[62] KILKENNY, with whom BROWNING, DUNIWAY and WRIGHT, Circuit Judges, concur in whole or in part (dissenting).

With the majority factual statement so fraught with irrelevancies and weighted with factual issues decide adversely to appellant by the jury, it is our firm belief that a separate statement would be helpful to a full understanding of the principal issue presented. We offer this at the risk of some repetition.

FACTS

By 1962, Sylvania's share of the television market had declined to approximately one or two percent. It then changed its methods in an effort to obtain a larger share of the market. Under its new policy, Sylvania abandoned distribution through wholesalers and decided to sell only to selected retailers who would promote the Sylvania brand. It is undisputed that title to the television sets passed to these retailers. This plan, by limiting the number of franchises in a given area, would reduce intrabrand competition among retailers and serve as an incentive to carry and promote its product. Sylvania called this the "elbow room policy" and believed that these methods would allow it to improve its competitive position. In fact, under this new policy, it increased its market share to 5% in 1965, and, so it claims, this increase permitted it to remain in the market. Sylvania neither restricted franchised retailers from carrying other brands, nor did it require retailers to sell only to customers who lived within a particular territory. However, it did enforce location restrictions on its retailers and prohibited them from reselling its television sets from unauthorized locations.

Continental, one of Sylvania's largest retailers, is composed of a chain of retail stores. In 1965, it opened a new store in Sacramento, shipped sets from another store, and offered them for sale in that city in September, 1965, Sylvania concedes that it had an agreement with Continental under which it was prohibited from moving Sylvania brand merchandise to an unapproved location for resale, without Sylvania's prior approval. Sylvania refused to franchise the new store and, beyond question, hampered Continental's resale efforts in Sacramento. In this case, it is clear that Sylvania's purpose was to prevent more retail intrabrand competition in Sacramento, where most of its sales were by one important retailer.

As an outgrowth of this dispute, Sylvania set in motion a series of maneuvers which seriously affected Continental's ability to resell Sylvania's television sets. To that time, Continental's credit limitation with Sylvania had been $300,000.00 On September 16th, the credit limit was reduced to $50,000.00, at which time Sylvania cancelled pending orders and severed other friendly ties with Continental. About the same time, Sylvania demanded payment of accounts receivable, which had not been its practice in the past. The following October 13th, it cancelled Continental's franchise. On the same day, the company through which Sylvania previously extended credit to Continental sued the latter to collect accounts which were allegedly due. Sylvania then accelerated the collection of the remaining indebtedness, repossessed all of Continental's Sylvania sets, attached its bank accounts and caused its main store and warehouse to be locked and closed. At about the same time, Sylvania notified Philco, another major supplier of Continental, of what it was doing.

Sylvania claims it acted for reasons unrelated to its locations policy and not in retaliation. However, it is manifest that some or all of these actions had something to do with the enforcement of the agreement to restrict locations. This follows since the jury was instructed:

"Therefore, if you find by a preponderance of the evidence that Sylvania entered into a contract, combination or conspiracy with one or more of its dealers pursuant to which Sylvania exercised dominion or control over the products sold to the dealer, after having parted with title and risk to the products, you must find any effort thereafter to restrict outlets or store locations from which its dealers resold the merchandise which they had purchased from Sylvania to be violation of Section 1 of the Sherman Act, regardless of the reasonableness of the location restrictions." [Emphasis supplied.]

On the basis of the evidence and the quoted instruction, the jury answered the following special interrogatory in the affirmative.

"Did Sylvania Electric Products, Inc., engage in a contract, combination or conspiracy in restraint of trade in violation of the antitrust laws with respect to location restrictions alone?"

There is no way of pinpointing the percentage of Sylvania's subsequent behavior that the jury attributed to enforcement efforts. However, it is obvious the jury concluded that Sylvania attempted to and did restrict Continental's business location pursuant to a contract, combination, or conspiracy in violation of the Sherman Act and to the damage of Continental.

Despite what is said on page one of the majority opinion, the district judge did not instruct the jury that Sylvania's practice of fixing by agreement the locations from which Continental was authorized to sell Sylvania products was illegal per se under § 1 of the Sherman Act. To the contrary, it is clear that the district judge presented to the jury the issue of whether Sylvania entered into a contract, combination or conspiracy with one or more of its dealers pursuant to which it exercised dominion and control over the product sold to the dealer after having parted with title and risk to the products, to restrict the territories in which the dealers may resell the merchandise.

The paragraph from the instructions quoted above is relied upon by the majority as a statement to the jury that location clauses are per se illegal. This is one of several interrelated paragraphs in the instructions dealing with the subject of territorial or customer restrictions. Standing alone, this paragraph requires proof both of a contract, combination, or conspiracy, and of an exercise of control by Sylvania after title and risk has passed to the dealers. This and related paragraphs read together also clearly informed the jury that Sylvania would be liable only if it exercised its control to restrict the territories in which the dealers resold.

Counsel for both Sylvania and Continental so understood the instructions. In closing arguments Continental's counsel told the jury that Sylvania had committed a per se violation of the Sherman Act if Sylvania by conspiracy had imposed territorial or price maintenance restrictions on the resale of products purchased from Sylvania. Sylvania's counsel agreed, telling the jury that it was only required to decide whether Sylvania had fixed prices or controlled territories, which would be unlawful, or had franchised by location, which would be lawful.

THE CONSPIRACY

It is sufficient if the arrangement or combination is put together through the coercive tactics of the manufacturer alone. Hobart Bros. Co. v. Malcolm T. Gilliland, Inc., 471 F.2d 894 (5th Cir. 1973). See also Osborn v. Sinclair Refining Co., 324 F.2d 566, 573-574 n. 13 (4th Cir. 1963), discussing United States v. Parke Davis Co., 362 U.S. 29, 80 S.Ct. 503, 4 L.Ed.2d 505 (1960).

ISSUE

In its simplest form, the principal issue before us is whether the district court committed error in giving the mentioned instruction. The answer lies in the applicability of the per se rule stated in United States v. Arnold, Schwinn Co., 388 U.S. 365, 87 S.Ct. 1856, 18 L.Ed.2d 1249 (1967), to the findings of the jury in this case.

DISCUSSION I.

Nowhere in its elaborate opinion does the majority come to grips with the fundamental tenet of antitrust law established in Schwinn. The Schwinn Court made it absolutely clear that once a manufacturer has lost all control over the property, parting with title and risk, thereafter any effort on its part to restrict territory or persons to whom the property may be sold, whether by contract or by silent combination or understanding with the vendee, is a per se violation of Section 1 of the Sherman Act. The language of the Schwinn Court in stating the issue is of importance:

"We are here concerned with a truly vertical arrangement, raising the fundamental question of the degree to which a manufacturer may not only select the customers to whom he will sell, but also, allocate territories for resale and confine access to his product to selected, or franchised retailers. We conclude that the proper application of § 1 of the Sherman Act to this problem requires differentiation between the situation where the manufacturer parts with title, dominion, or risk with respect to the article, and where he completely retains ownership and risk of loss." 388 U.S. at 378, 87 S.Ct. at 1865, 18 L.Ed.2d at 1260. [Emphasis supplied.]

Here, it is conceded that Sylvania parted with title to, dominion over, and risk in connection with the television sets.

Speaking to the same subject, the Schwinn Court said:

"Under the Sherman Act, it is unreasonable without more for a manufacturer to seek to restrict and confine areas or persons with whom an article may be traded after the manufacturer has parted with dominion over it. . . . Such restraints are so obviously destructive of competition that their mere existence is enough. If the manufacturer parts with dominion over his product or transfers risk of loss to another, he may not reserve control over its destiny or the conditions of its resale." Id. at 379, 87 S.Ct. at 1865, 18 L.Ed.2d at 1260. [Emphasis supplied.]

