Isaksen v. Vermont Castings, Inc., 86-2818

Decision Date04 August 1987
Docket NumberNo. 86-2818,86-2818
Citation825 F.2d 1158
Parties1987-2 Trade Cases 67,658 Greggar S. ISAKSEN d/b/a Applewood Stove Works, Plaintiff-Appellant, v. VERMONT CASTINGS, INC., Defendant-Appellee.
CourtU.S. Court of Appeals — Seventh Circuit

Trayton L. Lathrop, Isaksen, Lathrop, Esch, Hart, & Clark, Madison, Wis., for plaintiff-appellant.

Edwin J. Huges, Stafford, Rosenbaum, Rieser & Hansen, Madison, Wis., for defendant-appellee.

Before POSNER and FLAUM, Circuit Judges, and WILL, Senior District Judge. *

POSNER, Circuit Judge.

A dealer in woodburning stoves, Isaksen, claims in this suit that his supplier, Vermont Castings, coerced him to raise his retail prices for its stoves, in violation of section 1 of the Sherman Act, 15 U.S.C. Sec. 1. There are also pendent claims, which the district court dismissed before trial, and of which more anon. The jury returned a verdict of $100,000 in damages, which was trebled as required by law, but then the district judge granted Vermont Castings judgment notwithstanding the verdict, noting in passing that the damage award was in any event excessive. 644 F.Supp. 1098 (W.D.Wis.1986). Isaksen appeals.

This is a rather sorry excuse for an antitrust case, which may more than anything explain the district judge's action in granting judgment for Vermont Castings. Founded in 1975, Vermont Castings has, as the plaintiff admits, only 10 percent of the midwestern "market" in free-standing woodburning stoves (which are used for heating). We have difficulty understanding how free-standing woodburning stoves could be a meaningful product market, given such excellent substitutes as oil-burning and gas-burning furnaces; and how, even if they do compose a meaningful product market, a product shipped all over the country can be said to be sold in distinct regional markets. But even ignoring these problems, we would have difficulty understanding how a 10 percent factor in a tiny market could restrain competition (viewed as a means of promoting economic efficiency--the contemporary antitrust view, see, e.g., Olympia Equipment Leasing Co. v. Western Union Telegraph Co., 797 F.2d 370, 375 (7th Cir.1986)) merely by placing a floor under its dealers' prices ("resale price maintenance"). If the floor were set higher than necessary to induce dealers to provide the point-of-sale services that would maximize the sales of Vermont Castings' stoves, Vermont Castings not only would be transferring wealth from itself to its dealers (and why would it want to do that?) but would be pricing its stoves out of the market; consumers would switch to competing products whose retail prices were not inflated by resale price maintenance. It is easy to see, however, why, whether or not it possessed any market power, Vermont Castings might want to set the lowest floor under the retail prices of its stoves that would induce its dealers to provide the level of point-of-sale services that maximizes the welfare of consumers. See Telser, Why Should Manufacturers Want Fair Trade?, 3 J. Law & Econ. 86 (1960). As a new company, selling a somewhat complex product, Vermont Castings needed and still needs dealers who understand the product, can explain it to consumers, and can persuade them to buy it in preference to substitute products made by more established firms. These selling efforts, which benefit consumers as well as the supplier, cost money--money that a dealer can't recoup if another dealer "free rides" on the first dealer's efforts by offering a discount to consumers who have shopped the first dealer. (The second dealer can afford the discount because he doesn't have to incur the selling expenses that were incurred by the first dealer.) As one of Vermont Castings' dealers explained in a letter to it, "The worst disappointment is spending a great deal of time with a customer only to lose him to Applewood [Isaksen] because of price.... This letter was precipitated by the loss of 3 sales of V.C. stoves today [to] people who[m] we educated & spent long hours with." A retail price floor prevents such free riding and thus encourages dealers to provide necessary point-of-sale services. And the supplier has every incentive to keep the floor as low as is consistent with assuring adequate services, since he doesn't want to make his product noncompetitive.

Yet as Isaksen keeps reminding us, arguments of this sort have not persuaded the Supreme Court to relax the judge-made rule, now more than 75 years old, that makes resale price maintenance illegal per se under section 1 of the Sherman Act, regardless of the circumstances of its adoption. See Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373, 31 S.Ct. 376, 55 L.Ed. 502 (1911); California Retail Liquor Dealers Ass'n v. Midcal Aluminum, Inc., 445 U.S. 97, 102-03, 100 S.Ct. 937, 941-42, 63 L.Ed.2d 233 (1980). So all we must determine, on the liability phase of this case, is whether Isaksen put in enough evidence of resale price maintenance to get to the jury.

