Vertical restraints

Vertical restraints

Vertical restraints are 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 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. 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 Anti-Trust Law

Section 1 of the Sherman Antitrust Act governs all 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. "See, e.g.," Albrecht v. Herald Co., 390 U.S. 145 (1969) (declaring maximum resale price maintenance unlawful per se). More recently, courts have reversed course and held that most such restraints should be analyzed under the rule of reason. See Leegin Creative Leather Products v. PSKS, 127 S. Ct. 2705 (2007); Continental TV v. GTE Sylvania, 433 U.S. 36 (1978).


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  • vertical agreement — ver·ti·cal agreement / vər ti kəl / n: an agreement among economic competitors on different levels of production or distribution that affects competition compare horizontal agreement ◇ Unlike horizontal agreements, vertical agreements are not… …   Law dictionary

  • vertical — Pertaining to a relationship between a buyer and a seller e.g., an agreement between a supplier and a retail dealer is called a vertical agreement. See also vertical integration @ vertical price fixing contract An illegal agreement to maintain… …   Black's law dictionary

  • horizontal restraints of trade — A restraint of trade involving businesses at the same level of operation. A horizontal restraint is an agreement between competitors to refuse to deal with one or more persons, while a vertical restraint (vertical restraints of trade) involves… …   Black's law dictionary

  • horizontal restraints of trade — A restraint of trade involving businesses at the same level of operation. A horizontal restraint is an agreement between competitors to refuse to deal with one or more persons, while a vertical restraint (vertical restraints of trade) involves… …   Black's law dictionary

  • Resale price maintenance — (RPM) is the practice whereby a manufacturer and its distributors agree that the latter will sell the former s product at certain prices (resale price maintenance), at or above a price floor (minimum resale price maintenance) or at or below a… …   Wikipedia

  • Rule of reason — The rule of reason is a doctrine developed by the United States Supreme Court in its interpretation of the Sherman Antitrust Act. The rule, stated and applied in the case of Standard Oil Co. of New Jersey v. United States , 221 U.S. 1 (1911), is… …   Wikipedia

  • horizontal agreement — n: an agreement among economic competitors on the same level of production or distribution compare vertical agreement ◇ Horizontal agreements are generally considered illegal as violating antitrust laws. Merriam Webster’s Dictionary of Law.… …   Law dictionary

  • Federal Trade Commission — Infobox Government agency agency name = Federal Trade Commission logo = logo width = logo caption = seal width = 150 px seal caption = Official seal formed = September 26, 1914 preceding1 = Bureau of Corporations jurisdiction = Federal government …   Wikipedia

  • Exclusive dealing — refers to when a retailer or wholesaler is ‘tied’ to purchase from a supplier on the understanding that no other distributor will be appointed or receive supplies in a given area. When the sales outlets are owned by the supplier, exclusive… …   Wikipedia

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