Business Electronics Corp. v. Sharp Electronics Corp.

Justice Stevens,

with whom

Justice White joins, dissenting.

In its opinion the majority assumes, without analysis, that the question presented by this case concerns the legality of a “vertical nonprice restraint.” As I shall demonstrate, the restraint that results when one or more dealers threaten to boycott a manufacturer unless it terminates its relationship with a price-cutting retailer is more properly viewed as a “horizontal restraint.” Moreover, an agreement to terminate a dealer because of its price cutting is most certainly not a “nonprice restraint.” The distinction between “vertical nonprice restraints” and “vertical price restraints,” on which the majority focuses its attention, is therefore quite irrelevant to the outcome of this case. Of much greater importance is the distinction between “naked restraints” and “ancillary restraints” that has been a part of our law since the landmark opinion written by Judge (later Chief Justice) Taft in United States v. Addyston Pipe & Steel Co., 85 F. 271 (CA6 1898), aff’d, 175 U. S. 211 (1899).

I

The plain language of §1 of the Sherman Act prohibits “every” contract that restrains trade. 1 Because such a literal reading of the statute would outlaw the entire body of private contract law, and because Congress plainly intended *737 the Act to be interpreted in the light of its common-law background, the Court has long held that certain “ancillary” restraints of trade may be defended as reasonable. As we recently explained without dissent:

“The Rule of Reason suggested by Mitchel v. Reynolds [1 P. Wms. 181, 24 Eng. Rep. 347 (1711)] has been regarded as a standard for testing the enforceability of covenants in restraint of trade which are ancillary to a legitimate transaction, such as an employment contract or the sale of a going business. Judge (later Mr. Chief Justice) Taft so interpreted the Rule in his classic rejection of the argument that competitors may lawfully agree to sell their goods at the same price as long as the agreed-upon price is reasonable. United States v. Addyston Pipe & Steel Co.....” National Society of Professional Engineers v. United States, 435 U. S. 679, 689 (1978).

Judge Taft’s rejection of an argument that a price-fixing agreement could be defended as reasonable was based on a detailed examination of common-law precedents. He explained that in England there had been two types of objection to voluntary restraints on one’s ability to transact business. “One was that by such contracts a man disabled himself from earning a livelihood with the risk of becoming a public charge, and deprived the community of the benefit of his labor. The other was that such restraints tended to give to the covenantee, the beneficiary of such restraints, a monopoly of the trade, from which he had thus excluded one competitor, and by the same means might exclude others.” 85 F., at 279 . Certain contracts, however, such as covenants not to compete in a particular business, for a certain period of time, within a defined geographical area, had always been considered reasonable when necessary to carry out otherwise procompetitive contracts, such as the sale of a business. Id., at 280-282 . The difference between ancillary covenants that *738 may be justified as reasonable and those that are “void” because there is “nothing to justify or excuse the restraint,” id., at 282-283 , was described in the opinion’s seminal discussion:

“[T]he contract must be one in which there is a main purpose, to which the covenant in restraint of trade is merely ancillary. The covenant is inserted only to protect one of the parties from the injury which, in the execution of the contract or enjoyment of its fruits, he may suffer from the unrestrained competition of the other. The main purpose of the contract suggests the measure of protection needed, and furnishes a sufficiently uniform standard by which the validity of such restraints may be judicially determined. In such a case, if the restraint exceeds the necessity presented by the main purpose of the contract, it is void for two reasons: First, because it oppresses the covenantor, without any corresponding benefit to the covenantee; and, second, because it tends to a monopoly. But where the sole object of both parties in making the contract as expressed therein is merely to restrain competition, and enhance or maintain prices, it would seem that there was nothing to justify or excuse the restraint, that it would necessarily have a tendency to monopoly, and therefore would be void. In such a case there is no measure of what is necessary to the protection of either party, except the vague and varying opinion of judges as to how much, on principles of political economy, men ought to be allowed to restrain competition. There is in such contracts no main lawful purpose, to subserve which partial restraint is permitted, and by which its reasonableness is measured, but the sole object is to restrain trade in order to avoid the competition which it has always been the policy of the common law to foster.” Ibid.

Although Judge Taft was writing as a Circuit Judge, his opinion is universally accepted as authoritative. We af *739 firmed his decision without dissent, we have repeatedly cited it with approval, 2 and it is praised by a respected scholar as “one of the greatest, if not the greatest, antitrust opinions in the history of the law.” R. Bork, The Antitrust Paradox 26 (1978). In accordance with the teaching in that opinion, it is therefore appropriate to look more closely at the character of the restraint of trade found by the jury in this case.

