## Facts

- Topco Associates, Inc. was a cooperative of about 25 independent regional supermarket chains operating in numerous states.
- Topco procured and distributed many grocery products, largely under private labels owned by Topco, which were profitable for member retailers.
- Topco’s members owned and controlled the cooperative through equal voting stock and selection of directors.
- Topco licensed members to sell Topco-branded products under territorial arrangements that were predominantly “exclusive” and operated in practice to bar sales outside a member’s assigned area absent another member’s consent.
- Topco’s admission and voting rules gave existing members effective power to block new members who might compete near them.
- Topco also restricted members from selling association-supplied products at wholesale without special permission, which in practice depended on consent of other affected licensees and was conditioned by geographic limits.
- The United States sued for injunctive relief, alleging these practices were an unlawful scheme to divide markets and suppress competition in Topco-brand products in violation of Sherman Act § 1.
- The district court upheld the restraints under the rule of reason, finding them reasonable and beneficial for competition against larger national chains.

## Issues

1. Whether Topco’s exclusive territorial licensing scheme among member supermarket chains constituted a horizontal market division that is per se unlawful under Sherman Act § 1.
2. Whether the district court erred by analyzing the territorial restraints under the rule of reason rather than applying per se condemnation.

## Decision

- The Supreme Court reversed and remanded.
- The Court held that Topco’s allocation of exclusive retail territories among competing member chains was a horizontal restraint that is per se unlawful under Sherman Act § 1.
- The Court concluded the district court erred by applying the rule of reason to restraints properly classified as horizontal market divisions.
- The Court rejected asserted business justifications (including claimed necessity for small-chain competitiveness) as legally irrelevant once the restraint is deemed a per se unlawful market allocation.

## Legal Principles

- Horizontal agreements among competitors to allocate territories or customers are per se violations of Sherman Act § 1.
- Once conduct is categorized as a per se unlawful horizontal market division, courts do not balance claimed justifications or conduct detailed market-effect inquiries to validate it.
- Cooperative structures and claimed efficiencies do not immunize “naked” restraints that directly eliminate competition among the cooperating rivals in the restrained product sales.

## Conclusion

The Court treated Topco’s exclusive territorial licensing among competing retailers as a classic horizontal market division and condemned it per se under Sherman Act § 1, requiring reversal of a rule-of-reason judgment that had upheld the restraints as competitively beneficial.


United States v. Topco Assocs., Inc., 405 U.S. 596 (1972)