PLI - 42 Annual A/L - May 2001



From PLI’s Course Handbook

50th Annual Antitrust Law Institute

#18840

7

Tying, exclusive dealing, and franchising issues

Arthur I. Cantor

Wiley Rein LLP

The author wishes to acknowledge the assistance of Peter J Klarfeld in preparation of this paper

I. TYING ARRANGEMENTS 1

A. The Definition Of A Tie 1

B. The Policy Against Tying 1

C. Tying Under The Sherman And Clayton Acts 2

D. The Per Se Rule 3

E. The Rule Of Reason 5

F. The Department Of Justice Position 7

G. Is There Really A Per Se Rule? 8

H. The Requirement Of Two Separate Products Or Services 11

I. The Requirement Of Conditioning/Forcing/Coercion 28

J. The Requirement Of Market Power 37

K. The Requirement Of An Effect In The Tied Product Market 61

L. The Requirement Of A Financial Interest 65

M. Injury 69

N. The Business Justification Defense 74

O. Full Line Forcing 80

P. Business Tort And Unfair Competition Claims 84

II. EXCLUSIVE DEALING ARRANGEMENTS 85

A. Nature Of The Arrangement 85

B. Competitive Effects 86

C. The Rule Of Reason Standard 87

D. Rule of Reason Analysis 89

E. An Application Of The Rule Of Reason Analysis 96

F. Enforcement Actions By The Antitrust Division 97

G. Exclusive Dealing In The Franchise Context 99

II. EXCLUSIVE DEALING ARRANGEMENTS

A. Nature Of The Arrangement

1. Exclusive dealing arrangements are agreements in which a buyer agrees to purchase certain goods or services only from a particular seller for a given period. Exclusive dealing agreements include requirement contracts and output contracts. Under a requirements contract, the buyer agrees to purchase from a particular seller all or substantially all of its needs of a certain product for a specified period of time. Under an output contract, the seller is obligated to sell to a particular buyer all of its output of a certain product for a specified period of time.

2. An agreement by the buyer to deal exclusively in the seller’s products may be either expressly stated in a contract or an implied commitment inferable from surrounding circumstances. Barr Laboratories, Inc. v. Abbott Laboratories, Inc., 1989-1 Trade Cas. (CCH) ¶ 68,647 (D.N.J. 1989). Actionable foreclosure may also arise from the terms on which the seller deals, even without an exclusive dealing requirement. However, although “Section 1 claims that allege only de facto exclusive dealing may be viable,” they will fail absent evidence proving that the defendant’s program “was in any way exclusive,” that there was significant market foreclosure, or that significant barriers to entry existed. Concord Boat Corp. v. Brunswick Corp., 207 F.3d 1039, 1058-60 (8th Cir.), cert. denied, 531 U.S. 979 (2000). There is no exclusive dealing agreement if the buyer makes a unilateral decision to deal only in the goods of one seller, or where the seller establishes an exclusive dealing policy but does not coerce compliance by the buyer. United Air Lines, Inc. v. Austin Travel Corp., 681 F. Supp. 176 (S.D.N.Y. 1988), aff’d, 867 F.2d 737 (2d Cir. 1989).

3. To be actionable, the agreement must be between parties capable of conspiring with each other. Thus, exclusive dealing agreements are not actionable if they exist between a corporation and its wholly-owned subsidiary, Odishelidze v. Aetna Life & Casualty Co., 853 F.2d 21 (1st Cir. 1988), or between sister corporations, Advanced Health-Care Services, Inc. v. Radford Community Hospital, 910 F.2d 139 (4th Cir. 1990).

4. Exclusive dealing arrangements are typically challenged under Section 1 of the Sherman Act and Section 3 of the Clayton Act, and we deal here with the standards applied under those statutes. It should be noted, however, that an exclusive dealing arrangement found lawful under those provisions may nevertheless support a finding of liability for other antitrust offenses. See, e.g., LePage’s, Inc. v. 3M Co., 324 F.3d 141, 157 n. 10 (3d Cir. 2003)(en banc), cert. denied, 124 S.Ct. 2932 (2004)(“The jury’s finding against LePage’s on its exclusive dealing claim under § 1 of the Sherman Act and § 3 of the Clayton Act does not preclude the application of evidence of 3M’s exclusive dealing to support LePage’s § 2 [monopolization] claim.”) This principle was applied in U.S. v. Dentsply Int’l, Inc., 399 F.3d 181, 185-86, 197 (3d Cir. 2005), cert. denied, 126 S. Ct. 1023 (2006).

