MR. JUSTICE DOUGLAS delivered the opinion of the Court.
This is a civil suit under the antitrust laws that was decided below on a motion for summary judgment. Rule 56 of the Rules of Civil Procedure at the time of the hearing below permitted summary judgment to be entered "if the pleadings, depositions, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Since that time, an amendment to Rule 56, which is included in proposed changes submitted to Congress pursuant to 28 U. S. C. § 2072, would add the following requirement:
But no such requirement was present when the present case was decided; and appellant, though strenuously opposing summary judgment and demanding a trial, submitted no such affidavits. It did, however, in its brief in
Appellant manufactures trucks and sells them (and parts) to distributors,
Typical of the customer clause is the following:
These provisions, applicable to distributors and dealers alike, are claimed by appellee to be per se violations of the Sherman Act.
Appellant, in arguing for a trial of the case on the merits, made the following representations to the District Court: the territorial clauses are necessary in order for appellant to compete with those who make other competitory kinds of trucks; appellant could theoretically have its own retail outlets throughout the country and sell to users directly; that method, however, is not feasible as it entails a costly and extensive sales organization; the only feasible method is the distributor or dealer system; for that system to be effective against the existing competition of the larger companies, a distributor or dealer must make vigorous and intensive efforts in a restricted territory, and if he is to be held responsible for energetic performance, it is fair, reasonable, and necessary that appellant protect him against invasions of his territory by other distributors or dealers of appellant; that appellant in order to obtain
As to the customer clauses, appellant represented to the District Court that one of their purposes was to assure appellant "that `national accounts,' `fleet accounts' and Federal and State governments and departments and political subdivisions thereof, which are classes of customers with respect to which the defendant is in especially severe competition with the manufacturers of other makes of trucks and which are likely to have a continuing volume of orders to place, shall not be deprived of their appropriate discounts on their purchases of repair parts and accessories from any distributor or dealer, with the result of becoming discontented with The White Motor Company and the treatment they receive with reference to the prices of repair parts and accessories for White trucks."
The agreements fixing prices of parts and accessories to these customers
White also argued below:
In this Court appellant defends the customer clauses on the ground that "the only sure way to make certain that something really important is done right, is to do it for oneself. The size of the orders, the technicalities of bidding and delivery, and other factors all play a part in this decision."
Summary judgments have a place in the antitrust field, as elsewhere, though, as we warned in Poller v. Columbia Broadcasting System, 368 U.S. 464, 473, they are not appropriate "where motive and intent play leading roles." Some of the law in this area is so well developed that where, as here, the gist of the case turns on documentary evidence, the rule at times can be divined without a trial.
Where the sale of an unpatented product is tied to a patented article, that is a per se violation since it is a bald effort to enlarge the monopoly of the patent beyond its terms. Mercoid Corp. v. Honeywell Co., 320 U.S. 680, 684; International Salt Co. v. United States, 332 U.S. 392, 395-396. And see Ethyl Gasoline Corp. v. United States, 309 U.S. 436. If competitors agree to divide markets, they run afoul of the antitrust laws. Timken Roller Bearing Co. v. United States, 341 U.S. 593. Group boycotts
As already stated, there was price fixing here and that part of the injunction issued by the District Court is not now challenged. In any price-fixing case restrictive practices ancillary to the price-fixing scheme are also quite properly restrained. Such was United States v. Bausch & Lomb Co., 321 U.S. 707, where price fixing was "an integral part of the whole distribution system" (id., 720) including customer restrictions. No such finding was made in this case; and whether or not the facts would permit one we do not stop to inquire.
Appellant apparently maintained two types of price-fixing agreements. Under the first, a distributor was allowed to appoint dealers under him, but each distributor had to agree with appellant that he would charge the dealers the same price for trucks that appellant charged its direct dealers. The agreement affected only five percent of the trucks sold by appellant. And there were no price-fixing provisions pertaining to truck sales to ultimate purchasers. The other price-fixing arrangement required all distributors and dealers to give "national accounts," "fleet accounts," and governmental agencies the same discount on parts and accessories as White gave them. No figures are given, but it was assumed by the District Court that the amount of commerce involved under this agreement was relatively small. Without more
We are asked to extend the holding in Timken Roller Bearing Co. v. United States, supra (which banned horizontal arrangements among competitors to divide territory), to a vertical arrangement by one manufacturer restricting the territory of his distributors or dealers. We intimate no view one way or the other on the legality of such an arrangement, for we believe that the applicable rule of law should be designed after a trial.
