Dr. Miles Medical Co. v. John D. Park & Sons Co.

• Decision Date: 10 September 1908
• Docket Number: 1,797.
• Citation: 164 F. 803
• Court: U.S. Court of Appeals — Sixth Circuit
• Parties: DR. MILES MEDICAL CO. v. JOHN D. PARK & SONS CO. [1]

164 F. 803

DR. MILES MEDICAL CO. v. JOHN D. PARK & SONS CO. ^[1]

No. 1,797.

United States Court of Appeals, Sixth Circuit.

September 10, 1908

This is a bill by manufacturers of proprietary medicines who put them upon the market under a system of contracts intended to maintain the prices fixed by them. There are two forms of these contracts, one with wholesalers and another with retailers. Like contracts, it is claimed, have been made and signed by nearly all jobbers and retailers in the United States who deal in such goods. These contracts are set out at the close of the opinion.

The defendant company refuses to enter into any such agreement and, according to the averment of the bill, illegally induces persons who have to violate their contracts by selling to him though unauthorized to buy and at prices below those which such persons are required to exact. It is also averred that for the purpose of protecting the seller from the consequences of a breach of contract the defendant company defaces the carton inclosing the medicine and destroys the evidence thereon or thereto attached by which, through a serial number, complainant might trace the seller who breached the contract. In addition, it is charged that defendant sells to retailers who carry on a 'cut rate' business, who in turn retail to consumers at rates less than those at which complainant requires all retailers to exact from persons buying for use. The bill in all its important averments as to the manner in which complainant carries on its business and the advantages of such method and the evils of the 'cut rate' business in such goods as well as its averments as to the knowledge of the system possessed by the defendant are substantially identical with the averments of the bill under consideration by this court in Jno. D. Park & Sons Co. v. Hartman, 153 F. 24, 82 C.C.A. 158, 12 L.R.A. (N.S.) 1135. In the Hartman system of contracts, the contract between Hartman and the jobber was confessedly one of sale; under the Dr. Miles system, it is claimed, it is one of consignment or agency and not sale. With this distinction, if it exist, the opinion in the Hartman Case may be referred to for a more detailed statement of the evils of the competitive or 'cut rate' system and the advantages of the one price or noncompetitive plan which the complainant seeks to bring about by the system of contracts here involved.

The acts and conduct against which complainant seeks relief are identically the conduct complained of in the Hartman Case, and the opinion in that case may be referred to for a more detailed statement of the case here made for relief. A demurrer to the bill was sustained upon the authority of the opinion of this court in the Hartman Case.

Frank F. Reed (Edward S. Rogers and Frederick W. Hinkle, on the brief), for appellant.

William J. Shroder, for appellee.

Before LURTON, SEVERENS, and RICHARDS, Circuit Judges.

LURTON Circuit Judge (after stating the facts as above).

We see no substantial difference between the systems of contracts under which the Dr. Miles Medical Company is now conducting its business and that under which Dr. Hartman carried on his business as a manufacturer of Peruna, considered by this court at length in the case of Jno. D. Park & Sons v. Hartman, 153 F. 24, 82 C.C.A. 158, 12 L.R.A. (N.S.) 1135. That case is pending, undecided, in the Supreme Court. The complainant's very learned counsel was the counsel for Hartman in that case, and both systems of contracts are most probably the fruit of his acknowledged skill in respect to this class of business arrangements. No difference whatever is suggested between the system of contracts considered in that case and those here presented, except, it is claimed, that the agreement with jobbers and wholesale dealers here involved is one of bailment or agency and not one of sale as in the Hartman Case. If this were admitted, it does not, in our judgment, operate to legalize the 'system' of which that agreement is but one part. The effect of that contract with jobbers, whether it be regarded as one of sale or of agency, is to restrain jobbers from selling to any save retailers licensed by complainant, and to restrain retailers from selling for resale to any save those licensed to buy or to persons who buy for consumption only, and to none, by either jobber or retailer, except at a price imposed by the manufacturer. The confessed object of this plan or system is to obtain a price to the jobber and to the retailer unaffected by any competition between them. The scheme is one to enhance or maintain prices by eliminating all possibility of competing rates between either jobbers or retailers, and is quite as effectual in its results as if the contract with the jobber was plainly one of sale.

