White Motor Company v. United States/Concurrence Brennan

by William J. Brennan, Jr.

United States Supreme Court

372 U.S. 253

White Motor Company  v.  United States

 Argued: Jan. 14 and 15, 1963. --- Decided: March 4, 1963

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 be his competitors involves a form of restraint upon alienation, which is therefore historically and inherently suspect under the antitrust laws. ^[1] See Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373, 404-408, 31 S.Ct. 376, 383-384, 55 L.Ed. 502. That proposition does not, however, tell us that every form of such restraint is utterly without justification and is therefore to be deemed unlawful per se. That is true only of those '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.' Northern Pac. R. Co. v. United States, 356 U.S. 1, 5, 78 S.Ct. 514, 518, 2 L.Ed.2d 545. Specifically, the per se rule of prohibition has been applied to price-fixing agreements, group boycotts, tying arrangements, and horizontal divisions of markets. As to each of these practices, experience and analysis have established the utter lack of justification to excuse its inherent threat to competition. ^[2] To gauge the appropriateness of a per se test for the forms of restraint involved in this case, then, we must determine whether experience warrants, at this stage, a conclusion that inquiry into effect upon competition and economic justification would be similarly irrelevant. ^[3] With respect to the territorial limitations of the type at bar, I agree that the courts have as yet been shown no sufficient experience to warrant such a conclusion.

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 view to distinguish the practice here from others as to which we have held a per se test clearly appropriate.

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, ^[4] Timken Roller Bearing Co. v. United States, 341 U.S. 593, 71 S.Ct. 971, 95 L.Ed. 1199. If it were clear that the territorial restrictions involved in this case had been induced solely or even primarily by appellant's dealers and distributors, it would make no difference to their legality that the restrictions were formally imposed by the manufacturer rather than through inter-dealer agreement. ^[5] Cf. Interstate Circuit, Inc. v. United States, 306 U.S. 208, 59 S.Ct. 467, 83 L.Ed. 610; United States v. Masonite Corp., 316 U.S. 265, 275-276, 62 S.Ct. 1070, 1076, 86 L.Ed. 1461. But for aught that the present record discloses, an equally plausible inference is that the territorial restraints were imposed upon unwilling distributors by the manufacturer to serve exclusively his own interests. That inference gains some credibility from the fact that these limitations-unlike, for example, exclusive franchise agreements-bind the dealers to a rather harsh bargain while leaving the manufacturer unfettered. In any event, neither the source nor the purpose of these restraints can be conclusively determined on the pleadings or the supporting affidavits. The crucial question whether, despite the differences in form, these restraints serve the same pernicious purpose and have the same inhibitory effects upon competition as horizontal divisions of markets, is one which cannot be answered without a trial. ^[6]

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, 80 S.Ct. 503, 512-513, 4 L.Ed.2d 505. 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. ^[7]

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 this case if, as appellant claims, some such arrangement were a prerequisite for effective competition on the part of independent manufacturers of trucks. Whatever relationship such restraints may bear to the ultimate survival of producers like White should be fully explored by the District Court if we are properly to appraise this excuse for resort to these practices.

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. ^[8] It is, I think, the inappropriateness or irrelevance of such justifications as these to the practices traditionally condemned under the per se test that principally distinguishes the territorial restraints involved in the present case from horizontal market divisions and resale price maintenance.

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. ^[9] That question is one which can be adequately treated only by examining the operation and practical effect of the restraints, whatever may be their form. And in order to appraise that effect, it is necessary to know what sanctions are imposed against distributors who 'raid,' or sell across territorial boundaries in violation of the agreements. If, for example, such a cross-sale incurs only an obligation to share (or 'pass over') the profit with the dealer whose territory has been invaded-as is most often, and apparently here, the case ^[10]-then the practical effect upon competition of a territorial limitation may be no more harmful than that of the typical exclusive franchise-the lawfulness of which the Government does not dispute here. If, on the other hand, the dealer who cross-sells runs the risk under the agreement of losing his franchise altogether, intra-brand competition across territorial boundaries involves serious hazards which might well deter any effort to compete.

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, ^[11] an assignment of areas of primary responsibility to each distributor, ^[12] or a revision of the levels of profit pass-over so as to minimize the deterrence to cross-selling by neighboring dealers where competition is feasible. ^[13] But no such inquiry as this into the question of alternatives could meaningfully be undertaken until the District Court has ascertained the effect upon competition of the particular territorial restraints in suit, and of the particular sanctions by which they are enforced.

