OPINION
Before CHAMBERS, BROWNING, DUNIWAY, ELY, HUFSTEDLER, WRIGHT, KILKENNY, CHOY, GOODWIN, WALLACE, and SNEED, Circuit Judges.
[982]*982ELY, Circuit Judge:
Pursuant to a jury verdict in a private antitrust action, a judgment and an equitable decree were entered in favor of the appellees (hereinafter, collectively, “Continental”) and against the appellant (hereinafter “Sylvania”). On this appeal by Sylvania, the critical issue is whether the district judge erred in concluding, and instructing the jury accordingly, that, under the supposed rationale of United States v. Arnold, Schwinn & Co., 388 U.S. 365, 87 S.Ct. 1856, 18 L.Ed.2d 1249 (1967), Sylvania’s practice of fixing by agreement the locations from which Continental was authorized to sell Sylvania’s products was illegal per se under Section 1 of the Sherman Act. For the many reasons set forth below, we reverse.1
I. Factual Background
Sylvania, a corporate subsidiary of General Telephone and Electric, manufactures and sells radios and television sets through its Home Entertainment Products Division. Though Sylvania emerged from World War II as one of the major manufacturers in the television industry, its share of the market never became large. In the post-war era, when only black and white television was the industry’s major product line, a single competitor, RCA, enjoyed sixty to seventy percent of the market, and the remainder was divided among Sylvania and 130 other manufacturers. During the so-called black and white era, most television manufacturers engaged in a relatively unselective “saturation” method of distribution. Essentially, this system involved the sale of television sets both to independent and manufacturer-owned distributorships, without any limit on the number of dealers in a given locale. The goal of such a system was to generate as much volume as possible; therefore, manufacturers sought to sell to as many dealers as possible.
By 1962 Sylvania’s sales volume had decreased to a relatively tiny portion of the television market, between one and two percent, approximately. Prior to 1962 Sylvania’s practice was to sell its products primarily to distributors, some of which it owned. These distributors sold, in turn, to retailers. At about this time Sylvania determined that its attempt to utilize the saturation type of distribution in competition, especially with RCA and Zenith, could not be successful. Hoping to revive itself as an effective interbrand competitor, and to avoid the virtually certain possibility that it would be compelled to surrender the business of manufacturing and selling television sets,2 Sylvania decided to abandon its [983]*983former method of saturation distribution and begin a program of selective distribution.3 Sylvania’s management apparently believed that it could become a more effective competitor in the then rapidly expanding market for color television if it could develop a prestige image and a network of dealers with sufficient loyalty to Sylvania to market Sylvania products aggressively.
In 1962, as part of a reorganization of its Home Entertainment Products Division, Sylvania implemented its new selective distribution system by phasing out both its wholesale distributors and its own factory distributorships. These were replaced by a “straight line distribution” system (SLD), under which sales were made from the factory directly to franchised dealers, who in turn sold to consumers. This program, which Sylvania called its “elbow room policy,” involved the use of franchises to limit the number of Sylvania retail dealers. Sylvania hoped to attract dealers willing to identify themselves as authorized Sylvania outlets in exchange for the opportunity to earn fair profits.
An essential element of Sylvania’s “elbow room policy" was the practice of franchising by location. Under this policy Sylvania sold its products only to selected retailers, who were identified as authorized Sylvania dealers, and who were authorized to sell Sylvania products only at designated locations. There were agreements 4 between Sylvania and its dealers that the dealer would not move Sylvania brand merchandise to a new unapproved location for resale without the prior approval of Sylvania.
Sylvania made specific efforts to avoid anticompetitive practices. No dealer was given an exclusive dealership for a particular area. In Northern California, for example, Sylvania had at least two or more authorized dealers serving every major metropolitan market larger than the City of Salinas. No dealer had the power to veto Sylvania’s decision to approve an additional franchise location in a given market area. There were no agreements that in any way restricted the freedom of authorized Sylvania dealers to sell to anyone who came to their franchise location, regardless of the customer’s place of residence.
The record contains evidence suggesting that this “elbow room policy” was moderately successful in improving Sylvania’s competitive position. Sylvania asserts that due to its selective distribution policy and its practice of franchising by location, it became able to attract effective, aggressive dealers. With the growth of the color television market, Sylvania increased its mar[984]*984ket share from about one or two percent in 1962 to about five percent by 1965. By the mid-1960’s Sylvania had emerged as a vigorous competitor, ranking as the nation’s eighth largest manufacturer and seller of color television sets.
The appellees, Continental, are a group of affiliated corporations with common ownership. The principal operating officer of Continental, together with his wife, owned substantially all of the stock of the corporations. Continental began business in 1960 as a retail dealer of radios and television sets in San Jose, California. Its primary sales territory included most of Santa Clara County, and its inventory consisted principally of television sets manufactured by Muntz T. V., Inc. Continental prospered, and in 1964 it replaced its downtown San Jose store with a larger suburban facility in a region known as the Stevens Creek area. In the 1960-64 period Continental had no credit arrangements for floor financing of its inventory with either Muntz, or any bank or credit institution. It handled its customer credits largely through a local bank in San Jose.
In May, 1964, Sylvania attracted Continental to become an authorized Sylvania dealer and granted franchises to Continental for several locations. In July, 1964, Continental began financing its purchases of Sylvania merchandise with the “Maguire plan,” under which Continental executed a promissory note for the price of inventory purchased from Sylvania, with payment secured by a trust receipt in favor of John P. Maguire & Co., Inc., a national finance company. Continental was obligated to repay Maguire Continental’s cost for each television set immediately after the set was sold (or six months after Continéntal’s receipt of unsold merchandise). Sylvania maintained some control over the amount of credit to be extended to Continental, because in the event of Continental’s default, Maguire had full recourse against Sylvania.
