Vertical restraints

Vertical restraints are competition restrictions in agreements between firms or individuals at different levels of the production and distribution process. Vertical restraints are to be distinguished from so-called "horizontal restraints", which are found in agreements between horizontal competitors. Vertical restraints can take numerous forms, ranging from a requirement that dealers accept returns of a manufacturer's product, to resale price maintenance agreements setting the minimum or maximum price that dealers can charge for the manufacturer's product.

So-called "intrabrand restraints" such as resale price maintenance govern products made by a particular manufacturer, while "interbrand restraints" regulate a dealer's or manufacturer's relationship with its trading partner's rivals (e.g., "English clauses"). Quintessential examples of interbrand restraints include tying contracts, whereby a purchaser agrees to purchase a second product as a condition of obtaining a so-called "tying" product, and exclusive dealing agreements, whereby a dealer agrees not to purchase products from suppliers that are rivals of the manufacturer.

United States antitrust law

Section 1 of the Sherman Antitrust Act governs all the vertical restraints involving interstate commerce in the United States. Section 3 of the Clayton Act governs interbrand restraints involving the sale of "goods". Finally, Section 2 of the Sherman Act governs restraints entered by monopolists. For several decades, courts were quite hostile to many vertical restraints, declaring them unlawful per se or nearly so.^[1] More recently, courts have reversed course and held that most such restraints should be analyzed under the rule of reason.^[2]

English clause

An "English clause" is a contractual provision requiring a buyer to report any better offer to his supplier and allowing him to accept such offer only when the supplier does not match it. An "English clause" is a vertical restraint under competition law, and can be expected to have the same effect as a single branding obligation, especially when the buyer has to reveal who makes the better offer.^[3]

References