Hudson Distributors, Inc. v. Eli Lilly & Company/Opinion of the Court

These appeals raise the question of whether the McGuire Act, 66 Stat. 631, 15 U.S.C. §§ 45(a)(1)-(5), permits the application and enforcement of the Ohio Fair Trade Act against appellant in support of appellees' systems of retail price maintenance. For the reasons stated below, we hold that the Ohio Act, as applied to the facts of these cases, comes within the provisions of the McGuire Act exempting certain resale price systems from the prohibitions of the Sherman Act, 26 Stat. 209, 15 U.S.C. § 1 et seq.

The two appeals, one involving The Upjohn Co. and one involving Eli Lilly & Co., were considered together in the Ohio courts. For simplicity we state only the facts of the Lilly case. Appellant, Hudson Distributors, Inc., owns and operates a retail drug chain in Cleveland, Ohio. Appellee, Eli Lilly & Co., manufactures pharmaceutical products bearing its trademarks and trade names. Lilly sells its products directly to wholesalers and makes no sales to retailers. Hudson purchases Lilly brand products from Regal D.S., Inc., a Michigan wholesaler.

In June 1959, the Ohio Legislature enacted a new Fair Trade Act, Ohio Revised Code §§ 1333.27-1333.34. Subsequently Lilly sent letters to all Ohio retailers of Lilly products, including Hudson, to notify them of Lilly's intention to establish minimum retail resale prices for its trademarked products pursuant to the new Ohio Act and to invite the retailers to enter into written fair-trade contracts. More than 1,400 Ohio retailers of Lily products (about 65% of all the retail pharmacists in Ohio) signed fair-trade contracts with Lilly. Hudson, however, refused to enter into a written contract with Lilly and ignored the specified minimum resale prices. Lilly formally notified Hudson that the Ohio Act required Hudson to observe the minimum retail resale prices for Lilly commodities. Hudson, nevertheless, continued to purchase and then to resell Lilly products at less than the stipulated minimum retail resale prices.

Hudson thereupon filed a petition in the Court of Common Pleas for Cuyahoga County, Ohio, for a judgment declaring the Ohio Act invalid under the State Constitution and federal law. Lilly answered and cross-petitioned for enforcement of the Ohio Act against Hudson. The Court of Common Pleas held the Ohio Act unconstitutional under the State Constitution. On appeal, the Court of Appeals for Cuyahoga County, after discussing the federal and state legislation, 117 Ohio App. 207, 176 N.E.2d 236, reversed the trial court and entered a judgment declaring that the Ohio Act was not 'in violation of the Constitution of the State of Ohio nor of the Constitution of the Unit d States * *  * .' The court remanded the case 'for further proceedings according to law with respect to the cross-petition *  *  * .' On further appeal, the Supreme Court of Ohio affirmed the judgment of the Court of Appeals. 174 Ohio St. 487, 190 N.E.2d 460. This Court noted probable jurisdiction. 375 U.S. 938, 939, 84 S.Ct. 348, 11 L.Ed.2d 270.

Hudson contends that the provisions of the Ohio Act under which Lilly established minimum resale prices are not authorized by the McGuire Act, 66 Stat. 631, 15 U.S.C. §§ 45(a)(1)-(5). Section 2 of the McGuire Act provides in pertinent part as follows:

'Nothing contained in this section or in any of the Antitrust     Acts shall render unlawful any contracts or agreements      prescribing minimum or stipulated prices, *  *  * when      contracts or agreements of that description are lawful as      applied to intrastate transactions under any statute, law, or      public policy now or hereafter in effect in any State *  *  * .'

Section 3 of the McGuire Act reads as follows:

'Nothing contained in this section or in any of the Antitrust     Acts shall render unlawful the exercise or the enforcement of      any right or right of action created by any statute, law, or      public policy now or hereafter in effect in any State,      Territory, or the District of Columbia, which in substance      provides that willfully and knowingly advertising, offering      for sale, or selling any commodity at less than the price or      prices prescribed in such contracts or agreements whether the      person so advertising, offering for sale, or selling is or is not a party to such a contract or      agreement, is unfair competition and is actionable at the      suit of any person damaged thereby.'