This is the first case involving a territorial restriction in a vertical arrangement; and we know too little of the actual impact of both that restriction and the one respecting customers to reach a conclusion on the bare bones of the documentary evidence before us.
Standard Oil Co. v. United States, 221 U.S. 1, 62, read into the Sherman Act the "rule of reason." That "rule of reason" normally requires an ascertainment of the facts peculiar to the particular business. As stated in Chicago Board of Trade v. United States, 246 U.S. 231, 238:
We recently reviewed per se violations of the antitrust laws in Northern Pac. R. Co. v. United States, 356 U.S. 1. That category of antitrust violations is made up of "agreements or practices which because of their pernicious effect on competition and lack of any redeeming virtue are conclusively presumed to be unreasonable and therefore illegal without elaborate inquiry as to the precise harm they have caused or the business excuse for their use." Id., p. 5. Tying arrangements or agreements by a party "to sell one product but only on the condition that the buyer also purchases a different (or tied) product, or at least agrees that he will not purchase that product from any other supplier" (id., pp. 5-6) may fall in that category, though not necessarily so.
Horizontal territorial limitations, like "[g]roup boycotts, or concerted refusals by traders to deal with other traders" (Klor's v. Broadway-Hale Stores, supra, 212), are naked restraints of trade with no purpose except stifling of competition. A vertical territorial limitation may or may not have that purpose or effect. We do not know enough of the economic and business stuff out of which these arrangements emerge to be certain. They may be too dangerous to sanction or they may be allowable protections against aggressive competitors or the only practicable means a small company has for breaking into or staying in business (cf. Brown Shoe, supra, at 330; United States v. Jerrold Electronics Corp., 187 F.Supp. 545, 560-561, aff'd, 365 U.S. 567) and within the "rule of reason." We need to know more than we do about the actual impact of these arrangements on competition to decide whether they have such a "pernicious effect on competition and lack . . . any redeeming virtue" (Northern Pac. R. Co. v. United States, supra, p. 5) and therefore should be classified as per se violations of the Sherman Act.
There is an analogy from the merger field that leads us to conclude that a trial should be had. A merger that would otherwise offend the antitrust laws because of a
We conclude that the summary judgment, apart from the price-fixing phase of the case, was improperly employed in this suit. Apart from price fixing, we do not intimate any view on the merits. We only hold that the legality of the territorial and customer limitations should be determined only after a trial.
MR. JUSTICE WHITE took no part in the consideration or decision of this case.
MR. JUSTICE BRENNAN, concurring.
While I join the opinion of the Court, the novelty of the antitrust questions prompts me to add a few words. I fully agree that it would be premature to declare either the territorial or the customer restrictions illegal per se, since "we know too little of the actual impact [of either form of restraint] . . . to reach a conclusion on the bare bones of the . . . evidence before us." But it seems to me that distinct problems are raised by the two types of restrictions and that the District Court will wish to have this distinction in mind at the trial.
I discuss first the territorial limitations. The insulation of a dealer or distributor through territorial restraints against sales by neighboring dealers who would otherwise
The Government urges, and the District Court found, that these restrictions so closely resemble two traditionally outlawed forms of restraint—horizontal market division and resale price maintenance—that they ought to be governed by the same absolute legal test. Both analogies are surely instructive, and all the more so because the practices at bar are sui generis; but both are, at the same time, misleading. It seems to me that consideration of the similarities has thus far obscured consideration of the equally important differences, which serve in my
Territorial limitations bear at least a superficial resemblance to horizontal divisions of markets among competitors, which we have held to be tantamount to agreements not to compete, and hence inevitably violative of the Sherman Act,
The analogy to resale price maintenance agreements is also appealing, but is no less deceptive. Resale price maintenance is not only designed to, but almost invariably does in fact, reduce price competition not only among sellers of the affected product, but quite as much between that product and competing brands. See United States v. Parke, Davis & Co., 362 U.S. 29, 45-47. While territorial restrictions may indirectly have a similar effect upon intra-brand competition, the effect upon inter-brand competition is not necessarily the same as that of resale price maintenance.
