CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT.
Stevens, J., delivered the opinion of the Court, in which Brennan, White, Marshall, and Blackmun, JJ., joined. Brennan, J., filed a concurring opinion, in which Marshall, J., joined, post, p. 32. O'connor, J., filed an opinion concurring in the judgment, in which Burger, C. J., and Powell and Rehnquist, JJ., joined, post, p. 32.
JUSTICE STEVENS delivered the opinion of the Court.
At issue in this case is the validity of an exclusive contract between a hospital and a firm of anesthesiologists. We must decide whether the contract gives rise to a per se violation of § 1 of the Sherman Act*fn1 because every patient undergoing
surgery at the hospital must use the services of one firm of anesthesiologists, and, if not, whether the contract is nevertheless illegal because it unreasonably restrains competition among anesthesiologists.
In July 1977, respondent Edwin G. Hyde, a board-certified anesthesiologist, applied for admission to the medical staff of East Jefferson Hospital. The credentials committee and the medical staff executive committee recommended approval, but the hospital board denied the application because the hospital was a party to a contract providing that all anesthesiological services required by the hospital's patients would be performed by Roux & Associates, a professional medical corporation. Respondent then commenced this action seeking a declaratory judgment that the contract is unlawful and an injunction ordering petitioners to appoint him to the hospital staff.*fn2 After trial, the District Court denied relief, finding that the anticompetitive consequences of the Roux contract were minimal and outweighed by benefits in the form of improved patient care. 513 F.Supp. 532 (ED La. 1981). The Court of Appeals reversed because it was persuaded that the contract was illegal " per se." 686 F.2d 286 (CA5 1982). We granted certiorari, 460 U.S. 1021 (1983), and now reverse.
In February 1971, shortly before East Jefferson Hospital opened, it entered into an "Anesthesiology Agreement" with Roux & Associates (Roux), a firm that had recently been organized by Dr. Kermit Roux. The contract provided that any anesthesiologist designated by Roux would be admitted to the hospital's medical staff. The hospital agreed to
provide the space, equipment, maintenance, and other supporting services necessary to operate the anesthesiology department. It also agreed to purchase all necessary drugs and other supplies. All nursing personnel required by the anesthesia department were to be supplied by the hospital, but Roux had the right to approve their selection and retention.*fn3 The hospital agreed to "restrict the use of its anesthesia department to Roux & Associates and [that] no other persons, parties or entities shall perform such services within the Hospital for the [term] of this contract." App. 19.*fn4
The 1971 contract provided for a 1-year term automatically renewable for successive 1-year periods unless either party elected to terminate. In 1976, a second written contract was executed containing most of the provisions of the 1971 agreement. Its term was five years and the clause excluding other anesthesiologists from the hospital was deleted;*fn5 the hospital nevertheless continued to regard itself as committed to a closed anesthesiology department. Only Roux was permitted to practice anesthesiology at the hospital. At the
time of trial the department included four anesthesiologists. The hospital usually employed 13 or 14 certified registered nurse anesthetists.*fn6
The exclusive contract had an impact on two different segments of the economy: consumers of medical services, and providers of anesthesiological services. Any consumer of medical services who elects to have an operation performed at East Jefferson Hospital may not employ any anesthesiologist not associated with Roux. No anesthesiologists except those employed by Roux may practice at East Jefferson.
