Publications

On December 14, 1998, the U.S. Supreme Court ruled in NYNEX Corporation v. Discon, Incorporated, 119 S.Ct. 493 (1998) that the per se boycott rule cannot be applied to a vertical non-price restraint between a single supplier and a single customer, even when there is no procompetitive justification for the restraint. Justice Stephen Breyer’s decision vacates and remands the ruling by the United States Court of Appeals for the Second Circuit in New York, 93 F.3d 1055 (2d Cir. 1996). The decision reaffirms that all non-price vertical restraints (with the possible exception of tying) are governed by the Rule of Reason. The Discon decision is consistent with the Supreme Court’s prior opinion in Business Electronics Corp. v. Sharp Electronics Corp., 485 U.S. 717 (1988).

Importantly, the Supreme Court in Discon has stated quite clearly, “the freedom to switch suppliers lies close to the heart of the competitive process that the antitrust laws seek to encourage.” Thus, unless the antitrust allegations involve horizontal agreement, i.e., an agreement by at least two entities at the same level of distribution to exclude a third party, the per se boycott rule found in Klor’s, Inc. v. Broadway-Hale Stores, Inc. 359 U.S. 207 (1959) will not apply. Unlike the per se rule, which conclusively presumes the restraint to be both anticompetitive and unlawful, the Rule of Reason requires a further showing of anticompetitive effect upon the market, not merely harm to the excluded entity.

Coupled with the decision last term in State Oil Co. v. Khan, 522 U.S. 3 (1997), holding that maximum vertical price fixing is no longer subject to the per se rule, the Discon ruling further signals the willingness of the Supreme Court to analyze most restraints on a case by case basis, rather than by means of the rigid per se rule of illegality.