UNITED STATES v. PARKE, DAVIS & CO.
No. 20
Supreme Court of the United States
Argued November 10, 1959. - Decided February 29, 1960.
362 U.S. 29
Gerhard A. Gesell argued the cause for appellee. With him on the brief were Edward S. Reid, Jr. and Weaver W. Dunnan.
The Government sought an injunction under
The president of Dart Drug Company, one of the retailers cut off, protested to the assistant branch manager of Parke Davis that Parke Davis was discriminating against him because a drugstore across the street, one of the Peoples Drug chain, had a sign in its window advertising Parke Davis products at cut prices. The retailer was told that if this were so the branch manager “would see Peoples and try to get them in line.” The branch manager testified at the trial that thereafter he talked to a vice-president of Peoples and that the following occurred:
“Q. Well, now, you told Mr. Downey [the vice-president of Peoples] at this meeting, did you not, Mr. Powers, [the assistant branch manager of Parke Davis] that you noticed that Peoples were cutting prices?
“A. Yes.
“Q. And you told him, did you not, that it had been the Parke, Davis policy for many years to do business only with individuals that maintained the scheduled prices? “A. I told Mr. Downey that we had a policy in our catalog, and that anyone that did not go along with our policy, we were not interested in doing business with them.
“Q. . . . Now, Mr. Downey told you on the occasion of this visit, did he not, that Peoples would stop cutting prices and would abide by the Parke-Davis policy, is that right?
“A. That is correct.
“Q. When you went to call on Mr. Downey, you solicited his support of Parke, Davis policies, is not that right?
“A. That is right.
“Q. And he said, I will abide by your policy?
“A. That is right.”
The District Court found, apparently on the basis of this testimony, that “The Peoples’ representative stated that Peoples would stop cutting prices on Parke, Davis’ products and Parke, Davis continued to sell to Peoples.”
But five retailers continued selling Parke Davis products at less than the suggested minimum prices from stocks on hand. Within a few weeks Parke Davis modified its program. Its officials believed that the selling at discount prices would be deterred, and the effects minimized of any isolated instances of discount selling which might continue, if all advertising of such prices were discontinued. In August the Parke Davis representatives again called on the retailers individually. When interviewed, the president of Dart Drug Company indicated that he might be willing to stop advertising, although continuing to sell at discount prices, if shipments to him were resumed. Each of the other retailers was then told individually by Parke Davis representatives that Dart was ready to discontinue advertising. Each thereupon said that if Dart stopped advertising he would also. On August 28 Parke Davis reported this reaction to Dart. Thereafter all of the retailers discontinued advertising of Parke Davis vitamins at less than suggested minimum retail prices and Parke Davis and the wholesalers resumed sales of Parke Davis products to them. However, the suspension of advertising lasted only a month. One of the retailers again started newspaper advertising in September and, despite efforts of Parke Davis to prevent it, the others quickly followed suit. Parke Davis then stopped trying to promote the retailers’ adherence to its suggested resale prices, and neither it nor the wholesalers have since declined further dealings with them.5 A reason for this was that the Department of Justice, on complaint of Dart Drug Company, had begun an investigation of possible violation of the antitrust laws.
The Colgate case came to this Court on writ of error under the Criminal Appeals Act, 34 Stat. 1246, from a District Court judgment dismissing an indictment for violation of the Sherman Act. The indictment proceeded solely upon the theory of an unlawful combination between Colgate and its wholesale and retail dealers for the purpose and with the effect of procuring adherence on the part of the dealers to resale prices fixed by the company. However, the District Court construed the indictment as not charging a combination by agreement between Colgate and its customers to maintain prices. This Court held that it must disregard the allegations of the indictment since the District Court‘s interpretation of the indictment was binding and that without an allegation of unlawful agreement there was no Sherman Act violation charged. The Court said:
“The purpose of the Sherman Act is to prohibit monopolies, contracts and combinations which probably would unduly interfere with the free exercise of their rights by those engaged, or who wish to engage, in trade and commerce—in a word to preserve the right of freedom to trade. In the absence of any purpose to create or maintain a monopoly, the act does not restrict the long recognized right of trader or manufacturer engaged in an entirely private business, freely to exercise his own independent discretion as to parties with whom he will deal. And, of course, he may announce in advance the circumstances under which he will refuse to sell.” 250 U. S., at 307.
