United States v. A. Schrader's Son/Opinion of the Court

Defendant in error, a New York corporation, manufactured at Brooklyn, under letters patent, valves, gauges and other accessories for use in connection with automobile tires, and regularly sold and shipped large quantities of these to manufacturers and jobbers throughout the United States. It was indicted in the District Court, Northern District of Ohio, for engaging in a combination rendered criminal by section 1 of the Sherman Act of July 2, 1890 (26 Stat. 209, c. 647 ), which declares illegal 'every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several states, or with foreign nations.' After interpreting the indictment as indicated by quotations from its opinion which follow, the District Court sustained a demurrer thereto, basing the judgment upon construction of that act (264 Fed. 175):

'The ubstantive allegations of this indictment are that      defendant is engaged in manufacturing valves, valve parts,      pneumatic pressure gauges, and various other accessories;      that it sells and ships large quantites of such articles to      tire manufactures and jobbers in the Northern district of      Ohio and throughout the United States; that these tire      manufacturers and jobbers resell and reship large quantities      of these products to (a) jobbers and vehicle manufacturers,      (b) retail dealers, and (c) to the public, both within and      without the respective states into which the products are      shipped; that these acts have been committed within three      years next preceding the presentation of this indictment and      within this district; that the defendant executed, and caused all the said tire manufacturers and jobbers to whom it      sold its said products to execute with it, uniform contracts      concerning resales of such products; that every manufacturer      and jobber was informed by the defendant and well knew when      executing such contracts that identical contracts were being      executed and adhered to by the other manufacturers and      jobbers; that these contracts thus executed purported to      contain a grant of a license from the defendant to resell its      said products at prices fixed by it to (a) jobbers and      vehicle manufacturers similarly licensed, (b) retail dealers,      and (c) the consuming public; that all these contracts      provided (that the) [concerning] products thus sold to tire      manufacturers and jobbers (provided) that they should not      resell such products at prices other than those fixed by the      defendant. Copies of these contracts are identified by     exhibit numbers and attached to the indictment. It is further     charged that the defendant furnished to the tire      manufacturers and jobbers who entered into such contracts      lists of uniform prices, such as are shown in said exhibits,      which the defendant fixed for the resale of its said products      to (a) jobbers and vehicle manufacturers, (b) retail dealers,      and (c) the consuming public, respectively; and that the      defendant uniformly refused to sell and ship its products to      tire manufacturers and jobbers who did not enter into such      contracts and adhere to the uniform resale prices fixed and      listed by the defendant. Further, that tire manufacturers and     jobbers in the Northern district of Ohio and throughout the      United States uniformly resold defendant's products at      uniform prices fixed by the defendant and uniformly refused      to resell such products at lower pricers, whereby competition      was suppressed and the prices of such products to retail      dealers and the consuming public were maintained and      enhanced. * *  *

'Thus it will be observed that the contract, combination, or conspiracy charged comes merely to this: That the     defendant has agreed, combined, or conspired with tire      manufacturers and with jobbers by the selling or agreeing to      sell valves, valve parts, pneumatic pressure gauges, and      various accessories, with the further understanding or      agreement that in making resales thereof they will sell only      at certain fixed prices. It will be further observed that the     retailers, to whom the jobbers in ordinary course of trade      would naturally sell rather than to the consuming public, and      who in turn sell and distribute these articles to and among      the ultimate consumers, are not included within the alleged      combination or conspiracy. * *  *

'The so-called license agreements, exhibited with the     indictment, are in my opinion, both in substance and effect,      only selling agreements. The title to the valves, valve     parts, pneumatic pressure gauges, and other automobile      accessories passed to the so-called licensees and licensed      jobbers.'

'Defendant urges that there is a manifest inconsistency     between the reasoning, if not between the holdings, of these      two cases [Dr. Miles Medical Co. v. Park & Sons Co., 220 U.     S. 373, 31 Sup. Ct. 376, 55 L. Ed. 502, and United States v.     Colgate Co., 250 U.S. 300, 39 Sup. Ct. 465, 63 L. Ed. 992];     that if the basic principles a nounced in the latter case are      to be taken in the ordinary sense imported by the language      the present case falls within the Colgate Case, and that,      properly construed, neither section 1 nor 2 of the Sherman      Anti-Trust Law makes the defendant's conduct a crime. The Dr. Miles Medical Company Case, standing alone, would seem to     require that this demurrer be overruled, and a holding that      the Sherman Anti-Trust Law is violated and a crime committed,      merely upon a showing of the making by defendant and two or      more jobbers of the agreements set up in the indictment,      certainly if the jobbers were competitors in the same territory. That case has been frequently cited as     establishing this proposition. * *  * The retailers are not in      the present case included. They may compete freely with one     another and may even give away the articles purchased by      them. No restriction is imposed which prevents them from     selling to the consumer at any price, even though it be at a      ruinous sacrifice and less than the price made to them by the      jobber, Personally, and with all due respect, permit me to      say that I can see no real difference upon the facts between      the Dr. Miles Medical Company Case and the Colgate Company      Case. The only difference is that in the former the     arrangement for marketing its product was put in writing,      whereas in the latter the wholesale and retail dealers      observed the prices fixed by the vendor. This is a     distinction without a difference. The tacit acquiescence of     the wholesalers and retailers in the prices thus fixed is the      equivalent for all practical purposes of an express      agreement. * *  *