There are at least 20 hospitals in the New Orleans metropolitan area and about 70 percent of the patients living in Jefferson Parish go to hospitals other than East Jefferson. Because it regarded the entire New Orleans metropolitan area as the relevant geographic market in which hospitals compete, this evidence convinced the District Court that East Jefferson does not possess any significant "market power"; therefore it concluded that petitioners could not use the Roux contract to anticompetitive ends.*fn7 The same evidence led the Court of Appeals to draw a different conclusion. Noting that 30 percent of the residents of the parish go to East Jefferson Hospital, and that in fact "patients tend to choose hospitals by location rather than price or quality," the Court of
Appeals concluded that the relevant geographic market was the East Bank of Jefferson Parish. 686 F.2d, at 290. The conclusion that East Jefferson Hospital possessed market power in that area was buttressed by the facts that the prevalence of health insurance eliminates a patient's incentive to compare costs, that the patient is not sufficiently informed to compare quality, and that family convenience tends to magnify the importance of location.*fn8
The Court of Appeals held that the case involves a "tying arrangement" because the "users of the hospital's operating rooms (the tying product) are also compelled to purchase the hospital's chosen anesthesia service (the tied product)." Id., at 289. Having defined the relevant geographic market for the tying product as the East Bank of Jefferson Parish, the court held that the hospital possessed "sufficient market power in the tying market to coerce purchasers of the tied product." Id., at 291. Since the purchase of the tied product constituted a "not insubstantial amount of interstate commerce," under the Court of Appeals' reading of our decision in Northern Pacific R. Co. v. United States, 356 U.S. 1, 11 (1958), the tying arrangement was therefore illegal " per se."*fn9
Certain types of contractual arrangements are deemed unreasonable as a matter of law.*fn10 The character of the restraint produced by such an arrangement is considered a sufficient basis for presuming unreasonableness without the necessity of any analysis of the market context in which the arrangement may be found.*fn11 A price-fixing agreement between competitors is the classic example of such an arrangement. Arizona v. Maricopa County Medical Society, 457 U.S. 332, 343-348 (1982). It is far too late in the history of our antitrust jurisprudence to question the proposition that certain tying arrangements pose an unacceptable risk of stifling competition and therefore are unreasonable " per se."*fn12 The rule was first enunciated in International Salt Co. v. United States, 332 U.S. 392, 396 (1947),*fn13 and has been endorsed
by this Court many times since.*fn14 The rule also reflects congressional policies underlying the antitrust laws. In enacting § 3 of the Clayton Act, 38 Stat. 731, 15 U. S. C. § 14, Congress expressed great concern about the anticompetitive character of tying arrangements. See H. R. Rep. No. 627, 63d Cong., 2d Sess., 10-13 (1914); S. Rep. No. 698, 63d Cong., 2d Sess., 6-9 (1914).*fn15 While this case
does not arise under the Clayton Act, the congressional finding made therein concerning the competitive consequences of tying is illuminating, and must be respected.*fn16
It is clear, however, that not every refusal to sell two products separately can be said to restrain competition. If each of the products may be purchased separately in a competitive market, one seller's decision to sell the two in a single package imposes no unreasonable restraint on either market, particularly
if competing suppliers are free to sell either the entire package or its several parts.*fn17 For example, we have written that "if one of a dozen food stores in a community were to refuse to sell flour unless the buyer also took sugar it would hardly tend to restrain competition in sugar if its competitors were ready and able to sell flour by itself." Northern Pacific R. Co. v. United States, 356 U.S., at 7.*fn18 Buyers often find package sales attractive; a seller's decision to offer such packages can merely be an attempt to compete effectively -- conduct that is entirely consistent with the Sherman Act. See Fortner Enterprises v. United States Steel Corp., 394 U.S. 495, 517-518 (1969) (Fortner I) (WHITE, J., dissenting); id., at 524-525 (Fortas, J., dissenting).
Our cases have concluded that the essential characteristic of an invalid tying arrangement lies in the seller's exploitation of its control over the tying product to force the buyer into the purchase of a tied product that the buyer either did not want at all, or might have preferred to purchase elsewhere on different terms. When such "forcing" is present, competition on the merits in the market for the tied item is restrained and the Sherman Act is violated.
"Basic to the faith that a free economy best promotes the public weal is that goods must stand the cold test of competition; that the public, acting through the market's impersonal judgment, shall allocate the Nation's resources and thus direct the course its economic development will take. . . . By conditioning his sale of one commodity on
the purchase of another, a seller coerces the abdication of buyers' independent judgment as to the 'tied' product's merits and insulates it from the competitive stresses of the open market. But any intrinsic superiority of the 'tied' product would convince freely choosing buyers to select it over others anyway." Times-Picayune Publishing Co. v. United States, 345 U.S. 594, 605 (1953).*fn19
Accordingly, we have condemned tying arrangements when the seller has some special ability -- usually called "market
power" -- to force a purchaser to do something that he would not do in a competitive market. See United States Steel Corp. v. Fortner Enterprises, 429 U.S. 610, 620 (1977) (Fortner II); Fortner I, 394 U.S., at 503-504; United States v. Loew's Inc., 371 U.S. 38, 45, 48, n. 5 (1962); Northern Pacific R. Co. v. United States, 356 U.S., at 6-7.*fn20 When "forcing" occurs, our cases have found the tying arrangement to be unlawful.
