Antitrust -- 2016

McWane, Inc. v. FTC   (U.S. Supreme Court)

Antitrust legal standards that apply to exclusive dealing arrangements

Manufacturers often enter into exclusive-dealing agreements with distributors, and the courts have generally considered them to be legitimate business decisions. However, the antitrust laws prohibit any contract "in restraint of trade," without providing any guidance on what that means. Every contract restrains trade to some extent, but banning contracts was not the intent of the Sherman Act. Consequently, the courts have had to create a large body of law to define what is a reasonable contract. These interpretations are critical to business planning, as violations are subject to treble damages and attorneys' fees.

This case involves an announcement by a manufacturer of ductile iron pipe fittings that it might temporarily suspend its traditional 8% rebate to any distributors who sold products from other manufacturers. Despite the announcement, a key competitor was able to enter the market and gain almost a 10% share. Nevertheless, the Federal Trade Commission sued. Ultimately, the a federal appeals court left standing an FTC decision that the rebate policy amounted to an "unlawful exclusive dealing policy." McWane appealed to the Supreme Court.

The NAM filed an amicus brief urging the Court to review the case. We highlighted the importance of exclusive dealing arrangements and their pro-competitive traits, including (1) providing stability and the ability for long-term planning, (2) lower prices, (3) brand presentation, (4) an inexpensive alternative to vertical integration, and other efficiencies.

We also outlined a variety of questions raised by this case that deserve clarification from the Court. Confusion has reigned in the lower courts on many of these issues, including: how to weigh factors such as market power, the duration of the arrangement, pro-competitive effects, harm to consumers or competition, and who bears the burden of proof. The Supreme Court has not weighed in on exclusivity contracts since 1961, and it is time for it to provide further guidance to the lower courts in this area.

Unfortunately, the Court declined to hear this appeal.

Related Documents:
NAM amicus brief  (December 30, 2015)


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