Tampa Electric Co. v. Nashville Coal Co., 365 U.S. 320 (1961), the Tampa Electric case, was a 1961 decision of the Supreme Court that, together with United States v. Philadelphia National Bank, clarified the legal test for determining whether requirements contracts "may substantially lessen competition" or "tend to create a monopoly" for purposes of section 3 of the Clayton Antitrust Act.
Background
Tampa Electric, an electricity generating utility in Florida, decided to switch from burning oil to burning coal as boiler fuel at one of its new generating stations. It entered into a 20-year total requirements contract with Nashville Coal for the supply of coal at the station. Shortly before the first coal was actually to be delivered, Tampa Electric, to equip its first units for the use of coal, spent about $3 million more than the cost of constructing oil-burning units. At that point, Nashville Coal advised Tampa Electric that the contract was illegal under the antitrust laws and so would not be performed. No coal would be delivered. Tampa Electric was then obliged to procure its coal elsewhere.
According to the Supreme Court, there were some 700 coal suppliers in the producing area where Nashville Coal operated, and Tampa Electric's anticipated maximum requirements at the new station "would approximate 1% of the total coal of the same type produced and marketed" in that area.
Tampa sued Nashville to enforce the contract. The District Court granted summary judgment in Nashville's favor, and the Court of Appeals affirmed.
Both courts compared the estimated coal tonnage as to which the contract pre-empted competition for 20 years, 1 million tons a year by 1961, with the previous annual consumption of peninsular Florida, 700,000 tons. Emphasizing that fact and the contract value of the coal covered by the 20-year term, $128 million, both courts held that such volume was not "insignificant or insubstantial" and so the effect of the contract would "be to substantially lessen competition" in violation of Section 3 of the Clayton Act.
Tampa then sought further review in the Supreme Court.
Decision
The Court, in a 7-2 opinion written by Justice Tom C. Clark, reversed and turned to the Standard Stations case for guidance:
[Standard Stations] held that such contracts are proscribed by § 3 if their practical effect is to prevent lessees or purchasers from using or dealing in the goods, etc., of a competitor or competitors of the lessor or seller, and thereby "competition has been foreclosed in a substantial share of the line of commerce affected." 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 performance of the contract will foreclose competition in a substantial share of the line of commerce affected.
The Court then directly quoted Standard Stations:
[A] purely quantitative measure of this effect is inadequate, because the narrower the area of competition, the greater the comparative effect on the area's competitors. Since it is the preservation of competition which is at stake, the significant proportion of coverage is that within the area of effective competition.
The court said that meant that it was necessary to evaluate the contract in terms of its magnitude in the relevant market:
[T]he competition foreclosed by the contract must be found to constitute a substantial share of the relevant market. That is to say, the opportunities for other traders to enter into or remain in that market must be significantly limited, as was pointed out in [Standard Stations]. There, the impact of the requirements contracts was studied in the setting of the large number of gasoline stations—5,937, or 16% of the retail outlets in the relevant market—and the large number of contracts, over 8,000, together with the great volume of products involved. This combination dictated a finding that "Standard's use of the contracts [created] just such a potential clog on competition as it was the purpose of § 3 to remove" where, as there, the affected proportion of retail sales was substantial.
The Court found that the two lower courts had focused on an artificially-narrow relevant market, Florida, rather than much of the Eastern United States,) which was not the area of effective competition: