United States v. Arnold, Schwinn & Co.

• Decision Date: 25 January 1965
• Docket Number: Civ. A. No. 59 C 489.
• Court: U.S. District Court — Northern District of Illinois
• Parties: UNITED STATES of America, Plaintiff, v. ARNOLD, SCHWINN & CO., Schwinn Cycle Distributors Association, and the B. F. Goodrich Company, Defendants.

237 F. Supp. 323

UNITED STATES of America, Plaintiff, v. ARNOLD, SCHWINN & CO., Schwinn Cycle Distributors Association, and the B. F. Goodrich Company, Defendants.

Civ. A. No. 59 C 489.

United States District Court N. D. Illinois, E. D.

January 25, 1965.

Earl A. Jinkinson, Joseph Prindaville, Kenneth H. Hanson, and Howard L. Fink, Dept. of Justice, Chicago, Ill., for plaintiff.

Charles M. Price, Harold D. Burgess, Robert C. Keck and James G. Hiering, MacLeish, Spray, Price & Underwood, Chicago, Ill., for Arnold, Schwinn & Co.

Earl E. Pollock, Wayne Hannah, Jr., and Michael M. Lyons; Sonnenschein, Levinson, Carlin, Nath & Rosenthal, Chicago, Ill., for Schwinn Cycle Distributors Assn.

Kirkland, Ellis, Hodson, Chaffetz & Masters, Chicago, Ill., for B. F. Goodrich Co.

PERRY, District Judge.

This is a civil antitrust action, filed June 30, 1958, in the Eastern District of Missouri, Eastern Division. In March, 1959, on defendants' motion under 28 U.S.C. § 1404(a), this cause was transferred to this District.

The complaint herein was filed under Section 4 of the Sherman Act to prevent and restrain alleged continuing violations of Section 1 of the Act (15 U. S.C. § 1). It names three defendants: Arnold, Schwinn & Co., herein called "Schwinn" ; The B. F. Goodrich Company, herein called "BFG"; and Schwinn Cycle Distributors Association, herein called "SCDA". It also alleges that corporations, associations and individuals not named as defendants participated as co-conspirators in the offenses charged.

The complaint alleges that, beginning with 1952 and continuing thereafter to the date of filing of the complaint, defendants and co-conspirators have engaged in an unlawful combination and conspiracy, the substantial terms of which

"have been and are that: (a) A limited number of retailers in each market area will be franchised by defendant Schwinn, with concurrence of a wholesaler co-conspirator, for retailing Schwinn products; and each such wholesaler co-conspirator will confine his sales of Schwinn products to such franchised retailers only; (b) Defendant B. F. G. will confine its sales of Schwinn products to B. F. G. outlets only; (c) Franchised retailers and B. F. G. outlets in Missouri and in the other States of the United States will adhere to retail prices for Schwinn products fixed by defendant Schwinn; (d) Franchised retailers and B. F. G. outlets who fail to adhere to the prices fixed by Schwinn or who resell Schwinn products to non-authorized retail dealers will be reported to defendant Schwinn and will not be supplied by Schwinn, B. F. G., or wholesaler co-conspirators; (e) Each cycle wholesaler co-conspirator will be allocated a certain marketing territory, exclusive as to other cycle wholesaler co-conspirators, and will confine its Schwinn product sales to that territory;" and "(f) Each franchised retailer will purchase Schwinn products only from a wholesaler co-conspirator who is authorized to sell in his marketing area and will not sell Schwinn products from any location other than that for which he is specifically franchised."

The separate answers of each defendant denied each substantive allegation in the complaint, and at the trial the factual and legal bases of plaintiff's claims were sharply contested.

FINDINGS OF FACT

The Court finds the following facts:

Schwinn is engaged in the manufacture and sale of bicycles, and, to a lesser degree, bicycle parts and accessories. It is a small family-owned corporation, with its only plant in Chicago, and is one of the oldest bicycle manufacturers in this country. Schwinn produces a wide variety of kinds and models of bicycles, and is primarily an assembler of bicycles producing the basic parts and purchasing others from parts producers. Schwinn's share of the U. S. bicycle market fell from 22.5 per cent in 1951 to 12.8 per cent in 1961. In the latter year, the largest domestic bicycle producer had a 21.8 per cent market share.

