FEDERAL TRADE COMMISSION v. BEECH-NUT PACKING COMPANY
No. 47
Supreme Court of the United States
Argued November 10, 14, 1921. Decided January 3, 1922.
257 U.S. 441
It is not necessary to review or comment upon them. They are testimony of what the judiciary of the country considered and consider The Siren and other cases decided. Therefore we cannot refrain from saying that it is strange, that notwithstanding the language of The Siren, its understanding and acceptance in many cases in this court, the enforcement of its doctrine at circuit and district, it should now be declared erroneous. The cases at bar would seem to be cases for the application of the maxim of stare decisis which ought to have force enough to resist a change based on finesse of reasoning or attracted by the possible accomplishment of a theoretical correctness.
The rules should be discharged.
CERTIORARI TO THE CIRCUIT COURT OF APPEALS FOR THE SECOND CIRCUIT.
1. A trader does not violate the Sherman Act by simрly refusing to sell his goods or by withholding them from those who do not sell them at the resale prices he fixes; but he may not, by contracts or combinations express or implied, unduly hinder or obstruct the free and natural flow of interstate commerce. P. 452.
2. The public policy evinced in the Sherman Act is to be considered in determining what are “unfair methods of competition” within the Federal Trade Commission Act. P. 453.
3. A plan of merchandising, in interstate trade, which has a dangerous tendency unduly to hinder competition or to create monopoly, the Federal Trade Commission has authority to order suppressed. P. 454.
4. The respondent manufacturer, for the purpose of maintaining resale prices fixed by itself, declined to sell its products to jobbers, wholesalеrs or retailers who did not observe them or who sold to
264 Fed. 885, reversed.
CERTIORARI to review a judgment of the Circuit Court of Appeals setting aside an order of the Federal Trade Commission.
Mr. Solicitor General Beck, with whom Mr. W. H. Fuller, Mr. Marshall B. Clarke and Mr. Adrien F. Busick were on the brief, for petitioner.
Mr. Charles Wesley Dunn for respondent.
The Sherman Act does not deprive a manufacturer or trader, engaged in an entirely private business and exercising his independent discretion in the normal course of his trade without any purpose to create or maintain a monopoly, of his fundamental right of freedom to trade, existing at common law, to wit, the right freely to sell his own property (consisting of legitimate articles of commerce) or not, as he pleases, for any rеason he pleases, to whom he pleases, and to announce in advance the circumstances under which he will refuse to sell, who, when he does sell, imposes no restraint whatever upon the right of future alienation, by restrictive agreements (express or implied), since that act was enacted to preserve such fundamental right of freedom to trade, and not to impair or destroy it.
And if § 5 of the Trade Commission Act may be construed and is applied to deprive a manufacturer or trader of this fundamental right, then that section violates the due process clause of the Fifth Amendment.
The theory upon which the Commission predicates its charge and conclusion that the refusal-to-sell policy of the respondent involves the use of an unfair method of competition outlawed by § 5, is conclusively established to be without any support or justification whatever, either in fact or law, when tested by the agreed facts and the applicable principles of law.
MR. JUSTICE DAY delivered the opinion of the court.
This case is here upon a writ of certiorari to the United States Circuit Court of Appeals for the Second Circuit, which court set aside an order of the Federal Trade Commission requiring the Beech-Nut Packing Company, a corporation engaged in the manufacture and sale of food and other products throughout the United States, to
The Commission condemned the plan as an unfair method of competition within the meaning of § 5 of the Federal Trade Commission Act. (
In the original complaint it was charged that, in order to accomplish the illegal purpose intended, the Beech-Nut Company required its purchasers to agree to maintain or resell such products at standard selling prices, and that, for the purpose of maintaining such standard resale prices and for the purpose of inducing and compelling its customers to maintain and keep such standard prices, the company refused to sell its products to customers and dealers who would not agree to maintain such specified standard resale prices, and who did resell such products at the specified standard selling prices fixed and determined by the company. By stipulation before trial the complaint was amended so as to charge: That the Beech-Nut Company has adopted and enforced a system of fixing and maintaining certain specified standard prices at which its chewing gum and food products shall be
The case was heard before the Commission upon an agreed statement of facts, from which, among other things, it found:
The Beech-Nut Packing Company customarily markets its products principally through jobbers and wholesalers in the grocery, drug, candy and tobacco lines, who in turn resell to retailers in these lines. Such wholesale and retail dealers are selected as desirable customers because they are known or believed to be of good credit standing,
The company has adopted and maintained, and still maintained at the time complaint was filed by the Commission, in the sale and distribution of its products, a policy known as the “Beech-Nut Policy“, and requests the coöperation therein of all dealers selling the products manufactured by it, dealing with each customer separately.