At this point, the Court emphasized that it was not prepared to adopt a per se rule which would prohibit vertical restrictions of territory and all franchising in instances where the manufacturer retained ownership of the goods saying that such a rule might severely hamper small enterprises resorting to reasonable methods of meeting the competition of giants and of merchandising through independent dealers. After this observation, the Court went on to say:

"But to allow this freedom where the manufacturer has parted with dominion over the goods — the usual marketing situation — would violate the ancient rule against restraints on alienation and open the door to exclusivity of outlets and limitation of territory further than prudence permits." Id. at 380, 87 S.Ct. at 1866, 18 L.Ed.2d at 1261. [Emphasis supplied.]

Further emphasizing its ban against restraint on alienation of a product once full title had passed, the Court said:

" Where the manufacturer retains title, dominion, and risk with respect to the product and the position and function of the dealer in question are, in fact, indistinguishable from those of an agent or salesman of the manufacturer, it is only if the impact of the confinement is `unreasonably' restrictive of competition that a violation of § 1 results from such confinements unencumbered by culpable price fixing." Id. at 380, 87 S.Ct. at 1866, 18 L.Ed.2d at 1261. [Emphasis supplied.]

It is only in these limited circumstances that the "rule of reason", so strongly urged by the majority, should be applied.

The majority suggests "that vertically imposed customer restrictions only" were involved in Schwinn and that the Court's statements with reference to territorial limitations were dicta. It is clear that the majority in Schwinn thought otherwise. We quote:

"We come, then, to the legal issues in this case. We are here confronted with challenged vertical restrictions as to territory and dealers. The source of the restrictions is the manufacturer." Id. at 372, 87 S.Ct. at 1862, 18 L.Ed.2d at 1256. [Emphasis supplied.]

Some earlier Supreme Court decisions did not attach a rule of per se illegality to restraints on alienation in the antitrust context. The Schwinn Court has radically changed this position. Again speaking to the prohibition against restraint on alienation in a vertical relationship, the Supreme Court said at page 382, 87 S.Ct. at page 1867, 18 L.Ed.2d at page 1262.

" Once the manufacturer has parted with title and risk, he has parted with dominion over the product, and his effort thereafter to restrict territory or persons to whom the product may be transferred — whether by explicit agreement or by silent combination or understanding with his vendee — is a per se violation of § 1 of the Sherman Act." [Emphasis supplied.]

To further clarify the breadth of the Schwinn decision, we quote from page 378, 87 S.Ct. from page 1865, 18 L.Ed.2d from page 1259:

"[U]pon remand, the decree should be revised to enjoin any limitation upon the freedom of distributors to dispose of the Schwinn products, which they have bought from Schwinn, where and to whomever they choose. The principle is, of course, equally applicable to sales to retailers, and the decree should similarly enjoin the making of any sales to retailers upon any condition, agreement or understanding limiting the retailer's freedom as to where and to whom it will resell the products." [Emphasis supplied.]

The Schwinn Court assumed jurisdiction and not only spoke on the subject of territorial and personal restraints against alienation, but issued a directive to the district court on the type of injunctive restraints to be placed upon Schwinn.

From the foregoing, we can arrive at no conclusion other than that any type of restraint on alienation by a manufacturer over a distributor or a retailer, be it territorial or personal, after title and dominion have passed, is a per se violation of the Act.

II.

The majority urges that the rule of per se illegality established in Schwinn should not be applied to a location restriction as utilized by Sylvania. It is forcefully argued that the location clauses here involved should be judged under what is commonly referred to as the "rule of reason," rather than a rule of per se illegality. As we see it, the majority's "critical and very obvious distinctions" between the restrictions in Schwinn and those of Sylvania are insignificant. The district court in the present case did not extend Schwinn to location clauses by "applying a bit of the literal language of Schwinn without reference to its context or the specific facts of that case. . . ." The court simply took the holding of Schwinn at face value and applied it to a set of facts which it logically encompasses.

It is argued that in Schwinn a wholesaler-distributor was foreclosed from selling Schwinn products to any purchaser located outside his exclusive territory and it is thus distinguishable. But, essentially the same thing can be said of the retailer in Sylvania. Schwinn defined the territorial boundaries within which each distributor could resell. Sylvania specified the precise location from which its retailer could resell. The Schwinn distributor was prohibited from selling beyond the boundaries of his territory. The Sylvania retailer is prohibited from reselling from any location not designated by the manufacturer. Schwinn had a territorial line fixed geographically. Sylvania has a territorial line fixed by the economic limitations upon an effective marketing area. While it is true that the Sylvania territorial line may not be as clearly defined as that in Schwinn, the overall territorial restriction upon competition is just as effective.

The majority's contention that Schwinn should not be applied in this case because Sylvania imposed neither territorial nor customer restrictions is impossible to reconcile with the jury verdict and the district court's findings of fact, which establish that the location clause operated as a territorial restraint. In its findings of fact, the district court quoted the Sylvania sales manual as follows:

The manual states, inter alia, that the "franchise contains a good profitable selling climate by creating `elbow room' in a sensible territory based on market and dealer potential. `Same brand' competition is eliminated."

The district court found that "[a]lthough retail sales of Sylvania brand merchandise could be made to anyone, the sales could be made only from the store location approved by Sylvania. . . . By reason of the inherent limitations respecting advertising and promotion and delivery and service of sets sold, the territory of a retail dealer for sales was, for all practical purposes, limited to a radius of 25-50 miles from a dealer's store location." It may be true in theory that, as the majority argues, "Sylvania's dealers could sell to customers from any area." But since none of Continental's dealers were located within 50 miles of Sacramento, as a practical matter Continental could not sell televisions in that city. The district court further found that the conspiracy between Sylvania and Handy Andy, Sylvania's principal Sacramento distributor, "resulted in the number of Sylvania franchises in Sacramento being reduced from seven in 1963 to three in 1965 with Handy Andy selling all of the Sylvania color TV sets sold in Sacramento and 80 percent of the black and white ones during the first six months of 1966." The majority does not question the accuracy of any of these findings. The district court thus examined the impact of the Sylvania locations practice, concluding that it amounted to a territorial restriction that prevented Continental from competing in Sacramento, a market in which there was only one significant Sylvania distributor. More importantly, these findings are implicit in the jury's verdict.

Schwinn did not expressly outlaw location clauses by name. It did, however, outlaw any and all territorial restrictions on resale to others. This necessarily includes all devices, the inevitable practical effect of which is to restrict a retailer's territory. We are convinced that Sylvania-type location clauses and Schwinn-type territorial restrictions are identical in effect and are both per se illegal under the command of Schwinn.

It is a cardinal rule of antitrust law that the purpose and effect of certain conduct — not its form — governs its legality. Simpson v. Union Oil Co., 377 U.S. 13, 17, 24, 84 S.Ct. 1051, 1054, 1058, 12 L.Ed.2d 98, 102, 106 (1964), teaches that when a court is faced with a new restricting device, the effect of which is substantially the same as that of a method previously condemned as illegal, the per se rule must be applied to the new device. To the same effect is Hobart Brothers Co. v. Malcolm T. Gilliland, Inc., 471 F.2d 894, 899-901 (5th Cir. 1973). This principle is especially applicable to Sylvania. It is sufficient if the restraint is present, in fact, whether the outgrowth of an express or an implied understanding. Hobart Brothers Co., supra, at 900; Beverage Distributors, Inc. v. Olympia Brewing Co., 440 F.2d 21, 28 (9th Cir. 1971).

Schwinn, says the majority, involved a restriction on the locations and types of vendees, while Sylvania only imposed restrictions on the permissible locations of vendors. In attempting to limit the effect of Schwinn, the majority completely overlooks the Schwinn language outlawing any type of a restraint on alienation after the passage of title and dominion. Without giving a reason, the majority, in its interpretation of Schwinn, says: "It is clear to us that `territory and areas' refer to the location of vendees, rather than vendors." There is nothing in Schwinn to suggest such a distinction. Moreover, since Sylvania's enforcement of its location clause, coupled with hard economic facts, prevented consumers in Sacramento from buying Sylvania televisions from Continental, the present case involves a direct limitation on the location of permissible vendees.

III.