Continental expanded rapidly. By May, 1965, it had become one of the largest Sylvania dealers in the country,5 operating Sylvania franchises at eight locations in the California counties of San Francisco, Santa Clara, San Mateo, and Alameda. In the spring of 1965 Continental learned that Sylvania was planning to franchise another dealer, Young Brothers, at a location on Geary Street in San Francisco, about one mile from one of Continental’s outlets. Continental allegedly believed that the franchising of this location would violate the spacing concept underlying the “elbow room policy”. It therefore strenuously objected and threatened to reappraise its need for Sylvania merchandise in its San Francisco store. In June, 1965, Sylvania franchised the Young Brothers store. Continental thereupon canceled a very large Sylvania order, placed a half-million dollar order with a Sylvania competitor called Phil-co, and advised Sylvania that Continental would reduce its further purchases from Sylvania.
In March, 1965, Continental had notified Sylvania that it wished to enter the Sacramento, California, market. In compliance with Sylvania’s policy, Continental had initially agreed not to sell Sylvania merchandise from a Sacramento location without Sylvania’s prior approval. As he had previously done when Continental opened a store at a new location, Continental’s principal operating officer organized a new corporate affiliate (S.A.M. Industries, Inc.) and, through that affiliate, leased a Sacramento location about one mile from another Sylvania dealer, Handy Andy. In early September, 1965, Continental advised Sylvania of the location of the new Continental store in Sacramento and requested approval for a franchise to sell Sylvania products there. Sylvania replied that approval would be denied. Thereafter, Continental moved Sylvania merchandise into the Sacramento store. According to some of the testimony, Sylvania refused Continental’s request for a Sacramento franchise because Sylvania’s [985]*985management believed that Sylvania’s distribution in the area was already sufficient and that additional Sylvania retail outlets would be undesirable. On September 7, 1965, Continental decided that it would violate the locations agreement that it had made with Sylvania and proceed to sell Sylvania merchandise in Sacramento without Sylvania’s approval. One of Sylvania’s contentions is that Continental’s move into the Sacramento area was made in retaliation for Sylvania’s decision to franchise Young Brothers in San Francisco and represented an attempt by Continental to pressure Sylvania into revoking the Young Brothers franchise.
While all these events were occurring in Sacramento, credit personnel at Sylvania’s headquarters had become deeply concerned over Continental’s ability to meet its obligations under its financing arrangements. Sylvania had received information sometime prior to June, 1965, that Continental’s principal shareholder and chief operating officer had a criminal record. Sylvania ordered and received a Dun and Bradstreet report which confirmed that the chief officer had a military conviction while in the Marine Corps for misappropriation of government funds and issuing worthless checks. A second alleged cause for the concern of Sylvania’s credit personnel was the fact that Continental had substantially increased its obligations to Philco by a capital loan and a $500,000 order for Philco products. This was in addition to Continental’s existing high credit limit, $300,000, with Sylvania. Additionally, Continental had failed to pay past due obligations for its purchase of Sylvania products. These obligations were held by Maguire for Sylvania and were passing into maturity and then delinquency stages. Finally, on September 24, 1965, Continental informed Sylvania that pending resolution of the dispute over Continental’s new Sacramento store, all of its future obligations would be paid as they matured by the deposit of checks with its, Continental’s, own attorneys.
Because of its concern, Sylvania’s credit department placed a credit hold on Continental’s orders and on September 16, 1965, reduced Continental's credit line from $300,000 to $50,000. In reaction to the credit reduction, Continental withheld all payments due to Maguire. This refusal to make payment continued for over three weeks until Continental owed $62,000 to Sylvania, unsecured by any merchandise. At that time Maguire instituted suit against Continental for the amount due, repossessed the Sylvania merchandise in Continental’s possession, levied attachments on Continental’s places of business and bank account, and caused Continental’s San Jose stores and central warehouse to be closed. A bank with which Continental had done business terminated Continental’s consumer financing program and called for the payment of a commercial loan. Finally, Sylvania notified Continental that Continental’s franchise as a Sylvania dealer was terminated.
Continental sought damages from both Sylvania and Maguire, alleging violations of the antitrust laws and tortious injury to its business and property, a pendent claim under California law. Continental alleged that Sylvania’s credit actions were not based upon a genuine concern about Continental’s solvency, but rather were undertaken to enforce the location restriction and to prevent Continental from selling Sylvania merchandise from the unauthorized Sacramento location. Continental further asserted that Sylvania’s “elbow room policy” was a policy in restraint of trade, constituting a per se violation of Section 1 of the Sherman Act. Damages were alleged to have resulted from Sylvania’s termination of its relationship with Continental and Continental’s resulting inability to procure substitute products during a period of product shortage. Continental also sought an injunction prohibiting Sylvania from enforcing its locations restrictions. Continental’s antitrust and tort claims were submitted to the jury. The jury returned a verdict in favor of Continental6 and found [986]*986that Continental had been damaged in the amount of $591,505. The jury decided that John P. Maguire & Co., the only other defendant, had not engaged in a combination, contract, or conspiracy in restraint of trade in violation of the antitrust laws. Finally, the jury exonerated both Sylvania and Maguire on Continental’s pendent tort claim under California law. Trebling the damages pursuant to 15 U.S.C. § 15, the district judge entered judgment against Sylvania in the amount of $1,774,515. In addition, the court awarded Continental attorney’s fees in the sum of $275,000.