B. Competitive Effects

Exclusive dealing arrangements foreclose buyers from purchasing goods from suppliers of their choice and thereby foreclose other suppliers’ access to outlets for their products. However, exclusive dealing arrangements often are entered into for procompetitive reasons, such as the enhancement of interbrand competition. See In re Super Premium Ice Cream Distribution Antitrust Litigation, 691 F. Supp. 1262 (N.D. Cal. 1988) (interbrand competition, not intrabrand competition, is the primary focus in assessing competitive effects of exclusive dealing arrangement), aff’d sub nom. Haagen-Dazs Co., Inc. v. Double Rainbow Gourmet Ice Creams, Inc., 895 F.2d 1417 (9th Cir. 1990). In Standard Oil Co. v. United States, 337 U.S. 293, 306 (1949) (“Standard Stations”), the Supreme Court identified several procompetitive reasons for exclusive dealing arrangements: “In the case of the buyer, they may assure supply, afford protection against rises in price, enable long-term planning on the basis of known costs, and obviate the expense and risk of storage in the quantity necessary for a commodity having fluctuating demand.” From the seller’s perspective, output contracts may offer protection against price fluctuations and provide a more predictable market. Id. at 306-07; see Roland Machinery Co. v. Dresser Industries, Inc., 749 F.2d 380, 384-85 (7th Cir. 1984) (elimination of divided loyalties among distributors; elimination of free riding); Sewell Plastics, Inc. v. The Coca-Cola Co., 720 F. Supp. 1196 (W.D.N.C. 1989) (exclusive contracts are of particular significance to a newcomer to the market, who can thereby determine what amount of capital expenditures is justified), aff’d without published opinion, 912 F.2d 463 (4th Cir. 1990) (per curiam) (reported at 1990-2 Trade Cas. (CCH) ¶ 69,165), cert. denied, 111 S.Ct. 1019 (1991); In re Super Premium Ice Cream Distribution Antitrust Litigation, 691 F. Supp. 1262 (N.D. Cal. 1988), aff’d sub nom. Haagen-Dazs Co., Inc. v. Double Rainbow Gourmet Ice Cream, Inc., 895 F.2d 1417 (9th Cir. 1990) (exclusive dealing prevents free riding and promotes distributor commitment to the product).

C. The Rule Of Reason Standard

Because of the potential for procompetitive benefits stemming from exclusive dealing arrangements, their legality is judged under the rule of reason. Tampa Electric Co. v. Nashville Coal Co., 365 U.S. 320 (1961). Exclusive dealing arrangements are considered unreasonable only when the portion of the market foreclosed to other sellers or buyers is substantial enough to adversely affect competition. The courts have applied two tests to determine when these arrangements have a substantial impact on the market.

1. In the Supreme Court’s 1949 Standard Stations decision, the Court adopted a rule that came to be known as the “quantitative substantiality” test. Under this test, the focus is on the percentage of the relevant market foreclosed, with no need to show actual or potential economic effects in the market. Standard Stations, 337 U.S. at 304, 313-14.

2. In Tampa Electric, the Court held that it would consider not only the percentage of the market foreclosed by an exclusive dealing arrangement, but that it also would “weigh the probable effect of the contract on the relevant area of effective competition . . . and the probable immediate and future effects which pre-emption of that share of the market might have on effective competition therein.” Tampa Electric, 365 U.S. at 328-29. Under this broader rule of reason standard, called the “qualitative substantiality” test, an exclusive dealing arrangement is unlawful only if the probable effect of the arrangement is to substantially lessen competition in the relevant market. See, e.g., Roland Machinery Co. v. Dresser Industries, Inc., 749 F.2d 380, 393-96 (7th Cir. 1984). In recent years, this standard generally has been adopted by the lower courts as economic analysis has increasingly permeated interpretation of the antitrust laws. See U.S. Healthcare, Inc. v. Healthsource, Inc., 986 F.2d 589 (1st Cir. 1993); Ryko Manufacturing Co. v. Eden Services, 823 F.2d 1215 (8th Cir. 1987), cert. denied, 484 U.S. 1026 (1988); Interface Group, Inc. v. Massachusetts Port Authority, 816 F.2d 9 (1st Cir. 1987); U.S. Anchor Mfg., Inc. v. Rule Industries, 717 F. Supp. 1565 (N.D. Ga. 1989); Barr Laboratories, Inc. v. Abbott Laboratories, Inc., 1989-1 Trade Cas. (CCH) ¶ 68,647 (D.N.J. 1989).

