## Facts

- GTE Sylvania Inc. manufactured television sets and sought to improve declining sales by limiting the number of retail franchises in an area.
- Sylvania required franchisees to sell its products only from authorized locations specified in their franchise agreements.
- Continental T.V., Inc., a Sylvania franchisee in San Francisco, objected when Sylvania granted a nearby franchise to another retailer and later refused to authorize Continental to open a Sacramento location.
- Continental withheld payments to Sylvania and sued, alleging that Sylvania’s location clauses unlawfully restrained trade in violation of § 1 of the Sherman Act.

## Issues

1. Whether manufacturer-imposed, nonprice vertical restraints limiting the locations from which retailers may resell products are per se unlawful under § 1 of the Sherman Act.
2. Whether such restraints instead must be evaluated under the rule of reason.

## Decision

- The Supreme Court affirmed the Ninth Circuit’s judgment.
- The Court held that nonprice vertical restraints, including location restrictions, are not per se illegal and must be analyzed under the rule of reason.
- The Court overruled United States v. Arnold, Schwinn & Co. to the extent it applied a per se rule to comparable vertical restraints after title passed to the retailer.
- The Court rejected Schwinn’s distinction between restrictions in sale versus nonsale contexts as unrelated to competitive effects.

## Legal Principles

- Per se condemnation is reserved for practices that are manifestly anticompetitive and lack redeeming competitive value.
- Vertical nonprice restraints may reduce intrabrand competition while improving interbrand competition by encouraging retailer promotion, service, and other investments and by limiting free riding.
- Under § 1, nonprice vertical distribution restraints are generally evaluated under the rule of reason, requiring a fact-specific inquiry into competitive effects.

## Conclusion

The Court held that manufacturer location clauses and similar nonprice vertical restraints are governed by the rule of reason rather than per se illegality, shifting § 1 analysis toward evaluating actual competitive effects and overruling Schwinn’s categorical approach.


Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36 (1977)