Indeed, the principal justification which the appellant offers for the use of these limitations is that they foster a vigorous inter-brand competition which might otherwise be absent. Thus, in order to determine the lawfulness of this form of restraint, it becomes necessary to assess the merit of this and other extenuations offered by the appellant. Surely it would be significant to the disposition of
There are other situations, not presented directly by this case, in which the possibility of justification cautions against a too hasty conclusion that territorial limitations are invariably unlawful. Arguments have been suggested against that conclusion, for example, in the case of a manufacturer starting out in business or marketing a new and risky product; the suggestion is that such a manufacturer may find it essential, simply in order to acquire and retain outlets, to guarantee his distributors some degree of territorial insulation as well as exclusive franchises. It has also been suggested that it may reasonably appear necessary for a manufacturer to subdivide his sales territory in order to ensure that his product will be adequately advertised, promoted, and serviced.
Another issue which seems to me particularly to require a full inquiry into the pros and cons of these territorial restrictions is whether, assuming that some justification for these limitations can be shown, their operation is reasonably related to the needs which brought them into being. To put the question another way, the problem is not simply whether some justification can be found, but whether the restraint so justified is more restrictive than necessary, or excessively anticompetitive, when viewed in light of the extenuating interests.
Another pertinent inquiry would explore the availability of less restrictive alternatives. In the present case, for example, as the Government suggests, it may appear at the trial that whatever legitimate business needs White advances for territorial limitations could be adequately served, with less damage to competition, through other devices—for example, an exclusive franchise,
I turn next to the customer restrictions. These present a problem quite distinct from that of the territorial limitations. The customer restraints would seem inherently the more dangerous of the two, for they serve to suppress all competition between manufacturer and distributors for the custom of the most desirable accounts. At the same time they seem to lack any of the countervailing tendencies to foster competition between brands which may accompany the territorial limitations. In short, there is far more difficulty in supposing that such customer restrictions can be justified.
The crucial question to me is whether, in any meaningful sense, the distributors could, but for the restrictions,
The reasons given by White for the use of customer restrictions strike me as untenable if in operation and effect the restrictions are found to stifle competition. These justifications are of three types. First, White argues that such restrictions are required because "[a] distributor or dealer is not competent to handle this intricate process [of servicing large accounts] until he has had
The second justification White offers is that "the only sure way to make certain that something really important is done right, is to do it for oneself." This argument seems to me to prove too much, for if the distributors truly cannot be counted on to solicit and service the governmental and fleet accounts—not all of which are, in fact, large or demanding—then this suggests that the only adequate solution may be vertical integration, the elimination of all independent or franchised distribution. But that White is either unwilling or unable to do. Instead, it seeks the best of both worlds—to retain a distribution system for the general run of its customers, while skimming off the cream of the trade for its own direct sales. That, it seems to me, the antitrust laws would not permit, cf. Eastman Kodak Co. v. Southern Photo Materials Co., 273 U.S. 359, 375, if in fact the distributors could compete for the reserved accounts without the restrictions.
The third justification, which White offered in its jurisdictional statement, is that customer limitations are essential to enable it to "more effectively compete against its competitors by selling trucks directly" to the reserved
In sum, the proffered justifications do not seem to me to sanction customer restrictions which suppress all competition between the manufacturer and his distributors for the most desirable customers. On trial, as I see it, the Government will necessarily prevail unless the proof warrants a finding that, even in the absence of the restrictions, the economics of the trade are such that the distributors cannot compete for the reserved accounts.
MR. JUSTICE CLARK, with whom THE CHIEF JUSTICE and MR. JUSTICE BLACK join, dissenting.
