an auto parts manufacturer and some of its distributors to exclude an outside auto-parts distributor to be a vertical, non-price restriction governed by the rule of reason. The manufacturer, at the behest of some of its distributors, refused to honor a contract it had made with K.M.B. to allow K.M.B. to distribute it products. Id. at 126; see also Bunch v. Artec Intern. Corp., 559 F. Supp. 961, 966 (S.D.N.Y. 1983) ("Merely because a dealer's termination may contain elements of a horizontal restriction, it does not become a per se violation of the Sherman Act, thereby obviating the requirements that plaintiff's establish that defendants' conduct is manifestly anticompetitive.").
The Second Circuit has also recently stated that an arrangement that had both horizontal and vertical aspects definitely should be tested under the rule of reason and "possibly under the per se rule applied to group boycotts in Klor's, if the restraint of trade 'has no purpose except stifling competition.'" Discon, Inc. v. Nynex, 93 F.3d 1055, 1060-61 (2d Cir. 1996). There, plaintiff Discon accused NYNEX and MECo, (a corporation that acted as NYNEX's procurement agent), of conspiring to exclude Discon from providing "removal" services. (These removal services included salvaging and disposing of obsolete telephone central office equipment.) The court found that plaintiffs had not established a horizontal restraint because MECo did not itself provide removal services and thus did not compete with Discon or NYNEX. Id. However, the Second Circuit stated that an agreement between two firms, even in a vertical relationship may constitute a horizontal restraint if it seeks to "disadvantage a direct competitor." It found that in Discon's case, no pro-competitive justification appeared on the face of the complaint for NYNEX's behavior in excluding Discon and thus concluded that a cause of action had been stated, leaving the decision as to whether to apply the rule of reason or a per se analysis to the district court at trial. Id. (" Per se rule to be applied only if evidence shows that the practice had 'no purpose other than to stifle competition.'"; see also Volvo N. Amer. v. Men's Int'l Prof. Tennis Council, 857 F.2d 55, 72-73 (2d Cir. 1988) (Whether conduct alleged to be possibly horizontal market division, group boycott or concerted refusal to deal is to be analyzed under rule of reason or per se test is "matter for the district court to decide in due course.").
The transfer restrictions of the Metropolitan Policy at issue here may well have been promulgated with mixed motives, one of which was a desire on the part of the General Agents to preserve the status quo at NML, thereby stabilizing the amount of compensation each General Agent expected to receive. However, at the inter-company level, the Policy appears to have the substantial procompetitive justification of encouraging General Agents to better train their subordinate agents.
This enables each General Agent to compete more effectively for clients with other NML General Agents and with the agents of other companies. (see section II(C), supra). It also enables them to better compete with other General Agents for the hiring of new subordinate agents, who have an obvious interest in receiving the best training possible. Thus, it is not the type of practice that has "no purpose except stifling competition."
Discon, 93 F.3d at 1061-61; see also Northern P.R. Co., 356 U.S. at 5 (In order to be illegal per se, a practice must be "so pernicious" as to "lack . . . any redeeming value."). Therefore, regardless of the precise label given to the conduct, (boycott, a horizontal price-restraint with vertical aspects, vertical non-price restraint with horizontal aspects and price effects, etc.), we believe a careful comparison of the facts of this case and of the precedents in the Second Circuit shows that it is properly analyzed under the rule of reason. Accordingly, consistent with the sports cases, K.M.B. Warehouse, and the Second Circuit's prescription that "expansion of the per se rule 'should be approached with great caution,'" Copy-Data Sys., Inc. v. Toshiba Am., 663 F.2d 405, 411 (2d Cir. 1982), we next analyze the effects of the Metropolitan Policy under the rule of reason.
E. Rule of Reason Analysis of the Competitive Effects
According to the Second Circuit:
Establishing a violation of the rule of reason involves three steps. "Plaintiff bears the initial burden of showing that the challenged action has had an actual adverse effect on competition as a whole in the relevant market . . . ." If the plaintiff succeeds, the burden shifts to the defendant to establish the "procompetitive 'redeeming virtues'" of the action. Should the defendant carry this burden, the plaintiff must then show that the same procompetitive effect could be achieved through alternative means that is less restrictive of competition.