Petitioner, an independent newspaper carrier, bought from
respondent at wholesale and sold at retail copies of respondent's
morning newspaper under an exclusive territory arrangement which
was terminable if a carrier exceeded the maximum retail price
advertised by respondent. When petitioner exceeded that price,
respondent protested to petitioner, and then informed petitioner's
subscribers that it would itself deliver the paper at the lower
price. Respondent engaged an agency (Milne) to solicit petitioner's
customers. About 300 of petitioner's 1200 subscribers switched to
direct delivery by respondent. Respondent later turned these
customers over, without cost, to another carrier (Kroner), who was
aware of respondent's purpose and who knew that he might have to
return the route if petitioner discontinued his pricing practice.
Respondent told petitioner that he could have his customers back if
he adhered to the suggested price. Petitioner filed a treble damage
complaint which, as later amended, charged a combination in
restraint of trade in violation of § 1 of the Sherman Act, between
respondent, petitioner's customers, Milne, and Kroner. Petitioner's
appointment as carrier was terminated, and petitioner sold his
route. The jury found for respondent and the trial court denied
petitioner's motion for judgment
n.o.v. which asserted
that the undisputed facts showed, as a matter of law, a combination
to fix a resale price which was
per se illegal under
United States v. Parke, Davis & Co., 362 U. S.
29 (1960), and like cases. The Court of Appeals
affirmed, holding that respondent's conduct was wholly unilateral,
and not in restraint of trade.
Held:
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.
390 U. S.
149-150.
2. Since fixing maximum, as well as minimum, resale prices by
agreement or combination is a
per se violation of § 1 of
the
Page 390 U. S. 146
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.
390 U. S.
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.
390 U. S.
153-154.
367 F.2d 517, reversed and remanded.
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.
[
Footnote 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).
Page 390 U. S. 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.
[
Footnote 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
Page 390 U. S. 148
route if petitioner discontinued his pricing practice. [
Footnote 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. [
Footnote
4]
Petitioner's complaint charged a combination or conspiracy in
restraint of trade under § 1 of the Sherman Act. [
Footnote 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
Page 390 U. S. 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
362 U. S. 44.
Parke Davis had specified resale prices for both wholesalers and
retailers, and had required wholesalers to refuse to deal with
noncomplying retailers. It was found to have created a combination
"with the retailers and the wholesalers to maintain retail prices.
. . ."
Id. at
362 U. S. 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
Page 390 U. S. 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. [
Footnote 6]
Page 390 U. S. 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. [
Footnote 7]
United States
v.
Page 390 U. S. 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." [
Footnote 8]
340 U. S. 211,
340 U. S.
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
Page 390 U. S. 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.
[
Footnote 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
Page 390 U. S. 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,
388 U. S. 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
Reversed and remanded.
[
Footnote 1]
Section 1 of the Sherman Act, 26 Stat. 209, 15 U.S.C. § 1, in
part provides that
"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 declared to be illegal. . .
."
[
Footnote 2]
The record indicates that petitioner raised his price by 10
cents a month.
[
Footnote 3]
The record shows that, at about this time, petitioner lowered
his price to respondent's advertised price. Although petitioner
notified all his customers of this change, respondent apparently
remained unaware of it.
[
Footnote 4]
Kroner testified at trial that he sold the customers he had
within Route 99 to petitioner's vendee for $3,600.
[
Footnote 5]
Petitioner also charged respondent with tortious interference
with business relations under state law, but this count was
dismissed before trial.
[
Footnote 6]
Petitioner's original complaint broadly asserted an illegal
combination under § 1 of the Sherman Act. Under
Parke,
Davis, petitioner could have claimed a combination between
respondent and himself, at least as of the day he unwillingly
complied with respondent's advertised price. Likewise, he might
successfully have claimed that respondent had combined with other
carriers because the firmly enforced price policy applied to all
carriers, most of whom acquiesced in it.
See United States v.
Arnold, Schwinn & Co., 388 U. S. 365,
388 U. S. 372
(1967). These additional claims, however, appear to have been
abandoned by petitioner when he amended his complaint in the trial
court.
Petitioner's amended complaint did allege a combination between
respondent and petitioner's customers. Because of our disposition
of this case, it is unnecessary to pass on this claim. It was not,
however, a frivolous contention.