On Continental’s prayer for equitable relief, the district judge entered findings of fact and conclusions of law. The non-jury court found that Sylvania had requested Maguire to sue Continental on its outstanding notes as a part of Sylvania’s attempt to prevent Continental from selling Sylvania products in Sacramento.7 Further, the court found that Sylvania’s credit concerns were not the true reason for Sylvania’s actions. The court entered a limited injunction,8 prohibiting Sylvania from enforcing its location clause.9
[987]*987Sylvania’s principal contention here is that the district judge erred in basing both the jury instructions and the grant of equitable relief on the theory that by seeking to restrict the locations from which Continental could sell Sylvania products, Sylvania had committed a per se violation of Section 1 of the Sherman Act. Over Sylvania’s objection, the trial judge instructed the jury as follows:
“Therefore, if you find by a preponderance of the evidence that Sylvania entered into a contract, combination or conspiracy with one or more of its dealers pursuant to which Sylvania exercised dominion and control over the products sold to the dealer, after having parted with title and risk to the products, you must find any effort thereafter to restrict outlets or store locations from which its dealers resold the merchandise which they had purchased from Sylvania to be a violation of Section 1 of the Sherman Act, regardless of the reasonableness of the location restrictions.”10
In deciding that the per se rule of United States v. Arnold, Schwinn & Co., 388 U.S. 365, 87 S.Ct. 1856, 18 L.Ed.2d 1249 (1967), was applicable to Sylvania’s location restrictions, the court rejected instructions requested by Sylvania under which the jury would have been told that Sylvania’s locations practice was illegal only if it unreasonably restrained competition in the market for television sales.11
Once the instruction incorporating the theory of per se illegality was submitted, a verdict against Sylvania was virtually assured. Sylvania never denied the existence of its locations practice, which by definition admittedly “restrict[ed] outlets or store locations from which its dealers resold the merchandise which they had purchased from Sylvania . . . .” It is not entirely clear from the jury instructions and the findings of fact and conclusions of law entered on the equitable claim whether Sylvania was found to have committed an illegal per se violation merely because it entered the agreement restricting Continental to specific locations, or because of the subsequent enforcement of that agreement. We think it irrelevant as to whether both, or only one, of these considerations were applied, since we hold that under either, the [988]*988court’s application of the law was clearly erroneous.
II. Analysis
We confront an important and intriguing question, i. e., whether the rule of per se illegality established by the Supreme Court in United States v. Arnold, Schwinn & Co., 388 U.S. 365, 87 S.Ct. 1856, 18 L.Ed.2d 1249 (1967), should be extended to embrace the “locations practice” utilized by Sylvania and others as a method of modern product distribution systems. The trial judge, applying a bit of the literal language of Schwinn without reference to its context or the specific facts of that case, determined to extend that language to encompass locations clauses. Accordingly, Sylvania’s proffered “rule of reason” jury instruction was rejected. Our study has convinced us, beyond doubt, that the challenged conclusion reflects a misinterpretation of Schwinn, is inconsistent with the existing law permitting exclusive dealerships, and, most importantly, would seriously undermine, rather than implement, the major purpose of the Sherman Act. That purpose is to insure the “unrestrained interaction of competitive forces” that “will yield the best allocation of our economic resources, the lowest prices, the highest quality and the greatest material progress, while at the same time providing an environment conducive to the preservation of our democratic political and social institutions.” Northern Pacific Ry. v. United States, 356 U.S. 1, 4, 78 S.Ct. 514, 517, 2 L.Ed.2d 545, 549 (1958). We therefore hold that the legality of the locations clauses here involved should be judged under what is commonly referred to as the “rule of reason,” rather than a rule of per se illegality. We are convinced that a contrary holding would constitute an unwarranted “body blow” to legitimate business enterprise and would place our free capitalistic system under stifling restraints, never contemplated or intended by the Congress. The “rule of reason” should have been applied, permitting inquiry into the competitive effect and reasonableness of the locations agreement in question.12
A. The Schwinn Precedent in Context
In ruling that Sylvania’s locations practice was illegal per se, the trial judge chose to apply, literally, the following sweeping language from the opinion of Mr. Justice Fortas for the Court in United States v. Arnold, Schwinn & Co., 388 U.S. 365, 87 S.Ct. 1856, 18 L.Ed.2d 1249 (1967):13
[989]*989“Once the manufacturer has parted with title and risk, he has parted with dominion over the product, and his effort thereafter to restrict territory or persons to whom the product may be transferred— whether by explicit agreement or by silent combination or understanding with his vendee — is a per se violation of § 1 of the Sherman Act.14
388 U.S. at 382, 87 S.Ct. at 1867, 18 L.Ed.2d at 1262.
We reiterate our view that this language, in isolation, was applied too literally, without sufficient reference to the textual context in which it appears or the facts from which Schwinn arose. Furthermore, a fundamental antitrust principle which our own court stressed in Joseph E. Seagram & Sons, Inc. v. Hawaiian Oke & Liquors, Ltd., 416 F.2d 71 (9th Cir. 1969), cert. denied, 396 U.S. 1062, 90 S.Ct. 752, 24 L.Ed.2d 755 (1970), was apparently overlooked. Quoting from Maple Flooring Manufacturers Association v. United States, 268 U.S. 563, 579, 45 S.Ct. 578, 583, 69 L.Ed. 1093, 1100 (1925), we emphasized in Hawaiian Oke the Supreme Court’s admonition that:
. . each case arising under the Sherman Act must be determined upon the particular facts disclosed by the record, and . . . the opinions in those cases must be read in the light of their facts and of a clear recognition of the essential differences in the facts of those cases, and in the facts of any new case to which the rule of earlier decisions is to be applied.”
