485 U.S. 717 (1988)

BUSINESS ELECTRONICS CORP.
v.
SHARP ELECTRONICS CORP.

No. 85-1910.

Supreme Court of United States.

Argued January 19, 1988 Decided May 2, 1988 CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT

*718 Gary V. McGowan argued the cause and filed briefs for petitioner.

Harold R. Tyler, Jr. argued the cause for respondent. With him on the brief was Lance Gotthoffer.^[*]

*719 JUSTICE SCALIA delivered the opinion of the Court.

Petitioner Business Electronics Corporation seeks review of a decision of the United States Court of Appeals for the *720 Fifth Circuit holding that a vertical restraint is per se illegal under § 1 of the Sherman Act, 26 Stat. 209, as amended, 15 U. S. C. § 1, only if there is an express or implied agreement to set resale prices at some level. 780 F. 2d 1212, 1215-1218 (1986). We granted certiorari, 482 U. S. 912 (1987), to resolve a conflict in the Courts of Appeals regarding the proper dividing line between the rule that vertical price restraints are illegal per se and the rule that vertical nonprice restraints are to be judged under the rule of reason.^[1]

*721 I

In 1968, petitioner became the exclusive retailer in the Houston, Texas, area of electronic calculators manufactured by respondent Sharp Electronics Corporation. In 1972, respondent appointed Gilbert Hartwell as a second retailer in the Houston area. During the relevant period, electronic calculators were primarily sold to business customers for prices up to $1,000. While much of the evidence in this case was conflicting — in particular, concerning whether petitioner was "free riding" on Hartwell's provision of presale educational and promotional services by providing inadequate services itself — a few facts are undisputed. Respondent published a list of suggested minimum retail prices, but its written dealership agreements with petitioner and Hartwell did not obligate either to observe them, or to charge any other specific price. Petitioner's retail prices were often below respondent's suggested retail prices and generally below Hartwell's retail prices, even though Hartwell too sometimes priced below respondent's suggested retail prices. Hartwell complained to respondent on a number of occasions about petitioner's prices. In June 1973, Hartwell gave respondent the ultimatum that Hartwell would terminate his dealership unless respondent ended its relationship with petitioner within 30 days. Respondent terminated petitioner's dealership in July 1973.

Petitioner brought suit in the United States District Court for the Southern District of Texas, alleging that respondent and Hartwell had conspired to terminate petitioner and that such conspiracy was illegal per se under § 1 of the Sherman Act. The case was tried to a jury. The District Court submitted a liability interrogatory to the jury that asked whether "there was an agreement or understanding between Sharp Electronics Corporation and Hartwell to terminate Business Electronics as a Sharp dealer because of Business Electronics' price cutting." Record, Doc. No. 241. The District Court instructed the jury at length about this question:

*722 "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 terminated 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.

.....

"A combination, agreement or understanding to terminate a dealer because of his price cutting unreasonably restrains trade and cannot be justified for any reason. Therefore, even though the combination, agreement or understanding may have been formed or engaged in . . . to eliminate any alleged evils of price cutting, it is still unlawful. . . .

"If a dealer demands that a manufacturer terminate a price cutting dealer, and the manufacturer agrees to do so, the agreement is illegal if the manufacturer's purpose is to eliminate the price cutting." App. 18-19.

The jury answered Question 1 affirmatively and awarded $600,000 in damages. The District Court rejected respondent's motion for judgment notwithstanding the verdict or a new trial, holding that the jury interrogatory and instructions had properly stated the law. It entered judgment for petitioner for treble damages plus attorney's fees.

The Fifth Circuit reversed, holding that the jury interrogatory and instructions were erroneous, and remanded for a new trial. It held that, to render illegal per se a vertical agreement between a manufacturer and a dealer to terminate a second dealer, the first dealer "must expressly or impliedly agree to set its prices at some level, though not a specific one. *723 The distributor cannot retain complete freedom to set whatever price it chooses." 780 F. 2d, at 1218.

