## Facts

- Sealy, Inc. licensed independent mattress and bedding manufacturers to produce and sell Sealy-branded products.
- By the mid-20th century, Sealy had about thirty manufacturer-licensees who owned substantially all of Sealy’s stock and controlled its board and key operational decisions, including assigning and terminating exclusive territorial licenses.
- Each license granted an exclusive geographic territory for Sealy-branded products: Sealy would not license another manufacturer for that area, and the licensee would not sell Sealy products outside its territory.
- Licensees remained free to manufacture and sell non-Sealy (private-label) products without territorial limits.
- Sealy and its licensees engaged in a continuing agreement to fix and police minimum retail resale prices for Sealy-branded products.

## Issues

1. Whether the exclusive territorial allocations should be treated as vertical licensing restraints imposed by an independent licensor or as horizontal restraints among competing manufacturers acting through Sealy.
2. Whether the territorial allocations, in the context of Sealy’s coordinated price-fixing and policing practices, constituted a per se unlawful restraint of trade under § 1 of the Sherman Act.

## Decision

- The Supreme Court reversed the district court’s judgment insofar as it upheld the territorial allocation system.
- The Court held the territorial restraints were horizontal, not vertical, because Sealy functioned as a jointly controlled vehicle of the competing stockholder-licensees.
- The Court treated the territorial market divisions, combined with the admitted minimum resale price-fixing and enforcement, as an unlawful per se violation of Sherman Act § 1.

## Legal Principles

- Courts classify restraints by economic substance, not formal labels; a nominally vertical restraint may be treated as horizontal when competitors control the “licensor” and use it to coordinate restrictions among themselves.
- Horizontal territorial market allocations among competitors are per se illegal under Sherman Act § 1, particularly when they operate in conjunction with price-fixing and related enforcement mechanisms.
- Related restraints may be evaluated as a single scheme; where restraints operate together to suppress competition, per se condemnation may apply without deciding whether one restraint would be unlawful in isolation.

## Conclusion

Because Sealy was controlled by its competing manufacturer-licensees, the Court treated Sealy’s exclusive territories as a horizontal market-division arrangement that, combined with coordinated minimum resale price-fixing and policing, violated Sherman Act § 1 per se, requiring reversal of the district court’s approval of the territorial system.


United States v. Sealy, Inc., 388 U.S. 350 (1967)