Court Opinion

ID: 9462856
Source: CourtListenerOpinion
Date Created: 2023-08-04 22:51:47.989119+00
Date Added: 2024-06-11T17:37:49.149435
License: Public Domain

BROWNING, Circuit Judge, with whom WRIGHT, Circuit Judge,
concurs (dissenting):
It is the premise of the majority opinion that the jury was instructed that location clauses are per se illegal under the Sherman Act. Such an instruction, the majority argues: (1) is not supported by United States v. Arnold, Schwinn & Co., 388 U.S. 365, 87 S.Ct. 1856, 18 L.Ed.2d 1249 (1967); (2) is inconsistent with the rule permitting exclusive dealerships; and (3) is at odds with the purpose of the Sherman Act.
Judge Kilkenny’s opinion demonstrates that the majority’s premise is not substantiated by the record. The jury was not instructed that it is unlawful for a manufacturer to designate the location for which a dealer is franchised. Precisely to the contrary, it was instructed that location clauses are lawful. The case was submitted to the jury on the theory that a violation of the antitrust laws is to be found only if Sylvania conspired to control the territories in which its dealers resold merchandise purchased from Sylvania. This was the understanding of counsel for both parties.
Judge Kilkenny’s opinion further demonstrates that the legal theory reflected in the instructions is fully supported by Schwinn, and is consistent with the line of authorities upholding exclusive dealerships.
It is the purpose of this opinion to deal with the majority’s third contention by showing that a major purpose of the Sherman Act is served by the rule prohibiting a seller from restricting the territory in which the purchaser resells the purchased merchandise. This opinion will also seek to establish that it is appropriate to classify such territorial restrictions as per se illegal, rather than to base illegality upon an ad hoc judicial determination of unreasonableness in the circumstances of each case.
I
The jury’s verdict determined that Sylvania restricted the territory in which Continental could resell television sets purchased from Sylvania. Where to sell is a crucial business question. The answer determines the markets in which the seller will compete. Thus, Sylvania interfered with the exercise of Continental’s business judgment in a way that significantly impaired Continental’s freedom to compete.
Sylvania’s conduct toward Continental thwarted an important purpose of the Sherman Act. Legislative history and Supreme Court decisions establish that a principal objective of the Sherman Act was to protect the right of independent business entities to make their own competitive decisions, free of coercion, collusion, or exclusionary practices.1
*1019Congress’ general purpose in passing the Sherman Act was to limit and restrain accumulated economic power, represented by the trusts, and to restore and preserve a system of free competitive enterprise. The congressional debates reflect a concern not only with the consumer interest in price, quality, and quantity of goods and services, but also with society’s interest in the protection of the independent businessman, for reasons of social and political as well as economic policy.2
The Supreme Court has implemented the statutory policy of protecting the independence of individual business units in a series of decisions banning resale price maintenance agreements. These cases are particularly relevant here for, like territorial restraints, resale price maintenance is justified by manufacturers as necessary to enable them to control intrabrand competition by independent dealers in the interest of effective interbrand competition. Indeed, “any argument that can be made on behalf of exclusive territories can also be made on behalf of resale price maintenance.”3
In the first resale price maintenance decision, Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373, 31 S.Ct. 376, 55 L.Ed. 502 (1911), contracts between a manufacturer and its dealers setting minimum retail prices at which the product could be sold were held illegal in part because they created a “restraint upon alienation,” which the Court described as “restricting the freedom of trade on the part of dealers who own what they sell.” Id. at 407-08, 31 S.Ct. at 384, 55 L.Ed. at 518. The Court concluded that after Dr. Miles “sold its product at prices satisfactory to itself, the public is entitled to whatever advantage may be derived from competition in the subsequent traffic.” Id. at 409, 31 S.Ct. at 385, 55 L.Ed.at 519.
Agreements requiring purchasing dealers to observe resale prices fixed by the vendor were held illegal per se in United States v. *1020A. Schrader’s Son, Inc., 252 U.S. 85, 40 S.Ct. 251, 64 L.Ed. 471 (1920), because such agreements are “designed to take away dealers’ control of their own affairs and thereby destroy competition . . . .” Id. at 100, 40 S.Ct. at 253, 64 L.Ed. at 475. In Simpson v. Union Oil Co., 377 U.S. 13, 17, 84 S.Ct. 1051, 1054, 12 L.Ed.2d 98, 102 (1964), the Court struck down a system of consignment agreements between a producer of gasoline and independent service station operators, stating, “If the ‘consignment’ agreement achieves resale price maintenance in violation of the Sherman Act, it and the lease are being used to injure interstate commerce by depriving independent dealers of the exercise of free judgment whether to become consignees at all, or remain consignees, and, in any event, to sell at competitive prices.” Id. at 16, 84 S.Ct. at 1054, 12 L.Ed.2d at 104. The Court condemned the consignment program “[for] destroying competition in retail sales of gasoline by these nominal ‘consignees’ who are in reality small struggling competitors seeking retail gas customers.” Id. at 21, 84 S.Ct. at 1057, 12 L.Ed.2d at 105. In KieferStewart Co. v. Joseph E. Seagram & Sons, Inc., 340 U.S. 211, 71 S.Ct. 259, 95 L.Ed. 219 (1951), the Court held an agreement among competitors to fix maximum resale prices to be illegal because “such agreements, no less than those to fix minimum prices, cripple the freedom of traders and thereby restrain their ability to sell in accordance with their own judgment.” Id. at 213, 71 S.Ct. at 260, 95 L.Ed. at 223.
The same theme of protecting the right of independent business entities to compete runs through Supreme Court decisions holding group boycotts illegal per se. In the first of these cases, Montague & Co. v. Lowry, 193 U.S. 38, 24 S.Ct. 307, 48 L.Ed. 608 (1904), the Supreme Court emphasized the impact of the restraint upon independent dealers, who had been precluded from conducting “their business as they had theretofore done.” Id. at 47, 24 S.Ct. at 310, 48 L.Ed. at 612. In Paramount Famous Lasky Corp. v. United States, 282 U.S. 30, 51 S.Ct. 42, 75 L.Ed. 145 (1930), an agreement was held to violate section 1 of the Act because its purpose was to “coerce” independent theater owners into submitting to “unusual arrangements which unreasonably suppress normal competition.” Id. at 43, 51 S.Ct. at 45, 75 L.Ed. at 150. Use of a boycott to end “style piracy” was outlawed in Fashion Originators’ Guild v. FTC, 312 U.S. 457, 61 S.Ct. 703, 85 L.Ed. 949 (1941), in part because it “[took] away the freedom of action” of participants, id. at 465, 61 S.Ct. at 707, 85 L.Ed.at 953, and forced them to accept “a rival method of competition,” id. at 467, 61 S.Ct. at 707, 85 L.Ed. at 954. Similarly, a group boycott was banned in Klor’s, Inc. v. Broadway-Hale Stores, Inc., 359 U.S. 207, 79 S.Ct. 705, 3 L.Ed.2d 741 (1959), even though it might lower prices or temporarily stimulate competition, “[f]or, as this Court said in Kiefer-Stewart Co. v. Seagram & Sons, 340 U.S. 211, 213, 71 S.Ct. 259, 260, 95 L.Ed. 219, 223 ‘such agreements, no less than those to fix minimum prices, cripple the freedom of traders and thereby restrain their ability to sell in accordance with their own judgment.’ ” 359 U.S. at 212, 79 S.Ct. at 709, 3 L.Ed.2d at 745. The Act was violated because the boycott “takes from Klor’s its freedom to buy appliances in an open competitive market and drives it out of business as a dealer in defendants’ products. It deprives the manufacturers and distributors of their freedom to sell to Klor’s at the same prices and conditions made available to Broadway-Hale, and in some instances forbids them from selling to it on any terms whatsoever.” Id. at 213, 79 S.Ct. at 710, 3 L.Ed.2d at 745.
