United States v. Topco Associates

405 U.S. 596 (1972)


D is a cooperative association of small and medium-sized regional supermarket chains that operate stores in some 33 States. Each of the members operates independently. D serves as a purchasing agent and procures and distributes to the members more than 1,000 different food and related nonfood items, most of which are distributed under brand names owned by D. All of the stock in D is owned by the members. The board of directors is drawn from the members and is normally composed of high-ranking executive officers of member chains. D was founded for these smaller chains to obtain high-quality merchandise under private labels in order to compete more effectively with larger national and regional chains. By 1964, D's members had combined retail sales of more than $2 billion; by 1967, their sales totaled more than $2.3 billion, a figure exceeded by only three national grocery chains. D’s members were assigned territories so they would not compete with each other. New member had to be approved by a board of directors on an affirmative vote of 75 percent by existing members. If operations were to occur within 100 miles of an existing member, the vote had to be 85 percent. No member may sell Topco products outside the territory in which it is licensed. Most licenses are exclusive, and even those denominated 'coextensive' or 'non-exclusive' prove to be de facto exclusive. Should a member violate its license agreement and sell in areas other than those in which it is licensed, its membership can be terminated. P sued D under §1 of the Sherman Act. P alleging an illegal scheme of dividing markets to exclude competition. D answered the complaint as follows: 'Private label merchandising is a way of economic life in the food retailing industry, and exclusivity is the essence of a private label program; without exclusivity, a private label would not be private. Each national and large regional chain has its own exclusive private label products in addition to the nationally advertised brands which all chains sell. Each such chain relies upon the exclusivity of its own private label line to differentiate its private label products from those of its competitors and to attract and retain the repeat business and loyalty of consumers. Smaller retail grocery stores and chains are unable to compete effectively with the national and large regional chains without also offering their own exclusive private label products. 'The only feasible method by which Topco can procure private label products and assure the exclusivity thereof is through trademark licenses specifying the territory in which each member may sell such trademarked products.' The district court analyzed the situation under the Rule of Reason and found no violations. P appealed directly to the Supreme Court.