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8 Franchise L.J. 1 (1988-1989)

handle is hein.journals/fchlj8 and id is 1 raw text is: Retail Price Ceilings and the
Rule of Reason
by Jay Conison*
Chicago, Illinois

A retail price ceiling, as the term
is used here, is a maximum price
that (1) a manufacturer, franchi-
sor or supplier' (2) allows a re-
tailer with whom    he is in a
distributional relationship (3) to
charge consumers (4) for products
or services in which the manufac-
turer has an interest. Since retail
price ceilings keep prices low and
thereby benefit consumers, there         A
would seem, at first glance, to be     Jay Conison
nothing wrong or improper with them. Yet, under present
antitrust law, retail price ceilings are unlawful per se- they
are always unlawful under section 1 of the Sherman Act,2
and the trier of fact will not listen to justifications.
A well-known trend in recent years has been to construe
and apply the antitrust laws exclusively by reference to eco-
nomic principles.' Advocates of an exclusively economic
approach to the antitrust laws argue, on theoretical grounds
alone, that retail price ceilings should always be lawful or,
at least, that the lawfulness of the practice should be subject
to a rule of reason.4 To be sure, economic analysis has long
been viewed as a helpful and legitimate method for con-
struing and applying the antitrust laws. However, primary
reliance on it has been rejected by Congress5 and has been
heavily and repeatedly criticized by legal scholars.6 More-
over, as will be seen below, the prohibition of retail price
ceilings rests almost entirely on a libertarian, rather than an
economic, rationale. Thus, even if the present standard of
per se unlawfulness is unjustified and retail price ceilings
indeed are sometimes reasonable and desirable, theoretical
economic arguments are not likely to be the most compel-
ling ones to effect a change in the law.
There are, however, practical business arguments for soft-
ening the ban on retail price ceilings. What is curious about
*Mr. Conison is an associate with the law firm of Sonnenschein, Carlin,
Nash & Rosenthal in Chicago. Illinois.

the present state of the law is that retail price ceilings are of
antitrust concern only when they are used in a distributional
relationship. Where there is no distributional relation-
ship-where, for example, the party attempting to place a
ceiling on a dealer's retail price can be viewed as a con-
sumer, rather than as a manufacturer-there is no per se
violation of section 1.7 Yet, in a distributional relationship,
the manufacturer inevitably has some interest-often a le-
gally recognized and protected one-in the product or ser-
vice sold by the dealer and in the manner of its sale. Such
interest may be by virtue of the manufacturer's role, for
example, as a trademark licensor or as a party potentially
subject to liability for defects. Yet that business interest,
which is a precondition of the manufacturer's vulnerability
to antitrust liability, may be an interest which, when ex-
amined more closely, justifies some form of manufacturer
involvement in the retailer's pricing.
The following discussion shows some of the business in-
terests recognized as permitting manufacturer involvement
in retail pricing, the scope of their present acceptance by
(continued on page 16)
Elsewhere in This Issue
Trade Secret Protection and the Terminated
Franchise  .......................................  3
Franchising Currents  ..............................  7
(Including: New Burger Chef Litigation Continues
to Raise Ticklish Issues When Maturing (or De-
caying).Franchise Systems Are Sold; Rule 11 Sanc-
tions Continue to Haunt Franchise Attorneys; Vi-
carious Liability Cases Urge Special Twists;
Termination of Price-Cutting Dealer Not Per Se
Unlawful Pricing Restraint-Supreme Court Adds
Confusion While Curing Conflict; Legal Services
Franchisor Enjoined for Violating FTC Rule; and
Eleventh Annual Forum Meeting Program ........ 13

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