3. The Jefferson Parish majority did not evaluate the contract there at issue as an exclusive dealing arrangement. However, the concurring opinion, after finding a single product under its tying analysis, treated the five-year exclusive contract between the hospital and a group of anesthesiologists as an exclusive dealing arrangement. Jefferson Parish, 466 U.S. at 44-46 (O’Connor, J., concurring). The concurring Justices stated: “In determining whether an exclusive-dealing contract is unreasonable, the proper focus is on the structure of the market for the products or services in question — the number of sellers and buyers in the market, the volume of their business, and the ease with which buyers and sellers can redirect their purchases or sales to others. Exclusive dealing is an unreasonable restraint on trade only when a significant fraction of buyers or sellers are frozen out of a market by the exclusive deal.” Id. at 45. The opinion concluded that the exclusive dealing arrangement under consideration, which foreclosed 30 percent of the market, had to be sustained because there was no showing that anyone had been frozen out of the market.

D. Rule of Reason Analysis

Assessing anticompetitive effects requires that relevant product and geographic markets be defined. See Morgan, Strand, Wheeler & Biggs v. Radiology, Ltd., 924 F.2d 1484 (9th Cir. 1991) (affirming summary judgment against plaintiff which failed to adduce sufficient evidence to define either a relevant product or relevant geographic market). Once the relevant market is identified, courts look to a variety of factors in evaluating the reasonableness of exclusive dealing arrangements:

1. Percentage of Market Foreclosed. Historically, exclusive dealing arrangements have had a safe harbor when less than 10 percent of a relevant market has been foreclosed. Arrangements foreclosing over 30 percent have been presumptively unreasonable, with foreclosure of between 10 and 30 percent in a borderline range where the validity of the arrangement depends upon other factors. See FTC v. Motion Picture Advertising Service Co., 344 U.S. 392 (1953) (foreclosure of 40 percent of outlets unlawful); Satellite Television & Associated Resources, Inc. v. Contractual Cablevision, Inc., 714 F.2d 351 (4th Cir. 1983), cert. denied, 465 U.S. 1027 (1984) (foreclosure of 8 percent of households lawful). Compare Twin City Sportservice, Inc. v. Charles O. Finley & Co., 676 F.2d 1291 (9th Cir.), cert. denied, 459 U.S. 1009 (1982) (long-term foreclosure of 24 percent unlawful) with American Motor Inns, Inc. v. Holiday Inns, Inc., 521 F.2d 1230 (3d Cir. 1975) (foreclosure of 14.7 percent not necessarily unlawful if other factors indicate no substantial impact on interbrand competition). Increasingly, this factor is being given less weight in light of the decreased reliance on quantitative factors. See, e.g., Ryko Manufacturing Co. v. Eden Services, 823 F.2d 1215 (8th Cir. 1987), cert. denied, 484 U.S. 1026 (1988). Accordingly, it is becoming common for market foreclosure in excess of 30 percent to be considered acceptable. See Omega Environmental, Inc. v. Gilbarco, Inc., 127 F.3d 1157 (9th Cir. 1997), cert. denied, 119 S.Ct. 46 (1998) (foreclosure of 38 percent found lawful); Kuck v. Bensen, 647 F. Supp. 743 (D. Mo. 1986) (foreclosure of 37 percent lawful); Gonzalez v. Insignares, 1985-2 Trade Cas. (CCH) ¶ 66,701 (N.D. Ga. 1985) (foreclosure of 40 percent lawful). But see Kohler Co. v. Briggs & Stratton Corp., 1986-1 Trade Cas. (CCH) ¶ 67,047 (E.D. Wis. 1986) (preliminary injunction entered against exclusive dealing requirement imposed by manufacturer with 62 percent market share). Of course, critical to the calculation of the degree of market foreclosure is the market definition. Courts have rejected artificial market definitions tendered to show a large market share. See Queen City Pizza, Inc. v. Domino’s Pizza, Inc., 124 F.3d 430 (1997) (rejecting plaintiff’s proposed market definition and affirming dismissal of exclusive dealing claims).