In many other contexts, the Supreme Court has rested decisions upon the premise that protection of the freedom to compete of separate business entities is an important objective of the Sherman Act. In Silver v. New York Stock Exchange, 373 U.S. 341, 83 S.Ct. 1246, 10 L.Ed.2d 389 (1963), for example, the Court reasoned that the antitrust laws are an appropriate check upon anti-competitive conduct of market exchanges, “[s]ince the antitrust laws serve, among other things, to protect competitive freedom, i.e., the freedom of individual business *1021units to compete unhindered by the group action of others. . . . ” Id. at 359-60, 83 S.Ct. at 1258, 10 L.Ed.2d at 401. A combination between General Motors and some of its dealers to eliminate sales through “discount houses” was held per se illegal in United States v. General Motors Corp., 384 U.S. 127, 86 S.Ct. 1321, 16 L.Ed.2d 415 (1966), because it served “to eliminate a class of competitors by terminating business dealings between them and a minority of Chevrolet dealers and to deprive franchised dealers of their freedom to deal through discounters if they so choose.” Id. at 140, 86 S.Ct. at 1328, 16 L.Ed.2d at 423. In FTC v. Brown Shoe Co., 384 U.S. 316, 86 S.Ct. 1501, 16 L.Ed.2d 587 (1966), the Court commented as follows upon Brown Shoe Company’s program requiring retail dealers to agree to buy shoes for resale only from the Brown Shoe Company and not from its competitors: “This program obviously conflicts with the central policy of both § 1 of the Sherman Act and § 3 of the Clayton Act against contracts which take away freedom of purchasers to buy in an open market.” Id. at 321, 86 S.Ct. at 1504, 16 L.Ed.2d at 591. In United Mine Workers v. Pennington, 381 U.S. 657, 85 S.Ct. 1585, 14 L.Ed.2d 626 (1965), the Court held the Sherman Act violated by an agreement between a union and a group of employees to impose uniform labor standards upon all employers in the industry, noting “the salient characteristic of such agreements is that the union surrenders its freedom of action with respect to its bargaining policy. . It is just such restraints upon the freedom of economic units to act according to their own choice and discretion that run counter to antitrust policy.” Id. at 668, 85 S.Ct. at 1592, 14 L.Ed.2d at 635.
From the holdings and rationale of these and other Supreme Court decisions, “it seems clear that the protection of individual traders from unnecessary restrictions upon their freedom of action is a significant independent objective of antitrust policy.”4 As a commentator recently put it, “The most important of the social policy objectives found in the Court’s antitrust decisions are the concepts of business independence and freedom of business opportunity.”5 In Judge Hand’s well-known words, Congress was not “actuated by economic motives alone. It is possible, because of its indirect social or moral effect, to prefer a system of small producers, each dependent for his success upon his own skill and character, to one in which the great mass of those engaged must accept the directions of a few. These considerations, which we have suggested as possible purposes of the Act, we think the decisions prove to have been in fact its purposes.”6
In Schwinn the Supreme Court relied upon several of the cases referred to above (Dr. Miles Medical Co. v. John D. Park & Sons Co., supra; Klor’s, Inc. v. Broadway-Hale Stores, Inc., supra; Fashion Originators’ Guild v. FTC, supra; and United States v. General Motors Corp., supra) in holding per se illegal “any limitation upon the freedom of distributors to dispose of the Schwinn products, which they have bought from Schwinn, where and to whomever they choose. The principle is, of course, equally applicable to sales to retailers, and the decree should similarly enjoin the making of any sales to retailers upon any eondi*1022tion, agreement or understanding limiting the retailer’s freedom as to where and to whom it will resell the products.” United States v. Arnold, Schwinn & Co., supra, 388 U.S. at 378, 87 S.Ct. at 1865, 18 L.Ed.2d at 1259.
The rationale suggested in this and other passages in Schwinn is fully and forcefully reiterated in United States v. Topco Associates, Inc., 405 U.S. 596, 610, 92 S.Ct. 1126, 1135, 31 L.Ed.2d 515, 527 (1972):
Antitrust laws in general, and the Sherman Act in particular, are the Magna Carta of free enterprise. They are as important to the preservation of economic freedom and our free-enterprise system as the Bill of Rights is to the protection of our fundamental personal freedoms. And the freedom guaranteed each and every business, no matter how small, is the freedom to compete — to assert with’ vigor, imagination, devotion, and ingenuity whatever economic muscle it can muster.
It is apparent that the Schwinn-Topco doctrine outlawing any contract, combination, or conspiracy to impose territorial restraints upon independent traders is founded upon an important and long recognized purpose of the Sherman Act.
II
The remaining question is whether restraints upon the territory in which independent dealers may resell should be condemned without regard to the reasonableness of the restraint in a particular case.
Quoting from Northern Pacific Railway Co. v. United States, 356 U.S. 1, 5, 78 S.Ct. 514, 518, 2 L.Ed.2d 545, 549 (1958), the majority argues that the rule of per se illegality should apply only to a restraint that has a “pernicious effect on competition” and also “lacks any redeeming virtue.” The majority recognizes that a territorial restraint upon dealers does eliminate competition in the sale of the manufacturer’s products. The majority argues, however (in part upon the authority of Mr. Justice Brennan’s concurring opinion in White Motor Co. v. United States, 372 U.S. 253, 269, 83 S.Ct. 696, 705, 9 L.Ed.2d 738, 750 (1963)), that a territorial restraint upon dealers may have the “redeeming virtue” of enhancing competition in the sale of the products of different manufacturers. The majority concludes that the “rule of reason” therefore applies, and the reasonableness and hence the legality of territorial dealer restraints should be left to the jury to decide in each ease.
The major flaw in this argument is that it ignores the two most relevant and recent cases, Schwinn and Topeo. As Judge Kilkenny’s opinion demonstrates, the jury found that Sylvania conspired to control the territories in which Continental and other Sylvania dealers sold products purchased from Sylvania. Schwinn and Topeo hold such conduct to be illegal per se under the Sherman Act.
This should end the matter for an intermediate appellate court, even if the correctness of the Schwinn-Topco analysis were doubtful. A reexamination of the SchwinnTopco analysis in the light of the facts of this case, however, demonstrates that the analysis is sound.