The Government concedes for the purposes of this case that under the Colgate doctrine a manufacturer, having announced a price maintenance policy, may bring about adherence to it by refusing to deal with customers who do not observe that policy. The Government contends, however, that subsequent decisions of this Court compel the holding that what Parke Davis did here by entwining the wholesalers and retailers in a program to promote general compliance with its price maintenance policy went beyond mere customer selection and created combinations or conspiracies to enforce resale price maintenance in violation of
“Granting the fundamental proposition stated in the Colgate case, that the manufacturer has an undoubted right to specify resale prices and refuse to deal with any one who fails to maintain the same, or, as further stated, the act does not restrict the long-recognized right of a trader or manufacturer engaged in an entirely private business freely to exercise his own independent discretion as to parties with whom he will deal, and that he of course may announce in advance the circumstances under which he will refuse to sell, it seems to me that it is a distinction without a difference to say that he may do so by the subterfuges and devices set forth in the [Colgate] opinion and not violate the Sherman Anti-Trust Act, yet if he had done the same thing in the form of a written agreement, adequate only to effectuate the same purpose, he would be guilty of a violation of the law. . . .” 264 F. 175, 184.
“The court below misapprehended the meaning and effect of the opinion and judgment in [Colgate]. We had no intention to overrule or modify the doctrine of Dr. Miles Medical Co. v. Park & Sons Co., where the effort was to destroy the dealers’ independent discretion through restrictive agreements.” 252 U. S., at 99.
The Court went on to explain that the statement from Colgate quoted earlier in this opinion meant no more than that a manufacturer is not guilty of a combination or conspiracy if he merely “indicates his wishes concerning prices and declines further dealings with all who fail to observe them . . .“; however there is unlawful combination where a manufacturer “enters into agreements—whether express or implied from a course of dealing or other circumstances—with all customers . . . which undertake to bind them to observe fixed resale prices.” Ibid.
The next decision was Frey & Son, Inc., v. Cudahy Packing Co., 256 U. S. 208. That was a treble damage suit alleging a conspiracy in violation of the Sherman Act between the manufacturer and jobbers to maintain resale prices. The plaintiff recovered a judgment. The Court of Appeals for the Fourth Circuit reversed on the authority of Colgate. The Court of Appeals concluded: “There was no formal written or oral agreement with jobbers for the maintenance of prices” and in that circumstance held that under Colgate the trial court should have directed a verdict for the defendant. In holding that the Court of Appeals erred, this Court referred to the decision in Schrader as holding that the “essential agreement, combination or conspiracy might be implied from a course of dealing or other circumstances,” so that in Cudahy, “Having regard to the course of dealing and all the pertinent facts disclosed by the present record, we think whether there existed an unlawful combination or agreement between the manufacturer and jobbers was a question for the jury to decide, and that the Circuit Court of Appeals erred when it held otherwise.” 256 U. S., at 210.
In Beech-Nut the company had adopted a policy of refusing to sell its products to wholesalers or retailers who did not adhere to a schedule of resale prices. Beech-Nut later implemented this policy by refusing to sell to wholesalers who sold to retailers who would not adhere to the policy. To detect violations the company utilized code numbers on its products and instituted a system of reporting. When an offender was cut off, he would be reinstated upon the giving of assurances that he would maintain prices in the future. The Court construed the Federal Trade Commission Act to authorize the Commission to forbid practices which had a “dangerous tendency unduly to hinder competition or create monopoly.” 257 U. S., at 454. The Sherman Act was held to be a guide to what constituted an unfair method of competition. The company had urged that its conduct was entirely legal under the Sherman Act as interpreted by Colgate. The Court rejected this contention, saying 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.” Ibid. The Court held further that the nonexistence of contracts covering the practices was irrelevant since “[t]he specific facts found show suppression of the freedom of competition by methods in which the company secures the coöperation of its distributors and customers, which are quite as effectual as agreements express or implied intended to accomplish the same purpose.” Id., at 455. That the Court considered that the Sherman Act violation thus established was dispositive of the issue before it is shown by the ground taken by Mr. Justice McReynolds in dissent. The parties had stipulated that there were no contracts covering the policy. Relying on his view of Colgate, he asked: “How can there be methods of coöperation . . . when the existence of the essential contracts is definitely excluded?” Id., at 459. The majority did not read Colgate as requiring such contracts; rather, the Court dispelled the confusion over whether a combination effected by contractual arrangements, express or implied, was necessary to a finding of Sherman Act violation by limiting Colgate to a holding that when the only act specified in the indictment amounted to saying that the trader had exercised his right to determine those with whom he would deal, and to announce the circumstances under which he would refuse to sell, no Sherman Act violation was made out. However, because Beech-Nut‘s methods were as effective as agreements in producing the result that “all who would deal in the company‘s products are constrained to sell at the suggested prices,” 257 U. S., at 455, the Court held that the securing of the customers’ adherence by such methods constituted the creation of an unlawful combination to suppress price competition among the retailers.
