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Vertical Restraints: Evolution from Per Se to Rule of Reason Analysis

David I. Gelfand, Linden Bernhardt, Submitted for the November 16, 2017 ABA Antitrust Section Fall Forum

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Alleged violations of the antitrust laws are typically analyzed in one of two ways: per se illegality or the “rule of reason.” When a court applies per se treatment, it does not consider the reasonableness of the conduct or arguments about procompetitive effects. The rule of reason, however, requires consideration of the circumstances surrounding the restraint, including the effects of the restraint in the particular case and any procompetitive benefits.

While the universe of conduct to which per se treatment is applied has narrowed in recent years, courts historically condemned a relatively broad array of conduct as per se unlawful, including various types of vertical restraints. For plaintiffs, this meant that if a violation could be categorized as per se unlawful, the case was easy to bring. Antitrust counselors would advise clients to avoid these categories of conduct but would worry much less about conduct that was likely to be analyzed under the rule of reason.

Over time, the Supreme Court has pulled back on what it considers to be per se unlawful violations, removing several broad categories such as maximum resale price maintenance and minimum resale price maintenance. The Court has made clear that per se treatment is reserved for those cases where the courts have sufficient experience with the conduct at issue to determine that it almost always results in competitive harm, and has discouraged lower courts from expanding per se treatment to new categories. This means that counselors and litigators need to be well versed in the types of evidence and considerations that will ultimately affect the outcome of a rule of reason case. Vertical restraints in particular have been almost entirely removed from the realm of per se treatment, yet they are often investigated and challenged in court. Companies need to be aware of the antitrust risk they face when using vertical restraints such as resale price requirements, exclusivity, anti-steering provisions, loyalty discounts, tying, and the like.

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