Opinion ID: 344263
Heading Depth: 1
Heading Rank: 1

Heading: exclusive dealing requirement

Text: 66 At least on appeal, it is not contended that the exclusive dealing arrangement is governed by § 3 of the Clayton Act. Consequently, the more general proscription of § 1 of the Sherman Act must furnish the guide for decision, and it is clear that that Act does not render exclusive dealing contracts unreasonable per se. See, e. g., American Motor Inns, Inc. v. Holiday Inns, Inc., 521 F.2d 1230, 1248-53 (3d Cir. 1975). See also FTC v. Motion Picture Advertising Service Co., 344 U.S. 392, 73 S.Ct. 361, 97 L.Ed. 426 (1953).A. Common Law Unreasonable Restrictive Covenant 67 Plaintiff vigorously argues that the Sherman Act codified the preexisting common law doctrine under which any restriction is unreasonable which, absent dominant social or economic justification, is greater than required for the person for whose benefit it is imposed, or imposes an undue hardship upon the person restricted. Restatement of Contracts § 515 (1932). He argues that since Bassett was unable to fill his orders for merchandise sold, there was no business justification for maintaining the restriction, and that since the restriction was therefore greater than necessary to protect its interests, and imposed undue hardship upon Bravman in his business, Bassett violated § 1. 68 At least since Board of Trade v. United States, 246 U.S. 231, 38 S.Ct. 242, 62 L.Ed. 683 (1918), it has been clear that the fundamental purpose of the Sherman Act is the preservation of competition and the central inquiry in a rule of reason analysis is the extent to which the challenged practice dampens competition. It is hardly sufficient for plaintiff to show that he has been restrained in his business and that but for the restraint he could have earned more money. As Justice Brandeis noted: 69 Every agreement concerning trade, every regulation of trade restrains. To bind, to restrain, is of their very essence. The true test of legality is whether the restraint imposed is such as merely regulates and perhaps thereby promotes competition or whether it is such as may suppress or even destroy competition. Id. at 238, 38 S.Ct. at 244. 70 Implicit in plaintiff's argument is the idea that proof of market impact is not necessary when no business justification has been shown and the viability of an independent economic unit is implicated by the challenged practice. See Bok, The Tampa Electric Case and the Problem of Exclusive Arrangements Under the Clayton Act, 1961 Sup.Ct.Rev. 267, 293-95 (P. Kurland ed. 1961). But this is not a situation in which an independent dealer, having invested in the establishment of a market outlet, is threatened with extinction. See Klor's, Inc. v. Broadway-Hale Stores, Inc., 359 U.S. 207, 79 S.Ct. 705, 3 L.Ed.2d 741 (1959). See also Coleman Motor Co. v. Chrysler Corp., 525 F.2d 1338, 1347 (3d Cir. 1975). Although a manufacturer cannot claim that the practice challenged here enjoys the virtues of a requirements contract, which quite often benefits the buyer as well as the seller, we know too little about the need for the practice from the standpoint of economic efficiency in the orderly distribution of goods to permit its condemnation without an analysis of its market impact. It was therefore incumbent upon plaintiff to introduce evidence concerning the foreclosure of retail markets to Bassett's competitors. B. Foreclosure of Retail Markets 71 Plaintiff has urged that the exclusive dealing restriction has the purpose and/or effect of preventing competing manufacturers from reaching retail outlets. If this were the case, interbrand competition among furniture manufacturers might be adversely affected and the exclusive dealing requirement would bear close scrutiny. To prove this charge, it was incumbent upon plaintiff to show that defendants conspired or acted with the purpose of achieving this end, or that the restriction, though innocently conceived, actually tended to or did accomplish that result. Times-Picayune Publishing Co. v. United States, 345 U.S. 594, 614, 73 S.Ct. 872, 97 L.Ed. 1277 (1953); United States v. Columbia Steel Co., 334 U.S. 495, 522, 525, 68 S.Ct. 1107, 92 L.Ed. 1533 (1948). Plaintiff introduced no evidence that manufacturers actually encountered difficulty in reaching retail outlets, but did attempt to show that the restriction tended toward this result and that defendants conspired to foreclose competitors access to retail markets. 72 1. Tendency to foreclose retail markets. 