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 tendercies 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, compete with the manufacturer for the reserved outlets. ^[14] If they could, but are prevented from doing so only by the restrictions, then in the absence of some justification neither presented nor suggested by this record, their invalidity would seem to be apparent. Cf. United States v. McKesson & Robbins, Inc., 351 U.S. 305, 312, 76 S.Ct. 937, 941, 100 L.Ed. 1209; United States v. Klearflax Linen Looms, Inc., D.C., 63 F.Supp. 32. If, on the other hand, it turns out that as a practical matter the restricted dealers could neither fill the orders nor service the fleets of the governmental and fleet customers, then the District Court might conclude that because there would otherwise be no meaningful competition, the restrictive agreements do no more than codify the economically obvious. It might even be that such restrictions were originally designed to foreclose the distributors from soliciting the reserved accounts, but that now the restrictions have become meaningless because the distributors would in any event be unable to compete.

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 many months of specialized White training'; and that there is a consequent danger of 'unauthorized dealers' who 'will be unqualified to work out specifications for trucks to meet customers' peculiar requirements.' To the extent that these fears are well founded, they represent the concerns which any manufacturer may legitimately have about his distributors' ability to deal effectively with large or demanding customers. By their very terms, however, these concerns seem to call not for cutting the distributors completely out of this segment of the market, but rather for such less drastic measures as, for example, improved supervision and training, or perhaps a special form of manufacturer's warranty to the governmental and fleet purchasers to protect against unsatisfactory distributor servicing.

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. of New York v. Southern Photo Materials Co., 273 U.S. 359, 375, 47 S.Ct. 400, 404, 71 L.Ed. 684, 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 customers rather than 'through the interposition of distributors or dealers.' This argument invites consideration of what to me is the essential vice of the customer restrictions. The manufacturer's very position in the channels of distribution should afford him an inherent cost advantage over his distributors. In the nature of things, it would seem that the large purchasers would buy from whichever outlet gave them the lowest prices. Thus, if the manufacturer always did grant discounts which the distributors were unable to grant, there would seem to be no reason whatever for denying the distributors able to overcome that advantage access to the preferred customers. Conversely, the presence of such restrictions in the agreements between White and its distributors suggests that they are designed, at least in part, to protect a noncompetitive pricing structure, in which the manufacturer in fact does not always charge the lowest prices.

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.

