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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.

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