Manufacturers and dealers often enter into various contracts to sell them efficiently. Unfortunately, to maximize their profits, business people often indulge in malpractices or unfair trade practices. To prevent business practices that may harm the country’s citizens, the government has developed antitrust laws. Antitrust laws come under a commonly used umbrella term known as competition laws. The word “trust” in antitrust refers to a group of businesses that form a monopoly to rule over a particular market. Antitrust laws are also applied to ensure that there is fair competition in the market. In the United States of America, antitrust law is a large collection of state and federal laws that aim to make businesses operate using fair practices. People who support such laws say that they are necessary for an open market like the US to promote innovation. In addition, there should be healthy competition amongst sellers so that consumers get high quality in a wide range of products at lower prices. The antitrust laws aim to tackle such malpractices to facilitate easier trade.
A product goes through various stages before reaching the final consumer. First, raw materials are supplied to the manufacturers through a supplier. Second, the manufacturer then creates a product using such raw material. Third, the distributors and wholesale suppliers are then hired to let the product reach the retailers. Finally, it is the retailer from whom the customer purchases the products. This link of various stages is called the supply chain. Most of the time, manufacturers and many manufacturing firms research their final consumer through a middleman such as a franchised dealer or a distributor. Thus, an association is formed between the dealer and the distributor. This association is frequently signed under a contract that includes clauses restricting the distributor’s territory and customers.
Manufacturers sometime limit the reach of the product to selective customers to whom they want to sell their product. The manufacturer can restrict its distribution to customers by limiting the product in various levels of supply chains that are not doing the same function, which is considered as customer restriction. For example, customer restriction is imposed by a manufacturer by limiting the person to whom their distributors may sell the product. It is done to arrive at the desired profits by selling the products to a targeted consumer base. Until recent times, generally, customer restrictions were upheld as legal as they were tested under the rule of reason. As a result, only some customer restrictions, categorized as price-fixing schemes, were considered illegal. In the case of United States v. Arnold Schwinn & Co., the test of the rule of reason was not considered an appropriate test for the legality of vertical customer restrictions. In this case, the partiality has been done by the manufacturer to sell their products only to those distributors who sell only to the manufacturer-approved customers. Arnold Schwinn argued that the McGuire act permitted such contracts. The McGuire act has specific restrictions by providing exemption to the fair trade contracts from the antitrust laws.
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