United States v. A. Schrader's Son, Inc., 252 U.S. 85 (1920)

U.S. Supreme Court

United States v. A. Schrader's Son, Inc., 252 U.S. 85 (1920) United States v. A. Schrader's Son, Inc.

No. 567

Argued January 22, 23, 1920

Decided March 1, 1920

252 U.S. 85

ERROR TO THE DISTRICT COURT OF THE UNITED STATES

FOR THE NORTHERN DISTRICT OF OHIO

Syllabus

A manufacturer of patented articles sold them to its customers, who were other manufacturers and jobbers in several states, under their agreements to observe certain resale prices fixed by the vendor. Held that there was a combination restraining trade in violation of § 1 of the Anti-Trust Act. P. 252 U. S. 98. Dr. Miles Medical Co. v. Park & Sons Co., 220 U. S. 373, followed; United States v. Colgate & Co., 250 U. S. 300, distinguished.

264 F. 175 reversed.

The case is stated in the opinion.

Page 252 U. S. 94

MR. JUSTICE McREYNOLDS delivered the opinion of the Court.

Defendant in error, a New York corporation, manufactured at Brooklyn, under letters patent, valves, gauges, and other accessories for use in connection with automobile tires, and regularly sold and shipped large quantities of these to manufacturers and jobbers throughout the United States. It was indicted in the District Court, Northern District of Ohio, for engaging in a combination rendered criminal by § 1 of the Sherman Act of July 2, 1890, c. 647, 26 Stat. 209, which declares illegal "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." After interpreting the indictment as indicated by quotations from its opinion which follow, the district court sustained a demurrer thereto, basing the judgment upon construction of that act. 264 F. 175.

"The substantive allegations of this indictment are that defendant is engaged in manufacturing valves, valve parts, pneumatic pressure gauges, and various other accessories; that it sells and ships large quantities of such articles to tire manufactures and jobbers in the Northern district of Ohio and throughout the United States; that these tire manufacturers and jobbers resell and reship large quantities of these products to (a) jobbers and vehicle manufacturers, (b) retail dealers, and (c) to the public, both within and without the respective states into which the products are shipped; that these acts have been committed within three years next preceding the presentation of this indictment and within this district; that the defendant executed, and

Page 252 U. S. 95

caused all the said tire manufacturers and jobbers to whom it sold its said products to execute with it, uniform contracts concerning resales of such products; that every manufacturer and jobber was informed by the defendant and well knew when executing such contracts that identical contracts were being executed and adhered to by the other manufacturers and jobbers; that these contracts thus executed purported to contain a grant of a license from the defendant to resell its said products at prices fixed by it to (a) jobbers and vehicle manufacturers similarly licensed, (b) retail dealers, and (c) the consuming public; that all these contracts provided (that the) [concerning] products thus sold to tire manufacturers and jobbers (provided) that they should not resell such products at prices other than those fixed by the defendant. Copies of these contracts are identified by exhibit numbers and attached to the indictment. It is further charged that the defendant furnished to the tire manufacturers and jobbers who entered into such contracts lists of uniform prices, such as are shown in said exhibits, which the defendant fixed for the resale of its said products to (a) jobbers and vehicle manufacturers, (b) retail dealers, and (c) the consuming public, respectively, and that the defendant uniformly refused to sell and ship its products to tire manufacturers and jobbers who did not enter into such contracts and adhere to the uniform resale prices fixed and listed by the defendant. Further, that tire manufacturers and jobbers in the Northern district of Ohio and throughout the United States uniformly resold defendant's products at uniform prices fixed by the defendant and uniformly refused to resell such products at lower pricers, whereby competition was suppressed and the prices of such products to retail dealers and the consuming public were maintained and enhanced. . . ."

"Thus, it will be observed that the contract, combination,

Page 252 U. S. 96

or conspiracy charged comes merely to this: that the defendant has agreed, combined, or conspired with tire manufacturers and with jobbers by the selling or agreeing to sell valves, valve parts, pneumatic pressure gauges, and various accessories, with the further understanding or agreement that, in making resales thereof, they will sell only at certain fixed prices. It will be further observed that the retailers, to whom the jobbers in ordinary course of trade would naturally sell, rather than to the consuming public, and who in turn sell and distribute these articles to and among the ultimate consumers, are not included within the alleged combination or conspiracy. . . ."

"The so-called license agreements, exhibited with the indictment, are, in my opinion, both in substance and effect, only selling agreements. The title to the valves, valve parts, pneumatic pressure gauges, and other automobile accessories passed to the so-called licensees and licensed jobbers."

