Graphic Products Distributors, Inc. v. Itek Corp.

Itek Corporation (defendant) manufactured and sold graphic-arts equipment, including camera processors, microfilm equipment, and platemaking machines. Itek had significant market power in the national graphic-arts-equipment market. In 1975 Itek adopted a dual-distribution system. Under the dual-distribution system, Itek limited its sales to within 50-mile radii of its offices. In areas outside those radii, Itek contracted with independent distributors to sell its equipment. None of the areas controlled by Itek offices or independent distributors overlapped. Itek approached Anthony Zatzos, an Itek salesman, and asked whether he would be interested in opening a distribution center. Zatzos formed Graphic Products Distributors, Inc. (GPD) (plaintiff) and was assigned an area encompassing portions of Georgia and South Carolina. Though GPD stayed within its assigned area for 90 percent of its sales, 10 percent of GPD’s sales occurred within the area assigned to Itek’s Atlanta office. GPD was able to make sales in the Atlanta area by offering prices lower than those offered by the Atlanta office. In 1976, because of GPD’s encroachment of the Atlanta office’s area, Itek terminated its agreement with GPD. GPD filed a lawsuit in federal court against Itek, alleging that Itek’s distribution system violated § 1 of the Sherman Act because it was a horizontal trade restraint for the purpose of fixing prices, and that the system reduced intrabrand competition and resulted in higher prices for customers. To narrow the trial, the district court granted partial summary judgment for Itek, holding that Itek’s distribution system was not a horizontal trade restraint and did not fix prices. At trial, Itek moved for a directed verdict, and its motion was denied. The jury held that Itek’s distribution system was a vertical trade restraint and that the territorial restrictions imposed by the distribution system were unreasonable restraints of trade. Itek appealed, arguing that the district court should have granted a directed verdict finding insufficient evidence to show that Itek’s distribution system was an unreasonable restraint of trade.