II

It may be helpful to begin by explaining why the agreement in this case does not fit into certain categories of agreement that are frequently found in antitrust litigation. First, despite the contrary implications in the majority opinion, this is not a case in which the manufacturer is alleged to have imposed any vertical nonprice restraints on any of its dealers. The term “vertical nonprice restraint,” as used in Continental T. V., Inc. v. GTE Sylvania Inc., 433 U. S. 36 (1977), and similar cases, refers to a contractual term that a dealer must accept in order to qualify for a franchise. Typically, the dealer must agree to meet certain standards in its advertising, promotion, product display, and provision of repair and maintenance services in order to protect the goodwill of the manufacturer’s product. Sometimes a dealer must agree to sell only to certain classes of customers — for example, wholesalers generally may only sell to retailers and may be required not to sell directly to consumers. In Sylvania, to take another example, we examined agreements between a manufacturer and its dealers that included “provisions barring the retailers from selling franchised products from locations other than those specified in agreements.” Id., at 37 . Restrictions of that kind, which are a part of, or ancillary to, *740 the basic franchise agreement, are perfectly lawful unless the “rule of reason” is violated. Although vertical nonpriee restraints may have some adverse effect on competition, as long as they serve the main purpose of a procompetitive distribution agreement, the ancillary restraints may be defended under the rule of reason. And, of course, a dealer who violates such a restraint may properly be terminated by the manufacturer. 3

In this case, it does not appear that respondent imposed any vertical nonprice restraints upon either petitioner or Hartwell. Specifically, respondent did not enter into any “exclusive” agreement, as did the defendant in Sylvania. It is true that before Hartwell was appointed and after petitioner was terminated, the manufacturer was represented by only one retailer in the Houston market, but there is no evidence that respondent ever made any contractual commitment to give either of them any exclusive rights. This therefore is not a case in which a manufacturer’s right to grant exclusive territories, or to change the identity of the dealer in an established exclusive territory, is implicated. The case is one in which one of two competing dealers entered into an agreement with the manufacturer to terminate a particular competitor without making any promise to provide better or more efficient services and without receiving any guarantee of exclusivity in the future. The contractual relationship between respondent and Hartwell was exactly *741 the same after petitioner’s termination as it had been before that termination.

Second, this case does not involve a typical vertical price restraint. As the Court of Appeals noted, there is some evidence in the record that may support the conclusion that respondent and Hartwell implicitly agreed that Hartwell’s prices would be maintained at a level somewhat higher than petitioner had been charging before petitioner was terminated. 780 F. 2d 1212, 1219 (CA5 1986). The illegality of the agreement found by the jury does not, however, depend on such evidence. For purposes of analysis, we should assume that no such agreement existed and that respondent was perfectly willing to allow its dealers to set prices at levels that would maximize their profits. That seems to have been the situation during the period when petitioner was the only dealer in Houston. Moreover, after respondent appointed Hartwell as its second dealer, it was Hartwell, rather than respondent, who objected to petitioner’s pricing policies.

Third, this is not a case in which the manufacturer acted independently. Indeed, given the jury’s verdict, it is not even a case in which the termination can be explained as having been based on the violation of any distribution policy adopted by respondent. The termination was motivated by the ultimatum that respondent received from Hartwell and that ultimatum, in turn, was the culmination of Hartwell’s complaints about petitioner’s competitive price cutting. The termination was plainly the product of coercion by the stronger of two dealers rather than an attempt to maintain an orderly and efficient.system of distribution. 4

*742 In sum, this case does not involve the reasonableness of any vertical restraint imposed on one or more dealers by a manufacturer in its basic franchise agreement. What the jury found was a simple and naked “‘agreement between Sharp and Hartwell to terminate Business Electronics because of Business Electronics’ price cutting.’” Ante, at 722.

Ill

Because naked agreements to restrain the trade of third parties are seldom identified with such stark clarity as in this case, there appears to be no exact precedent that determines the outcome here. There are, however, perfectly clear rules that would be decisive if the facts were changed only slightly.

Thus, on the one hand, if it were clear that respondent had acted independently and decided to terminate petitioner because respondent, for reasons of its own, objected to petitioner’s pricing policies, the termination would be lawful. See United States v. Parke, Davis & Co., 362 U. S. 29, 43-45 (1960). On the other hand, it is equally clear that if respondent had been represented by three dealers in the Houston market instead of only two, and if two of them had threatened to terminate their dealerships “unless respondent ended its relationship with petitioner within 30 days,” ante, at 721, an agreement to comply with the ultimatum would be an obvious violation of the Sherman Act. See, e. g., United States v. General Motors Corp., 384 U. S. 127 (1966); Klor’s, Inc. v. Broadway-Hale Stores, Inc., 359 U. S. 207 (1959). 5 The *743 question then is whether the two-party agreement involved in this case is more like an illegal three-party agreement or a legal independent decision. For me, the answer is plain.

The distinction between independent action and joint action is fundamental in antitrust jurisprudence. 6 Any at *744 tempt to define the boundaries of per se illegality by the number of parties to different agreements with the same anti-competitive consequences can only breed uncertainty in the law and confusion for the businessman.

More importantly, if instead of speculating about irrelevant vertical nonprice restraints, we focus on the precise character of the agreement before us, we can readily identify its anticompetitive nature. Before the agreement was made, there was price competition in the Houston retail market for respondent’s products. The stronger of the two competitors was unhappy about that competition; it wanted to have the power to set the price level in the market and therefore it “complained to respondent on a number of occasions about petitioner’s prices.” Ante, at 721. Quite obviously, if petitioner had agreed with either Hartwell or respondent to discontinue its competitive pricing, there would have been no ultimatum from Hartwell and no termination by respondent. It is equally obvious that either- of those agreements would have been illegal per se. 7 Moreover, it is also reasonable to assume that if respondent were to replace petitioner with another price-cutting dealer, there would soon be more complaints and another ultimatum from Hartwell. Although respondent has not granted Hartwell an exclusive dealership — it retains the right to appoint multiple dealers — its *745 agreement has protected Hartwell from price competition. Indeed, given the jury’s finding and the evidence in the record, that is the sole function of the agreement found by the jury in this case. It therefore fits squarely -within the category of “naked restraints of trade with no purpose except stifling of competition.” White Motor Co. v. United States, 372 U. S. 253, 263 (1963).

