For example, the Northern Pacific Railway Company received a large land grant from the federal government in 1864 and 1870. Northern Pacific broke the land into many 800 square foot tracts, and then sold the individual tracts to various buyers. The tracts of land were rich in minerals and timber. In the sales agreement for each tract of land, Northern Pacific included a clause that compelled all buyers to use Northern Pacific's railway lines to ship all commodities produced or manufactured on the land. The U.S. Supreme Court considered this scheme a tying arrangement, where the tract of land was the "tying" product and the use of the railway was the "tied" product.
Tying arrangement
Definition
An agreement in which the seller conditions the sale of one product (the "tying" product) on the buyer's agreement to purchase a separate product (the "tied" product) from the seller. Alternatively, it is also considered a tying arrangement when the seller conditions the sale of the tying product on the buyer's agreement not to purchase the tied product from any other seller. See Eastman Kodak v. Image Technical Services, Inc., 504 U.S. 541 (1992).
Overview
Tying arrangements are not necessarily unlawful. Antitrust concerns are raised by tying arrangements to the extent that they are used to maintain or augment the seller's pre-existing market power or impair competition on the merits in the market for the tied product.
Where a tying arrangement is unlawful, it may be illegal per se or illegal under the rule of reason. The requirements for a per se violation are: the forced purchase of one commodity in order to obtain a separate desired commodity or service; possession by the seller of sufficient economic power with respect to the tying product to restrain free trade in the market for the tied product; and that the arrangement affects a not insubstantial amount of commerce in the market for the tied product. If the requirements for a per se violation are not met, a tying arrangement may be illegal under the rule of reason if: it results in an unreasonable restraint on trade in the relevant market under § 1 of the Sherman Act; or its probable effect is a substantial lessening of competition in the relevant market under § 3 of the Clayton Act.
See Antitrust Law for more information.
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 purchase that product from any other supplier. . . . They [tying arrangements] deny competitors free access to the market for the tied product not because the party imposing the tying requirements has a better product or a lower price, but because of his power or leverage in another market. At the same time, buyers are forced to forego their free choice between competing products. For these reasons, "tying agreements fare harshly under the laws forbidding restraints of trade." Times-Picayune Publishing Co. v. United States, 345 U. S. 594.
