Anchor Serum Company v. Federal Trade Commission, 11164.

• Citation: 217 F.2d 867
• Decision Date: 17 December 1954
• Docket Number: No. 11164.,11164.
• Parties: ANCHOR SERUM COMPANY v. FEDERAL TRADE COMMISSION.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

217 F.2d 867 (1954)

ANCHOR SERUM COMPANY v. FEDERAL TRADE COMMISSION.

No. 11164.

United States Court of Appeals Seventh Circuit.

December 17, 1954.

L. M. McBride, Chicago, Ill., James T. Welch, Washington, D. C., for petitioner.

Robert B. Dawkins, Asst. Gen. Counsel, James E. Corkey, Atty., Earl W. Kintner, Gen. Counsel, Federal Trade Commission, Washington, D. C., for respondent.

Before DUFFY, Chief Judge, and MAJOR and SCHNACKENBERG, Circuit Judges.

MAJOR, Circuit Judge.

This is a petition by Anchor Serum Company, a corporation, to review and set aside a cease and desist order issued February 16, 1954, by the Federal Trade Commission (respondent), at the conclusion of proceedings on a complaint charging petitioner with violation of § 3 of the Clayton Act, 15 U.S.C.A. § 14. The order is directed not only at the corporate petitioner which alone was made a party to the complaint, but also at its "officers, agents, representatives, and employees."

Petitioner was incorporated in 1917, and since that time has been engaged in the manufacture, distribution and sale of various animal health products, principally anti-hog cholera serum and hog cholera virus, with its principal place of business at St. Joseph, Missouri. Since the year 1936, it has been licensed to produce and sell its products by the Bureau of Animal Industry, United States Department of Agriculture. Petitioner sells its products to customers variously denominated as wholesalers, dealers and consumers, located throughout the various states of the United States.

There are thirty-two manufacturers who produce, sell and distribute serum and virus in the same trade areas as petitioner and who are in competition with petitioner for customers who resell or use said products. All such manufacturers are known in the trade as either "lay" or "vet" producers, such characterization being determined by and descriptive of the type of customer to whom they sell. "Vet" producers sell principally to veterinarians or to wholesalers who resell exclusively to veterinarians, and "lay" producers sell through other channels, such as drug stores, farm bureaus, wholesalers, etc. Of the thirty-two manufacturers of such products, twenty-three are "vet" and nine are "lay" producers. Petitioner falls within the latter category and is the largest producer of that group. While petitioner is in direct competition only with other "lay" producers, it is in competition with all producers in the sense that they all compete for the ultimate consumer market, viz., the farmer-hog owner.

At the time this case was heard by the Commission, petitioner had contracts with sixteen wholesalers for the sale of its serum, virus and other pharmaceuticals. Five of such wholesalers are designated by petitioner as "ex-branch wholesalers," which are located in different states and do business under the name of "Anchor Serum Company." They are thus designated because they were all at one time owned by petitioner and sold to the manager of the branch under a contract which authorized the new ownership to use petitioner's name and good will. Seven of the sixteen wholesalers are designated as "Anchor wholesalers," each of which does business under the name of "Anchor Serum Company." While these wholesalers are and always have been independent of petitioner, they have by contract acquired the right to use the word "Anchor" in their business operations. The remaining wholesalers, four in number, are co-operatives, namely, Illinois Farm Bureau Serum Association, Iowa Farm Serum Company, Missouri Farmers Association, Inc., and Arkansas Farmers Association.

The first of the contracts in controversy was entered into with Anchor Serum Company of Indiana (one of the five ex-branch wholesalers) April 30, 1943, and provided in part as follows:

"* * * and in further consideration of the use by the parties of the second part of the word `Anchor\' as a part of their name in any partnership or other form of business association, approved in writing by the party of the first part, the parties of the second part agree to purchase from the party of the first part, all their requirements of products manufactured and/or distributed by the party of the first part * * *."

In 1947, petitioner entered into contracts with the Illinois Farm Bureau Serum Association and the Iowa Farm Serum Company, each of which was the largest distributor of serum and virus in its state, which contracts obligated the purchasers "to buy, and does by these presents buy, and agrees to pay for all of its requirements of serum, virus and other products at the prices and on terms specified herein."