This is the sort of agreement that scholars readily characterize as “inherently suspect.” 8 When a manufacturer responds to coercion from á dealer, instead of making an independent decision to enforce a predetermined distribution policy, the anticompetitive character of the response is evident. 9 As Professor Areeda has correctly noted, the fact that the agreement is between only one complaining dealer and the manufacturer does not prevent it from imposing a “horizontal” restraint. 10 If two critical facts are present — a *746 naked purpose to eliminate price competition as such and coercion of the manufacturer 11 — the conflict with antitrust policy is manifest. 12

*747 Indeed, since the economic consequences of Hartwell’s ultimatum to respondent are identical to those that would result from a comparable ultimatum by two of three dealers in a market — and since a two-party price-fixing agreement is just as unlawful as a three-party price-fixing agreement — it is appropriate to employ the term “boycott” to characterize this agreement. In my judgment the case is therefore controlled by our decision in United States v. General Motors Corp., 384 U. S. 127 (1966).

The majority disposes quickly of both General Motors and Klor’s, Inc. v. Broadway-Hale Stores, Inc., 359 U. S. 207 (1959), by concluding that “both cases involved horizontal combinations.” Ante, at 734. But this distinction plainly will *748 not suffice. In General Motors, a group of Chevrolet dealers conspired with General Motors to eliminate sales from the manufacturer to discounting dealers. We held that “[e]limination, by joint collaborative action, of discounters from access to the market is a per se violation of the Act,” 384 U. S., at 145 , and explained that “inherent in the success of the combination in this case was a substantial restraint upon price competition — a goal unlawful per se when sought to be effected by combination or conspiracy.” Id., at 147 . Precisely the same goal was sought and effected in this case — the elimination of price competition at the dealer level. Moreover, the method of achieving that goal was precisely the same in both cases — the manufacturer’s refusal to sell to discounting dealers. The difference between the two cases is not a difference between horizontal and vertical agreements — in both cases the critical agreement was between market actors at the retail level on the one hand and the manufacturer level on the other. Rather, the. difference is simply a difference in the number of conspirators. Hartwell’s coercion of respondent in order to eliminate petitioner because of its same-level price competition is not different in kind from the Chevrolet dealers’ coercion of General Motors in order to eliminate other, price-cutting dealers; the only difference between the two cases — one dealer seeking a naked price-based restraint in today’s case, many dealers seeking the same end in General Motors — is merely a difference in degree. Both boycotts lack any efficiency justification— they are simply naked restraints on price competition, rather than integral, or ancillary, parts of the manufacturers’ predetermined distribution policies.

IV

What is most troubling about the majority’s opinion is its failure to attach any weight to the value of intrabrand competition. In Continental T. V., Inc. v. GTE Sylvania Inc., *749 433 U. S. 36 (1977), we correctly held that a demonstrable benefit to interbrand competition will outweigh the harm to intrabrand competition that is caused by the imposition of vertical nonprice restrictions on dealers. But we also expressly reaffirmed earlier cases in which the illegal conspiracy affected only intrabrand competition. 13 Not a word in the Sylvania opinion implied that the elimination of intrabrand competition could be justified as reasonable without any evidence of a purpose to improve interbrand competition.

In the case before us today, the relevant economic market was the sale at retail in the Houston area of calculators manufactured by respondent. 14 There is no dispute that an agree *750 ment to fix prices in that market, either horizontally between petitioner and Hartwell or vertically between respondent and either or both of the two dealers, would violate the Sherman Act. The “quite plausible” assumption, see ante, at 729, that such an agreement might enable the retailers to provide better services to their customers would not have avoided the strict rule against price fixing that this Court has consistently enforced in the past.

*751 Under petitioner’s theory of the case, an agreement between respondent and Hartwell to terminate petitioner because of its price cutting was just as indefensible as any of those price-fixing agreements. At trial the jury found the existence of such an agreement to eliminate petitioner’s price competition. Respondent had denied that any agreement had been made and asked the jury to find that it had independently decided to terminate petitioner because of its poor sales performance, 15 but after hearing several days of testimony, the jury concluded that this defense was pretextual.