In order to secure such coöperation and to carry out the Beech-Nut Policy, the company:
Issuеs circulars, price lists, and letters to the trade generally, showing suggested uniform resale prices, both wholesale and retail, to be charged for Beech-Nut products.
Requests and insists that the selected jobbers, wholesalers and retailers sell only to such other jobbers, wholesalers and retailers as have been and are willing to resell and do resell at the prices so suggested by the company; and requests and insists that such jobbers, wholesalers
Makes it known broadcast to such selected jobbers, wholesalers and retailers, whether sold “direct” or not, that, if they, or any of them, fail to sell at the resale prices suggested by the company, it will absolutely refuse to sell further supplies of its products to them, or any of them, and will also absolutely refuse to sell to any jobbers, wholesalers and retailers whomsoever who sell to other jobbers, wholesalers and retailers failing to resell at the prices suggested by the company.
The company, in the carrying out of its policy, has refused and does refuse to sell its products to practically all such jobbers, wholesalers and retailers as do not sell at the prices so suggested by it. It has refused and does refuse to sell to practically all such jobbers, wholesalers and retailers reselling to other jobbers, wholesalers and retailers who have failed to resell at the pricеs so suggested by it. It has refused and does refuse to sell to practically all so-called mail-order houses engaged in interstate commerce, on the ground that such mail-order houses frequently sell at cut prices, and has refused and does refuse to sell to practically all jobbers, wholesalers and retailers who sell its products to such mail-order houses. It has refused and does refuse to sell to practically all so-called price cutters. It has maintained and does maintain a large force of so-called specialty salesmen or representatives, who call upon the retail trade and solicit orders therefrom to be filled through jobbers and wholesalers, which orders are commonly known in the trade as “turnovеr orders“; its salesmen, under respondent‘s instructions, have refused and do refuse to accept any such turnover orders to be filled through jobbers and wholesalers who themselves sell or have sold at less than the suggested resale prices, or sell or have sold to job-
The company has reinstated and does reinstate as distributors of its products jobbers, wholesalers and retailers previously cut off or withdrawn from the list of selected jobbers, wholesalers and retailers for failure to resell at the prices suggested by it, and for selling to distributors who do not maintain such suggested resаle prices, upon the basis of declarations, assurances, statements, promises, and similar expressions, as the case may be, by such distributors, respectively, who satisfy the company that such distributors will thereafter resell at the prices suggested by it and will refuse to sell to distributors who do not maintain such suggested resale prices.
The company has added and does add to its list of new distributors, concerns reported by its representatives as declaring that they intend to and will resell at the prices suggested by it and will refuse to sell to those who do not maintain such suggested resale prices: That it has utilized a system of key numbers or symbols stamped or marked upon the cases containing the “Beech-Nut Brand” products, thus enabling it, for any purpose whatsoеver, to ascertain the identity of the distributors from whom such products were purchased; and that repeatedly, when instances of price-cutting have been reported to it by the selected wholesalers and retailers, or ascertained in other ways, its salesmen and representatives have been instructed by it to investigate, and that in pursuance of these instructions they have by means of these key numbers or symbols traced the price-cutters from whom the goods have been obtained, and have thus ascertained the identity of such price cutters, and have also thus traced and ascertained the identity of distributors from whom price cutters have purchased “Beech-Nut Brand” products; and it has thereafter refused to
The company has maintained and does maintain card records containing the names of thousands of jobbing, wholesale and retail distributors, including the selected distributors, and in furtherance of its refusal to sell goods either to distributors selling at less than the suggested resale price, or to distributors selling to other distributors selling at less than the suggested resale prices, has listed upon those cards, bearing the names of such distributors, the words “Undesirable—Price Cutters“, “Do Not Sell“, or “D. N. S.“, the abbreviation for “Do Not Sell“, or expressions of a like character, to indicate that the particular distributor wаs in the future not to be supplied with respondent‘s goods on account of failure to maintain the suggested resale prices, or on account of failure to discontinue selling to dealers failing to maintain such suggested resale prices. When the company has received declarations, assurances, statements, promises, or similar expressions, as the case may be, by distributors which satisfy it that such distributors will resell at the prices suggested by it, and discontinue selling to distributors failing to maintain the resale prices suggested by it, it has issued instructions to “Clear the record,” or directions of similar import, notation of which is made on the cards, and it has thereafter permitted shipments of its products to be made to such distributors; and such distributors to whom shipments are thus allоwed to go forward constitute the company‘s list of so-called “selected” jobbers, wholesalers and retailers, and no distributor is thus listed on such card records as one to whom goods are allowed to go forward who fails to maintain the resale prices suggested by it or sells to distributors failing to resell at such suggested prices; and when a jobber,
The Circuit Court of Appeals was of opinion that the only difference between the price-fixing policy condemned as unlawful in Dr. Miles Medical Co. v. Park & Sons Co., 220 U.S. 373, and the price-fixing plan embodied in the Beech-Nut policy was that in the former case there was an agreement in writing, while in this case the success or failure of the plan depended upon a tacit understanding with purchasers and prospective purchasers. While it expressed its difficulty in seeing any difference between a written agreement and a tacit understanding in their effect upon the restraint of trade, it, nevertheless, regarded the case as governed by the decision of this court in United States v. Colgate & Co., 250 U.S. 300, and, accordingly, held that the Commission had exceeded its power in making the order appealed from.
