No. 43
Argued: November 9, 1967Decided: March 4, 1968
- 1. The uncontroverted facts showed a combination within 1 of the Sherman Act between respondent, Milne, and Kroner, to force petitioner to conform to respondent’s advertised retail price. United States v. Parke, Davis & Co., supra, followed. Pp. 149-150.
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- 2. Since fixing maximum as well as minimum resale prices by agreement or combination is a per se violation of 1 of the
- Act, the Court of Appeals erred in holding that there was no restraint of trade. Kiefer-Stewart Co. v. Seagram & Sons, Inc., 340 U.S. 211 (1951), followed. Pp. 151-153.
- 3. The Court of Appeals also erred in assuming on the record here that it was necessary to permit respondent to impose a price ceiling to prevent the price gouging made possible by exclusive territories, for neither the existence of exclusive territories nor the dealers’ resultant economic power was in issue; and the court was not entitled to assume that the exclusive rights granted by respondent were valid under 1 of the Act, either alone or in conjunction with a price-fixing scheme. Pp. 153-154.
367 F.2d 517, reversed and remanded.
Gray L. Dorsey argued the cause for petitioner. With him on the briefs was Donald S. Siegel.
Lon Hocker argued the cause for respondent. With him on the brief was Thomas Newman.
Arthur B. Hanson filed a brief for the American Newspaper Publishers Association, as amicus curiae, urging affirmance.
MR. JUSTICE WHITE delivered the opinion of the Court.
A jury returned a verdict for respondent in petitioner’s suit for treble damages for violation of 1 of the Sherman Act. 1 Judgment was entered on the verdict and the Court of Appeals for the Eighth circuit affirmed. 367 F.2d 517 (1966). The question is whether the denial of petitioner’s motion for judgment notwithstanding the verdict was correctly affirmed by the Court of Appeals. Because this case presents important issues under the antitrust laws, we granted certiorari. 386 U.S. 941 (1967). [390 U.S. 145, 147]
We take the facts from those stated by the Court of Appeals. Respondent publishes the Globe-Democrat, a morning newspaper distributed in the St. Louis metropolitan area by independent carriers who buy papers at wholesale and sell them at retail. There are 172 home delivery routes. Respondent advertises a suggested retail price in its newspaper. Carriers have exclusive territories which are subject to termination if prices exceed the suggested maximum. Petitioner, who had Route 99, adhered to the advertised price for some time but in 1961 raised the price to customers. 2 After more than once objecting to this practice, respondent wrote petitioner on May 20, 1964, that because he was overcharging and because respondent had reserved the right to compete should that happen, subscribers on Route 99 were being informed by letter that respondent would itself deliver the paper to those who wanted it at the lower price. In addition to sending these letters to petitioner’s customers, respondent hired Milne Circulation Sales, Inc., which solicited readers for newspapers, to engage in telephone and house-to-house solicitation of all residents on Route 99. As a result, about 300 of petitioner’s 1,200 customers switched to direct delivery by respondent. Meanwhile, respondent continued to sell papers to petitioner but warned him that should he continue to overcharge, respondent would not have to do business with him. Since respondent did not itself want to engage in home delivery, it advertised a new route of 314 customers as available without cost. Another carrier, George Kroner, took over the route knowing that respondent would not tolerate overcharging and understanding that he might have to return the [390 U.S. 145, 148] route if petitioner discontinued his pricing practice. 3 On July 27 respondent told petitioner that it was not interested in being in the carrier business and that petitioner could have his customers back as long as he charged the suggested price. Petitioner brought this lawsuit on August 12. In response, petitioner’s appointment as a carrier was terminated and petitioner was given 60 days to arrange the sale of his route to a satisfactory replacement. Petitioner sold his route for $12,000, $1,000 more than he had paid for it but less than he could have gotten had he been able to turn over 1,200 customers instead of 900. 4
Petitioner’s complaint charged a combination or conspiracy in restraint of trade under 1 of the Sherman Act. 5 At the close of the evidence the complaint was amended to charge only a combination between respondent and “plaintiff’s customers and/or Milne Circulation Sales, Inc. and/or George Kroner.” The case went to the jury on this theory, the jury found for respondent, and judgment in its favor was entered on the verdict. The court denied petitioner’s motion for judgment notwithstanding the verdict, which asserted that under United States v. Parke, Davis & Co., 362 U.S. 29 (1960), and like cases, the undisputed facts showed as a matter of law a combination to fix resale prices of newspapers which was per se illegal under the Sherman Act. The Court of Appeals affirmed. In its view “the [390 U.S. 145, 149] undisputed evidence fail[ed] to show a Sherman Act violation,” because respondent’s conduct was wholly unilateral and there was no restraint of trade. The previous decisions of this Court were deemed inapposite to a situation in which a seller establishes maximum prices to be charged by a retailer enjoying an exclusive territory and in which the seller, who would be entitled to refuse to deal, simply engages in competition with the offending retailer. We disagree with the Court of Appeals and reverse its judgment.