Neither the Court of Appeals nor the majority questions the accuracy of the jury’s resolution of the factual issues in this case. Nevertheless, the rule the majority fashions today is based largely on its concern that in other cases juries will be unable to tell the difference between truthful and pretextual defenses. Thus, it opines that “even a manufacturer that agrees with one dealer to terminate another for failure to provide contractually obligated services, exposes itself to the highly plausible claim that its real motivation was to terminate a price cutter.” Ante, at 728. But such a “plausible” concern in a hypothetical case that is so different from this one should not be given greater weight than facts that can be established by hard evidence. If a dealer has, in fact, failed to provide contractually obligated services, and if the manufacturer has, in fact, terminated the dealer for that reason, both of those objective facts should be provable by admissible *752 evidence. 16 Both in its disposition of this case and in its attempt to justify a new approach to agreements to eliminate price competition, the majority exhibits little confidence in the judicial process as a means of ascertaining the truth. 17

*753 The majority fails to consider that manufacturers such as respondent will only be held liable in the rare case in which the following can be proved: First, the terminated dealer must overcome the high hurdle of Monsanto Co. v. Spray-Rite Service Corp., 465 U. S. 752 (1984). A terminated dealer must introduce “evidence that tends to exclude the possibility that the manufacturer and nonterminated distributors were acting independently.” Id., at 764 . Requiring judges to adhere to the strict-test for agreement laid down in Monsanto, in their jury instructions or own findings of fact, goes a long way toward ensuring that many legitimate dealer termination decisions do not succumb improperly to antitrust liability. 18

Second, the terminated dealer must prove that the agreement was based on a purpose to terminate it because of its price cutting. Proof of motivation is another commonplace in antitrust litigation of which the majority appears apprehensive, but as we have explained or demonstrated many times, see, e. g.. Aspen Skiing Co. v. Aspen Highlands Ski *754 ing Corp., 472 U. S. 585, 610-611 (1985); McLain v. Real Estate Board of New Orleans, Inc., 444 U. S. 232, 243 (1980); United States v. Socony-Vacuum Oil Co., 310 U. S. 150, 224-226, n. 59 (1940); Chicago Board of Trade v. United States, 246 U. S. 231, 238 (1918); see also Piraino, The Case for Presuming the Legality of Quality Motivated Restrictions on Distribution, 63 Notre Dame L. Rev. 1 , 4, 16-19 (1988), in antitrust, as in many other areas of the law, motivation matters and factfinders are able to distinguish bad from good intent.

Third, the manufacturer may rebut the evidence tending to prove that the sole purpose of the agreement was to eliminate a price cutter by offering evidence that it entered the agreement for legitimate, nonprice-related reasons.

Although in this case the jury found a naked agreement to terminate a dealer because of its price cutting, ante, at 721-722, the majority boldly characterizes the same agreement as “this nonprice vertical restriction.” Ante, at 729. That characterization is surely an oxymoron when applied to the agreement the jury actually found. Nevertheless, the majority proceeds to justify it as “ancillary” to a “quite plausible purpose ... to enable Hartwell to provide better services under the sales franchise agreement.” Ibid. There are two significant reasons why that justification is unacceptable.

First, it is not supported by the jury’s verdict. Although it did not do so with precision, the District Court did instruct the jury that in order to hold respondent liable it had to find that the agreement’s purpose was to eliminate petitioner because of its price cutting and that no valid vertical nonprice restriction existed to which the motivation to eliminate price competition at the dealership level was merely ancillary. 19

*755 Second, the “quite plausible purpose” the majority hypothesizes as salvation for the otherwise anticompetitive elimination of price competition — “to enable Hartwell to provide better services under the sales franchise agreement,” ibid.,— is simply not the type of concern we sought to protect in Continental T. V., Inc. v. GTE Sylvania Inc., 433 U. S. 36 (1977). I have emphasized in this dissent the difference between restrictions imposed in pursuit of a manufacturer’s structuring of its product distribution, and those imposed at the behest of retailers who care less about the general efficiency of a product’s promotion than their own profit margins. Sylvania stressed the importance of the former, not the latter; we referred to the use that manufacturers can *756 make of vertical nonprice restraints, see id., at 54-57 , and nowhere did we discuss the benefits of permitting dealers to structure intrabrand competition at the retail level by coercing manufacturers into essentially anticompetitive agreements. Thus, while Hartwell may indeed be able to provide better services under the sales franchise agreement with petitioner out of the way, one would not have thought, until today, that the mere possibility of such a result — at the expense of the elimination of price competition and absent the salutary overlay of a manufacturer’s distribution decision with the entire product line in mind — would be sufficient to legitimate an otherwise purely anticompetitive restraint. See n. 14, supra. In fact, given the majority’s total reliance on “economic analysis,” see ante, at 735, it is hard to understand why, if such a purpose were sufficient to avoid the application of a per se rule in this context, the same purpose should not also be sufficient to trump the per se rule in all other price-fixing cases that arguably permit cartel members to “provide better services.”

If, however, we continue to accept the premise that competition in the relevant market is worthy of legal protection— that we should not rely on competitive pressures exerted by sellers in other areas and purveyors of similar but not identical products — and if we are faithful to the competitive philosophy that has animated our antitrust jurisprudence since Judge Taft’s opinion in Addyston Pipe, we can agree that the elimination of price competition will produce wider gross profit margins for retailers, but we may not assume that the retailer’s self-interest will result in a better marketplace for consumers.

“The Sherman Act reflects a legislative judgment that ultimately competition will produce not only lower prices, but also better goods and services. ‘The heart of our national economic policy long has been faith in the value of competition.’ Standard Oil Co. v. FTC, 340 U. S. 231, 248 . The assumption that competition is the best *757 method of allocating resources in a free market recognizes that all elements of a bargain — quality, service, safety, and durability — and not just the immediate cost, are favorably affected by the free opportunity to select among alternative offers. Even assuming occasional exceptions to the presumed consequences of competition, the statutory policy precludes inquiry into the question whether competition is good or bad.” National Society of Professional Engineers v. United States, 435 U. S., at 695 .

