Northwest Wholesale Stationers, Inc. v. Pacific Stationery & Printing Co.

Supreme Court of the United States
1985 U.S. LEXIS 94, 472 U.S. 284, 86 L. Ed. 2d 202 (1985)

ELI5:

Rule of Law:

The expulsion of a member from a wholesale purchasing cooperative is not a per se violation of Section 1 of the Sherman Act. To qualify for per se invalidation, a plaintiff must make a threshold showing that the cooperative possesses market power or exclusive access to an element essential to effective competition.

Facts:

Northwest Wholesale Stationers (Northwest) is a purchasing cooperative made up of approximately 100 office supply retailers.
Members of the cooperative purchase supplies at a significantly lower effective price than nonmembers due to year-end profit rebates.
Pacific Stationery & Printing Co. (Pacific), which operated at both retail and wholesale levels, had been a member since 1958.
In 1974, Northwest amended its bylaws to prohibit members from engaging in both retail and wholesale operations, but a grandfather clause protected Pacific's membership.
In 1977, controlling ownership of Pacific's stock changed hands.
Pacific failed to notify Northwest's directors of this ownership change, which was a violation of the cooperative's bylaws.
In 1978, Northwest's membership voted to expel Pacific without providing any notice, hearing, or opportunity to challenge the decision.

Procedural Posture:

Pacific Stationery & Printing Co. sued Northwest Wholesale Stationers, Inc. in the U.S. District Court for the District of Oregon, alleging the expulsion was a per se violation of the Sherman Act.
On cross-motions for summary judgment, the District Court applied the rule-of-reason analysis, found no anticompetitive effect, and granted summary judgment to Northwest.
Pacific, as appellant, appealed to the U.S. Court of Appeals for the Ninth Circuit, with Northwest as the appellee.
The Ninth Circuit reversed, holding that the expulsion constituted a per se illegal group boycott because Northwest had not provided procedural safeguards for the expulsion.
The U.S. Supreme Court granted certiorari to review the Ninth Circuit's decision.

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Issue:

Does a wholesale purchasing cooperative's expulsion of a member, without providing notice or a hearing, constitute a per se illegal group boycott under Section 1 of the Sherman Act?

Opinions:

Majority - Justice Brennan

No. The expulsion of a member from a wholesale purchasing cooperative, even without procedural safeguards, is not a per se violation of the Sherman Act unless the cooperative has market power or controls an essential facility. The Court reasoned that the per se rule is reserved for practices that are 'perniciously anticompetitive' and lack any redeeming virtue. Wholesale purchasing cooperatives are generally pro-competitive, as they allow smaller retailers to achieve economies of scale and compete more effectively with larger businesses. The act of expulsion is not necessarily anticompetitive, as cooperatives must be able to establish and enforce reasonable rules to function. The Court distinguished this case from Silver v. New York Stock Exchange, holding that the lack of procedural safeguards does not automatically trigger per se liability; antitrust laws are meant to police restraints on competition, not to impose requirements of due process on private organizations. Therefore, to justify applying the per se rule, a plaintiff must first demonstrate that the cooperative possesses significant market power or controls a business element essential to competition, which Pacific failed to do.

Analysis:

This decision significantly narrows the scope of the per se rule as it applies to group boycotts, particularly in the context of joint ventures and cooperatives. It moves the law away from automatically condemning all concerted refusals to deal and instead requires a threshold inquiry into the defendant's market power or control over essential resources. This shift places a greater burden on plaintiffs, forcing them to engage in a more complex rule-of-reason analysis unless they can make the preliminary showing of market power. The ruling provides greater legal protection for pro-competitive collaborations like purchasing cooperatives, allowing them to enforce internal rules without the constant threat of per se antitrust liability.

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