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Washington Law Review

Henry N. Butler

Abstract

The analysis presented in this article addresses the narrow issue of the effects of potential treble damage actions on the behavior of contractually-related manufacturers and distributors. Part II of this article presents the notion of opportunistic behavior, which has influenced much of the economic analysis and the Supreme Court's recent treatment of vertical nonprice restraints. The transformation of the threat of opportunism into socially-wasteful expenditures of resources is also discussed. Part III examines the problematic role of opportunism in the distribution of goods, restricted distribution practices that aim to solve the problem, and the antitrust treatment of such restricted distribution practices. This part argues that, in terms of controlling opportunism, which is the substantive purpose of the practice, the Supreme Court's formalistic distinction between price and nonprice restraints is not useful. Part IV examines the perverse incentives created by the current antitrust treatment of restricted distribution practices. Part IV begins with an analysis of contract law damages and the incentives to engage in opportunistic behavior through inducing breach and collecting damages when stipulated damage clauses provide for damages greater than actual damages. The analysis is then extended to the antitrust treatment of restricted distribution contracts where the threat of a treble damage action is viewed as an implicit government-mandated clause stipulating damages greater than actual damages. Thus, the incentives to engage in opportunistic behavior through the manipulation of restricted distribution contract terms are the same as under other contracts when stipulated damages are greater than actual damages. This part argues that the pursuit of treble damages in restricted distribution cases is another form of opportunistic behavior, and that the threat of such opportunistic behavior increases the costs of procompetitive distribution practices and thus decreases consumer welfare. The opportunistic pursuit of treble damages also explains why distributor and franchisee terminations are among the most actively litigated categories of antitrust actions. Part V discusses the policy implications of the analysis. Although it is clear that the perverse incentives created by the current state of the antitrust law of restricted distribution practices could be eliminated by declaring all such practices to be per se legal, the narrow scope of the analysis does not support such a sweeping recommendation. Instead, Part V recommends that when the true basis of an action is a dispute concerning a voluntary contract between vertically-related parties, the problem of the opportunistic pursuit of treble damages should be minimized by adopting a uniform rule of reason for all restricted distribution practices and by revitalizing the in pari delicto defense to antitrust actions.

First Page

27

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