The Supreme Court did not merely resurrect the rule against restraints on alienation in drawing the line separating vertical territorial restraints that are per se illegal from those prohibited only if shown to unreasonably restrict competition.
The naked transfer of title is not a determinative fact. The per se rule may be applicable though the manufacturer retains title. It applies unless “the position and function of the dealer in question are, in fact, indistinguishable from those of an agent or salesman of the manufacturer . . . .” 388U.S.at380,87S.Ct.at 1866, 18 L.Ed.2d at 1261.7 Thus, the line drawn *1023separates restraints imposed by a principal upon his agent, from those imposed by one independent business entity upon another.8 Even if the applicability of the per se rule depended entirely upon the passage of title, that event usually serves to distinguish independent business entities operating on different functional levels of distribution; for, as the Court noted in Schwinn, “most merchandise is distributed by means of purchase and sale.” 388 U.S. at 379, 87 S.Ct. at 1866, 18 L.Ed.2d at 1260. It is therefore evident that the Court has located the boundary for application of the per se rule in a way that serves the Sherman Act’s purpose of preserving the competitive freedom of independent businessmen.
Despite the majority’s contention that a per se rule is appropriate only if the restraint “lacks any redeeming virtue,” the Supreme Court’s holding in Schwinn and Topeo that a restriction upon the territory in which independent traders may resell is per se illegal did not depend upon a conclusion that this restraint has no affirmative value. On the contrary, the Supreme Court recognized that in some circumstances a territorial restraint may promote competition. The Court held that such a restraint is nonetheless per se illegal when imposed upon independent business entities (1) because such a restraint is “obviously destructive” of competition among independent dealers, and (2) because it is not an appropriate judicial function to strike a public interest balance between the certain loss of competition among independent dealers and a possible gain of competition at some other point in the marketing process.
The fact that territorial restrictions inevitably eliminate intrabrand competition among independent dealers is, as the Supreme Court said, obvious.9 Sylvania concedes as much. Continental’s efforts to compete with Handy Andy in the sale of Sylvania products in the Sacramento area were frustrated by Sylvania’s enforcement of the location clause. The district court found that after Continental’s effort to compete was aborted, Handy Andy sold all of the Sylvania color television sets that were sold in Sacramento.
The Supreme Court knew that benefits to interbrand competition were asserted to *1024flow from manufacturer control of the marketing areas in which dealers sold. It was because of such benefits that the Court sustained territorial restrictions as applied to Schwinn’s dealers who were in fact indistinguishable in position and function from “an agent or salesman” of Schwinn.10 However, the Court declined to consider asserted benefits to interbrand competition where, as in this case, the effect of the territorial restrictions was to eliminate competition among dealers who were independent business entities.11 Thus, the Court in both Schwinn and Topeo invoked a per se rule against territorial restraints on resale because they are destructive of intrabrand competition in spite of any beneficial impact they might have on interbrand competition.
The Supreme Court has held that it is not an appropriate judicial function to weigh the loss of intrabrand competition against an alleged gain in interbrand competition in determining whether the Sherman Act has been violated for two related reasons. The first is that courts are ill-equipped to resolve the complex economic problems involved in deciding in a given case whether elimination of intrabrand competition among dealers through territorial restrictions in fact produced compensating gains in interbrand competition among producers. As the Court said in United States v. Topco Associates, Inc., supra, 405 U.S. at 609-10, 92 S.Ct. at 1134, 31 L.Ed.2d at 526:
The fact is that courts are of limited utility in examining difficult economic problems. Our inability to weigh, in any meaningful sense, destruction of competition in one sector of the economy against promotion of competition in another is one important reason we have formulated per se rules.
If the courts were required to review such issues under a “rule of reason,” unpredictable ad hoc determinations as to what is or is not illegal under the Sherman Act would result. The Supreme Court suggested that a rule of reason should be applied in this area only if Congress were to decide that predictability is unimportant and that the courts should be “free to ramble through the wilds of economic theory in order to maintain a flexible approach.” Id. at 610 *1025n.10, 92 S.Ct. at 1134 n.10, 31 L.Ed.2d at 527 n.10.12
The question the majority would submit to the fact finder is not whether the challenged conduct restrains competition, but whether the admitted restraint on intrabrand competition produces net economic benefits through enhanced interbrand competition. In the majority’s words, “Whether some diminution in intrabrand competition is justified when it averts the loss of one competitor in an industry that is already oligopolistic should ultimately be a question for the finder of the facts.”
The majority frankly acknowledges “that, as a matter of economic theory, there is a sharp divergence of opinion as to the alleged procompetitive effect of vertical territorial restrictions,”13 but regards this disagreement as a reason for submitting the question of the legality of such restraints to the fact-finding judge or jury. (Majority Opinion note' 40) The majority’s view of the judicial function is at odds with Schwinn, Topeo, and the traditions and precedent on which they rest. It is also an invitation to a fruitless enterprise.
Sylvania’s own expert witness, Professor Lee E. Preston, testified that in the present state of economic analysis it is not possible to determine the effect that changes in marketing practices at one level of a market will have at other levels.14
The majority quotes portions of the testimony of Professor Preston as “substantial evidence from which the jury might have reasonably concluded that Sylvania’s location practice, rather than unreasonably restricting competitive market forces, actually had a procompetitive effect in that it enabled a marginal producer to achieve the status of a viable competitor in an industry threatened by oligopolistic tendencies.” Majority Opinion at 1001-1002 & n.36. But Professor Preston did not testify that permitting Sylvania to limit dealer locations would enhance competition among producers. He made only the guarded assertion that “if we squeeze out the bottom firms ... we would see a decline in competition,” and “if this distribution policy or any particular distribution policy has the effect of strengthening Sylvania or any other smaller firm as a competitive force then I think we have to look carefully at that policy as an element in competition, indeed as a procompetitive policy . . . . ” (emphasis added). Even this limited prediction was dependent on a number of assumptions, at least one of which the jury verdict found to be untrue: Professor Preston conceded that “[i]t would change the whole analysis” if Sylvania restricted the territo*1026ríes in which dealers would resell (R.T. 2910-11, 2917-18).15