The majority's strained emphasis upon the decree of the district court on the Schwinn remand demonstrates the futility of its search to find a ready answer to the Schwinn directive. First of all, the district court decree could not alter or change the effect of the Schwinn decision. More importantly, that the district court followed through on the Schwinn command is made clear by the following language of its judgment:

"Defendant Schwinn and the Association are each jointly and severally enjoined and restrained from, directly or indirectly, imposing, inducing, or securing any condition or any agreement or understanding that limits the freedom of any distributor or retailer of Schwinn products as to where and to whom it may resell such products, by oral or written statements or by acts of retaliation." 291 F. Supp. 564, 565 (N.D.Ill. 1968).

It is true that the remand decree allowed Schwinn to designate in its retail franchise agreements the place of business for which a franchise is issued. Obviously this provision must be read in light of the language of the entire decree and of Schwinn itself. So read, it means only that a manufacturer can specify the location at which a retailer is the manufacturer's authorized representative and assign areas of primary responsibility, but that a manufacturer cannot impose resale restrictions forbidding retailers from selling the manufacturer's product except where the manufacturer allows.

We feel that Justice Clark, writing for the Court, properly interpreted the overall effect of the district court judgment on the Schwinn remand in Reed Brothers, Inc. v. Monsanto Chemical, 525 F.2d 486, 494 (8th Cir. 1975). He there said: ". . . [A] manufacturer may properly designate geographic areas in which distributors shall be primarily responsible for distributing its products and may terminate those who do not adequately represent it or promote the sale of its products in such areas." Citing Schwinn on remand, 291 F. Supp. 567, 568. The Reed Bros. decision fully supports our conclusion that Schwinn controls on our facts. Time and time again, the Reed Bros. court echoes the Schwinn precept that once a manufacturer parts with title to and dominion over the product, it is a per se violation of the Sherman Act to restrict areas within which, or persons to whom, an article may be resold.

The majority also seeks support for its views in a provision of the decree on remand in United States v. Topco Associates, Inc., 405 U.S. 596, 92 S.Ct. 1126, 31 L.Ed.2d 515 (1972). In fact, Topco strengthened and extended the Schwinn per se rule against territorial restrictions. Topco, which struck down a horizontal division of territories, explained the reason for the Schwinn per se approach

"Without the per se rules, businessmen would be left with little to aid them in predicting in any particular case what courts will find to be legal and illegal under the Sherman Act. Should Congress ultimately determined that predictability is unimportant in this area of the law, it can of course, make per se rules in some or all cases, and leave courts to ramble through the wilds of economics theory in order to maintain a flexible approach." Id. at 10. 92 S.Ct. at 1134. 31 L.Ed.2d at 527.

The majority would downgrade Topco by insisting that it was severely limited by the judgment on remand, which judgment was later affirmed comment by the Supreme Court.

Upon remand in Topco , the district court in the fore part of its decision carefully followed the decision of the Supreme Court by prohibiting the defendant from any type of an arrangement which would restrict the territories within which or persons to whom any member firm might sell products procured from or through Topco, and then went to engage in a lot gobbledygook, introducing what seems to be a meaningless paragraph V with reference to locations which, pertinent part, reads:

"V

Notwithstanding the foregoing provisions, noting in this final Judgment shall prevent defendant . . . (2) from designation the location of the place or places of business for which a trademark license is issued, provided that defendant shall not refuse to grant a trademark license to any member or withdraw a license from any member, except any withdrawal incident to the bona fide termination of any member firm's membership in Topco, if such action would achieve maintain territorial exclusivity in any member firm; . . . ." Id. at ¶ 74,391.

While the provision is loaded with ambiguity even at its clearest it can mean no more than that Topco could be entitled to designate the location of the place or places of business for which a trade mark license is issued, provided that the granting of such location did not result is restricting the territories within which or the persons to whom any member firm might sell products procured from or through Topco, in violation of the Supreme Court Topco decision and Paragraph I, III and IV of the district court decision on remand.

That the attorneys for Topco on the appeal from the judgment on remand placed no such construction on the district court judgment is made evident by the following language taken from pages 5 and 6 of their brief on appeal, to-wit:

"The district court outlined in Paragraph V the activities in which the defendant could engage without violating the court's injunction. The government argues that Paragraph V renders the decreed relief inadequate `because it fails to protect against and in fact permits continuation of territories among competing sellers of Topco branded products' (Juris. Statement, p. 5) In fact it does not. By its very terms Paragraph V. forbids any of these practices if they are `directly or indirectly used to achieve or maintain' the prohibited territorial restrictions. (App.C, p. XX.) If the Topco were to engage in activity having such an effect, a violation of the decree would result." [Emphasis supplied.]

With Topco making this concession, it is easy to understand why the Supreme Court affirmed without comment.

Early this year the Fifth Circuit in Copper Liquor, Inc. v. Adolph Coors Co., 506 F.2d 934 (5th Cir. 1975), commencing on Topco and Schwinn said:

" Notwithstanding, standard Oil Co. v. United States. 1911, 221 U.S. 1, 31, S.Ct. 502, 55 L.Ed. 619 Topco and Schwinn, read together, suggest that at this point we must accept the fact at this court has set its facie against both horizontal and vertical territorial restriction, with the possible exception of vertically imposed restrictions by `new entrants' and `failing companies' briefly mentioned in Schwinn." Id. at 943.

We are not persuaded by the majority's exhaustive analysis of Copper Liquor. No matter how it is digest, it reaffirm the Schwinn dogma that the Supreme Court has "set its face against both horizontal and vertical territorial restriction, with the possible exception of vertically imposed restriction by `new entrants' and `failing companies.'" Sylvania is neither a "failing company" nor a new comer seeking to break into the television business.

As recently as November 15, 1975, then Fifth Circuit in Eastex Aviation, Inc., v. The Sperry Hutchison Co., 522 F.2d 1299, reaffirmed its position that where a manufactures sell products to distributors subjects to territorial restriction on resale, there is a per se violation of the Sherman Antitrust Act and that it is unreasonable, without more, for a manufacture to seek to restrict and confine areas of persons with whom an article may be traded after the manufacture has parted with dominion over the article.

IV.

The majority conveniently confuses and integrates location clauses and exclusive dealerships, claiming them to be so interdependent as to make exclusive dealerships unless without resale-type location clauses as an enforcement option. The two are clearly distinguishable. In an exclusive dealership, the distributor, dealer or franchisee obtain a manufacturer's self-imposed promise not to contract with another distributor in the general area. A location clause with a restraint on alienation deals with the manufactures's control over the place from which a distributor, dealer, or franchisee may resell a product. Schwinn expressly ordains the exclusive dealership to be an acceptable practice, as do cases on which the majority relies, for example, Bushie v. Stenocord Crop., 460 F.2d 116 (9th Cir. 1972), and Joseph E. Seagram Sons v. Hawaiian Oke Liquors Ltd., 416 F.2d 71 (9th Cir. 1969), cert. denied, 396 U.S. 1062, 90 S.Ct. 752, 24 L.Ed.2d 755 (1970). Neither Seagram Sons nor Bushie extend approval to location clauses, such as those under scrutiny. They deal solely with exclusive dealerships. It is one thing for a manufacturer to restrict its own behavior. It is quite another to try to restrict that of an independent business entity.

It is generally agreed that the utility of exclusive dealerships resides in the ability to manipulate the density of sales outlets. The grant of an exclusive dealership is but a promise by the manufacturer not to sell to other nearby distributors. This serves as the stimulus for active product marketing by dealers. However, under Schwinn if a manufacturer uses the grant to prevent the dealer from reselling goods in which the dealer has full title and dominion, he is employing a prohibited restraint on alienation. Just because the courts have approved exclusive dealerships, such as involved in Seagram Sons and Bushie, does not mean that manufacturers can employ a location clause to place a restraint on alienation in order to limit the territories in which their distributors can resell. We agree with the commentator who described as "fallacious" the "contention that the location clause is lawful, as along as the manufacturer lawfully can grant exclusive franchises. These two types of restrictions are vastly different in terms of market impact. By an exclusive franchise agreement, a manufacturer voluntarily restricts itself. However, when the manufacturer imposes resale restrictions it exercises control over one of the most crucial competitive decisions which any truly independent tradesman must make — where and to whom he will sell his wares. To claim that granting an exclusive franchise is a lawful restraint on alienation on the manufacturer's part and to deny any analytical difference to restraints on alienation imposed on members of the next economic level is legal nonsense." Schmitt, supra,, note 2 at 907-08.