416 F.2d at 79.
In Schwinn the Supreme Court held illegal per se a system of vertical restraints affecting both wholesale and retail distribution. Arnold, Schwinn & Company had created exclusive geographical sales territories for each of its 22 wholesaler bicycle distributors and had made each distributor the sole Schwinn outlet for the distributor’s designated area. Each distributor was prohibited from selling to any retailers located outside its territory. Moreover, the restrictions in Schwinn limited the classes of customers to whom Schwinn’s wholesale distributors and franchised retailers could sell, by prohibiting them from selling Schwinn products to unfranchised retailers. Consequently, Schwinn’s system completely barred sales to some potential purchasers of Schwinn products, regardless of where these customers were located. The Schwinn restrictions on classes of persons or particular persons to whom a distributor may not sell have been termed “customer” restrictions, while the restrictions against selling to customers outside a certain area are classified as “territorial” restrictions.15
In our present case Sylvania imposed neither of the restrictions that Schwinn appropriately condemned. Schwinn’s territorial restrictions requiring dealers to confine their sales to exclusive territories prescribed by Schwinn prevented a dealer from [990]*990competing for customers outside his territory. In contrast, Sylvania’s dealers could sell to customers from any area, could advertise in any area, and- were limited only as to the location of the franchisee’s place of business. Schwinn’s restrictions guaranteed each wholesale distributor that it would be absolutely isolated from all competition from other Schwinn wholesalers. Sylvania, on the other hand, franchised competing dealerships at will, and in the major metropolitan markets in Northern California such competing dealers were located within the 25 to 30 mile radius of volume selling. Schwinn’s territorial restrictions were tied to customer restrictions, but a Sylvania dealer could sell to anyone, just so long as the dealer’s store remained in the approved location.
Thus a critical and very obvious distinction between the restrictions in Schwinn and those of Sylvania is that Schwinn involved a restriction on the locations and types of permissible vendees, while Sylvania only imposed restrictions on the permissible locations of vendors. When Schwinn’s proscription of restrictions on “territory or persons to whom the product may be transferred”, 388 U.S. at 382, 87 S.Ct. at 1867, 18 L.Ed.2d at 1262, and on “areas or persons with whom an article may be traded”, 388 U.S. at 379, 87 S.Ct. at 1865, 18 L.Ed.2d at 1260, are interpreted in Schwinn’s factual context, it is clear to us that “territory” and “areas” refer to the location of vendees, rather than vendors. Moreover, there are very clear and substantial differences between the effect of the restrictions in Schwinn and the effect of those of Sylvania. In Schwinn a wholesale distributor was foreclosed from selling Schwinn products to any purchaser located outside his exclusive territory; thus, intrabrand competition (i. e., competition between sellers of the same brand) was wholly destroyed. A potential purchaser of Schwinn products at the wholesale level could look to only one source of the product — the authorized dealer for his territory. No other wholesaler could compete by offering a lower price or better service to the same purchaser. In marked contrast, Sylvania franchised at least two dealers in the major markets and each Sylvania dealer was free to sell to any buyer he chose — preserving intrabrand competition and allowing to every potential purchaser of Sylvania products a reasonable choice between several competing dealers.
Concurring in White Motor Co. v. United States, 372 U.S. 253, 83 S.Ct. 696, 9 L.Ed.2d 738 (1963),16 Mr. Justice Brennan noted that while there are no possible procompetitive benefits to be derived from vendee, or customer, restrictions, some territorial restrictions on vendors may have procompetitive effects. The Justice wrote:
“There are other situations, not presented directly by this case, in which the possibility of justification cautions against a too hasty conclusion that territorial limitations are invariably unlawful. Arguments have been suggested against that conclusion, for example, in the case of a manufacturer starting out in business or marketing a new and risky product; the suggestion is that such a manufacturer may find it essential, simply in order to acquire and retain outlets, to guarantee his distributors some degree of territorial insulation as well as exclusive franchises. It has also been suggested that it may reasonably appear necessary for a manufacturer to subdivide his sales territory in order to ensure that his product will be adequately advertised, promoted, and serviced.”
372 U.S. at 269, 83 S.Ct. at 705, 9 L.Ed.2d at 750.
“I turn next to the customer restrictions. These present a problem quite distinct from that of the territorial limitations. The customer restraints would seem inherently the more dangerous of the two, for they serve to suppress all [991]*991competition between manufacturer and distributors for the custom of the most desirable accounts. At the same time they seem to lack any of the countervailing tendencies to foster competition between brands which may accompany the territorial limitations. In short, there is far more difficulty in supposing that such customer restrictions can be justified.”
372 U.S. at 272, 83 S.Ct. at 707, 9 L.Ed.2d at 752.
The observations of Mr. Justice Brennan also spotlight another significant distinction between our case and Schwinn. Schwinn had an extremely large share of the bicycle market. Sylvania’s market share, however, was so small when it adopted its locations practice that it was threatened with expulsion from the television market. In Schwinn a manufacturer with a dominant market share imposed restraints which destroyed any possibility of intrabrand competition in the same territory. Here, a manufacturer with a precarious market share entered agreements which enabled it to achieve a viable 5% market share while preserving significant intrabrand competition in each metropolitan area. When viewed in their respective factual contexts, we cannot possibly perceive the situation presented in the two cases as being analogous or similar, even remotely.
The facts in Schwinn make it clear that the territorial restraint which the Court condemned was a restraint that absolutely prohibited a dealer from selling to purchasers outside a certain area. That, of course, is not our case. The Schwinn holding that restrictions forbidding dealers from selling to persons located outside specifically designated exclusive territories and to certain classes of customers are per se violations of the Sherman Act should not, we think, be stretched to encompass Sylvania’s practice which can produce pro-competitive effects, desirable effects wholly different from those produced by the restrictions that the Court, in Schwinn, sought to prohibit.
Our interpretation of Schwinn is reinforced by the fact that the decree on remand in Schwinn expressly sanctions locations clauses. After paraphrasing the general language of the Supreme Court’s Schwinn decision dealing with restrictions on “areas or persons,” the District Court’s decree on remand adds: “Notwithstanding the foregoing provisions, nothing in this Final Judgment shall prevent Schwinn . from designating in its retailer franchise agreements the location of the place or places of business for which the franchise is issued.” United States v. Arnold, Schwinn & Co., 291 F.Supp. 564, 565-66 (N.D.Ill.1968) (Emphasis added). Surely, if a manufacturer has the right to choose a particular dealer to franchise, as the Supreme Court recognized in Schwinn, 388 U.S. at 376, 87 S.Ct. at 1864, 18 L.Ed.2d at 1258,17 and the right to designate the location where the franchise is valid, as recognized in the Schwinn decree on remand, then the manufacturer must have the pow[992]*992er to enforce these rights if a franchisee violates his location clause agreement.
