394 U.S. 495 (1969), 306, Fortner Enterprises, Inc. v. United States Steel Corp.

Docket Nº:No. 306
Citation:394 U.S. 495, 89 S.Ct. 1252, 22 L.Ed.2d 495
Party Name:Fortner Enterprises, Inc. v. United States Steel Corp.
Case Date:April 07, 1969
Court:United States Supreme Court
 
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Page 495

394 U.S. 495 (1969)

89 S.Ct. 1252, 22 L.Ed.2d 495

Fortner Enterprises, Inc.

v.

United States Steel Corp.

No. 306

United States Supreme Court

April 7, 1969

Argued January 23, 1969

CERTIORARI TO THE UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

Syllabus

Petitioner filed this action for treble damages and injunctive relief for alleged violations of §§ 1 and 2 of the Sherman Act by respondents, U.S. Steel Corp. and its wholly owned subsidiary, U.S. Steel Homes Credit Corp., alleging an agreement between respondents to force petitioner and others as a condition of obtaining credit on advantageous terms from Credit Corp. to purchase at artificially high prices prefabricated houses manufactured by U.S. Steel. Petitioner claimed that, in order for it to obtain over $2,000,000 in loans to buy and develop land in the Louisville, Ky., area, it was required to agree to erect. a U.S. Steel-fabricated house on each of the lots it bought with the loan proceeds. On the basis of its complaint and affidavits and answers to interrogatories filed in the course of pretrial proceedings, petitioner claimed that, during the 1959-1962 period involved, petitioner could find no other financing in the Louisville area at such cheap terms and on the 100% basis that Credit Corp. offered. The District Court, holding that petitioner's allegations had raised no question of fact as to a possible violation of the antitrust laws, entered summary judgment for respondents. The Court of Appeals affirmed.

Held:

1. The District Court incorrectly assumed that the standards in Northern Pacific R. Co. v. United States, 356 U.S. 1, for determining the illegality per se of a tying agreement had to be met before petitioner could prevail on the merits. Pp. 498-500.

2. In any event, the facts raised by petitioner, if proved at trial, make the per se doctrine applicable to the tying arrangement here. Pp. 500-501.

3. The volume of commerce allegedly foreclosed was substantial when measured as it should be, not by the portion of the total accounted for by petitioner's contracts, but by the total volume of sales tied by respondents' challenged sales policy. Pp. 501-502.

4. Economic power may be inferred from the seller's ability to raise prices, or impose other burdensome terms such as a tie-in,

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with respect to any appreciable number of buyers within the market, and does not require (as the District Court erroneously assumed) a showing of the seller's dominance over the market for the tying product. By this standard, in view of petitioner's showing that houses comparable to U.S. Steel's were sold by its competitors for substantially less and the lack of financing through other sources on terms Credit Corp. made available to petitioner, petitioner should have been allowed to go to trial on the market power issue. Pp. 502-506.

5. The arrangement here, where credit is provided by one corporation on condition that a product be purchased from another corporation, and where the borrower contracts to obtain a large sum of money beyond that needed to pay the seller for the physical products purchased, is readily distinguishable from the sale of a single product on credit by an individual seller. Pp. 506-507.

6. Where credit is the source of tying leverage used to restrain competition, it is treated no differently under the antitrust laws from other goods and services. Pp. 508-509.

404 F.2d 936, reversed and remanded.

BLACK, J., lead opinion

MR. JUSTICE BLACK delivered the opinion of the Court.

This case raises a variety of questions concerning the proper standards to be applied by a United States district court in passing on a motion for summary judgment in a civil antitrust action. Petitioner, Fortner Enterprises, Inc., filed this suit seeking treble damages and an injunction against alleged violations of §§ 1 and 2 of the Sherman Act, 26 Stat. 209, as amended, 15 U.S.C. §§ 1, 2. The complaint charged that respondents, United States Steel Corp. and its wholly owned subsidiary, the United States Steel Homes Credit

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Corp., had engaged in a contract, combination, and conspiracy to restrain trade and to monopolize trade in the sale of prefabricated houses. It alleged that there was a continuing agreement between respondents

to force corporations and individuals, including the plaintiff, as a condition to availing themselves of the services of United States Steel Homes Credit Corporation, to purchase at artificially high prices only United States Steel Homes. . . .