We need not further relate the inhibiting provision contained in all of the contracts because what we have set forth is typical of the provision which each contains. Furthermore, petitioner concedes that all of the contracts contain "requirements" language which means that the contracting party is obligated by the contract to purchase from the petitioner all its requirements of the designated products.

Section 3 of the Clayton act, so far as here pertinent, makes it unlawful to "make a sale or contract for sale of goods, wares, merchandise, * * * on the condition, agreement, or understanding that the * * * purchaser thereof shall not use or deal in the goods, wares, merchandise, * * * of a competitor or competitors of the * * * seller, where the effect of such * * * sale, or contract for sale or such condition, agreement, or understanding may be to substantially lessen competition or tend to create a monopoly in any line of commerce."

Petitioner devotes much effort to what we think is an erroneous approach to the essential issue for decision, as is disclosed in its enumeration of the contested issues which are stated as follows:

"1. Do the so-called requirements contracts of the Petitioner impose on any one or more of the sixteen customers who are parties to those contracts, illegal conditions of sale prohibited by Section 3 of the Clayton Act?

"2. Even if it be determined that any one or more of those contracts impose illegal conditions of sale, does the record support the conclusion that the contracts in question have substantially lessened competition and tend to create a monopoly?"

Having thus stated the contested issues, petitioner in its brief presents its argument under two headings, (1) "No Contract Under Review Imposes An Illegal Condition On Any Of Petitioner's Customers," and (2) "Petitioner's Contracts Have Not Substantially Lessened Competition And Do Not Tend To Create A Monopoly."

In Standard Fashion Co. v. Magrane-Houston Co., 258 U.S. 346, 356, 42 S.Ct. 360, 362, 66 L.Ed. 653, the court stated, with reference to the section of the Clayton Act now under consideration:

"Section 3 condemns sales or agreements where the effect of such sale or contract of sale `may\' be to substantially lessen competition or tend to create monopoly. It thus deals with consequences to follow the making of the restrictive covenant limiting the right of the purchaser to deal in the goods of the seller only. But we do not think that the purpose in using the word `may\' was to prohibit the mere possibility of the consequences described. It was intended to prevent such agreements as would under the circumstances disclosed probably lessen competition, or create an actual tendency to monopoly. That it was not intended to reach every remote lessening of competition is shown in the requirement that such lessening must be substantial."

This statement squares with the plain, unambiguous language of the section and, so far as we are aware, has not been deviated from in any subsequent decision of the Supreme Court.

Thus, in our judgment, there was no legal issue before the Commission as to whether the contracts were illegal per se; the only legal issue before the Commission, as it is here, was whether the contracts with their restrictive provisions were calculated to have the proscribed effect or consequences.

By reason of petitioner's false approach, it becomes engulfed in numerous contentions which we think are beside the issue. For instance, in some detail it relates the legislative history of the Clayton Act, apparently for the purpose of demonstrating that it was not the intention of Congress to outlaw all so-called "requirements" contracts. The short answer to that argument is that Congress by the plain language which it used did not do so. Only contracts which had the proscribed effect were made unlawful. Furthermore, the plain language which Congress employed dispels all purpose in resorting to legislative history. Standard Fashion Co. v. Magrane-Houston Co., 258 U.S. 346, 356, 42 S.Ct. 360, 66 L.Ed. 653. There was evidence that some of the contracts, perhaps all, were entered into as a result of negotiations initiated by the purchasers rather than by petitioner. From this premise it is argued that the terms were not imposed by the petitioner and that as a result there was no illegality, even though the contracts had the proscribed effect on competition. The Commission rejected this argument and so do we. Certainly there is nothing in the language of the Act from which it can even be inferred that two classes of contracts were contemplated, depending upon whether the contract was initiated by the seller or the buyer. We think it is a novel theory that the rights, liabilities and obligations of parties to a contract depend upon which of the parties propose it. And we think it immaterial whether the contract was for the benefit of the seller or the buyer. In any event, the determining factor is whether the contract had the proscribed effect.

As already noted, five of the contracting purchasers are designated as "ex-branch wholesalers," and seven are designated as "Anchor wholesalers." Those included in the former category were at one time owned by petitioner but sold to the contracting purchaser with the right to use petitioner's trade name, "Anch...