When we move beyond Schwinn to a consideration of other relevant precedent,18 our conclusion is further strengthened. We have discovered no reported cases wherein a location clause has been struck down for illegality. In fact, and to the contrary, it [993]*993has been widely assumed that location restrictions were reasonable restraints of trade, and therefore lawful,19 ever since Boro Hall Corp. v. General Motors Corp., 124 F.2d 822 (2d Cir. 1942), cert. denied, 317 U.S. 695, 63 S.Ct. 436, 87 L.Ed. 556 (1943). In Boro Hall, Judge Augustus Hand, writing for the Court of Appeals for the Second Circuit, specifically held that a dealer contract clause that would “fix a location for the sale of used cars at a place that did not unduly affect other dealers” did not constitute an unreasonable restraint of trade. 124 F.2d at 823. In United States v. General Motors Corp., 384 U.S. 127, 86 S.Ct. 1321, 16 L.Ed.2d 415 (1966), the Supreme Court was presented with a location clause which prohibited Chevrolet dealers from moving to, or establishing, a new location for the sale of Chevrolet vehicles without the prior approval of Chevrolet. The Government urged the Supreme Court to declare the clause illegal, but only insofar as it was employed to prohibit dealers from selling to discounters for resale. The Supreme Court expressly declined to do this,20 although it held the conduct of General Motors and its dealers unlawful solely on the basis of a horizontal conspiracy among dealers to prevent sales to discounters. In concurring Mr. Justice Harlan wrote, “In my opinion, . General Motors is not precluded from enforcing the location clause by unilateral action, and I find nothing in the Court’s opinion to the contrary.” Id. at 149, 86 S.Ct. at 1332, 16 L.Ed.2d at 428. In our own Circuit, the District Court on remand expressly provided that “[njeither the injunctive provisions of this Final Judgment nor any provision thereof shall be construed to enjoin General Motors from acting unilaterally under any Chevrolet dealer franchise agreement or from unilaterally enforcing any such agreement [including the location clause],” except as provided in a six months prohibition relating to sales to discounters.21 United States v. General Mo[994]*994tors Corporation, Civil No. 62-1208-CC (S.D.Cal. Aug. 17, 1966).22
Two other Courts of Appeals have considered the legality of location clauses in the post -Schwinn era, and both have concluded that such clauses are valid. In Salco Corporation v. General Motors Corporation, Buick Motor Division, 517 F.2d 567 (10th Cir. 1975), a franchisee, relying upon Schwinn contended that the location clause within the standard Buick Automobile dealer franchise agreement23 was illegal per se, as a restraint of trade. The Tenth Circuit rejected this argument, noting with approval the Second Circuit’s conclusion in Boro Hall, supra, that the right to franchise necessarily validated the type of location clause typically included in automobile franchise agreements. The court therefore concluded that a location clause is valid as a matter of law.
“There is nothing in the complaint, nor for that matter in the facts subsequently developed by Denver Buick in opposition [995]*995to the General Motors’ summary judgment motion on the First Claim for Relief, indicating that General Motors did anything other than simply assert its rights under the terms of the clause by insisting on the right to approve a new location for Denver Buick. There is no allegation that General Motors assigned territories outside of which dealers could not sell, and in fact the appellant admits otherwise (Br. 57). Accordingly, the Section 1 allegations were properly dismissed, since the location clause is valid as a matter of law, and there are no allegations that would amount to an unlawful use of the clause.”
517 F.2d at 576.
In the present case, like Saleo and unlike Schwinn, Sylvania did not assign discrete selling territories outside of which the dealers were not permitted to sell. The dealer could sell to anyone who came to his approved location. Indeed, in terms of the wording of the location clause involved and its potential competitive effect, we find Saleo to be virtually indistinguishable from the case before us.
In Kaiser v. General Motors Corp., 530 F.2d 964 (3d Cir. 1976), aff’g 396 F.Supp. 33 (E.D.Pa.1975), the Third Circuit affirmed a District Court’s order granting summary judgment in favor of a manufacturer against a challenge that a location clause in its franchise agreement was illegal under the Sherman Act. The District Court expressly found nothing in Schwinn that makes location clauses illegal.
Looking beyond the cases dealing with location clauses, we find numerous decisions that, while applying Schwinn, have not interpreted Schwinn as establishing a per se rule against all vertical territorial restraints.24 A variety of vertical territorial and customer restraints have been upheld under the rule of reason test,25 and some of [996]*996these restraints were far more burdensome than the location clause which is here at issue. See Anderson v. American Automobile Association, 454 F.2d 1240, 1246 (9th Cir. 1972); Tripoli Company, Inc. v. Wella Corp., 425 F.2d 932, 936 (3d Cir.), cert. denied, 400 U.S. 831, 91 S.Ct. 62, 27 L.Ed.2d 62 (1970);26 Janel Sales Corp. v. Lanvin Parfums, Inc., 396 F.2d 398, 406 (2d Cir.), cert. denied, 393 U.S. 938, 89 S.Ct. 303, 21 L.Ed.2d 275 (1968); Carter-Wallace, Inc. v. United States, 449 F.2d 1374, 1380, 196 Ct.Cl. 35 (1971); National Dairy Products Corp. v. Milk Drivers & Dairy Employees Union Local 680, 308 F.Supp. 982 (S.D.N.Y. 1970); La Fortune v. Ebie, 1972 Trade Cas. ¶ 74,090 (Calif.Ct.App.). See also Good Investment Promotions, Inc. v. Corning Glass Works, 493 F.2d 891 (6th Cir. 1974).
