United States v. Colgate & Co.
250 U.S. 300 (1919)
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Rule of Law:
Under the Sherman Act, a manufacturer's unilateral announcement of a resale price policy and its refusal to deal with wholesalers or retailers who do not adhere to that policy does not constitute an unlawful combination or conspiracy in restraint of trade, in the absence of any agreement obligating the dealer to maintain the prices.
Facts:
- Colgate & Company, a manufacturer of soap and toilet articles, distributed lists to its wholesale and retail dealers suggesting uniform resale prices for its products.
- Colgate informed dealers that it would refuse to sell to any dealer who resold the products at prices lower than those suggested.
- The company requested, and often received, information from dealers about other dealers who were not adhering to the suggested prices.
- Colgate maintained 'suspended lists' of dealers who were found to have deviated from the suggested prices.
- The company would refuse to sell its products to dealers on the suspended lists.
- Colgate would resume selling to a dealer only after receiving assurances and promises that the dealer would adhere to the resale price policy in the future.
Procedural Posture:
- The United States filed an indictment against Colgate & Company in the U.S. District Court for the Eastern District of Virginia.
- The indictment charged Colgate with creating an unlawful combination in restraint of trade in violation of the Sherman Antitrust Act.
- Colgate & Company demurred to the indictment, arguing that the facts alleged did not constitute a criminal offense.
- The District Court sustained the demurrer, quashing the indictment on the grounds that it failed to charge an offense under the Sherman Act.
- The United States, as the appellant, took a direct writ of error to the Supreme Court of the United States.
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Issue:
Does a manufacturer's unilateral announcement of a resale price policy and subsequent refusal to deal with customers who do not adhere to that policy, without any express or implied agreement, create a 'combination' in restraint of trade in violation of the Sherman Act?
Opinions:
Majority - Mr. Justice McReynolds
No, this conduct does not create a 'combination' in violation of the Sherman Act. The Sherman Act does not restrict the long-recognized right of a trader or manufacturer, engaged in a private business, to freely exercise independent discretion as to the parties with whom they will deal. In the absence of any purpose to create or maintain a monopoly, a manufacturer may announce in advance the circumstances under which it will refuse to sell. This case is distinguished from Dr. Miles Medical Co. v. Park & Sons Co., where an unlawful combination was formed through actual contracts that obligated dealers to certain resale prices. Here, the indictment, as interpreted by the trial court, does not allege any such agreement. After purchasing the goods, a retailer was free to sell at any price, with the only consequence being the manufacturer's potential future refusal to sell to them, which is a manufacturer's right.
Analysis:
This case established the 'Colgate Doctrine,' which created a significant, albeit narrow, safe harbor for manufacturers wishing to implement resale price maintenance (RPM) policies. The decision clarified that the Sherman Act's prohibition on 'combinations' requires some form of concerted action or agreement, not merely a manufacturer's unilateral action and a dealer's acquiescence to continue a business relationship. While subsequent cases have narrowed its application, the core principle—that a truly unilateral refusal to deal is not an antitrust violation—remains a fundamental concept in antitrust law. It provides a risky but potentially lawful path for manufacturers to influence downstream pricing without entering into per se illegal price-fixing agreements.
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