See Federal Trade Commission
v. Beech-Nut Packing Co., 257 U. S. 441
(1922);
Girardi v. Gates Rubber Co. Sales Div., Inc., 325
F.2d 196 (C.A. 9th Cir.1963);
Graham v. Triangle Publications,
Inc., 233 F.
Supp. 825 (D.C.E.D.Pa.1964),
aff'd per curiam, 344
F.2d 775 (C.A.3d Cir.1965).
[
Footnote 7]
Our Brother HARLAN seems to state that suppliers have no
interest in programs of minimum resale price maintenance, and hence
that such programs are "essentially" horizontal agreements between
dealers even when they appear to be imposed unilaterally and
individually by a supplier on each of his dealers. Although the
empirical basis for determining whether or not manufacturers
benefit from minimum resale price programs appears to be
inconclusive, it seems beyond dispute that a substantial number of
manufacturers formulate and enforce complicated plans to maintain
resale prices because they deem them advantageous.
See E.
Grether, Price Control Under Fair Trade Legislation, c. X (1939);
Federal Trade Commission, Report on Resale Price Maintenance 5-11,
59 (1945); Select Committee on Small Business, Fair Trade: The
Problem and the Issues, H.R.Rep. No. 1292, 82d Cong., 2d Sess.
(1952); Bowman, The Prerequisites and Effects of Resale Price
Maintenance, 22 U.Chi.L.Rev. 825, 832-843 (1955); Corey, Fair Trade
Pricing: A Reappraisal, 30 Harv.Bus.Rev. No. 5, p. 47 (1952);
Fulda, Resale Price Maintenance, 21 U.Chi.L.Rev. 175, 184-186
(1954). As a theoretical matter, it is not difficult to conceive of
situations in which manufacturers would rightly regard minimum
resale price maintenance to be in their interest. Maintaining
minimum resale prices would benefit manufacturers when the total
demand for their product would not be increased as much by the
lower prices brought about by dealer competition as by some other
nonprice, demand-creating activity. In particular, when total
consumer demand (at least within that price range marked at the
bottom by the minimum cost of manufacture and distribution and at
the top by the highest price at which a price maintenance scheme
can operate effectively) is affected less by price than by the
number of retail outlets for the product, the availability of
dealer services, or the impact of advertising and promotion, it
will be in the interest of manufacturers to squelch price
competition through a scheme of resale price maintenance in order
to concentrate on nonprice competition. Finally, if the retail
price of each of a group of competing products is stabilized
through manufacturer-imposed price maintenance schemes, the danger
to all the manufacturers of severe interbrand price competition is
apt to be alleviated.
[
Footnote 8]
Our Brother HARLAN appears to read
Kiefer-Stewart as
prohibiting only combinations of suppliers to squeeze retailers
from the top. Under this view, scarcely derivable from the opinion
in that case, signed contracts between a single supplier and his
many dealers to fix maximum resale prices would not violate the
Sherman Act. With all deference, we reject this view, which seems
to stem from the notion that there can be no agreement violative of
§ 1 unless that agreement accrues to the benefit of both parties,
as determined in accordance with some
a priori economic
model.
Cf. Comment, The
Per Se Illegality of
Price-Fixing --
Sans Power, Purpose, or Effect, 19
U.Chi.L.Rev. 837 (1952).
[
Footnote 9]
In
Kiefer-Stewart, after the manufacturer established
the maximum price at which its product could be sold, it
fair-traded the product so as to fix that price as the legally
permissible minimum. 182 F.2d at 230-231.
MR. JUSTICE DOUGLAS, concurring.
While I join the opinion of the Court, there is a word I would
add. This is a "rule of reason" case stemming from
Standard Oil
Co. v. United States, 221 U. S. 1,
221 U. S. 62.
Whether an exclusive territorial franchise in a vertical
arrangement is
per se unreasonable under the antitrust
laws is a much mooted question. A fixing of prices for resale is
conspicuously unreasonable, because of the great leverage that
price has over the market.
United States v. Socony-Vacuum Oil
Co., 310 U. S. 150,
310 U. S. 221.
The Court quite properly refuses to say whether, in the newspaper
distribution business, an exclusive territorial franchise is
illegal.
