Albrecht v. Herald Company/Opinion of the Court

by Byron White

United States Supreme Court

390 U.S. 145

Albrecht  v.  Herald Company

 Argued: Nov. 9, 1967. --- Decided: March 4, 1968

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, 87 S.Ct. 976, 17 L.Ed.2d 872 (1967).

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 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, 80 S.Ct. 503, 4 L.Ed.2d 505 (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 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, 80 S.Ct. 503, 4 L.Ed.2d 505 (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 this policy and the simple refusal to deal * * *.' Id., at 44, 80 S.Ct. at 512. 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 45, 80 S.Ct. at 512. 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 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 he 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 the 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]

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. Trenton Potteries Co., 273 U.S. 392, 47 S.Ct. 377, 71 L.Ed. 700 (1927); United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 60 S.Ct. 811, 84 L.Ed. 1129 (1940); Kiefer-Stewart Co. v. Joseph E. Seagram & Sons, 340 U.S. 211, 71 S.Ct. 259, 95 L.Ed. 219 (1951); United States v. McKesson & Robbins, Inc., 351 U.S. 305, 76 S.Ct. 937, 100 L.Ed. 1209 (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, 71 S.Ct. 259, 260.

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 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 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, 87 S.Ct. 1856, 1862, 1865, 18 L.Ed.2d 1249 (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.

Notes

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 * * *.'
2. The record indicates that petitioner raised his price by 10 cents a month.
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.
4. Kroner testified at trial that he sold the customers he had within Route 99 to petitioner's vendee for $3,600.
5. Petitioner also charged respondent with tortious interference with business relations under state law, but this count was dismissed before trial.
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, 372, 87 S.Ct. 1856, 1862, 18 L.Ed.2d 1249 (1967). These additional claims, however, appear to have been abandoned by petitioner when he amended his complaint in the trial court.
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.
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).
9. In Kiefer-Stewart after the manufacturer established the maximum price at which its product could be sold, it fairtraded the product so as to fix that price as the legally permissible minimum. 182 F.2d, at 230-231.