73 As evidence of an anticompetitive tendency, plaintiff attempted to show that Bassett Furniture is one of the two largest wood household furniture manufacturers in an otherwise fragmented industry. While Bassett Furniture had 5,000 employees, 87% of such manufacturers had fewer than 100 employees. Bassett Mirror, which shared Bassett Furniture's table line sales representative, had 140 employees but could not support its own sales organization. From these facts it is asserted that a jury could conclude that if Bravman's sales services were monopolized by Bassett, other companies could not distribute their products. The question for decision is whether this evidence is sufficient to permit the issue to go to the jury. 74 Bassett apparently does not sell through franchised retail outlets or restrict the retailers upon whom its distributors may call. Therefore, this case does not involve a situation in which small competing manufacturers would be faced with the cost of integrating forward if a dominant firm were to tie up a number of existing retail outlets. See FTC v. Brown Shoe Co., 384 U.S. 316, 86 S.Ct. 1501, 16 L.Ed.2d 587 (1966). Obviously, the nonavailability of plaintiff's services to other manufacturers will necessitate their having to find other distributors in order to supply retailers with their products. But Bravman has not shown that he maintains a warehouse or showroom, that he made any capital investment, in short that he offered anything other than his services as a skilled salesman. Since Bravman's position in the distribution system, both before and during his association with Bassett, was functionally that of an employee-salesman, rather than a jobber or wholesaler, I think that the assertion that a distribution bottleneck would occur if Bravman's services were unavailable to other manufacturers is wholly speculative. Under these circumstances, I think that it was incumbent upon plaintiff to introduce evidence of the relevant market, Bassett's position in that market vis a vis its competitors, the structure of the industry and the distribution practices common in the industry. 75 Plaintiff failed to introduce or proffer any evidence on most of these points. The proffered evidence of the structure of the industry and Bassett's size and profitability, while relevant, is insufficient to permit a reasoned evaluation of market foreclosure. For example, assuming the accuracy of Bassett Furniture's representation that it enjoyed only 3% of the market, could not the manufacturers who held the remaining 97% of the market distribute their products through sales agents retained on a nonexclusive basis? Did the competing manufacturers have access to and utilize jobbers or wholesalers? Did other large firms employ exclusive dealing restrictions? Plaintiff has failed to provide evidence from which these questions can be answered. 76 Plaintiff has also urged that any purported interest which defendants have in maintaining dealer loyalty and efficiency could not justify the exclusive dealing requirement since the less restrictive alternative of establishing a sales quota system for dealers would achieve the same goals. Had plaintiff adduced some evidence of an anticompetitive tendency, he would be entitled to have the trier of fact consider the evidence on this point. But the law of this circuit is that absent any showing of an anticompetitive tendency attributable to the challenged practice, the existence of a less restrictive alternative will not by itself establish the unreasonableness of the practice. American Motor Inns, Inc. v. Holiday Inns, Inc., 521 F.2d 1230, 1246-49 (3d Cir. 1975). 77 2. Conspiracy to foreclose retail markets. 78 Bravman has also attempted to show that Bassett Furniture and Mirror conspired or acted with the purpose of impeding the sales of its competitors. I agree with the majority that plaintiff adduced sufficient evidence of the fact of agreement to impose the exclusive dealing restriction on dealers to reach the jury on that element. Their only evidence of an unlawful purpose is that the exclusive dealing restriction was not relaxed during a period in which Bassett was unable to fill Bravman's orders. It is argued that, at least while Bassett was underutilizing Bravman's services, there was no conceivable business purpose justifying the restriction; therefore the jury could infer a wrongful purpose to deprive competing manufacturers of access to retail outlets. 79 I agree that a wrongful purpose may be inferred from circumstantial evidence. See, e. g., Klor's, Inc. v. Broadway-Hale Stores, Inc., 359 U.S. 207, 79 S.Ct. 705, 3 L.Ed.2d 741 (1959) (conspiracy among retailer and suppliers to boycott rival retailer); Lorain Journal v. United States, 342 U.S. 143, 72 S.Ct. 181, 96 L.Ed. 162 (1951) (refusal of newspaper to accept advertising unless buyer forebore from advertising with competitor). But a desire to maintain an exclusive sales force cannot, on its face, be equated with the predatory nature of boycotting, blacklisting, or other coercive tactics. This exclusive dealing requirement, on its face, manifests the normal business purpose of facilitating the orderly distribution of goods by having sales representatives devote their full-time efforts to intensive promotion of the full line of Bassett products assigned to them. Absent some showing that the practice involved here would actually tend to impede competitors access to retail markets, I think it is impermissible as a matter of law to permit the trier of fact to infer that the practice was actually established or maintained for that purpose. Cf. Times-Picayune, supra, 345 U.S. at 622-24, 73 S.Ct. 872; Gold Fuel Service, Inc. v. Esso Standard Oil Co., 306 F.2d 61 (3d Cir. 1962), cert. denied, 371 U.S. 951, 83 S.Ct. 506, 9 L.Ed.2d 500 (1963).