2. Barriers To Entry. High entry barriers make it more likely that existing firms will exploit their power to raise price above the competitive level. Interface Group, Inc. v. Massachusetts Port Authority, 816 F.2d 9 (1st Cir. 1987); Minnesota Mining and Manufacturing Co. v. Appleton Papers, Inc., --- F. Supp. ----, 1999 WL 74196 (D. Minn. Feb. 16, 1999); Beltone Electronics Corp., 100 F.T.C. 68 (1982). On the other hand, a recent competitive entry into the market is evidence that the defendant’s exclusive arrangements are not a significant barrier to entry. See Omega Environmental, Inc. v. Gilbarco, Inc., 127 F.3d 1157 (9th Cir. 1997), cert. denied, 119 S.Ct 46 (1998); CDC Technologies, Inc., v. Idexx Laboratories, Inc., 7 F. Supp. 2d 119 (D.Conn. 1998).

3. Term Of The Agreement. The shorter the duration of the foreclosure, the less likely it will be found to be unreasonable. Compare Twin City Sportservice, Inc. v. Charles O. Finley & Co., 676 F.2d 1291 (9th Cir.), cert. denied, 459 U.S. 1009 (1982) (foreclosure for 10 years unlawful), with Barry Wright Corp. v. ITT Grinnell Corp., 724 F.2d 227 (1st Cir. 1983) (foreclosure for 2 years lawful). However, recent enforcement actions indicate that even a three-to-five year term may be unreasonable if it is imposed by a firm with significant market power. See Section II.F. infra.

4. Ability To Terminate Agreement. If the parties can terminate the agreement without cause on short notice, it is unlikely that the agreement will be deemed unreasonable. See Omega Environmental, Inc. v. Gilbarco, Inc., 127 F.3d 1157 (9th Cir. 1997), cert. denied, 119 S.Ct. 46 (1998) (agreements terminable upon 60 days’ notice); Paddock Publications, Inc. v. Chicago Tribune Co., 103 F.3d 42 (7th Cir. 1996), cert. denied, 117 S.Ct. 2435 (1997) (contracts terminable at will or on 30 days’ to one year’s notice); U.S. Healthcare, Inc. v. Healthsource, Inc. 986 F.2d 589 (1st Cir. 1993) (exclusivity clause terminable on 30 days or 180 days notice); Roland Machinery Co. v. Dresser Industries, Inc., 749 F.2d 380, 394-95 (7th Cir. 1984) (agreement terminable in less than one year was “presumptively lawful”); Satellite Financial Planning v. First National Bank, 633 F. Supp. 386, 397 (D. Del. 1986) (terminable on 180 days’ notice); Beltone Electronics Corp., 100 F.T.C. 68, 210 (1982) (terminable on 30 days’ notice); see also Maxim Integrated Products, Inc. v. Analog Devices, Inc., 79 F.3d 1153 (table), 1996 WL 117425 (9th Cir. March 15, 1996)(fact that contracts were terminable without penalty “strongly favors a finding of no unreasonable restraint on competition”). But see United States v. Greyhound Lines, Inc., 60 Fed. Reg. 53,202 (Oct. 12, 1995), discussed in Section II.F. infra; Minnesota Mining and Manufacturing Co. v. Appleton Papers, Inc., --- F. Supp. ---, 1999 WL 74196 (D. Minn. Feb. 16, 1999)(incentives in the agreements had practical effect of tying up a merchant’s inventory and making it difficult to switch suppliers).

