John D. Park & Sons Co. v. Nat'l Wholesale Druggists' Ass'n

• Decision Date: 28 April 1903
• Citation: 175 N.Y. 1,67 N.E. 136
• Court: New York Court of Appeals Court of Appeals
• Parties: JOHN D. PARK & SONS CO. v. NATIONAL WHOLESALE DRUGGISTS' ASS'N et al.

175 N.Y. 1

67 N.E. 136

JOHN D. PARK & SONS CO.

v.NATIONAL WHOLESALE DRUGGISTS' ASS'N et al.

Court of Appeals of New York.

April 28, 1903.

Appeal from Supreme Court, Appellate Division, First Department.

Action by the John D. Park & Sons Company against the National Wholesale Druggists' Association and others. From a judgment of the Appellate Division (66 N. Y. Supp. 615) affirming a judgment of the Special Term sustaining demurrers to the complaint, plaintiff appeals. Affirmed.

Vann, Martin, and Cullen, JJ., dissenting.

Henry T. Fay, for appellant.

Henry Galbraith Ward and Leo Everett, for respondents.

HAIGHT, J.

The question presented for review is as to whether the complaint states facts sufficient to constitute a cause of action. The relief sought by the plaintiff is an adjudication that the resolutions, agreements, plans, and modes for the conducting of the business of the sale of proprietary medicines by the National Wholesale Druggists' Association are illegal, and that an injunction issue, restraining the members of the association from continuing to make efforts to induce any manufacturer or proprietor of what are known as patent or proprietary medicines from adopting the rebate or contract plan for the sale of their goods, or of continuing such plan if they have previously adopted the same. The complaint is very voluminous, and I have not attempted to give even a fair synopsis, for that would necessarily cover many pages, and I have not deemed it necessary, for it appears to me that the rights of the parties must depend upon a few controlling facts, which may be briefly stated.

It appears from the allegations of the complaint that the matter in controversy has reference to the sale by manufacturers of those particular medicines or remedies covered by trade-marks, copyrights, or patents, which secure to the manufacturer or proprietor the exclusive right to manufacture and sell the same. These medicines are known as ‘proprietary goods,’ and their manufacture and sale are confessedly under the control and management of the owner or manufacturer, who may fix his own price, and adopt such plan for the sale thereof as he, in his judgment, may determine. At one time the sale of these goods was largely made through traveling sales agents, who worked upon commissions, and supplied the goods to the consumer or retailer. Later on they were sold largely through the druggists, but many of the manufacturers did not maintain a uniform price. They would supply goods to some of the wholesalers upon more favorable terms than to others; thus permitting large dealers to make a profit, while a great number of the smaller druggists found the handling of proprietary goods unprofitable. This resulted in the organizationof the National Wholesale Druggists' Association, an unincorporated body, which in 1882 and 1883 represented 90 per cent. of the wholesale jobbing trade of the United States. At a meeting of this association a plan was devised and adopted for the conduct of the business of the sale of proprietary goods, which was in the form of a petition addressed to the proprietors, asking them to fix a uniform jobbing price for fixed quantities, and also a selling price by the druggists, which they were to agree to maintain, and that the druggists should be allowed the difference between the jobbing and the selling price as their profit or rebate, which they asked should be not less than 10 per cent.; the proprietors defraying the expenses of boxing and freight to the nearest transportation station of the buyer. It is alleged that a large number of the proprietors consented to this arrangement, and adopted the plan suggested by the wholesale druggists. And this mode of conducting the business appears to have been continued until the December meeting of the association, in 1893, at which time a committee, to whom the Detroit plan, so called, had been referred, reported, among other things, the following: ‘That in order to strengthen and render this plan more effective, it is respectfully recommended that proprietors accept orders for full quantities with rebate, discounted only from regular houses recognized as belonging to the number who will faithefully observe the prices and conditions established by the manufacturers.’ This appears to have been adopted and was acquiesced in by the manufacturers, and became the plan under which the business was conducted at the time this action was commenced. It further appears from the allegations of the complaint that the plaintiff never acquiesced in this plan of conducting the business, but always insisted on its right to sell proprietary goods at such price or prices as it saw fit, in its discretion, and would not be bound by the price established by the manufacturers; that thereupon the manufacturers refused to sell or ship goods to the plaintiff, and it was compelled to procure goods from other druggists; that the National Wholesale Druggists' Association caused the plaintiff's premises to be watched by spies or detectives, and that they made reports to the manufacturers of the druggists who purchased goods of the proprietors and caused them to be delivered at the plaintiff's premises; and that the association also furnished the manufacturers with a list of all of the druggists throughout the United States who were willing to be controlled by the contract plan. The complaint then alleges that the defendants ‘were combining and conspiring to obtain an exclusive control of the wholesale and jobbing trade, as between the manufacturer and the retailer, in all classes of patent medicines or proprietary goods, and to regulate and control the methods upon which the said trade shall be carried on throughout the entire United States, and to control the prices at which, and the discounts, allowances for freight, and the terms of credit upon which, the said proprietary goods shall be sold to the various retail druggists throughout the United States, and to destroy and prevent any and all competition between the said wholesale and jobbing druggists in the wholesale and jobbing trade in said proprietary goods, and limit and restrict the business of each of the wholesale and jobbing druggists, or such of them as are in one locality, to certain exclusive territory, tributary or proximate to each of them, respectively.’

