EXCLUSIVE DEALING Richard M. Steuer Mayer, Brown, Rowe & Maw LLP (212) 506-2530 rsteuer@mayerbrownrowe.com

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	Exclusive Dealing In Distribution (Cornell Law Review, 1983)

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History Per Se -Prior to Standard Fashion Co. v. Magrane Houston Co., 258 U.S. 346 (1922), the FTC applied a virtual rule of per se illegality to exclusive dealing under § 3 of the Clayton Act. Standard Elec. Mfg. Co., 5 F.T.C. 376 (1923); B.S. Pearsall Butter Co., 5 F.T.C. 127 (1922); Stanley Booking Corp., 1 F.T.C. 212 (1918) Quantitative Substantiality - Standard Stations(1949); FTC v. Brown Shoe (1966) Qualitative Substantiality - Tampa Electric (1961) Modern Rule of Reason; Interbrand Competition/Free Riding - Beltone (1982); Jefferson Parish (1984); California Dental (1999)

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	Measuring Foreclosure More Complex and Nuanced Than Originally Thought Level of Distribution -Wholesalers; Retailers; End-Users Type of Product -Shopping Products; Convenience Products (“Delivering” customers) Alternate Channels of Distribution -Intertype Competition Establishing New Distributors -Versus “Piggybacking” Compare measuring foreclosure for other offenses

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	Pro-competitive Effects Combating manufacturer-level free riding Stimulating Distributors -commodities versus differentiated products Stimulating Suppliers (Different from resale restraints) Protecting Trade Secrets Quality Control Compare Resale Restraints

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	Discounts and Exclusive Dealing (Antitrust Magazine, 1993)

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	Single Product Discounts Conditioned on Exclusive Dealing United Shoe Machinery Corp. v. United States, 258 U.S. 451 (1922) NicSand, Inc. v. 3M Co., 457 F.3d 534 (6th Cir. 2006) Nutrasweet(Canadian Competition Tribunal, 1990) Tetra Pak(EU Commission 1991) “Offer you can’t refuse” (Need for particular supplier’s products)

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	Bundling SmithKlineCorp., v. Eli Lilly & Co., 575 F.2d 1056 (3d Cir.), cert. denied, 439 U.S. 838 (1978) LePages v. 3M, 324 F.3d 141 (3d Cir. 2003) Ortho v. Abbott, 920 F. Supp. 455(S.D.N.Y. 1996)

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	Customer-Instigated Exclusive Dealing (Antitrust Law Journal, 2000)

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	Mixed Motivations re Number of Suppliers End-Users Assure survival of multiple suppliers Requirements contracts creating competitive advantage if fewer suppliers exist Resellers Short Term: Threat of alternate brands Long Term: Value of alternative brands

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	Reasons for Customers to Instigate Exclusive Dealing Inducing lower prices Assuring dependable supply (requirements contracts) Assuring quality (qualifying suppliers) Assuring uniformity (auto racing example) Achieving logistical efficiencies (fewer vendors = greater efficiency)

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Finding an Appropriate Legal Analysis Supplier’s Objectives Foreclosure of Competitors Distributional Efficiencies Reseller’s Objectives -Better Pricing; assured supply; quality; uniformity; achieving efficiencies Mixed motives re strength of alternate suppliers and brands End-Users Objectives -Better Pricing; delivery; quality; uniformity; efficiencies Less likely to favor weakened interbrandcompetition

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	Finding an Appropriate Legal Analysis When should courts second guess buyers that instigate exclusive dealing? When the buyer has a motive to eliminate competition at the supplier level, such as to foreclose its own competitors.

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	Unifying Principles vs. Intellectual Laziness