Vermont Castings gave a suggested retail price list to all its dealers, together with assurances that the prices were only suggested and that the dealers could sell at any price they wanted. Isaksen sold way under list price, and competing dealers bombarded Vermont Castings with complaints about him; the letter we quoted was one of these complaints. Beyond this the evidence is sharply contested, but of course we must view it as favorably to Isaksen as the record warrants, since the jury found in his favor; nor can we disregard the verdict merely because almost all of the evidence favorable to Isaksen came from his own mouth.

Isaksen testified that when Vermont Castings discovered how low his prices were, it began to threaten him, and otherwise harass him, in a variety of ways. Although Vermont Castings denies any harassment, this was something for the jury to sort out. Harassment by itself, however, would not violate section 1 of the Sherman Act, a section that punishes only contracts, combinations, and conspiracies in restraint of trade and thus requires concerted action; harassment is unilateral. If, though, the harassment were pursuant to an agreement between Vermont Castings and its other dealers, the agreement to harass would be actionable. But there is insufficient evidence to justify an inference of agreement between Vermont Castings and its other dealers. Complaints to a supplier, made by competitors of a dealer who is cutting prices below suggested levels, are not, standing alone, evidence of agreement. Monsanto Co. v. Spray-Rite Service Corp., 465 U.S. 752, 764, 104 S.Ct. 1464, 1470-71, 79 L.Ed.2d 775 (1984); see also Valley Liquors, Inc. v. Renfield Importers, Ltd., 822 F.2d 656, 661 (7th Cir.1987); Morrison v. Murray Biscuit Co., 797 F.2d 1430, 1439-40 (7th Cir.1986), and cases cited there. They may merely alert the supplier to the existence of a condition injurious to him, thus entitling him to take action to protect himself, regardless of the dealers' motivations in complaining. Vermont Castings may, as we have seen, have had its own reasons for wanting every dealer to sell at its suggested retail prices; so the fact that it may have harassed Isaksen in an effort to obtain his compliance is not evidence that it was acting in concert with the other dealers. Yet there is no other evidence of such concert.

With a conspiracy between Vermont Castings and its other dealers ruled out, the harassment of Isaksen could be actionable under section 1 of the Sherman Act only if it succeeded in getting him to agree to raise his prices. Vermont Castings could not concert with itself and was not proved to have concerted with any of its other dealers. The only agreement between it and Isaksen that could (on this record) have violated the antitrust laws would have been an informal agreement by Isaksen, knuckling under to pressure by Vermont Castings, to raise his prices.

Isaksen testified that Vermont Castings told him to raise his prices or it would mix up his orders and that in response to this threat he did raise his prices. The fact that Isaksen may have been coerced into agreeing is of no moment; an agreement procured by threats is still an agreement for purposes of section 1. See Albrecht v. Herald Co., 390 U.S. 145, 150 n. 6, 88 S.Ct. 869, 872 n. 6, 19 L.Ed.2d 998 (1968); United States v. Parke, Davis & Co., 362 U.S. 29, 45, 80 S.Ct. 503, 512, 4 L.Ed.2d 505 (1960). A conspiracy is not less sinister because some of its members are intimidated, rather than bribed, into joining it. Some cases even say that the plaintiff in a "vertical" price-fixing case such as this (that is, a case where the alleged price-fixing agreement is between firms at different levels in the production-distribution process, rather than between competing firms) must prove he was coerced. See, e.g., Bender v. Southland Corp., 749 F.2d 1205, 1212 (6th Cir.1984). But all they mean is that a plaintiff who is an involuntary participant must prove that the defendant induced his participation by conduct that went beyond merely announcing a policy of terminating dealers who sell below suggested retail prices; for such an announcement is privileged under United States v. Colgate & Co., 250 U.S. 300, 39 S.Ct. 465, 63 L.Ed. 992 (1919). See Jack Walters & Sons Corp. v. Morton Building, Inc., 737 F.2d 698, 707 (7th Cir.1984).

Isaksen also testified, however, that although the threat was made in September 1982, he didn't raise his prices until a year later. He admits that during the entire year Vermont Castings never carried out its threat to mix up his orders. The timing casts serious doubt on the existence of a causal relationship between the threat and the raising of prices, for how can it be that the threat did not move him to act until the passage of time had shown the threat to be empty? He could have had other reasons for wanting to raise his prices in September 1983, including an expensive...

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