“The Beech-Nut case recognizes that a simple refusal to sell to others who do not maintain the first seller‘s fixed resale prices is lawful but adds as to the Sherman Act, ‘He [the seller] may not, consistently with the act, go beyond the exercise of this right, and by contracts or combinations, express or implied, unduly hinder or obstruct the free and natural flow of commerce in the channels of interstate trade.’ 257 U. S. at 453. The Beech-Nut Company, without agreements, was found to suppress the freedom of competition by coercion of its customers through special agents of the company, by reports of competitors about customers who violated resale prices, and by boycotts of price cutters. . . .”
Bausch & Lomb, like the instant case, was an action by the United States to restrain alleged violations of
The judgment is reversed and the case remanded to the District Court with directions to enter an appropriate judgment enjoining Parke Davis from further violations of the Sherman Act unless the company elects to submit evidence in defense and refutes the Government‘s right to injunctive relief established by the present record.
It is so ordered.
I concur in the judgment. The Court‘s opinion amply demonstrates that the present record shows an illegal combination to maintain retail prices. I therefore find no occasion to question, even by innuendo, the continuing validity of the Colgate decision, 250 U. S. 300, or of the Court‘s ruling as to the jury instruction in Cudahy, 256 U. S. 210-211.
MR. JUSTICE HARLAN, whom MR. JUSTICE FRANKFURTER and MR. JUSTICE WHITTAKER join, dissenting.
The Court‘s opinion reaches much further than at once may meet the eye, and justifies fuller discussion than otherwise might appear warranted. Scrutiny of the opinion will reveal that the Court has done no less than send to its demise the Colgate doctrine which has been a basic part of antitrust law concepts since it was first announced in 1919 in United States v. Colgate, 250 U. S. 300.
I begin with that doctrine and how it was applied by the District Court in this case. In the words of the Court‘s opinion, Colgate held that in the absence of a monopolistic setting, “a manufacturer, having announced a price maintenance policy, may bring about adherence to it by refusing to deal with customers who do not observe that policy.” “And,” as said in Colgate (at 307), “of course, he may announce in advance the circumstances under which he will refuse to sell.”
(1) Parke Davis “had well-established policies concerning the prices at which [its] products were to be sold by wholesalers and retailers, and the type of retailers to whom the wholesalers could re-sell“;2
(2) Parke Davis’ “representatives . . . notified retailers concerning the policy under which its goods must be sold, but the retailers were free either to do without such goods or sell them in accordance with defendant‘s policy“;
(3) Parke Davis’ “representatives likewise contacted wholesalers, notifying them of its policy and the wholesalers were likewise free to refuse to comply and thus risk being cut off by the defendant“;
(4) “every visit made by the representatives to the retailers and wholesalers was, to each of them, separate and apart from all others“;
(5) “[t]he evidence is clear that both wholesalers and retailers valued [Parke Davis‘] business so highly that they acceded to its policy“;
(6) “there was no coercion by defendant and no agreement with [wholesaler or retailer] co-conspirators as alleged in the Complaint“; (7) as to the Government‘s contention that proof of the alleged conspiracy “is implicit in (1) defendant‘s calling the attention of both retailers and wholesalers to its policy, and (2) the distributors’ acquiescence to the policy . . . [t]he Court cannot agree to such a nebulous deduction from the record before it.”
On these premises the District Court concluded: “Clearly, the actions of defendant were properly unilateral and sanctioned by law under the doctrine laid down in the case of United States v. Colgate & Co., 250 U. S. 300 . . . .”
