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CASES ADJUDGED

IN THE

SUPREME COURT OF THE UNITED STATES

AT

OCTOBER TERM, 1957.

NORTHERN PACIFIC RAILWAY CO. ET AL. v. UNITED STATES.

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF WASHINGTON.

No. 59. Argued January 7-8, 1958.-Decided March 10, 1958.

Under §4 of the Sherman Act, the Government sued in a Federal District Court for a declaration that appellant railroad's “preferential routing" agreements are unlawful as unreasonable restraints of trade under § 1 of the Act. Such agreements were incorporated in deeds and leases to several million acres of land in several Northwestern States, originally granted to the railroad to facilitate its construction. They compel the grantees and lessees to ship over the railroad's lines all commodities produced or manufactured on the land, provided its rates (and in some instances its service) are equal to those of competing carriers. Many of the goods produced on such lands are shipped from one State to another. After various pretrial proceedings, the Government moved for summary judgment. The district judge made numerous findings based on pleadings, stipulations, depositions and answers to interrogatories; granted the Government's motion; and enjoined the railroad from enforcing such "preferential routing" clauses. Held: The judgment is affirmed. Pp. 2-12.

(a) A tying arrangement, whereby a party agrees to sell one product only on condition that the buyer also purchases a different (or tied) product, or at least agrees that he will not purchase that product from any other supplier, is per se unreasonable and unlawful under the Sherman Act whenever the seller has sufficient

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Opinion of the Court.

356 U.S.

economic power with respect to the tying product to restrain appreciably free competition in the market for the tied product, and a "not insubstantial" amount of interstate commerce is affected. Pp. 5-7.

(b) On the record in this case, the undisputed facts established beyond any genuine question that appellant possessed substantial economic power by virtue of its extensive landholdings which it used as leverage to induce large numbers of purchasers and lessees to give it preference, to the exclusion of its competitors, in carrying goods or produce from the land transferred to them, and that a "not insubstantial" amount of interstate commerce was and is affected. Pp. 7–8.

(c) The essential prerequisites for treating appellant's tying arrangements as unreasonable per se were conclusively established in the District Court, and appellant has offered to prove nothing there or here which would alter this conclusion. P. 8.

(d) The conclusion here reached is supported by International Salt Co. v. United States, 332 U. S. 392, which was not limited by Times-Picayune Publishing Co. v. United States, 345 U. S. 594. Pp. 8-11.

(e) That appellant's "preferential routing" clauses are subject. to certain exceptions and may have been administered leniently does not avoid their stifling effect on competition. Pp. 11-12. 142 F. Supp. 679, affirmed.

M. L. Countryman, Jr. argued the cause for appellants. With him on the brief was Dean H. Eastman.

Daniel M. Friedman argued the cause for the United States. With him on the brief were Solicitor General Rankin, Assistant Attorney General Hansen, Henry Geller, Margaret H. Brass and W. Louise Florencourt.

MR. JUSTICE BLACK delivered the opinion of the Court.

In 1864 and 1870 Congress granted the predecessor of the Northern Pacific Railway Company approximately forty million acres of land in several Northwestern States and Territories to facilitate its construction of a railroad

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Opinion of the Court.

line from Lake Superior to Puget Sound.1 In general terms, this grant consisted of every alternate section of land in a belt 20 miles wide on each side of the track through States and 40 miles wide through Territories. The granted lands were of various kinds; some contained great stands of timber, some iron ore or other valuable mineral deposits, some oil or natural gas, while still other sections were useful for agriculture, grazing or industrial purposes. By 1949 the Railroad had sold about 37,000,000 acres of its holdings, but had reserved mineral rights in 6,500,000 of those acres. Most of the unsold land was leased for one purpose or another. In a large number of its sales contracts and most of its lease agreements the Railroad had inserted "preferential routing" clauses which compelled the grantee or lessee to ship over its lines all commodities produced or manufactured on the land, provided that its rates (and in some instances its service) were equal to those of competing carriers. Since many of the goods produced on the lands subject to these "preferential routing" provisions are shipped from one State to another the actual and potential amount of interstate commerce affected is substantial. Alternative means of transportation exist for a large portion of these shipments including the facilities of two other major railroad systems.

