Johnson & Johnson v. Charmley Drug Co.

• Decision Date: 02 March 1953
• Docket Number: No. A--52,A--52
• Citation: 11 N.J. 526,95 A.2d 391
• Parties: JOHNSON & JOHNSON et al. v. CHARMLEY DRUG CO.
• Court: New Jersey Supreme Court

Page 526

11 N.J. 526

95 A.2d 391

JOHNSON & JOHNSON et al. v. CHARMLEY DRUG CO.

No. A--52.

Supreme Court of New Jersey.

Decided March 2, 1953.

Joseph H. Stamler, Newark, argued the cause for appellants (Walter F. Waldau, Newark, of counsel; John P. McGrath, Marland Gale and Laurence C. Ehrhardt, of the New York bar, New York City, on the brief; Lorentz & Stamler, Newark, attorneys for Johnson & Johnson; Stryker, Tams & Horner, Newark, attorneys for McKesson & Robbins, Inc.).

Joseph Kraemer, Newark, argued the cause for respondent.

The opinion of the court was delivered by

HEHER, J.

The question for decision is whether the defendant retailer of pharmaceutical supplies in interstate commerce is in the particular circumstances a 'signer' of a minimum price-fixing agreement made between the appellant corporations, Johnson & Johnson, a manufacturer of medical and surgical supplies and dressings, and McKesson & Robbins, Incorporated, a wholesale distributor of products of this class, within the intendment of the Miller-Tydings Amendment of the Sherman Anti-Trust Act adopted August 17, 1937 (26 Stat. 209, c. 647, 50 Stat. 673, 693, c. 690; 15 U.S.C.A. § 1), as expounded by the United States Supreme Court in Schwegmann Bros. v. Calvert Distillers Corporation, 341 U.S. 384, 71 S.Ct. 745, 95 L.Ed. 1035, 19 A.L.R.2d 1119 (1952).

Plaintiffs seek a judicial declaration under the New Jersey Declaratory Judgments Act (R.S. 2:26--66 et seq., N.J.S.A.) of the subsistence and legal enforceability of the stated minimum-price arrangement made pursuant to the Fair Trade Act of New Jersey (R.S. 56:4--3 et seq., N.J.S.A.) between the plaintiff manufacturer and the plaintiff wholesaler and an asserted implementing agreement binding the defendant retailer not to resell the products of Johnson & Johnson purchased by defendant from McKesson & Robbins, by direct or indirect means, at less than the minimum resale price established by Johnson & Johnson, and for an injunction to that end.

The Superior Court, Judge Freund sitting, concluded that defendant was a 'non-singer' within the interpretive principle of the Schwegmann case, and therefore not bound by the price arrangement made by the plaintiff corporations between themselves; and the complaint was accordingly dismissed. Plaintiffs' joint appeal from the subsequent judgment to the Appellate Division of the Superior Court, 19 N.J.Super. 210, 88 A.2d 238, was certified here for decision.

The basic point made is that the plaintiff wholesaler and the defendant retailer 'voluntarily entered into a binding contract under principles of contract law' which is 'a valid and enforceable fair trade contract under the statutes.' Interstate commerce is conceded. The postulate is that the Miller-Tydings Amendment 'does not prohibit all fair trade contracts except those in writing and actually signed by the parties to be bound.'

This is the situation of fact:

Johnson & Johnson is a New Jersey corporation; and McKesson & Robbins, a Maryland corporation. The former operates manufacturing plants in New Jersey, New York and Illinois; the latter is a wholesale distributor of the products of various manufacturers, including Johnson & Johnson's and maintains warehouses and offices in most of the states of the Union, including New Jersey. Johnson & Johnson's trademarked commodities are sold throughout the Union subject to a minimum price schedule of which notice is given to the trade from time to time through its own price pamphlets and by means of other drug publications. Their products are traded in free and open competition with commodities of the same class produced or distributed by others. Defendant, a New Jersey corporation, operates a retail drug store in Newark, New Jersey. The crucial evidence is largely documentary.

On July 2, 1951 the Newark, New Jersey, Division of McKesson & Robbins forwarded a letter to all its retail customers, defendant among them, stating that 'by virtue of fair trade contracts entered into' by named manufacturers, the writer had been 'authorized and obligated to get retail fair trade agreements from all' of its customers binding them 'to sell commodities of these manufacturers at not less than the net minimum retail prices prescribed by the manufacturer in accordance with the applicable fair trade laws of the states where the sales are made.' The letter then advised the addressee that the 'method of your entering into the contract will be through the inclusion of a fair trade agreement in our regular terms of sale so that whenever you buy from us you will know that the purchase includes an obligation on your part as follows:

"Fair Trade Agreement. Purchaser, by accepting delivery from Seller of any fair traded commodity, agrees not to resell such commodity, by direct or indirect means, at less than the prescribed net retail minimum price published by the Producer or Distributor whose trademark, brand or name appears on the commodity. This agreement not applicable to sales in non-fair trade states or District of Columbia."

