Oreck Corporation v. Whirlpool Corporation and Sears, Roebuck and Co.

Sеptember of 1972. MANSFIELD, Before ANDERSON and This lawsuit underlying and the contro- BRIEANT, Judges, and Circuit District versy, are based on the claimed why reasons Judge.* Oreck was not afforded an additional term ANDERSON, exclusive Judge: ROBERT P. Circuit distributor of vacu- um cleaners. Oreck’s successful contention judgment an en- appeal This is from below was that its was not re- July 1976 in tered favor newed by Whirlpool at the behest and insis- Corporation (Oreck) against defendants Sears, tence of larger a much purchaser of Whirlpool Corporation (Whirlpool) and Whirlpool vacuum cleaners than Oreck. Sears, (Sears) Co. on two Roebuck & counts Sears’ association with Whirlpool extended complaint charging a seven count viola- back to when acquired Act, tions of of the Sherman § U.S.C. shares of Whirlpool’s corpora- forerunner $2,250,000 (after 1. Oreck was awarded tion, Upton Machine Co.1 By January trebling) monetаry damages. For the Sears owned approximately 4% of below, we reasons set forth reverse. Whirlpool’s outstanding Oreck also stock. controversy factual basis this contended that Sears did not want Oreck to fairly straightforward. Whirlpool is man- compete with its own line of Kenmore vacu- (as ufacturer vacuum cleaners well as cleaners, um also manufactured Whirl- appliances household relevant pool, and that it used its influence with here) and has been that business since Whirlpool to have Oreck’s exclusive distrib- acquired when it Electric Birtman utorship terminated. previously Birtman had Co. manufactured Accordingly, complaint charged vacuum cleaners for under the Ken- both and Sears with engaging more label. this continued busi- contract, ness, combination sought or and also to sell vacuum in un- clean- reasonable restraint ers of trade to “RCA-Whirlpool” under own label. exclude Oreck from the It discontinued the line vacuum of sales this cleaner market in the United States and approximately years (counts label for two after Canada one complaint) and two of the through which it re-entered the field and forcing des- distributor, Oreck, ignated persuading potential which customers of Oreck appointed refusing in 1963 initial term to deal with (count three). years, five with automatic Additionally, extensions for count four of the periods thereafter, year complaint absent charged six selling * York, sitting corporate changes, including Of the Southern District of New merger with the by designation. Seeger Refrigeration Company in and Company The Birtman Electric in 1957. The According plain- to Sears’ answer to one of resulting corporation changed name of the interrogatories, purchase tiff’s after Sears’ Whirlpool Corporation in 1957.” Upton shares Machine Co. in “the Upton Company major Machine underwent had failed parts tributor to market attachments discriminatory prices, “major unlawfully through vacuum cleaners accounts” Sears at like) count five store 13(a) (department chains and the contrary to 15 U.S.C. § receipt “commercial-type knowing had instead resorted to inducement with Sears’ prices, prohib- (janitorial supply houses discriminatory distribution” same of those sales), a Finally, strategy count six mail order which did 13(f). by 15 U.S.C. § ited Whirlpool’s Sparks to Oreck as with desires. ex- damage agree alleged irreparable violations that he plained accepted and subordinate’s of result of “be- absence recommendation terminate Oreck laws and Oreck’s of the antitrust law, corporation count sev- failed to remedy at and cause Oreck reach adequate an original objective amount when we first con- the damage Oreck pleaded en alleged $6,500,000 program the in 1963 which was to as a result of Sears’ ceived set of person” one-step system nationally up as a “control distribution status stockholdings in Whirl- (because major accounts on vacuum cleaners of Sears’ with the relationship close between pool) hopes ultimately and the the that we would have a years. over a of 50 period defendants other system specialty-type products two that three, were volun- four and seven go through.” Sparks Counts denied being could motion; and the on Oreck’s tarily dismissed competing against Sears, concerned with on a verdict for defendants court directed that . pointing system out “the we four, alleged Robin- and the counts three “major talked about [distribution Act violations. son-Patman department such as acсounts” would stores] competition with be in direct Sears.”2 testimony therefore cen The trial two, however, alleged Significantly, plaintiff present- the on counts one and tered ed testimony case evidence or that the Act violations. Plaintiff’s net Sherman the testimo effect of Oreck’s cancellation liability largely upon rests economic Oreck, Manager, unreasonably to restrain trade in the of Marshall its General vacu- ny testimony industry President and the of its um cleaner in the United upon and Oreck, founder, fact, his rela In David who told of and/or Canada. as to this critical and years inquiry, over the David Oreck testified on direct tionship with ex- belief, from com that primarily derived amination vacuum cleaner in- of his “[t]he indeed, is, Payne, dustry very large a sales one” and John that munications 78,203 for the Whirlpool, during the reason when Oreck sold man for vacu- compe to end “thе was Sears’ desire um vacuum cleaner industry cancellation presented about purchases.” Oreck. Plaintiff also in 1971 was 7.8 million tition from reveals, therefore, Payne, appear who did not arithmetic deposition the Basic Ritchin, Hyman an econom had a the time at the trial. B. 1% market share at Sommer, consultant, completion