United States v. Parke, Davis & Co.
362 U.S. 29 (1960)
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Rule of Law:
A manufacturer creates an illegal combination in violation of the Sherman Act when it goes beyond a mere announcement of a resale price policy and a simple refusal to deal with non-compliant customers. Affirmative actions taken to enforce the policy, such as enlisting wholesalers to cut off non-compliant retailers or securing assurances of compliance from retailers, constitute an unlawful combination to fix prices.
Facts:
- Parke, Davis & Co., a pharmaceutical manufacturer, published a resale price maintenance policy in its catalogues, suggesting minimum prices for its products to be followed by both wholesalers and retailers.
- In 1956, in areas without Fair Trade laws, several drug retailers in Washington, D.C., and Richmond, Virginia, began advertising and selling Parke Davis vitamin products below the suggested minimum prices.
- In response, Parke Davis representatives visited its five wholesalers and informed them that Parke Davis would refuse to sell to any wholesaler who continued to supply products to retailers who did not observe the suggested prices. The wholesalers indicated their willingness to comply.
- Parke Davis representatives then individually visited the price-cutting retailers, informing each that Parke Davis would cut them off and that wholesalers would also refuse to sell them any Parke Davis products if they did not adhere to the price policy.
- When several retailers continued to sell at a discount, Parke Davis supplied their names to the wholesalers, who then refused to fill orders from those retailers for all Parke Davis products.
- Parke Davis also secured an assurance from a large retail chain, Peoples Drug Stores, that it would stop cutting prices and abide by the company's policy.
- Later, Parke Davis organized a collective suspension of discount advertising by retailers, acting as an intermediary to secure mutual assurances of compliance from each retailer before resuming shipments to them.
Procedural Posture:
- The United States Government filed a civil action against Parke, Davis & Co. in the U.S. District Court for the District of Columbia.
- The Government's complaint sought an injunction, alleging that Parke Davis's price maintenance program constituted a combination and conspiracy in violation of §§ 1 and 3 of the Sherman Act.
- After the Government presented its evidence at trial, the District Court granted Parke Davis's motion to dismiss the complaint.
- The District Court held that Parke Davis's actions were unilateral and legally sanctioned under the doctrine established in United States v. Colgate & Co.
- The Government, as the losing party, filed a direct appeal to the Supreme Court of the United States.
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Issue:
Does a manufacturer create an illegal combination in violation of §§ 1 and 3 of the Sherman Act when it enlists wholesalers to refuse to sell to non-compliant retailers and takes other affirmative steps to secure retailers' adherence to its suggested resale prices, beyond simply announcing its policy and unilaterally refusing to deal?
Opinions:
Majority - Mr. Justice Brennan
Yes. A manufacturer's conduct that goes beyond a mere announcement of policy and a simple refusal to deal creates an unlawful combination under the Sherman Act. Parke Davis did not simply refuse to deal; it actively enlisted wholesalers as enforcers of its resale price maintenance scheme against retailers. By using its wholesalers to cut off supplies to non-compliant retailers, Parke Davis became the organizer of a combination with the retailers and wholesalers to maintain retail prices. This conduct, along with its separate efforts to secure collective adherence to its advertising policy, went far beyond the limited protection of the Colgate doctrine and constituted an illegal combination in restraint of trade.
Dissenting - Mr. Justice Harlan
No. The majority opinion effectively overrules the long-standing Colgate doctrine, which permits a manufacturer to unilaterally announce its resale price policy and refuse to deal with those who do not comply. The District Court correctly found that Parke Davis's actions were unilateral and that there was no agreement, understanding, or concert of action with its distributors. The majority errs by creating a new, vague standard for a 'combination' that is not supported by the Sherman Act's text or by precedent like Beech-Nut, and by improperly disregarding the trial court's factual findings that no coercion or agreement existed.
Concurring - Mr. Justice Stewart
Yes. The record clearly demonstrates an illegal combination to maintain retail prices. However, it is unnecessary to question or narrow the continuing validity of the Colgate doctrine to reach this conclusion. The facts of this case are sufficient on their own to establish an unlawful combination without re-evaluating prior precedent.
Analysis:
This case significantly narrows the scope of the Colgate doctrine, which protects a manufacturer's right to unilaterally refuse to deal with price-cutting customers. The Court's analysis shifts the inquiry from whether a formal 'agreement' exists to whether the manufacturer took affirmative actions beyond a simple refusal to sell to enforce its policy. By holding that enlisting third parties (wholesalers) or organizing collective action among customers creates an illegal combination, the decision makes it far more difficult for manufacturers to maintain resale prices without running afoul of the Sherman Act. This precedent reinforces that any collaborative effort, even if orchestrated by the manufacturer, to stabilize prices is illegal per se.
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