But we are not disposed to concede that the contracts with jobbers are contracts of bailment. There are too many features which seen inconsistent with a mere agency or commission agreement. All the responsibility of an owner seems cast upon the so-called 'consignee.' He is not given the right to return goods unsold; that can be done only upon the cancellation of the contract and demand for return. The retention of title for the security of the price would after all make the contract one of conditional sale, and the jobber would still be the general owner and responsible as such.

Curiously enough, the actual payment of the price at which the consignment is billed is not to affect the title; it is still, under the contract, to remain with the so-called 'consignor.' Yet the heavy inducement of 5 per cent. upon a very close class of goods is held out to induce a payment in advance of sales. It is difficult to believe, whatever the technical relation of the parties under such an agreement, and whatever the belief each may have had as to his relation to the other, that such jobbers were not in fact and law the general owners of goods so 'consigned,' and engaged in selling for themselves and not as the mere agents, del credere or otherwise, of the complainant. The scheme seems to be an effort to disguise the wholesale dealers in the mask of agency upon the theory that in that character one link in the system for the suppression of the 'cut rate' business might be regarded as valid. Hardly any two contracts raising the question of sale or agency are so near alike as to make an opinion construing one an authority in another. It matters little what the parties call such agreements. Whether the result is a sale or an agency must depend upon the meaning and intent of the instrument as a whole. Looking at this agreement thus, we think the jobber must be regarded as the general owner and engaged in selling for himself and not as a mere agent of another. True, he must sell, if this system of doing business is valid and enforceable, as he obligates himself to do, but nevertheless he is selling for himself and upon his own account and risk. Coweta Fertilizer Co. v. Brown (decided at this term, and cases therein cited) 163 F. 162; Ex parte White, L.R. 1870, 6 Ch. App. Cases; Mack v. Drummond Tobacco Co., 48 Neb. 397, 67 N.W. 174, 58 Am.St.Rep. 691; Peoria Co. v. Lyons, 153 Ill. 427, 38 N.E. 661; Arbuckle v. Kirkpatrick, 98 Tenn. 221, 39 S.W. 3, 36 L.R.A. 285, 60 Am.St.Rep. 854.

This case must, after all, turn upon whether there is such identity of character between the statutory monopoly of articles made under a valid patent or copyright and articles made according to some private formula as to exempt them from the principles which apply to contracts which tend to create a monopoly or restrain trade when the subject is an article not made under a patent or copyright or secret formula. A distinction exists between the extent of the protection granted by the patent and copyright statutes, and the copyright statute has been held 'not to create the right to impose, by notice, a limitation at which a book shall be sold at retail by future purchasers, with whom there is no privity of contract. ' Bobbs Merrill Co. v Straus (decided by the Supreme Court, June 1, 1908) 210 U.S. 339, 28 Sup.Ct. 722, 52 L.Ed. 1086. This distinction has been drawn since the decision of the cases we refer to, and since the decision of the Hartman Case above referred to. There are decisions by most respectable courts which hold that articles, such as proprietary medicines, are outside of all rules and statutes which forbid contracts in restraint of trade, because they are made under a secret formula. Some, if not most, of these decisions have been made in cases in which the Dr. Miles Medical Company has been a party. They are cited and commented upon by this court in the case of Jno. D. Park & Sons v. Hartman, 153 F. 24, 34, 82 C.C.A. 158, 12 L.R.A. (N.S.) 1135. They go upon the conceded fact that a trade secret or medical formula is a monopoly until discovered by fair means, and will be protected against abuse by one who learns it under a contract limiting its use or in the confidence of an employment. They do not observe any distinction between the necessary monopoly of the secret itself and the unnecessary monopoly of the articles made according to the secret process and offered for sale and resale to the consuming public. Neither do those decisions recognize any distinction between the statutory monopoly accorded to articles protected by a patent or copyright and those made under such private formulas. The argument in support of this result is epitamized in all the cases referred to, but may be seen in full in the opinion of Colt, C.J., in the case styled 'Dr. Miles Medical Co. v. Jaynes...