L. and Ernest the his exclusive distributor- ic accountant, testimony Whirlpool. Moreover, public gave ship for David certified that, damages. on admitted on plaintiff the issue cross-examination follow- event, the plaintiff this obtained an explanation of By way of defense and was, source of at supply alternative the cancellation, presented trial, largest supplier time of the world’s testimony of its officers who dealt “top upright fill vacuum cleaners.” for the can- Oreck, showing that the reason testimony to follow The above and the other evi- was Oreck’s failure cellation marketing plaintiff D. at strategy. Jack dence adduced the trial assigned nothing Director of more than the refusal by a Vice President and show Sparks, to termi- to renew who made the decision Oreck’s exclusive dis- Whirlpool, Oreck, tributorship Whirlpool exclusive dis- testified that the cleaners nate possible the dissent’s nated for some lawful reason. .” is thus difficult understand It (Emphasis supplied.) evidence that there was substantial view “[n]o was termi- offered to show that Oreck “Whirlpool” may and the re- manufacturer label choose his own custom- under dealers; effect, by Sears, ers and franchise certain placement distributor, who sold existing “If stops the restraint point —if vacuum cleaner but manufacturer’s same more nothing is involved than vertical label, It is “Kenmore.” well-set- ‘confinement’ of the manufacturer’s own tled sales merchandise to selected deal- ers, if dealership competitive products ‘is not an exclusive are readi- “[w]hen others, ly restriction, monopolize of a available to parcel scheme to part alone, these competition exists at both facts would not effective violate Act.” buyer levels, 388 U.S. at arrange seller and at 1864. upheld invariably been as a ment short, restraint trade. reasonable also, Sons, Joseph Seagram See E. & Inc. v. virtually legali rule one of Ltd., Hawaiian Oke Liquors, until the District Court decided the ty’ denied, case was present 1062, 752, [which reversed].” 90 24 (1970) (“it S.Ct. L.Ed.2d 755 omitted.) Pack (Cases footnote cited in is well settled that it is not per a se viola v. Motor Co. Webster Motor Car ard Car tion of the for antitrust laws a manufactur 163, Co., 161, 100 243 F.2d U.S.App.D.C. er or supplier agree to with a distributor to denied, 418, 420, 822, 355 U.S. 78 cert. give franchise, him an exclusive even if this 29, (1957).3 2 L.Ed.2d 38 cutting S.Ct. means off another distributor [cit ing cases].”);4 City-Abrahams Bay Bros. expressed much the Supreme Court Inc., 1206, Inc. v. Estee F.Supp. Lauder 375 Arnold, United v. rationale in States same (S.D.N.Y.1974); Top-All Varieties, 1214-16 365, Co., 1856, & Schwinn Cards, Inc., Inc. v. Hallmark F.Supp. 301 (1967), overruled on other L.Ed.2d 1249 18 703, (S.D.N.Y.1969). 704-5 T.V., v. Syl- Inc. GTE Continental grounds, Inc.,-U.S.-, standards, given 97 53 Under these vania S.Ct. additional (1977), weight where it held that a the 568 Court’s recent over- L.Ed.2d holdings power plaintiff’s Car a veto of Packard Motor Co. exercises access 3. The Co., U.S.App.D.C. goods Motor 100 Webster ‍‌‌​​​‌‌​​​‌‌​​‌‌‌‌​​​‌​​‌‌‌​‌​​‌​‌‌‌​‌​​‌‌‌​​‌‌‌‍Car the manufacturer’s or trademark denied, Mercury, F.2d Quality 243 cert. 78 . .” The result in how- (1957), ever, 2 and a similar involving grant S.Ct. the refusal of Ford to case, Schwing Motor Co. v. Hudson Sales dealership Minneapolis Lincoln area al- aff’d, Corp., F.Supp. (D.Md.), 138 899 239 F.2d legedly preexisting dealership because a denied, (4th 1956), cert. Cir. decision, power veto over such to re- was (1957), were 2 L.Ed.2d 38 succinct plaintiff mand for trial in order to allow the “аn ly a case summarized in relied the dis opportunity prove the unreasonableness sent, Co., Mercury Quality Inc. Motor v. Ford restraint,” 472, decidedly 542 F.2d at not a (8th 1976), F.2d 466 Cir. as follows: “Both approach alleged Sherman Act Schwing] that a held man [Packard courts violation. right his to select customers ufacturer has a Corp., 4 States United v. Hilton Hotels F.2d another, may agree one to exclude if: denied, Cir. 1000 1125, (1) agreement is not a horizontal one be (2) cited competitors; tween using the manufacturer is not dominance; limiting (3) in the dissent as it Flawaiian Oke to establish market hotels, using promote holding, was a is not it to case where the manufacturer monopoly.” restaurants companies supplying 542 F.2d at 470. As made clear those businesses in opinion, Whirlpool, Portland, Oregon, this organized in the remainder of an association to of vacuum did not city. the manufacturer attract conventions to thеir The associa engage agreement in a horizontal between tion financed was contributions competitors, while Oreck submitted no sub collection, “To members. aid hotel members proof motive in can stantial celling agreed preferential give treatment market Oreck was establish domi assessments, suppliers paid who their and to promote monopoly in or to the vacuum nance purchases curtail from those who did not.” cleaner business. (Emphasis supplied.) at 1002. Hilton Mercury, Quality dissent also relies on Hotels thus involved a horizontal proposition supra, se rule level, competitors between same applica- 1 of the Act becomes § Sherman present in situation Hawaiian Oke case. horizontal, competitor when “a ble essary judgment. a reversal of this Under approach to vertical per se ruling of instructions, gone v. Ar- these could have States of United restrictions location conspiracy further to find a fol- than supra, in Continental nold, Schwinn Inc., damages. lowed an assessment of supra, T.V., Sylvania Inc. GTE only conspi- to show required argument it did show an by Sears