Specifically, petitioner claimed that, in order to obtain loans totaling over $2,000,000 from the Credit Corp. for the purchase and development of certain land in the Louisville, Kentucky, area, it had been required to agree, as a condition of the loans, to erect a prefabricated house manufactured by U.S. Steel on each of the lots purchased with the loan proceeds. Petitioner claimed that the prefabricated materials were then supplied by U.S. Steel at unreasonably high prices, and proved to be defective and unusable, thus requiring the expenditure of additional sums and delaying the completion date for the development. Petitioner sought treble damages for the profits thus lost, along with a decree enjoining respondents from enforcing the requirement of the loan agreement that petitioner use only houses manufactured by U.S. Steel.

[89 S.Ct. 1256] After pretrial proceedings in which a number of affidavits and answers to interrogatories were filed, the District Court entered summary judgment for respondents, holding that petitioner's allegations had failed to raise any question of fact as to a possible violation of the antitrust laws. Noting that the agreement involved here was essentially a tying arrangement, under which the purchaser was required to take a tied product -- here prefabricated homes -- as a condition of being allowed to purchase the tying product -- here credit, the District Judge held that petitioner had failed to establish the prerequisites of illegality under our tying cases, namely

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sufficient market power over the tying product and foreclosure of a substantial volume of commerce in the tied product. The Court of Appeals affirmed without opinion, and we granted certiorari, 393 U.S. 820 (1968). Since we find no basis for sustaining this summary judgment, we reverse and order that the case proceed to trial.

We agree with the District Court that the conduct challenged here primarily involves a tying arrangement of the traditional kind. The Credit Corp. sold its credit only on the condition that petitioner purchase a certain number of prefabricated houses from the Homes Division of U.S. Steel. Our cases have made clear that, at least when certain prerequisites are met, arrangements of this kind are illegal in and of themselves, and no specific showing of unreasonable competitive effect is required. The discussion in Northern Pacific R. Co. v. United States, 366 U.S. 1, 5-6 (1958), is dispositive of this question:

[T]here are certain agreements or practices which, because of their pernicious effect on competition and lack of any redeeming virtue, are conclusively presumed to be unreasonable, and therefore illegal, without elaborate inquiry as to the precise harm they have caused or the business excuse for their use. . . .

. . . Where [tying] conditions are successfully exacted, competition on the merits with respect to the tied product is inevitably curbed. Indeed, "tying agreements serve hardly any purpose beyond the suppression of competition." Standard Oil Co. of California v. United States, 337 U.S. 293, 305-306. They deny competitors free access to the market for the tied product not because the party imposing the tying requirements has a better product or a lower price, but because of his power or leverage

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in another market. At the same time, buyers are forced to forego their free choice between competing products. For these reasons, "tying agreements fare harshly under the laws forbidding restraints of trade." Times-Picayune Publishing Co. v. United States, 345 U.S. 594, 606. They are unreasonable in and of themselves whenever a party has sufficient economic power with respect to the tying product to appreciably restrain free competition in the market for the tied product and a "not insubstantial" amount of interstate commerce is affected. International Salt Co. v. United States, 332 U.S. 392.

(Footnote omitted.)

Despite its recognition of this strict standard, the District Court held that petitioner had not even made out a case for the jury. The court held that respondents did not have "sufficient economic power" over credit, the tying product here, because, although the Credit Corp.'s terms evidently made the loans uniquely attractive to petitioner, petitioner had not proved that the Credit Corp. enjoyed the same unique attractiveness or economic control with respect to buyers generally. The court also held that the amount of interstate commerce affected was "insubstantial" because only [89 S.Ct. 1257] a very small percentage of the land available for development in the area was foreclosed to competing sellers of prefabricated houses by the contract with petitioner. We think it plain that the District Court misunderstood the two controlling standards and misconceived the extent of its authority to evaluate the evidence in ruling on this motion for summary judgment.

A preliminary error that should not pass unnoticed is the District Court's assumption that the two prerequisites mentioned in Northern Pacific are standards that petitioner must meet in order to prevail on the merits. On the contrary, these standards are necessary only to bring

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into play the doctrine of per se illegality. Where the...

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