5. Other Distribution Channels. The availability of alternate distribution channels enabling the seller’s competitors to reach the market reduces the likelihood that exclusive dealing will have anticompetitive effects. See Omega Environmental, Inc. v. Gilbarco, Inc., 127 F.3d 1157 (9th Cir. 1997), cert. denied, 119 S.Ct. 46 (1998), discussed in Section II.E. infra; CDC Technologies, Inc. v. Idexx Laboratories, Inc., 7 F. Supp. 2d 119 (D.Conn. 1998); In re Super Premium Ice Cream Distribution Antitrust Litigation, 691 F. Supp. 1262 (N.D. Cal. 1988), aff’d sub nom. Haagen-Dazs Co., Inc. v. Double Rainbow Gourmet Ice Cream, Inc., 895 F.2d 1417 (9th Cir. 1990); Refrigeration Engineering Corp. v. Frick Co., 370 F. Supp. 702 (W.D. Tex. 1974); Bowen v. New York News, Inc., 366 F. Supp. 651 (S.D.N.Y. 1973), aff’d in pertinent part, 522 F.2d 1242 (2d Cir. 1975), cert. denied, 425 U.S. 936 (1976). In Seagood Trading Corp. v. Jerrico, Inc., 924 F.2d 1555 (11th Cir. 1991), the court upheld as lawful a distributor’s “unilateral refusal” to distribute product for competitors of the distributor’s supplier. Assuming for purposes of the decision that the refusal was the product of an agreement between the distributor and its supplier, the court found that the complaining suppliers had ample access to other distribution channels but wanted instead to take advantage of the economies of scale and efficient practices which the defendants had effected through their arrangement. See also the discussion of the Microsoft litigation at Section II.F. below.

6. Nature Of Purchaser. If the purchaser is an end-user, exclusive dealing directly forecloses competitors of the seller from the market share represented by the end-user’s purchases. If the purchaser is a reseller, the actual degree of foreclosure will depend upon variables such as the degree of consumer loyalty to the reseller. See Steuer, Exclusive Dealing in Distribution, 69 Cornell L. Rev. 101 (1983).

7. Nature Of Product. If the product subject to an exclusive dealing arrangement is an expensive, durable product, where end-users compare brands and prices before making a purchase decision, foreclosure at the retail level is not as likely to restrict competition as if the product is one in which shopping around is less likely. Id; see United States v. J.I. Case Co., 101 F. Supp. 856 (D. Minn. 1951).

8. Use Of Exclusive Dealing By Competitors. Exclusive dealing tends to be viewed less favorably when it is prevalent in an industry. See Tampa Electric Co. v. Nashville Coal Co., 365 U.S. 320, 334 (1961); Standard Stations, 337 U.S. 293, 309, 314 (1949). But cf. Joyce Beverages, Inc. v. Royal Crown Cola Co., 555 F. Supp. 271, 275 (S.D.N.Y. 1983) (exclusive dealing may promote interbrand competition where all suppliers in industry engage in that practice); United Air Lines, Inc. v. Austin Travel Corp., 681 F. Supp. 176 (S.D.N.Y. 1988), aff’d, 867 F.2d 737 (2d Cir. 1989) (exclusive dealing agreement lawful where foreclosure is minimal and other major competitors have similar 5-year contracts).

9. Actual Competitive Impact. The competitive health of a market in which exclusive dealing occurs is probative of whether exclusive dealing arrangements are reasonable. U.S. Healthcare, Inc. v. Healthsource, Inc., 986 F.2d 589 (1st Cir. 1993) (attack on exclusivity clause requires proof of “probable immediate and future effects”); Joyce Beverages of New York, Inc. v. Royal Crown Cola Co., 555 F. Supp. 271 (S.D.N.Y. 1983) (exclusive dealing arrangement lawful when imposed in market characterized by fierce interbrand competition); see Ralph C. Wilson Industries, Inc. v. Chronicle Broadcasting Co., 794 F.2d 1359 (9th Cir. 1986); Westman Commission Co. v. Hobart Int’l, Inc., 796 F.2d 1216 (10th Cir. 1986), cert. denied, 486 U.S. 1005 (1988); Taggart v. Rutledge, 657 F. Supp. 1420 (D. Mont. 1987), aff’d, 852 F.2d 1290 (9th Cir. 1988) (no evidence that competition was not flourishing or that new business was foreclosed from entering market).