The “plausible purpose” posited by the majority as its sole justification for this mischaracterized “nonprice vertical restriction” is inconsistent with the legislative judgment that underlies the Sherman Act itself. Under the facts as found by the jury in this case, the agreement before us is one whose “sole object is to restrain trade in order to avoid the competition which it has always been the policy of the common law to foster.” United States v. Addyston Pipe & Steel Co., 85 F., at 283 .

V

In sum, this simply is not a case in which procompetitive vertical nonprice restraints have been imposed; in fact, it is not a case in which any procompetitive agreement is at issue. 20 The sole purpose of the agreement between re *758 spondent and Hartwell was to eliminate price competition at Hartwell’s level. As Judge Bork has aptly explained:

“Since the naked boycott is a form of predatory behavior, there is little doubt that it should be a per se violation of the Sherman Act.” Bork, The Antitrust Paradox, at 334.

I respectfully dissent.

Section 1 of the Sherman Act, as set forth in 15 U. S. C. § 1 , provides:

“Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.”

See, e. g., Arizona v. Maricopa County Medical Society, 457 U. S. 332, 350, n. 22 (1982); United States v. Topco Associates, Inc., 405 U. S. 596, 608 (1972); Northern Pacific R. Co. v. United States, 356 U. S. 1, 5 (1958).

Thus, in Morrison v. Murray Biscuit Co., 797 F. 2d 1430 (CA7 1986), cited ante, at 720, n. 1, the plaintiff had been terminated because he violated a lawful restriction on the customers to whom he could sell. As the court correctly explained:

“As long as the supplier’s motive is not to keep his established dealers’ prices up but only to maintain his system of lawful nonprice restrictions, he can terminate noneomplying dealers without fear of antitrust liability, even if he learns about the violation from dealers whose principal or perhaps only concern is with protecting their prices.” 797 F. 2d, at 1440 .

There was no such justification for the termination in this case.

“When a manufacturer acts on its own, in pursuing its own market strategy, it is seeking to compete with other manufacturers by imposing what may be defended as reasonable vertical restraints. This would appear to be the rationale of the GTE Sylvania decision. However, if the action of a manufacturer or other supplier is taken at the direction of its customer, the restraint becomes primarily horizontal in nature in that one customer is seeking to suppress its competition by utilizing the power of a *742 common supplier. Therefore, although the termination in such a situation is, itself, a vertical restraint, the desired impact- is horizontal and on the dealer, not the manufacturer, level.” Cernuto, Inc. v. United Cabinet Corp., 595 F. 2d 164, 168 (CA3 1979).

Thus, a boycott “is not to be tolerated merely because the victim is just one merchant whose business is so small that his destruction makes little difference to the economy. Monopoly can as surely thrive by the elimination of such small businessmen, one at a time, as it can by driving them out in large groups.” Klor’s, Inc. v. Broadway-Hale Stores, Inc., 359 U. S., *743 at 213 (footnote omitted). Again, Judge Adams’ analysis in the Cemuto opinion, n. 4, supra, is relevant:

“The importance of the horizontal nature of this arrangement is illustrated by United States v. General Motors Corp., 384 U. S. 127 . . . (1966). Although General Motors, the manufacturer, was seemingly imposing vertical restraints when it pressured recalcitrant automobile dealers not to deal with discounters, the Supreme Court noted that in fact these restraints were induced by the dealers seeking to choke off aggressive competitors at their level, and found a per se violation, rejecting the suggestion that only unilateral restraints were at issue. So here, if [the manufacturer and the sales representative acted at the nonterminated dealer’s] direction, both the purpose and effect of the termination was to eliminate competition at the retail level, and not, as in GTE Sylvania, to promote competition at the manufacturer level. Accordingly, the pro-competitive redeeming virtues so critical in GTE Sylvania may not be present here.” 595 F. 2d, at 168 (footnote omitted).

As we said in General Motors:

“The protection of price competition from conspiratorial restraint is an object of special solicitude under the antitrust laws. We cannot respect that solicitude by closing our eyes to the effect upon price competition of the removal from the market, by combination or conspiracy, of a class of traders. Nor do we propose to construe the Sherman Act to prohibit conspiracies to fix prices at which competitors may sell, but to allow conspiracies or combinations to put competitors out of business entirely.” 384 U. S., at 148 .

See United States v. Colgate & Co., 250 U. S. 300, 307-308 (1919). In Monsanto Co. v. Spray-Rite Service Corp., 465 U. S. 752, 761 (1984), we noted that “the basic distinction between concerted and independent action” was “not always clearly drawn by parties and courts.” In its opinion today the majority virtually ignores that basic distinction. Thus, ante, at 728, the majority discusses the manufacturer’s risks arising out of its agreement “with one dealer to terminate another for failure to provide contractually obligated services.” But if such a breach of contract has occurred, the manufacturer should have an independent motivation for acting *744 and need not enter into any agreement with a dealer to do so. As we held in Monsanto, the mere fact that the breach of contract may have been called to the manufacturer’s attention by another dealer does not make the manufacturer’s independent decision to terminate a price-cutting dealer unlawful.