Notes

1. For a general consideration of the history and legality of restraints upon alienation, both at common law and under the Sherman Act, see Levi, The Parke, Davis-Colgate Doctrine: The Ban on Resale Price Maintenance, Supreme Court Review (Kurland ed. 1960), 258, 270-278.
2. The general principle which the Court has stated with respect to price-fixing agreements is applicable alike to boycotts, divisions of markets, and tying arrangements: 'Whatever economic justification particular * * * agreements may be thought to have, the law does not permit an inquiry into their reasonableness. They are all banned because of their actual or potential threat to the central nervous system of the economy.' United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 224, n. 59, at 226, 60 S.Ct. 811, 845, 84 L.Ed. 1129.
3. Outside the categories of restraint which are per se unlawful, this Court has said that the question to be answered is 'whether the restraint imposed is such as merely regulates and perhaps thereby promotes competition or whether it is such as may suppress or even destroy competition. To determine that question the court must ordinarily consider the facts peculiar to the business to which the restraint is applied; its condition before and after the restraint was imposed; the nature of the restraint and its effect, actual or probable. The history of the restraint, the evil believed to exist, the reason for adopting the particular remedy, the purpose or end sought to be attained, are all relevant facts.' Chicago Board of Trade v. United States, 246 U.S. 231, 238, 38 S.Ct. 242, 244, 62 L.Ed. 683.
4. See Addyston Pipe & Steel Co. v. United States, 175 U.S. 211, 240-245, 20 S.Ct. 96, 107-109, 44 L.Ed. 136; United States v. National Lead Co., D.C., 63 F.Supp. 513, aff'd, 332 U.S. 319, 67 S.Ct. 1634, 91 L.Ed. 2077. See also Report of the Attorney General's National Committee to Study the Antitrust Laws (1955), 26.
5. For contrasting views on this question, compare Kessler and Stern, Competition, Contract, and Vertical Integration, 69 Yale L.J. 1, 113 (1959), with Robinson, Restraints on Trade and the Orderly Marketing of Goods, 45 Cornell L.Q. 254, 267-268 (1960).
6. See, for an elaboration and discussion of some of the factors which might enter such an inquiry, Snap-On Tools Corp., FTC Docket 7116, 3 CCH Trade Reg. Rep. 15,546; Jordan, Exclusive and Restricted Sales Areas Under the Antitrust Laws, 9 U.C.L.A.L.Rev. 111, 125-129 (1962). For further discussion of the reasons which make such an inquiry desirable with respect to restraints of this very kind, see Turner, The Definition of Agreement Under the Sherman Act: Conscious Parallelism and Refusals to Deal, 75 Harv.L.Rev. 655, 698-699 (1962).
7. See Note, Restricted Channels of Distribution Under the Sherman Act, 75 Harv.L.Rev. 795, 800-801 (1962). It may be relevant to the question whether the territorial restrictions were intended to suppress price competition that appellant also maintained a schedule of resale prices in its distributor agreements, though there has been no challenge here to the District Court's finding that those provisions were unlawful per se.
8. For situations in which such extenuations might be relevant, compare, e.g., Packard Motor Car Co. v. Webster Motor Car Co., 100 U.S.App.D.C. 161, 243 F.2d 418; Schwing Motor Co. v. Hudson Sales Corp., 138 F.Supp. 899 (D.C.D.Md.), aff'd, 239 F.2d 176 (C.A.4th Cir.). In the former case the court observed, in holding an exclusive franchise arrangement not violative of the Sherman Act:
9. If the restraint is shown to be excessive for the manufacturer's needs, then its presence invites suspicion either that dealer pressures rather than manufacturer interests brought it about, or that the real purpose of its adoption was to restrict price competition, cf. Ethyl Gasoline Corp. v. United States, 309 U.S. 436, 457-459, 60 S.Ct. 618, 625-626, 84 L.Ed. 852; United States v. Masonite Corp., supra. See Turner, supra, note 6, at 698 699, 704-705.
10. In its complaint, the Government charged that any dealer or distributor who sells in another's reserved territory must pay to the injured distributor 'a specified amount of money for violation of said exclusive territory * * *.' There has been no suggestion in this case that more drastic sanctions, such as withdrawal or cancellation of a franchise, have ever been invoked by the appellant to check cross-selling. The pass-over provisions contained in the typical White contract (in a provision governing 'adjustment on outside deliveries') seem representative of exclusive-territory sanctions generally employed. See Note, Restricted Channels of Distribution Under the Sherman Act, 75 Harv.L.Rev. 795, 814-816 (1962).
11. The District Court suggested, 194 F.Supp. at 585-586, and the Government seems to concede, that certain types of exclusive franchises would not violate the Sherman Act, although a determination of the legality of such arrangements would seem also to require an examination of their operation and effect.
12. See Snap-On Tools Corp., FTC Docket No. 7116, 3 CCH Trade Reg.Rep. 15,546, p. 20,414. A number of consent decrees have recently recognized the lawfulness of area-of-primary-responsibility covenants as substitutes for the more restrictive exclusive arrangements. See, e.g., United States v. Bostitch, Inc., CCH 1958 Trade Cases 69,207 (D.C.D.R.I.); United States v. Rudolph Wurlitzer Co., CCH 1958 Trade Cases 69,011 (D.C.W.D.N.Y.). The thrust of such provisions is, however, only that the dealer must adequately represent the manufacturer in the assigned area, not that he must stay out of other areas. See generally 60 Mich.L.Rev. 1008 (1962).
13. The essential question whether such restraints exceed the appellant's competitive needs cannot be answered, as the Government suggests simply by reference to the views of major automobile manufacturers that territorial limitations are unnecessary to ensure effective promotion and servicing for their products. See Hearings Before a Subcommittee of the House Committee on Interstate and Foreign Commerce on Automobile Marketing Legislation, 84th Cong., pp. 160, 248, 285, 323.
14. In an analogous case, brought under § 5 of the Federal Trade Commission Act, the Commission dismissed the complaint because of insufficient evidence that customer limitations had foreclosed meaningful competition. In the Matter of Roux Distributing Co., 55 F.T.C. 1386. The finding that non-contractual customer restrictions had a clearly anticompetitive effect in United States v. Klearflax Linen Looms, Inc., D.C., 63 F.Supp. 32, was one which could seemingly not have been made without a trial on the merits, even though the manufacturer involved held a position of virtual monopoly. See Note, Restricted Channels of Distribution Under the Sherman Act, 75 Harv.L.Rev. 795, 817-818 (1962).