United States v. Topco Associates, Inc.

The United States brought this injunction action charging a violation of § 1 of the Sherman Act by appellee, Topco, a cooperative association of about 25 small and medium-sized independent regional supermarket chains operating in 33 States. As its members' purchasing agent appellee procures more than 1,000 different items, most of which have brand names owned by Topco. The members' combined retail sales in 1967 were $2.3 billion, exceeded by only three national grocery chains. A member's average market share in its area is about 6% and its competitive position is frequently as strong as that of any other chain. The members own equal amounts of Topco's common stock (the voting stock), choose its directors, and completely control the association's operations. Topco's bylaws establish an "exclusive" category of territorial licenses, under which most members' licenses are issued and the two other membership categories have proved to be de facto exclusive. Since no member under this system may sell Topco-brand products outside the territory in which it is licensed, expansion into another member's territory is in practice permitted only with the other member's consent, and since a member in effect has a veto power over admission of a new member, members can control actual or potential competition in the territorial areas in which they are concerned. Topco members are prohibited from selling any products supplied by the association at wholesale, whether trademarked or not, without securing special permission, which is not granted without the consent of other interested licenses (usually retailers) and then the member must agree to restrict Topco product sales to a specific area and under certain conditions. The Government charged that Topco's scheme of dividing markets violates the Sherman Act because it operates to prohibit competition in Topco-brand products among retail grocery chains, and also challenged Topco's restrictions on wholesaling. Topco contended that it needs territorial divisions to maintain its private-label program and to enable it to compete with the larger chains; that the association could not exist if the territorial divisions were not exclusive; and that the restrictions on competition in Topco-brand sales enable members to meet larger chain competition. The District Court, agreeing with Topco, upheld the restrictive practices as reasonable and pro-competitive.

Held: The Topco scheme of allocating territories to minimize competition at the retail level is a horizontal restraint constituting a per se violation of § 1 of the Sherman Act, and the District Court erred in applying a rule of reason to the restrictive practices here involved. United States v. Sealy, Inc., 388 U.S. 350. Topco's limitations upon reselling at wholesale are for the same reason per se invalid under § 1. Pp. 606-612.

319 F. Supp. 1031, reversed and remanded.

MARSHALL, J., delivered the opinion of the Court, in which DOUGLAS, BRENNAN, STEWART, and WHITE, JJ., joined. BLACKMUN, J., filed an opinion concurring in the result, post, p. 612. BURGER, C. J., filed a dissenting opinion, post, p. 613. POWELL and REHNQUIST, JJ., took no part in the consideration or decision of the case.

Howard E. Shapiro argued the cause for the United States. With him on the briefs were Solicitor General Griswold and Deputy Assistant Attorney General Comegys.

Victor E. Grimm argued the cause for appellee. With him on the brief were John T. Loughlin and William R. Carney.