The majority argues that applying a rule of per se illegality to location clauses renders the exclusive distributorship tool useless because it turns a dealer franchised somewhere into a dealer franchised everywhere. This argument is similar to the majority's contention that is a manufacturer has the right to designate the location where a franchise is valid, "then the manufacturer must have the power to enforce these rights if a franchisee violates his location clause agreement." According to the majority, the distinction between the right to approve locations and the right to limit the freedom of a distributor as to where it may sell is "artificial" or "spurious."

The majority commits the same mistakes with respect to both the right to franchise by location and the right to grant exclusive dealerships. Neither device is rendered useless by permitting Continental to sell Sylvania televisions in Sacramento. Sylvania can insure that its products are effectively marketed by granting exclusive distributorships, thereby limiting itself, and by assigning spaced locations and areas of primary responsibility, thereby imposing obligations on its dealers. But Schwinn bars territorial and customer restrictions on resale. Thus, once Sylvanina's legitimate interest in full distribution of its products is satisfied, it has no right to prevent Continental from selling in Sacramento. An analogous distinction was made in Hobart Brothers Co. v. Malcolm T. Gilliland, Inc., supra. The court stated that the manufacturer, Hobart,

". . . could refuse to deal with Gilliland, but that right did not give Hobart immunity so that it could use an illegal territorial restraint." Id. at 900.

The court in Fontana Aviation, Inc. v. Beech Aircraft Corp., 432 F.2d 1080, 1085 (7th Cir. 1970), said that if this right is accompanied by an unlawful agreement "or conceived in . . . market control," then the right "transgresses" the antitrust laws. Similarly, in the present case, Sylvanina's right to grant exclusive distributorships, to approve locations, and to assign areas of primary responsibility does not give it immunity to impose territorial restraints on resale. Arguments to the contrary amount to nothing more than veiled attacks on Schwinn.

V.

Although location clauses operate to severely reduce or eliminate intrabrand competition, the majority argues that the consequence of such clauses is improved interbrand competition, a desirable end under the Sherman Act. That this reasoning, from an antitrust policy viewpoint, is fallacious is demonstrated by the following language in Topco:

" Antitrust laws in general, and the Sherman Act in particular, are the Magna Carta of free enterprise. They are as important to the preservation of economic freedom and our free-enterprise system as the Bill Rights is to the protection of our fundamental personal freedoms. And the freedom guaranteed each and every business, no matter how small, is the freedom to compete — to assert with vigor imagination, devotion, and ingenuity whatever economic muscle it can muster. Implicit in such freedom is the notion that it cannot be foreclosed with respect to one sector of the economy because certain private citizens or groups believe that such foreclosure might promote greater competition in a more important sector of the economy. Cf. United States v. Philadelphia National Bank, 374 U.S. 321, 371, 83 S.Ct. 1715, 1745, 10 L.Ed.2d 915, 949 (1963).

"The District Court determined that by limiting the freedom of its individual members to compete with each other, Topco was doing a greater good fostering competition between members and other large supermarket chains. But, the fallacy in this is that Topco has no authority under the Sherman Act to determine the respective values of competition in various sectors of the economy. On the contrary, the Sherman Act gives to each Topco member and to each prospective member the right to ascertain for itself whether or not competition with other supermarket chains is more desirable than competition in the sale of Topco-brand products. Without territorial restrictions, Topco members may indeed `[cut] each other's throats.' . . . But, we have never found this possibility sufficient to warrant condoning horizontal restraints of trade." 405 U.S. at 610-11, 92 S.Ct. at 1135, 31 L.Ed.2d at 527. [Emphasis supplied.]

Though a horizontal restraint case, Topco stands for the rule that restricted intrabrand competition cannot be justified by allegedly alleged interbrand competitive gain. This rule not only causes the majority rationale to fail, but it provides an excellent economic justification for the Schwinn per se rule, the preservation and encouragement of intrabrand competition, as a desirable end in itself. Under the Schwinn per se rule, small business, free enterprise, and the free market are all necessary beneficiaries.

VI.

A few words about the majority's cases.

The exclusive dealership cases, including Hawaiian Oke and Bushie, have already been distinguished. Great weight is placed on White Motor Co. v. United States, 372 U.S. 253, 83 S.Ct. 696, 9 L.Ed.2d 738 (1963), a case in which the Supreme Court declined to apply a per se rule to vertical restrictions, somewhat similar to those in Schwinn. In White, the Court simply said it was not yet ready to apply the rule. That the White Court did not refuse to apply the pre se rule or reach the plateau attributed to it by Justice Stewart in his Schwinn dissent is made manifest by the following pertinent language:

" We do not know enough of the economic and business stuff out of which these arrangements emerge to be certain. . . . We need to know more that we do about the actual impact of these arrangements on competition to decide whether they have such a `pernicious effect on competition and lack . . . any redeeming virtue' . . . and thereafter should be classified as per se violations of the Sherman Act." Id. at 263, 83 S.Ct. at 702, 9 L.Ed.2d 746..

Justice Stewart's outrage at the breadth of the Schwinn decision is capsized in his expression, "No previous antitrust decision of this Court justifies its action. Instead, it completely repudiates the only case in point, White Motor." 388 U.S. at 388-89, 87 S.Ct. at 1870, 18 L.Ed.2d at 1266. That the fundamental core of the Schwinn per se rule is the residence of title and risk is clearly established by Justice Stewart's dissent in which he can find no valid ground on which to apply the rule of reason to a principal-agent relationship and not apply the same rule to the relationship of vendor-vendee. The Justice's focus on the sales/agency dichotomy certainly demonstrates his view on the essence of the Schwinn decision. The consent decree on the remand of White Motor, United States v. White Motor Co., 1964 Trade Cas. ¶ 71,195 (N.D.Ohio), eliminating territorial and customer restraints from the franchised contract gives us considerable insight to the company's interpretation of the Supreme Court's decision.

The majority argues that the employment of the Schwinn per se rule on the facts of the present case would be wholly inconsistent with United States v. General Motors Corp., 384 U.S. 127, 65 S.Ct. 357, 89 L.Ed. 311 (1966). The Schwinn Court pointed out that General Motors was, first of all, a horizontal restraint case. More than that, in General Motors the dealers initiated the restraint, unlike the manufacturers in Schwinn and Sylvania and, finally, General Motors, and other majority citations are highly suspect due to their age.

A case which is not old and on which the majority heavily relies is Salco Corp. v. General Motors Corp., 517 F.2d 567 (10th Cir. 1975). Although involving a franchise with a location clause, the authority of the decision on our point is fatally weakened by the failure of the court to recognize the Schwinn prohibition on resale, or even make known that such a prohibition was part and parcel of the Schwinn dogma. The only mention of Schwinn is in connection with the well known tenet that a manufacturer of a product for which equivalent brands are readily available in the market may select his customers and for this purpose may franchise certain dealers to whom, alone, he will sell his goods. No one disputes that rule. Boro Hall Corp. v. General motors Corp., 124 F.2d 822 (2d Cir. 1942), cited in Salco, is a relatively ancient case decided long before Schwinn. Additionally, the case is not in point. There the record clearly shows that there was no restriction on the used car dealer preventing the sale of automobile outside the "zone of influence." For that matter, the dealer was notified that he could even establish a location outside of his zone of influence as long as it was not "unduly prejudicial to the interests of other dealers." This is a far cry from the concrete mold in which Sylvania attempted to place Continental.

The force of Boro Hall and Salco is further undermined by a recent exhaustive study of distribution practices in the automobile industry. Schmitt, supra, n. 2. The author of the study concludes that "[i]n the context of automobile dealerships, the location clause constitutes a flat in territorial prohibition. Any other conclusion would be a gross distortion of the hard economic facts." Id. at 904. He further concludes that the location clause is a device through which "the automobile manufacturers effectively have achieved control over intrabrand competition," which has no economic justification, and which "merely substitutes the manufacturers' decisions for those which a dealer should make on the basis of the dictates of the market." Id. at 905-06.