Moreover, the limited value of Professor Preston’s testimony to Sylvania was dissipated on cross-examination. The relevant testimony is quoted in the margin.16 Professor Preston admitted there was no necessary connection between the use of location clauses and Sylvania’s ability to maintain its present market share. He recognized that there were, “of course,” many other reasons besides the locations practice that could explain Sylvania’s four to five percent market share. Most important, as noted earlier, Professor Preston conceded that it is impossible to specify the impact of changes at the retail level on competition at the manufacturing level.
A judge or jury should not be expected to determine whether Sylvania’s locations practice contributed to Sylvania’s success in interbrand competition when Sylvania’s expert witness was unable to do so.17 Because *1027the interbrand effects of Sylvania’s locations practice cannot be measured, a decision as to whether the net effect of the practice was proeompetitive would be sheer guesswork. Finally, as has been shown, even if a net gain in purely economic terms could be established, such restraints could not be sustained consistent with Schwinn, Topeo, and the purpose of the Sherman Act to maintain the competitive freedom of independent business units.
The second reason given by the Supreme Court in Topeo in support of its holding that courts are unsuitable for the task of deciding whether intrabrand competition among independent dealers should be sacrificed to promote interbrand competition among producers, is that the question is one of public policy properly determined by Congress. The Court said, 405 U.S. at 611—12, 92 S.Ct. at 1135, 31 L.Ed.2d at 528:
If a decision is to be made to sacrifice competition in one portion of the economy for greater competition in another portion, this too is a decision that must be made by Congress and not by private forces or by the courts. Private forces are too keenly aware of their own interests in making such decisions and courts are ill-equipped and ill-situated for such decisionmaking. To analyze, interpret, and evaluate the myriad of competing interests and the endless data that would surely be brought to bear on such decisions, and to make the delicate judgment on the relative values to society of competitive areas of the economy, the judgment of the elected representatives of the people is required.
A judicial tradition, dating at least from Judge Taft’s opinion in Addyston Pipe in 1898,18 bars the courts from weighing conflicting economic predictions to determine the public interest in antitrust litigation.19 Even when applying the “rule of reason,” the courts have not inquired whether “ ‘on some ultimate reckoning of social or economic debits or credits’ the conduct may be deemed beneficial. ‘A value choice of such magnitude is beyond the ordinary limits of judicial competence . . . .’”20
This tradition is founded, as the Supreme Court said in Topeo, both upon the inadequacy of the judicial process to deal with such disputes, and upon a conviction that questions of economic policy are for legislative rather than judicial determination. “[T]he courts have shown that they can get at the facts of agreement and restrictive intent but cannot find a truly justiciable issue in the choice between rival economic predictions.”21 As the Court said in United States v. Singer Manufacturing Co., 374 U.S. 174, 196, 83 S.Ct. 1773, 1785, 10 L.Ed.2d 823, 839 (1963), “Whether economic consequences of this character warrant relaxation of the scope of enforcement of the antitrust laws, however, is a policy matter committed to congressional or executive resolution. It is not within the province of the courts, whose function is to apply the existing law.”22
Finally, there is no substance in the majority’s prophesy of catastrophic conse*1028quences to the competitive vigor of the economy if Sylvania’s use of location clauses to impose territorial restrictions on independent dealers is held illegal per se.
The majority predicts that if sellers are prevented from restricting the areas in which purchasers may resell, “giant franchisees” might replace “loyal networks of small businessmen”; small manufacturers might perish due to an inability to attract dealers; and larger manufacturers might eliminate franchisees by integrating vertically. The end result of all this would be “the insidious evil of total monopolization.” Majority Opinion at 1000-1Ó01,1003-1004.
The majority’s concerns are speculation.
They rest, moreover, on a false premise. The majority refers to “franchising” as if it were a unitary phenomenon uniformly affected by Schwinn and this case. But there are many types of franchising. Trademark franchising, or the franchising of an entire business or service, for example, “perhaps the most dynamic segment of contractual systems,” does not involve the sale of a product, and may not be subject to Schwinn’s restrictions at all.23
The majority’s suggestion that elimination of territorial restrictions might lead to the creation of large franchisees with several outlets, and that this result would be undesirable is nothing more than an argument against competition. Chain stores cannot be prohibited in the name of free competition. If chain franchisees succeed in free competition among independent businessmen making their own decisions, and without predatory conduct, neither the letter nor spirit of the Sherman Act will be offended.
The majority offers no evidence to support its assertion that producers might be unable to develop a distribution system unless they are permitted to guarantee dealers a protected market; and there is substantial evidence to the contrary. “[HJundreds of manufacturers have for years been successfully operating under antitrust decrees forbidding precisely the same type of product control held per se illegal in Arnold, Schwinn & Co. Injunctive provisions of this type have long been standard in Department of Justice consent and litigated decrees.”24
“Predictions, of vertical integration” because of antitrust condemnation of vertical restrictions “have proved to be remarkably unreliable in the past.”25 It is unlikely that they would be more reliable in this instance. Producers distribute through independent dealers rather than through their own employees because it is economically advantageous to do so. Vertical integration by a producer into retail distribution is particularly uneconomic. Distribu*1029tion is a relatively low profit activity.26 Both capital and operating costs are high.27 The product “mix” required in most retail operations cannot be furnished by a single producer: “Nobody is going to set up a distribution system to sell toothpaste, no matter what the antitrust laws say.”28 Television sets also may be among the “vast numbers of commodities” for which “it is just hopelessly inefficient to set up a distribution system to handle that commodity only.” 29 Continental, for example, sold the products of several manufacturers. Moreover, independent businessmen often bring to distribution qualities such as a “sense of responsibility, industriousness, attention to costs and desire to earn a profit,” which are not ordinarily found in salaried employees.30 Finally, franchising offers significant advantages in avoiding local labor problems, administrative burdens, and a variety of additional taxes.31 These substantial economic advantages of franchising will remain even if producers are prevented from dictating the territory in which independent dealers resell. The only reasonable prediction, therefore, is that if the district court were affirmed in this case, producers would continue to distribute through independent dealers rather than integrate forward.32

