Vertical restraints are competition restrictions in agreements between firms or individuals at different levels of the production and distribution process. Vertical restraints are to be distinguished from so-called "horizontal restraints", which are found in agreements between horizontal competitors. Vertical restraints can take numerous forms, ranging from a requirement that dealers accept returns of a manufacturer's product, to
resale price maintenance agreements setting the minimum or maximum price that dealers can charge for the manufacturer's product.
So-called "intrabrand restraints" such as resale price maintenance govern products made by a particular manufacturer, while "interbrand restraints" regulate a dealer's or manufacturer's relationship with its trading partner's rivals (e.g., "English clauses"). Quintessential examples of interbrand restraints include
tying contracts, whereby a purchaser agrees to purchase a second product as a condition of obtaining a so-called "tying" product, and
exclusive dealing
In Economics and Law, exclusive dealing arises when a supplier entails the buyer by placing limitations on the rights of the buyer to choose what, who and where they deal. This is against the law in most countries which include the USA, Austra ...
agreements, whereby a dealer agrees not to purchase products from suppliers that are rivals of the manufacturer.
United States antitrust law
Section 1 of the
Sherman Antitrust Act
The Sherman Antitrust Act of 1890 (, ) is a United States antitrust law which prescribes the rule of free competition among those engaged in commerce. It was passed by Congress and is named for Senator John Sherman, its principal author.
...
governs all the vertical restraints involving interstate commerce in the United States. Section 3 of the
Clayton Act
The Clayton Antitrust Act of 1914 (, codified at , ), is a part of United States antitrust law with the goal of adding further substance to the U.S. antitrust law regime; the Clayton Act seeks to prevent anticompetitive practices in their incipie ...
governs interbrand restraints involving the sale of "goods". Finally, Section 2 of the Sherman Act governs restraints entered by monopolists. For several decades, courts were quite hostile to many vertical restraints, declaring them unlawful per se or nearly so. More recently, courts have reversed course and held that most such restraints should be analyzed under the rule of reason.
English clause
An ''"English clause"'' is a contractual provision requiring a buyer to report any better offer to his supplier and allowing him to accept such offer only when the supplier does not match it. An "English clause" is a vertical restraint under
competition law
Competition law is the field of law that promotes or seeks to maintain market competition by regulating anti-competitive conduct by companies. Competition law is implemented through public and private enforcement. It is also known as antitrust l ...
, and can be expected to have the same effect as a single branding obligation, especially when the buyer has to reveal who makes the better offer.
References
Anti-competitive practices
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