United States v. Parke, Davis and Company

• Decision Date: 29 February 1960
• Docket Number: No. 20,20
• Citation: 362 U.S. 29,4 L.Ed.2d 505,80 S.Ct. 503
• Parties: UNITED STATES, Appellant, v. PARKE, DAVIS AND COMPANY
• Court: U.S. Supreme Court

362 U.S. 29

80 S.Ct. 503

4 L.Ed.2d 505

UNITED STATES, Appellant,

v PARKE, DAVIS AND COMPANY.

No. 20.

Argued Nov. 10, 1959.

Decided Feb. 29, 1960.

Mr. Daniel M. Friedman, Washington, D.C., for appellant.

Mr. Gerhard A. Gesell, Washington, D.C., for appellee.

Mr. Justice BRENNAN delivered the opinion of the Court.

The Government sought an injunction under § 4 of the Sherman Act against the appellee, Parke, Davis & Company, on a compliant alleging that Parke Davis conspired and combined, in violation of §§ 1 and 3 of the Act,¹ with retail and wholesale druggists in Washington, D.C., and Richmond, Virginia, to maintain the wholesale and retail prices of Parke Davis pharmaceutical products. The violation was alleged to have occurred during the summer of 1956 when there was no Fair Trade Law in the District of Columbia or the State of Virginia.² After the Government completed the presentation of its evidence at the trial, and without hearing Parke Davis in defense, the District Court for the District of Columbia dismissed the complaint under Fed.Rules Civ.Proc., Rule 41(b), 28 U.S.C.A. on the ground that upon the facts and the law the Government had not shown a right to relief. D.C., 164 F.Supp. 827. We noted probable jurisdiction of the Government's direct appeal under § 2 of the Expediting Act.³ 359 U.S. 903, 79 S.Ct. 580, 3 L.Ed.2d 569.

Parke Davis makes some 600 pharmaceutical products which it markets nationally through drug wholesalers and drug retailers. The retailers buy these products from the drug wholesalers or make large quantity purchases directly from Parke Davis. Sometime before 1956 Parke Davis announced a resale price maintenance policy in its wholesalers' and retailers' catalogues. The wholesalers' catalogue contained a Net Price Selling Schedule listing suggested minimum resale prices on Parke Davis products sold by wholesalers to retailers. The catalogue stated that it was Parke Davis' continuing policy to deal only with drug wholesalers who observed that schedule and who sold only to drug retailers authorized by law to fill prescriptions. Parke Davis, when selling directly to retailers, quoted the same prices listed in the wholesalers' Net Price Selling Schedule but granted retailers discounts for volume purchases. Wholesalers were not authorized to grant similar discounts. The retailers' catalogue contained a schedule of minimum retail prices applicalbe in States with Fair Trade Laws and stated that this schedule was suggested for use also in States not having such laws. These suggested minimum retail prices usually provided a 50% mark up over cost on Park Davis products purchased by retailers from wholesalers but, because of the volume discount, often in excess of 100% mark up over cost on products purchased in large quantities directly from Parke Davis.

There are some 260 drugstores in Washington, D.C., and some 100 in Richmond, Virginia. Many of the stores are units of Peoples Drug Stores, a large retail drug chain. There are five drug wholesalers handling Parke Davis products in the locality who do business with the drug retailers. The wholesalers observed the resale prices suggested by Parke Davis. However, during the spring and early summer of 1956 drug retailers in the two cities advertised and sold several Parke Davis vitamin products at prices substantially below the suggested minimum retail prices; in some instances the prices apparently reflected the volume discounts on direct purchases from Parke Davis since the products were sold below the prices listed in the wholesalers' Net Price Selling Schedule. The Baltimore office manager of Parke Davis in charge of the sales district which included the two cities sought advice from his head office on how to handle this situation. The Parke Davis attorney advised that the company could legally 'enforce an adopted policy arrived at unilaterally' to sell only to customers who observed the suggested minimum resale prices. He further advised that this meant that 'we can lawfully say 'we will sell you only so long as you observe such minimum retail prices' but cannot say 'we will sell you only if you agree to observe such minimum retail prices,' since except as permitted by Fair Trade legislations (sic) agreements as to resale price maintenance are invalid.' Thereafter in July the branch manager put into effect a program for promoting observance of the suggested minimum retail prices by the retailers involved. The program contemplated the participation of the five drug wholesalers. In order to insure that retailers who did not comply would be cut off from sources of supply, representatives of Parke Davis visited the wholesalers and told them, in effect, that not only would Parke Davis refuse to sell to wholesalers who did not adhere to the policy announced in its catalogue, but also that it would refuse to sell to wholesalers who sold Parke Davis products to retailers who did not observe the suggested minimum retail prices. Each wholesaler was interviewed individually but each was informed that his competitors were also being apprised of this. The wholesalers without exception indicated a willingness to go along.