The traditional distributing agency is the neighborhood
newspaper boy. Whether he would have the time, acumen,
Page 390 U. S. 155
experience, or financial resources to wage competitive warfare
without the protection of a territorial franchise is at least
doubtful. Here, however, we have a distribution system which has
the characteristics of a large retail enterprise. Petitioner's
business requires practically full time. He purchased his route for
$11,000, receiving a list of subscribers, a used truck, and a
newspaper-tying machine. At the time his dispute with respondent
arose, there were 1,200 subscribers on the route, and that route
covered "the whole northeast section" of a "big city." Deliveries
had to be made by motor vehicle and, although they were usually
completed by 6 o'clock in the morning, the rest of the workday was
spent in billing, receiving phone calls, arranging for new service,
or in placing "stop" or "start" orders on existing service.
Petitioner at times hired a staff to tie and to wrap
newspapers.
Under our decisions,
* the legality of
exclusive territorial franchises in the newspaper distribution
business
Page 390 U. S. 156
would have to be tried as a factual issue, and that was not done
here.
The case is therefore close to
White Motor Co. v. United
States, 372 U. S. 253,
where, before ruling on the legality of a territorial restriction
in a vertical arrangement, we remanded for findings on "the actual
impact of these arrangements on competition."
Id. at
372 U. S.
263.
*
"Every agreement concerning trade, every regulation of trade,
restrains. To bind, to restrain, is of their very essence. The true
test of legality is whether the restraint imposed is such as merely
regulates and perhaps thereby promotes competition, or whether it
is such as may suppress or even destroy competition. To determine
that question, the court must ordinarily consider the facts
peculiar to the business to which the restraint is applied; its
condition before and after the restraint was imposed; the nature of
the restraint and its effect, actual or probable. The history of
the restraint, the evil believed to exist, the reason for adopting
the particular remedy, the purpose or end sought to be attained,
are all relevant facts. This is not because a good intention will
save an otherwise objectionable regulation, or the reverse, but
because knowledge of intent may help the court to interpret facts
and to predict consequences."
Chicago Board of Trade v. United States, 246 U.
S. 231,
246 U. S. 238.
Cf. United States v. Parke, Davis & Co., 362 U. S.
29 (economics of the drug distribution business);
United States v. Arnold, Schwinn & Co., 388 U.
S. 365 (economics of the bicycle business). In the
latter case, we noted that the evidence of record
"elaborately sets forth information as to the total market
interaction and interbrand competition, as well as the distribution
program and practices."
388 U.S. at
388 U. S.
367.
MR. JUSTICE HARLAN, dissenting.
While I entirely agree with the views expressed by my Brother
STEWART and have joined his dissenting opinion, the Court's
disregard of certain economic considerations underlying the Sherman
Act warrants additional comment.
I
The practice of setting genuine price "ceilings," that is
maximum prices, differs from the practice of fixing minimum prices,
and no accumulation of pronouncements from the opinions of this
Court can render the two economically equivalent.
The allegation of a combination of persons to fix maximum prices
undoubtedly states a Sherman Act cause of action. In order for a
plaintiff to win such a § 1 case, however, he must be able to prove
the existence of the alleged combination, and the defendant must be
unable, either by virtue of a
per se rule or by failure of
proof at trial, to show an adequate justification. It is on these
two points that price ceilings differ from price floors: to hold
that a combination may be inferred from the vertical dictation of a
maximum price simply because it may be permissible to infer a
combination from the vertical dictation of a minimum price ignores
economic
Page 390 U. S. 157
reality; to conclude that no acceptable justification for fixing
maximum prices can be found simply because there is no acceptable
justification for fixing minimum prices is to substitute blindness
for analysis.
Resale price maintenance, a practice not involved here, lessens
horizontal intrabrand competition. The effects, higher prices, less
efficient use of resources, and an easier life for the resellers,
are the same whether the price maintenance policy takes the form of
a horizontal conspiracy among resellers or of vertical dictation by
a manufacturer plus reseller acquiescence. This means two things.
First, it is frequently possible to infer a combination of
resellers behind what is presented to the world as a vertical and
unilateral price policy, because it is the resellers, and not the
manufacturer, who reap the direct benefits of the policy. Second,
price floors are properly considered
per se restraints in
the sense that, once a combination to create them has been
demonstrated, no proffered justification is an acceptable defense.