ratorial conduct unreasonable restraint of trade because the 1 of the Sherman under § order to recover provide net effect of its termination was to the net proof Act, also credible “monopoly position” with a allegedly conspira- and effect result market vacuum cleaners is anti- of the defendants torial conduct plainly unpersuasive. Oreck did not dem- industry cleaner the vacuum competitive anything unique onstrate about was de- or that as a whole vacuum cleaners sufficient to establish of the vacuum out signed separate apart to drive them as a market from all brands, business. v. E. I. DuPont cleaner de Nemours & jury, the trial instructing the (1957); George 1 L.Ed.2d R. language of 1 of the quoted court Whitten, Jr., Builders, Inc. v. Paddock Pool then further defined Act and (1st 508 F.2d terms within that statute as meaning of the attempt Oreck’s further to characterize its follows: “group boycott” cancellation as a under the meaning of the term ‘restraint “As to the Stores, Broadway-Hale rule of Klor’s Inc. v. trade,’ you are instructed that this Inc., 3 L.Ed.2d U.S. applies only to unreasonable general term (1959), and United v. General re- possible and not to all restraints 1321,16 Corp., Motors S.Ct. Not all restraints of straints of trade. which treats such be- af- are reasonable. All business trade havior as a se violation of way. fects trade in some Act, similarly is incorrect. In are, alleged by plaintiff if The violations Klor’s, specifically Court noted them, restraints, you credit unreasonable is not a case of ... “[t]his them, you trade. If do not credit agreeing manufаcturer and a dealer to an was not an unreason- Whirlpool’s conduct distributorship,” 359 U.S. at sup- (Emphasis of trade.” able restraint present is, at 709-10. The in case plied.) essence, involving a case an exclusive dis- jury trial court further instructed The tributorship controversy, and the “group you one that find regard with to count is, boycott” therefore, “[i]f not applica- doctrine there was such an joined [between ble. Had with other Sears retailers Whirlpool & ‘to exclude Oreck from a vacuum cleaners to drive in vacuum cleaners or market market, Oreck out of the vacuum cleaner you then anywhere’], cleaners vacuum presented this court would have been with a damages, any, consider if go situation, should on to totally different Sears did not so, therefore, it.” An almost identical flowing and, from applica- do is not Klor’s two, charge given regards large count сompany pre- ble. Because Sears is a alleged exclusion from dealing sumably selling large with Oreck’s number of vacuum not, facto, ipso market. We hold cleaners does convert this the Canadian portions of the instruc- case into horizontal warrant- above-quoted per se treatment.5 error which make nec- plain tions constitute require legislative attempts get the trial court to make these deter- dissent around 5. The equiva- single company “big” by claiming minations. When is a that “Sears was the facts enough many Whirlpool to be considered tantamount to a series vacuum cleaner distrib- lent of utors,” theory simply companies? presumably The transforms of “little” dissent a novel which “big” something implica- leaves the determination of what is a it is not. The Sears into company concept applying for this of one case but not such a in future cases tiоns of Any price competition Blindly effect on protecting Oreck regard brought sale of vacuum the cancellation’s effects on the affected about the cancellation Oreck’s exclu- market thus disregards the well-established distributorship, any legal cannot have sive rule that antitrust laws “[t]he present significance or economic case. were for protection enacted ‘the of competi- Economically, the view that the net effect tion, competitors .Bruns- be of Oreck’s cancellation will to raise the wick Corp. Bowl-O-Mat, Pueblo signifi- price Whirlpool vacuums no 50 L.Ed.2d showing cance absent a that consumers can- (1977) (emphasis original). type not substitute for another judgment court, of the district based vacuum cleaner is as effective and as it is on finding liability part on the equally price. attractive as defendants, is reversed сase addition, Oreck has neither charged nor remanded a new trial. so, In doing proven conspiracy to fix for Whirl- express we opinion as to the correctness pool vacuum cleaners. Nowhere in the portions of those of the trial court’s jury complaint allege does Oreck that Whirl- instruction dealing formulation of deal pool’s refusal to was aimed at eliminat- damages. ing intrabrand in- competition. The appropriateness of price-fixing claim MANSFIELD, Judge Circuit (dissenting): is made even more clear the fact that With respect, due I must dissent. This Sears markets cleaners governed case is by well-settled antitrust the “Kenmore” label. Oreck’s exclusive principles law governing combinations and distributorship of vacuum cleaners under conspiracies designed to restrain competi- “Whirlpool” not, label would on tion the part specific of of a competi- point public consumer, view of have tor —in this case Oreck —which the majority any particular on disregard. chooses to machines sold Sears. evidence, viewed most favorably Indeed, to rule otherwise would place in- plaintiff-appellee as it be must after ability tolerable restraints of a man- verdict, jury’s the Continental Ore Co. v. ufacturer to award and cancel an exclusive Carbide, Union 690, 696, 370 82 where distributorship public harm has S.Ct. Whirlpool shown. been would be reveals classic thereby se per compelled to restraint of competition continue Oreck’s dis- of the type tributorship indefinitely, despite condemned the by the manu- Court in United Motors, facturer’s clear intent v. and desire not to States 384 U.S. 86 renew it derogation express and in of its S.Ct. 16 415 (1966). L.Ed.2d Whirl- right power contractual not to it. pool, renew a large appliances, manufacturer of “big” case, general of another are lawyers so and beneficent judge, complete wisdom of the trial in the judges ab- repeated and even often fail to heed sence of criteria or standards which the admonitions that necessarily each case must ; apply. can court legs, stand on its own and that the conclu- depend largely upon sions in reached each charges majority The dissent also the peculiar the particular looking characteristics of Perhaps the not to substance to form. industry F.Supp. rejoinder involved.” 