Breaking Down Section Three Of The Clayton Act
Section 3 of the Clayton Act, 15 U.S.C.S. § 14, makes illegal certain distribution practices. Generally, Section 3 of the Clayton Act makes it illegal to enter into tying arrangements, exclusive dealing contracts or requirements contracts if such arrangements or contracts tend to lessen competition.
In a tying arrangement, the customer is required to accept an undesired product in order to obtain a desired product. An exclusive dealing agreement requires the customer to obtain a desired product from only one supplier; for example, the beer distributor that wishes to distribute a particular label may be required to carry only that label. A requirements contract would provide that the purchaser would obtain all that it needs from a particular provider.
By its terms, Section 3 of the Clayton Act makes illegal the lease or sale in interstate or foreign commerce of goods or commodities for use in the United States conditioned upon restrictions upon the lessee or purchaser in dealing with competitors of the lessor or seller if competition is lessened substantially or there is a tendency toward creation of a monopoly. Each of these various elements of a Clayton Section 3 violation has been contested vigorously in litigation.
Rule Of Reason
Tying arrangements usually are analyzed under the rule of reason rather than considered illegal per se unless the tying product (the desired product not made available to the customer unless an undesired product is also purchased or leased) is so unique or desirable that the seller has market power over the tying product. To show an illegal tying arrangement under the rule of reason, a plaintiff must show:
- Two or more separate products;
- The sale of one of the products conditioned on the sale of one or more of the other products;
- Economic power of the seller over the tying product;
- Foreclosure of significant business of other sellers and anticompetitive effect in the market for the tied product; and
- The lack of a valid justification of the seller for the tying arrangement.
The legality of exclusive dealing contracts and requirements contracts is measured according to the extent to which competitors are foreclosed from the relevant market. Factors to consider include the size of the share of the market being affected or the economic rationale for the arrangement. As concentration increases in a market, the legitimacy of proffered economic reasons such as insuring continued production is likely to receive greater scrutiny.