## Facts

- Tampa Electric Company, a regulated utility serving the Tampa, Florida area, planned a new generating station and decided to use coal rather than oil for its first two units.
- Tampa and Nashville Coal Company executed a 20-year requirements contract under which Tampa would buy its total coal requirements for the first two units (minimum 225,000 tons per unit per year) from Nashville.
- The contract included a provision that if additional coal-fired units were added at the station within 10 years, their fuel requirements would be added to the agreement after notice, although Tampa retained the option to choose coal or another fuel for those units.
- Before deliveries began, Tampa incurred substantial additional costs to equip the units to burn coal.
- Nashville refused to perform, asserting the contract was illegal under federal antitrust law; Tampa obtained coal elsewhere and sought a declaratory judgment enforcing the agreement.
- Tampa’s estimated maximum annual requirements under the contract were projected to reach about 1 million tons, but this amounted to no more than roughly 1% of production of the relevant coal type in the multi-state producing area where Nashville competed with approximately 700 suppliers.

## Issues

1. Whether the requirements (exclusive dealing) contract violated § 3 of the Clayton Act because its effect “may be to substantially lessen competition” or “tend to create a monopoly” in the relevant line of commerce and area.
2. Whether, if the contract violated § 3 of the Clayton Act, it would also be prohibited by §§ 1 or 2 of the Sherman Act.
3. Whether alleged antitrust illegality would render the contract unenforceable as a defense to performance.

## Decision

- The Supreme Court reversed the judgment holding the contract unlawful.
- The Court held the agreement did not violate § 3 of the Clayton Act because it would not probably foreclose competition in a substantial share of the relevant market.
- The Court defined the relevant geographic market as the area in which Nashville and other suppliers of the relevant coal “effectively compete,” not the consuming region in Florida.
- Because the contract did not fall within § 3’s prohibition, the Court held it was not forbidden by §§ 1 or 2 of the Sherman Act.
- The Court declined to decide whether antitrust illegality would be a defense to enforcement because it found no antitrust violation.

## Legal Principles

- Exclusive-dealing and requirements contracts are not unlawful per se under § 3 of the Clayton Act; illegality requires a showing that performance probably would foreclose competition in a substantial share of the relevant market.
- § 3 analysis requires defining both the relevant product market (line of commerce) and the relevant geographic market (area of effective competition among sellers), then evaluating the competitive significance of the share foreclosed.
- High contract value, long duration, or large absolute volume does not establish illegality without substantial foreclosure in the properly defined market.
- Conduct that does not violate § 3’s exclusive-dealing standard will not ordinarily violate §§ 1 or 2 of the Sherman Act on the same theory.

## Conclusion

The Court upheld a long-term coal requirements contract, holding that § 3 of the Clayton Act condemns exclusive dealing only when it likely forecloses a substantial share of the properly defined relevant market; defining the market by sellers’ effective competition showed the challenged foreclosure was too small to be unlawful.


Tampa Elec. Co. v. Nashville Coal Co., 365 U.S. 320 (1961)