The Colgate Case was prosecuted under the Sherman Anti-Trust Act and came to this court under the Criminal Appeals Act. We therein held that this court must accept the construction of the indictment as made in the District Court; and, that, upon such construction, the only act charged amounted to the exercise of the right of the trader, or manufacturer, engaged in private business, to exercise his own discretion as to those with whom he would deal, and to announce the circumstances under which he would refuse to sell, and that, thus interpreted, no act was charged in the indictment which amounted to a violation of the Sherman Act, prohibiting monopoliеs,
In the subsequent case of United States v. Schrader‘s Son, Inc., 252 U.S. 85, this court had occasion to deal with a case under the Criminal Appeals Act, wherein there was a charge that a manufacturer sold to manufacturers in several States under an agreement to observe certain resale prices fixed by the vendor, which we held to be a violation of the Sherman Anti-Trust Act. In referring to the Colgate Case we said: “The court below misapprehended the meaning and effect of the opinion and judgment in that cause. We had no intention to overrule or modify the doctrine of Dr. Miles Medical Co. v. Park & Sons Co., [220 U.S. 373] where the effort was to destroy the dealers’ independent discretion through restrictive agreements. Under the interpretation adoptеd by the trial court and necessarily accepted by us, the indictment failed to charge that Colgate & Company made agreements, either express or implied, which undertook to obligate vendees to observe specified resale prices; and it was treated ‘as alleging only recognition of the manufacturer‘s undoubted right to specify resale prices and refuse to deal with anyone who failed to maintain the same.‘”
In the still later case of Frey & Son v. Cudahy Packing Co., 256 U.S. 208, wherein this court again had occasion to consider the subject, it was said of the previous decisions in United States v. Colgate & Co., and United States v. Schrader‘s Son, Inc., supra: “Apparently the former case was misapprehended. The latter opinion distinctly stated that the essential agreement, combination or conspiracy might be implied from a course оf dealing or other circumstances.”
By these decisions it is settled that in prosecutions under the Sherman Act a trader is not guilty of violating its terms who simply refuses to sell to others, and he may withhold his goods from those who will not sell them at the
The Sherman Act is not involved here except in so far as it shows a declaration of public policy to be considered in determining what are unfair methods of competition, which the Federal Trade Commission is empowered to condemn and supрress. The case now before us was begun under the Federal Trade Commission Act which was intended to supplement previous anti-trust legislation. (See Report No. 597, of the Senate Committee on Interstate Commerce, June 13, 1914, 63rd Cong., 2nd sess.) That act declares unlawful “unfair methods of competition” and gives the Commission authority after hearing to make orders to compel the discontinuance of such methods. What shall constitute unfair methods of competition denounced by the act, is left without specific definition. Congress deemed it better to leave the subject without precise definition, and to have each case determined upon its own facts, owing to the multifarious means by which it is sought to effectuate such schemes. The Commission, in the first instance, subject to the judicial review provided, has the determination of practices which come within the scope of the act. (See Report, No. 597, Senate Committee on Interstate Commerce, June 13, 1914, 63rd Cong., 2nd sess.)
Of the Federal Trade Commission Act we said, in Federal Trade Commission v. Gratz, 253 U.S. 421, 427: “The words ‘unfair method of competition’ are not defined by the statute and their exact meaning is in dispute. It is for the courts, not the commission, ultimately to determine as matter of law what they include. They are clearly inapplicable to practices never heretofore regarded as opposed to good morals because characterized by de-
If the “Beech-Nut System of Merchandising” is against public policy because of its “dangerous tendency unduly to hinder competition or to create monopoly,” it was within the power of the Commission to make an order forbidding its continuation. We have already seen to what extent the declaration of public policy, contained in the Sherman Act, permits a trader to go. The facts found show that the Beech-Nut system goes far beyond the simple refusal to sell goods to persons who will not sell at stated prices, which in the Colgate Case was held to be within the legal right of the producer.
