Corning Glass Works v. F. T. C.
| Decision Date | 29 January 1975 |
| Docket Number | No. 73--1723,73--1723 |
| Parties | 1975-1 Trade Cases 60,134 CORNING GLASS WORKS, Petitioner, v. FEDERAL TRADE COMMISSION, Respondent. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Charles C. Parlin, Jr., New York City, for petitioner.
Norman Diamond, Washington, D.C., for amicus curiae.
Calvin J. Collier, Gen. Counsel, William A. E. Doying, Atty., F.T.C., Washington, D.C., for respondent.
Before CUMMINGS, STEVENS and SPRECHER, Circuit Judges.
The Sherman Act condemns vertical, as well as horizontal, agreements in restraint of trade. However, by virtue of § 2 of the McGuire Act, two types of vertical agreements--those requiring a vendee to resell at prices fixed by his vendor, and those requiring the vendee to require his customers to resell only at fixed prices--are exempt from the antitrust laws if such agreements are lawful under applicable state law. 1 The question presented by this case is whether the state law which governs the legality of the latter type of agreement between a vendor and a vendee is that of the state where the vendee is located or that of the state or states where the vendee's customers are located. We have no doubt that the vendee's location is determinative for the latter, as well as the former, type of agreement.
Corning Glass Works manufactures and distributes various trademarked products used in food preparation and service. 2 Corning sells to wholesalers located in 45 states and the District of Columbia; those wholesalers, in turn, sell to retailers who resell to consumers in all 50 states and the District.
Corning's form contract with its distributors contains a fair trade agreement obligating the wholesalers (a) to sell only at prices set by Corning, and (b) not to sell to any reseller unless such reseller has agreed with Corning to maintain Corning's fair trade prices. 3 These agreements are only effective 'as to each state and as to such sales where it is lawful so to agree.' Since the legal effect of fair trade agreements varies from state to state, the Corning form contract has a varying impact on its wholesalers.
There are currently 14 states and Puerto Rico and the District of Columbia in which fair trade agreements are illegal as a matter of state, as well as federal, law; they are described as 'free trade' states. 4 The remaining 36 'fair trade' states comprise two principal types. In each of the 'non-signer' states the legislature has authorized judicial enforcement of fair trade prices even against sellers who have not signed a fair trade contract and has permitted the use of customer restriction clauses; there are currently 14 such 'non-signer' states. 5 In the 'signer-only' states--of which there are currently 22--either the courts have refused, usually on state constitutional grounds, 6 to enforce the statutory remedy against non-signers, or, in some instances, no remedy against non-signers has been provided by the state legislature. In either event, in such a state a fair trade agreement is lawful although it is enforceable against the 'signer only.' With the exception of Maine, each of these 'signer-only' states also authorizes the use of customer restriction clauses. 7
The problem presented by this case has assumed significance as the number of 'free trade' and 'signer-only' states has increased. For it principally involves the validity of Corning's customer restriction clause as applied to wholesalers in free trade states who sell to retailers in signer-only states. Does § 2 of the McGuire Act legalize Corning's attempt to require those wholesalers to refuse to sell to retailers in fair trade states who have not agreed to maintain Corning's fair trade prices?
In Count II of its five-count complaint against Corning, 8 the Commission took the position that this requirement is a non-exempt restraint of trade forbidden by § 1 of the Sherman Act, and therefore unlawful under § 5(a)(1) of the Federal Trade Commission Act. Based on a stipulated record, the Administrative Law Judge dismissed all counts of the complaint, but on appeal the Commission unanimously reversed as to Count II and issued its cease and desist order. 9 The case is here on Corning's petition for review, claiming that the Commission misconstrued the McGuire Act and that, in all events, the Commission's order was 'unnecessarily punitive.' We find no merit in Corning's position.
The decision of this case depends upon the proper construction of the words 'such resale' as used in the so-called 'when lawful' clause in paragraph (2) of § 2 of the McGuire Act. Before quoting the relevant language, it is appropriate to note that the 'when lawful' clause was originally enacted as part of the antitrust exemption contained in the Miller-Tydings Act 10 in 1937 and was retained verbatim when Congress broadened the vertical price-fixing exemption in 1952.