10. Justifications. Business justifications for exclusive dealing arrangements often have been considered under the rule of reason. See Tampa Electric Co. v. Nashville Coal Co., 365 U.S. 320 (1961); Ryko Manufacturing Co. v. Eden Services, 823 F.2d 1215 (8th Cir. 1987), cert. denied, 484 U.S. 1026 (1988); Roland Machinery Co. v. Dresser Industries, Inc., 749 F.2d 380 (7th Cir. 1984).

11. Seller’s Market Power. An increasing number of courts are unwilling to find vertical non-price restraints — including exclusive dealing arrangements — to be unlawful under the rule of reason unless the seller possesses market power, on the grounds that a seller who lacks market power is unable to cause anticompetitive effects in that market. See, e.g., Assam Drug Co. v. Miller Brewing Co., 798 F.2d 311 (8th Cir. 1986); Graphic Products Distributors, Inc. v. Itek Corp., 717 F.2d 1560 (11th Cir. 1983); Health First, Inc. v. Bronson Methodist Hospital, 1990-2 Trade Cas. (CCH) ¶ 69,200 (N.D. Mich. 1990); James M. King & Associates, Inc. v. G.D. Van Wagenen Co., 717 F. Supp. 667 (D. Minn. 1989); Winter Hill Frozen Foods & Services, Inc. v. The Haagen Dazs Co., Inc., 691 F. Supp. 539 (D. Mass 1988). Contra: Abrams v. Anheuser-Busch, Inc., Bus. Fran. Guide (CCH) ¶ 9032 (E.D.N.Y. 1987), review denied, Bus. Fran. Guide (CCH) ¶ 9032 (E.D.N.Y. 1988) (no need to show market power to state restraint of trade claim under rule of reason).

E. An Application Of The Rule Of Reason Analysis

Although it was the subject of much discussion, the first treble damages verdict won by a private plaintiff on an exclusive dealing claim in nearly 50 years was short-lived. In Omega Environmental, Inc. v. Gilbarco, Inc., No. C94-8872, 1995 WL 819474 (W.D.Wash. Dec. 4, 1995), the jury awarded $9 million in actual damages against the nation’s leading manufacturer of petroleum dispensing equipment. The defendant allegedly had more than a 50 percent market share in this highly concentrated market, selling one-third of its products directly to end-users and the remainder through its exclusive contracts with 120 of the 500 distributors in the industry. The defendant’s distributors allegedly had more than a 40 percent market share in their respective geographic areas. The plaintiff, a new entrant in the industry, sought to establish a national service and distribution network by acquiring existing firms. The defendant had terminated its exclusive contracts with two distributors after they were acquired by the plaintiff, which also owned distributors carrying the products of other manufacturers.

The United States Court of Appeals for the Ninth Circuit reversed the district court’s denial of summary judgment to the defendant on the exclusive dealing claims, vacated the jury verdict, and remanded. Omega Environmental, Inc. v. Gilbarco, Inc., 127 F.3d 1157 (9th Cir. 1997), cert. denied, 119 S.Ct. 46 (1998). The Court of Appeals held that although the jury could reasonably have concluded that the defendant’s exclusive distributor policy foreclosed 38 percent of the relevant market, the number “significantly overstates the size of the foreclosure and its likely anticompetitive effects.” 127 F.3d at 1162. The court emphasized the existence of alternative channels of distribution, including direct sales to end-users and the opportunity for service contractors, who had non-exclusive contracts, to become authorized distributors of other manufacturers. Id. at 1163. The court also noted the short duration (one year) and easy terminability (upon 60 days’ notice) of the contracts, concluding that the plaintiff was free to compete for the services of existing distributors. Id. at 1164. Finally, the court cited the actual entry and expansion of another manufacturer into the market as evidence that the defendant’s exclusivity policy was not a significant barrier to entry. Id.

F. Enforcement Actions By The Antitrust Division

The obstacles faced by private plaintiffs in bringing exclusive dealing claims should not give firms a false sense of security. Challenges may also arise from another source. Since 1994, the Antitrust Division of the Department of Justice has brought several enforcement actions involving exclusive dealing. The Division’s actions and the resulting consent decrees signal that even moderate-term exclusive dealing arrangements may be viewed as anti-competitive if they are imposed by a company possessing significant market power. Moreover, a short notice of termination period will not save a contract if other provisions or the structure of the industry render the termination option illusory.

