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

221 F.3d 928 (2000)

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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)

  • Written by Tom Syverson, JD
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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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Casebooks

Antitrust

Key Terms

  • Horizontal RestraintUnder antitrust law, a horizontal restraint on trade occurs when competitors in a market for goods form an agreement that causes a restraint on free trade.
  • Vertical Trade RestraintA type of trade restraint imposed by a company on its products, generally a geographic or temporal restraint to reduce competition between the company’s own products.
  • Group Refusal to DealAlso known as a group boycott, this form of horizontal trade restraint among competitors involves the refusal to do business with an individual or group of businesses. Because it tends to restrict competition and create market power in the group, a group refusal to deal violates § 1 of the Sherman Act.

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