Rambling Through Economic Theory: Topco's Closer Look,
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On the morning of November 16, 1971, Howard Shapiro stepped into the well of the United States Supreme Court to argue Case No. 70-82, United States v. Topco Associates, Inc. Shapiro, dressed in the formal morning coat traditionally worn for Supreme Court arguments by lawyers for the Department of Justice, was the first to argue that day. The government had lost its case at trial below-in those days government civil antitrust cases were appealed directly from the trial court to the Supreme Court—and Shapiro, representing the appellant, had the task of convincing the Court to ignore the factual findings made by District Court Judge Hubert Will and focus on the government's legal approach. Shapiro appeared confident as he began. His argument was straight-forward. Topco was the vehicle for its owners-twenty-three supermarket chains and two wholesalers-to buy grocery products cooperatively and to sell many of them at retail under brands owned by Topco. Its cooperative buying was not a problem for the government. The problem was that Topco restricted the territories within which its member-supermarket chains could sell Topco-branded goods, which the government felt gave each member the effective right to exclude all other Topco members from its territory. In the government's view, this restriction amounted to a horizontal territorial allocation scheme, long held illegal per se under section 1 of the Sherman Act. But Shapiro was not as confident of his position as he appeared. Although the Antitrust Division had characterized this case from the start as a “simple” case of horizontal competitors allocating territories, Shapiro actually was dubious about the government's position. Topco's main defense was that the territorial restrictions were necessary to enable the Topco members to provide their customers with a “private-label brand” and thereby compete better with the “Big Three” chains of the day, A&P, Safeway, and Kroger. Shapiro, as Chief of the Antitrust Division's Appellate Section, had to defend the Division's per se approach, but he thought there was some merit to the argument that the better approach would be to balance the pro- and anticompetitive effects of the restrictions-less competition in Topco-branded goods (or even among Topco members) but more competition among supermarkets, just the sort of balancing approach in which the district court judge had engaged. Shapiro began by laying out the government's legal position- territorial restraints were condemned as long ago as Addyston Pipe, decided in 1898, and as recently as Sealy and Schwinn, decided by the Court on per se grounds only four years earlier. He also advanced the traditional arguments favoring per se rules. Although “once in a while” there might be a case where a horizontal territorial restraint was not extremely harmful, the per se rule should still be applied because of the benefits of predictability. “Right now any antitrust lawyer in the country can tell a supermarket chain: You may not divide up territories with your competitors. The law is absolutely clear on that.” But with the district court's approach, Shapiro argued, the parties won't know the answer until after a “full-scale” trial with an “extremely difficult” rule of reason examination. Referring to the district court's rule of reason effort, Shapiro noted that “you'll find nothing in the record showing what A&P's position is in these fifty-five [local] markets. It's almost impossible to do that kind of vast market analysis.” The heart of Shapiro's argument, though, was not really on the legal principles. Appellate courts, deprived of live witness testimony and dependent on a printed record, are often more concerned that they understand the facts of a dispute. So Shapiro made two important factual points, based on the record but not made explicit in Judge Will's findings of fact. The points were made in response to questions from the Court about whether Topco would dissolve absent territorial exclusivity. Judge Will had found that it would, but Shapiro disagreed: “Now if they were freed from agreements not to compete, it's quite possible that they could still achieve some of the benefits of individual labeling, for example, by using a joint organization to achieve brands for each of them.” In other words, Topco didn't need territorial exclusivity among its members to provide each of its members with their own “private brand.” Shapiro also pointed to an example in the record of where two Topco members with a territorial conflict had been forced to compete against each other, with both chains carrying Topco-branded products. The testimony, Shapiro noted, was that these chains competed “all over the place” and that the revenues of the more successful competitor went up. How to explain this result? Shapiro quoted the witness's testimony: “Well, sometimes you get so mad and work so hard that you run past yourself.” Surely, Shapiro added, “this is what we think the Sherman Act is about and this is what the per se prohibition against market division is intended to achieve.”
Source Publication
Antitrust Stories
Source Editors/Authors
Eleanor M. Fox, Daniel A. Crane
Publication Date
2007
Recommended Citation
Carstensen, Peter C. and First, Harry, "Rambling Through Economic Theory: Topco's Closer Look," (2007). Faculty Chapters. 614.
https://gretchen.law.nyu.edu/fac-chapt/614
