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Law School Case Brief

Standard Oil Co. v. United States - 337 U.S. 293, 69 S. Ct. 1051 (1949)

Rule:

Tying agreements serve hardly any purpose beyond the suppression of competition. The justification most often advanced in their defense -- the protection of the good will of the manufacturer of the tying device -- fails in the usual situation because specification of the type and quality of the product to be used in connection with the tying device is protection enough. If the manufacturer's brand of the tied product is in fact superior to that of competitors, the buyer will presumably choose it anyway. The only situation, indeed, in which the protection of good will may necessitate the use of tying clauses is where specifications for a substitute would be so detailed that they could not practicably be supplied. In the usual case only the prospect of reducing competition would persuade a seller to adopt such a contract and only his control of the supply of the tying device, whether conferred by patent monopoly or otherwise obtained, could induce a buyer to enter one. The existence of market control of the tying device, therefore, affords a strong foundation for the presumption that it has been or probably will be used to limit competition in the tied product also.

Facts:

Standard Oil Company of California (Standard Oil) appealed a decree enjoining it and its wholly-owned subsidiary, Standard Stations, Inc., from enforcing or entering into exclusive supply contracts with any independent dealer in petroleum products and automobile accessories. The use of such contracts was successfully assailed by the United States as violative of § 1 of the Sherman Act, 15 U.S.C.S. § 1 and § 3 of the Clayton Act, 15 U.S.C.S. § 14.

Issue:

Did the trial court err in issuing a decree that enjoined Standard Oil and its subsidiary from enforcing or entering into exclusive supply contracts with any independent dealer in petroleum products and automobile accessories?

Answer:

No

Conclusion:

The United States Supreme Court affirmed the injunctive relief granted. The Court rejected Standard Oil’s contention that the requirement of § 14, that the effect of the contracts may have been to substantially lessen competition, had to be established by proof that competitive activity had actually diminished or probably would. Rather, the Court ruled that the qualifying clause of § 14 was satisfied by proof that competition had been foreclosed in a substantial share of the line of commerce affected by Standard Oil’s contracts. Furthermore, the Court rejected Standard Oil’s contention that sales of products manufactured within California and sold to California dealers did not affect interstate commerce. The Court ruled that the contracts with in-state dealers impeded interstate as well as intrastate commerce by reducing competition from out-of-state and other in-state suppliers.

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