Vertical Practices and the Exclusion of Rivals Post Eaton

John Asker, Shannon Seitz, Jul 29, 2013

In the wake of the ZF Meritor v. Eaton decision, there is new uncertainty regarding the kinds of vertical contracting practices that will attract antitrust scrutiny under U.S. law. In this case, the market share and loyalty rebates Eaton Corporation offered to truck manufacturers were found to violate antitrust law despite the fact that there was no evidence of pricing below cost. The court of appeals determined that the price-cost test, which, sinceMatsushita v. Zenith (1986) has been applied in cases in which predatory pricing is alleged, did not apply in Eaton. Elements of Eaton‘s agreements had more in common with exclusive dealing than predatory pricing, the court said.

Vertical agreements frequently include a variety of price and non-price restrictions, including market share and loyalty discounts, pre-specified sales territories, retail price restrictions (such as resale price maintenance), rebates, and product placement requirements. The Eaton decision, as well as several other recent cases involving exclusive dealing, illustrates the piecemeal fashion in which the courts have dealt with vertical agreements. It has been argued that decisions like Eaton, which move away from the broad application of the price-cost test, may discourage suppliers from offering non-predatory loyalty or market share discounts, as there may be no safe harbor, particularly when such discounts are part of a multidimensional vertical agreement.

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