## Facts

- Sharp Electronics Corp. manufactured electronic calculators and authorized two Houston-area retailers, Business Electronics Corp. (BEC) and Hartwell, to sell them.
- Hartwell complained to Sharp that BEC was cutting prices and underpricing Hartwell.
- Sharp terminated BEC’s dealership after Hartwell’s complaints.
- BEC sued Sharp and Hartwell under § 1 of the Sherman Act, alleging a conspiracy to terminate BEC because of its price cutting and claiming the conduct was per se unlawful.
- At trial, the jury was asked whether Sharp and Hartwell had an agreement to terminate BEC because of BEC’s price cutting; the jury found such an agreement and awarded damages, which were trebled.
- The Fifth Circuit reversed and remanded, holding per se treatment requires that the complaining dealer expressly or impliedly agreed to maintain prices at some level.
- The Supreme Court granted review to decide whether a vertical termination agreement based on price cutting is per se unlawful without any agreement on resale prices.

## Issues

1. Whether a vertical agreement between a manufacturer and one dealer to terminate another dealer for price cutting is per se illegal under § 1 of the Sherman Act when the agreement does not include an agreement on price or price levels.

## Decision

- The Court affirmed the Fifth Circuit.
- A vertical restraint is not per se illegal under § 1 unless it includes some agreement on price or price levels.
- An agreement to terminate a “price-cutting” dealer, without an agreement about the remaining dealer’s resale prices, is not automatically condemned and is evaluated (if actionable) under the rule of reason.

## Legal Principles

- The default mode for § 1 analysis is the rule of reason; per se rules are confined to categories of conduct that are predictably and clearly anticompetitive without detailed market analysis.
- Vertical nonprice restraints are generally analyzed under the rule of reason; per se condemnation is reserved for vertical resale price maintenance agreements involving an agreement on price or price levels.
- A manufacturer’s termination of a dealer in response to dealer complaints about discounting does not, by itself, establish per se illegal price fixing; per se treatment requires an actual agreement on resale prices or price levels.
- Potential nonprice justifications (including supporting dealer services and interbrand competition) weigh against treating dealer-termination agreements as per se unlawful.

## Conclusion

The Court held that a vertical agreement to terminate a dealer for discounting is not per se unlawful under § 1 of the Sherman Act unless the agreement includes an agreement on resale price or price levels; absent such a price agreement, the restraint is assessed under the rule of reason.


Business Electronics Corp. v. Sharp Electronics Corp., 485 U.S. 717 (1988)