Monsanto Company v. Service Corporation

• Citation: 104 S.Ct. 1464,79 L.Ed.2d 775,465 U.S. 752
• Decision Date: 20 March 1984
• Docket Number: SPRAY-RITE,No. 82-914,82-914
• Parties: MONSANTO COMPANY, Petitioner v. SERVICE CORPORATION
• Court: United States Supreme Court

465 U.S. 752

104 S.Ct. 1464

79 L.Ed.2d 775

MONSANTO COMPANY, Petitioner

v SPRAY-RITE SERVICE CORPORATION.

No. 82-914.

Argued Dec. 5, 1983.

Decided March 20, 1984.

Syllabus

From 1957 to 1968, respondent, a wholesale distributor of agricultural chemicals that engaged in a discount operation, sold agricultural herbicides manufactured by petitioner. In 1968, petitioner refused to renew respondent's 1-year distributorship term, and thereafter respondent was unable to purchase from other distributors as much of petitioner's products as it desired or as early in the season as it needed them. Respondent ultimately brought suit in Federal District Court under § 1 of the Sherman Act, alleging that petitioner and some of its distributors conspired to fix the resale prices of petitioner's products and that petitioner had terminated respondent's distributorship in furtherance of the conspiracy. Petitioner denied the allegations of conspiracy, and asserted that respondent's distributorship had been terminated because of its failure to hire trained salesmen and promote sales to dealers adequately. The District Court instructed the jury that petitioner's conduct was per se unlawful if it was in furtherance of a price-fixing conspiracy. In answers to special interrogatories, the jury found, inter alia, that the termination of respondent's distributorship was pursuant to a price-fixing conspiracy between petitioner and one or more of its distributors. The Court of Appeals affirmed, holding that there was sufficient evidence to satisfy respondent's burden of proving a conspiracy to set resale prices. It noted evidence of numerous complaints to petitioner from competing distributors about respondent's price-cutting practices. In substance, the court held that an antitrust plaintiff can survive a motion for a directed verdict if it shows that a manufacturer terminated a price-cutting distributor in response to or following complaints by other distributors.

Held:

1. The Court of Appeals applied an incorrect standard of proof to the evidence in this case. A basic distinction in any distributor-termination case is that between concerted action of the manufacturer and other distributors, which is proscribed by the Sherman Act, and independent action of the manufacturer, which is not proscribed. United States v. Colgate & Co., 250 U.S. 300, 39 S.Ct. 465, 63 L.Ed. 992. A second important distinction in such cases is that between concerted action to set prices, which is per se illegal, and concerted action on nonprice restrictions, which is judged under the rule of reason. See Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 97 S.Ct. 2549, 53 L.Ed.2d 568. Permitting a price-fixing agreement to be inferred from the existence of complaints from other distributors, or even from the fact that termination came about "in response to" complaints, could deter or penalize perfectly legitimate conduct. Thus, something more than evidence of complaints is needed. The correct standard is that there must be evidence that tends to exclude the possibility that the manufacturer and nonterminated distributors were acting independently. That is, there must be direct or circumstantial evidence that reasonably tends to prove that the manufacturer and others had a conscious commitment to a common scheme designed to achieve an unlawful objective. Pp. 760-764.

2. Under the proper standard of proof, the evidence in this case created a jury issue as to whether respondent was terminated pursuant to a price-fixing conspiracy between petitioner and its distributors. Accordingly, the Court of Appeals' judgment is affirmed. Pp. 765-768.

(a) There was sufficient evidence for the jury reasonably to have concluded that petitioner and some of its distributors were parties to an "agreement" or "conspiracy" to maintain resale prices and terminate price-cutters. Pp. 765-766.

(b) It also would be reasonable to find that respondent's termination was part of or pursuant to that agreement, since it is necessary for competing distributors contemplating compliance with suggested prices to know that those who do not comply will be terminated. Moreover, there is some circumstantial evidence of such a link. Pp. 767-768.

684 F.2d 1226 (1982), affirmed.

Fred H. Bartlit, Jr., Chicago, Ill., for petitioner.

William F. Baxter, Washington, D.C., for the U.S. as amicus curiae, by special leave of Court.

Edward L. Foote, Chicago, Ill., for respondent.

[Amicus Curiae Information from pages 754-756 intentionally omitted] Justice POWELL delivered the opinion of the Court.

This case presents a question as to the standard of proof required to find a vertical price-fixing conspiracy in violation of Section 1 of the Sherman Act.