118 at 688. best to the such a of characterization short, opinion Judge the facts and circumstances of this our is contained in Medina’s fine controversy opinion application do not Morgan, call for the v. in United States of per F.Supp. against price (D.C.1953), fixing se rule action and/or §§ group boycotts, per against approach so of the se Sherman Act seventeen banking charging dogmatically must not firms be investment a combina- followed because it tion, conspiracy was used in other to restrain and cases in which those factors present. Indeed, monopolize attempt were securities business in the Unit- the dissent’s to States, involving ed in which the court wrote: convert this case into one a horizon- confusion, especially price fixing conspiracy might “Much of the tal itself be char- law, looking field of to antitrust is due the fact that acterized as to form rather than sub- scope the breadth and Act of stance. note, moreover, We cleaners, combined inherent including vacuum merchandising giant Roebuck, a of the in this success combination distributed years had odd for 40 which upon case was a substantial restraint output, entire to Whirlpool’s lion’s shаre goal price competition unlawful —a only other stop plaintiff-appellee sought when effected combina- to be Whirlpool vacuum distributor conspiracy. g.,E. United tion or States in the sale against Sears competing from Parke, Co., Davis & [80 motive was The machines. Whirlpool-made 503, 513, 505]; S.Ct. L.Ed.2d price-cutting prevent clear —to Co., Socony-Vacuum Oil interfering practices competitive [60 its sales of prices and higher with Sears’ applies And the se rule even 1129]. cleaners. When vacuum Whirlpool-made upon prices when the effect is indirect. request- under as to knuckle refused Oreck Simpson v. Union Oil to have Whirl- agreed ed, the combination 1051,1057,12 98]; L.Ed.2d [84 Whirlpool as a distributor cut it off pool Socony-Vacuum supra.” Oil though even machines, was done which its sales dramatically increased had background is in- 8,384 cleaners from vacuum structive. has been the Since 78,203 preceding four units over units Whirlpool products, principal distributor of result, lost the bene- public As a years. currently purchasing more than two-thirds particularly competition and fit of Whirlpool’s appliance production total in the sale of of its lower and, involved, at the time of the events here Thereafter, if customers cleaners. ‍‌‌​​​‌‌​​​‌‌​​‌‌‌‌​​​‌​​‌‌‌​‌​​‌​‌‌‌​‌​​‌‌‌​​‌‌‌‍vacuum Whirlpool’s than more 90% they machines would wanted output cleaner resale under Sears’ pay buy them from Sears and have to Sears, begin- “Kenmore” label. In addition principles govern- higher prices. ning purchased a substantial block summarized ing such a case were Whirlpool’s common stock and v. General in United States Supreme Court shareholder, largest single own- became 146-47, Motors, at 1331 251,192 usually electing shares and (1966) as follows: Whirlpool’s of its executives to more of these cases is principle “The Sears, therefore, board of directors. their actions businessmen concert where position to exercise considerable been in a deprive others of access in order power sales and leverage to sell which the latter wish merchandise policies and decisions. distribution into the public, inquire we need not their underlying motivation economic Prior to formation Barber, Refusals to Deal conduct. See periodically attempted Laws, 103 Antitrust Under the Federal broaden the if its vacuum cleaners sales (1955). Exclu- U.Pa.L.Rev. name, marketing them under its own brand means by from the market sion of traders existing found that its distribution but had is so incon- or of combination inadequate and that network principles with the free-market sistent Whirlpool-manufactured vacuum sales of it is Act that embodied higher prices posed cleaners at retail a bar- by referenсe to the need to be saved entry price competi- into Whirlpool’s rier to preserving profit the collaborators’ for against long tion other brands as as it was distributing system their for margins or arrangement its restrained Sears automobiles, than reference any more against competing price-wide Sears in against allegedly tortious conduct to Whirlpool-made the sale of machines. As a conspiracy may which a combination Whirlpool in 1961 discontinued ef- result Originators’ in Fashion directed —as be product independently forts to sell its America, Trade Inc. v. Federal Guild Stroop, Thomas its own name and H. Comm’n, supra at 468 457] [61 [312 executive, prepared report enti- Whirlpool 949]. would, “Appraisal Vacuum Cleaner Busi- which by reducing tied or eliminating the Whirlpool”. He concluded that ness—RCA middleman’s mark-up, enable Oreck to sell competitively and profitably аt sells the lower appliances, their “Unlike Sears Accordingly, levels. high higher for 1967 Oreck cleaners as [vacuum] began large-scale major mail competition. solicitation cam- prices than brand which,

