Toys “R” Us, Inc. v. Federal Trade Commission Case Brief Summary | Law Case Explained

Toys “R” Us, Inc. v. Federal Trade Commission | 221 F.3d 928 (2000)

In antitrust law, horizontal agreements, or agreements between competitors to restrain trade, are generally illegal per se. Conversely, vertical agreements, or agreements between firms at different distribution levels to restrain trade, are generally subject to a rule of reason analysis. But what if a company enters into vertical agreements with multiple suppliers to boycott its competitors? Are these agreements part of a horizontal conspiracy and illegal per se? The Seventh Circuit considered this question in Toys R Us versus Federal Trade Commission.

Toys R Us is an American toy retailer that, for a long time, had very little competition in the market for low priced toys. However, in the late nineteen seventies and early nineteen eighties, warehouse clubs, such as Sam’s Club, began to compete directly with Toys R Us.

Toys R Us became concerned that the clubs posed a threat to its business, and its executives contacted toy suppliers to inform them of a new policy that it was implementing.

Under the policy, Toys R Us presented conditions and privileges restricting a supplier’s ability to sell certain products to the clubs. The policy also gave Toys R Us preferential treatment in choosing what toys it would sell. Toys R Us and the suppliers then entered into individual vertical agreements based on the condition that other suppliers would do the same. As a result, the clubs’ share of the toy selling market declined.

Subsequently, the Federal Trade Commission, or F T C, filed a complaint against Toys R Us, alleging that it engaged in unfair methods of competition in violation of the Federal Trade Commission Act. In the complaint, the F T C alleged that, by entering into the vertical agreements with the suppliers, Toys R Us facilitated a horizontal agreement, or boycott, among toy suppliers that was illegal per se.

The case was tried before an administrative law judge, and the F T C entered judgment against Toys R Us. Toys R Us appealed to the Seventh Circuit court of appeals.

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