Parke, Davis & Company v. GEM, INC.

• Decision Date: 09 January 1962
• Docket Number: Civ. A. No. 13179,13044,13116,13278.,13290,12843,13214,13026
• Citation: 201 F. Supp. 207
• Parties: PARKE, DAVIS & COMPANY v. G. E. M., INC. U. S. TIME CORPORATION v. G. E. M., INC. J. B. WILLIAMS COMPANY, a body corporate, v. G. E. M., INC., a body corporate. PARKER PEN COMPANY v. G. E. M., INC. ABBOTT LABORATORIES, a body corporate, v. G. E. M., INC. MILES LABORATORIES, INC. v. G. E. M., INC. MEADE, JOHNSON & COMPANY v. G. E. M., INC. CORNING GLASS WORKS v. G. E. M., INC.
• Court: U.S. District Court — District of Maryland

201 F. Supp. 207

PARKE, DAVIS & COMPANY v. G. E. M., INC.

U. S. TIME CORPORATION v. G. E. M., INC.

J. B. WILLIAMS COMPANY, a body corporate, v. G. E. M., INC., a body corporate.

PARKER PEN COMPANY v. G. E. M., INC.

ABBOTT LABORATORIES, a body corporate, v. G. E. M., INC.

MILES LABORATORIES, INC. v. G. E. M., INC.

MEADE, JOHNSON & COMPANY v. G. E. M., INC.

CORNING GLASS WORKS v. G. E. M., INC.

Civ. A. Nos. 13179, 13290, 13214, 12843, 13116, 13026, 13044, 13278.

United States District Court D. Maryland.

January 9, 1962.

Jesse Slingluff, Baltimore, Md., and James C. McKay, Washington, D. C., for plaintiff Parke, Davis & Co.

Solomon Liss, Baltimore, Md., for plaintiff U. S. Time Corp.

Charles Mindel, Buckmaster, White, Mindel & Clarke, Baltimore, Md., for plaintiff J. B. Williams Co.

J. Cookman Boyd, Jr., Baltimore, Md., for plaintiff Parker Pen Co.

J. Nicholas Shriver, Jr., and J. Paul Bright, Jr., Baltimore, Md., for plaintiff Abbott Laboratories.

J. Cookman Boyd, Jr., Baltimore, Md., for plaintiff Miles Laboratories, Inc.

J. Cookman Boyd, Jr., Baltimore, Md., for plaintiff Mead, Johnson & Co.

David R. Owen, Semmes, Bowen & Semmes, Baltimore, Md., for plaintiff Corning Glass Works.

Joseph L. Nellis, Washington, D. C., and Stanley B. Frosh, Bethesda, Md., for defendant G. E. M., Inc.

R. DORSEY WATKINS, District Judge.

In these eight cases, manufacturer-distributors have sued the defendant for alleged violation of the Maryland Fair Trade Act, Maryland Code of Public General Laws, Article 83, section 107, for alleged sales, offering for sale and advertising for sale, of fair traded articles at below the established fair trade prices.

Defendant is a subsidiary of a chain of so-called "closed door" department stores which sell only to a card-bearing segment of the public, such as federal, county, city and state employees, and members of the armed services, and their families.

Defendant sells plaintiffs' merchandise, together with other well- or less well-known consumer products, at prices generally lower than those prevailing in conventional department stores; and particularly, below the established fair trade prices of plaintiffs' products. Defendant at no time entered into any agreement, express or implied, with any manufacturer, wholesaler, or other seller, under which it has agreed to maintain any particular price, fair-traded or otherwise, on any particular product, sold in its Maryland stores. Defendant is thus a "nonsigner" under the Maryland Fair Trade Act or the McGuire Act, 15 U.S. C.A. § 45.

Each of these suits is based upon allegations of diversity of citizenship, and the existence of the jurisdictional amount of $10,000 as being in controversy.

Defendant has, with exemplary zeal, by motions to dismiss, put in issue all, or substantially all, defenses which competent counsel are accustomed, even if only for the record, to interpose in such cases. These include a denial that the requisite jurisdictional amount is involved; questions as to whether or not the products involved are in "free and open competition" with other like products; whether plaintiffs have exercised reasonable diligence in enforcing their fair-trade contracts, or have abandoned their fair-trade policies; whether or not plaintiffs are carrying on an interstate or intrastate business in Maryland without registering or qualifying to do business therein (Eli Lilly & Company v. Sav-On-Drugs, Inc., 1961, 366 U.S. 276, 81 S.Ct. 1316, 6 L.Ed.2d 288) as required by Maryland law; whether sales by plaintiffs to Post Exchanges under agreements permitting (or not prohibiting) such Post Exchanges to resell at below established fair-trade prices in Maryland, are an abandonment of, or estoppel to assert, fair-trade prices against other retailers, and especially defendant; and whether the nonsigner clause of the Maryland Law is unconstitutional. All of these, except the last two — Post Exchanges, and the validity of the nonsigner clause — depend upon the particular facts applicable to each plaintiff individually, and no useful purpose would be served by a general consideration or discussion of them. This memorandum will, accordingly, be confined to these two important questions — the effect of selling to Post Exchanges, without a requirement that resales therefrom be at not less than fair-trade prices; and the validity of the nonsigner clauses. The first presents to this court no difficulty whatever; the second is the source of exceeding travail.

