Northern Pac. R. Co. v. United States
356 U.S. 1 (1958)
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Rule of Law:
A tying arrangement is an unreasonable restraint of trade and per se illegal under § 1 of the Sherman Act if the seller has sufficient economic power in the market for the tying product to appreciably restrain competition in the market for the tied product and a not insubstantial amount of commerce is affected.
Facts:
- In the 1860s and 1870s, Congress granted the Northern Pacific Railway Company (Northern Pacific) approximately 40 million acres of land to facilitate the construction of a railroad.
- The granted land, which included timber, mineral, and agricultural resources, was strategically located in a checkerboard pattern along the railroad's tracks.
- By 1949, Northern Pacific had sold or leased millions of acres of this land.
- In a large number of its sale and lease contracts, Northern Pacific included 'preferential routing' clauses.
- These clauses compelled the purchaser or lessee to ship all commodities produced or manufactured on the land via Northern Pacific's railroad.
- The obligation was subject to the condition that Northern Pacific's shipping rates (and sometimes service) were equal to those of competing carriers.
- A substantial amount of interstate commerce was affected by these clauses, and alternative transportation carriers, including other major railroads, existed for these shipments.
Procedural Posture:
- In 1949, the United States Government filed suit against Northern Pacific Railway Company in a U.S. District Court.
- The Government sought a declaration that the railroad's 'preferential routing' agreements were unlawful restraints of trade under § 1 of the Sherman Act.
- The Government moved for summary judgment, arguing the undisputed facts entitled it to relief as a matter of law.
- The U.S. District Court granted the Government's motion for summary judgment and issued an order enjoining Northern Pacific from enforcing the clauses.
- Northern Pacific, the defendant, took a direct appeal from the district court's decision to the Supreme Court of the United States.
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Issue:
Do contractual clauses that condition the sale or lease of land upon the grantee's agreement to ship all goods produced on that land over the seller's railroad lines constitute a per se illegal tying arrangement in violation of § 1 of the Sherman Act?
Opinions:
Majority - Mr. Justice Black
Yes. The preferential routing clauses constitute a per se illegal tying arrangement under § 1 of the Sherman Act because they use economic power in one market to unlawfully restrain competition in another. Tying arrangements are presumed to be unreasonable and therefore illegal without an elaborate inquiry into the specific harm they cause. The test for a per se illegal tying arrangement is met when a party has sufficient economic power with respect to the tying product (here, the land) to appreciably restrain free competition in the market for the tied product (railroad shipping) and a 'not insubstantial' amount of interstate commerce is affected. Northern Pacific's extensive and strategically located landholdings provided this sufficient economic power, a fact evidenced by the very existence of a vast number of these restrictive clauses. The uniqueness and desirability of the land provides the necessary leverage, and the seller need not have a monopoly or 'dominance' over the tying product. The exception allowing use of a competitor with lower rates does not save the arrangement, as it still gives the defendant a priority on all business at equal prices, stifling competition.
Dissenting - Mr. Justice Harlan
No, the record is insufficient to conclude the clauses are per se illegal, and the case should be remanded for a full trial. Per se illegality for a tying arrangement under the Sherman Act requires proof that the seller has a 'dominant position' in the relevant market for the tying product, as established in Times-Picayune. The district court erred by finding that ownership of the specific parcels of land being sold or leased automatically constituted market dominance, without any inquiry into Northern Pacific's share of the overall land market or the uniqueness of its holdings. The mere existence of the tying clauses is not compelling evidence of economic power, as purchasers may have been indifferent to them, especially given the clauses' exceptions and the natural convenience of using the adjacent railroad. The majority misinterprets International Salt, where the tying product's patent was treated as conferring market control, a factor absent here. Without proper findings on market dominance, summary judgment is inappropriate.
Analysis:
This decision significantly broadened the scope of per se illegal tying arrangements by lowering the required showing of market power. The Court moved away from a strict requirement of 'monopoly power' or 'dominance' over the tying product to a more flexible standard of 'sufficient economic power.' It established that this power can be inferred from the desirability or uniqueness of the tying product, such as strategically located land, not just from a patent or near-monopoly market share. This clarification makes it easier for plaintiffs to challenge tying arrangements and obtain summary judgment, reducing the need for complex and costly economic analysis of the relevant market.
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