The Court appears to recognize that as the Colgate doctrine was originally understood, the District Court‘s findings would require affirmance of its judgment here. It is said, however, that reversal is required because Federal Trade Comm‘n v. Beech-Nut Packing Co., 257 U. S. 441, and United States v. Bausch & Lomb Optical Co., 321 U. S. 707, subsequently “narrowly limited” the Colgate rule. The claim is that whereas prior to Beech-Nut it was considered that, fair trade laws apart, resale price maintenance came within the ban of the Sherman Act only if it was brought about by express or implied agreement between the parties—which the Court says meant “contractual arrangements“—Beech-Nut, which was carried forward by Bausch & Lomb, later established that such agreements or contractual arrangements need not be shown. Recognizing that
First. I cannot read Beech-Nut or Bausch & Lomb as introducing a new narrowing concept into the Colgate doctrine. Until today I had not supposed that any informed antitrust practitioner or judge would have had to await Beech-Nut to know that the concerted action proscribed by the Sherman Act need not amount to a contractual agreement. But neither do I think it would have been supposed that the Sherman Act does not require concerted action in some form. In Beech-Nut itself the Court stated the rule to be that a seller may not restrain trade “by contracts or combinations, express or implied,” and there found suppression of competition “by methods in which the company secures the coöperation of its distributors and customers, which are quite as effectual as agreements express or implied intended to accomplish the same purpose.” 257 U. S., at 453, 455. It is obvious that the “methods” thus referred to were the “coöperative methods” which the Federal Trade Commission had found to exist, for the Court expressly limited the Commission‘s order to the granting of relief against such methods. Id., 455-456. Far from announcing that no concerted action need be shown, the Court accepted the Commission‘s factual determination that such action did exist.
The results in Beech-Nut and Bausch & Lomb, as in all Sherman Act cases, turned on the application of established standards of concerted action to the full sweep of the particular facts in those cases, and not upon any new meaning given to the words “contract, combination . . . or conspiracy.” The Court now says that the seller runs afoul of the Sherman Act when he goes beyond mere announcement of his policy and refusal to sell, not because the bare announcement and refusal fall outside the statutory phrase, but because any additional step removes a “countervailing consideration” in favor of permitting a seller to choose his customers. But we are left wholly in the dark as to what the purported new standard is for establishing a “contract, combination . . . or conspiracy.”
Second. The Court is mistaken in attributing to the District Court the limited view that Parke Davis’ activities should, under Colgate, be upheld unless they involved some express or implied “contractual arrangement” with wholesalers or retailers. The Government‘s complaint specifically charged a “combination and conspiracy” between Parke Davis and its wholesale and retail customers in the areas involved, comprising a “continuing agreement, understanding and concert of action” in the four aspects already noted. Ante, p. 50. In its 31 detailed findings of fact the District Court repeatedly emphasized that Parke Davis did not have an “agreement or understanding of any kind” with its distributors, and it concluded that the evidence as a whole did not support the Government‘s allegations. It determined with respect to each of the four facets of the alleged conspiracy that “there was no coercion” and that “Parke, Davis did not combine, conspire or enter into an agreement, understanding or concert of action” with the wholesalers, retailers, or anyone else. I cannot detect in the record any indication that the District Court in making these findings applied anything other than the standard which has always been understood to govern prosecutions based on
The second difficulty with the Court‘s analysis is that even reviewing the District Court‘s findings only as a matter of law, as the Court purports to do, the cases do not justify overturning the lower court‘s resulting conclusions. Beech-Nut did not say that refusals to sell to wholesalers who persisted in selling to cut-price retailers—conduct which was present in that case (257 U. S., at 448)—was a per se infraction of the Colgate rule, but only that it was offensive if it was the result of cooperative group action. While the Court in Beech-Nut and Bausch & Lomb inferred from the aggressive, widespread, highly organized, and successful merchandising programs involved there that such concerted action existed in those cases, the defensive, limited, unorganized, and unsuccessful effort of Parke Davis to maintain its resale price policy4 does not justify our disregarding the District Court‘s finding to the contrary in this case.5
If the principle for which Colgate stands is to be reversed, it is, as the Government‘s position plainly indicates, something that should be left to the Congress. It is surely the emptiest of formalisms to profess respect for Colgate and eviscerate it in application.
I would affirm.
Notes
“Sec. 1. Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is hereby declared to be illegal . . . . Every person who shall make any contract or engage in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of a misdemeanor . . . .”
“Sec. 3. Every contract, combination in form of trust or otherwise, or conspiracy, in restraint of trade or commerce in . . . the District of Columbia, or in restraint of trade or commerce . . . between the District of Columbia and any State or States or foreign nations, is hereby declared illegal. Every person who shall make any such contract or engage in any such combination or conspiracy, shall be deemed guilty of a misdemeanor . . . .”
“Sec. 4. The several district courts of the United States are hereby invested with jurisdiction to prevent and restrain violations of this act; and it shall be the duty of the several United States attorneys, in their respective districts, under the direction of the Attorney-General, to institute proceedings in equity to prevent and restrain such violations. . . .”
These are the “restraint of trade,” not the “monopoly,” provisions of the Sherman Act. See Note 1 of the Court‘s opinion.