The Court is reluctant to declare vertical territorial arrangements illegal per se because "This is the first case involving a territorial restriction in a vertical arrangement; and we know too little of the actual impact . . . of that restriction . . . to reach a conclusion on the bare bones of the documentary evidence before us." The "bare bones" consist of the complaint and answer, excerpts from interrogatories, exhibits and deposition of the secretary
This "argument," which the appellant has convinced the Court raises a factual issue requiring a trial, points out that each distributor is required to maintain a sales room, service station and a representative number of White trucks. "In return for these agreements of the distributor . . . it is only fair and reasonable and, in fact, necessary . . . that the distributor shall be protected in said distributor's territory against selling therein by defendant's other distributors . . . who have not made the investment of money and effort . . . in the said territory." Likewise, appellant's argument continues, "similar provisions in direct dealers' contracts and in contracts between the distributors and their respective dealers have the same purposes and the same effects." These limitations have "the purpose and effect of promoting the business and increasing the sales of White trucks in competition with The White Motor Company's powerful competitors." Emphasizing that the motor-truck manufacturing industry is one of "the most highly competitive industries in this country," appellant points up that its share "is very small" and "by no stretch of the imagination, could be said to dominate the market in trucks." It insists that there are but two ways to market trucks: (1) selling to the public through its own sales and service stations, and (2) through the distributor-dealer distribution system which it presently follows. It discards the first as being "feasible only for a very large company." As to the second, the distributors and dealers must not be allowed to spread their efforts "too thinly over more territory
On the price-fixing requirement in the contracts, which White Motor has abandoned on appeal, the "argument" points out that this requirement was limited to about 5% of its sales and was not followed in sales to the public. Justification for its use otherwise was that it insured that all of its agents "get an equal break pricewise," which was a necessary step to having "satisfied and efficient dealer organizations." As to the required discounts provision on repair parts and accessories, it says that these are necessary "if the defendant's future sales to `National Accounts,' `Fleet Accounts' and Federal and State governments. . . and political subdivisions . . . are not to be seriously jeopardized." After all, it says, "probably
The situation in which White Motor finds itself may be summed up in its own words, i. e., that its contracts are "the only feasible way for [it] to compete effectively with its bigger and more powerful competitors . . . ." In this justification it attempts but to make a virtue of business necessity, which has long been rejected as a defense in such cases. See Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373, 407-408 (1911); Fashion Originators' Guild v. Federal Trade Comm'n, 312 U.S. 457, 467-468 (1941), and Northern Pac. R. Co. v. United States, 356 U.S. 1, 5 (1958). This is true because the purpose of these provisions in its contracts as shown by White Motor's own "argument" is to enable it to compete with its "powerful competitors" and "protect its dealers and distributors in their respective allotted territories against the exploitation by other White distributors or dealers" and thus prevent them from "cutting each other's throats." These grounds for its action may be good for White Motor but they are disastrous for free competitive enterprise and, if permitted, will destroy the effectiveness of the Sherman Act. For under these contracts a person wishing to buy a White truck must deal with only one seller who by virtue of his agreements with dealer competitors has the sole power as to the public to set prices, determine terms and even to refuse to sell to a particular customer. In the latter event the customer could not buy a White truck because a neighboring dealer must reject him under the White Motor contract unless he has "a place of business and/or purchasing headquarters" in the latter's territory. He might buy another brand of truck, it is true, but the existence of interbrand competition has never been a justification for an explicit agreement to eliminate competition. See United States v. McKesson & Robbins, Inc., 351 U.S. 305 (1956). Likewise
I have diligently searched appellant's offer of proof but fail to find any allegation by it that raises an issue of fact. All of its statements are economic arguments or business necessities none of which have any bearing on the legal issue. It clearly appears from its contracts that "all room for competition between retailers [dealers], who supply the public, is made impossible." John D. Park & Sons Co. v. Hartman, 153 F. 24, 42 (C. A. 6th Cir.), opinion by Mr. Justice Lurton, then circuit judge, and adopted by Mr. Justice Hughes, later Chief Justice, in Dr. Miles Medical Co. v. John D. Park & Sons Co., supra, at 400 (1911). I have read and re-read appellant's "argument" and even though I give it the dignity of proof I return to the conclusion, as did Mr. Justice Lurton, that "If these contracts leave any room at any point of the line for the usual play of competition between the dealers . . . it is not discoverable." Ibid.