paign dramatically increased its Whirlpool sales of machines from a low in very unhappy if becomes RCA “Sears 8,384 1967 of units high all-time product is retailed for WHIRLPOOL [sic] 78,203 units in year Whirlpool product than the manufactured less Sears terminated its distributorship. The reason, mail or- we by Whirlpool. For this under- der campaign offered the vacuum cleaners it has been stand decided carefully groups selected should consumers at RCA WHIRLPOOL brand have very prices. low planned Oreck comparable prices to Sears. realize retail its profit from the bags sale of dust and challenge then . . ‘Can “Our . we accessories the 10-15 year life high sell cleaners in volume at rеtail ” product. Despite prospects for in- (PI. . and if so how?’ prices sales, creased three Whirlpool executives, 160) Ex. Jack Sparks, Sol Payne, Sweet John Thereafter, giving until events rise to Whirlpool’s primary Oreck, contact with all case, Whirlpool-made this vacuum cleaners expressed disapproval of the mail order public only sold to were Sears. campaign, Payne advising Oreck that April, Whirlpool’s interest in sell- Whirlpool’s unhappiness was attributable to vacuum cleaners under its own the company’s (Sears), “other customer” name Sparks, brand was revived. Jack which did not like the mail solicitation. Whirlpool, President approached Vice Payne also told Oreck that the “other cus- prior David who been in tomer got the head of the company charge Whirlpool cleaners sales [Whirlpool]”.1 Bruno, York New and had been the That Whirlpool-Sears combination had Whirlpool most successful distributor of been to stop vacuum cleaners under its formed own brand name Whirlpool against such before discontinued sales. further evidenced by events during The result was an preceding year, 1966, when the newly-formed Corporation, Oreck sought David Oreck to obtain as plaintiff-appellee, would function the ex- approval plan of Oreck’s to market in Cana- distributor of Whirl- da, clusive operated where Sears under the name Sparks brand pool vacuum cleaners. ad- Simpson-Sears Ltd. refused he vised Oreck that was “not to conflict changes to make the minor in the vacuum Sears, price” Roebuck on that an necessary cleaner to conform to Canadian internal letter confirmed that requirements, Standards Association prices “emphasize would specialty they Pаyne had done for later e., high-priced] selling”. [i. wired it could not market Canada because could “obtain soon found that it not com- could franchise,” meaning waiver to current pete selling Whirlpool-made with Sears in approval by Sears. A concurrent prices vacuum cleaners at Sears’ and decid- it internal memorandum profitably ed that could distribute them criticized Oreck’s sales, only selling through emphasis low-priced concluding at lower houses, that, supply direct mail or we say, institutional “Needless to should eon- Payne’s objected Payne were failure 1. statements never fendants’ to call to the stand to scope statements, explain given as within the of his defendants em- or refute these his by Whirlpool availability, ployment may and are therefore ad- clear be taken to indicate 801(d) testimony missible under Rule of the Federal Rules if called his would have been unfa- Judge Owen also instructed of Evidence. vorable to defendants. defendants, jury, objection without that de- authorizing for a moment Oreck to v. Colgate 300, sider 465, U.S. 39 S.Ct. operate Canada.” 63 L.Ed. 992 and unilaterally substi tute one exclusive another, distributor for By Whirlpool-Sears 1968 the combination Alpha Distributing Co. v. Jack Daniels Dis continuing put the screws on Oreck tillery, 442, (9th 454 F.2d Cir. it to adhere to in an effort to force However, elementary it is that a combina methods, and markets. In that prices, sales tion between a manufacturer and one or year Whirlpool pri- refused to manufacture more of its customers which has as its sole label vacuum cleaners for certain of vate object the restraint of another customer’s customers, large Payne attrib- Oreck’s competition through purchase and resale of “objections uted the refusal from our ” product manufacturer’s per is se illegal. . . . In 1969 and other customer. Motors, States v. General 1970, Whirlpool refused to make minor 127, 146-47, 86 S.Ct. 16 L.Ed.2d 415 carton to meet changes shipping in Oreck’s (1966); United Parke-Davis & parcel post requirements thereby avoid 29, 47, U.S. 80 S.Ct. penalty charge, though Whirlpool even (1960); Klor’s Inc. v. Broadway-Hale provided acceptable had Sears with box Stores, 79 S.Ct. Payne, for its mail orders. who handled the (1959); McQuade L.Ed.2d 741 E. A. Tours, matter, .engi- attributed the refusal not to Inc. v. Consolidated Air Tour Manual neering “corporate” difficulties to a Comm., 467 F.2d decision. den., 31, 1971, despite On December (1973);. Barber, Refusals to

