Clayton Act - Tying Arrangements
When is Tying the Sale of One Product to Another Illegal?
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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.
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Discussion: How do you feel about prohibiting tying goods from a single provider? Do you believe the above-listed elements are sufficient to identify anticompetitive practices? Why or why not? Should general, pro-competitive defenses be sufficient to justify tying contracts? Why or why not?
Practice Question: ABC Corp carries a line of products. One of its products is subject to a utility patent and is the only product of its type currently on the market. Lots of market competitors make accessories for this product. ABC, however, requires that any purchaser of this product also purchase several of ABCs accessory products? If the FTC challenges these sales agreements, what elements would a court use to determine whether the practice is anticompetitive?