This Court, it is true, has never held whether there is a difference between market divisions voluntarily undertaken by a manufacturer such as White Motor and those of dealers in a commodity, agreed upon by themselves, such as were condemned in Timken Roller Bearing Co. v. United States, 341 U.S. 593 (1951). White does not contend that its distribution system has any less tendency to restrain competition among its distributors and dealers than a horizontal agreement among such distributors and dealers themselves. It seems to place some halo around its agreements because they are vertical. But the intended and actual effect is the same as, if not even more destructive than, a price-fixing agreement or any of its per se counterparts. This is true because price-fixing
Likewise, the other restrictions in the contracts run counter to the Sherman Act. This Court has held the restriction on the withholding of customers to be illegal as a contract between potential competitors not to compete, United States v. McKesson & Robbins, Inc., supra, at
The Court says that perhaps the reasonableness or the effect of such arrangements might be subject to inquiry. But the rule of reason is inapplicable to agreements made solely for the purpose of eliminating competition. United States v. Socony-Vacuum Oil Co., 310 U.S. 150 (1940) (price fixing); Fashion Originators' Guild v. Federal Trade Comm'n, supra (group boycotts); International Salt Co. v. United States, 332 U.S. 392 (1947), and United States v. National Lead Co., 332 U.S. 319 (1947) (tying arrangements); Timken Roller Bearing Co. v. United States, supra; Nationwide Trailer Rental System v. United States, 355 U.S. 10 (1957), affirming 156 F.Supp. 800 (D. C. D. Kan. 1957), and United States v. National Lead Co., supra (division of markets). The same rule applies to the contracts here. The offered justification must fail because it involves a contention contrary to the public policy of the Sherman Act, which is that the suppression of competition is in and of itself a public injury. To admit, as does the petitioner, that competition is eliminated under its contracts is, under our cases, to admit a violation of the Sherman Act. No justification, no matter how beneficial, can save it from that interdiction.
The thrust of appellant's contention seems to be in essence that it cannot market its trucks profitably without the advantage of the restrictive covenants. I note that other motor car manufacturers—including the "big three"—abandoned the practice over a decade ago. One of these, American Motors, told the Eighty-fourth Congress, before which legislation was pending to permit division
The milk in the coconut is that White Motor "having 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.
Today the Court does a futile act in remanding this case for trial. In my view appellant cannot plead nor prove an issue upon which a successful defense of its contracts can be predicated. Neither time (I note the case is
While the Government urges upon us the adoption of a per se rule of illegality, it nonetheless recognizes that not all the considerations relevant to the validity of this particular form of restraint are or could be presented by the present case: "What is the importance of interbrand as opposed to intrabrand competition? . . . Will White's restrictions remain reasonable if its share of the market increases? . . . These are only a few of the issues relevant to a trial of the `reasonableness' of any particular set of territorial restrictions. Nor could one be content with a single investigation. Business conditions change. The effect of restricting competition among dealers today may be different tomorrow." Brief for the United States, pp. 31-32.
"The short of it is that a relatively small manufacturer, competing with large manufacturers, thought it advantageous to retain its largest dealer in Baltimore, and could not do so without agreeing to drop its other Baltimore dealers. To penalize the small manufacturer for competing in this way not only fails to promote the policy of the antitrust laws but defeats it." 100 U. S. App. D. C., at 164, 243 F. 2d, at 421. The doctrine of the Packard and Schwing cases is, however, of necessarily limited scope; not only were the manufacturers involved much smaller than the "big three" of the automobile industry against whom they competed, but both had experienced declines in their respective market shares. And the exclusive franchises involved in those cases apparently were not accompanied by territorial limitations. See Jordan, supra, note 6, at 135-139. See, for consideration of a similar problem by the Federal Trade Commission, Columbus Coated Fabrics Corp., 55 F. T. C. 1500, 1503-1504.