Document Type

Article

Publication Date

1982

Center/Program

Center for Law and Economic Studies

Center/Program

The Charles Evans Gerber Transactional Studies Center

Abstract

Franchise agreements between a manufacturer and a distributor or retail dealer of the manufacturer's products often impose conditions on the dealer regarding items such as price, dealer location, service, and advertising. These vertical restrictions, whether price or nonprice, may violate the Sherman Act, which prohibits every contract, combination, or conspiracy in restraint of trade.1 Whereas vertical price restrictions historically have been held per se invalid,2 nonprice vertical restrictions have been permitted, subject to a rule of reason.3 In United States v. Arnold, Schwinn & Co.,4 however, the Supreme Court articulated a per se rule of illegality for nonprice vertical restrictions, which produced sharply contrasting results depending on the role played by the distributor in the product distribution system.5

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