. If the majority’s statement that “the legislative intent underlying the Sherman Act had as its goal the promotion of consumer welfare” (Majority Opinion, p. 1003) is meant to exclude *1019other purposes, it is refuted by the legislative history referred to in the authorities cited herein. Even assuming that some contemporary economists might maintain that in a given case consumer interests might be better served by eliminating competition between independent businessmen, “There is little evidence that Sherman and the others had any idea of imposing an economist’s model of competition on American industry. They did not consult economists of the time; and if they had done so, they would have found little support for any such course.” A. Neale, The Antitrust Laws of the United States of America 13 (2d ed. 1970). In striking contrast to the views of the Congress, economists of the late 1800’s considered “trusts” and other combinations to be a natural evolutionary advance, and monopolies to be both inevitable and potentially beneficial. Let-win, Congress and the Sherman Antitrust Law: 1887-1890, 23 U.Chi.L.Rev. 221, 237-38 (1956). Considering the level of economic thought prevailing in 1890, it is inconceivable that Congress passed the Sherman Act “out of an exclusive preoccupation with the idea that prices should always equal marginal costs.” Blake & Jones, In Defense of Antitrust, 65 Colum.L.Rev. 377, 384 (1965).

. “In the congressional debates, the Sherman Act was urged as a means of dealing with great trusts that had accumulated tremendous power threatening small businessmen, the consuming public, and the social order. Its purpose was variously conceived to be to preserve ‘free and full competition,’ to protect the public against high prices, and to protect small business and individual freedom against corporate wealth and power. In the broad, general terms of the debates, the Senators appeared to regard these social, political, and economic purposes as consistent, collateral thrusts of the Act.” Bohling, Franchise Terminations Under the Sherman Act: Populism and Relational Power, 53 Texas L.Rev. 1180, 1189 (1975). “The legislators were well aware of the common law on restraints of trade, and of the powers of monopolists to hurt the public by raising price, deteriorating product, and restricting production. At the same time, there was at least equal concern with the fate of small producers, driven out of business, or deprived of the opportunity to enter it, by ‘all powerful aggregations of capital.’ ” C. Kaysen & D. Turner, Antitrust Policy 19 (1959). See also United States v. Aluminum Co. of America, 148 F.2d 416, 428 (2d Cir. 1945); A. Neale, supra note 1, at 12-13; H. Thorelli, The Federal Antitrust Policy 227 (1954); Blake & Jones, Toward a Three-Dimensional Antitrust Policy, 65 Colum.L.Rev. 422, 422-24 (1965); Blake & Jones, supra note 1, at 382-84.

