## Facts

- Standard Oil Company of New Jersey leased gasoline-dispensing pumps to retail oil and gasoline dealers across the United States.
- Standard offered the pumps to retailers at a significantly discounted price compared to other available terms.
- The discounted lease was conditioned on an exclusive-use restriction: the leased pump could not be used to store or dispense gasoline (or related petroleum products) supplied by Standard’s competitors.
- Evidence before the Federal Trade Commission showed that most retail dealers generally needed only one pump to operate their businesses.
- Because many dealers used only one pump, the exclusive-use clause often meant that the dealer’s outlet was effectively closed to rival suppliers’ gasoline.
- The record included evidence that competitors lost customers and sales when dealers accepted Standard’s discounted pump lease subject to the restriction.
- The FTC initiated an administrative proceeding alleging the practice was an unfair method of competition in interstate commerce under the Federal Trade Commission Act and an unlawful exclusive-dealing arrangement under § 3 of the Clayton Act.

## Issues

1. Whether Standard’s practice of leasing gasoline-dispensing pumps at discounted terms on the condition that the pumps not be used for competitors’ products constituted an unfair method of competition in interstate commerce under § 5 of the FTC Act.
2. Whether the exclusive-use provisions in Standard’s pump leases violated § 3 of the Clayton Act because their effect may be to substantially lessen competition or tend to create a monopoly.

## Decision

- The FTC found that Standard’s discounted pump-leasing program conditioned on exclusive use operated to exclude competing suppliers from retail outlets.
- The FTC concluded the practice constituted an unfair method of competition in interstate commerce in violation of § 5 of the FTC Act.
- The FTC also concluded the exclusive-use lease provisions violated § 3 of the Clayton Act because they had a tendency to substantially lessen competition by foreclosing rival suppliers from a meaningful set of retail dealers.
- The FTC issued a cease-and-desist order requiring Standard to stop using exclusive-use restrictions in its pump leases.

## Legal Principles

- Conditioning the lease or furnishing of distribution equipment on an agreement not to handle rivals’ goods can constitute exclusive dealing subject to § 3 of the Clayton Act.
- Under § 3, an arrangement may be unlawful when its probable effect may be to substantially lessen competition or tend to create a monopoly; actual monopoly need not be shown.
- When dealers typically need only one unit of essential equipment, an exclusive-use condition on that equipment can function as exclusivity at the retail outlet and materially limit rivals’ access to customers.
- Conduct that restricts dealers’ freedom to buy and sell competing products through widespread, conditional equipment leases may be treated as an unfair method of competition under § 5 of the FTC Act.
- In an FTC administrative proceeding, the primary remedy is prospective relief through a cease-and-desist order aimed at ending the exclusionary contractual condition.

## Conclusion

In *Matter of Standard Oil Co. of New Jersey*, the FTC held that Standard’s practice of offering discounted gasoline-pump leases only if retailers agreed not to use the pumps for competitors’ products unlawfully restricted competition: the exclusivity condition effectively shut rivals out of many single-pump outlets, violating § 5 of the FTC Act and § 3 of the Clayton Act, and the FTC ordered Standard to cease and desist from using the exclusive-use lease provisions.


Matter of Standard Oil Co. of New Jersey, 2 F.T.C. 357 (1920)