United States v. Arnold, Schwinn & Co. - 388 U.S. 365 (1967)
U.S. Supreme Court
United States v. Arnold, Schwinn & Co., 388 U.S. 365 (1967)
United States v. Arnold, Schwinn & Co.
Argued April 20, 1967
Decided June 12, 1967
388 U.S. 365
This is a civil antitrust suit under § 1 of the Sherman Act in which appellees were charged by the Government with a continuing conspiracy, with others, to fix prices, to allocate exclusive territories to wholesalers and jobbers, and to confine merchandise to franchised dealers. Appellees are Arnold, Schwinn & Co. (Schwinn), a leading bicycle manufacturer, and an association of distributors handling Schwinn products. In 1951, Schwinn had the largest share, 22.%, of the U.S. bicycle market. By 1961, its share had fallen to 12.8%, although dollar and unit sales had risen. The market leader, with 22.8% in 1961, which had increased its share from 11.6% in 1951, sells mainly to mass merchandisers. Schwinn sells to (1) distributors, (2) retailers by means of consignment or agency arrangements with distributors, and (3) retailers under the Schwinn Plan, which involves direct shipment to retailers with Schwinn invoicing the dealers, extending credit, and paying a commission to the distributor taking the order. Schwinn assigned specific territories to each of its wholesale distributors who were instructed to sell only to franchised dealers in their respective territories. The District Court rejected the charge of price-fixing, held that the Schwinn franchising system was fair and reasonable, but that the territorial limitation was unlawful per se as respects products sold by Schwinn to its distributors. The United States did not appeal from the rejection of the price-fixing charge, and appellees did not appeal from the order invalidating restraints on resale by distributors who purchase products from Schwinn. The Government requests that the limitations on distribution where the distributor acts as agent or consignee of Schwinn or on the Schwinn Plan be considered under the "rule of reason," and that they be held to constitute an unreasonable restraint of trade.
1. The promotion of Schwinn's self-interest alone does not invoke the rule of reason to immunize otherwise illegal conduct.
"It is only if the conduct is not unlawful in its impact in the marketplace or if the self-interest coincides with the statutory concern with
the preservation and promotion of competition that protection is achieved."
P. 388 U. S. 375.
2. It is
"illogical and inconsistent to forbid territorial limitations on resales by distributors where the distributor owns the goods . . . and, at the same time, to exonerate arrangements which require distributors to confine resales of the goods they have bought to 'franchised' retailers."
Pp. 388 U. S. 377-378.
(a) The decree should be revised on remand to
"enjoin any limitation upon the freedom of distributors to dispose of the Schwinn products, which they have bought from Schwinn, where and to whomever they choose."
P. 388 U. S. 378.
(b) Since this principle is equally applicable to sales to retailers,
"the decree should similarly enjoin the making of any sales to retailers upon any condition, agreement or understanding limiting the retailer's freedom as to where and to whom it will resell the products."
P. 388 U. S. 378.
"Where the manufacturer retains title, dominion, and risk with respect to the product and the position and function of the dealer in question are, in fact, indistinguishable from that of an agent or salesman of the manufacturer, it is only if the impact of the confinement is 'unreasonably' restrictive of competition that a violation of § 1"
of the Sherman Act results from such confinement, absent culpable price-fixing. Pp. 388 U. S. 380-381.
(a) While a manufacturer's adoption "of an agency or consignment pattern and the Schwinn type of restrictive distribution system" would not be
"justified in any and all circumstances by the presence of the competition of mass merchandisers and by the demonstrated need of the franchise system to meet that competition,"
in the absence of price-fixing and with an adequate source of alternative products to meet the needs of the unfranchised, the vertically imposed distribution restraints may not be held to be per se violations of the Sherman Act. P. 388 U. S. 381.
(b) As long as Schwinn retains all indicia of ownership and the dealers' activities are indistinguishable from those of agents or salesmen, Schwinn's franchising of retailers and confinement of retail sales to them do not constitute an "unreasonable" restraint of trade. P. 388 U. S. 381.
237 F.Supp. 323, reversed and remanded.