. Posner, Antitrust Policy and the Supreme Court: An Analysis of the Restricted Distribution, Horizontal Merger, and Potential Competition Decisions, 75 Colum.L.Rev. 282, 293 (1975).

. Blake & Jones, supra note 2, at 436. See also Jones, The Growth and Importance of Franchising and the Role of Law, 12 Antitrust Bull. 717, 741 (1967).

. Bohling, supra note 2, at 1190.

. United States v. Aluminum Co. of America, 148 F.2d 416, 427 (2d Cir. 1945).
A perceptive foreign observer suggests that this preference for a system of independent, competing business entities reflects an American distrust “of all sources of unchecked power”: An economy made up of independent, competing business units fulfils the condition that economic decision making should be dispersed and renders the holders of economic power liable to mutual encroachment. It is important to this conception that the individual’s right to engage in business activities of his own choice shall be preserved and that no single economic unit, whether in the form of monopoly or combination, shall be able to exclude rivals at its own behest and so render its own power immune from invasion.
A. Neale, supra note 1, at 430.

. Under Schwinn “a juggling of labels or of the place of passage of title will not suffice to invoke rule of reason treatment. Nor will the casting into the consignment mold of relationships with independent economic entities in the distribution business, whose business decisions on the sale of the products would reflect functions, investments, and goals which in fact dif*1023fer from those of the producer, serve to immunize restrictions. In fact, as well as in form, the consignee’s function must be close to that of a mere salesman for the producer, for the law to tolerate producer-imposed restrictions on the consignee’s decision-making.” Zimmerman, Distribution Restrictions After Sealy and Schwinn, 12 Antitrust Bull. 1181, 1188-89 (1967); see Johnson, The Role of Agency and Sale in Antitrust: General Electric, Simpson, Schwinn, 53 Minn.L.Rev. 57, 67 (1968). When asked whether a supplier could avoid the impact of Schwinn by switching to distribution by consignment, Professor Turner (then Assistant Attorney General in charge of the Antitrust Division) replied:
[0]ur position would be that any time we see price fixing and resale price maintenance, territorial restrictions, or customer limitations imposed on distributors — though they be called consignees — who are performing significant functions in addition to a selling function, and there is no excuse of the kind we have indicated we think reasonable, such as new entrants, we will attack those restrictions.
Panel Discussion, Orderly Marketing, Franchising and Trademark Licensing: Have They Been Routed by Schwinn and Sealy? 1968 Antitrust Law Symposium 27, 44. See also Simpson v. Union Oil Co., 377 U.S. 13, 20-22, 84 S.Ct. 1051, 1056-1058, 12 L.Ed.2d 98, 104-105 (1964).

. Professor Averill writes that behind Schwinn is “the idea that each separate unit of a distribution system which risks its capital and relies upon its own initiative to market a product deserves to have commensurate authority to freely decide how, where and to whom it will sell.” Averill, Sealy, Schwinn and Sherman One: An Analysis and Prognosis, 15 N.Y.L.F. 39, 64 (1969). Other commentaries in which Schwinn is identified with a purpose to promote and preserve the freedom of independent economic units include Jones, supra note 4, at 746; The Supreme Court, 1966 Term, 81 Harv. L.Rev. 69, 236 (1967); Note, Antitrust Law and The New Industrial State: An Application to Automobile Distribution Practices, 4 U.S.F.L. Rev. 78, 105 (1969).

. 388 U.S. at 379, 87 S.Ct. at 1865, 18 L.Ed.2d at 1260. See Copper Liquor, Inc. v. Adolph Coors Co., 506 F.2d 934, 941 n.5 (5th Cir. 1975) (“Vertically imposed territorial restraints have the obvious effect of reducing or eliminating intrabrand competition, whatever their effect may be on interbrand competition”).

. 388 U.S. at 380-81, 87 S.Ct. at 1866-67, 18 L.Ed.2d at 1260-62. The Court explicitly looked to the “product market as a whole,” intrabrand and interbrand, in applying the rule of reason to Schwinn’s distribution through consignees under which Schwinn retained ownership and risk. Id. at 382, 87 S.Ct. at 1867, 18 L.Ed.2d at 1262.
For further evidence that the Court was fully aware of the alleged benefits to interbrand competition of Schwinn’s distribution program, see Keck, The Schwinn Case, 23 Bus.Law. 669 (1968).

. Topeo defended its use of territorial division in terms nearly identical to those employed by Schwinn and Sylvania:
Topeo essentially maintains that it needs territorial divisions to compete with larger chains; that the association could not exist if the territorial divisions were anything but exclusive; and that by restricting competition in the sale of Topco-brand goods, the association actually increases competition by enabling its members to compete successfully with larger regional and national chains.
United States v. Topco Associates, Inc., supra, 405 U.S. at 605, 92 S.Ct. at 1132, 31 L.Ed.2d at 524. The Supreme Court’s rationale for not considering Topco’s economic justification for stifling intrabrand competition was applied not only to the horizontal division of territories in which members could retail Topco-brand goods, but also to territorial and customer restrictions on wholesaling by members of Topeo. Id. at 612, 92 S.Ct. at 1135, 31 L.Ed.2d at 528. The Court reasoned that:
[l]ike territorial restrictions, limitations on customers are intended to limit intra-brand competition and to promote inter-brand competition. For the reasons previously discussed, the arena in which Topeo members compete must be left to their unfettered choice absent a contrary congressional determination. United States v. General Motors Corp., supra; cf. United States v. Arnold, Schwinn & Co., supra ....
Id. Like the restraints held per se illegal in Topeo, Sylvania’s vertically imposed territorial restriction on Continental was intended to limit intrabrand competition and promote interbrand competition. Thus, the reasons given by the Court in Topeo for not examining the “difficult economic problems” involved in attempting to balance losses in competition in one sector of the economy against alleged gains in another are equally relevant in this case.