Finally, some comment should be made on the majority's quotation from an address by a Deputy Assistant Attorney General in the Antitrust Division. The quotation in the majority opinion is: "And only last year, a spokesman for the Antitrust Division stated that locations clauses `are not illegal standing by themselves' since `[t]hey reflect the manufacturer's legitimate interest in having his goods distributed efficiently through a particular area.'" The context from which the quotation of Mr. Clearwater was taken is as follows:

"`Location' and `primary responsibility' clauses — under which a seller designates the specific location of his purchaser-customer, or the geographic area in which the purchaser-customer is primarily responsible for the sale of the seller's products — are not illegal standing by themselves. They reflect the manufacturer's legitimate interest in having his goods distributed efficiently throughout a particular area. The purchaser-customer, however, is not restricted from selling elsewhere once the interests of the manufacturer are satisfied. Reading between the lines, however, in those instances in which such clauses are in fact used as a means to impose a territorial restriction on sales, the Department would, of course, consider them illegal." (Clearwater, Franchising and the Antitrust Laws, May 16, 1974). [Emphasis supplied.]

Since, as both the jury and the district court found, the location clauses involved in this case were used by Sylvania to impose a territorial restriction on sales, "the Department would, of course, consider them illegal."

VII.

Initially, Sylvania urged that it was entitled to an instruction on the "failing company" rule stated in Citizens Publishing Co. v. United States, 394 U.S. 131, 89 S.Ct. 927, 22 L.Ed.2d 148 (1969). The majority does not now press for an application of that rule. This is understandable. The evidence offered by Sylvania shows that by 1965 it had made a remarkable recovery from its unstable position in the early sixties. We agree with the trial judge that there was insufficient evidence to submit this issue to the jury.

CONCLUSION

A close analysis and study of the majority opinion reveals that it is patterned after and closely follows Justice Stewart's lengthy and exhaustive dissent in Schwinn. When viewed in broad perspective, the majority holds that Schwinn is bad law and that we should adopt the Stewart approach. We decline to join in an opinion which, we believe, would sub silentio overrule a decision of the Supreme Court.

In urging affirmable, we do not go beyond the jury's verdict that Sylvania enforced its location agreement to create an illegal territorial restraint restricting the locations from which Continental could sell its products. We do not need to decide whether a location clause, without more, creates a per se violation of the Sherman Act.

WE WOULD AFFIRM.

I [ Territories; Restrictions]

The defendant and its member firms have engaged in a combination and conspiracy in unreasonable restraint of the interstate trade and commerce in violation of Section 1 of the Sherman Act ( 15 U.S.C. § 1) by restricting the territories within which or the customers to whom the member firms may sell Topco brand products.

* * * * * * III [ Bylaws; Rules]

Defendant is ordered and directed, within 210 days from the entry of the Final Judgment, to amend its bylaws, Membership and Licensing Agreement, resolution, rules and regulation to eliminated therefore any provision which in any way limits or restricts the territories within which or the persons to whom any member firm may sell Topco brand products.

IV [ Agreement]

Defendants is enjoined and restrained from adopting any bylaw, resolution, rule or regulation and from maintaining, adhering to, entering into or enforcing any contract, agreement, arrangement, understanding, plan or program in which Topco limits or restricts the territories within which or the persons to whom any member firm may sell products procured from or through Topco.

* * * * * *

" Schwinn also stands for the proposition that where a manufacturer does not sell his product to a dealer, but on the contrary retains title, dominion and risk with respect to the product, and the position of the dealer is akin to that of an agent or salesman of the manufacturer, a territorial limitations on such type of a dealer is violative of the Sherman Act only if the impact of such limitation is `unreasonably' restrictive of competition. . . ." Id. at 5.

[129] CHAMBERS, Circuit Judge (concurring and dissenting):

I concur in the judgment of the majority. I dissent from the stream of words used to arrive at the point of reversal. Naturally, this river of words brought forth elongated dissents.

One will note that the author of law majority opinion cites the Texas Law Review and other review comments in his footnote No. 1. These are notes on this case. Law reviews used to wait until the judicial process in a case was complete before entering the fray. Now they chaperone us during the pendently of a case. This is their First Amendment right.

But if this practice of citing their current comment continues, then we shall be out lining up law reviews to support our views. After that we shall be taking the step of quoting the New York Times and the Chicago Tribune. And it will be an easy jump then to include in our opinions the current comments of the Abilene Bugle and Bisbee's Brewery Gulch Gazette.

[133] BROWNING, Circuit Judge, with whom WRIGHT, Circuit Judge, concurs (dissenting):

It is the premise of the majority opinion that the jury was instructed that location clauses are per se illegal under the Sherman Act. Such an instruction, the majority argues: (1) is not supported by United States v. Arnold, Schwinn Co., 388 U.S. 365, 87 S.Ct. 1856, 18 L.Ed.2d 1249 (1967); (2) is inconsistent with the rule permitting exclusive dealerships; and (3) is at odds with the purpose of the Sherman Act.

Judge Kilkenny's opinion demonstrates that the majority's premise is not substantiated by the record. The jury was not instructed that it is unlawful for a manufacturer to designate the location for which a dealer is franchised. Precisely to the contrary, it was instructed that location clauses are lawful. The case was submitted to the jury on the theory that a violation of the antitrust laws is to be found only if Sylvania conspired to control the territories in which its dealers resold merchandise purchased from Sylvania. This was the understanding of counsel for the both parties.

Judge Kilkenny's opinion further demonstrates that the legal theory reflected in the instructions is fully supported by Schwinn, and is consistent with the line of authorities upholding exclusive dealerships.

It is the purpose of this opinion to deal with the majority's third contention by showing that major purpose of the Sherman Act is served by the rule prohibiting a seller from restricting the territory in which the purchaser resells the purchased merchandise. This opinion will also seek to establish that it is appropriate to classify such territorial restrictions as per se illegal, rather than to base illegality upon an ad hoc judicial determination of unreasonableness in the circumstances of each case.

I

The jury's verdict determined that Sylvania restricted the territory in which Continental could resell television sets purchased from Sylvania. Where to sell is a crucial business question. The answer determines the markets in which the seller will compete. Thus, Sylvania interfered with the exercise of Continental's business judgment in a way that significantly impaired Continental's freedom to complete.

Sylvania's conduct toward Continental thwarted an importance purpose of the Sherman Act. Legislative history and Supreme Court decisions establish that a principal objective of the Sherman Act was to protect the right of independent business entities to make their own competitive decisions, free of coercion, collusion, or exclusionary practices.

Congress' general purpose in passing the Sherman Act was to limit and restrain accumulated economic power, represented by the trusts, and to restore and preserve a system of free competitive enterprise. The congressional debates reflect a concern not only with the consumer interest in price, quality, and quantity of goods and services, but also with society's interest in the protection of the independent businessman, for reasons of social and political as well as economic policy.

The Supreme Court has implemented the statutory policy of protecting the independence of individual business units in a series of decisions banning resale price maintenance agreements. These cases are particularly relevant here for, like territorial restraints, resale price maintenance is justified by manufacturers as necessary to enable them to control intrabrand competition by independent dealers in the interest of effective interbrand competition. Indeed, " any argument that can be made on behalf of exclusive territories can also be made on behalf of resale price maintenance."

In the first resale price maintenance decision, Dr. Miles Medical Co. v. John D. Park Sons Co., 220 U.S. 373, 31 S.Ct. 376, 55 L.Ed. 502 (1911), contracts between a manufacturer and its dealers setting minimum retail prices at which the product could be sold were held illegal in part because they created a "restraint upon alienation," which the Court described as "restricting the freedom of trade on the part of dealers who own that they sell." Id. at 407-08, 31 S.Ct. at 384, 55 L.Ed. at 518. The Court concluded that after Dr. Miles "sold its product at prices satisfactory to itself, the public is entitled to whatever advantage may be derived from competition in the subsequent traffic." Id. at 409, 31 S.Ct. at 385, 55 L.Ed. at 519.