Before the enactment of the McGuire ct, this Court in 1951 in Schwegmann Bros. v. Calvert Distillers Corp., 341 U.S. 384, 71 S.Ct. 745, 95 L.Ed. 1035, considered whether the Miller-Tydings Act, 50 Stat. 693, 15 U.S.C. § 1, removed from the prohibition of the Sherman Act, 26 Stat. 209, 15 U.S.C. § 1 et seq., a state statute which authorized a trademark owner, by notice, to require a retailer who had not executed a written contract to observe resale price maintenance. Respondents in that case argued that since the Sherman Act outlawed 'contracts' in restraint of trade and since the Miller-Tydings amendment to the Sherman Act excepted 'contracts or agreements prescribing minimum prices for the resale' of a commodity where such contracts or agreements were lawful under state law, the Miller-Tydings Act therefore immunized all arrangements involving resale price maintenance authorized by state law. 341 U.S. at 387, 71 S.Ct. at 747. After examining the history of the Miller-Tydings Act, the Court concluded that Congress had intended the words 'contracts or agreements' as contained in that Act to be used 'in their normal and customary meaning,' id., 341 U.S. at 388, 71 S.Ct. at 747, and to cover only arrangements whereby the retailer voluntarily agreed to be bound by the resale price restrictions. The Court held therefore that the state resale price maintenance law could not be applied to nonsigners-'recalcitrants * *  * dragged in by the heels and compelled to submit to price fixing.' Id., 341 U.S. at 390, 71 S.Ct. at 748. The Court stated that:

'It should be remembered that it was the state laws that the     federal law was designed to accommodate. Federal regulation     was to give way to state regulation. When state regulation provided for resale price     maintenance by both those who contracted and those who did      not, and the federal regulation was relaxed only as respects      'contracts or agreements,' the inference is strong that      Congress left the noncontracting group to be governed by      preexisting law.' Id., 341 U.S. at 395, 71 S.Ct. at 751.

Shortly after the Schwegmann decision, Congress passed the McGuire Act, 66 Stat. 631, 15 U.S.C. §§ 45(a)(1)-(5). The Report of the House Committee on Interstate and Foreign Commerce, which accompanied the McGuire Act, declared that:

'The primary purpose of the (McGuire) bill is to reaffirm the     very same proposition which, in the committee's opinion, the      Congress intended to enact into law when it passed the      Miller-Tydings Act *  *  *, to the effect that the application      and enforcement of State fair-trade laws-including the      nonsigner provisions of such laws-with regard to interstate      transactions shall not constitute a violation of the Federal      Trade Commission Act or the Sherman Antitrust Act. This     reaffirmation is made necessary because of the decision of a      divided Supreme Court in Schwegmann v. Calvert Distillers      Corporation (341 U.S. 384 (71 S.Ct. 745), May 21, 1951). In that     case, six members of the Court held that the Miller-Tydings      Act did not exempt from these Federal laws enforcement of      State fair trade laws with respect to nonsigners. Three     members of the Court held that the Miller-Tydings Act did so      apply.

' he end result of the Supreme Court decision has been     seriously to undermine the effectiveness of the      Miller-Tydings Act and, in turn, of the fair-trade laws      enacted by 45 States. H.R. 5767, as amended, is designed to     restore the effectiveness of these acts by making it      abundantly clear that Congress means to let State fair-trade      laws apply in their totality; that is, with respect to      nonsigners as well as signers.' (Emphasis added.) H.R.      Rep.No.1437, 82d Cong., 2d Sess., at 1-2.

This authoritative report evinces the clear intention of Congress that, where sanctioned by a state fair-trade act, a trademark owner such as Lilly could be permitted to enforce, even against a nonsigning retailer such as Hudson, the stipulated minimum prices established by written contracts with other retailers.