In the light of the cases upholding the legality of location clauses and the fact that the decree on remand in Schwinn expressly permitted manufacturers to designate the location for which a franchise is issued, it is hardly surprising that Schwinn has been interpreted by learned commentators as leaving undisturbed the basic legality of location clauses.27 Moreover, years after Schwinn, the Department of Justice refused to characterize location clauses as illegal per se, treating them instead as restrictions to be governed by the rule of reason.28 And only last year, a spokesman for the Antitrust Division stated that locations clauses “are not illegal standing by themselves” since “[tjhey reflect the manufacturer’s legitimate interest in having his goods distributed efficiently throughout a particular area.” Address by K. Clearwaters before the International Franchising Association, Franchising and the Antitrust Laws, May 16, 1974. The Federal Trade Commission has also recognized that Schwinn did not establish a per se rule against vertical territorial restrictions. In its Report of the Ad Hoc Committee on Franchising, the Commission reached the conclusion that: [997]*997FTC, Report of the Ad Hoe Committee on Franchising 30 (June 2, 1969). See, Coca Cola Co., 3 CCH Trade Reg.Rep. H 21,010 (Oct. 8, 1975) (Sustaining a soft drink manufacturer’s imposition of exclusive territories upon licensed bottlers).
[996]*996“. . . in Schwinn, the Court left enough leeway in its initial threshold test of the overall reasonableness of vertical arrangements to enable a manufacturer to justify such an arrangement by establishing that it could not have entered the market or expanded its market share
[997]*997In summary, when Schwinn is analyzed in its factual context it is readily distinguishable from the case before us, in terms of both the kind of restrictions involved and their operative competitive effect. This conclusion is reinforced by reference to the Schwinn decree on remand, Boro Hall, Saleo, and Kaiser, all of which uphold location clauses like the one before us now. Finally, in both the cases decided after Schwinn involving other types of vertically imposed customer and territorial restraints, and the post-Schwinn pronouncements of the Federal Trade Commission and Antitrust Division of the Department of Justice, we see a clear trend against interpreting Schwinn as establishing a per se rule of illegality, indiscriminately invalidating all vertical territorial restraints without any consideration of their reasonableness in terms of their overall competitive effect.
B. The Exclusive Dealership Precedents
The validity of the trial judge’s decision to apply a rule of per se illegality to Sylvania’s locations practice is further undermined by the many authorities upholding a manufacturer’s right to grant “exclusive dealerships,” a practice much more restrictive of competition than Sylvania’s location clauses. In an exclusive dealership arrangement a manufacturer agrees with a dealer not to authorize any competing dealers to sell the manufacturer’s products anywhere within the exclusive territory of the first dealer. There is a veritable avalanche of precedent to the effect that, absent sufficient evidence of monopolization, a manufacturer may legally grant such an exclusive franchise, even if this effects the elimination of another distributor. See Joseph E. Seagram & Sons, Inc. v. Hawaiian Oke & Liquors, Ltd., 416 F.2d 71 (9th Cir. 1969), cert. denied, 396 U.S. 1062, 90 S.Ct. 752, 24 L.Ed.2d 755 (1970); Elder-Beerman Stores Corp. v. Federated Department Stores, Inc., 459 F.2d 138 (6th Cir. 1972); Scanlan v. Anheuser Busch, Inc., 388 F.2d 918 (9th Cir. 1968), cert. denied, 391 U.S. 916, 88 S.Ct. 1810, 20 L.Ed.2d 654 (1968); Walker Distributing Co. v. Lucky Lager Brewing Co., 323 F.2d 1, 7 (9th Cir. 1963), cert. denied, 385 U.S. 976, 87 S.Ct. 507, 17 L.Ed.2d 438 (1966); Ace Beer Distributors, Inc. v. Kohn, Inc., 318 F.2d 283 (6th Cir.), cert. denied, 375 U.S. 922, 84 S.Ct. 267, 11 L.Ed.2d 166 (1963); Packard Motor Car Co. v. Webster Motor Car Co., 100 U.S.App.D.C. 161, 243 F.2d 418 (D.C. Cir.), cert. denied, 355 U.S. 822, 78 S.Ct. 29, 2 L.Ed.2d 38 (1957); Interborough News Co. v. Curtis Publishing Company, 225 F.2d 289 (2d Cir. 1955); Naifeh v. Ronson Art Metal Works, 218 F.2d 202 (10th Cir. 1954); Bascom Launder Corp. v. Telecoin Corp., 204 F.2d 331 (2d Cir.), cert. denied, 345 U.S. 994, 73 S.Ct. 1133, 97 L.Ed. 1401 (1953); Fargo Glass & Paint Co. v. Globe American Corp., 201 F.2d 534 (7th Cir.), cert. denied, 345 U.S. 942, 73 S.Ct. 833, 97 L.Ed. 1368 (1953); Potter’s Photographic Applications Co. v. Ealing Corp., 292 F.Supp. 92 (E.D.N.Y.1968); L. S. Good & Co. v. H. Daroff & Sons, Inc., 279 F.Supp. 925 (N.D.W.Va.1968); Peerless Dental Supply Co. v. Weber Dental Manufacturing Co., 283 F.Supp. 288 (E.D.Pa.1968); Top-All Varieties, Inc. v. Hallmark Cards, Inc., 1969 Trade Cas. ¶ 72,850 (S.D.N.Y.). See generally Note, Restricted Channels of Distribution Under the Sherman Act, 75 Harv.L.Rev. 795 (1962).