Agreements requiring purchasing dealers to observe resale prices fixed by the vendor were held illegal per se in United States v. A. Schrader's Son, Inc., 252 U.S. 85, 40 S.Ct. 251, 64 L.Ed. 471 (1920), because such agreements are "designed to take away dealers' control of their own affairs and thereby destroy competition . . . ." Id. at 100, 40 S.Ct. at 253, 64 L.Ed. at 475. In Simpson v. Union Oil Co., 377 U.S. 13, 17, 84 S.Ct. 1051, 12 L.Ed.2d 98, 102 (1964), the Court struck down a system of consignment agreements between a producer of gasoline and independent service station operators, stating, "If the `consignment' agreement achieves resale price maintenance in violation of the Sherman Act, it and the lease are being used to injure interstate commerce by depriving independent dealers of the exercise of free judgment whether to become consignees at all, or remain consignees, and, in any event, to sell at competitive prices." Id. at 16, 84 S.Ct. at 1054, 12 L.Ed.2d at 104. The Court condemned the consignment program "[for] destroying competition in retail sales of gasoline by these nominal `consignees' who are in reality small struggling competitors seeking retail gas customers." Id. at 21, 84 S.Ct. at 1057, 12 L.Ed.2d at 105. In Kiefer-Stewart Co. v. Joseph E. Seagram Sons, Inc., 340 U.S. 211, 71 S.Ct. 259, 95 L.Ed. 219 (1951), the Court held an agreement among competitors to fix maximum resale prices to be illegal because "such agreements, no less than those to fix minimum prices, cripple the freedom of traders and thereby restrain their ability to sell in accordance with their own judgment." Id. at 213, 71 S.Ct. at 260, 95 L.Ed. at 223.

The same theme of protecting the right of independent business entities to compete runs through Supreme Court decisions holding group boycotts illegal per se. In the first of these cases, Montague Co. v. Lowry, 193 U.S. 38, 24 S.Ct. 307, 48 L.Ed. 608 (1904), the Supreme Court emphasized the impact of the restraint upon independent dealers, who had been precluded from conducting "their business as they had theretofore done." Id. at 47, 24 S.Ct. at 310, 48 L.Ed. at 612. In Paramount Famous Lasky Corp. v. United States, 282 U.S. 30, 51 S.Ct. 42, 75 L.Ed. 145 (1930), an agreement was held to violate section 1 of the Act because its purpose was to "coerce" independent theater owners into submitting to "unusual arrangements which unreasonably suppress normal competition." Id. at 43, 51 S.Ct. at 45, 75 L.Ed. at 150. Use of a boycott to end "style piracy" was outlawed in Fashion Originators' Guild v. FTC, 312 U.S. 457, 61 S.Ct. 703, 85 L.Ed. 949 (1941), impart because it "[took] away the freedom of action" of participants, id. at 465, 61 S.Ct. at 707, 85 L.Ed. at 953, and forced them to accept "a rival method of competition," id. at 467, 61 S.Ct. at 707, 85 L.Ed. at 954. Similarly, a group boycott was banned in Klor's, Inc. v. Broadway-Hale Stores, Inc., 359 U.S. 207, 79 S.Ct. 705, 3 L.Ed.2d 741 (1959), even though it might lower prices or temporarily stimulate competition, "[f]or, as this Court said in Kiefer-Stewart Co. v. Seagram Sons, 340 U.S. 211, 213, 71 S.Ct. 259, 260, 95 L.Ed. 219, 223 `such agreements, no less than those to fix minimum prices, cripple the freedom of traders and thereby restrain their ability to sell in accordance with their own judgment.'" 359 U.S. at 212, 79 S.Ct. at 709, 3 L.Ed.2d at 745. The Act was violated because the boycott "takes from Klor's its freedom to buy appliances in an open competitive market and drives it out of business as a dealer in defendants' products. It deprives the manufacturers and distributors of their freedom to sell to Klor's at the same prices and conditions made available to Broadway-Hale, and in some instances forbids them from selling to it on any terms whatsoever." Id. at 213, 79 S.Ct. at 710, 3 L.Ed.2d at 745.

In many other contexts, the Supreme Court has rested decisions upon the premise that protection of the freedom to complete of separate business entities is an important objective of the Sherman Act. In Silver v. New York Stock Exchange, 373 U.S. 341, 83 S.Ct. 1246, 10 L.Ed.2d 389 (1963), for example, the Court reasoned that the antitrust laws are an appropriate check upon anticompetitive conduct of market exchanges, "[s]ince the antitrust laws serve, among other things, to protect competitive freedom, i.e., the freedom of individual business units to compete unhindered by the group action of others. . . ." Id. at 359-60, 83 S.Ct. at 1258, 10 L.Ed.2d at 401. A combination between General Motors and some of its dealers to eliminate sales through "discount houses" was held per se illegal in United States v. General Motors Corp., 384 U.S. 127, 86 S.Ct. 1321, 16 L.Ed.2d 415 (1966), because it served "to eliminate a class of competitors by terminating business dealings between them and a minority of Chevrolet dealers and to deprive franchised dealers of their freedom to deal through discounters if they so choose." Id. at 140, 86 S.Ct. at 1328, 16 L.Ed.2d at 423. In FTC v. Brown Shoe Co., 384 U.S. 316, 86 S.Ct. 1501, 16 L.Ed.2d 587 (1966), the Court commented as follows upon Brown Shoe Company's program requiring retail dealers to agree to buy shoes for resale only from the Brown Shoe Company and not from its competitors: "This program obviously conflicts with the central policy of both § 1 of the Sherman Act and § of the Clayton Act against contracts which take away freedom of purchasers to buy in an open market." Id. at 321, 86 S.Ct. at 1054, 16 L.Ed.2d at 591. In United Mine Workers v. Pennington, 381 U.S. 657, 85 S.Ct. 1585, 14 L.Ed.2d 626 (1965), the Court held the Sherman Act violated by an agreement between a union and a group of employees to impose uniform labor standards upon all employers in the industry, noting " the salient characteristic of such agreements is that the union surrenders its freedom of action with respect to its bargaining policy. . . . It is just such restraints upon the freedom of economic units to act according to their own choice and discretion that run counter to antitrust policy." Id. at 668, 85 S.Ct. at 1592, 14 L.Ed.2d at 635.

From the holdings and rationale of these and other Supreme Court decisions, "it seems clear that the protection of individual traders from unnecessary restriction upon their freedom of action is a significant independent objective of antitrust policy." As a commentator recently put it, "The most important of the social policy objectives found in the Court's antitrust decisions are the concepts of business independence and freedom of business opportunity." In Judge Hand's well-known words, Congress was not "actuated by economic motives alone. It is possible, because of its indirect social or moral effect, to prefer a system of small producers, each dependent for his success upon his own skill and character, to one in which the great mass of those engaged must accept the directions of a few. These considerations, which we have suggested as possible purposes of the Act, we think the decisions prove to have been in fact its purposes."

In Schwinn the Supreme Court relied upon several of the cases referred to above ( Dr. Miles Medical Co. v. John D. Park Sons Co., supra; Klor's, Inc. v. Broadway-Hale Stores, Inc., supra Fashion Originators' Guild v. FTC, supra; and United States v. General Motors Corp., supra) in holding per se illegal "any limitation upon the freedom of distributors to dispose of the Schwinn products, which they have bought from Schwinn, where and to whomever they choose. The principle is, of course, equally applicable to sales to retailers, and the decree should similarly enjoin the making of any sales to retailers upon any condition, agreement or understanding limiting the retailer's freedom as to where and to whom it will resell the products." United States v. Arnold, Schwinn Co., supra, 388 U.S. at 378, 87 S.Ct. at 1865, 18 L.Ed.2d at 1259.

