White Motor Company v. United States/Dissent Clark

Mr. Justice CLARK, with whom THE CHIEF JUSTICE and Mr. Justice BLACK join, dissenting.

The Court is reluctant to declare vertical territorial arrangements illegal per se because 'This is the first case involving a territorial restriction in a vertical arrangement; and we know too little of the actual impact * *  * of that restriction *  *  * to reach a conclusion on the bare bones of the documentary evidence before us.' The 'bare bones' consist of the complaint and answer, excerpts from interrogatories, exhibits and deposition of the secretary of White Motor on behalf of the Government, taken in 1959, the formal motion of the Government for summary judgment and an excerpt entitled 'Argument' from the brief of White Motor in opposition thereto. I believe that these 'bare bones' really lay bare one of the most brazen violations of the Sherman Act that I have experienced in a quarter of a century.

This 'argument,' which the appellant has convinced the Court raises a factual issue requiring a trial, points out that each distributor is required to maintain a sales room, service station and a representative number of White trucks. 'In return for these agreements of the distributor * *  * it is only fair and reasonable and, in fact, necessary *  *  * that the distributor shall be protected in said distributor's territory against selling therein by defendant's other distributors *  *  * who have not made the investment of money and effort *  *  * in the said territory.' Likewise, appellant's argument continues, 'similar provisions in direct dealers' contracts and in contracts between the distributors and their respective dealers have the same purposes and the same effects.' These limitations have 'the purpose and effect of promoting the business and increasing the sales of White trucks in competition with The White Motor Company's powerful competitors.' Emphasizing that the motor-truck manufacturing industry is one of 'the most highly competitive industries in this country,' appellant points up that its share 'is very small' and 'by no stretch of the imagination, could be said to dominate the market in trucks.' It insists that there are but two ways to market trucks: (1) selling to the public through its own sales and service stations, and (2) through the distributor-dealer distribution system which it presently follows. It discards the first as being 'feasible only for a very large company.' As to the second, the distributors and dealers must not be allowed to spread their efforts 'too thinly over more territory than they can vigorously and intensively work.' It is therefore necessary, appellant says, 'to confine their efforts to a territory no larger than they have the financial means and sales and service facilities and capabilities to intensively cultivate * *  * .' In return 'it is only fair and reasonable, and indeed necessary, that The White Motor Company protect its dealers and distributors in their respective allotted territories against the exploitation by other White distributors or dealers, and indeed by the Company itself *  *  * .' In order to procure 'distributors and dealers that will adequately represent The White Motor Company's line of motor trucks, (it) has to agree that these men shall be exclusive sales representatives in a given territory.' For this reason appellant 'will not allow any other of its distributors or dealers to come into the territory and scalp the market for White trucks therein.' Rather than 'cutting each other's throats' White Motor insists that they 'concentrate on trying to take sales away from other competing truck manufacturers *  *  * .' The net effect of its justification for the territorial allocation is that 'these limitations have proper purposes and effects and are fair and reasonable *  *  * .' (Italicized in original.)

On the price-fixing requirement in the contracts, which White Motor has abandoned on appeal, the 'argument' points out that this requirement was limited to about 5% of its sales and was not followed in sales to the public. Justification for its use otherwise was that it insured that all of its agents 'get an equal break pricewise,' which was a necessary step to having 'satisfied and efficient dealer organizations.' As to the required discounts provision on repair parts and accessories, it says that these are necessary 'if the defendant's future sales to 'National Accounts,' 'Fleet Accounts' and Federal and State governments * *  * and political subdivisions *  *  * are not to be seriously jeopardized.' After all, it says, 'probably nothing will make the owner of a motor vehicle so peeved as to be overcharged for repair parts and accessories.'

