that product market, unless the economic resources to withstand lower profit margins and the willingness to compete in this manner are themselves suspect. If they are, however, they should as surely taint and muffle hard price competition in the tied market itself, a result which, short of a § 2 violation, it would be difficult to reach under the Sherman Act.
promotional tie is, in effect, price discrimination, that too can be examined under statutes designed for that purpose. [Footnote 2/13] Moreover, the transaction could be dealt with as an unfair method of competition under § 5 of the Federal Trade Commission Act, 38 Stat. 719, as amended, 15 U.S.C. § 45. For example, in Hastings Mfg. Co. v. FTC, 153 F.2d 253 (C.A. 6th Cir.), cert. denied, 328 U.S. 853 (1946), it was, inter alia, held an unfair method of competition for a seller of piston rings, ranking sixth or seventh in the industry, to attempt to obtain exclusive dealers or preferential dealers by guaranteeing profits to the dealers and making loans to them, tied to the purchase of the piston rings. Relying on the expertise of the FTC and the precedents of this Court, the Court of Appeals concluded that, although it "is not illegal for a manufacturer to finance his retail outlets," 153 F.2d at 257 (a proposition called into question by today's decision) tying this to exclusive or preferential dealing was an unfair method of competition.
The principal evil at which the proscription of tying aims is the use of power in one market to acquire power in, or otherwise distort, a second market. This evil simply does not exist if there is no power in the first market. The first market here is money, a completely fungible item. I would not apply a per se rule here without independent proof of market power. Cutting prices in the credit market is more likely to reflect a competitive attempt to offset the market power of others in the tied product than it is to reflect existing market power in the credit market. Those with real power do not offer uniquely advantageous deals to their customers; they raise prices.
be inapplicable, or that it is necessarily impossible to prove market power in the credit market. There may be so few suppliers of credit in a certain relevant market, for example, that they have the power among them to manipulate the price and terms of credit, not necessarily by conspiracy, but by parallel behavior. Through proof that such a situation existed, or through proof of some other sort an antitrust plaintiff might be able to show market power in the credit market, and, if this were coupled with a tie, I would consider the arrangement per se illegal under conventional antitrust doctrine. However, I do not consider petitioner's allegations that U.S. Steel lowered its price of credit sufficient to establish market power in credit and I can find no offer by petitioner of the necessary supplementary proof.
E.g., United States v. Loew's Inc., 371 U. S. 38, 371 U. S. 44-45 (1962); Northern Pacific R. Co. v. United States, 356 U. S. 1, 356 U. S. 6-7 (1958); Times-Picayune Pub. Co. v. United States, 345 U. S. 594, 345 U. S. 611 (1953).
E.g., Report of the Attorney General's National Committee to Study the Antitrust Laws 145 (1955); Austin, The Tying Arrangement: A Critique and Some New Thoughts, 1967 Wis.L.Rev. 88; Bowman, Tying Arrangements and the Leverage Problem, 67 Yale L.J. 19 (1957); Day, Exclusive Dealing, Tying and Reciprocity -- A Reappraisal 2 Ohio St.L.J. 539, 540-541 (1968); Turner, The Validity of Tying Arrangements Under the Antitrust Laws, 72 Harv.L.Rev. 50, 60-61 (1958).
Theoretically, the tie may do the tier little good unless the buyer is in that position. Even if the seller has a complete monopoly in the tying product, this is the case. The monopolist can exact the maximum price which people are willing to pay for his product. By definition, if his price went up, he would lose customers. If he then refuses to sell the tying product without the tied product, and raises the price of the tied product above market, he will also lose customers. The tying link works no magic. However, difficulty in extracting the full monopoly profit without the tie, Burstein, A Theory of Full-Line Forcing, 55 Nw.U.L.Rev. 62 (1960), or the marginal advantage of a guaranteed first refusal from otherwise indifferent customers of the tied product, or other advantages mentioned in the text, may make the tie beneficial to its originator.
If the monopolist uses his monopoly profits in the first market to underwrite sales below market price in the second, his monopoly business becomes less profitable. There remains an incentive to do so nonetheless when he thinks he can obtain a monopoly in the tied product as well, permitting him later to raise prices without fear of entry to recoup the monopoly profit he has forgone. But just as the firm whose deep pocket stems from monopoly profits in the tying product may make this takeover, so may anyone else with a deep pocket, from whatever source.
