Vertical territorial restraints rules of legality and guidelines for channel design

Location clauses and other vertical territorial restraints are often used by manufacturers to exert control over their distributors. Yet, recent Supreme Court decisions have resulted in some uncertainty as to the legality of these restraints. According to the case of Continental T.V. versus GTE Sylvania, the court now appears to be applying the rule of reason when asked to examine vertical territorial restraints. In this article, the sequencing of precedent cases that ultimately resulted in the rule of reason are presented first. Second, an interpretation of the Continental T.V. versus GTE Sylvania case is offered. Finally, some selected guidelines that should help a manufacturer survive a court inquiry under the rule of reason are provided.