The court further said:

"Defendant urges that there is a manifest inconsistency between the reasoning, if not between the holdings, of these two cases [Dr. Miles Medical Co. v. Park & Sons Co., 220 U. S. 373, and United States v. Colgate Co., 250 U. S. 300]; that, if the basic principles announced in the latter case are to be taken in the ordinary sense imported by the language, the present case falls within the Colgate case, and that, properly construed, neither § 1 nor 2 of the Sherman Anti-Trust Law makes the defendant's conduct a crime. The Dr. Miles Medical Company case, standing alone, would seem to require that this demurrer be overruled, and a holding that the Sherman Anti-Trust Law is violated and a crime committed, merely upon a showing of the making by defendant and two or more jobbers of the agreements set up in the indictment, certainly if the jobbers were competitors in the

Page 252 U. S. 97

same territory. That case has been frequently cited as establishing this proposition. . . . The retailers are not in the present case included. They may compete freely with one another, and may even give away the articles purchased by them. No restriction is imposed which prevents them from selling to the consumer at any price, even though it be at a ruinous sacrifice and less than the price made to them by the jobber. Personally, and with all due respect, permit me to say that I can see no real difference upon the facts between the Dr. Miles Medical Company case and the Colgate Company case. The only difference is that, in the former, the arrangement for marketing its product was put in writing, whereas in the latter the wholesale and retail dealers observed the prices fixed by the vendor. This is a distinction without a difference. The tacit acquiescence of the wholesalers and retailers in the prices thus fixed is the equivalent for all practical purposes of an express agreement. . . ."

"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 the 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 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. Manifestly, therefore, the decision in the Dr. Miles Medical case must rest upon some other ground than the mere fact that there were

Page 252 U. S. 98

agreements between the manufacturer and the wholesalers. . . ."

"The point, however, which I wish to emphasize is that the allegations of this indictment, not alleging any purpose, or facts from which such a purpose can be inferred, to monopolize interstate trade within the prohibition and meaning of § 2 of the Sherman Anti-Trust Act and the last clause of § 2 of the Clayton Act, does not charge a crime under § 1 of the Sherman Anti-Trust Act as that act should be construed."

Our opinion in United States v. Colgate Co. declared quite plainly:

That, upon a writ of error under the Criminal Appeals Act (c. 2564, 34 Stat. 1246),

"we have no authority to revise the mere interpretation of an indictment and are confined to ascertaining whether the court in a case under review erroneously construed the statute. . . . We must accept that court's interpretation of the indictments and confine our review to the question of the construction of the statute involved in its decision."

That we were confronted by an uncertain interpretation of an indictment itself couched in rather vague and general language, the meaning of the opinion below being the subject of serious controversy. The

"defendant maintains that, looking at the whole opinion, it plainly construes the indictment as alleging only recognition of the manufacturer's undoubted right to specify resale prices and refuse to deal with any one who failed to maintain the same. . . . The position of the defendant is more nearly in accord with the whole opinion, and must be accepted, and, as counsel for the government were careful to state on the argument that this conclusion would require affirmation of the judgment below, an extended discussion of the principles involved is unnecessary."

And further:

"The purpose of the Sherman Act is to prohibit monopolies, contracts, and combinations which probably would unduly interfere with

Page 252 U. S. 99

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."

The court below misapprehended the meaning and effect of the opinion and judgment in that cause. 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. Under the interpretation adopted by the trial court and necessarily accepted by us, the indictment failed to charge that Colgate & Company made agreements, either express or implied, which undertook to obligate vendees to observe specified resale prices, and it was treated

"as alleging only recognition if the manufacturer's undoubted right to specify resale prices and refuse to deal with any one who fails to maintain the same."

It seems unnecessary to dwell upon the obvious difference between the situation presented when a manufacturer merely indicates his wishes concerning prices and declines further dealings with all who fail to observe them and one where he enters into agreements -- whether express or implied from a course of dealing or other circumstances -- with all customers throughout the different states which undertake to bind them to observe fixed resale prices. In the first, the manufacturer but exercises his independent discretion concerning his customers, and there is no contract or combination which imposes any limitation on the purchaser. In the second, the parties

Page 252 U. S. 100

are combined through agreements designed to take away dealers' control of their own affairs, and thereby destroy competition and restrain the free and natural flow of trade amongst the states.

The principles approved in Dr. Miles Medical Co. v. Park & Sons Co., should have been applied. The judgment below must be reversed, and the cause remanded for further proceedings in conformity with this opinion.

Reversed and remanded.

MR. JUSTICE CLARKE concurs in the result.

MR. JUSTICE HOLMES and MR. JUSTICE BRANDEIS dissent.