II

A

Section 1 of the Sherman Act provides that "[e]very 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." 15 U. S. C. § 1. Since the earliest decisions of this Court interpreting this provision, we have recognized that it was intended to prohibit only unreasonable restraints of trade. National Collegiate Athletic Assn. v. Board of Regents of University of Oklahoma, 468 U. S. 85, 98 (1984); see, e. g., Standard Oil Co. v. United States, 221 U. S. 1, 60 (1911). Ordinarily, whether particular concerted action violates § 1 of the Sherman Act is determined through case-by-case application of the so-called rule of reason — that is, "the factfinder weighs all of the circumstances of a case in deciding whether a restrictive practice should be prohibited as imposing an unreasonable restraint on competition." Continental T. V., Inc. v. GTE Sylvania Inc., 433 U. S. 36, 49 (1977). Certain categories of agreements, however, have been held to be per se illegal, dispensing with the need for case-by-case evaluation. We have said that per se rules are appropriate only for "conduct that is manifestly anticompetitive," id., at 50, that is, conduct " `that would always or almost always tend to restrict competition and decrease output,' " Northwest Wholesale Stationers, Inc. v. Pacific Stationery & Printing Co., 472 U. S. 284, 289-290 (1985), quoting Broadcast Music, Inc. v. Columbia Broadcasting System, Inc., 441 U. S. 1, 19-20 (1979). See also FTC v. Indiana Federation of Dentists, 476 U. S. 447, 458-459 (1986) ("[W]e have been slow . . . to extend per se analysis to restraints imposed in the context of business relationships where the economic impact of certain practices is not immediately obvious"); National Collegiate *724 Athletic Assn. v. Board of Regents of University of Oklahoma, supra, at 103-104 ("Per se rules are invoked when surrounding circumstances make the likelihood of anticompetitive conduct so great as to render unjustified further examination of the challenged conduct"); National Society of Professional Engineers v. United States, 435 U. S. 679, 692 (1978) (agreements are per se illegal only if their "nature and necessary effect are so plainly anticompetitive that no elaborate study of the industry is needed to establish their illegality").

Although vertical agreements on resale prices have been illegal per se since Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U. S. 373 (1911), we have recognized that the scope of per se illegality should be narrow in the context of vertical restraints. In Continental T. V., Inc. v. GTE Sylvania Inc., supra, we refused to extend per se illegality to vertical nonprice restraints, specifically to a manufacturer's termination of one dealer pursuant to an exclusive territory agreement with another. We noted that especially in the vertical restraint context "departure from the rule-of-reason standard must be based on demonstrable economic effect rather than . . . upon formalistic line drawing." Id., at 58-59. We concluded that vertical nonprice restraints had not been shown to have such a " `pernicious effect on competition' " and to be so " `lack[ing] [in] . . . redeeming value' " as to justify per se illegality. Id., at 58, quoting Northern Pacific R. Co. v. United States, 356 U. S. 1, 5 (1958). Rather, we found, they had real potential to stimulate interbrand competition, "the primary concern of antitrust law," 433 U. S., at 52, n. 19:

"[N]ew manufacturers and manufacturers entering new markets can use the restrictions in order to induce competent and aggressive retailers to make the kind of investment of capital and labor that is often required in the distribution of products unknown to the consumer. Established manufacturers can use them to induce retailers *725 to engage in promotional activities or to provide service and repair facilities necessary to the efficient marketing of their products. Service and repair are vital for many products. . . . The availability and quality of such services affect a manufacturer's goodwill and the competitiveness of his product. Because of market imperfections such as the so-called `free-rider' effect, these services might not be provided by retailers in a purely competitive situation, despite the fact that each retailer's benefit would be greater if all provided the services than if none did." Id., at 55.

Moreover, we observed that a rule of per se illegality for vertical nonprice restraints was not needed or effective to protect intrabrand competition. First, so long as interbrand competition existed, that would provide a "significant check" on any attempt to exploit intrabrand market power. Id., at 52, n. 19; see also id., at 54. In fact, in order to meet that interbrand competition, a manufacturer's dominant incentive is to lower resale prices. Id., at 56, and n. 24. Second, the per se illegality of vertical restraints would create a perverse incentive for manufacturers to integrate vertically into distribution, an outcome hardly conducive to fostering the creation and maintenance of small businesses. Id., at 57, n. 26.

Finally, our opinion in GTE Sylvania noted a significant distinction between vertical nonprice and vertical price restraints. That is, there was support for the proposition that vertical price restraints reduce interbrand price competition because they " `facilitate cartelizing.' " Id., at 51, n. 18, quoting Posner, Antitrust Policy and the Supreme Court: An Analysis of the Restricted Distribution, Horizontal Merger and Potential Competition Decisions, 75 Colum. L. Rev. 282, 294 (1975). The authorities cited by the Court suggested how vertical price agreements might assist horizontal price fixing at the manufacturer level (by reducing the manufacturer's incentive to cheat on a cartel, since its retailers could not pass on lower prices to consumers) or might be used to *726 organize cartels at the retailer level. See R. Posner, Antitrust: Cases, Economic Notes and Other Materials 134 (1974); E. Gellhorn, Antitrust Law and Economics 252, 256 (1976); Note, Vertical Territorial and Customer Restrictions in the Franchising Industry, 10 Colum. J. L. & Soc. Prob. 497, 498, n. 12 (1974). Similar support for the cartel-facilitating effect of vertical nonprice restraints was and remains lacking.