“We have not wavered in our enforcement of the per se rule against price fixing.” Arizona v. Maricopa County Medical Society, 457 U. S., at 347 . Thus, in Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U. S. 373 (1911), the Court determined that vertical price fixing is per se invalid because resale price maintenance plans serve the profit motives of the dealers, not the manufacturers, and are thereby similar to plans pursuant to which the dealers themselves conspire to fix prices. Id., at 407-408 . There is no doubt that horizontal intrabrand price fixing is per se illegal, even if the conspirators lack the market power to affect interbrand competition in a manner that would violate the rule of reason.

“[S]cenarios that involve a firm or firms at one level of activity using vertical restraints deliberately to confer market power on firms at an adjacent level are inherently suspect. To do so is, typically, to inflict self-injury, just as it would be for consumers to confer market power on the retailers from whom they buy.” Baxter, The Viability of Vertical Restraints Doctrine, 75 Calif. L. Rev. 933 , 938 (1987).

“Termination responses reflecting the manufacturer’s own distribution policy differ greatly from those imposed upon him by a complaining dealer. In the latter case, the manufacturer’s compliance with the complainer’s demand is more likely to be anticompetitive. There is a superficial resemblance to Parke Davis in that three parties are involved, but my earlier analysis suggested that the key to that case was ‘complex enforcement,’ which is absent where a complaining dealer simply threatens to abandon the manufacturer who continues selling to discounting dealers.” 7 P. Areeda, Antitrust Law § 1457, p. 166 (1986).

Commenting on Judge Adams’ opinion in Cernuto, see nn. 4 and 5, supra, Professor Areeda wrote:

“That the complainer was a single firm did not weaken the ‘horizontal’ characterization. Because the elimination of price competition was the purpose of the complaint and the termination, the court declared that per se illegality would be appropriate. However, the court made clear that no illegal agreement would be found if United was implementing its own unilaterally chosen distribution policy. Thus, the court’s implicit theory was that an agreement arose when the manufacturer bowed to the complainer’s *746 will. In that situation, the ‘horizontal’ characterization is appropriate to capture the fact that dealer interests opposed to those of the manufacturer were being served.” Areeda, supra, at 174 (footnotes omitted).

See also R. Bork, The Antitrust Paradox 288 (1978):

“A restraint — whether on price, territory, or any other term — is vertical, according to the usage employed here, when a firm operating at one level of an industry places restraints upon rivalry at another level for its own benefit. (This definition excludes restraints, vertical in form only, that are-actually imposed by horizontal cartels at any level of the industry, e. g., resale price maintenance that is compelled not by the manufacturer but by the pressure of organized retailers.)”

The two critical facts that had not yet been determined by a jury in the Cernuto case are perfectly plain in this case. As Professor Areeda explained:

“The Cernuto case was decided on summary judgment which accepted the plaintiff’s view of the facts. But two facts critical for the court will often be obscure. First, was it the manufacturer’s purpose to eliminate price competition as such? Let us assume that termination was not based on such completely independent grounds as non-payment of bills. Even so, the existence of an inevitable price effect does not establish a purpose to control prices in a forbidden way. A purpose to facilitate point-of-sale services or to protect minimum economies of scale could induce a manufacturer to limit intrabrand competition. Notwithstanding price effects, such limitations are lawful when reasonable and not subject to automatic condemnation. Indeed, termination of one dealer in order to grant another exclusive distribution rights in an area is generally lawful. Nevertheless, so long as the manufacturer is not implementing his own interest but that of the complainer, the vice of eliminating ‘horizontal’ competition with the complainer’s rivals seems equally present when the complainer thereby succeeds in eliminating horizontal competition with respect to customers or territories. . Second, was the manufacturer coerced or was he indulging his own preferences? As we have seen, this question cannot be answered in the abstract. The court correctly acknowledged that the manufacturer might also be implementing his own unilateral vision of optimal distribution without regard to the complainer’s desires and held that no illegal agreement would arise if that were the case.” Areeda, supra, at 174-175 (footnotes omitted).

“Let us defer for the moment problems of proof and assume that a manufacturer does not wish to terminate the plaintiff dealer but does so to *747 placate the complaining dealer, who would otherwise cease handling the product. This manufacturer would rather keep both dealers but, when forced to choose between them, concludes that terminating the plaintiff hurts him less (considering sales lost, transaction costs in finding and perhaps training a replacement, and any spillover effects upon his relations with other dealers) than losing the complainer’s patronage.

“The present situation is Colgate in reverse. In Colgate, it was the supplier who was controlling the dealer’s behavior. Here a dealer is conditioning his patronage in a way that controls the manufacturer’s behavior. The agreement concept seems parallel. But the economic effects can be very different. From the policy viewpoint, it can matter greatly whether manufacturer or dealer interests are being served. The former is more likely to seek efficient distribution, which stimulates interbrand competition; the latter is more likely to seek excess profits, which dampen interbrand competition. Accordingly, antitrust policy can be more hospitable toward manufacturer efforts to control dealer prices, customers, or territories than toward the efforts of dealers to control their competitors through the manufacturer.