highest begun sales level since it selling Deal Under The Laws, Federal Antitrust Whirlpool vacuum Whirlpool ter- 103 U.Pa.L.Rev. (1955). minated the distributorship. In United States v. Motors, foregoing, together with other evi- supra, the manufacturer and a group of its dence and witnesses viewed jury, Angeles Los area dealers agreed to disсon- supported jury’s inference that Whirl- selling tinue Chevrolets through discount pool terminated Oreck as the result of the houses advertising discount prices and low- combined efforts of and Whirlpool Sears er financing costs. The Court characterized put an end to competition against the arrangement as a “classic conspiracy in Whirlpool machines, ‍‌‌​​​‌‌​​​‌‌​​‌‌‌‌​​​‌​​‌‌‌​‌​​‌​‌‌‌​‌​​‌‌‌​​‌‌‌‍sale of trade,” restraint of explaining applica- including mail-order solicitation and low tion of the se rule as follows: prices, objected to which Sears because in the success of the combina possible “[I]nherent adverse effect on its sale of tion . . was a substantial re Whirlpool vacuum cleaners under its own straint upon price competition goal higher label at il prices and Ca- —a legal .per se when sought to be nadian effected Whirlpool competition. No substan- by combination conspiracy. tial evidence was offered to show that And the applies se rule even Oreck was terminated when the possibly for some upon prices reason, lawful such indirect.” 384 to increase failure 86 S.Ct. at 1331. sales or desire to pro- name, tect its trade testimony other than represented General Motors appli- more Jack D. Sparks Payne and John that Oreck cation principle basic long established “major accounts,” had failed to market ago in United States v. Socony-Vacuum Oil which was understandably rejected by the Co., 150, 223-24, 844- jury in view of Oreck’s tremendous increase (1940) 84 L.Ed. 1129 to the effect that in sale of Whirlpool cleaners from 1967 to “Under the Sherman Act a combination formed for the and with the ef- governing law the case is clear fect raising, depressing, fixing, peg- may well-settled. A manufacturer ging, stabilizing unilat- of a com- custоmers, erally choose his modity United States in interstate or foreign commerce illegal per Whirlpool Whirlpool is se. Where the terminated dis- — purchases are price-fixing means for or tributorship to “eliminate serious com- commodity in a oper- sales of the market petition Sears, to Roebuck from Oreck.” or, here, part of a purchases ation as of allegations These were clearly broad commodity for supply pur- the of the the enough to embrace restraint of price com- having depres- pose keeping it from petition by against Sears in the sale markets, power sive the such effect on Whirlpool-made vacuum is- an may though the be found to exist combi- actually sue that was tried objec- nation control a substantial part does not tion. Par. 21 complaint, moreover, of the of the . commodity. Price-fixing allеges improvements that in Whirlpool’s agreements may utility have to members vacuum cleaner were withheld “with the group though power possessed of the intent and effect of reducing or short exerted falls far of domination competition Oreck’s Roebuck.” Monopoly power (United and control. Although complaint also alleged that Patten, v. 226 U.S. 525 [33 purpose and effect of the combination 333]) not the only power is was to exclude generally from the down, as which Act strikes we have vacuum type allega- cleaner market —a said. Proof that combination was tion not unusual in civil antitrust cases— purpose fixing prices formed for the record, including the examinations of them to be and that it caused fixed or witnesses, summations counsel proof contributed that result is of the instructions, court’s show that the case was completion price-fixing of a cоnspiracy tried jury and submitted on the claim of the Act.” that Whirlpool and Sears re- combined to Moreover, by agreement such a combination strain competing against Sears, Oreck from through competition to restrain re- particularly prices, the sale of Whirl- customer is per fusal to deal with a machines, pool-made as a result of which horizontal, illegal whether it is vertical or ultimately Oreck was cut off as a distribu- participants embraces both levels. tor of such machines. At prior trial and See, Arnold, g., e. United States Schwinn verdict, the jury’s the court 375-76, and counsel had at U.S. no disagreement applicable legal where Court observed that a both levels embracing illegal principles, following is as the colloquy with se, “ancillary price fixing” when it is respect proposed charge to the Court’s “price fixing integral part is ‘an shows: system’,” whole distribution at that, “The Court: I understand it at even if effect on if the jury seems to me that were to “indirect,” is States General Mo- conclude that Sears tors, supra, at S.Ct. 1321. conspired to terminate Oreck to rid Sears The majority stating further errs in that competitor, they gone of a have all complaint to allege fails that go. farther need to they “Whirlpool’s deal refusal was aimed at [Whirlpool’s “Mr. Turoff I counsel]: eliminating price competition.” see your argument. now Honor’s I think complaint alleges clearly you saying what are is that if the between Sears and to restrain finds a conspiracy that we had competition against rid of getting an Whirlpool-made sale and distribution is, unreasonable restraint of trade. That Oreck alleged, cleaners. Plaintiff think, I statement correct of the law.” 14-15 of the First Claim of its com- IK presented Thus the evidence at trial to the began plaint, cоmpete when Oreck “to the termination seriously culminated with Sears” in sale and distri- Sears-Whirlpool conspiracy Whirlpool products specifically to eliminate bution — against Sears, “sales ‘Kenmore’ vacuum cleaners” made Oreck’s par- 64 competition, established a facts of

