Source: https://case-law.vlex.com/vid/433-u-s-36-606847138
Timestamp: 2019-04-20 12:14:53+00:00

Document:
433 U.S. 36 (1977), 76-15, Continental T.V., Inc. v. GTE Sylvania, Inc.
Party Name: Continental T.V., Inc. v. GTE Sylvania, Inc.
In an attempt to improve its market position by attracting more aggressive and competent retailers, respondent manufacturer of television sets limited the number of retail franchises granted for any given area and required each franchisee to sell respondent's products only from the location or locations at which it was franchised. Petitioner Continental, one of respondent's franchised retailers, claimed that respondent had violated § 1 of the Sherman Act by entering into and enforcing franchise agreements that prohibited the sale of respondent's products other than from specified locations. The District Court rejected respondent's requested jury instruction that the location restriction was illegal only if it unreasonably restrained or suppressed competition. Instead, relying on United States v. Arnold, Schwinn & Co., 388 U.S. 365, the District Court instructed the jury that it was a per se violation of § 1 if respondent entered into a contract, combination, or conspiracy with one or more of its retailers, pursuant to which it attempted to restrict the locations from which the retailers resold the merchandise they had purchased from respondent. The jury found that the location restriction violated § 1, and treble damages were assessed against respondent. Concluding that Schwinn was distinguishable, the Court of Appeals reversed, holding that respondent's location restriction had less potential for competitive harm than the restrictions invalidated in Schwinn, and thus should be judged under the "rule of reason."
1. The statement of the per se rule in Schwinn is broad enough to cover the location restriction used by respondent. And the retail customer restriction in Schwinn is functionally indistinguishable from the location restriction here, the restrictions in both cases limiting the retailer's freedom to dispose of the purchased products and reducing, but not eliminating, intrabrand competition. Pp. 42-47.
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.
Under this standard, there is no justification for the distinction drawn in Schwinn between restrictions imposed in sale and nonsale transactions. Similarly, the facts of this case do not present a situation justifying a per se rule. Accordingly, the per se rule stated in Schwinn is overruled, and the location restriction used by respondent should be judged under the traditional rule of reason standard. Pp. 47-59.
POWELL, J., delivered the opinion of the Court, in which BURGER, C.J., and STEWART, BLACKMUN, and STEVENS, JJ., joined. WHITE, J., filed an opinion concurring in the judgment, post, p. 59. BRENNAN, J., filed a dissenting statement, in which MARSHALL, J., joined, post, p. 71. REHNQUIST, J., took no part in the consideration or decision of the case.
MR JUSTICE POWELL delivered the opinion of the Court.
Franchise agreements between manufacturers and retailers frequently include provisions barring the retailers from selling franchised products from locations other than those specified in the agreements. This case presents important questions concerning the appropriate antitrust analysis of these restrictions under § 1 of the Sherman Act, 26 Stat. 209, as amended, 15 U.S.C. § 1, and the Court's decision in United States v. Arnold, Schwinn & Co., 388 U.S. 365 (1967).
company ranked as the Nation's eighth largest manufacturer of color television sets.
This suit is the result of the rupture of a franchiser-franchisee relationship that had previously prospered under the revised Sylvania plan. Dissatisfied with its sales in the city of San Francisco,4 Sylvania decided in the spring of 1965 to franchise Young [97 S.Ct. 2552] Brothers, an established San Francisco retailer of televisions, as an additional San Francisco retailer. The proposed location of the new franchise was approximately a mile from a retail outlet operated by petitioner Continental T.V., Inc. (Continental), one of the most successful Sylvania franchisees.5 Continental protested that the location of the new franchise violated Sylvania's marketing policy, but Sylvania persisted in its plans. Continental then canceled a large Sylvania order and placed a large order with Phillips, one of Sylvania's competitors.
credit line from $300,000 to $50,000.7 In response to the reduction in credit and the generally deteriorating relations with Sylvania, Continental withheld all payments owed to John P. Maguire & Co., Inc. (Maguire), the finance company that handled the credit arrangements between Sylvania and its retailers. Shortly thereafter, Sylvania terminated Continental's franchises, and Maguire filed this diversity action in the United States District Court for the Northern District of California seeking recovery of money owed and of secured merchandise held by Continental.
products sold to the dealer, after having parted with title and risk to the products, you must find any effort thereafter to restrict outlets or store locations from which its dealers resold the merchandise which they had purchased from Sylvania to be a violation of Section 1 of the Sherman Act, [97 S.Ct. 2553] regardless of the reasonableness of the location restrictions.

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