“Of course, manufacturer and dealer interests are not necessarily antagonistic. Like the manufacturer, dealers might also believe that restricted distribution increases dealer services and sales and thus strengthens interbrand competition. However, this objective seems unlikely when the manufacturer is forced to violate the distribution policy he thinks best. Although he might be mistaken about what his optimal distribution policy ought to be, he should be presumed a better judge of that than coercing dealers who always desire excess profits unnecessary for efficient distribution.” Areeda, swpra, at 167-168 (footnotes omitted).

See 433 U. S., at 58 , n. 28 (citing United States v. General Motors Corp., 384 U. S. 127 (1966), and United States v. Topco Associates, Inc., 405 U. S. 596 (1972)).

It might be helpful to note at this point that although the majority mentions only the reduction of mierbrand competition as a justification for a per se rule against vertical price restraints, see ante, at 725-726, our opinion in Sylvania was quite different. As we stated then:

“The market impact of vertical restrictions is complex because of their potential for a simultaneous reduction of intrabrand competition and stimulation of interbrand competition. Significantly, the Court in Schwinn did not distinguish among the challenged restrictions on the basis of their individual potential for intrabrand harm or interbrand benefit. Restrictions that completely eliminated intrabrand competition among Schwinn distributors were analyzed no differently from those that merely moderated intrabrand competition among retailers.” 433 U. S., at 51-52 (footnotes omitted).

In the following pages, we pointed out that because vertical nonpriee restrictions imposed by manufacturers may serve to advance interbrand competition, the restriction on intrabrand competition should be subject only to a rule of reason analysis. Along these same lines, we explained that “[ejeonomists also have argued that manufacturers have an economic interest in maintaining as much intrabrand competition as is consistent with the efficient distribution of their products.” Id., at 56 . Thus, although the majority neglects to mention it, fostering intrabrand competition has been recognized as an important goal of antitrust law, and although a manufacturer’s efficiency-enhancing vertical nonprice restraints may subject a reduction of intrabrand competition only to a rule of reason analysis, a *750 similar reduction without the procompetitive “redeeming virtues” of manufacturer-imposed vertical nonprice restraints, id., at 54 , causes nothing but economic harm. As one commentator has recently stated:

“Intrabrand competition can benefit the consumer, and it is therefore important to insure that a manufacturer’s motive for a vertical restriction is not simply to acquiesce in his distributors’ desires to limit competition among themselves. The Supreme Court has recognized that restrictions on intrabrand competition can only be tolerated because of the countervailing positive impact on interbrand competition.” Piraino, The Case for Presuming the Legality of Quality Motivated Restrictions on Distribution, 63 Notre Dame L. Rev. 1 , 17 (1988) (footnotes omitted).

See also H. R. Rep. No. 100-421, pp. 23, 38 (1987) (accompanying bill H. R. 585, the Freedom from Vertical Price Fixing Act of 1987, passed by the House and currently pending before the Senate; criticizing the Fifth Circuit’s decision in this case, and restating “plainly and unequivocally that all forms of resale price maintenance are illegal per se under the antitrust laws,” including “where a conspiracy exists between a supplier and distributor to terminate or cut off supply to a second distributor because of the second distributor’s pricing policies”) (emphasis in original); Departments of Commerce, Justice, and State, the Judiciary and Related Agencies Appropriation Act, 1986, Pub. L. 99-180, 99 Stat. 1169-1170 (congressional resolution that Department of Justice Vertical Restraints Guidelines “are inconsistent with established antitrust law, ... in maintaining that such policy guidelines do not treat vertical price fixing when, in fact, some provisions of such policy guidelines suggest that certain price fixing conspiracies are legal if such conspiracies are ‘limited’ to restricting intrabrand competition; ... in stating that vertical restraints that have an impact upon prices are subject to the per se rule of illegality only if there is an ‘explicit agreement as to the specific prices’ ”); Report of Attorney General’s National Committee to Study the Antitrust Laws 149-155 (1955) (criticizing laws that permit resale price maintenance as a “throttling of price competition in the process of distribution”).

The court instructed the jury:

“Sharp, on the other hand, contends that it terminated Business Electronics unilaterally, not as a result of any agreement or understanding with Hartwell, but because of Business Electronics’ sales performance. If you find that Sharp did not terminate Business Electronics pursuant to an agreement or understanding with Hartwell to eliminate price cutting by Business Electronics, then you should answer ‘no’ to question number 1.” 22 Record 1587.

See also nn. 18-19, infra.

In Morrison v. Murray Biscuit Co., 797 F. 2d 1430 (CA7 1986), cited ante, at 720, n. 1, Morrison, a wholesale distributor, sued Murray Biscuit, a producer of cookies and crackers, charging a conspiracy between Murray Biscuit and Feldman, a food broker, to suppress price competition between Feldman and Morrison. 797 F. 2d, at 1431 . But it was quite clear that Murray Biscuit “had assigned particular customers to particular middlemen, whether brokers [like Feldman] or warehouse distributors [like Morrison].” Id., at 1435 . Judge Posner’s opinion explained:

“Suppose that after Sylvania was decided, a seller that had a price-fixing agreement (illegal per se) with its dealers adopted a lawful customer allocation agreement pursuant to which it terminated a dealer. That dealer could not sue for price fixing, even if the price-fixing agreement had never been rescinded, unless he could show that his breach of the customer allocation agreement was not the real reason for his termination; maybe the agreement was a mask behind which the illegal price fixing continued. The reason for Morrison’s termination was that he tried to take away a customer who had been assigned to Feldman; there is no indication that the assignment was a mask for resale price maintenance. Since Feldman had the exclusive right to sell Murray Biscuit’s products to the Certified account, Morrison had no business selling to Certified at any price.”' Id., at 1439 (emphasis added).