'Granting the fundamental proposition stated in the Colgate     Case, that the manufacturer has an undoubted right to specify      resale prices and refuse to deal with any one who fails to      maintain the same, or, as further stated, the act does not      restrict the long-recognized right of a trader or      manufacturer engaged in an entirely private business freely      to exercise his own independent discretion as to the parties      with whom he will deal, and that he, of course, may announce      in advance the circumstances under which he will refuse to      sell, it seems to me that it is a distinction without a      difference to say that he may do so by the subterfuges and      devices set forth in the opinion and not violate the Sherman      Anti-Trust Act: yet if he had done the same thing in the form      of a written agreement, adequate only to effectuate the same      purpose, he would be guilty of a violation of the law. Manifestly, therefore, the decision in the Dr. Miles Medical     Case must rest upon some other ground than the mere fact that      there were agreements between the manufacturer and the wholesalers. * *      *

'The point, however, which I wish to emphasize is that the     allegations of this indictment, not alleging any purpose, or      facts from which such a purpose can be inferred, to      monopolize interstate trade, within the prohibition and      meaning of section 2 of the Sherman Anti-Trust Act and the      last clause of section 2 of the Clayton Act, does not charge      a crime under section 1 of the Sherman Anti-Trust Act as that      act should be construed.'

Our opinion in United States v. Colgate Co. declared quite plainly:

That upon a writ of error under the Criminal Appeals Act (34     Stat. 1246, c. 2564 [Comp. St. § 1704]) 'we have no authority      to revise the mere interpretation of an indictment and are      confined to ascertaining whether the court in a case under      review erroneously construed the statute.' 'We must accept      that court's interpretation of the indictments and confine      our review to the question of the construction of the statute      involved in its decision.' That we were confronted by an      uncertain interpretation of an indictment itself couched in      rather vague and general language, the meaning of the opinion      below being the subject of serious controversy. The     'defendant maintains that, looking at the whole opinion, it      plainly construes the indictment as alleging only recognition      of the manufacturer's undoubted right to specify resale      prices and refuse to deal with any one who failed to maintain      the same.' 'The position of the defendant is more nearly in      accord with the whole opinion and must be accepted; and as      counsel for the government were careful to state on the      argument that this conclusion would require affirmation of      the judgment below, an extended discussion of the principles      involved is unnecessary.'

'The purpose of the Sherman Act is to prohibit monopolies,     contracts, and combinations which probably would unduly      interfere with the free exercise of their rights by those engaged, or who      wish to engage, in trade and commerce-in a word, to preserve      the right of freedom to trade. In the absence of any purpose     to create or maintain a monopoly, the act does not restrict      the long-recognized right of trader or manufacturer engaged      in an entirely private business, freely to exercise his own      independent discretion as to parties with whom he will deal. And, of course, he may announce in advance the circumstances     under which he will refuse to sell.'

The court below misapprehended the meaning and effect of the opinion and judgment in that cause. We had no intention to overrule or modify the doctrine of Dr. Miles Medical Co. v. Park & Sons Co., where the effort was to destroy the dealers' independent discretion through restrictive agreements. Under the interpretation adopted by the trial court and necessarily accepted by us, the indictment failed to charge that Colgate Company made agreements, either express or implied, which undertook to obligate vendees to observe specified resale prices, and it was treated 'as alleging only recognition if the manufacturer's undoubted right to specity resale prices and refuse to deal with any one who fails to maintain the same.'

It seems unnecessary to dwell upon the obvious difference between the situation presented when a manufacturer merely indicates his wishes concerning prices and declines further dealings with all who fail to observe them, and one where he enters into agreements-whether express or implied from a course of dealing or other circumstances-with all customers throughout the different states which undertake to bind them to observe fixed resale prices. In the first, the manufacturer but exercises his independent discretion concerning his customers and there is no contract or combination which imposes any limitation on the purchaser. In the second, the parties are combined through agreements designed to take away dealers' control of their own affairs and thereby destroy competition and restrain the free and natural flow of trade amongst the states.

The principles approved in Dr. Miles Medical Co. v. Park & Sons Co., should have been applied. The judgment below must be reversed and the cause remanded for further proceedings in conformity with this opinion.

Reversed and remanded.

Mr. Justice CLARKE concurs in the result.

Mr. Justice HOLMES and Mr. Justice BRANDEIS dissent.