Vertical restraints
Encyclopedia
Vertical restraints are competition restrictions in agreements between firms or individuals at different levels of the production and distribution process. Vertical restraints are to be distinguished from so-called “horizontal restraints,” which are found in agreements between horizontal competitors. Vertical restraints can take numerous forms, ranging from a requirement that dealers accept returns of a manufacturer’s product, to resale price maintenance
agreements setting the minimum or maximum price that dealers can charge for the manufacturer’s product.
So-called “intrabrand restraints” such as resale price maintenance govern products made by a particular manufacturer, while “interbrand restraints” regulate a dealer’s or manufacturer’s relationship with its trading partner’s rivals (e.g., "English clause
s"). Quintessential examples of interbrand restraints include tying
contracts, whereby a purchaser agrees to purchase a second product as a condition of obtaining a so-called "tying" product, and exclusive dealing
agreements, whereby a dealer agrees not to purchase products from suppliers that are rivals of the manufacturer.
governs all vertical restraints involving interstate commerce in the United States. Section 3 of the Clayton Act governs interbrand restraints involving the sale of “goods.” Finally, Section 2 of the Sherman Act governs restraints entered by monopolists. For several decades, courts were quite hostile to many vertical restraints, declaring them unlawful per se or nearly so. See, e.g., Albrecht v. Herald Co., 390 U.S. 145 (1969) (declaring maximum resale price maintenance unlawful per se). More recently, courts have reversed course and held that most such restraints should be analyzed under the rule of reason. See Leegin Creative Leather Products v. PSKS, 127 S. Ct. 2705 (2007); Continental TV v. GTE Sylvania, 433 U.S. 36 (1978).
Resale price maintenance
Resale price maintenance is the practice whereby a manufacturer and its distributors agree that the latter will sell the former's product at certain prices , at or above a price floor or at or below a price ceiling...
agreements setting the minimum or maximum price that dealers can charge for the manufacturer’s product.
So-called “intrabrand restraints” such as resale price maintenance govern products made by a particular manufacturer, while “interbrand restraints” regulate a dealer’s or manufacturer’s relationship with its trading partner’s rivals (e.g., "English clause
English clause
An "English clause" is a contractual provision requiring a buyer to report any better offer to his supplier and allowing him to accept such offer only when the supplier does not match it...
s"). Quintessential examples of interbrand restraints include tying
Tying
Tying is the practice of making the sale of one good to the de facto or de jure customer conditional on the purchase of a second distinctive good . It is often illegal when the products are not naturally related, for example requiring a bookstore to stock up on an unpopular title before allowing...
contracts, whereby a purchaser agrees to purchase a second product as a condition of obtaining a so-called "tying" product, and exclusive dealing
Exclusive dealing
Exclusive dealing refers to when a retailer or wholesaler is ‘tied’ to purchase from a supplier on the understanding that no other distributor will be appointed or receive supplies in a given area...
agreements, whereby a dealer agrees not to purchase products from suppliers that are rivals of the manufacturer.
United States Anti-Trust Law
Section 1 of the Sherman Antitrust ActSherman Antitrust Act
The Sherman Antitrust Act requires the United States federal government to investigate and pursue trusts, companies, and organizations suspected of violating the Act. It was the first Federal statute to limit cartels and monopolies, and today still forms the basis for most antitrust litigation by...
governs all vertical restraints involving interstate commerce in the United States. Section 3 of the Clayton Act governs interbrand restraints involving the sale of “goods.” Finally, Section 2 of the Sherman Act governs restraints entered by monopolists. For several decades, courts were quite hostile to many vertical restraints, declaring them unlawful per se or nearly so. See, e.g., Albrecht v. Herald Co., 390 U.S. 145 (1969) (declaring maximum resale price maintenance unlawful per se). More recently, courts have reversed course and held that most such restraints should be analyzed under the rule of reason. See Leegin Creative Leather Products v. PSKS, 127 S. Ct. 2705 (2007); Continental TV v. GTE Sylvania, 433 U.S. 36 (1978).