Following the rule of reason, combinations to fix price floors are
invariably unreasonable: to the extent that they achieve their
objective, they act to the direct detriment of the public interest
as viewed in the Sherman Act. In the absence of countervailing fair
trade laws, all asserted justifications are, upon examination,
found wanting either because they are too trivial or elusive to
warrant the expense of a trial (as is the case, for example, with a
defense that price floors maintain the prestige of a product) or
because they run counter to Sherman Act premises (as is the case
with the defense that price maintenance enables inefficient sellers
to stay in business).
Vertically imposed price ceilings are, as a matter of economic
fact that this Court's words cannot change, an altogether different
matter. Other things being equal, a manufacturer would like to
restrict those distributing
Page 390 U. S. 158
his product to the lowest feasible profit margin, for, in this
way, he achieves the lowest overall price to the public and the
largest volume. When a manufacturer dictates a minimum resale
price, he is responding to the interest of his customers, who may
treat his product better if they have a secure high margin of
profits. When the same manufacturer dictates a price ceiling,
however, he is acting directly in his own interest, and there is no
room for the inference that he is merely a mechanism for
accomplishing anticompetitive purposes of his customers. [
Footnote 2/1]
Furthermore, the restraint imposed by price ceilings is of a
different order from that imposed by price floors. In the present
case, the Court uses again the fallacious argument that price
ceilings and price floors must be equally unreasonable, because
both "cripple the freedom of traders, and thereby restrain their
ability to sell in accordance with their own judgment." [
Footnote 2/2] The fact of the matter is
that this statement does not, in itself, justify a
per se
rule in either the maximum or minimum price case, and that the real
justification for a
per se rule in the case of minimums
has not been shown to exist in the case of maximums.
It has long been recognized that one of the objectives of the
Sherman Act was to preserve, for social, rather than economic,
reasons, a high degree of independence, multiplicity, and variety
in the economic system. Recognition of this objective does not,
however, require this Court to hold that every commercial act that
fetters the freedom of some trader is a proper subject for a
per se rule in the sense that it has no adequate provable
justification.
See, e.g., 372 U. S. v.
United States,
Page 390 U. S. 159
372 U. S. 253. The
per se treatment of price maintenance is justified because
analysis alone, without the burden of a trial in each individual
case, demonstrates that price floors are invariably harmful on
balance. [
Footnote 2/3] Price
ceilings are a different matter: they do not lessen horizontal
competition; they drive prices toward the level that would be set
by intense competition, and they cannot go below this level unless
the manufacturer who dictates them and the customer who accepts
them have both miscalculated. Since price ceilings reflect the
manufacturer's view that there is insufficient competition to drive
prices down to a competitive level, they have the arguable
justification that they prevent retailers or wholesalers from
reaping monopoly or supercompetitive profits.
When price floors and price ceilings are placed side by side,
then, and the question is asked of each, "does analysis justify a
no-trial rule?" the answers must be quite different. Both practices
share the negative attribute that they restrict individual
discretion in the pricing area, but only the former imposes upon
the public the much more significant evil of lessened competition,
and, as just seen, the latter has an important arguable
justification that the former does not possess. As the Court's
opinion partially but inexplicitly recognizes, in a maximum price
case the asserted justification must be met on its merits, and not
by incantation of a
per se rule developed for an
altogether different situation. [
Footnote 2/4]
Page 390 U. S. 160
II
The Court's discovery in this case of (a) a combination and (b)
a restraint that is
per se unreasonable is beset with
pitfalls. The Court relies directly on combinations with Milne and
Kroner, two third parties who were simply hired and paid to do
telephoning and distributing jobs that respondent could as
effectively have done itself. Neither had any special interest in
respondent's objective of setting a price ceiling. If the critical
question is whether a company pays one of its own employees to
perform a routine task or hires an outsider to do the same thing,
the requirement of a "combination" in restraint of trade has lost
all significant meaning. The point is more than that the words in a
statute ought to be taken to mean something of substance. The
premise of § 1 adjudication has always been that it is quite proper
for a firm to set its own prices and determine its own territories,
but that it may not do so
Page 390 U. S. 161
in conjunction with another firm with which, in combination, it
can generate market power that neither would otherwise have. A firm
is not "combining" to fix its own prices or territory simply
because it hires outside accountants, market analysts, advertisers
by telephone or otherwise, or delivery boys. Once it is recognized
that Kroner had no interest whatever in forcing his competitor to
lower his price, and was merely being paid to perform a delivery
job that respondent could have done itself, it is clear
respondent's activity was, in its essence, unilateral.