We have been solicitous to assure that the market-freeing effect of our decision in GTE Sylvania is not frustrated by related legal rules. In Monsanto Co. v. Spray-Rite Service Corp., 465 U. S. 752, 763 (1984), which addressed the evidentiary showing necessary to establish vertical concerted action, we expressed concern that "[i]f an inference of such an agreement may be drawn from highly ambiguous evidence, there is considerable danger that the doctrin[e] enunciated in Sylvania . . . will be seriously eroded." See also id., at 761, n. 6. We eschewed adoption of an evidentiary standard that "could deter or penalize perfectly legitimate conduct" or "would create an irrational dislocation in the market" by preventing legitimate communication between a manufacturer and its distributors. Id., at 763, 764.

Our approach to the question presented in the present case is guided by the premises of GTE Sylvania and Monsanto: that there is a presumption in favor of a rule-of-reason standard; that departure from that standard must be justified by demonstrable economic effect, such as the facilitation of cartelizing, rather than formalistic distinctions; that interbrand competition is the primary concern of the antitrust laws; and that rules in this area should be formulated with a view towards protecting the doctrine of GTE Sylvania. These premises lead us to conclude that the line drawn by the Fifth Circuit is the most appropriate one.

There has been no showing here that an agreement between a manufacturer and a dealer to terminate a "price cutter," without a further agreement on the price or price levels to be charged by the remaining dealer, almost always tends *727 to restrict competition and reduce output. Any assistance to cartelizing that such an agreement might provide cannot be distinguished from the sort of minimal assistance that might be provided by vertical nonprice agreements like the exclusive territory agreement in GTE Sylvania, and is insufficient to justify a per se rule. Cartels are neither easy to form nor easy to maintain. Uncertainty over the terms of the cartel, particularly the prices to be charged in the future, obstructs both formation and adherence by making cheating easier. Cf. Maple Flooring Mfrs. Assn. v. United States, 268 U. S. 563 (1925); Cement Mfrs. Protective Assn. v. United States, 268 U. S. 588 (1925); see generally Matsushita Electric Industrial Co. v. Zenith Radio Corp:, 475 U. S. 574, 590 (1986). Without an agreement with the remaining dealer on price, the manufacturer both retains its incentive to cheat on any manufacturer-level cartel (since lower prices can still be passed on to consumers) and cannot as easily be used to organize and hold together a retailer-level cartel.^[2]

The District Court's rule on the scope of per se illegality for vertical restraints would threaten to dismantle the doctrine of GTE Sylvania. Any agreement between a manufacturer and a dealer to terminate another dealer who happens to have charged lower prices can be alleged to have been directed against the terminated dealer's "price cutting." In the vast majority of cases, it will be extremely difficult for the manufacturer to convince a jury that its motivation was to ensure adequate services, since price cutting and *728 some measure of service cutting usually go hand in hand. Accordingly, a manufacturer that agrees to give one dealer an exclusive territory and terminates another dealer pursuant to that agreement, or 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. Moreover, even vertical restraints that do not result in dealer termination, such as the initial granting of an exclusive territory or the requirement that certain services be provided, can be attacked as designed to allow existing dealers to charge higher prices. Manufacturers would be likely to forgo legitimate and competitively useful conduct rather than risk treble damages and perhaps even criminal penalties.

We cannot avoid this difficulty by invalidating as illegal per se only those agreements imposing vertical restraints that contain the word "price," or that affect the "prices" charged by dealers. Such formalism was explicitly rejected in GTE Sylvania. As the above discussion indicates, all vertical restraints, including the exclusive territory agreement held not to be per se illegal in GTE Sylvania, have the potential to allow dealers to increase "prices" and can be characterized as intended to achieve just that. In fact, vertical nonprice restraints only accomplish the benefits identified in GTE Sylvania because they reduce intrabrand price competition to the point where the dealer's profit margin permits provision of the desired services. As we described it in Monsanto: "The manufacturer often will want to ensure that its distributors earn sufficient profit to pay for programs such as hiring and training additional salesmen or demonstrating the technical features of the product, and will want to see that `free-riders' do not interfere." 465 U. S., at 762-763. See also GTE Sylvania, 433 U. S., at 55.