The rationale suggested in this and other passages in Schwinn is fully and forcefully reiterated in United States v. Topco Associates, Inc., 405 U.S. 596, 610, 92 S.Ct. 1126, 1135, 31 L.Ed.2d 515, 527 (1972):

Antitrust laws in general, and the Sherman Act in particular, are the Magna Carta of free enterprise. They are as important to the preservation of economic freedom and our free-enterprise system as the Bill of Rights is to the protection of our fundamental personal freedoms. And the freedom guaranteed each and every business, no matter how small, is the freedom to compete — to assert with vigor, imagination, devotion, and ingenuity whatever economic muscle it can muster.

It is apparent that the Schwinn-Topco doctrine outlawing any contract, combination, or conspiracy to impose territorial restraints upon independent traders is founded upon an important and long recognized purpose of the Sherman Act.

II

The remaining question is whether restraints upon the territory in which independent dealers may resell should be condemned without regard to the reasonableness of the restraint in a particular case.

Quoting from Northern Pacific Railway Co. v. United States, 356 U.S. 1, 5, 78 S.Ct. 514, 518, 2 L.Ed.2d 545, 549 (1958), the majority argues that the rule of per se illegality should apply only to a restraint that has a "pernicious effect on competition" and also "lacks any redeeming virtue." The majority recognizes that a territorial restraint upon dealers does eliminate competition in the sale of the manufacturer's products. The majority argues, however (in part upon the authority of Mr. Justice Brennan's concurring opinion in White Motor Co. v. United States, 372 U.S. 253, 269, 83 S.Ct. 696, 705, 9 L.Ed.2d 738, 750 (1963)), that a territorial restraint upon dealers may have the "redeeming virtue" of enhancing competition in the sale of the products of different manufacturers. The majority concludes that the "rule of reason" therefore applies, and the reasonableness and hence the legality of territorial dealer restraints should be left to the jury to decide in each case.

The major flaw in this argument is that it ignores the two most relevant and recent cases, Schwinn and Topco. As Judge Kilkenny's opinion demonstrates, the jury found that Sylvania conspired to control the territories in which Continental and other Sylvania dealers sold products purchased from Sylvania. Schwinn and Topco hold such conduct to be illegal per se under the Sherman Act.

This should end the matter for an intermediate appellate court, even if the correctness of the Schwinn-Topco analysis were doubtful. A reexamination of the Schwinn-Topco analysis in the light of the facts of this case, however, demonstrates that the analysis is sound.

The Supreme Court did not merely resurrect the rule against restraints on alienation in drawing the line separating vertical territorial restraints that are per se illegal from those prohibited only if shown to unreasonably restrict competition.

The naked transfer of title is not a determinative fact. The per se rule may be applicable though the manufacturer retains title. It applies unless "the position and function of the dealer in question are, in fact, indistinguishable from those of an agent or salesman of the manufacturer . . . ." 388 U.S. at 380, 87 S.Ct. at 1866, 18 L.Ed.2d at 1261. Thus, the line drawn separates restraints imposed by a principal upon his agent, from those imposed by one independent business entity upon another. Even if the applicability of the per se rule depended entirely upon the passage of title, that event usually serves to distinguish independent business entities operating on different functional levels of distribution; for, as the Court noted in Schwinn, "most merchandise is distributed by means of purchase and sale." 388 U.S. at 379, 87 S.Ct. at 1866, 18 L.Ed.2d at 1260. It is therefore evident that the Court has located the boundary for application of the per se rule in a way that serves the Sherman Act's purpose of preserving the competitive freedom of independent businessmen.

Despite the majority's contention that a per se rule is appropriate only if the restraint "lacks any redeeming virtue," the Supreme Court's holding in Schwinn and Topco that a restriction upon the territory in which independent traders may resell is per se illegal did not depend upon a conclusion that this restraint has no affirmative value. On the contrary, the Supreme Court recognized that in some circumstances a territorial restraint may promote competition. The Court held that such a restraint is nonetheless per se illegal when imposed upon independent business entities (1) because such a restraint is "obviously destructive" of competition among independent dealers, and (2) because it is not an appropriate judicial function to strike a public interest balance between the certain loss of competition among independent dealers and a possible gain of competition at some other point in the marketing process.

The fact that territorial restrictions inevitably eliminate intrabrand competition among independent dealers is, as the Supreme Court said, obvious. Sylvania concedes as much. Continental's efforts to compete with Handy Andy in the sale of Sylvania products in the Sacramento area were frustrated by Sylvania's enforcement of the location clause. The district court found that after Continental's effort to compete was aborted, Handy Andy sold all of the Sylvania color television sets that were sold in Sacramento.

The Supreme Court knew that benefits to interbrand competition were asserted to flow from manufacturer control of the marketing areas in which dealers sold. It was because of such benefits that the Court sustained territorial restrictions as applied to Schwinn's dealers who were in fact indistinguishable in position and function from "an agent or salesman" of Schwinn. However, the Court declined to consider asserted benefits to interbrand competition where, as in this case, the effect of the territorial restrictions was to eliminate competition among dealers who were independent business entities. Thus, the Court in both Schwinn and Topco invoked a per se rule against territorial restraints on resale because they are destructive of interbrand competition in spite of any beneficial impact they might have on interbrand competition.

The Supreme Court has held that it is not an appropriate judicial function to weigh the loss of intrabrand competition against an alleged gain in interbrand competition in determining whether the Sherman Act has been violated for two related reasons. The first is that courts are ill-equipped to resolve the complex economic problems involved in deciding in a given case whether elimination of intrabrand competition among dealers through territorial restrictions in fact produced compensating gains in interbrand competition among producers. As the Court said in United States v. Topco Associates, Inc., supra, 405 U.S. at 609-10, 92 S.Ct. at 1134, 31 L.Ed.2d at 526:

The fact is that courts are of limited utility in examining difficult economic problems. Our inability to weigh, in any meaningful sense, destruction of competition in one sector of the economy against promotion of competition in another is one important reason we have formulated per se rules.

If the courts were required to review such issues under a "rule of reason," unpredictable ad hoc determinations as to what is or is not illegal under the Sherman Act would result. The Supreme Court suggested that a rule of reason should be applied in this area only if Congress were to decide that predictability is unimportant and that the courts should be "free to ramble through the wilds of economic theory in order to maintain a flexible approach." Id. at 610 n. 10, 92 S.Ct. at 1134 n. 10, 31 L.Ed.2d at 527 n. 10.

The question the majority would submit to the fact finder is not whether the challenged conduct restrains competition, but whether the admitted restraint on intrabrand competition produces net economic benefits through enhanced interbrand competition. In the majority's words, "Whether some diminution in intrabrand competition is justified when it averts the loss of one competitor in an industry that is already oligopolistic should ultimately be a question for the finder of the facts."

The majority frankly acknowledges "that, as a matter of economic theory, there is a sharp divergence of opinion as to the alleged procompetitive effect of vertical territorial restrictions," but regards this disagreement as a reason for submitting the question of the legality of such restraints to the fact-finding judge or jury. (Majority Opinion note 40) The majority's view of the judicial function is at odds with Schwinn, Topco, and the traditions and precedent on which they rest. It is also an invitation to a fruitless enterprise.

Sylvania's own expert witness, Professor Lee E. Preston, testified that in the present state of economic analysis it is not possible to determine the effect that changes in marketing practices at one level of a market will have at other levels.

The majority quotes portions of the testimony of Professor Preston as "substantial evidence from which the jury might have reasonably concluded that Sylvania's location practice, rather than unreasonably restricting competitive market forces, actually had a procompetitive effect in that it enabled a marginal producer to achieve the status of a viable competitor in an industry threatened by oligopolistic tendencies." Majority Opinion at 1001-1002 n. 36. But Professor Preston did not testify that permitting Sylvania to limit dealer locations would enhance competition among producers. He made only the guarded assertion that " if we squeeze out the bottom firms . . . we would see a decline in competition," and " if this distribution policy or any particular distribution policy has the effect of strengthening Sylvania or any other smaller firm as a competitive force . . . then I think we have to look carefully at that policy as an element in competition, indeed as a procompetitive policy . . . ." (emphasis added). Even this limited prediction was dependent on a number of assumptions, at least one of which the jury verdict found to be untrue: Professor Preston conceded that "[i]t would change the whole analysis" if Sylvania restricted the territories in which dealers would resell (R.T. 2910-11, 2917-18).