The Court, quite evidently dissatisfied with the Milne and
Kroner theories of combination, goes on to suggest two others not
claimed. First, it is said, petitioner might have alleged a
combination with other carriers who accepted respondent's maximum
price. The difficulty with this thesis is that such a "combination"
would have been wholly irrelevant to what was done to petitioner.
In a price maintenance situation, each distributor does have an
interest in preventing others from breaking the price line and
driving everyone's prices down, and there is thus a real symphony
of interests behind the pressure exerted on any individual
retailer. However, in contrast, the effectiveness of a price
ceiling imposed on one distributor does not depend upon the
imposition of ceilings on other distributors, be they competitive
or not. Each distributor's maximum price agreement is, for reasons
already discussed, a vertical matter only, independent of
agreements by other dealers. Hence, the result of the Court's
theory here would be to make what was done to this petitioner
illegal because of the coincidental existence of unrelated similar
agreements, and to base petitioner's right to recover upon
activities that are altogether irrelevant to whatever harm he has
suffered.
The Court also suggests that, under
Parke, Davis,
"petitioner could have claimed a combination between
Page 390 U. S. 162
respondent and himself, at least as of the day he unwillingly
complied with respondent's advertised price."
This theory is intriguing, because, although it is unsound on
its face, it has within it the ring of something familiar.
Obviously it makes no sense to deny recovery to a pressured
retailer who resists temptation to the last and grant it to one who
momentarily yields but is restored to virtue by the vision of
treble damages. It is not the momentary acquiescence, but the
punishment for refusing to acquiesce, that does the damage on which
recovery is based.
The Court's difficulties on all of its theories stem from its
unwillingness to face the ultimate conclusion at which it has
actually arrived: it is unlawful for one person to dictate price
floors or price ceilings to another; any pressure brought to bear
in support of such dictation renders the dictator liable to any
dictatee who is damaged. The reason for the Court's reluctance to
state this conclusion bluntly is transparent: this statement of the
matter takes no account of the absence of a combination or
conspiracy.
This does not mean, however, that no combination or conspiracy
could ever be inferred in such an ostensibly unilateral situation.
It would often be proper to infer, in situations in which a
manufacturer dictates a minimum price to a retailer, that the
manufacturer is the mechanism for enforcing a very real
combinatorial restraint among retailers who should be competing
horizontally. [
Footnote 2/5]
Instead of undertaking to analyze when this
Page 390 U. S. 163
inference would be proper, the Court has in the past followed
the rough approximation adopted in
Parke, Davis: [
Footnote 2/6] there is no "combination"
when a manufacturer simply states a resale price and announces that
he will not deal with those who depart from it; there is a
combination when the manufacturer goes one inch further. The
magical quality in this transformation is more apparent than real,
for the underlying horizontal combination may frequently be there,
and the Court has simply failed to state what it is. [
Footnote 2/7]
When a manufacturer dictates a maximum price, however, the
Parke, Davis approach does not yield even a satisfactory
rough answer to the question "[I]s there a combination?" For the
manufacturer who purports to act unilaterally in dictating a
maximum price really is acting unilaterally. No one is economically
interested in the price squeeze but himself. Had the Court been in
the habit of analyzing the economics on which the inference of a
combination may be based, it would have seen that,
Page 390 U. S. 164
even if combinations to fix maximum prices are as illegal as
combinations to fix minimum prices, the circumstances under which a
combination to fix maximum prices may be inferred are different
from those which imply a combination to keep prices up.
It was for this reason that, in
Kiefer-Stewart Co. v.
Seagram & Sons, 340 U. S. 211, the
only case in this Court in which maximum resale prices have
actually been held unlawful, the key question was whether there was
an actual horizontal combination of manufacturers to impose on
retailers a maximum resale price. The Court refused to hold that
dictation of price ceilings to a single retailer by a single
manufacturer was unlawful, but instead insisted upon, and found, a
situation in which two manufacturers, in their common interest,
combined to impose upon retailers a condition of doing business
which they might not have been able to demand individually.