ticularly price They this case. simply stand of 1 of the Act.2 per se violation for the proposition § that a manufacturer may unilaterally terminate replace a refusal to deal Since exclusive distributor legitimate business eliminating price competition is intrabrand purposes without violating 1 of the Sher- unlawful, § majority per thus errs in man Act. The critical distinction is that in holding plaintiff required Oreck was upon the cases relied by appellants, unlike prove a restraint of trade in the also to .¿levant present Motors, case or General there Motors, where market. was no evidence that the cutoff or substitu- per Court found se unlawful a pursuant tion was to a combination to re- to restrain similar combination intrabrand competition by strain against the victim competition by refusing to deal with price cars, conspirators in the sale product. In- “discounters” of Chevrolet the Court deed, each of the dealer termination unnecessary deemed it to consider the ef- cases finding 1, violation of including fect of on the § availability carefully opinion relevant market or the of alter- reasoned in Hawaiian Oke, supply recognize native sources of to the discounters. that a per se rule would Indeed, early as v. Beech-Nut apply FTC Pack- to a dealer termination where the Co., 441, 150, ing 257 U.S. 42 S.Ct. “anticompetitive manufacturer had the ob- (1922), boycott 307 the court condemned the jective” of excluding “one or more so-called cutters, regard without ‘price ‘discounters’ or cutters’ ”. 416 F.2d availability products. of alternative See at 76. In Hawaiian Oke no such evidence Ford Motor also Co. Webster’s Auto Sales anticompetitive reason or effect was of- (1st 1966) (per 361 F.2d 874 Cir. se rule by plaintiffs fered and the Court of applied regard to alternative Appeals understandably found reversible supply plaintiff). sources of available to error in the district court’s instruction that se violation is made out any agree- The upon dealer-termination cases relied ment which “is bound to reduce another see, majority, e. g., Joseph E. Sea businessman’s opportunity to compete in Sons, gram & Inc. v. Hawaiian Oke & Li the same market.” 416 F.2d at 75. How- Ltd., 71, quors, (9th 1969), 416 F.2d 76 Cir. ever, the court distinguish was careful denied, 1062, 752, cert. 396 90 24 those, the case from present case, like the (1972), Alpha Distributing Co. objective where an competi- was to restrain Distillery, 442, v. Jack Daniels 454 F.2d tion, stating; (9th Cir. and Packard Motor Car Co. Cо., cases, “In other v. Webster Motor Car there U.S.App.D.C. was concerted denied, action group put one or more of business, their competitors are all out of or to clearly distinguishable and do govern impair ability their compete with the proof conspiracy Whirlpool pro- 2. The of a between of vacuum cleaners and two-thirds of its Indeed, appliances, (2) and position more than sufficient. duction of all Sears’ on may board, (3) ‍‌‌​​​‌‌​​​‌‌​​‌‌‌‌​​​‌​​‌‌‌​‌​​‌​‌‌‌​‌​​‌‌‌​​‌‌‌‍manufacturer be held to violate 1 of the its use of its own “irrespective monopoly (which Sherman Act or con- brand name decreased its reliance on spiracy,” source) (4) when he refuses to deal with a dis- as a Sears’ tradition- thereby “arrangement” high price tributor and creates an al structure. This evidence of a high prices in restraint of leverage trade. Osborn v. Sinclair Refin- motive to maintain Whirlpоol’s 324 F.2d coincided with irra- increasingly existence of a and Sears’ member- tional termination of an successful ship distributor,- participation entry could also be inferred into Sears’ mail order totality prices, from the of the course of conduct en- domain at discount the fact that “an defendants, gaged honorary placed United States v. director of Sears” Parke, Davis & 80 S.Ct. mail solicitation order before the (1960); board, Payne’s L.Ed.2d United States v. A. Schrad- statements to David Oreck Son, Inc., admitting applied pressure er’s that Sears had (1920). rely, Whirlpool. L.Ed. 471 was entitled to Viewed as a whole the evidence among things, upon (1) purchase clearly supported jury’s finding conspir- production acy. of 90 cent of annual competitor v. New York intrabrand See Silver exercises a conspirators. pow- veto Exchange, plaintiff’s er over access to the Stоck manufactur- 389; 1246, 10 L.Ed.2d Radiant goods trademark, er’s here, as Sears did Co., Light & Peoples Gas Coke Burners v. anticompetitive an inference of motive and 656, 365, 1960, 81 S.Ct. 5 L.Ed.2d 364 U.S. is available and the se rule be- States, 358; Press v. United Associated applicable. Quality comes Mercury Inc. v. 1, 1416, 89 L.Ed. 65 S.Ct. supra U.S. Co., 466, (8th [326 Ford Motor 542 F.2d 470 Cir. Co. v. ... Kiefer-Stewart 1976); 2013]. American Motor Inns v. Holiday Sons, Inc., 1951,340 Seagram & Joseph E. Inns, Inc., 1230, (3rd 521 F.2d 1242 Cir. 259, 219, 211, there 71 U.S. S.Ct. between sellers to was an Packard Motor Car Co. v. Webster Motor wholesalers who would to sell to refuse 161, U.S.App.D.C. Car 100 418, 243 F.2d agree by to abide maximum resale not denied, 822, cert. 29, 355 U.S. 78 S.Ct. 2 boy- the sellers. Thus the fixed (1957), upon by L.Ed.2d 38 relied major part to that case was plaintiff of the cott ity, typical is the dealer termination case in price-fixing scheme. presented which evidence was to show that “Here, presented no evidence plaintiff the survival of largest Packard’s area fran Seagram or Barton whatever that either depended, chise judgment business motive for ter- any anticompetitive had the company, upon being given its an exclu as their distributor. minating plaintiff sive franchise. No presented, evidence was price fixing or other simi- There were no as in General Motors present case, and the or activities.” motives or demands lar to show that the dealer was terminated Sons, Inc. v. Ha- Joseph Seagram E. & price because he was cutter or in order to Ltd., Liquors, 416 F.2d at waiian Oke high prices. maintain 77-78. Supreme Similarly, Court’s recent de- limitations of the Hawaiian Oke deci T.V., cision Continental Syl- Inc. GTE clear the Ninth were further made sion Inc.,-U.S.-, 2549, vania 53 v. Hilton Hotels Circuit United States L.Ed.2d 568 majori- relied on 1000, (9th 1972), 1003 Cir. Corp., 467 F.2d ty, application has no to this case. Al- 938, denied, 93 35 S.Ct. cert. though the portion Court overruled a (1973), where the court held L.Ed.2d 256 United States Arnold Schwinn & in order to coerce that a refusal to deal here, it change any involved did not or to exclude them from com competitors foregoing principles regarding price re- (which here) illegal case is is the petition the contrary, straints. On it reaffirmed distinguished per se. Hawaiian Oke them, restricting application of the “rule “pri manufacturer’s a case in which the of reason” to vertically-imposed exclude mary purpose” and “direct effect” was to - restraints, price -, 97 objective.”3 “legitimate achieve a business n.18, -type 2549 and General conspir- Motors that, al line of cases has held A similar - acies, -, 97 S.Ct. 2549 n.28. may unilaterally though a manufacturer majority vainly get seeks to legiti or for his own around a distributor terminate Motors and other grant refuse to Court mate business reasons horizontal, holding distributorship, when a decisions similar combinations to Tours, Corp., F.2d Bushie v. Stenocord Inc. v. Cоnsolidated Air McQuade 3. See also Tour Comm., 1972) (per applies (5th rule Manual se Cir. den., price cutters); cert. to deal to eliminate refusals (1973) Bay-City (combinations among Inc. v. Estee Lauder Abrahams Bros. trad Inc., (S.D.N.Y.1974) (re F.Supp. marketing ers at different levels to exclude a illegal price competitor se if the result is fusal to deal is of some member of the combination fixing competition); Barber, illegal per se); Ace or the elimination Refusals to Deal Kohn, Laws, Distributors Inc. v. 318 F.2d Beer Under the Federal Antitrust 103 U.Pa.L. den., (6th Cir.), (1955). Rev. (1963) (same); A. E. private laws, enforcement of the antitrust illegal per by point- restrain compet- which the Executive Branch upon heavily more than ing to the fact the General Mo- depends. I therefore dissent. was involved ing dealer that, suggesting if conspiracy and tors distributor joined with another to restrain than rather perhaps General competition, аttempted dis- apply. The might