The situation in which White Motor finds itself may be summed up in its own words, i.e., that its contracts are 'the only feasible way for (it) to compete effectively with its bigger and more powerful competitors * *  * .' In this justification it attempts but to make a virtue of business necessity, which has long been rejected as a defense in such cases. See Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373, 407-408, 31 S.Ct. 376, 384, 55 L.Ed. 502 (1911); Fashion Originators' Guild of America v. Federal Trade Comm'n, 312 U.S. 457, 467-468, 61 S.Ct. 703, 707-708, 85 L.Ed. 949 (1941), and Northern Pac. R. Co. v. United States, 356 U.S. 1, 5, 78 S.Ct. 514, 518, 2 L.Ed.2d 545 (1958). This is true because the purpose of these provisions in its contracts as shown by White Motor's own 'argument' is to enable it to compete with its 'powerful competitors' and 'protect its dealers and distributors in their respective allotted territories against the exploitation by other White distributors or dealers' and thus prevent them from 'cutting each other's throats.' These grounds for its action may be good for White Motor but they are disastrous for free competitive enterprise and, if permitted, will destroy the effectiveness of the Sherman Act. For under these contracts a person wishing to buy a White truck must deal with only one seller who by virtue of his agreements with dealer competitors has the sole power as to the public to set prices, determine terms and even to refuse to sell to a particular customer. In the latter event the customer could not buy a White truck because a neighboring dealer must reject him under the White Motor contract unless he has 'a place of business and/or purchasing headquarters' in the latter's territory. He might buy another brand of truck, it is true, but the existence of interbrand competition has never been a justification for an explicit agreement to eliminate competition. See United States v. McKesson & Robbins, Inc., 351 U.S. 305, 76 S.Ct. 937, 100 L.Ed. 1209 (1956). Likewise each White Motor dealer is isolated from all competition with other White Motor dealers. One cannot make a sale or purchase of a White Motor truck outside of his own territory. He is confined to his own economic island.

I have diligently searched appellant's offer of proof but fail to find any allegation by it that raises an issue of fact. All of its statements are economic arguments or business necessities none of which have any bearing on the legal issue. It clearly appears from its contracts that 'all room for competition between retailers (dealers), who supply the public, is made impossible.' John D. Park & Sons Co. v. Hartman, 153 F. 24, 42 (C.A.6th Cir.), opinion by Mr. Justice Lurton, then circuit judge, and adopted by Mr. Justice Hughes, later Chief Justice, in Dr. Miles Medical Co. v. John D. Park & Sons Co., supra, 220 U.S. at 400, 31 S.Ct. at 381 (1911). I have read and re-read appellant's 'argument' and even though I give it the dignity of proof I return to the conclusion, as did Mr. Justice Lurton, that 'If these contracts leave any room at any point of the line for the usual play of competition between the dealers * *  * it is not discoverable.' Ibid.

This Court, it is true, has never held whether there is a difference between market divisions voluntarily undertaken by a manufacturer such as White Motor and those of dealers in a commodity, agreed upon by themselves, such as were condemned in Timken Roller Bearing Co. v. United States, 341 U.S. 593, 71 S.Ct. 971, 95 L.Ed. 1199 (1951). White does not contend that its distribution system has any less tendency to restrain competition among its distributors and dealers than a horizontal agreement among such distributors and dealers themselves. It seems to place some halo around its agreements because they are vertical. But the intended and actual effect is the same as, if not even more destructive than, a price-fixing agreement or any of its per se counterparts. This is true because price-fixing agreements, being more easily breached, must be continually policed by those forming the combination, while contracts for a division of territory, being easily detected, are practically self-enforcing. Moreover, White Motor has admitted that each of its distributors and dealers, numbering some 300, has entered into identical contracts. In its 'argument' it says that 'it has to' agree to these exclusive territorial arrangements in order to get financially able and capable distributors and dealers. It has nowise denied that it has been required by the distributors or dealers to enter into the contracts. Indeed the clear inference is to the contrary. The motivations of White Motor and its distributors and dealers are inextricably intertwined; the distributors and dealers are each acquainted with the contracts and have readily complied with their requirements, without which the contracts would be of no effect. It is hard for me to draw a distinction on the basis of who initiates such a plan. Indeed under Interstate Circuit, Inc., v. United States, 306 U.S. 208, 223, 59 S.Ct. 467, 473, 83 L.Ed. 610 (1939), the unanimity of action by some 300 parties here forms the basis of an 'understanding that all were to join' and the economics of the situation would certainly require as much. There this Court on a much weaker factual basis held:

'It texes credulity to believe that the several distributors     would, in the circumstances, have accepted and put into      operation with substantial unanimity such *  *  * methods      without some understanding that all were to join, and we      reject as beyond the range of probability that it was the      result of mere chance.'