Representatives called contemporaneously upon the retailers involved, individually, and told each that if he did not observe the suggested minimum retail prices, Parke Davis would refuse to deal with him, and that furt- hermore he would be unable to purchase any Parke Davis products from the wholesalers. Each of the retailers was also told that his competitors were being similarly informed.

Several retailers refused to give any assurances of compliance and continued after these July interviews to advertise and sell Parke Davis products at prices below the suggested minimum retail prices. Their names were furnished by Parke Davis to the wholesalers. Thereafter Parke Davis refused to fill direct orders from such retailers and the wholesalers likewise refused to fill their orders.⁴ This ban was not limited to the Parke Davis products being sold below the suggested minimum prices but included all the company's products, even those necessary to fill prescriptions.

The president of Dart Drug Company, one of the retailers cut off, protested to the assistant branch manager of Parke Davis that Parke Davis was discriminating against him because a drugstore across the street, one of the Peoples Drug chain, had a sign in its window advertising Parke Davis products at cut prices. The retailer was told that if this were so the branch manager 'would see Peoples and try to get them in line.' The branch manager testified at the trial that thereafter he talked to a vice-president of Peoples and that the following occurred:

'Q. Well, now, you told Mr. Downey (the vice-president of Peoples) at this meeting, did you not, Mr. Powers, (the assistant branch manager of Parke Davis) that you moticed that Peoples were cutting prices? A. Yes.

'Q. And you told him, did you not, that it had been the Parke, Davis policy for many years to do business only with individuals that maintained the scheduled prices? A. I told Mr. Downey that we had a policy in our catalog, and that anyone that did not go along with our policy, we were not interested in doing business with them.

'Q. * * * Now, Mr. Downey told you on the occasion of this visit, did he not, that Peoples would stop cutting prices and would abide by the Parke-Davis policy, is that right? A. That is correct.

'Q. When you went to call on Mr. Downey, you solicited his support of Parke, Davis policies, is not that right? A. That is right.

'Q. And he said, I will abide by your policy? A. That is right.'

The District Court found, apparently on the basis of this testimony, that 'The Peoples' representative stated that Peoples would stop cutting prices on Parke, Davis' products and Parke, Davis continued to sell to Peoples.' (164 F.Supp. 833.)

But five retailers continued selling Parke Davis products at less than the suggested minimum prices from stocks on hand. Within a few weeks Parke Davis modified its program. Its officials believed that the selling at discount prices would be deterred, and the effects minimized of any isolated instances of discount selling which might continue, if all advertising of such prices were discontinued. In August the Parke Davis representatives again called on the retailers individually. When interviewed, the president of Dart Drug Company indi- cated that he might be willing to stop advertising, although continuing to sell at discount prices, if shipments to him were resumed. Each of the other retailers was then told individually by Parke Davis representatives that Dart was ready to discontinue advertising. Each thereupon said that if Dart stopped advertising he would also. On August 28 Parke Davis reported this reaction to Dart. Thereafter all of the retailers discontinued advertising of Parke Davis vitamins at less than suggested minimum retail prices and Parke Davis and the wholesalers resumed sales of Parke Davis products to them. However, the suspension of advertising lasted only a month. One of the retailers again started newspaper advertising in September and, despite efforts of Parke Davis to prevent it, the others quickly followed suit. Parke Davis then stopped trying to promote the retailers' adherence to its suggested resale prices, and neither it nor the wholesalers have since declined further dealings with them.⁵ A reason for this was that the Department of Justice, on complaint of Dart Drug Company, had begun an investigation of possible violation of the antitrust laws.

The District Court held that the Government's proofs did not establish a violation of the Sherman Act because 'the actions of (Parke Davis) were properly unilateral and sanctioned by law under the doctrine laid down in the case of United States v. Colgate & Co., 250 U.S. 300, 39 S.Ct. 465, 63 L.Ed. 992. * * *' 164 F.Supp. at page 829.

The Colgate case came to this Court on writ of...