The dissent erects a much more complex analytic structure, which ultimately rests, however, upon the same discredited *729 premise that the only function this nonprice vertical restriction can serve is restraint of dealer-level competition. Specifically, the dissent's reasoning hinges upon its perception that the agreement between Sharp and Hartwell was a "naked" restraint — that is, it was not "ancillary" to any other agreement between Sharp and Hartwell. Post, at 736-742, 744-745. But that is not true, unless one assumes, contrary to GTE Sylvania and Monsanto, and contrary to our earlier discussion, that it is not a quite plausible purpose of the restriction to enable Hartwell to provide better services under the sales franchise agreement.^[3] From its *730 faulty conclusion that what we have before us is a "naked" restraint, the dissent proceeds, by reasoning we do not entirely follow, to the further conclusion that it is therefore a horizontal rather than a vertical restraint. We pause over this only to note that in addition to producing what we think the wrong result in the present case, it introduces needless confusion into antitrust terminology. Restraints imposed by agreement between competitors have traditionally been denominated as horizontal restraints, and those imposed by agreement between firms at different levels of distribution as vertical restraints.^[4]

*731 Finally, we do not agree with petitioner's contention that an agreement on the remaining dealer's price or price levels will so often follow from terminating another dealer "because of [its] price cutting" that prophylaxis against resale price maintenance warrants the District Court's per se rule. Petitioner has provided no support for the proposition that vertical price agreements generally underlie agreements to terminate a price cutter. That proposition is simply incompatible with the conclusion of GTE Sylvania and Monsanto that manufacturers are often motivated by a legitimate desire to have dealers provide services, combined with the reality that price cutting is frequently made possible by "free riding" on the services provided by other dealers. The District Court's per se rule would therefore discourage conduct recognized by GTE Sylvania and Monsanto as beneficial to consumers.

B

In resting our decision upon the foregoing economic analysis, we do not ignore common-law precedent concerning what constituted "restraint of trade" at the time the Sherman Act was adopted. But neither do we give that pre-1890 precedent the dispositive effect some would. The term "restraint of trade" in the statute, like the term at common law, refers not to a particular list of agreements, but to a particular economic consequence, which may be produced by quite different sorts of agreements in varying times and circumstances. The changing content of the term "restraint of trade" was well recognized at the time the Sherman Act was enacted. See Gibbs v. Consolidated Gas Co., 130 U. S. 396, 409 (1889) (noting that English case laying down the common-law rule *732 that contracts in restraint of trade are invalid "was made under a condition of things, and a state of society, different from those which now prevail, [and therefore] the rule laid down is not regarded as inflexible, and has been considerably modified"); see also Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U. S., at 406 ("With respect to contracts in restraint of trade, the earlier doctrine of the common law has been substantially modified in adaptation to modern conditions"); B. Cardozo, The Nature of the Judicial Process 94-96 (1921).

The Sherman Act adopted the term "restraint of trade" along with its dynamic potential. It invokes the common law itself, and not merely the static content that the common law had assigned to the term in 1890. See GTE Sylvania, 433 U. S., at 53, n. 21; Standard Oil Co. v. United States, 221 U. S., at 51-60; see also McNally v. United States, 483 U. S. 350, 372-373 (1987) (STEVENS, J., joined by O'CONNOR, J., dissenting); Associated General Contractors of California, Inc. v. Carpenters, 459 U. S. 519, 533, n. 28, 539-540, and n. 43 (1983); Bork 37. If it were otherwise, not only would the line of per se illegality have to be drawn today precisely where it was in 1890, but also case-by-case evaluation of legality (conducted where per se rules do not apply) would have to be governed by 19th-century notions of reasonableness. It would make no sense to create out of the single term "restraint of trade" a chronologically schizoid statute, in which a "rule of reason" evolves with new circumstances and new wisdom, but a line of per se illegality remains forever fixed where it was.

Of course the common law, both in general and as embodied in the Sherman Act, does not lightly assume that the economic realities underlying earlier decisions have changed, or that earlier judicial perceptions of those realities were in error. It is relevant, therefore, whether the common law of *733 restraint of trade ever prohibited as illegal per se an agreement of the sort made here, and whether our decisions under § 1 of the Sherman Act have ever expressed or necessarily implied such a prohibition.

