MONSANTO COMPANY, PETITIONER v. SPRAY-RITE SERVICE CORPORATION

   No. 82-914

   In the Supreme Court of the United States

   October Term, 1982

   On Writ of Certiorari to the United States Court of Appeals for the
Seventh Circuit

   Brief for the United States as Amicus Curiae in Support of
Petitioner

            TABLE OF CONTENTS
   Interest of the United States
   Statement
   Summary of argument
   Argument:
      I. Evidence that distributors of a product complained to the
          manufacturer about another distributor, coupled with the
          subsequent termination of the latter distributor, is
          insufficient to prove that the termination was the
          result of concerted action between the complaining
          distributors and the manufacturer.
      II. The court of appeals incorrectly held that Monsanto's
          marketing program was subject to antitrust scrutiny
          under the per se rule.
          A. In the absence of evidence connecting Monsanto's
             marketing program to a resale price maintenance
             scheme, the challenged practices and restrictions
             are nonprice vertical restrictions that should be
             tested against the rule of reason.
          B. The court of appeals should not have presumed
             Monsanto's marketing program to have been unlawful
             even if it was adopted as part of a resale price
             maintenance scheme.
   Conclusion

                          QUESTIONS PRESENTED

   1. Whether evidence that some distributors of a product complained
to the manufacturer about the pricing activities of a particular
distributor, coupled with the manufacturer's subsequent termination of
that distributor, is sufficient to permit an inference that the
termination was the result of concerted action between the complaining
distributors and the manufacturer, in violation of Section 1 of the
Sherman Act, 15 U.S.C. 1.

   2. Whether nonprice vertical restrictions can be deemed per se
violations of Section 1 of the Sherman Act merely because they are
alleged to be part of a resale price maintenance scheme, precluding
inquiry into the competitive effect of those restrictions.

                     INTEREST OF THE UNITED STATES

   The United States, which has primary responsibility for enforcement
of the federal antitrust laws, has a substantial interest in assuring
that the Sherman Act is construed in a manner that most effectively
advances the Act's objective of protecting the Nation's competitive
economic system.

                               STATEMENT

   1. Petitioner Monsanto Company ("Monsanto") manufactures chemical
products, including agricultural herbicides.  Respondent Spray-Rite
Service Corporation ("Spray-Rite") was engaged in the wholesale
agricultural chemical business from 1955 to 1972;  it was a
low-margin, high volume business whose owner and president was its
sole salesman.  Spray-Rite bought herbicides from Monsanto and other
manufacturers, and resold them to retail dealers and farmers in
northern Illinois and adjacent areas (Pet. App. A-2;  J.A. A-100;
Pltff. Exh. 201;  Tr. 95, 164, 594).  /1/ This lawsuit arises out of
Monsanto's refusal to renew its distribution agreement with Spray-Rite
in 1968 (Pet. App. A-3).

   During the period at issue, Monsanto sold its herbicides primarily
through a network of about 100 independent, nonexclusive, wholesale
distributors, including Spray-Rite (Pet. App. A-2 to A-3).  While
Monsanto assigned each distributor a geographic area of primary
responsibility, the distributors could sell outside their areas, and
the areas of responsibility overlapped;  for example, 25 Monsanto
distributors had primary areas that overlapped to varying degrees with
Spray-Rite's (see id. at A-2;  Tr. 1519-1525).  /2/

   Monsanto and other firms produce various corn herbicides to improve
crop yields (Tr. 3217-3222).  By the late 1960's, Monsanto's sales
accounted for 15% of the corn herbicide market, while its chief
competitor, Geigy, "dominated the market" with a 70% share (Tr. 2881,
3303-3305;  J.A. A-114).  Monsanto was dissatisfied with this
situation and sought to improve its efforts to educate retail dealers
and farmers about the technical advantages of its products (Tr.
3236-3245).  /3/ Accordingly, in 1967 Monsanto informed its
distributors, including Spray-Rite, that it would reappoint them only
for one-year terms, based on compliance with six criteria, including:
(1) whether the distributor's primary activity was soliciting sales to
retail herbicide dealers;  (2) whether the distributor employed
trained sales personnel capable of implementing Monsanto's new
customer education programs for retail dealers and farmers;  and (3)
whether the distributor was "exploit(ing) fully" the herbicide market
in its area of primary responsibility (Pet. App. A-3;  J.A. A-59 to
A-61).  After Monsanto's market position deteriorated even further in
1968 -- its herbicide sales decreased 30% from 1967 (Tr. 3243) --
Monsanto introduced a new herbicide, reduced the distributor and
suggested retail prices of a second herbicide, suggested that
distributor profit margins be reduced, changed its shipping policies
to provide for free delivery only within the distributor's primary
area of responsibility, and began to give cash bonuses to distributors
who participated in Monsanto's technical schools or made technical
presentations to retail dealers and farmers concerning Monsanto
products (Pet. App. A-3).  This marketing program seems to have had
the desired effect:  in the four years following implementation of the
new policies, Monsanto nearly doubled its share of the corn herbicide
market from 15% to 28%, at the expense of the dominant manufacturer
(J.A. A-114 to A-115).

