Java Bean Company imports coffee beans and sells them under two-year contracts to Mellow Roast, Inc., and other coffeemakers. The contracts require that during the two-year term a coffeemaker not buy beans from Java Bean's competitors. The contracts do not limit the coffeemakers' purchase of tea or other beverage ingredients from other suppliers, however. In the second year of the contract, Mellow Roast protests that this arrangement violates antitrust law. Is Mellow Roast correct? If not, why not? If so, under which antitrust statute, or statutes, could these contracts be held illegal?

Question

What will be an ideal response?

Answer 1

Java Bean's contracts are exclusive-dealing contracts. These contracts may be held illegal under the Sherman Act, the Clayton Act, or the Federal Trade Commission (FTC) Act. Section 1 of the Sherman Act prohibits any agreement that is an unreasonable restraint of trade. Under this prohibition, a contract is subject to the rule of reason. A court would consider the purpose of the arrangement, the powers of the parties, and the effect of their actions in restraining trade. If the anticompetitive effects outweigh the competitive benefits, the contracts would be held unlawful. Section 3 of the Clayton Act specifically prohibits exclusive-dealing contracts when their effect is to substantially lessen competition or tend to create a monopoly. Section 5 of the FTC Act prohibits unfair methods of competition in or affecting commerce. If these contracts are held to be otherwise illegal under one of these statutes, that the contracts are limited to two-year terms and do not proscribe the coffeemakers' purchase of tea and other beverage ingredients from other suppliers are not factors that would make them legal.