67 Yale L.J. 19 (1957-1958)
Tying Arrangements and the Leverage Problem

handle is hein.journals/ylr67 and id is 51 raw text is: TYING ARRANGEMENTS AND THE LEVERAGE PROBLEM
WARD S. BOWMAN, JRt
IN antitrust law, the conclusion that tying the sale of a second product to a
patented product is automatically illegal has been accepted by courts .for forty
years.' Under this theory, tying is harmful because it creates a new monopoly
wholly outside the patent. Conditioning the sale or lease of one commodity on
the sale or lease of another, a practice known as a tying agreement or a tie-in,
is generally considered a trade-restraining device. The recent Report of the
Attorney General's Committee to Study the Antitrust Laws declares that the
purpose of a tying contract is monopolistic exploitation.2 This exploitation is
achieved by artificially extending the market for the 'tied' product beyond the
consumer acceptance it would rate if competing independently on its merits and
on equal terms.3 The view that tying contracts allow the wielding of monop-
olistic leverage is widely accepted.
Wielding monopolistic leverage is an ambiguous phrase. A distinction can
usefully be made between leverage as a revenue-maximizing device and lever-
age as a monopoly-creating device. The first involves the use of existing power.
The second requires the addition of new power.4 In both cases monopoly is
tAssociate Professor of Law and Economics, Yale Law School.
This Article attempts to explore the relationship between product complementarity and
tying sales as contrasted with other explanations which have been offered. A comple-
mentarity view of tying sharply contrasts with other positions in terms of what is called
the leverage problem. In particular, two explanations have been formulated by Professor
Aaron Director-tying as an evasion of price regulation and tying as a counting device for
price discrimination. I have reconstructed these explanations as I understood them from
previous discussions with him over a period of years ending in 1956 at the University of
Chicago Law School. Professor Director, of course, bears no responsibility for my inter-
pretation; my debt to him is great, however, not only for encouraging my interest in the
tie-in problem but more basically for providing both a theory and an application of the
evasion and the counting cases, reproduced here The conclusions contained in this
Article derive from comparison of these examples with the complementarity example to
determine whether or not tie-ins create new monopoly.
The relationship between product complements and the use of the tying device was de-
veloped jointly with John S. McGee, Associate Professor in the School of Business at the
University of Chicago. He has been a substantial contributor to the analysis in this Article;
in addition he has read and criticized the manuscript in several drafts.
1. The rule was established in Motion Picture Patents Co. v. Universal Film Mfg. Co.,
243 U.S. 502 (1917). See text at note 35 infra.
2. REPoRT OF THE ATTORNEY GENERAL'S NATIONAL CommriITE TO STUDY THE ANTI-
TRUST LAWS 145 (1955) (hereinafter cited as Arr'Y GEN. REP.).
3. Ibid.
4. A similar distinction can be made in the field of price discrimination. Thus price
discrimination may be used to increase revenue or to drive out competitors. The Robinson-
Patman Act, for example, embodies the assumption that cutting the price of a product in
a discriminatory manner is a means of driving out competitors and creating monopoly,
whereas the economic analysis stresses its usefulness in maximizing monopoly revenue.

What Is HeinOnline?

With comprehensive coverage of government documents and more than 2,400 journals from inception on hundreds of subjects such as political science, criminal justice, and human rights, HeinOnline is an affordable option for colleges and universities. Documents have the authority of print combined with the accessibility of a user-friendly and powerful database.



Short-term subscription options include 24 hours, 48 hours, or 1 week to HeinOnline with pricing starting as low as $29.95

Already a HeinOnline Subscriber?