Continental T. V., Inc. v. GTE Sylvania Inc.

In 1962, GTE Sylvania Incorporated (Sylvania) enacted a plan that limited the number of franchises in any given geographical area to which they would sell televisions. Three years later, Sylvania franchised a San Francisco area company, Young Brothers, which was located only one mile from one of their existing franchises, Continental T.V., Inc. (Continental). Continental protested that the Young Brothers franchise violated Sylvania’s new location restrictions. When Sylvania ignored their protests, Continental tried to acquire more Sylvania televisions to sell in a new retail location in Sacramento. Sylvania already had retailers near Continental’s new Sacramento location and declined to supply them with more televisions, so Continental withheld payments they owed Sylvania under an existing franchise agreement.

Continental sued in district court and alleged that Sylvania’s franchise agreements, which placed location-based restrictions on the sale of their products, violated the Sherman Anti-Trust Act (Sherman Act). A jury found that Sylvania’s location restrictions violated the per se rule established in United States v. Arnold, Schwinn, & Co. that prohibited manufacturers from “restrict[ing] and confin[ing] areas or persons with whom an article may be traded after the manufacturer has parted with dominion over it.” Sylvania appealed to the U.S. Court of Appeals for the Ninth Circuit, which declined to apply the per se rule. Instead, the appellate court distinguished this case from Schwinn, applied a reasonableness rule, and held that Sylvania’s restrictions “had less potential for competitive harm than” other invalidated restrictions.