In United States v. Microsoft Corp., No. 94-1564, 1995 WL 505998 (D.D.C. Aug. 21, 1995), alleging that Microsoft had monopoly power, the Division challenged Microsoft’s practice of requiring computer manufacturers to pay a royalty for each computer sold by the manufacturer whether or not the computer included a Microsoft operating system. The license agreements in question had a duration of three years or more, which often equaled or exceeded the product’s life cycle. Moreover, the contracts contained “minimum commitments” provisions requiring manufacturers to purchase large numbers of operating systems from Microsoft; unused balances were to be credited to future years. The consent decree limits the duration of Microsoft’s licensing agreements to one year, with an option on the part of the manufacturer to renew for an additional year, and prohibits “minimum commitments” as well as pricing not based on the number of operating systems sold. The consent decree was the subject of a contempt proceeding with respect to its anti-tying provisions. See U.S. v. Microsoft Corp., 147 F.3d 935 (D.C. Cir. 1998). In a separate subsequent case, the district court ruled that the government had failed to prove unlawful exclusive dealing with respect to Microsoft’s marketing of its Internet browser; while rivals may have been denied “the most efficient channels,” they ultimately did have access to users. U.S. v. Microsoft Corp., 87 F. Supp. 2d 30, 51-54 (D.D.C. 2000), affirmed in part, reversed in part, and remanded in part, 253 F.3d 34 (D.C. Cir.) (per curiam), cert. denied, 122 S.Ct. 350 (2001).

In United States v. Greyhound Lines, Inc., No. 95-1852, 1996 WL 179570 (D.D.C. Feb. 27, 1996), Greyhound’s standard terminal license agreement with its tenants, which was terminable on 30 days’ notice, prohibited the tenants from selling tickets within 25 miles of the terminal and from accepting tickets of other bus lines sold within that area, which precluded the tenants from expanding into alternative locations such as train stations and airports. The consent order requires Greyhound, described as “the only nationwide intercity bus company,” to delete the restriction in existing contracts and seeks to prevent similar restrictions in future contracts.

The three-year exclusive contracts challenged by the Division in United States v. Browning-Ferris Industries of Iowa, Inc., No. 96-0297, 1996 WL 426829 (D.D.C. Mar. 5, 1996) and United States v. Waste Management of Georgia, Inc., No. CV496-35, 1996 WL 426830 (S.D. Ga. May 20, 1996) renewed automatically unless the customer gave written notice of termination at least 60 days before the end of the initial term. If the customer terminated the contract at any other time, the company was entitled to six times the most recent monthly charge as liquidated damages. Both companies had a market share greater than 60 percent in their respective geographic areas. The consent decrees in each case limit the initial term to two years or less, prohibit renewal terms longer than one year, require that all contracts be terminable on 30 days’ notice, and severely restrict the amount of liquidated damages the company may charge.

G. Exclusive Dealing In The Franchise Context

1. Franchise agreements often contain provisions limiting the franchisee’s right to engage in competitive activities during and after the term of the franchise. Covenants against competing during the term of the franchise (“in-term” covenants against competition) can be analyzed either as restrictive covenants or exclusive dealing arrangements.

2. Whether analyzed as restrictive covenants or exclusive dealing arrangements, in-term covenants against competition are analyzed under the rule of reason. See Ungar v. Dunkin’ Donuts of America, 531 F.2d 1211 (3d Cir.), cert. denied, 429 U.S. 823 (1976); Capital Temporaries, Inc. v. Olsten Corp., 506 F.2d 658 (2d Cir. 1974); Interstate Automatic Transmission Co. v. W.H. McAlpine Co., 1982-1 Trade Cas. (CCH) ¶ 64,538 (N.D. Ohio 1981).

3. Courts have generally been quick to recognize the important business considerations served by non-competition clauses in franchise agreements, and have generally found them to be enforceable under the antitrust laws. See, e.g., Capital Temporaries, supra; Postal Instant Press v. Jackson, 658 F. Supp. 739 (D. Colo. 1987); Joyce Beverages of New York, Inc. v. Royal Crown Cola Co., 555 F. Supp. 271 (S.D.N.Y. 1983).

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