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Toys “R” Us, Inc. v. Federal Trade Commission

United States Court of Appeals for the Seventh Circuit
221 F.3d 928 (2000)


Facts

Toys “R” Us, Inc. (Toys R Us) (defendant) was a major toy retailer responsible for approximately 20 percent of all toy sales in the United States. Beginning in the late 1970s, low-price warehouse clubs began competing with Toys R Us. By the early 1990s, toy manufacturers were looking to reduce their dependence on Toys R Us, and warehouse clubs were steadily increasing their share of the toy-selling market. In 1992, Toys R Us entered a series of individual vertical agreements with toy manufacturers. The manufacturers individually agreed to restrict distribution of toys to warehouse clubs and give Toys R Us preferential treatment. Afterward, the warehouse clubs’ market share shrunk. The Federal Trade Commission (FTC) (plaintiff) sued Toys R Us, alleging the vertical agreements violated the Sherman Act and § 5 of the Federal Trade Commission Act. The FTC also claimed Toys R Us had facilitated a horizontal boycott, or group refusal to deal, among toy manufacturers. The Toys R Us merchandising president had told some manufacturers that other manufacturers were agreeing to boycott the warehouse clubs. Toys R Us claimed this evidence was insufficient to show that it had facilitated a horizontal conspiracy. Toys R Us also argued the vertical agreements were necessary to protect against the warehouse clubs’ free riding on retail services provided by Toys R Us. The FTC entered an order against Toys R Us, and Toys R Us appealed.

Rule of Law

Issue

Holding and Reasoning (Wood, J.)

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