The clearly established legality of exclusive dealerships logically compels the conclusion that location clauses cannot be per se illegal. If it is legal for a manufacturer to promise one dealer that he will have the exclusive right to sell the manufacturer’s products within a designated territory, then obviously it is legal for that manufacturer to keep his promise of exclusivity by denying other dealers like Continental the power to sell from retail outlets at unauthorized locations within the first dealer’s exclusive territory. The accepted principle that a manufacturer may legally grant an exclusive dealership is rendered meaningless if he cannot legally use a location clause to prevent his other dealers from opening [998]*998their own retail outlets in the same area. If a manufacturer cannot include a location restriction in a franchise agreement, he cannot do what the exclusive dealership cases hold is legal, i. e., promise that “I will not franchise another dealer in your area.” If a location restriction cannot legally be enforced, and, for example, a franchisee is established in San Francisco, California, who then opens a store in Los Angeles, California, the manufacturer cannot fulfill his promise to his original Los Angeles franchisee that he will not recognize another dealer in Los Angeles. Therefore, we conclude that the rule of per se illegality applied below is logically inconsistent and irreconcilable with our decision in Hawaiian Oke and the many other cases upholding the right of manufacturers to establish exclusive dealerships.
If the rule adopted by the trial judge in this case were the law, it would have grievous implications for the common and established practices of franchising29 and the granting of exclusive dealerships. Under the district judge’s approach a manufacturer legally prevented from imposing or enforcing a location restriction could not lawfully prevent its franchisee from creating new outlets at any unauthorized locations the franchisee might choose and distributing the franchisor’s merchandise therefrom. In other words, under the rule of per se illegality, if a dealer is franchised anywhere he is franchised everywhere. Once the manufacturer has granted a franchise for any location, he would be legally obligated to enable the franchisee to sell the manufacturer’s product from all other locations into which the franchisee might wish to expand, regardless of the prejudicial effect that this would have on existing distribution in those areas.30
[999]*999The adoption of the rule of per se illegality in a case such as this would undoubtedly hasten the disappearance from the American market place of the small independent merchant, now often a franchisee, and already an endangered entrepreneur. The Supreme Court has recognized the concern that Congress has expressed over the disappearance of the small independent merchant due to competition with much larger, vertically integrated firms. In the words of Mr. Justice Stewart,
“. . . franchising promises to provide the independent merchant with the means to become an efficient and effective competitor of large integrated firms. Through various forms of franchising, the manufacturer is assured qualified and effective outlets for his products, and the franchisee enjoys backing in the form of know-how and financial assistance. These franchise arrangements also make significant social and economic contributions of importance to the whole society, as at least one federal court has noted:
‘The franchise method of operation has the advantage, from the standpoint of our American system of competitive economy, of enabling numerous groups of individuals with small capital to become entrepreneurs. ... If our economy had not developed that system of operation these individuals would have turned out to have been merely employees. The franchise system creates a class of independent businessmen; it provides the public with an opportunity to get a uniform product at numerous points of sale from small independent contractors, rather than from employees of a vast chain.’31
Indiscriminate invalidation of franchising arrangements would eliminate their creative contributions to competition and force ‘suppliers to abandon franchising and integrate forward to the detriment of small business. In other words, we may inadvertently compel concentration by misguided zealousness. As a result, ‘[t]here [would be] less and less place for the independent.’ Standard Oil Co. v. United States, 337 U.S. 293, 315, 69 S.Ct. 1051, 1062, 93 L.Ed. 1371, 1386 (separate opinion of Mr. Justice Douglas). ‘The small, independent businessman [would] be supplanted by clerks.’ Id., at 321, 69 S.Ct. at 1067 [93 L.Ed. at 1386].”
United States v. Arnold, Schwinn & Co., 388 U.S. at 386-87, 87 S.Ct. at 1869, 18 L.Ed.2d at 1264-65 (Stewart, J., concurring and dissenting) (footnotes omitted).
If we were to adopt the approach of per se illegality, the ultimate result might be to undermine franchising as a tool to enable the small, independent businessman to compete with the large vertically integrated giants of many industries. One danger would be that a single franchisee, allowed to expand into a chain of stores and sell everywhere over the manufacturer’s objection and in violation of the contract, might make it impossible for other small single-outlet franchisees of the same manufacturer to compete effectively. Thus the loyal network of small independent businessmen that the manufacturer desired for his franchisees might be supplanted by several “gi[1000]*1000ant” franchisees, each having numerous outlets. Another risk would be that a small manufacturer who could not afford to integrate vertically, if prohibited from offering any degree of territorial protection from intrabrand competition or “elbow room”, might not be able to attract dealers and thus might be unable to establish an effective system of distribution for its product. We cannot believe that Congress intended to implement a rigid per se rule of illegality that portends such serious risk to franchising arrangements, methods that have made significantly worthy contributions to our Nation’s economy.32
C. The Policy of the Sherman Act
A final reason for our conclusion, and perhaps the most compelling one, is our belief that location agreements like the ones adopted by Sylvania may in some instances promote, rather than impede, competition. Consequently, we think that there must be a case by case inquiry under the “rule of reason” to determine the competitive effect of such restraints if the policy of the Sherman Act is to be effectuated. The true anticompetitive evil of the restraints which Schwinn declared to be illegal per se was their total proscription of all competition between Schwinn dealers for the same customers or within the same geographical areas. Here, Sylvania’s practice involved no such total destruction of intraband competition.33 Implicit in the application of a per se rule in antitrust analysis is the conclusion that the challenged practice necessarily and always involves an unreasonable restraint upon competition,34 and thus can be conclusively presumed to be illegal without any inquiry into the nature and history of the industry involved and a determination of the precise manner in which a particular restraint has affected competition. Harsh and inflexible per se rules should be applied when, and only when, a court has made a threshold examination of the economic effects of the challenged practice and has determined that it is clear that the practice to be declared illegal per se has had a “pernicious effect on competition” and a “lack of any redeeming virtue.” See Northern Pacific Railway Co. v. United States, 356 U.S. 1, 5, 78 S.Ct. 514, 518, 2 L.Ed.2d 545, 549 (1958).
