Continental T.V., Inc. v. Gte Sylvania, Inc., 433 U.S. 36 (1977)

Continental T.V., Inc. v. GTE Sylvania, Inc.

No. 76-15

Argued February 28, 1977
Decided June 23, 1977
433 U.S. 36

CERTIORARI TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

Syllabus

In an attempt to improve its market position by attracting more aggressive and competent retailers, respondent manufacturer of television sets limited the number of retail franchises granted for any given area and required each franchisee to sell respondent’s products only from the location or locations at which it was franchised. Petitioner Continental, one of respondent’s franchised retailers, claimed that respondent had violated § 1 of the Sherman Act by entering into and enforcing franchise agreements that prohibited the sale of respondent’s products other than from specified locations. The District Court rejected respondent’s requested jury instruction that the location restriction was illegal only if it unreasonably restrained or suppressed competition. Instead, relying on United States v. Arnold, Schwinn & Co., 388 U.S. 365, the District Court instructed the jury that it was a per se violation of § 1 if respondent entered into a contract, combination, or conspiracy with one or more of its retailers, pursuant to which it attempted to restrict the locations from which the retailers resold the merchandise they had purchased from respondent. The jury found that the location restriction violated § 1, and treble damages were assessed against respondent. Concluding that Schwinn was distinguishable, the Court of Appeals reversed, holding that respondent’s location restriction had less potential for competitive harm than the restrictions invalidated in Schwinn, and thus should be judged under the "rule of reason."

Held:

1. The statement of the per se rule in Schwinn is broad enough to cover the location restriction used by respondent. And the retail customer restriction in Schwinn is functionally indistinguishable from the location restriction here, the restrictions in both cases limiting the retailer’s freedom to dispose of the purchased products and reducing, but not eliminating, intrabrand competition. Pp. 42-47.

2. The justification and standard for the creation of per se rules was stated in Northern Pac. R. Co. v. United States, 356 U.S. 1, 5:

There are certain 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.

Under this standard, there is no justification for the distinction drawn in Schwinn between restrictions imposed in sale and nonsale transactions. Similarly, the facts of this case do not present a situation justifying a per se rule. Accordingly, the per se rule stated in Schwinn is overruled, and the location restriction used by respondent should be judged under the traditional rule of reason standard. Pp. 47-59.

537 F.2d 980, affirmed.

POWELL, J., delivered the opinion of the Court, in which BURGER, C.J., and STEWART, BLACKMUN, and STEVENS, JJ., joined. WHITE, J., filed an opinion concurring in the judgment, post, p. 59. BRENNAN, J., filed a dissenting statement, in which MARSHALL, J., joined, post, p. 71. REHNQUIST, J., took no part in the consideration or decision of the case.