Likewise, the other restrictions in the contracts run counter to the Sherman Act. This Court has held the restriction on the withholding of customers to be illegal as a contract between potential competitors not to compete, United States v. McKesson & Robbins, Inc., supra, 351 U.S. at 312, 76 S.Ct. at 941 (1956), and White Motor's prohibition on resales without its approval is condemned by United States v. Bausch & Lomb Co., 321 U.S. 707, 721, 64 S.Ct. 805, 812, 88 L.Ed. 1024 (1944). Experience, as well as our cases, has shown that these restrictions have a 'pernicious effect on competition and lack * *  * any redeeming virtue *  *  * .' Northern Pac. R. Co. v. United States, supra, 356 U.S., at 5, 78 S.Ct., at 518.

The Court says that perhaps the reasonableness or the effect of such arrangements might be subject to inquiry. But the rule of reason is inapplicable to agreements made solely for the purpose of eliminating competition. United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 60 S.Ct. 811, 84 L.Ed. 1129 (1940) (price fixing); Fashion Originators' Guild v. Federal Trade Comm'n, supra (group boycotts); International Salt Co. v. United States, 332 U.S. 392, 68 S.Ct. 12, 92 L.Ed. 20 (1947), and United States v. National Lead Co., 332 U.S. 319, 67 S.Ct. 1634, 91 L.Ed. 2077 (1947) (tying arrangements); Timken Roller Bearing Co. v. United States, supra; Nationwide Trailer Rental System v. United States, 355 U.S. 10, 78 S.Ct. 11, 2 L.Ed.2d 20 (1957), affirming 156 F.Supp. 800 (D.C.D.Kan.1957), and United States v. National Lead Co., supra (division of markets). The same rule applies to the contracts here. The offered justification must fail because it involves a contention contrary to the public policy of the Sherman Act, which is that the suppression of competition is in and of itself a public injury. To admit, as does the petitioner, that competition is eliminated under its contracts is, under our cases, to admit a violation of the Sherman Act. No justification, no matter how beneficial, can save it from that interdiction.

The thrust of appellant's contention seems to be in essence that it cannot market its trucks profitably without the advantage of the restrictive covenants. I note that other motor car manufacturers-including the 'big three'-abandoned the practice over a decade ago. One of these, American Motors, told the Eighty-fourth Congress, before which legislation was pending to permit division of territory, that it was 'not in favor of any legislation, permissive or otherwise, that restricts the right of the customer to choose any dealers from whom he desires to purchase.' Hearings before a Subcommittee of the House Committee on Interstate and Foreign Commerce on Automobile Marketing Legislation, 84th Cong., p. 285. American Motors seems to have been able to survive and prosper against 'big three' competition. But even though White Motor gains an advantage through the use of the restrictions, 'the question remains whether it is one which (it) is entitled to secure by agreements restricting the freedom of trade on the part of dealers who own what they sell.' Dr. Miles Medical Co., supra, 220 U.S. at 407-408, 31 S.Ct. at 384. And, Mr. Justice Hughes continued:

'As to this, the complainant can fare no better with its plan     of identical contracts than could the dealers themselves if      they formed a combination and endeavored to establish the      same restrictions, and thus to achieve the same result, by      agreement with each other. If the immediate advantage they     would thus obtain would not be sufficient to sustain such a      direct agreement, the asserted ulterior benefit to the      complainant cannot be regarded as sufficient to support its      system.' Id., at 408, 31 S.Ct., at 384.

The milk in the coconut is that White Motor 'having sold its product at prices satisfactory to itself, the public is entitled to whatever advantage may be derived from competition in the subsequent traffic.' Id., at 409, 31 S.Ct., at 385.

Today the Court does a futile act in remanding this case for trial. In my view appellant cannot plead nor prove an issue upon which a successful defense of its contracts can be predicated. Neither time (I note the case is now in its sixth year) nor all of the economic analysts, the statisticians, the experts in marketing, or for that matter the ingenuity of lawyers, can escape the unalterable fact that these contracts eliminate competition and under our cases are void. The net effect of the remand is therefore but to extend for perhaps an additional five years White Motor's enjoyment of the fruits of its illegal action. Certainly the decision has no precedential value in substantive antitrust law.