Cont'l T.V., Inc.v.GTE Sylvania Inc.

GTE Sylvania Inc. manufactures and sells television sets through its Home Entertainment Products Division.¹ Prior to 1962, like most other television manufacturers, Sylvania sold its televisions to independent or company-owned distributors who in turn resold to a large and diverse group of retailers.²

Prompted by a decline in its market share to a relatively insignificant 1% to 2% of national television sales, Sylvania conducted an intensive reassessment of its marketing strategy and in 1962 adopted the franchise plan challenged here.³ Sylvania phased out its wholesale distributors and began to sell its televisions directly to a smaller and more select group of franchised retailers.⁴ Sylvania limited the number of franchises granted for any given area and required each franchisee to sell his Sylvania products only from the location or locations at which he was franchised.⁵

In the spring of 1965, dissatisfied with its sales in San Francisco, Sylvania decided to franchise Young Brothers, an established San Francisco retailer of televisions, as an additional San Francisco retailer.⁶ The proposed location of the new franchise was approximately a mile from a retail outlet operated by petitioner Continental T.V., Inc. Continental protested that the location of the new franchise violated Sylvania's marketing policy, but Sylvania persisted in its plans.⁷ Continental then canceled a large Sylvania order and placed a large order with Phillips, one of Sylvania's competitors.⁸

During this same period, Continental expressed a desire to open a store in Sacramento, Cal., a desire Sylvania attributed at least in part to Continental's displeasure over the Young Brothers decision.⁹ Sylvania denied the request.¹⁰ In the face of this denial, Continental advised Sylvania in early September 1965 that it was in the process of moving Sylvania merchandise from its San Jose, Cal., warehouse to a new retail location that it had leased in Sacramento.¹¹ Two weeks later, Sylvania's credit department reduced Continental's credit line from $300,000 to $50,000.¹²

In response to the reduction in credit and the generally deteriorating relations with Sylvania, Continental withheld all payments owed to John P. Maguire & Co., Inc., the finance company that handled the credit arrangements between Sylvania and its retailers.¹³ Shortly thereafter, Sylvania terminated Continental's franchises, and Maguire filed this diversity action in the United States District Court for the Northern District of California seeking recovery of money owed and of secured merchandise held by Continental.¹⁴

Continental brought cross-claims against Sylvania and Maguire.¹⁵ The most important claim was that Sylvania had violated section 1 of the Sherman Act by entering into and enforcing franchise agreements that prohibited the sale of Sylvania products other than from specified locations.¹⁶ At the close of evidence in the jury trial of Continental's claims, the District Court instructed the jury that if Sylvania exercised dominion or control over the products after parting with title and risk, any effort to restrict outlets or store locations would be a violation regardless of reasonableness.¹⁷ In answers to special interrogatories, the jury found that Sylvania had engaged in a contract, combination or conspiracy in restraint of trade in violation of the antitrust laws with respect to location restrictions alone, and assessed Continental's damages at $591,505, which was trebled to produce an award of $1,774,515.¹⁸

On appeal, the Court of Appeals for the Ninth Circuit, sitting en banc, reversed by a divided vote.¹⁹ The Supreme Court granted Continental's petition for certiorari to resolve this important question of antitrust law.²⁰