The letter continued:

'To confirm and reiterate this agreement on your part, the terms thereof will be placed on every invoice which we will hereafter send to you.'

The letter listed three manufacturers whose products where then covered by McKesson's fair trade agreement. Johnson & Johnson was not among them; but the letter said:

'At the present time the legend agreement will not apply to products of other manufacturers. However, whenever additional manufacturers may obligate us to get a fair trade agreement for them we shall give you notice thereof and after you receive such notice the legend agreement will apply to any purchases you may thereafter make of products of such additional manufacturers.'

On July 5, 1951, McKesson sent a second letter to its retail customers, including defendant, headed as to subject matter: 'Fair Trade Legend Agreement--Johnson & Johnson Products Also Covered.' The letter read:

'Under date of July 2nd we wrote to you about the Fair Trade Agreement, terms of which will continue to appear on every invoice which we will hereafter send to you.

'We are pleased to announce that in addition to the manufacturers listed in the letter of July 2nd, Johnson & Johnson has now obligated us to get a Fair Trade Agreement from our customers covering the products of Johnson & Johnson.

'Therefore, whenever you make any purchases hereafter of the products of Johnson & Johnson, as well as of the products of the other manufacturers listed in our letter of July 2nd you will know that those products are subject to and covered by the Fair Trade Agreement which will appear on our invoices.'

Defendant admits the receipt of these letters; and there is evidence that Johnson & Johnson gave notice to the trade of the prescribed minimum retail prices of the subject commodities, by means of pamphlets, trade journals and otherwise, before defendant's purchases, and periodically thereafter, although there was no price change during the period involved in this inquiry.

On July 9, 1951, defendant placed orders by telephone with both the Newark Division and the New York Division of McKesson for Johnson & Johnson commodities. On the following day, each division accepted the order and made delivery to defendant with the 'Fair Trade Agreement' embodied in McKesson's letter of July 2 endorsed on the invoice. In addition, by letter dated the same day, the New York Division of McKesson advised defendant that the 'order * * * is subject to the Fair Trade Agreement referred to in the letters of July 2nd, 1951 and July 5, 1951 sent to you by our Newark Division,' and the agreement 'is included in our regular terms of sale as set forth on the invoice accompanying the merchandise which is being delivered to you with this letter,' and 'will be included in any subsequent sales of Johnson & Johnson products made by this Division to you or any other retailer in New Jersey.'

The goods, the two invoices, and the letter were received on July 10, and on the following day defendant wrote this letter to McKesson's Newark Division:

'On July 9th, 1951, I ordered from your New York and Newark wholesale divisions some Johnson & Johnson and Tek products. This merchandise was delivered to the store on July 10, 1951. I note from the invoices that Charmley Drug Co. is to sell these Johnson & Johnson and Tek products at the Fair Trade prices.

'I have accepted delivery of this merchandise but wish to advise you that your Fair Trade agreement as set forth on the invoices and in your notices does not bind us and is illegal. Therefore, we are at liberty to sell the merchandise below Fair Trade prices.'

Copies of this letter were sent to McKesson's main office in New York and its New York Division office, and to Johnson & Johnson at New Brunswick, New Jersey; and not long thereafter this proceeding was commenced.

Defendant has not tendered a return of the merchandise.

Since this action was begun the defendant has made purchases of other commodities directly from Johnson & Johnson under invoices bearing the self-same 'Fair Trade Agreement'; and it has also purchased from a Philadelphia wholesaler Johnson & Johnson products without a 'fair trade agreement.' The insistence is that the endorsement of this article on the face of the invoices renders the sales subject to that minimum price arrangement as a component of the contract.

It is said that the prescribed minimum retail prices for the subject commodities had been widely disseminated among the trade before the purchases were made by defendant, and thereby the terms of the asserted. contract had been rendered sufficiently certain and definite for enforcement by judicial decree. Actuall notice of the minimum resale prices is not seriously challenged, and may well be assumed.

However it may be phrased, the essence of the argument is that by this device the defendant retailer became bound by the circumstances to...