Continental T.v., Inc. v. Gte Sylvania, Inc.

433 U.S. 36 (1977)

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Nature of the Case

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Facts

D manufactures and sells television sets. D first sold its televisions to independent or company-owned distributors who in turn resold to a large and diverse group of retailers. In 1962, D adopted the franchise plan challenged here. D began to sell its televisions directly to a smaller and more select group of franchised retailers. A franchised retailer could resell D products only from authorized locations. D surmised that franchised retailers would reduce competition and incentivize retailers to be more aggressive and competent in order to maintain their franchises. D limited the number of franchises granted for any given area and required each franchisee to sell his D products only from the location or locations at which he was franchised. D retained sole discretion to increase the number of retailers in an area in light of the success or failure of existing retailers in developing their market. By 1965, Sylvania's share of national television sales had increased dramatically wherein D was ranked as the Nation's eighth largest manufacturer of color television sets. Dissatisfied with its sales in the city of San Francisco, D decided in the spring of 1965 to franchise Young Brothers, an established San Francisco retailer of televisions, as an additional San Francisco retailer. The new franchise was about a mile from P. P claimed, and D ignored them. P canceled a large D order and placed a large order with Phillips, one of D's competitors. Things went south very quickly, and after more disagreements, P withheld payments owed to D and D canceled P’s credit line. P withheld all payments owed to John P. Maguire & Co., Inc. (Maguire), the finance company that handled the credit arrangements between D and its retailers. Shortly thereafter, D terminated P's franchises, and Maguire filed this action. P counterclaimed where it alleged that D’s franchise plan was a violation of § 1. D requested the District Court to instruct the jury that its location restriction was illegal only if it unreasonably restrained or suppressed competition. The District Court rejected the proffered instruction. The jury found that D had engaged 'in a contract, combination or conspiracy in restraint of trade in violation of the antitrust laws with respect to location restrictions alone,' and assessed P's damages at $591,505, which was trebled to $1,774,515. D appealed and applied the rule of reason instead of a per se rule. The appellate court, applying the rule of reason to the vertical restrictions involved, held in favor of D. P appealed.