Exclusive Dealing

Exclusive Dealing In Distribution
(Cornell Law Review, 1983)

• 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)

• 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

• 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

Discounts and Exclusive Dealing
(Antitrust Magazine, 1993)

• 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)

• 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)

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

• 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

• Inducing lower prices
• Assuring dependable supply (requirements contracts)
• Assuring quality (qualifying suppliers)
• Assuring uniformity (auto racing example)
• Achieving logistical efficiencies (fewer vendors = greater efficiency)

• 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

• 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.

Unifying Principles vs. Intellectual Laziness