Opinion ID: 369736
Heading Depth: 1
Heading Rank: 3

Heading: the per se issue

Text: 7 To support their contention that an alleged horizontal agreement among beer distributors to eliminate formerly free short term trade credit should be considered as illegal Per se, plaintiffs argue that: (1) Price fixing is subject to a Per se evaluation under the Sherman Act. 3 (2) Under the pertinent standard price fixing may be accomplished directly or indirectly. 4 (3) An agreement to fix credit terms fixes prices indirectly. (4) As a result, credit fixing is a Per se violation of the antitrust laws. 8 We cannot agree that on this record an agreement to fix credit terms amounts to indirect price fixing within the meaning of the antitrust laws. Northern Pacific Ry. v. United States, 356 U.S. 1, 5, 78 S.Ct. 514, 518, 2 L.Ed.2d 545 (1958), established the rationale for Per se illegality in antitrust suits: (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. Particular acts, of which price fixing is one, have been held so plainly anti-competitive as to be conclusively presumed illegal. The fixing of credit terms, on the other hand, is not manifestly anticompetitive. An agreement to fix credit, a non-price condition of sale, may actually enhance competition. Proper analysis reveals that an agreement fixing non-price trade items may either help or hurt competition, depending upon industry structure. L. Sullivan, Handbook of the Law of Antitrust, § 99, at 277 (1977). 5 Thus, an agreement to eliminate credit could sharpen competition with respect to price by removing a barrier perceived by some sellers to market entry. Moreover, competition could be fostered by the increased visibility of price made possible by the agreement to eliminate credit. For example, an agreement to eliminate credit might foster competition by increasing the visibility of the price term, and hence, promote open price competition in an industry in which imperfect information shielded various sellers from vigorous competition. 9 We readily acknowledge that an agreement to fix credit may be in violation of the antitrust laws when made pursuant to a conscious purpose to fix prices or as part of an overall scheme to restrain competition. See Arizona v. Cook Paint & Varnish Co., 391 F.Supp. 962, 966 n.2 (D.Ariz.1975), Aff'd, 541 F.2d 226 (9th Cir. 1976); Wall Products Co. v. National Gypsum Co., 326 F.Supp. 295 (N.D.Cal.1971). Thus, were competition with respect to price primarily centered on credit terms, as where, for example, explicit prices are fixed by government, an agreement to fix credit terms would amount to price fixing. And, of course, an agreement to fix credit terms as part of an effort to fix prices would contravene the antitrust law. 10 At this juncture of the proceeding it has not been established that the agreement was entered into with the purpose, or had the effect, of restraining price competition in the industry. Simply labeling concerted conduct as price fixing without proof of purpose to affect price will not justify application of a Per se rule. The antitrust laws concern substance, not form, in the preservation of competition. L. Sullivan, Supra, § 74, at 198. As a result, we refuse to characterize the credit fixing agreement here before us as price fixing. 11 Our conclusion is reinforced when we consider the function of Per se rules in antitrust law enforcement. A particular practice which is established as Inherently anti-competitive eliminates the need for elaborate analysis and may be deemed illegal Per se. Determination of the applicability of Per se illegality turns on whether the practice appears to be one that would always or almost always tend to restrict competition and decrease output . . . or instead one designed to 'increase economic efficiency and render markets more rather than less competitive.'  Broadcast Music, Inc. v. Columbia Broadcasting System, Inc., 441 U.S. 1, 20, 99 S.Ct. 1551, 1562, 60 L.Ed.2d 1 (1979); United States v. United Gypsum Co., 438 U.S. 422, 441 n.16, 98 S.Ct. 2864, 57 L.Ed.2d 854 (1978); See Continental T. V., Inc. v. GTE Sylvania, 433 U.S. 36, 50 n.16, 97 S.Ct. 2549, 53 L.Ed.2d 568 (1977); Northern Pacific Ry. v. United States, 356 U.S. 1, 4, 78 S.Ct. 514, 2 L.Ed.2d 545 (1958). We cannot say that credit term fixing would always or almost always tend to restrict competition and decrease output. It is better, we believe, to rest an antitrust violation on demonstrable economic effects rather than formalistic line drawing. Continental T. V., Inc. v. GTE Sylvania, supra, 433 U.S. at 59, 97 S.Ct. 2549. Thus, to determine the legality of credit fixing an evaluation of the competitive detriment or enhancement must be made in each situation. 12 Application of the rule of reason, however, does not necessitate invariably the conclusion that a horizontal agreement to eliminate trade credit is lawful. Under the rule of reason any concerted action violates the Sherman Act if its purpose or effect would significantly impair competition. The rule of reason, moreover, does not open the field of antitrust inquiry to any argument in favor of a challenged restraint that may fall within the realm of reason. National Society of Professional Engineers v. United States, 435 U.S. 679, 688, 98 S.Ct. 1355, 55 L.Ed.2d 637 (1978). It requires examination of the impact of credit fixing on competitive conditions, and such an agreement can benefit competition only if it improves the operation of the market. L. Sullivan, Supra § 100 at 280. 13 Any argument that the special characteristics of the beer industry render monopolistic arrangements better for trade and commerce than competition is foreclosed. National Society of Professional Engineers v. United States, supra, 435 U.S. at 689, 98 S.Ct. 1355. 14 The Sherman Act reflects a legislative judgment that ultimately competition will not only produce lower prices, but also better goods and services. The heart of our national economic policy long has been faith in the value of competition. Standard Oil Co. v. F.T.C., 340 U.S. 231, 248, 71 S.Ct. 240, 95 L.Ed. 239. The assumption that competition is the best method of allocating resources in a free market recognizes that all elements of a bargain quality, service, safety, and durability and not just the immediate cost, are favorably affected by the free opportunity to select among alternative offers. Even assuming occasional exceptions to the presumed consequences of competition, the statutory policy precludes inquiry into the question whether competition is good or bad. 15 Id. at 695, 98 S.Ct. at 1367. The underlying premise is that unless the market is rigged, either by concerted agreement . . . or by excessive concentration and interdependent action, the market when left alone ought to adjust to consumer interests with responses at least as fine as those which the industry could concertedly agree upon. L. Sullivan, Supra, § 100, at 281. 16 Application of the rule of reason to the facts presented here may be unlikely to require an elaborate inquiry into the effects on the beer industry. A horizontal agreement among distributors eliminating deferred payment terms, while leaving all other terms subject to competitive forces, may well be unreasonable. Such an agreement tends to impair competition. The ease with which the rule of reason may be applied in this case does not, however, justify the invocation of a Per se rule. We must remain open to the possibility that situations will occur where such an agreement might work to increase competition. See id., § 100, at 281.