With respect to this Court's understanding of pre-Sherman Act common law, petitioner refers to our decision in Dr. Miles Medical Co. v. John D. Park & Sons Co., supra. Though that was an early Sherman Act case, its holding that a resale price maintenance agreement was per se illegal was based largely on the perception that such an agreement was categorically impermissible at common law. Id., at 404-408. As the opinion made plain, however, the basis for that common-law judgment was that the resale restriction was an unlawful restraint on alienation. See ibid. As we explained in Boston Store of Chicago v. American Graphophone Co., 246 U. S. 8, 21-22 (1918), "Dr. Miles . . . decided that under the general law the owner of movables . . . could not sell the movables and lawfully by contract fix a price at which the product should afterwards be sold, because to do so would be at one and the same time to sell and retain, to part with and yet to hold, to project the will of the seller so as to cause it to control the movable parted with when it was not subject to his will because owned by another." In the present case, of course, no agreement on resale price or price level, and hence no restraint on alienation, was found by the jury, so the common-law rationale of Dr. Miles does not apply. Cf. United States v. General Electric Co., 272 U. S. 476, 486-488 (1926) (Dr. Miles does not apply to restrictions on price to be charged by one who is in reality an agent of, not a buyer from, the manufacturer).

Petitioner's principal contention has been that the District Court's rule on per se illegality is compelled not by the old common law, but by our more recent Sherman Act precedents. First, petitioner contends that since certain horizontal agreements have been held to constitute price fixing (and *734 thus to be per se illegal) though they did not set prices or price levels, see, e. g., Catalano, Inc. v. Target Sales, Inc., 446 U. S. 643, 647-650 (1980) (per curiam), it is improper to require that a vertical agreement set prices or price levels before it can suffer the same fate. This notion of equivalence between the scope of horizontal per se illegality and that of vertical per se illegality was explicitly rejected in GTE Sylvania, supra, at 57, n. 27 — as it had to be, since a horizontal agreement to divide territories is per se illegal, see United States v. Topco Associates, Inc., 405 U. S. 596, 608 (1972), while GTE Sylvania held that a vertical agreement to do so is not. See also United States v. Arnold, Schwinn & Co., 388 U. S. 365, 390-391 (1967) (Stewart, J., joined by Harlan, J., concurring in part and dissenting in part); White Motor Co. v. United States, 372 U. S. 253, 263 (1963).

Second, petitioner contends that per se illegality here follows from our two cases holding per se illegal a group boycott of a dealer because of its price cutting. See United States v. General Motors Corp., 384 U. S. 127 (1966); Klor's, Inc. v. Broadway-Hale Stores, Inc., 359 U. S. 207 (1959). This second contention is merely a restatement of the first, since both cases involved horizontal combinations — General Motors, supra, at 140, 143-145, at the dealer level,^[5] and Klor's, supra, at 213, at the manufacturer and wholesaler levels. Accord, GTE Sylvania, supra, at 58, n. 28, United States v. Arnold, Schwinn & Co., 388 U. S., at 373, 378; id., at 390 (Stewart, J., joined by Harlan, J., concurring in part and dissenting in part); White Motor Co. v. United States, supra, at 263.

*735 Third, petitioner contends, relying on Albrecht v. Herald Co., 390 U. S. 145 (1968), and United States v. Parke, Davis & Co., 362 U. S. 29 (1960), that our vertical price-fixing cases have already rejected the proposition that per se illegality requires setting a price or a price level. We disagree. In Albrecht, the maker of the product formed a combination to force a retailer to charge the maker's advertised retail price. See 390 U. S., at 149. This combination had two aspects. Initially, the maker hired a third party to solicit customers away from the noncomplying retailer. This solicitor "was aware that the aim of the solicitation campaign was to force [the noncomplying retailer] to lower his price" to the suggested retail price. Id., at 150. Next, the maker engaged another retailer who "undertook to deliver [products] at the suggested price" to the noncomplying retailer's customers obtained by the solicitor. Ibid. This combination of maker, solicitor, and new retailer was held to be per se illegal. Id., at 150, 153. It is plain that the combination involved both an explicit agreement on resale price and an agreement to force another to adhere to the specified price.

In Parke, Davis, a manufacturer combined first with wholesalers and then with retailers in order to gain the "retailers' adherence to its suggested minimum retail prices." 362 U. S., at 45-46, and n. 6. The manufacturer also brokered an agreement among its retailers not to advertise prices below its suggested retail prices, which agreement was held to be part of the per se illegal combination. This holding also does not support a rule that an agreement on price or price level is not required for a vertical restraint to be per se illegal — first, because the agreement not to advertise prices was part and parcel of the combination that contained the price agreement, id., at 35-36, and second because the agreement among retailers that the manufacturer organized was a horizontal conspiracy among competitors. Id., at 46-47.

In sum, economic analysis supports the view, and no precedent opposes it, that a vertical restraint is not illegal per se *736 unless it includes some agreement on price or price levels. Accordingly, the judgment of the Fifth Circuit is

Affirmed.

JUSTICE KENNEDY took no part in the consideration or decision of this case.

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 affirmed *739 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 re