On the undisputed facts recited by the Court of Appeals respondent’s conduct cannot be deemed wholly unilateral and beyond the reach of 1 of the Sherman Act. That section covers combinations in addition to contracts and conspiracies, express or implied. The Court made this quite clear in United States v. Parke, Davis & Co., 362 U.S. 29 (1960), where it held that an illegal combination to fix prices results if a seller suggests resale prices and secures compliance by means in addition to the “mere announcement of his policy and the simple refusal to deal . . . .” Id., at 44. Parke Davis had specified resale prices for both wholesalers and retailers and had required wholesalers to refuse to deal with non-complying retailers. It was found to have created a combination “with the retailers and the wholesalers to maintain retail prices . . . .” Id., at 45. The combination with retailers arose because their acquiescence in the suggested prices was secured by threats of termination; the combination with wholesalers arose because they cooperated in terminating price-cutting retailers.
If a combination arose when Parke Davis threatened its wholesalers with termination unless they put pressure on their retail customers, then there can be no doubt that a combination arose between respondent, Milne, and Kroner to force petitioner to conform to the advertised retail price. When respondent learned that [390 U.S. 145, 150] petitioner was overcharging, it hired Milne to solicit customers away from petitioner in order to get petitioner to reduce his price. It was through the efforts of Milne, as well as because of respondent’s letter to petitioner’s customers, that about 300 customers were obtained for Kroner. Milne’s purpose was undoubtedly to earn its fee, but it was aware that the aim of the solicitation campaign was to force petitioner to lower his price. Kroner knew that respondent was giving him the customer list as part of a program to get petitioner to conform to the advertised price, and he knew that he might have to return the customers if petitioner ultimately complied with respondent’s demands. He undertook to deliver papers at the suggested price and materially aided in the accomplishment of respondent’s plan. Given the uncontradicted facts recited by the Court of Appeals, there was a combination within the meaning of 1 between respondent, Milne, and Kroner, and the Court of Appeals erred in holding to the contrary. 6 [390 U.S. 145, 151]
The Court of Appeals also held there was no restraint of trade, despite the long-accepted rule in 1 cases that resale price fixing is a per se violation of the law whether done by agreement or combination. 7 United States v. [390 U.S. 145, 152] Trenton Potteries Co., 273 U.S. 392 (1927); United States v. Socony-Vacuum Oil Co., 310 U.S. 150 (1940); Kiefer-Stewart Co. v. Seagram & Sons, 340 U.S. 211 (1951); United States v. McKesson & Robbins, Inc., 351 U.S. 305 (1956).
In Kiefer-Stewart, supra, liquor distributors combined to set maximum resale prices. The Court of Appeals held the combination legal under the Sherman Act because in its view setting maximum prices “. . . constituted no restraint on trade and no interference with plaintiff’s right to engage in all the competition it desired.” 182 F.2d 228, 235 (C. A. 7th Cir. 1950). This Court rejected that view and reversed the Court of Appeals, holding that agreements to fix maximum prices “no less than those to fix minimum prices, cripple the freedom of traders and thereby restrain their ability to sell in accordance with their own judgment.” 8 340 U.S. 211, 213 .
We think Kiefer-Stewart was correctly decided and we adhere to it. Maximum and minimum price fixing may have different consequences in many situations. But schemes to fix maximum prices, by substituting the perhaps erroneous judgment of a seller for the forces of the competitive market, may severely intrude upon the ability of buyers to compete and survive in that market. Competition, even in a single product, is not cast in a single mold. Maximum prices may be fixed too low for [390 U.S. 145, 153] the dealer to furnish services essential to the value which goods have for the consumer or to furnish services and conveniences which consumers desire and for which they are willing to pay. Maximum price fixing may channel distribution through a few large or specifically advantaged dealers who otherwise would be subject to significant nonprice competition. Moreover, if the actual price charged under a maximum price scheme is nearly always the fixed maximum price, which is increasingly likely as the maximum price approaches the actual cost of the dealer, the scheme tends to acquire all the attributes of an arrangement fixing minimum prices. 9 It is our view, therefore, that the combination formed by the respondent in this case to force petitioner to maintain a specified price for the resale of the newspapers which he had purchased from respondent constituted, without more, an illegal restraint of trade under 1 of the Sherman Act.
We also reject the suggestion of the Court of Appeals that Kiefer-Stewart is inapposite and that maximum price fixing is permissible in this case. The Court of Appeals reasoned that since respondent granted exclusive territories, a price ceiling was necessary to protect the public from price gouging by dealers who had monopoly power in their own territories. But neither the existence of exclusive territories nor the economic power they might place in the hands of the dealers was at issue before the jury. Likewise, the evidence taken was not directed to the question of whether exclusive territories had been granted or imposed as the result of an illegal combination in violation of the antitrust laws. Certainly on the record before us the Court of Appeals was not entitled to assume, as its reasoning necessarily did, that the [390 U.S. 145, 154] exclusive rights granted by respondent were valid under 1 of the Sherman Act, either alone or in conjunction with a price-fixing scheme. See United States v. Arnold, Schwinn & Co., 388 U.S. 365, 373 , 379 (1967). The assertion that illegal price fixing is justified because it blunts the pernicious consequences of another distribution practice is unpersuasive. If, as the Court of Appeals said, the economic impact of territorial exclusivity was such that the public could be protected only by otherwise illegal price fixing itself injurious to the public, the entire scheme must fall under 1 of the Sherman Act.
In sum, the evidence cited by the Court of Appeals makes it clear that a combination in restraint of trade existed. Accordingly, it was error to affirm the judgment of the District Court which denied petitioner’s motion for judgment notwithstanding the verdict. The judgment of the Court of Appeals is reversed and the case is remanded to that court for further proceedings consistent with this opinion.