SCDA is an unincorporated association of distributors handling Schwinn bicycles and other products. Its members include cycle distributors and BFG, though no hardware jobbers or other distributors are members. Schwinn is not a member, but its representatives regularly attend SCDA meetings and participate in its meeting programs. SCDA has no office or employees. It normally holds two meetings of members a year, which consist primarily of a presentation of the Schwinn line and its sales and advertising plans. By that means Schwinn informs its principal distributors about its products and sales plans and obtains the distributors' opinions on models, model changes, and products salability. Such meetings also include presentations by parts suppliers and outside speakers on subjects of interest to cycle distributors.

BFG is a large producer of rubber and plastic products. It is also a distributor and retailer of such products and other merchandise manufactured by others, including Schwinn bicycles, through 450 company-owned stores and over 1000 independently owned franchised "auto and home supply" stores.

Shortly before trial, plaintiff and BFG presented the Court with a consent decree which was entered and became final on October 2, 1962. As a result, BFG did not participate in the trial. Neither Schwinn nor SCDA took part in negotiating that decree, and they are not bound in any way thereby.

Both before and during the trial of this action, plaintiff took the position that the complaint charged a combination and conspiracy "all aspects of which are so completely interwoven and inter-involved as to constitute one, over-all, nationwide combination and conspiracy" that is vertical in nature, involving substantially everyone having anything to do with Schwinn's methods of distributing its bicycles during the pertinent period (1952-62). It contended that this alleged single over-all conspiracy included, in addition to the three named defendants, 17 Schwinn officers and employees; 89 wholesalers and jobbers of bicycles and 66 of their employees; the members of the Schwinn Bicycle Dealers Association of Greater St. Louis, Inc.; and all retailers of Schwinn bicycles in the United States who held a Schwinn franchise at any time during the pertinent period, or a total of about 12,700 co-conspirators. Its position was

"* * * that, where a manufacturer enters into an agreement with its independently owned distributors and with retailer organizations whereby, with the objective of fixing prices for certain products in both fair trade and free trade States, all sales are to be limited only to those retailers designated by the manufacturer (which retailers are required to sign fair trade contracts in fair trade States) and whereby all other retailers are to be boycotted and whereby an espionage system is set up to enforce such boycotting and price fixing and to determine that the retailers receiving said products adhere to the prices fixed and refrain from selling to other retailers not designated by the manufacturer, else they too would be boycotted, such an agreement violates Section 1 of the Sherman Act" (Ans. to Interrogatory E9).

In short, plaintiff contends that Schwinn's methods of distribution during the pertinent period, including allegedly unlawful price fixing and boycotting, were part of one nationwide agreement, and that such agreement was unlawful per se.

According to plaintiff, the relevant product market should be narrowly confined to the sale of Schwinn bicycles, Schwinn-made bicycle parts and accessories, and parts and accessories made by others that bear a "Schwinn Approved" label. Such a market involves only the intrabrand competition in the sale of such products between Schwinn wholesalers and retailers of Schwinn bicycles. It argues that evidence concerning interbrand competition between Schwinn and the many other brands of bicycles and bicycle parts and accessories sold in markets across the United States, and evidence concerning the stimulus of that broader interbrand competition in bringing about Schwinn's methods of distribution, are irrelevant.

From the outset, defendants denied participation in any price fixing, territory allocation, or group refusal to deal of an illegal nature, or in any alleged over-all agreement involving such practices. They contend that any restraints involved in Schwinn's marketing program are reasonably ancillary to its main and broader objective of waging more effective interbrand competition, through the small businessman dealers and distributors associated with it, with the larger, integrated sellers of bicycles, of both domestic and foreign origin, who during the pertinent period enjoyed from 77.5 to 87.1 per cent of all bicycle sales. It is defendants' postition that this cause is not concerned with the kind of restraints to which the per se exception to the rule of reason applies, and that defendants' conduct should be examined and analyzed against the background of the bicycle business generally in which they are engaged.

Schwinn's methods of distribution include the following: Schwinn bicycles reach retail dealers by Schwinn's (1) sales direct to retail dealers under the Schwinn Plan, in which Schwinn ships bicycles to the dealer, invoices the dealer, carries the credit, and pays a commission to the distributor taking the order; (2) sales to distributors of various types, including cycle distributors, hardware jobbers and BFG, for resale to retail dealers; (3) drop shipments to retail dealers that are billed by Schwinn to the distributor originating the order; (4) sales on consignment through certain cycle distributors to retail dealers; (5) sales to retail dealers through Schwinn's agents in certain areas; and (6) sales to BFG and certain distributors for resale by them as retailers. During the 1952-62 period Schwinn engaged in selective distribution at the retail level through franchising retail dealers, and also at the wholesale level by designating for particular...