Motors ig- legal significance

tinction that Sears was fact the substantive

nores of Whirl- other distributor only the sole some 90% of but handled pool machines WALTON, Carol J. on behalf of herself Whirlpool. made cleaners and on behalf of others vacu- many Whirlpool equivalent similarly situated The effect of its cleaner distributors. ‍‌‌​​​‌‌​​​‌‌​​‌‌‌‌​​​‌​​‌‌‌​‌​​‌​‌‌‌​‌​​‌‌‌​​‌‌‌‍um stop combining EATON CORPORATION. just as harmful price as would be a public WALTON, Appellant, Carol J. small distributors between two combination discounter, which under the to eliminate illegal be se would

majority’s distinction EATON CORPORATION. Motors. A combination under No. 76-1707. competition can- restrain it consists simply because not be condoned Appeals, Court of product manufacturer of the solely of the Third Circuit. distributor, huge merchandis- only its Argued Jan. 1977. chain, by a second participation substance, Rehearing law looks to In Banc Submitted distributor. 12(6) form, illegal any May Third Circuit Rule and condemns 1977. per- 2 more of or combination July Decided 1977. price competition or to to restrаin sons Aug. Aug. As Amended 10 and 1977. competitor. eliminate foregoing reasons I would affirm For the the district court.4 The judgment

majority my seriously view erred principles that concept of the antitrust departs The decision

govern this case. in numer- principles basic established Court. It will

ous decisions of results, since it will be

have mischievous upon by those who would otherwise

seized precedent to de- bound established

be treatment. It weakens the

mand similar uncertainty proof find that of dam- that his own conduct has creat- I would also Autowest, proof Peugeot, ages ed.” Inc. v. was sufficient to meet its burden jury’s “damage (2d plaintiff’s support verdict since Here evi- rarely susceptible profit performance dence of structure and sales in these cases are issues concrete, proof injury years prior detailed kind of to termination and its contexts,” projections expert available in other Zenith witness as to future which is Research, Inc., performance, clearly Corp. afforded the “a rea- v. Hazeltine computation.” sonable basis Eastman Ko- precise damage cal- the absence of dak Co. v. Southern Photo Materials and that in (1929). wrongdoer bear the risk “the should L.Ed. culations

Case Details

Case Name: Oreck Corporation v. Whirlpool Corporation and Sears, Roebuck and Co.

Court Name: Court of Appeals for the Second Circuit

Date Published: Sep 21, 1977

Citation: 563 F.2d 54

Docket Number: 1173, Docket 76-7631

Court Abbreviation: 2d Cir.