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United States v. Topco Assocs. - 405 U.S. 596

Rule:

The U.S. Supreme Court adopts a "rule of reason" analysis for determining whether most business combinations or contracts violate the prohibitions of the Sherman Act, 15 U.S.C.S. § 1. An analysis of the reasonableness of particular restraints includes consideration of the facts peculiar to the business in which the restraint is applied, the nature of the restraint and its effects, and the history of the restraint and the reasons for its adoption.

Facts:

The United States brought this injunction action charging a violation of § 1 of the Sherman Act by appellee, Topco, a cooperative association of about 25 small and medium-sized independent regional supermarket chains operating in 33 States. As its members' purchasing agent, Topco procures more than 1,000 different items, most of which have brand names owned by Topco. The Government charged that Topco, which had a scheme of dividing markets, violated the Sherman Act because it operates to prohibit competition in Topco-brand products among retail grocery chains, and also challenged Topco's restrictions on wholesaling. Topco argued that it needs territorial divisions to maintain its private-label program and to enable it to compete with the larger chains; that Topco could not exist if the territorial divisions were not exclusive; and that the restrictions on competition in Topco-brand sales enable members to meet larger chain competition. The District Court, agreeing with Topco, upheld the restrictive practices as reasonable and pro-competitive. The Government appealed.

Issue:

Does the reasonableness of Topco’s actions sufficient to dismiss the antitrust suit filed by the government?

Answer:

No.

Conclusion:

The United States Supreme Court reversed, holding that Topco scheme of allocating territories to minimize competition at the retail level is a horizontal restraint constituting a per se violation of § 1 of the Sherman Act. The Court concluded that the reasonableness of Topco's actions was immaterial and such a naked restraint of trade could not be tolerated whether it was well-intended or was allegedly developed to increase competition. The district court failed to make any determination as to whether there were per se horizontal territorial restraints and simply erred in applying a rule of reason to the restrictive practices involved.

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