When is a Tying Contract Illegal Under the Clayton Act?

A tying contract is one in which a product is sold or leased only on the condition that the buyer purchase a different product or service from the seller or lessor. A common type of tying, known as full-line forcing, is where a seller compels the buyer to take a complete product line from the seller. That is, the buyer cannot purchase just one product in the line. Another situation involves tying unpatented products to a patented product. Such a practices are per se illegal if the following elements are present:

Separate Products - The tying and tied product are two separate products;

Market Power - The defendant has substantial market power in tying the product market;

Forecloses Trade - The tying agreement prevents a substantial amount of trade in the relevant market;

Forced Sale - The defendant effectively forces a substantial number of customers to purchase the tied product under conditions where they may otherwise look to other sellers in the market;

Harm to Competition - There must be an identifiable lessening of competition in the market, and

No Competitive Justification - No legitimate pro-competitive justification exists.

The general defenses of maintaining company goodwill, pro-competitive or strategic objectives, and generating market efficiencies are available to combat a finding of anticompetitive effect.

Example: A common example of an illegal tying arrangement involves tying a patented drug to an unpatented medicine dispenser. This seeks to extend the monopolistic rights allowed to patent holders to non-patented items.

Next Article: Clayton Act - Reciprocal Dealing Arrangements Back to: ANTITRUST LAW