Kiefer-Stewart's treatment of the combination
requirement is instructive. Any manufacturer is at perfect liberty
to set the prices at which he will sell to retailers, and in that
way maximize his profits while lessening theirs. Competition, that
is, the threat that the purchasing seller will simply turn to
another manufacturer, prevents the manufacturer from raising his
prices beyond a certain point. It is
per se unlawful,
however, for two manufacturers to combine to raise their prices
together, rendering each of them secure because the retailer or
wholesaler has nowhere else to turn. From the manufacturer's
viewpoint, putting a ceiling on the resale price may be simply an
alternative means to the end of maximizing his own profits by
lessening distribution costs: instead of squeezing the reseller
from the bottom, he squeezes from the top. The holding of
Kiefer-Stewart was that the squeeze from the top, like the
squeeze from
Page 390 U. S. 165
the bottom, was lawful unless by a combination of persons
between whom competition would otherwise have limited the power to
squeeze from either direction. No combination of the kind required
in
Kiefer-Stewart exists here, and the Court has found no
sensible substitute theory of combination.
The Court's second difficulty in this case is to state why
imposition of price ceilings is a
per se unlawful
restraint. The respondent offered as a defense the contention that,
since there was no competition between distributors to keep resale
prices down, a fixed maximum price was in the interest of both the
respondent itself and the public. The Court, recognizing that,
despite scattered dicta about maximum and minimum prices' both
being
per se illegal, there was here an alleged
justification that would have to be faced on its merits, attempts
to show that the defense may be disposed of without hearing
evidence on it.
The Court has not been persuasive. The question in this case is
not whether dictation of maximum prices is ever illegal, but
whether it is
always illegal. Petitioner is seeking, and
now receives, a judgment notwithstanding the verdict of a jury that
he had failed to show that the practice was unreasonable in this
case. The best the Court can do is to list certain unfortunate
consequences that maximum price dictation might have in other
cases, but was not shown to have here. Then, in rejecting the
significant affirmative justification offered for respondent's
practice, the Court merely says,
"The assertion that illegal price-fixing is justified because it
blunts the pernicious consequences of another distribution practice
is unpersuasive."
Ante at
390 U. S. 154.
I shall ignore the insertion of the word "illegal," which merely
assumes the conclusion. I cannot understand why, in deciding
whether a practice is an unreasonable restraint of trade, the
Court
Page 390 U. S. 166
finds it "unpersuasive" that the practice blunts pernicious
attributes of an existing distribution system.
The Court's only answer is that the courts below did not
consider whether the existing distribution system might itself be
illegal. But even assuming that respondent can conceivably be
penalized for failure to raise the question whether the
distribution system, unchallenged by petitioner, was lawful, the
Court's argument falls short. The Court has decided that exclusive
territories and consequent market power can never be a
justification for dictation of maximum prices because exclusive
territories are sometimes unlawful. But they are neither always
unlawful, nor have they been demonstrated to be unlawful in this
case.
It may well be that the mechanics of newspaper distribution are
such that a city quite naturally divides itself into one or more
relatively exclusive territories (sometimes called "paper routes"),
giving each distributor a large degree of monopoly power. It is
hardly far-fetched to assume that a newspaper might be able to
prove (if given the opportunity it is today denied) that rough
territorial exclusivity is simply a fact of economic life in the
newspaper distributing business, both because the nature of the
enterprise dictates compactness of routes and because the number of
distributors that a particular area can sustain is necessarily so
small that they naturally fall into oligopolistic respect for each
other's territories, and into a pattern of price leadership.
There is no question that the ideal situation, from the point of
view of both the publisher and the public, is to have a very large
number of distributors intensely vying with each other in both
price and service. This situation, however, may be one that it is
impossible to achieve in some, perhaps in all, cities. It seems
quite possible that a publisher who does not want to do his
Page 390 U. S. 167
own distributing must live with the fact that there will always
be a relatively small number of competing distributors who
consequently will be likely to fall into lawful but undesirable
oligopolistic behavior -- price leadership and territorial
exclusivity.
Confronted by this situation, the publisher, who is competing
with other publishers in, among other things, price and service to
the public, will seek to provide efficient distribution service at
the lowest possible price. These objectives would be realized by
intense competition without the publisher's interference, but, in
the absence of such competition, the publisher must take steps of
his own.