Sales to Post Exchanges, without Imposition of Fair Trade Price Restriction on Resale.

The decisions are uniform, and completely persuasive, that state fair-trade acts do not, and cannot, apply to Government Post Exchanges. In substance, these cases hold that a Post Exchange is Government-operated, on Government property, or that the activities of Post Exchanges are Governmental, the object of which "is to provide * * * sources where soldiers can obtain their ordinary needs at the lowest possible prices," (a not unworthy goal, I would assume, for even ordinary citizens; or District Judges, whose salaries are fixed); and for either or both reasons, sales from Post Exchanges are not subject to State fair-trade statutes. Standard Oil Co. of California v. Johnson, 1942, 316 U.S. 481, 484-485, 62 S.Ct. 1168, 86 L.Ed. 1611; Sunbeam Corp. v. Horn, S.D.Ohio 1955, 149 F.Supp. 423; Sunbeam Corp. v. Central Housekeeping Mart, Inc., 1954, 2 Ill.App.2d 543, 120 N.E.2d 362; Opinion of Minnesota Attorney General, CCH Trade Regulation Report ¶ 67, 590.

Validity of the Nonsigner Clause.

The defendant attacks: (1) 15 U.S. C.A. § 45(a) (3), the nonsigner provision of the McGuire Act, as a denial of due process of law in violation of the Fifth Amendment, and a delegation of legislative power contrary to Article 1, Sections 1 and 8, cl. 18 of the Federal Constitution;

(2) 15 U.S.C.A. § 45(a) (4) providing in part that enforcement of any right of action against a nonsigner shall not constitute an unlawful burden or restraint upon, or interference with commerce as an usurpation of judicial power, in violation of Article III, Sections 1 and 2, of the Federal Constitution; and

(3) Article 83, Section 107 of the Maryland Code of Public General Laws, the nonsigner provision of the Maryland Fair Trade Act, as a denial of due process of law and of the equal protection of the laws, contrary to the Fourteenth Amendment, Section 1, of the Federal Constitution.

Were these questions being presented for the first time, I would have no hesitation in holding with the defendant, and would have difficulty in seeing how a different result would be possible.

(a) There seems to me to be something obviously and inherently wrong in allowing A and B to determine at what price C, D, etc. may resell goods purchased by them. I am fully familiar with third party beneficiary contracts. Even in these, the third party may, but is not compelled to, accept the benefit. A third party "detrimentee" contract is an entirely different animal; one that I would class as ferae naturae.

(b) That the effect of the McGuire Act would be to permit compulsion upon unwilling retailers was stated, with greater force than I would normally use, by the majority of the Supreme Court in Schwegmann Bros. v. Calvert Distillers Corp., 1951, 341 U.S. 384, 71 S.Ct. 745, 95 L.Ed. 1035:

"* * * If a distributor and one or more retailers want to agree, combine, or conspire to fix a minimum price, they can do so if state law permits. Their contract, combination, or conspiracy — hitherto illegal — is made lawful. They can fix minimum prices pursuant to their contract or agreement with impunity. When they seek, however, to impose price fixing on persons who have not contracted or agreed to the scheme, the situation is vastly different. That is not price fixing by contract or agreement; that is price fixing by compulsion. That is not following the path of consensual agreement; that is resort to coercion.

(Page 388, 71 S.Ct. page 747).

* * * * * *

"* * * Contracts or agreements convey the idea of a cooperative arrangement, not a program whereby recalcitrants are dragged in by the heels and compelled to submit to price fixing." (Page 390, 71 S.Ct. page 748).

(c) If two or more retailers, who wished to maintain minimum prices on a commodity, did so pursuant to agreement, they would violate the antitrust laws. But under the McGuire and Maryland Acts, one manufacturer and one retailer can compel all other competitive retailers to do, whether they want to or not, something which they could not do voluntarily — maintain prices.

Entirely apart from the anomaly that a person can be legally required to do by coercion what he could not legally do voluntarily, the result approximates "horizontal" price fixing through a single "vertical" contract. This apparently was anticipatorially condemned in Schwegmann in the following language:

"* * * Elimination of price competition at the retail level may, of course, lawfully result if a distributor successfully negotiates individual `vertical' agreements with all his retailers. But when retailers are forced to abandon price competition, they are driven into a compact in violation of the spirit of the proviso which forbids `horizontal' price fixing. * * *" (Page 389, 71 S.Ct. page 748; emphasis not supplied).

(d) The result is price fixing. This is obvious, and is so characterized in both the majority and dissenting opinions in Schwegmann. (341 U.S. at 385, 71 S. Ct. at 746; "a price-fixing scheme;" "price-fixing contracts"; "the price-fixing scheme"; at 386, 71 S.Ct. at 746, "prices fixed"; "price fixing"; "price fixing"; at 387, 71 S.Ct. at 747, "`contract' fixing the resale price" "price-fixing `contract'"; "price fixing"; "price fixing"; "price fixing"; at 388, 71 S.Ct. at 747, "Fix a minimum price"; "fix minimum prices"; "price fixing"; "price fixing by compulsion"; at 389, 71 S.Ct at 748, "price fixing"; "price fixing"; at 390, ...