Even when the terms of the tie allow a competitor to obtain the business in the tied product simply by offering a price lower than, rather than equal to, the tier's, the Court has found sufficient restriction in the tied product, as in the Northern Pacific case.
Bowman, Tying Arrangements and the Leverage Problem, 67 Yale L.J.19, 21-23 (1957).
Burstein, A Theory of Full-Line Forcing, 55 Nw.U.L.Rev. 62 (1960).
Tie-ins may also at times be beneficial to the economy. Apart from the justifications discussed in the text are the following. They may facilitate new entry into fields where established sellers have wedded their customers to them by ties of habit and custom. Brown Shoe Co. v. United States, 370 U. S. 294, 370 U. S. 330 (1962); Note, Newcomer Defenses: Reasonable Use of Tie-ins, Franchises, Territorials, and Exclusives, 18 Stan.L.Rev. 457 (1966). They may permit clandestine price-cutting in products which otherwise would have no price competition at all because of fear of retaliation from the few other producers dealing in the market. They may protect the reputation of the tying product if failure to use the tied product in conjunction with it may cause it to misfunction. Compare International Business Machines Corp. v. United States, 298 U. S. 131, 298 U. S. 138-140 (1936), and Standard Oil Co. v. United States, 337 U. S. 293, 337 U. S. 306 (1949), with Pick Mfg. Co. v. General Motors Corp., 80 F.2d 641 (C.A. 7th Cir.1935), aff'd, 299 U. S. 3 (1936). And, if the tied and tying products are functionally related, they may reduce costs through economics of joint production and distribution. These benefits which may flow from tie-ins, though perhaps in some cases a potential basis for an affirmative defense, were not sufficient to avoid the imposition of a per se proscription, once market power has been demonstrated. But in determining whether even the market power requirement should be eliminated, as the logic of the majority opinion would do, extending the per se rule to absolute dimensions, the fact that tie-ins are not entirely unmitigated evils should be borne in mind.
I agree with the majority that the affidavits are not inconsistent with a "possibility of market power" and that such power might be shown by showing certain kinds of "unique economic ability." But I cannot see how petitioner offers to prove this, although by taking judicial notice of the possibility that U.S. Steel may have operated free of legal restraints on other lenders otherwise willing to provide 100% financing -- a possibility not mentioned by petitioner -- the majority suggests to petitioner an element of the sort of detailed description of one facet of the credit market which, with much more information about the whole of the market, would be relevant. But this was not the basis on which petitioner offered to go to trial and I would not remand for trial even under the applicable Poller standard.
The arrangements proscribed by § 3 relate only to "goods, wares, merchandise, machinery, supplies, or other commodities. . . ." 38 Stat. 731, 15 U.S.C. § 14.
Robinson-Patman Price Discrimination Act, 49 Stat. 1526, as amended, 15 U.S.C. § 13 et seq.
MR. JUSTICE FORTAS, with whom MR. JUSTICE STEWART joins, dissenting.
I share my Brother WHITE's inability to agree with the majority in this case, and, in general, I subscribe to his opinion. I add this separate statement of the reasons for my dissent.
railroad's lines all commodities produced or manufactured on the land unless another railroad offered more favorable terms.
Although the tying doctrine originated under the specific language of § 3 of the Clayton Act, Northern Pacific was necessarily a Sherman Act case, because the Clayton Act provision applies only to "goods, wares, merchandise, machinery, supplies, or other commodities," and not to land. But Northern Pacific, in effect, applied the same standards to tying arrangements under the Sherman Act as under the Clayton Act, on the theory that the anticompetitive effect of a tie-in was such as to make the difference in language in the two statutes immaterial. The present case, like Northern Pacific, is also exclusively a Sherman Act proceeding. But, here, U.S. Steel is not selling or leasing land subject to an agreement that its prefabricated houses be used thereon. If these were the facts, and if U.S. Steel controlled enough land within an economically demarcated area or "market," however defined, the case might well be governed by Northern Pacific. But, here, U.S. Steel is not selling or providing land. It is selling prefabricated steel houses to be erected in a subdivision and it is providing financing for the land acquisition, improvement, development, and erection costs. Most of the financing is related not to the land cost but to the purchase and installation of the houses.
houses. Under contract terms of a familiar sort in subdivision development, the credit advances are geared to progressive stages of the subdivision development and the purchase, erection, and resale of the houses.