. The Court quoted Mr. Justice Black’s explanation of the need for per se rules in such situations in Northern Pac. Ry. v. United States, 356 U.S. 1, 5, 78 S.Ct. 514, 518, 2 L.Ed.2d 545, 549 (1958): “This principle of per se unreasonableness not only makes the type of restraints which are proscribed by the Sherman Act more certain to the benefit of everyone concerned, but it also avoids the necessity for an incredibly complicated and prolonged economic investigation into the entire history of the industry involved, as well as related industries, in an effort to determine at large whether a particular restraint has been unreasonable— an inquiry so often wholly fruitless when undertaken.” 405 U.S. at 607, 92 S.Ct. at 1133, 31 L.Ed.2d at 525.

. Refutations of the claimed economic justifications for such vertical restraints can be found in Comanor, Vertical Territorial and Customer Restrictions: White Motor and Its Aftermath, 81 Harv.L.Rev. 1419 (1968); Stone, Closed Territorial Distribution: An Opening Question in the Sherman Act, 30 U.Chi.L.Rev. 286 (1963); Schmitt, Antitrust and Distribution Problems in Tight Oligopolies — A Case Study of the Automobile Industry, 24 Hastings L.J. 849, 904-05 (1973). It is worth noting, for example, that there is substantial economic opinion that because territorial restrictions upon franchising dealers enhance product differentiation, such restrictions eliminate not only intrabrand, competition, but competition between brands as well. Comanor, supra, at 1437; Zimmerman, supra note 7, at 1183-85; Schmitt, supra, at 906.
The economic justifications offered in support of vertical restraints are carefully examined and rejected by Judge Wisdom in Copper Liquor, Inc. v. Adolph Coors Co., 506 F.2d 934, 941-43 n.5 (5th Cir. 1975).

. See also Preston, Restrictive Distribution Arrangements: Economic Analysis and Public Policy Standards, 30 Law & Contemp.Prob. 506, 508-09 (1965).

. Other critical assumptions made by Professor Preston were that Sylvania did not set up location patterns in response to dealer requests or demands (R.T. 2904); that Sylvania did not use coercive means to prohibit a dealer in one territory from selling in another territory (R.T. 2905-07); that no dealer relied to a greater extent than normal on Sylvania for product (R.T. 2907-09); and that no excluded dealer was an especially vigorous competitor (R.T. 2929-30).

. Q. There could be other reasons, couldn’t there, that Sylvania was able to maintain a 4 to 5 percent share of the market nationally besides the use of this particular distribution policy?
A. Oh, many other reasons, of course.
Q. In other words, quality of the product?
A. Of course.
Q. That could be a reason.
A. Yes.
Q. Promotion?
A. Yes.
Q. Advertising?
A. Yes.
Q. So you are not saying that it necessarily follows that these particular distribution policies were or are necessary in order that Sylvania be able to maintain its present market share, are you?
A. No, I certainly am not.
Q. There is no way to tell, is there?
A. I suppose given enough imagination and spending enough money we might conduct some kind of research to satisfy ourselves on it, but I don’t think we would be able to.
Q. There is really no way you can tell from the competitive effect at a retail level— you can’t tell from that type of information what the competitive effect at the manufacturing level is going to be, can you?
A. They are not the same thing. I agree with that, that they are not the same.
Q. And there doesn’t seem any direct correlation between the two?
A. Of course, if a firm, as I say, was pricing its product way out of competitive limits at the retail level, then it would show a decline in marketing shares at the manufacturing level.
Q. Didn’t you say in this article, starting at page 508 in Duke Law Review:
“A closely related matter is the interaction between horizontal and vertical market relationships. The present state of economic analysis doesn’t in general permit us to specify the impact of changes of one of several vertically related market levels upon structure and behavior at another.”
A. Yes, you are quoting from my own writing.
Q. Right, and that was true at the time you wrote this article?
A. Yes.
Q. And it is still true?
A. I have been working on that since then and have written more about it. I think I have a few more ideas but they don’t answer the questions yet.
Q. Basically that is still true?
A. Yes, I think that is right.
R.T. at 2955-58.

. In fact, there is today no generally accepted body of economic doctrine that could serve as a guide in applying the Sherman Act and other antitrust statutes. See, e. g., A. Neale, supra note 1, at 429; Bohling, supra note 2, at 1188; Bernhard, Competition in Law and in Economics, 12 Antitrust Bull. 1099, 1156-61 (1967); Dewey, The Economic Theory of Antitrust: Science or Religion?, 50 U.Va.L.Rev. 413, 430-31 (1964).
Commentators who set maximum productivity “as the sole, or central, objective for the law’s rules of competitive behavior” and argue that the science of economics can provide standards for judgment in antitrust cases have been said by one economist to rely upon economic theory that “is, unfortunately, so elementary that it is, to a large extent, irrelevant.” Bern-hard, supra, at 1115-17, 1151. See also Samuelson, The Monopolistic Competition Revolution, in Monopolistic Competition Theory: Studies in Impact 105-36 (1967).

. United States v. Addyston Pipe & Steel Co., 85 F. 271, 283-84, 291 (6th Cir. 1898), aff'd 175 U.S. 211, 20 S.Ct. 96, 44 L.Ed. 136 (1899).

