Magrane Houston, a Boston Department Store, decided to carry the McCall line of "garment patterns" --which violated an exclusive dealing covenant with Standard Fashion and precipitated a lawsuit.

Magrane Houston claimed the "Standard Fashion only" covenant was illegal under section 3 of the Clayton Act .

It seems transparent from the language of section 3 that Congress' did not intend to make exclusive dealing a per se violation. Hence the courts must sort out the following issue: did the conditional sale "substantially lessen competition or tend to create a monopoly"?

The Supreme Court upheld a lower court decision in favor of Magrane Houston--i.e., the exclusionary practice had substantially lessened competition in the market for garment patterns. Click here to read the opinion of the Circuit Court of Appeals.

In 1955 Tampa Electric signed a long-term contract (20 years) with Nashville Coal for the delivery of bituminous coal to its power plants. The contract included a restrictive covenant--i.e., Tampa Electric agreed not to purchase coal from any supplier other than Nashville Coal.

Tampa Electric filed a breach of contract suit after Nashville Coal reneged in 1960. Attorneys for Nashville Coal argued the restrictive contract clause violated section 3 of the Clayton Act and hence the Court should rule that the contract is illegal and therefore unenforceable.

Issue #1 : Is exclusive dealing illegal per se? Justice Clark: "In practical application, even though a contract is found to be an exclusive dealing arrangement, it does not violate the section unless the court believes it probable that the performance of the contract will foreclose competition in a substantial share of the line of commerce affected."

Issue #2 : Did the performance of the contract foreclose competition in a substantial share of the market of the market for coal?  The key issue turned out to be geographic market definition. Tampa Electric accounted for 18 percent of coal purchased within the borders of the state of Florida, but less than 1 percent of coal procurements nationwide. Having decided on the "broad" market definition, the court ruled the contract clause was legal.