Thus, the law draws a distinction between the exploitation of market power by merely enhancing the price of the tying product, on the one hand, and by attempting to impose restraints on competition in the market for a tied product, on the other. When the seller's power is just used to maximize its return in the tying product market, where presumably its product enjoys some justifiable advantage over its competitors, the competitive ideal of the Sherman Act is not necessarily compromised. But if that power is used to impair competition on the merits in another market, a potentially inferior product may be insulated from competitive pressures.*fn21 This impairment could either harm existing competitors or create barriers to entry of new competitors in the market for the tied product, Fortner I, 394 U.S., at 509,*fn22 and can increase
the social costs of market power by facilitating price discrimination, thereby increasing monopoly profits over what they would be absent the tie, Fortner II, 429 U.S., at 617.*fn23 And from the standpoint of the consumer -- whose interests the statute was especially intended to serve -- the freedom to select the best bargain in the second market is impaired by his need to purchase the tying product, and perhaps by an inability to evaluate the true cost of either product when they are available only as a package.*fn24 In sum, to permit restraint of competition on the merits through tying arrangements would be, as we observed in Fortner II, to condone "the existence of power that a free market would not tolerate." 429 U.S., at 617 (footnote omitted).
Per se condemnation -- condemnation without inquiry into actual market conditions -- is only appropriate if the existence of forcing is probable.*fn25 Thus, application of the per se rule
focuses on the probability of anticompetitive consequences. Of course, as a threshold matter there must be a substantial potential for impact on competition in order to justify per se condemnation. If only a single purchaser were "forced" with respect to the purchase of a tied item, the resultant impact on competition would not be sufficient to warrant the concern of antitrust law. It is for this reason that we have refused to condemn tying arrangements unless a substantial volume of commerce is foreclosed thereby. See Fortner I, 394 U.S., at 501-502; Northern Pacific R. Co. v. United States, 356 U.S., at 6-7; Times-Picayune, 345 U.S., at 608-610; International Salt, 332 U.S., at 396. Similarly, when a purchaser is "forced" to buy a product he would not have otherwise bought even from another seller in the tied-product market, there can be no adverse impact on competition because no portion of the market which would otherwise have been available to other sellers has been foreclosed.
Once this threshold is surmounted, per se prohibition is appropriate if anticompetitive forcing is likely. For example, if the Government has granted the seller a patent or similar monopoly over a product, it is fair to presume that the inability to buy the product elsewhere gives the seller market power. United States v. Loew's Inc., 371 U.S., at 45-47. Any effort to enlarge the scope of the patent monopoly by using the market power it confers to restrain competition in the market for a second product will undermine competition on the merits in that second market. Thus, the sale or lease of a patented item on condition that the buyer make all his purchases of a separate tied product from the patentee is unlawful. See United States v. Paramount Pictures, Inc., 334 U.S. 131, 156-159 (1948); International Salt, 332 U.S.,
at 395-396; International Business Machines Corp. v. United States, 298 U.S. 131 (1936).
The same strict rule is appropriate in other situations in which the existence of market power is probable. When the seller's share of the market is high, see Times-Picayune Publishing Co. v. United States, 345 U.S., at 611-613, or when the seller offers a unique product that competitors are not able to offer, see Fortner I, 394 U.S., at 504-506, and n. 2, the Court has held that the likelihood that market power exists and is being used to restrain competition in a separate market is sufficient to make per se condemnation appropriate. Thus, in Northern Pacific R. Co. v. United States, 356 U.S. 1 (1958), we held that the railroad's control over vast tracts of western real estate, although not itself unlawful, gave the railroad a unique kind of bargaining power that enabled it to tie the sales of that land to exclusive, long-term commitments that fenced out competition in the transportation market over a protracted period.*fn26 When, however, the
seller does not have either the degree or the kind of market power that enables him to force customers to purchase a second, unwanted product in order to obtain the tying product, an antitrust violation can be established only by evidence of an unreasonable restraint on competition in the relevant market. See Fortner I, ...