   In the fall of 1968, Monsanto informed Spray-Rite that its
distributorship would not be renewed.  At that time, 80% of
Spray-Rite's herbicide sales were sales of Geigy products;  only 16%
were sales of Monsanto products (see Pet. App. A-3;  Tr. 932-942).
/4/

   Herbicide distributors often engaged in price cutting (e.g., Tr.
2234) and over the years Monsanto had received numerous complaints
from its distributors about the low resale prices of other
distributors (Tr. 181, 184), including Spray-Rite (Pet. App. A-16).
/5/ Spray-Rite's president testified that on one occasion Monsanto
threatened that "retaliation was going to take place" if he did not
follow the suggested resale prices (Tr. 711).  But Monsanto did not
receive any complaints about Spray-Rite's pricing or discuss
Spray-Rite's status with other distributors during the year prior to
its decision not to renew Spray-Rite (Tr. 1379-1403).  After the
nonrenewal in 1968, Spray-Rite continued to sell herbicides, including
Monsanto products purchased from other distributors (Pltff. Exh. 133;
Tr. 912-915), until it ceased operations in 1972 (Pet. App. A-4).

   2. Spray-Rite then sued Monsanto, alleging that the refusal to
renew its distributorship, combined with a post-termination boycott by
Monsanto and its distributors, had forced Spray-Rite out of business
and that Monsanto and its distributors had conspired to implement a
resale price maintenance scheme (J.A. A-3).  Monsanto denied engaging
in resale price maintenance, argued that its marketing program
consisted of legitimate nonprice restrictions designed to improve the
efficiency of its distribution system, and contended that the
termination was a unilateral act prompted by Spray-Rite's failure to
satisfy Monsanto's announced distributorship criteria.

   In answering three special interrogatories, the jury found for
Spray-Rite on each of its three theories of per se violation.  /6/ The
jury returned a general verdict against Monsanto, assessing damages of
$3.5 million, which were trebled by the district court.  See 15 U.S.C.
15.

   3. The court of appeals affirmed (Pet. App. A-1 to A-42).  First,
the court noted that Monsanto had received numerous complaints about
Spray-Rite's pricing and subsequently terminated Spray-Rite;  the
court held that evidence "of termination following competitor
complains is sufficient to support an inference of concerted action"
(id. at A-15).  Second, the court held that Monsanto's marketing
program -- the territorial assignments, distributor education and
compensation programs and shipping policy -- was properly deemed per
se unlawful, rather than analyzed under the rule of reason, because it
was alleged to be "part of an unlawful scheme to fix prices" (id. at
A-12).  Finally, the court ruled that the jury was instructed properly
on Spray-Rite's boycott claim and that there was sufficient evidence
to support the jury's verdict (id. at A-9 to A-11, A-18).  /7/

                          SUMMARY OF ARGUMENT

   1. The court of appeals erred in holding that evidence of
distributor complaints, followed by termination, sufficed to prove
concerted action between Monsanto and distributors other than
Spray-Rite.  This decision undermines the crucial distinction in
Section 1 of the Sherman Act, 15 U.S.C. 1, between collective and
unilateral conduct.  Any manufacturer faces numerous choices in
deciding how its product can be marketed in the manner most likely to
assure success against rival products.  For those companies that
choose to sell through distributors, it is the distributors who may
have the best perception of how marketing policies fare in practice.
Accordingly, the flow of information from distributors to
manufacturers can be highly beneficial in devising strategies for
interbrand competition.  By using such communications as the lever for
finding a per se violation, the court of appeals would place in
jeopardy all manufacturers who follow the helpful, and often
procompetitive, practice of listening to their distributors.