Moreover, the limited value of Professor Preston's testimony to Sylvania was dissipated on cross-examination. The relevant testimony is quoted in the margin. Professor Preston admitted there was no necessary connection between the use of location clauses and Sylvania's ability to maintain its present market share. He recognized that there were, "of course," many other reasons besides the locations practice that could explain Sylvania's four to five percent market share. Most important, as noted earlier, Professor Preston conceded that it is impossible to specify the impact of changes at the retail level on competition at the manufacturing level.

A judge or jury should not be expected to determine whether Sylvania's locations practice contributed to Sylvania's success in interbrand competition when Sylvania's expert witness was unable to do so. Because the interbrand effects of Sylvania's locations practice cannot be measured, a decision as to whether the net effect of the practice was procompetitive would be sheer guesswork. Finally, as has been shown, even if a net gain in purely economic terms could be established, such restraints could not be sustained consistent with Schwinn, Topco, and the purpose of the Sherman Act to maintain the competitive freedom of independent business units.

The second reason given by the Supreme Court in Topco in support of its holding that courts are unsuitable for the task of deciding whether intrabrand competition among independent dealers should be sacrificed to promote interbrand competition among producers, is that the question is one of public policy properly determined by Congress. The Court said, 405 U.S. at 611-12, 92 S.Ct. at 1135, 31 L.Ed.2d at 528:

If a decision is to be made to sacrifice competition in one portion of the economy for greater competition in another portion, this too is a decision that must be made by Congress and not by private forces or by the courts. Private forces are too keenly aware of their own interests in making such decisions and courts are ill-equipped and ill-situated for such decisionmaking. To analyze, interpret, and evaluate the myriad of competing interests and the endless data that would surely be brought to bear on such decisions, and to make the delicate judgment on the relative values to society of competitive areas of the economy, the judgment of the elected representatives of the people is required.

A judicial tradition, dating at least from Judge Taft's opinion in Addyston Pipe in 1898, bars the courts from weighing conflicting economic predictions to determine the public interest in antitrust litigation. Even when applying the "rule of reason," the courts have not inquired whether "`on some ultimate reckoning of social or economic debits or credits' the conduct may be deemed beneficial. `A value choice of such magnitude is beyond the ordinary limits of judicial competence . . . .'"

This tradition is founded, as the Supreme Court said in Topco, both upon the inadequacy of the judicial process to deal with such disputes, and upon a conviction that questions of economic policy are for legislative rather than judicial determination. "[T]he courts have shown that they can get at the facts of agreement and restrictive intent but cannot find a truly justiciable issue in the choice between rival economic predictions." As the Court said in United States v. Singer Manufacturing Co., 374 U.S. 174, 196, 83 S.Ct. 1773, 1785, 10 L.Ed.2d 823, 839 (1963), "Whether economic consequences of this character warrant relaxation of the scope of enforcement of the antitrust laws, however, is a policy matter committed to congressional or executive resolution. It is not within the province of the courts, whose function is to apply the existing law."

Finally, there is no substance in the majority's prophesy of catastrophic consequences to the competitive vigor of the economy if Sylvania's use of location clauses to impose territorial restrictions on independent dealers is held illegal per se.

The majority predicts that if sellers are prevented from restricting the areas in which purchasers may resell, "giant franchisees" might replace "loyal networks of small businessmen"; small manufacturers might perish due to an inability to attract dealers; and larger manufacturers might eliminate franchisees by integrating vertically. The end result of all this would be "the insidious evil of total monopolization." Majority Opinion at 1000-1001, 1003-1004.

The majority's concerns are speculation.

They rest, moreover, on a false premise. The majority refers to "franchising" as if it were a unitary phenomenon uniformly affected by Schwinn and this case. But there are many types of franchising. Trademark franchising, or the franchising of an entire business or service, for example, "perhaps the most dynamic segment of contractual systems," does not involve the sale of a product, and may not be subject to Schwinn's restrictions at all.

The majority's suggestion that elimination of territorial restrictions might lead to the creation of large franchisees with several outlets, and that this result would be undesirable is nothing more than an argument against competition. Chain stores cannot be prohibited in the name of free competition. If chain franchisees succeed in free competition among independent businessmen making their own decisions, and without predatory conduct, neither the letter nor spirit of the Sherman Act will be offended.

The majority offers no evidence to support its assertion that producers might be unable to develop a distribution system unless they are permitted to guarantee dealers a protected market; and there is substantial evidence to the contrary. "[H]undreds of manufacturers have for years been successfully operating under antitrust decrees forbidding precisely the same type of product control held per se illegal in Arnold, Schwinn Co. Injunctive provisions of this type have long been standard in Department of Justice consent and litigated decrees."

"Predictions of vertical integration" because of antitrust condemnation of vertical restrictions "have proved to be remarkably unreliable in the past." It is unlikely that they would be more reliable in this instance. Producers distribute through independent dealers rather than through their own employees because it is economically advantageous to do so. Vertical integration by a producer into retail distribution is particularly uneconomic. Distribution is a relatively low profit activity. Both capital and operating costs are high. The product "mix" required in most retail operations cannot be furnished by a single producer: "Nobody is going to set up a distribution system to sell toothpaste, no matter what the antitrust laws say." Television sets also may be among the "vast numbers of commodities" for which "it is just hopelessly inefficient to set up a distribution system to handle that commodity only." Continental, for example, sold the products of several manufacturers. Moreover, independent businessmen often bring to distribution qualities such as a "sense of responsibility, industriousness, attention to costs and desire to earn a profit," which are not ordinarily found in salaried employees. Finally, franchising offers significant advantages in avoiding local labor problems, administrative burdens, and a variety of additional taxes. These substantial economic advantages of franchising will remain even if producers are prevented from dictating the territory in which independent dealers resell. The only reasonable prediction, therefore, is that if the district court were affirmed in this case, producers would continue to distribute through independent dealers rather than integrate forward.

. . . . .

Q. So you are not saying that it necessarily follows that these particular distribution policies were or are necessary in order that Sylvania be able to maintain its present market share, are you?

A. No, I certainly am not.

Q. There is no way to tell, is there?

A. I suppose given enough imagination and spending enough money we might conduct some kind of research to satisfy ourselves on it, but I don't think we would be able to.

. . . . .

Q. There is really no way you can tell from the competitive effect at a retail level — you can't tell from that type of information what the competitive effect at the manufacturing level is going to be, can you?

A. They are not the same thing. I agree with that, that they are not the same.

Q. And there doesn't seem any direct correlation between the two?

A. Of course, if a firm, as I say, was pricing its product way out of competitive limits at the retail level, then it would show a decline in marketing shares at the manufacturing level.

Q. Didn't you say in this article, starting at page 508 in Duke Law Review:

"A closely related matter is the interaction between horizontal and vertical market relationships. The present state of economic analysis doesn't in general permit us to specify the impact of changes of one of several vertically related market levels upon structure and behavior at another."

A. Yes, you are quoting from my own writing.

Q. Right, and that was true at the time you wrote this article?

A. Yes.

Q. And it is still true?

A. I have been working on that since then and have written more about it. I think I have a few more ideas but they don't answer the questions yet.

Q. Basically that is still true?

A. Yes, I think that is right.

[177] DUNIWAY, Circuit Judge (dissenting):

I dissent solely on the ground that, as Judge Kilkenny demonstrates in parts I and II of his dissenting opinion, the case of United States v. Arnold, Schwinn Co., 1967, 388 U.S. 365, 87 S.Ct. 1856, 18 L.Ed.2d 1249 is squarely in point. I agree with Judge Browning when he says that "[t]his should end the matter for an intermediate appellate court." I express no views as to the conflicting policy arguments that appear in the respective opinions of Judges Browning, Ely and Kilkenny. I cannot, however, refrain from making one small observation. I am puzzled by the notion that because the courts are not very well equipped to decide between conflicting notions of economic policy, they should pick one side of such argument and erect it into a rule of per se illegality.