On the record before us Continental has not proved that the enforcement by Sylvania of its location clause has worked a net anticompetitive effect, or that the facts presented in this one case warrant the conclusion that further inquiry into the economic impact of Sylvania’s location clauses upon competition would be irrelevant. We recognize, of course, that in establishing a locations practice, Sylvania did check intrabrand competition to some extent. This was an inevitable incident to Sylvania’s attempt to promote and maintain interbrand competition. However, to ignore Sylvania’s ultimate purpose to remain in the market as a viable competitor, thereby fostering interbrand competition, and to consider only the fact that its practice slightly limited intrabrand competition, is to overlook the [1001]*1001forest while watching the trees.35 The free market policy of the antitrust laws would not be served by fashioning rules which foster intrabrand competition to the point of extinguishing interbrand competition. This would lead to the more insidious evil of total monopolization. In this connection, it is important to emphasize the following considerations: that in a market dominated by a single company (RCA), Sylvania possessed only a minor fraction of the total market, that many other brands were available to the consumer, that Sylvania dealers possessed no veto power against the franchising of additional dealers in any given area, that Sylvania dealers could and did carry competing brands, and that the location restriction on Sylvania dealers had no demonstrable effect on prices, volume of products available, quality, or consumer choice. Additionally, in no market did Sylvania’s practice foreclose any consumer from substantial choice among several Sylvania dealers, and any Sylvania dealer who might have been inclined to set his prices too high or to provide inadequate service would run headlong into both strong inter-brand competition from other manufacturers and intrabrand competition from one or more other Sylvania dealers.
Where, as here, it cannot be said with certainty that a challenged practice is inherently anticompetitive and unreasonable, the standard commonly referred to as the “rule of reason” is, and should be, applied. That rule, read into the Sherman Act in Standard Oil Co. v. United States, 221 U.S. 1, 62, 31 S.Ct. 502, 516, 55 L.Ed. 619, 646 (1911), was stated in its classic form by Mr. Justice Brandeis in Chicago Board of Trade v. United States, 246 U.S. 231, 38 S.Ct. 242, 62 L.Ed. 683 (1918).
“Every agreement concerning trade, every regulation of trade, restrains. To bind, to restrain, is of their very essence. The true test of legality is whether the restraint imposed is such as merely regulates and perhaps thereby promotes competition or whether it is such as may suppress or even destroy competition. To determine that question the court must ordinarily consider the facts peculiar to the business to which the restraint is applied; its condition before and after the restraint was imposed; the nature of the restraint and its effect, actual or probable. The history of the restraint, the evil believed to exist, the reason for adopting the particular remedy, the purpose or end sought to be attained, are all relevant facts. This is not because a good intention will save an otherwise objectionable regulation or the reverse; but because knowledge of intent may help the court to interpret facts and to predict consequences.”
Id., at 238, 38 S.Ct. at 244, 62 L.Ed. at 687.
In holding that an instruction incorporating the “rule of reason” should have been given to the jury, we note that Sylvania presented substantial evidence from which the jury might have reasonably concluded that Sylvania’s location practice, rather than unreasonably restricting competitive market forces, actually had a procompetitive effect36 in that it enabled a marginal [1002]*1002producer to achieve the status of a viable competitor in an industry threatened by oligopolistic tendencies. It may be true, as Sylvania claimed, that the location restrictions employed by Sylvania attracted dealers to carry and promote Sylvania’s products, and ultimately fortified its market position in competition with other brands. Perhaps some limit on ruinous intrabrand competition was necessary to induce a sufficient number of otherwise reluctant dealers to sell the Sylvania product. It is undisputed that, as we have previously noted, Sylvania’s share of the market increased from less than 2% in 1962 to 5% by 1965. Any reduction of intrabrand competition that may have resulted from the locations practice apparently did not eventuate in the evils that are normally associated with an unreasonable restraint of trade, since the television industry as a whole experienced both an increase in volume and a decrease in .price during this period.36a Whether some diminution in intrabrand competition is justified when it. averts the loss of one competitor in an industry that is already oligopolistic should ultimately be a question for the finder of the facts. Our choice of a rule of reason test over a per se rule of illegality means only that the critical policy question will at least be asked and answered.37 In our view, the Sherman Act demands no less.
[1003]*1003Chief Justice Hughes once wrote, in discussing the Sherman Act: “The restrictions the Act imposes are not mechanical or artificial. Its general phrases, interpreted to attain its fundamental objects, set up the essential standard of reasonableness.” Appalachian Coals, Inc. v. United States, 288 U.S. 344, 360, 53 S.Ct. 471, 474, 77 L.Ed. 825 (1933).38 In holding that the just result in the present controversy is not absolutely foreordained by Schwinn, and that a rule of reason analysis should have been applied, we believe and hope that we further the Sherman Act’s goal of protecting the consumer from the dangers that result when free competition is suppressed. Since the legislative intent underlying the Sherman Act had as its goal the promotion of consumer welfare,39 we decline blindly to condemn a business practice as illegal per se because it imposes a partial, though perhaps reasonable, limitation on intrabrand competition, when there is a significant possibility that its overall effect is to promote competition between brands. If the application of the rule of per se illegality in this case were permitted to stand, Sylvania would inevitably be stripped of a tool which it claims enabled it to compete effectively with the few “giants” of the industry. Its market share might well shrink to the precarious level that existed prior to institution of its “elbow room” policy. It is altogether possible that foreclosing the competitive benefits of vertical agreements like the one here involved by means of a per se rule, without any inquiry into the possibility of an overall procompetitive effect in the relevant industry, might well signal the death of similarly situated manufacturers with small market shares in other industries.40 If a per se rule [1004]*1004of illegality is permitted to replace a genuine inquiry into the reasonableness and economic effect of business arrangements which, in reality, strengthen competition and promote the Nation’s economic welfare, the purpose of the Sherman Act is undermined. This would promote monopoly, hamstring free enterprise, and victimize our country’s consumers. Hopefully, our conclusion in this case bars such subversion of the national welfare.
The judgment of the District Court is reversed, and the cause is remanded for further proceedings not inconsistent with the views herein expressed.41
Reversed and Remanded.42
. See Note, 53 Texas L.Rev. 127, 136 (1974).