. A. Neale, supra note 1, at 435. Illustrative cases include United States v. Trenton Potteries Co., 273 U.S. 392, 398, 47 S.Ct. 377, 379, 71 L.Ed. 700, 705 (1927); Standard Oil Co. v. United States, 337 U.S. 293, 308-14, 69 S.Ct. 1051, 1059-62, 93 L.Ed. 1371, 1383-86 (1949); United States v. Philadelphia Nat’l Bank, 374 U.S. 321, 371, 83 S.Ct. 1715, 1745, 10 L.Ed.2d 915, 949 (1963).

. Loevinger, The Rule of Reason in Antitrust Law, 50 U.Va.L.Rev. 23, 34 (1964), quoting United States v. Philadelphia Nat’l Bank, 374 U.S. 321, 371, 83 S.Ct. 1715, 1745, 10 L.Ed.2d 915, 949 (1963).

. A. Neale, supra note 1, at 440.

. Professor Kingman Brewster, Jr., wrote that “the values served by not having courts act like legislative bodies are just as important to the society as are the values which might be served by having every case decided by economically rational but essentially ad hoc determinations of the public economic interest. The net goodness or badness of effects is not a proper subject of judicial determination.” Brewster, Enforceable Competition: Unruly Reason or Reasonable Rules?, 46 Am.Econ.Rev. 482, 487 (1956).

. D. Thompson, Contractual Marketing Systems 21 (1971). See also Pollack, Alternative Distribution Methods After Schwinn, 63 Nw.U.L.Rev. 595, 601-02 & n.35 (1968); Jones, supra note 4, at 741-42; FTC, Report of Ad Hoc Committee on Franchising, at 31 (1969). In the latter report it is said with respect to the relevant Supreme Court decisions that:
In laying down these principles, the Court was not directing its attention to arrangements involving the franchising of an entire business or service which is promoted nationally under a trademarked name and associated in the public mind with a highly distinctive external appearance or with a standardized uniform operation. There is no indication that the Court intended these decisions to apply across the board to trademark-licensing arrangements, also frequently subsumed under the term franchising, in which the licensor imposes restrictions on the licensees to ensure the identity of origin, quality, and uniformity of the trademarked product and thus preserve his rights in the trademark. Nothing in any of the Court’s four opinions would suggest that even in the case of outright sales of trademarked products the Court intended to modify established trademark law which requires the trademark owner to maintain sufficient control over his licensees to assure that his mark will not be deemed abandoned and that the licensee will apply the mark either to the same products or to products of substantially the same quality that the public in the past has associated with the mark.

. Williams, Distribution and the Sherman Act — The Effects of General Motors, Schwinn and Sealy, 1967 Duke L.J. 732, 735. See also Zimmerman, supra note 7, at 1186-87 & n.8.

. Schmitt, supra note 13, at 911-12; see Williams, supra note 24, at 735.

. Preston, supra note 14, at 512.

. “[T]he cost of automobile distribution, in labor and capital, is almost as great as the cost of manufacturing them.” Note, supra note 8, at 110. See also Schmitt, supra note 13, at 870-71.

. Panel Discussion, supra note 7, at 57 (remarks of Donald Turner).

. id.

. Jones, supra note 4, at 724; see, e. g., Zimmerman, supra note 7, at 1186.

. See, e. g., H. Brown, Franchising — Realities and Remedies vii-viii (1973); Jones, supra note 4, at 723-24; Note, Restricted Channels of Distribution Under the Sherman Act, 75 Harv.L. Rev. 795, 834 (1962).

. See Schmitt, supra note 13, at 912-13; Stone, supra note 13, at 315-16; Zimmerman, supra note 7, at 1186-87; Panel Discussion, supra note 7, at 55-56 (remarks of S. Jerry Cohen); id. at 57-58 (remarks of Donald Turner); Note, supra note 8, at 109-10.
Shortly after the Supreme Court’s Schwinn decision, Arnold, Schwinn & Co. took over the functions of its nine independent wholesale distributors. The case, however, is not typical. The company had few independent dealers; 75% of its distribution was by consignment which was upheld by the Schwinn decision. In the extensive literature on Schwinn published in the decade since that decision, no evidence is offered that forward integration by producers into distribution has been accelerated by the Supreme Court’s ruling. The automobile and oil industries, which account for two thirds of all franchising sales, are examples of industries which have not integrated following antitrust decisions requiring the abandonment of vertical restraints on independent dealers. Such integration is unlikely, in the automobile industry, in the future. Schmitt, supra note 13, at 913. In the oil industry, the substantial diseconomies that would result from integration (Miller, Exclusive Dealing in the Petroleum Industry: The Refiner-Lessee Dealer Relationship, 3 Yale Econ. Essays 223, 232 (1963)) are a significant disincentive to distribution through company-owned outlets. See Comanor, supra note 13, at 1435-36 & n.32.
The following are illustrative of judgments that the net effect of the Schwinn prohibition of vertical territorial restraints will be to benefit small independent businesses:
Therefore, all this decision is saying, and what it really means is that a person in a dominant position cannot have the benefits accruing to a franchise system, and at the same time retain the benefit of being able to control the ultimate disposition of those goods.
So you have to make a decision, either you have an independent distribution system or you don’t. ... In the long run it [Schwinn] will probably be more beneficial to the smaller businessman than it will be harmful.
Panel Discussion, supra note 7, at 56 (remarks of S. Jerry Cohen).
Therefore, with the elimination of the location clause from franchise contracts, the freedom of dealers as to where and to whom they will sell will be increased. This probably will lead only to sporadic changes in the distribution pattern and will not affect the viability of the franchised distribution system. The principal result of the demise of the location will be the preservation of the dealer’s freedom to do business. At least in some areas, intrabrand competition will be enhanced, and the manufacturers’ stifling of intrabrand competition will be replaced by the operation of market forces.
Schmitt, supra note 13, at 909.