The system here disclosed necessarily constitutes a scheme which restrains the natural flow of commerce and the freedom of competition in the channels of interstate trade which it has been the purpose of all the anti-trust acts to maintain. In its practical operation it necessarily constrains the trader, if he would have the products of the Beech-Nut Company, to maintain the prices “suggested” by it. If he fails so to do, he is subject to be reported to the company either by special agents; numerous and active in that behalf, or by dealers whose aid is enlisted in maintaining the system and the prices fixed by it. Furthermore, he is enrolled upon a list known as “Undesirable—Price Cutters,” to whom goods are not to be sold, and who arе only to be reinstated as one whose record is “clear” and to whom sales may be made upon his giving satisfactory assurance that he will not resell the goods of the company except at the prices suggested by it, and will refuse to sell to distributors who do not maintain such prices.
Under the facts established, we have no doubt of the authority and power of the Commission to order a discontinuance of practices in trading, such as are embodied in the system of the Beech-Nut Company.
We are, however, of opinion that the order of the Commission is too broad. The order should have required the company to cease and desist from carrying into effect its so-called Beech-Nut Policy by coöperative methods in which the respondent and its distributors, customers аnd agents undertake to prevent others from obtaining the company‘s products at less than the prices designated by
The judgment of the Circuit Court of Appeals is reversed, and the cause remanded to that court with instructions to enter judgment in conformity with this opinion.
Reversed.
MR. JUSTICE HOLMES, dissenting.
There are obvious limits of propriety to the persistent expression of opinions that do not command the agreement of the Court. But as this case presents a somewhat new field—the determination of what is unfair competition within the meaning of the Federal Trade Commission Act—I venture a few words to explain my dissent. I will not recur to fundamental questions. The ground on
MR. JUSTICE MCKENNA and MR. JUSTICE BRANDEIS concur in this opinion.
With regret, I dissent from the opinion and judgment of the court.
This matter was submitted to the Commission upon an Agreed Statement of Facts, the twelfth clause of which—the last but one—declares: “12. That the merchandising conduct of respondent heretofore defined and as herein involved does not constitute a contract or contracts whereby resale prices are fixed, maintained and enforced.”
Of course, the Packing Company entered into this stipulation relying upon the quoted clause; and I am not at liberty either to disregard it or to minimize the plain import of its words. It is not a mere conclusion of the Commission but a definite and essential admission of record upon which the Company rested and without which I must conclude a different case might have been presented.
There is no question of monopoly. Acting alone, respondent certainly had the clear right freely to select its customers—to refuse to deal when and as it saw fit—and to announce that future sales would be limited to those whose conduct met with its approval. United States v. Colgate & Co., 250 U.S. 300; United States v. Schrader‘s Son, Inc., 252 U.S. 85; Frey & Son v. Cudahy Packing Co., 256 U.S. 208.
If the solemn stipulation did not expressly negative the existence of contracts amongst the parties to maintain prices, I should think the detailed facts sufficient to support a finding that there were such agreements. But starting with that plain negation I can find no adequate ground for condemning the respondent.
The very order which the court below is now directed to enter conflicts with the stipulation between the parties by presupposing “methods of coöperation between respondent and the distributors of its products, especially the coöperative methods by which the respondent and the
Having the undoubted right to sell to whom it will, why should respondent be enjoined from writing down thе names of dealers regarded as undesirable customers? Nor does there appear to be any wrong in maintaining special salesmen who turn over orders to selected wholesalers and who honestly investigate and report to their principal the treatment accorded its products by dealers. Finally, as respondent may freely select customers, how can injury result from marks on packages which enable it to trace their movements? The privilege to sell or not to sell at will surely involves the right by open and honest means to ascertain what selected customers do with goods voluntarily sold to them.
Under the circumstances disclosed, constraint upon the freedom of merchants can only result from withholding trade relatiоns or threatening so to do. These, when acting alone, respondent may assume or decline at pleasure, there being neither monopoly nor attempt to monopolize. And the exercise of this right does not become an unfair method of competition merely because some dealers cannot obtain goods which they desire, and others may be deterred from selling at reduced prices. If a manufacturer should limit his customers to consumers he would thereby destroy competition among dealers, but neither they nor the public could complain.
Notes
“1. Refusing to sell to any such distributors because of their failure to adhere to any such system of resale prices;
“2. Refusing to sell to any such distributors because of their having resold respondent‘s said products to other distributors who have failed to adhere to any such system of resale prices;
“3. Securing or seeking to secure the coöperation of its distributors in maintaining or enforcing any such system of resale prices;
“4. Carrying out or causing others to carry out a resale price maintenance policy by any other means.”