Continental T.V., Inc. v. GTE Sylvania Inc.
Citation and Court
433 U.S. 36 (1977), Supreme Court of the United States
Facts
Sylvania, a television manufacturer, adopted a franchise plan that limited the number of retailers in any given area and required retailers to sell only from specified locations. Continental, a franchised retailer, was refused permission to open a new store in Sacramento and subsequently lost its franchise. Continental sued claiming the location restrictions violated § 1 of the Sherman Act as per se illegal vertical restraints.
Issue
Whether vertical non-price restraints (specifically territorial and location restrictions imposed by a manufacturer on its distributors) should be judged under the per se rule or the rule of reason under § 1 of the Sherman Act.
Holding
Vertical non-price restraints are not per se illegal under the Sherman Act; they are subject to the rule of reason analysis, overruling United States v. Arnold, Schwinn & Co. (1967).
Rule / Doctrine
Per se condemnation is reserved for conduct with a manifestly anticompetitive effect and no plausible efficiency justification. Vertical non-price restraints — such as exclusive territories or location clauses — may generate procompetitive benefits (e.g., preventing free-riding, encouraging retail investment) that must be weighed against any anticompetitive harm under the rule of reason.
Significance
Sylvania is one of the most important antitrust decisions of the 20th century. It reversed decades of hostility toward vertical restraints and ushered in the modern economics-based approach to antitrust analysis. It remains the controlling framework for evaluating vertical territorial restrictions and is foundational in every antitrust course.