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Mayer, Brown, Rowe, & Maw logo EXCLUSIVE DEALING



Richard M. Steuer
Mayer, Brown, Rowe & Maw LLP
(212) 506-2530
rsteuer@mayerbrownrowe.com


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Exclusive Dealing In Distribution
(Cornell Law Review, 1983)


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History
  • Per Se -Prior to Standard Fashion Co. v. Magrane Houston Co., 258 U.S. 346 (1922), the FTC applied a virtual rule of per se illegality to exclusive dealing under § 3 of the Clayton Act. Standard Elec. Mfg. Co., 5 F.T.C. 376 (1923); B.S. Pearsall Butter Co., 5 F.T.C. 127 (1922); Stanley Booking Corp., 1 F.T.C. 212 (1918)

  • Quantitative Substantiality - Standard Stations(1949); FTC v. Brown Shoe (1966)

  • Qualitative Substantiality - Tampa Electric (1961)

  • Modern Rule of Reason; Interbrand Competition/Free Riding - Beltone (1982); Jefferson Parish (1984); California Dental (1999)


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Measuring Foreclosure More Complex and Nuanced Than Originally Thought
  • Level of Distribution -Wholesalers; Retailers; End-Users

  • Type of Product -Shopping Products; Convenience Products (“Delivering” customers)

  • Alternate Channels of Distribution -Intertype Competition

  • Establishing New Distributors -Versus “Piggybacking”

  • Compare measuring foreclosure for other offenses


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Pro-competitive Effects
  • Combating manufacturer-level free riding

  • Stimulating Distributors -commodities versus differentiated products

  • Stimulating Suppliers (Different from resale restraints)

  • Protecting Trade Secrets

  • Quality Control

  • Compare Resale Restraints


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Discounts and Exclusive Dealing
(Antitrust Magazine, 1993)


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Single Product Discounts Conditioned on Exclusive Dealing
  • United Shoe Machinery Corp. v. United States, 258 U.S. 451 (1922)

  • NicSand, Inc. v. 3M Co., 457 F.3d 534 (6th Cir. 2006)

  • Nutrasweet(Canadian Competition Tribunal, 1990)

  • Tetra Pak(EU Commission 1991)

  • “Offer you can’t refuse” (Need for particular supplier’s products)


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Bundling
  • SmithKlineCorp., v. Eli Lilly & Co., 575 F.2d 1056 (3d Cir.), cert. denied, 439 U.S. 838 (1978)

  • LePages v. 3M, 324 F.3d 141 (3d Cir. 2003)

  • Ortho v. Abbott, 920 F. Supp. 455(S.D.N.Y. 1996)


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Customer-Instigated Exclusive Dealing
(Antitrust Law Journal, 2000)


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Mixed Motivations re Number of Suppliers
  • End-Users

    • Assure survival of multiple suppliers

    • Requirements contracts creating competitive advantage if fewer suppliers exist

  • Resellers

    • Short Term: Threat of alternate brands

    • Long Term: Value of alternative brands


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Reasons for Customers to Instigate Exclusive Dealing
  • Inducing lower prices

  • Assuring dependable supply (requirements contracts)

  • Assuring quality (qualifying suppliers)

  • Assuring uniformity (auto racing example)

  • Achieving logistical efficiencies (fewer vendors = greater efficiency)


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Finding an Appropriate Legal Analysis
  • Supplier’s Objectives

    • Foreclosure of Competitors

    • Distributional Efficiencies

  • Reseller’s Objectives -Better Pricing; assured supply; quality; uniformity; achieving efficiencies

    • Mixed motives re strength of alternate suppliers and brands

  • End-Users Objectives -Better Pricing; delivery; quality; uniformity; efficiencies

    • Less likely to favor weakened interbrandcompetition


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Finding an Appropriate Legal Analysis
  • When should courts second guess buyers that instigate exclusive dealing?

    When the buyer has a motive to eliminate competition at the supplier level, such as to foreclose its own competitors.


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Unifying Principles vs. Intellectual Laziness