Section 1-Restraint of trade arising from an agreement
Section 2-Prohibits monopolization, attempts to monopolize, and conspiracies to monopolize. This requires substantial market power and anti-competitive or undesirable behaviour (exclusionary conduct/abuse). Looks at the Defendant’s intention. Harm to consumer welfare not a condition, instead concerned with competitive process and effects on rivals. Exerting power in market by excluding competitors from the market, thus extending market power = monopoly & restraint of trade.
A firm agrees with its supplier or distributor that the later will not supply to or distribute for any other firm.
Exclusionary agreements improve bargaining position by reducing the amount of competition.
A firm, which wishes to secure a source of supply, or a steady distributive outlet, or plans (monopolistically) to foreclose a market against its competitors usually, enters into exclusive contracts with suppliers or distributors. This conduct would infringe the Sherman Act and Section 3 (chapter ix) of the Clayton Act.
“…It is unlawful for anyone engaged in commerce, in the course of such commerce, to lease, make a sale or contract for sale of goods, wares, merchandise, machinery supplies or other commodities whether patented or not for use, consumption, resale… on the condition, agreement or understanding that the lessee or purchaser shall not use or deal in the goods wares etc of a competitor/s of the lessor or seller where the effect of such lease, sale of contract for sale or such condition, agreement or understanding may be to substantially lessen competition or tend to create a monopoly in any line of commerce…”
FEDERAL TRADE COMMISSION V MOTION PICTURE ADVERTISING SERVICE COMPANY (SC, 1953)
A company produces and distributed advertising films, its contracts with exhibitors relating to showing the films said that the cinema owners would not show any advertising films produced by other companies. It had contracts with 40% of cinemas. Contracts for 5 years.
Held: section 5 Federal Trade Commission Act. Exclusive contracts were unduly restrictive an amount to an unfair method of competition. Ordered to make contracts only for 1-year period. Falls within the prohibition of the Sherman Act because conduct foreclosed on competitors.
Vertical restraints prohibited.
Unreasonable restraint of trade or an attempt to monopolize if it is not an expansion to meet legitimate business needs in an effectively competitive context, but a calculated scheme to gain control over an appreciable segment of the market and to restrain competition.
STANDARD FASHION CO V MAGRANE-HOUSTON CO (SC 1922)
Manufacturer of patterns for clothing entered into contracts with retailers under which the retailer, who agreed to buy the patterns also undertook not to sell or permit to be sold on its premises during the term of the contract, any other make of patterns.
Did the contracts substantially lessen competition and create a monopoly?
The contracts infringed Clayton Act as they already controlled 40% of the market. However, they do not infringe the Act if the effect of competition was too remote to be substantial or if a bona fide agency agreement.
PEARSALL BUTTER CO V FTC (7TH CIRCUIT COURT OF APPEALS 1923)
Manufacturer of margarine, 1% share of total output of margarine, appointed an exclusive wholesaler for a specified territory and the dealer agreed to sell only the manufacturer’s margarine.
The appointment was not a substantial effect on competition because manufacturer not an important trader.
Sherman Act – look at intent.
Clayton Act – concentrates on evidence of specific anti-competitive effect and tests quantitative significance.
Intent rather than effect: Frankfurter J in Standard Fashions
Courts look at whether the practices serve any purpose beyond the suppression of competition.
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