The principal ways in which the McGuire Act broadened the exemption were (1) by including the non-signer aspects of state fair trade legislation; 11 (2) by making the exemption applicable to stipulated, as well as minimum prices; 12 and (3) by adding an exemption for agreements requiring a vendee to limit his resales to persons who agree to maintain fair trade prices. 13 This last provision--the so-called 'vendee clause'--is relevant to our problem.
To facilitate our explanation of our understanding of the second paragraph of § 2 of the McGuire Act, we italicize the portions of the paragraph which were not a part of the Miller-Tydings Act, we underline the 'vendee clause' and the 'when lawful' clause, and we print in bold face the word 'resale' which appears once in the phrase following the vendee clause and twice in the 'when lawful' clause.
(2) Nothing contained in this Act or in any of the Antitrust Acts shall render unlawful any contracts or agreements prescribing minimum or stipulated prices, or requiring a vendee to enter into contracts or agreements prescribing minimum or stipulated prices, for the resale of a commodity which bears, or the label or container of which bears, the trade-mark, brand, or name of the producer or distributor of such commodity and which is in free and open competition with commodities of the same general class produced or distributed by others, when contracts or agreements of that description are lawful as applied to intrastate transactions under any statute, law, or public policy now or hereafter in effect in any State, Territory, or the District of Columbia in which such resale is to be made, or to which the commodity is to be transported for such resale. 66 Stat. 632; 15 U.S.C. § 45(a)(2).
As originally enacted in the Miller-Tydings Act, it is manifest that the word 'resale' had the same meaning each time it was used. Since the vendee clause was not then a part of the statute, the word 'resale' consistently referred to the first resale by a vendee rather than to any subsequent resale by a purchaser from the vendee, for at that time the exemption covered only the terms of the minimum resale price maintenance agreement between a vendor and his immediate vendee, and made no reference to agreements restricting the vendee's right to choose his own customers.
We have no doubt, therefore, that if the words 'such resale' as used in the McGuire Act retain the same meaning as they did in the Miller-Tydings Act, the Commission is correct in its view that the legality of a customer restriction clause in an agreement between a manufacturer and a wholesaler is governed by the law of the state in which the wholesaler resells the trademarked article.
The question, then, is what change, if any, in the meaning of the word 'resale' resulted from the insertion of the vendee clause in the forepart of the paragraph. Before attempting to answer this question, it is useful to note that the word 'resale' performs two quite different functions. First, it is part of the description of the kind of agreements that are covered by the exemption, and, second, it is part of the identification of the states whose law determines whether the agreement is valid or invalid. There is no doubt about Congress' intent to modify its description of exempt agreements to include customer restriction clauses as well as price-fixing clauses. There is, however, no indication that Congress intended to make any change in the identity of the states whose laws would determine the availability of the exemption, or to have the law of more than one state applicable to any one agreement. We first consider the meaning of the word 'resale' as part of the description of covered agreements and then as part of the 'when lawful' clause.
To make sense out of the vendee clause, and also to retain the significance of the price-fixing clause, it is necessary to give the word 'resale' a double meaning in the phrase immediately following the vendee clause. 14 For, to the extent that the phrase modifies the price-fixing clause, it obviously still refers to the first resale by the immediate vendee; but to the extent that the same phrase modifies the vendee clause, it must refer to a resale by a person who has purchased from that vendee. 15 Unless the phrase performs this dual function, either the original price-fixing exemption would have been changed or else the vendee clause would be meaningless. The word 'resale' as first used in paragraph (2) of § 2, therefore, has a different meaning in the two contexts in which it modifies its two antecedent clauses.
When the same word appears in the 'when lawful' clause, logically it might have either of the two meanings it first conveyed, or it might again convey a double meaning. As a matter of pure grammar, there is force to the argument that the word should be given a double meaning every time it is used, particularly since it is modified by the adjective 'such' when it is repeated in the 'when lawful' clause. 16
Under this reading, the word ...
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