In 1949 the Government filed suit under § 4 of the Sherman Act seeking a declaration that the defendant's "preferential routing" agreements were unlawful as

113 Stat. 365, 16 Stat. 378. The details of these statutory grants are extensively set forth and discussed in United States v. Northern Pacific R. Co., 256 U. S. 51, and United States v. Northern Pacific R. Co., 311 U. S. 317.

2 The volume and nature of these restrictive provisions are set forth in more detail hereafter. See note 6, infra.

Opinion of the Court.

356 U.S.

unreasonable restraints of trade under § 1 of that Act.3 After various pretrial proceedings the Government moved for summary judgment contending that on the undisputed facts it was entitled, as a matter of law, to the relief demanded. The district judge made numerous findings, as set forth in substance in the preceding paragraph, based on the voluminous pleadings, stipulations, depositions and answers to interrogatories filed in the case, and then granted the Government's motion (with an exception not relevant here). 142 F. Supp. 679. He issued an order enjoining the defendant from enforcing the existing "preferential routing" clauses or from entering into any future agreements containing them. The defendant took a direct appeal to this Court under § 2 of the Expediting Act of 1903, 32 Stat. 823, as amended, 15 U. S. C. § 29, and we noted probable jurisdiction. 352 U. S. 980.

The Sherman Act was designed to be a comprehensive charter of economic liberty aimed at preserving free and unfettered competition as the rule of trade. It rests on the premise that the unrestrained interaction of competitive forces will yield the best allocation of our economic resources, the lowest prices, the highest quality and the greatest material progress, while at the same time providing an environment conducive to the preservation of our democratic political and social institutions.

But even

were that premise open to question, the policy unequivocally laid down by the Act is competition. And to this end it prohibits "Every contract, combination . . . or

3 26 Stat. 209, as amended, 15 U. S. C. §§ 1, 4. Actually there are two defendants here, the Northern Pacific Railway Company and its wholly owned subsidiary Northwestern Improvement Company which sells, leases and manages the Railroad's lands. For convenience and since Northwestern is completely controlled by the Railroad we shall speak of the two of them as a single "defendant" or as the "Railroad."

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Opinion of the Court.

conspiracy, in restraint of trade or commerce among the several States." Although this prohibition is literally allencompassing, the courts have construed it as precluding only those contracts or combinations which "unreasonably" restrain competition. Standard Oil Co. of New Jersey v. United States, 221 U. S. 1; Chicago Board of Trade v. United States, 246 U. S. 231.

However, there are certain agreements or practices which because of their pernicious effect on competition and lack of any redeeming virtue are conclusively presumed to be unreasonable and therefore illegal without elaborate inquiry as to the precise harm they have caused or the business excuse for their use. This principle of per se unreasonableness not only makes the type of restraints which are proscribed by the Sherman Act more certain to the benefit of everyone concerned, but it also avoids the necessity for an incredibly complicated and prolonged economic investigation into the entire history of the industry involved, as well as related industries, in an effort to determine at large whether a particular restraint has been unreasonable-an inquiry so often wholly fruitless when undertaken. Among the practices which the courts have heretofore deemed to be unlawful in and of themselves are price fixing, United States v. SoconyVacuum Oil Co., 310 U. S. 150, 210; division of markets, United States v. Addyston Pipe & Steel Co., 85 F. 271, aff'd, 175 U. S. 211; group boycotts, Fashion Originators' Guild v. Federal Trade Comm'n, 312 U. S. 457; and tying arrangements, International Salt Co. v. United States, 332 U. S. 392.

For our purposes a tying arrangement may be defined as an agreement by a party to sell one product but only on the condition that the buyer also purchases a different (or tied) product, or at least agrees that he will not

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