Judge Posner thus made it clear that although Morrison had been terminated pursuant to a valid vertical nonprice restraint, a terminated dealer might prevail if it could prove that the nonprice agreement was “a mask behind which the illegal price fixing continued.” Ibid.

“When faced with conflicting evidence, the jury must determine whether the nonprice justifications for the termination advanced by the defendant are legitimate, or are mere pretext to disguise a per se illegal agreement with the nonterminated dealer to maintain resale prices. It is the Court’s duty under Monsanto to decide whether sufficient evidence was presented for a jury to make that determination.” McCabe’s Furniture, Inc. v. La-Z-Boy Chair Co., 798 F. 2d 323, 329 (CA8 1986), cited ante, at 720, n. 1.

See also L. Sullivan, Law of Antitrust 202 (1977) (“A shorthand method which may help to identify a restraint affecting price as naked is to examine the arguments which are being pressed in justification of the practice”).

Although at trial respondent had asked the jury to find that it had acted independently, see n. 15, supra, and accompanying text, respondent has not disputed, either in the Court of Appeals or here, the jury’s finding of an agreement. (Respondent has, of course, contended that no agreement was reached requiring some level of resale price maintenance. As I have argued, though, such an agreement is not needed to invoke the per se rule in a case such as this.) Respondent did argue before the District Court for an instruction explaining that “it must be shown that the manufacturer agreed with the complaining dealer to terminate the existing dealer and that, in so agreeing, the manufacturer shared with the complaining dealer the same desire of eliminating price competition for the complaining dealer.” 1 Record 151. Respondent later objected to the court’s decision not to give this instruction, id., at 54, 22 Record 1599, but the court in fact had quite carefully expláined to the jury that “[w]hat a preponderance ... of the evidence in the case must show in order to establish the existence of the required combination, agreement, or understanding is that Sharp and Hartwell knowingly came to a common and mutual understanding to accomplish or to attempt to accomplish an unlawful purpose.” Id., at 1584-1585.

The Court instructed the jury:

“The Sherman Act is violated when a seller enters into an agreement or understanding with one of its dealers to terminate another dealer because of the other dealer’s price cutting. Plaintiff contends that Sharp termi *755 nated Business Electronics in furtherance of Hartwell’s desire to eliminate Business Electronics as a price-cutting rival.

“If you find that there was an agreement between Sharp and Hartwell to terminate Business Electronics because of Business Electronics’ price cutting, you should answer ‘yes’ to question number 1.

“Sharp, on the other hand, contends that it terminated Business Electronics unilaterally, not as a result of any'agreement or understanding with Hartwell, but because of Business Electronics’ sales performance. If you find that Sharp did not terminate Business Electronics pursuant to an agreement or understanding with Hartwell to eliminate price cutting by Business Electronics, then you should answer ‘no’ to question number 1.” 22 Record 1587.

Respondent had asked for an instruction requiring the jury to consider circumstantial evidence as proof of a motivation to eliminate price competition only if such evidence could not “equally be interpreted to show that Sharp terminated Business Electronics Corporation for other business reasons and not pursuant to any agreement with Mr. Hartwell to fix resale prices of calculators.” 1 Record 148. Respondent objected to the failure to give this instruction, id., at 54, and also objected, more specifically, to the instruction that was given on the ground that “it allows the jury to find against the defendant even if they do not believe that Sharp cared about [Business Electronics’] price cutting or if they believe that Sharp had a dual motive in making the termination.” 22 Record 1599. The instruction quoted above, though, makes it highly unlikely that the jury would have found for petitioner although finding respondent’s motives to be mixed ones.

Thus, the Courts of Appeals decisions cited by the majority as supporting its view, see ante, at 720, n. 1, are, in fact, consistent with the rule that a naked intent to eliminate price competition is per se invalid. Each of the opinions contains a discussion that distinguishes between, on the one hand, an agreement between manufacturer and dealer to eliminate a price-cutting competitor based solely on an intent to eliminate price competition, and, on the other hand, an agreement between manufacturer and dealer to eliminate a price-cutting competitor that is grounded not only in an antipathy to price competition, but also in a purpose to implement a pro-competitive system of vertical nonprice restraints. See McCabe’s Furniture, Inc. v. La-Z-Boy Chair Co., 798 F. 2d, at 329-330 ; Morrison v. Murray Biscuit Co., 797 F. 2d, at 1439-1440 ; Westman Commission Co. v. Hobart Int’l, Inc., 796 F. 2d 1216, 1223 (CA10 1986). Moreover, none of *758 these opinions proposes the rule that the majority sanctions today: that an agreement as to some level of resale'"price maintenance is necessary for invocation of the per se rule in these situations.