I

Petitioner Monsanto Company manufactures chemical products, including agricultural herbicides. By the late 1960's, the time at issue in this case, its sales accounted for approximately 15% of the corn herbicide market and 3% of the soybean herbicide market. In the corn herbicide market, the market leader commanded a 70% share. In the soybean herbicide market, two other competitors each had between 30% and 40% of the market. Respondent Spray-Rite Service Corporation was engaged in the wholesale distribution of agricultural chemicals from 1955 to 1972. Spray-Rite was essentially a family business, whose owner and president, Donald Yapp, was also its sole salaried salesman. Spray-Rite was a discount operation, buying in large quantities and selling at a low margin.

Spray-Rite was an authorized distributor of Monsanto herbicides from 1957 to 1968. In October 1967, Monsanto announced that it would appoint distributors for one-year terms, and that it would renew distributorships according to several new criteria. Among the criteria were: (i) whether the distributor's primary activity was soliciting sales to retail dealers; (ii) whether the distributor employed trained salesmen capable of educating its customers on the technical aspects of Monsanto's herbicides; and (iii) whether the distributor could be expected "to exploit fully" the market in its geographical area of primary responsibility. Shortly thereafter, Monsanto also introduced a number of incentive programs such as making cash payments to distributors that sent salesmen to training classes, and providing free deliveries of products to customers within a distributor's area of primary responsibility.¹

In October 1968, Monsanto declined to renew Spray-Rite's distributorship. At that time, Spray-Rite was the tenth largest out of approximately 100 distributors of Monsanto's primary corn herbicide. Ninety percent of Spray-Rite's sales volume was devoted to herbicide sales, and 16% of its sales were of Monsanto products. After Monsanto's termination, Spray-Rite continued as a herbicide dealer until 1972. It was able to purchase some of Monsanto's products from other distributors, but not as much as it desired or as early in the season as it needed. Monsanto introduced a new corn herbicide in 1969. By 1972, its share of the corn herbicide market had increased to approximately 28%. Its share of the soybean herbicide market had grown to approximately 19%.

Spray-Rite brought this action under Section 1 of the Sherman Act, 15 U.S.C. § 1. It alleged that Monsanto and some of its distributors conspired to fix the resale prices of Monsanto herbicides. Its complaint further alleged that Monsanto terminated Spray-Rite's distributorship, adopted compensation programs and shipping policies, and encouraged distributors to boycott Spray-Rite in furtherance of this conspiracy. Monsanto denied the allegations of conspiracy, and asserted that Spray-Rite's distributorship had been terminated because of its failure to hire trained salesmen and promote sales to dealers adequately.

The case was tried to a jury. The District Court instructed the jury that Monsanto's conduct was per se unlawful if it was in furtherance of a conspiracy to fix prices. In answers to special interrogatories, the jury found that (i) the termination of Spray-Rite was pursuant to a conspiracy be- tween Monsanto and one or more of its distributors to set resale prices, (ii) the compensation programs, areas of primary responsibility, and/or shipping policies were created by Monsanto pursuant to such a conspiracy, and (iii) Monsanto conspired with one or more distributors to limit Spray-Rite's access to Monsanto herbicides after 1968.² The jury awarded $3.5 million in damages, which was trebled to $10.5 million. Only the first of the jury's findings is before us today.³

The Court of Appeals for the Seventh Circuit affirmed. 684 F.2d 1226 (1982). It held that there was sufficient evidence to satisfy Spray-Rite's burden of proving a conspiracy to set resale prices. The court stated that "proof of termination following competitor complaints is sufficient to support an inference of concerted action." Id., at 1238.⁴ Canvassing the testimony and exhibits that were before the jury, the court found evidence of numerous complaints from competing Monsanto distributors about Spray-Rite's price-cutting practices. It also noted that there was testimony that a Monsanto official had said that Spray-Rite was terminated because of the price complaints.

In substance, the Court of Appeals held that an antitrust plaintiff can survive a motion for a directed verdict if it shows that a manufacturer terminated a price-cutting distributor in response to or following complaints by other distributors. This view brought the Seventh Circuit into direct conflict with a number of other Courts of Appeals.⁵ We granted certiorari to resolve the conflict. --- U.S. ----, 103 S.Ct. 1249, 75 L.Ed.2d 479 (1983). We reject the statement by the Court of Appeals for the Seventh Circuit of the standard of proof required to submit a case to the jury in distributor-termination litigation, but affirm the judgment under the standard we announce today.⁶

II

This Court has drawn two...