The demurrer is an admission of the facts alleged, but not of the conclusions of law. The allegations just above quoted I understand to be conclusions of law drawn from the allegations of fact alleged in the complaint, and are not therefore admitted by the demurrer. It therefore becomes necessary to determine whether the plan for the conducting of the business of the sale of proprietary goods adopted by the association, and which it requested the proprietors or manufacturers to adopt and carry out, it lawful. The question thus presented is of considerable importance. The plan, as we have seen, in its substantial features, has been in operation nearly 20 years, and in its final, completed form, nearly 10 years. This plan, as I understand, is not one confined to the sale of proprietary medicines, but is one that has been adopted by many manufacturers of merchandise and other goods where manufacturers have established a trade-mark, and have gained a reputation which they wish to maintain throughout the country for character, quality, and durability of the goods which they manufacture. They have consequently established prices at which their goods shall be sold to the consumer, and require all wholesale and retail dealers to supply the consumer at the price list established. The decision, therefore, reached herein, may largely affect the plan of conducting business in other articles of commerce.

It is said that the National Wholesale Druggists' Association was organized and continued for the purpose of monopolizing and controlling the business of the wholesale druggists and jobbers in the sale of proprietary or patent medicines in the United States. The association doubtless was organized and continued for the purpose of devising and procuring to be carried into effect a plan for the sale of such goods throughout the United States, which would do away with the necessity of maintaining traveling sales agents, and which would secure to the dealers a uniform commission for the handling of the goods; but I do not understand that this was the establishing of a monopoly on the part of the members of the association, for, under the plan adopted, every dealer has the right to purchase goods from the manufacturers upon the same terms as the members of the association, with the right to the same rebate or commissions upon complying with the requirements of the manufacturers with reference to following their price list in making sales of goods. The members of the association clearly had the right to work for their own interests. They had the right to devise and adopt a plan for the conduct of the business in which they could make a commission or a profit, so long as they did not unlawfully interfere with the rights of others. They had the right to petition the manufacturers to adopt the plan devised by them, and to support their petition with all of the arguments and persuasions that they could bring to bear, so long as they did not resort to threats or intimidation. The proprietors, having the exclusive right to manufacture and sell their goods, had the right to adopt such plan with reference to the disposal thereof as they saw fit; and if they became convinced that the contract or rebate plan, so called, was more advantageous to them, and more fair and just to the public, by establishing a uniform price in all sections of the country, they had the right to adopt the same, and no one could complain.

Nor does the plan appear to me to be in restraint of trade. It is true that it does away with the competition among dealers as to prices, but it creates no restriction upon...