U.S. Steel approached the petitioner seeking to sell it prefabricated steel houses to be erected on the land which Mr. Fortner's other company owned. In October, 1960, after lengthy discussions, U.S. Steel offered, through its Credit Corporation, to lend petitioner about $2,000,000. This sum was to be secured by mortgages on the lots. The mortgage notes carried 6% interest, and petitioner also agreed to pay a "Service Fee" of l/2 of 1% of the principal amount of the notes. Provisions were made to insure that the funds would be progressively advanced and used for land acquisition (from Mr. Fortner's other company), for development and improvement of the area preparatory to construction, and for the purchase and erection of the houses themselves. Petitioner was obligated to erect on each lot a prefabricated house manufactured by U.S. Steel. Of the total of about $2,000,000 to be advanced, $1,700,000 was to be disbursed against purchase and installation of the houses from U.S. Steel and the balance for land acquisition and development.
The Court holds that this was a "tying" agreement, and that, therefore, the extraordinarily onerous incidents of per se illegality which this Court has attached to "tying" agreements must apply here as well.
I cannot agree. This is a sale of a single product with the incidental provision of financing. It is not a sale of one product on condition that the buyer will not deal with competitors for another product or will buy the other product exclusively from the seller.
the reason for its existence. Such an extension of the tying doctrine entirely departs from the factual pattern which is described in § 3 of the Clayton Act and which has been the basis of this Court's extension of the doctrine to the Sherman Act and its development of the rule that such tying arrangements are illegal on a per se basis -- i.e., without any showing that they constitute an unreasonable restraint of trade or tend to create a monopoly. The Court has established this rule because the kind of tying arrangement at issue in prior cases involved the use of a leverage position in the tying product -- the patented machine, the copyrighted film, the unique land -- to force the buyer to purchase the tied product. To apply this rule to a situation where the only "leverage" is a lower price for the article sold or more advantageous financing or credit terms for the article sold and for ancillary costs connected with the sale is to distort the doctrine, and, indeed, to convert it into an instrument which penalizes price competition for the article that is sold.
and perhaps characteristically, represent an indispensable method of financing distributive and service trades, and not until today has it been held that they are tying arrangements and therefore per se unlawful. Cf. Standard Oil Co. v. United States, 337 U. S. 293, 337 U. S. 315, 337 U. S. 321 (1949) (separate opinion of DOUGLAS, J., and dissenting opinion of Jackson, J.).
In the present case, in every respect, the provision of credit for construction of the houses and other associated costs of developing the subdivision, was, from U.S. Steel's point of view, ancillary and subordinated to the sale of the houses. The Credit Corporation did not operate at a loss, but its profit was comparatively low. Provision of special financing to the prospective purchaser of prefabricated houses by the Credit Corporation was intimately and exclusively related to the end object of the sale of the houses by the Homes Division. It was not a separate item of "sale."
This pattern is by no means limited to the provisions of financing, nor can the impact of the majority's opinion be so limited. Almost all modern selling involves providing some ancillary services in connection with making the sale -- delivery, installation, supplying fixtures, servicing, training of the customer's personnel in use of the material sold, furnishing display material and sales aids, extension of credit. Customarily -- indeed almost invariably -- the seller offers these ancillary services only in connection with the sale of his own products, and they are often offered without cost or at bargain rates. It is possible that, in some situations, such arrangements could be used to restrain competition or might have that effect, but to condemn them out-of-hand under the "tying" rubric, is, I suggest, to use the antitrust laws themselves as an instrument in restraint of competition.
"it is clear that petitioner raised questions of fact which, if proved at trial, would bring this tying arrangement within the scope of the per se doctrine."
(Ante at 394 U. S. 500-501.) If it is this sentence which determines the range of issues open on remand there will be no examination at the trial of the business or economic background of the credit arrangements here attacked or of the effects, if any, of this arrangement on competition in the prefabricated house market. All petitioner will need to do is show that U.S. Steel did indeed condition the extension of its subsidiary's credit on an agreement to purchase U.S. Steel prefabricated houses and it will have demonstrated the automatic illegality of the credit arrangement.

References: v. 
 v. 
 v. 
 v. 
 v. 
 § 24
 § 371
 § 545
 v. 
 v. 
 v. 
 § 1
 v. 
 v. 
 v. 
 § 2
 § 5
 § 45
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 § 3
 § 14
 § 13
 § 3
 § 3
 v.