The present respondent took two steps. First, it insisted on the
right to approve each distributor. Naturally, since newspapermen
are notoriously realistic, it referred to the acquisition of a
distributorship as the purchase of a "route." Second, it set a
maximum home delivery price and enforced it; the price could not be
below the level that perfect competition would dictate without
driving the distributors out of business and defeating the
publisher's whole objective. Hence, the price set cannot be
supposed to have been unreasonable. [
Footnote 2/8] Respondent had no need to go to the
extreme of cutting off distributors preferring to do a high-profit,
low-volume business, and did not do so. It simply advertised the
maximum home delivery price and created competition
Page 390 U. S. 168
with any distributor not observing it. Today's decision leaves
respondent with no alternative but to use its own trucks.
For the reasons stated in my Brother STEWART's opinion and those
stated here, I would affirm the judgment below.
[
Footnote 2/1]
See the opinion of Judge Coffin in
Quinn v. Mobil
Oil Co., 375 F.2d 273, 276.
[
Footnote 2/2]
Kiefer-Stewart Co. v. Seagram & Sons, 340 U.
S. 211,
340 U. S.
213.
[
Footnote 2/3]
See the analysis in the leading case,
United States
v. Trenton Potteries Co., 273 U. S. 392, at
39502. Price floors, or other agreements to prevent price-cutting,
are there held to be
per se unreasonable because they
inevitably lessen competition. There is no reference to the purely
collateral effect of limiting individual trader discretion, still
less to a program such as the one involved in this case that does
not inhibit competitive price-cutting.
[
Footnote 2/4]
The same points may be made from the perspective of the
retailers or wholesalers subject to the price dictation. When the
issue is minimum resale prices, those sellers who are more
efficient and ambitious are likely to object to price restrictions,
while the lazier and less efficient sellers will welcome their
protection. When the issue is price ceilings, the matter is
different. Assuming the ceilings are high enough to permit a return
that will enable the seller to stay in business, a seller will
object to price ceilings only because they deny him the
supercompetitive return that the imperfections of competition would
otherwise permit. At the same time, in stark contrast to the
situation involved in resale price maintenance, no seller has any
interest in insisting that price ceilings be imposed on his
competitors; he is not worried that they may sell at a higher price
than his own. Thus, while resale price maintenance establishes what
is the equivalent of a single horizontal restraint on otherwise
competitive sellers, price ceilings establish merely a series of
distinct vertical relationships between manufacturer and seller,
with no one seller economically interested in the maintenance of
the vertical relationship with any other seller.
[
Footnote 2/5]
See Turner, The Definition of Agreement Under the
Sherman Act: Conscious Parallelism and Refusals to Deal, 75
Harv.L.Rev. 655. Professor Turner (as he then was) suggested the
overruling of
United States v. Colgate & Co.,
250 U. S. 300,
arguing,
inter alia, that
Colgate behavior by a
manufacturer tends to produce tacit or implied minimum price
agreements among otherwise competitive retailers. He suggested
that
"it should be perfectly clear to any manufacturer that a policy
of refusing to deal with
price-cutters is no more nor less
than an invitation [to retailers] to agree [with each other as well
as with the manufacturer] on . . . a minimum price. . . ."
Id. at 689. (Emphasis added.)
[
Footnote 2/6]
United States v. Parke, Davis & Co., 362 U. S.
29.
[
Footnote 2/7]
I thought at the time
Parke, Davis was decided
(
see my dissenting opinion in that case, 362 U.S. at
362 U. S. 49),
and continue to believe, that the result reached could not be
supported on the majority's reasoning. I am frank to say, however,
that I now consider that the
Parke, Davis result can be
supported on Professor Turner's rationale.
See Turner,
supra, 390
U.S. 145fn2/5|>n. 5, at 684-691. Further reflection on the
matter also leads me to say that my statement in dissent to the
effect that
Parke, Davis had overruled the
Colgate case was overdrawn, and further that I am not yet
prepared to say that Professor Turner's rationale necessarily
carries the total discard of
Colgate.
[
Footnote 2/8]
Reasonableness is also evidenced by the abundance of persons
willing to distribute newspapers at or below the fixed ceilings.
The point is not affected by the fact that the distributors willing
to accept respondent's conditions were buying monopolies. The
principal virtue of a monopoly is the power of the monopolist to
charge supercompetitive prices. Hence, it cannot be argued that the
ceilings might have proved too low to attract buyers but for the
fact that they were accompanied by monopoly power.