Without disputing this interpretation of the McGuire Act, Hudson argues that the Ohio Act as interpreted by the Ohio courts reaches beyond the exemptive terms of the federal Act by permitting the maintenance of resale prices 'by notice alone' where no contract has been entered into between the owner of the trademark and any retailer. Hudson emphasizes that the Ohio courts sustained the Ohio Act under the State Constitution on the theory that Hudson, simply by acquiring Lilly's products with notice of the stipulated prices, impliedly contracted to observe the minimum prices. This implied contract theory was deemed necessary by the Ohio Legislature and by the Ohio courts to satisfy the State Constitution which had recently been held to invalidate the enforcement of resale prices against nonsigners. Union Carbide & Carbon Corp. v. Bargain Fair, Inc., 167 Ohio St. 182, 147 N.E.2d 481 (1958). Whatever merit there may be in the argument that the logic of the Ohio implied contract theory would apply to prices set by notice alone and without any conventional or express contracts, on the facts of the present case we need not and do not consider whether a state statute so applied would involve 'contracts or agreements' in the sense in which those terms are used in the McGuire Act. The undisputed facts show that Lilly had established a system of resale price maintenance involving written contracts with some 1,400 Ohio retailers. Section 1333.29(A) of the Ohio Act authorizes the establishment of minimum prices through such contracts. Under these circumstances the fact that the Ohio law, as construed for purposes of assessing its validity under the State Constitution, regards Hudson as a 'contractor' (or 'implied contractor') rather than as a nonsigner does not control the application and effect of the federal statute the McGuire Act. Section 3 of the federal Act plainly upholds 'any right or right of action created by any statute * *  * in effect in any State *  *  * which in substance' permits enforcement of resale prices prescribed in contracts whether or not the violating seller was a party to those contracts. For the purposes of § 3 of the McGuire Act, therefore, it is clear that these cases involve the requisite contracts with retailers, that, regardless of whether Hudson itself entered into 'contracts' within the meaning of the McGuire Act, Hudson was at least a nonsigner, and that under such circumstances Congress plainly intended 'to let State fair-trade laws apply * *  * with respect to nonsigners as well as signers.' H.R.Rep.No.1437, 82d Cong., 2d Sess., at 2. Accordingly we hold that the Ohio Act, as applied to the facts of these cases, comes within the terms of the McGuire Act.

Hudson also argues that the Ohio statute can be read to authorize fair-trade prices to be established by persons other than the owner of the trademark or trade name. This contention raises a hypothetical issue: Lilly is the owner of all trademarks affixed to its goods and the Ohio Supreme Court has not interpreted the statute as applying to persons other than owners. Hudson further argues that § 1333.29(A) of the Ohio Act authorizes a proprietor to establish minimum resale prices for wholesale distributors with whom it competes and therefore conflicts with the McGuire Act under this Court's decision in United States v. McKesson & Robbins, Inc., 351 U.S. 305, 76 S.Ct. 937. This argument also raises a hypothetical question for, as noted, Lilly sells only to wholesalers and does not sell to retailers.

The questions raised by Hudson in its second amended answer to the cross-petition, including the contention that Paragraph 6 of the Lilly fair-trade contracts compels retailers to enter into allegedly unlawful horizontal price-fixing agreements in violation of § 1 of the Sherman Act, are not properly before us. They are pending and unresolved in the Ohio Court of Common Pleas, Cuyahoga County. Hudson's remaining questions are not properly presented for resolution on this appeal; they concern issues involving alleged interpretations of the Ohio Act not made or considered by the Ohio courts or not raised by the facts of the case. Asbury Hospital v. Cass County, 326 U.S. 207, 213-214, 66 S.Ct. 61, 64-65, 90 L.Ed. 6; Alabama State Federation of Labor, Local Union No. 103, United Broth. of Carpenters and Joiners of America v. McAdory, 325 U.S. 450, 470 471, 65 S.Ct. 1384, 1393-1394, 89 L.Ed. 1725.

The price fixing authorized by the Ohio Fair Trade Act and involving goods moving in interstate commerce would be, absent approval by Congress, clearly illegal under the Sherman Act, 26 Stat. 209, 15 U.S.C. § 1 et seq. Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373, 31 S.Ct. 376, 55 L.Ed. 502. 'Fixing minimum prices, like other types of price fixing, is illegal per se.' Schwegmann Bros. v. Calvert Distillers Corp., supra, 341 U.S. at 386, 71 S.Ct. at 746. Congress, however, in the McGuire Act has approved state statutes sanctioning resale price maintenance schemes such as those involved here. Whether it is good policy to permit such laws is a matter for Congress to decide. Where the statutory language and the legislative history clearly indicate the purpose of Congress that purpose must be upheld. We therefore affirm the judgments of the Supreme Court of Ohio.

Affirmed.

Mr. Justice HARLAN, dissenting.