Bus. Electr. Corp. v. Sharp Electr. Corp., 485 U.S. 717 (1988)

Business Electronics Corp. v. Sharp Electronics Corp.

No. 85-1910

Argued January 19, 1988
Decided May 2, 1988
485 U.S. 717

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR

THE FIFTH CIRCUIT

Syllabus

Petitioner and another retailer (Hartwell) were authorized by respondent manufacturer to sell its electronic calculators in the Houston area. In response to Hartwell’s complaints about petitioner’s prices, respondent terminated petitioner’s dealership. Petitioner brought suit in Federal District Court, alleging that respondent and Hartwell had conspired to terminate petitioner, and that such conspiracy was illegal per se under § 1 of the Sherman Act. The court submitted a liability interrogatory to the jury asking whether there was an agreement or understanding between respondent and Hartwell to terminate petitioner’s dealership because of its price cutting, and instructed the jury that the Sherman Act is violated when a seller enters into such an agreement or understanding with one of its dealers. The jury answered the interrogatory affirmatively, awarding damages, and the court entered judgment for petitioner for treble damages. The Court of Appeals reversed and remanded for a new trial, holding that, to render illegal per se a vertical agreement between a manufacturer and a dealer to terminate a second dealer, the first dealer must expressly or impliedly agree to set its prices at some level.

Held: A vertical restraint of trade is not per se illegal under § 1 of the Sherman Act unless it includes some agreement on price or price levels. Pp. 723-736.

(a) Ordinarily, whether particular concerted action violates § 1 is determined through case-by-case application of the rule of reason. Per se rules are appropriate only for conduct that is manifestly anticompetitive. Although vertical agreements on resale prices are illegal per se, extension of that treatment to other vertical restraints must be based on demonstrable economic effect, rather than upon formalistic line drawing. Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, which held that vertical nonprice restraints are not per se illegal, recognized that such restraints have real potential to stimulate interbrand competition; that a rule of per se illegality for such restraints is not needed or effective to protect intrabrand competition; and that such restraints do not significantly facilitate cartelizing. There has been no showing here that different characteristics attend an agreement between a manufacturer and a dealer to terminate a "price cutter," without a further agreement on the price or price levels to be charged by the remaining dealer. A quite plausible purpose of the vertical restriction here was to enable Hartwell to provide better services under its sales franchise agreement with respondent. There is also no merit to petitioner’s contention that an agreement on the remaining dealer’s price or price levels will so often follow from terminating another dealer because of its price cutting that prophylaxis against resale price maintenance warrants the District Court’s per se rule. Pp. 723-731.

(b) The term "restraint of trade" in the Sherman Act, like the term at common law before the statute was adopted, refers not to a particular list of agreements, but to a particular economic consequence, which may be produced by quite different sorts of agreements in varying times and circumstances. Moreover, this Court’s precedents do not indicate that the pre-Sherman Act common law prohibited as illegal per se an agreement of the sort made here. Nor is the District Court’s rule of per se illegality compelled by precedents under the Sherman Act holding certain horizontal agreements to constitute price fixing, and thus to be per se illegal even though they did not set prices or price levels. The notion of equivalence between the scope of horizontal per se illegality and that of vertical per se illegality was explicitly rejected in GTE Sylvania. Finally, earlier vertical price-fixing cases are consistent with the proposition that vertical per se illegality requires an agreement setting a price or a price level. Pp. 731-735.

780 F.2d 1212, affirmed.

SCALIA, J., delivered the opinion of the Court, in which REHNQUIST, C.J., and BRENNAN, MARSHALL, BLACKMUN, and O’CONNOR, JJ., joined. STEVENS, J., filed a dissenting opinion, in which WHITE, J., joined, post, p. 736. KENNEDY, J., took no part in the consideration or decision of the case.