MR. JUSTICE STEWART, with whom MR. JUSTICE HARLAN joins,
dissenting.
The respondent is the publisher of the only daily morning
newspaper in St. Louis. The petitioner was one of some 170
independent distributors who bought copies of the paper from the
respondent and sold them to householders. Each distributor had an
exclusive territory subject only to the condition that his resale
price not exceed a stated maximum. When the petitioner's price did
exceed that maximum, the respondent allowed, and indeed actively
assisted, another distributor to enter the petitioner's territory
and compete with him. The Court today holds that this latter
practice by the respondent subjected it to antitrust liability to
the petitioner. I cannot understand why.
The case was litigated throughout by both parties upon the
premise that the respondent's granting of an exclusive territory to
each distributor was a perfectly permissible practice. Upon that
premise, the judgment of the Court of Appeals was obviously
correct. For the respondent's conduct here was in furtherance of,
not contrary to, the purposes of the antitrust laws. The petitioner
was a monopolist within his own territory; he was the only person
who could sell for home delivery the city's only daily morning
newspaper. But for the fact that respondent provided competition
above a certain price level, the householders would have been
totally without protection from the petitioner's monopoly
position.
Page 390 U. S. 169
The cases cited by the petitioner, such as
Kiefer-Stewart
Co. v. Seagram & Sons, 340 U. S. 211, and
United States v. Parke, Davis & Co., 362 U. S.
29, did not involve monopoly products distributed
through exclusive territories, and are thus totally inapplicable
here. The thrust of those decisions is that the reseller should be
free to make his own independent pricing determination. But that
cannot be a proper objective where the reseller is a monopolist.
[
Footnote 3/1] To the extent that
the respondent prevented the petitioner from raising his price
above that which would have prevailed in a competitive market, the
respondent's actions were fully compatible with the antitrust laws.
[
Footnote 3/2]
But, says the Court, the original grant of an exclusive
territory to the petitioner may have itself violated the antitrust
laws. Putting aside the fact that this question was not briefed or
argued either here or in the court below, I fail to understand how
the illegality of the petitioner's exclusive territory could
conceivably help his case. The petitioner enjoyed the benefits of
his exclusive territory subject to the condition that he keep his
price at or below a stated maximum. When he did charge more, the
respondent took steps to force the petitioner's price down by
introducing competition into his territory. If it was illegal in
the first place for the petitioner to enjoy a conditional monopoly,
I am at a loss to understand
Page 390 U. S. 170
how the respondent can be liable to the petitioner for not
permitting him a complete monopoly.
The Court in this case does more,I think, than simply depart
from the rule of reason. [
Footnote
3/3]
Standard Oil Co. v. United States, 221 U. S.
1. The Court today stands the Sherman Act on its head.
[
Footnote 3/4]
[
Footnote 3/1]
See Elman, "Petrified Opinions" and Competitive
Realities, 66 Col.L.Rev. 625, 633 (1966).
[
Footnote 3/2]
Because the major portion of the respondent's income derives
from advertising, rather than from sales to distributors, the
respondent's self-interest is in keeping the retail price of the
paper low in order to increase circulation and thereby increase
advertising revenues. However, neither the petitioner nor the Court
suggests that the maximum set by the respondent was less than the
price that would have prevailed if there had been competition among
the distributors.
[
Footnote 3/3]
See generally Elman, "Petrified Opinions" and
Competitive Realities, 66 Col.L.Rev. 625 (1966).
"It should be plain why there is a real danger of the abuse of
the
per se principle by those predisposed to offer
mechanical or dogmatic solutions to legal problems. In every
antitrust case, there are two routes to a finding of illegality:
critically analyzing the competitive effects and possible
justifications of the challenged practice or subsuming it under one
of the
per se rules. The latter route is naturally the
more tempting; it is easier to classify a practice in a forbidden
category than to demonstrate from the ground up, as it were, why it
is against public policy and should be forbidden."
Id. at 627.
[
Footnote 3/4]
"The Supreme Court shows a growing determination in its
antitrust decisions to convert laws designed to promote competition
into laws which regulate or hamper the competitive process."
Bowman, Restraint of Trade by the Supreme Court: The
Utah
Pie Case, 77 Yale L.J. 70 (1967).