   2. The court of appeals also erred in holding that a marketing
program -- which on its face involved nonprice arrangements designed
to promote effective interbrand competition -- is per se illegal
merely because it is alleged to have had an effect on price.  This
holding is contrary to Continental T.V., Inc. v. GTE Sylvania, Inc.,
433 U.S. 36 (1977), which held that nonprice measures are subject to
analysis under the rule of reason.  Sylvania recognized that such
practices may enhance interbrand competition, which is "the primary
concern of antitrust law" (id. at 52 n.19), and thus do not warrant
per se condemnation.  But the decision below would undermine Sylvania
by avoiding the competitive analysis this Court required merely
because an effect on price is alleged.  Since even the arrangements
involved in Sylvania would probably affect price, the decision below
would largely undo Sylvania as a practical matter.

   This suggests a more fundamental reason why the court of appeals'
decision should be vacated.  There is no sound basis for assuming, as
courts have since Dr. Miles Medical Co. v. John D. Park & Sons Co.,
220 U.S. 373 (1911), that resale price maintenance is so invariably
anticompetitive as to justify per se condemnation.  In many cases,
resale price maintenance may have the same effect as the nonprice
measures Sylvania removed from the category of per se offenses:  they
may be highly procompetitive and enhance consumer welfare by
stimulating interbrand rivalry.  Resale price maintenance may be
anticompetitive in certain contexts;  but abandonment of the per se
standard would not require courts, in order to identify those
contexts, to engage in the protracted proceedings that the rule of
reason is sometimes thought to entail.  There are readily
ascertainable objective criteria for determining whether, in a
particular market, resale price maintenance is likely to have adverse
effects.  In cases where these criteria are not satisfied there is
justification neither for extended factual inquiry nor for automatic
condemnation;  and in cases where adverse effects may exist, liability
will still be imposed.  But the overbroad rule that prohibits all
resale price maintenance, without regard to its actual impact in the
marketplace, is unwarranted;  it disserves consumers by precluding
beneficial practices along with those that are pernicious.

                               ARGUMENT

   I. EVIDENCE THAT DISTRIBUTORS OF A PRODUCT COMPLAINED TO

      THE MANUFACTURER ABOUT ANOTHER DISTRIBUTOR, COUPLED WITH THE
      SUBSEQUENT TERMINATION OF THE LATTER DISTRIBUTOR, IS
      INSUFFICIENT TO PROVE THAT THE TERMINATION WAS THE RESULT OF
      CONCERTED ACTION BETWEEN THE COMPLAINING DISTRIBUTORS AND THE
      MANUFACTURER

   The court of appeals held that a terminated distributor can prove
the element of concerted action required by Section 1 of the Sherman
Act, 15 U.S.C. 1, simply by showing:  (a) that the manufacturer
received complaints about the plaintiff's pricing from other
distributors;  and (b) that the manufacturer subsequently terminated
the plaintiff (Pet. App. A-15 to A-16).  This holding misconstrues the
nature of unlawful agreements under the Sherman Act, conflicts with
the decisions of other courts of appeals, and threatens seriously
adverse consequences to the efficient functioning of vertical
distribution systems.

   1. The principal concern underlying Section 1 is that firms in
direct competition will combine to coordinate their decisions and
eliminate rivalry among themselves.  /8/ Accordingly, a manufacturer's
independent decisions about the pricing and distribution of its
product do not violate Section 1, for the statute bars only concerted
activities in restraint of trade.  United States v. Colgate & Co., 250
U.S. 300, 307 (1919).  Indeed, a manufacturer's freedom unilaterally
to regulate the distribution of its product so as to win customers
from its rivals is the very essence of competition.  /9/ To permit
proof of a Section 1 violation to rest merely on
complaint-and-termination evidence, as the court of appeals did,
undermines Section 1's crucial distinction between collective and
unilateral conduct, because such evidence does not in itself identify
concerted action that may adversely affect competition.

   It is often in a manufacturer's self-interest to terminate a dealer
who violates a distributional restriction or otherwise disrupts the
manufacturer's sales strategy.  As the Seventh Circuit itself recently
observed in Valley Liquors, Inc. v. Renfield Importers, Ltd., 678 F.2d
742, 744 (1982):

      If a supplied wants his distributors to emphasize nonprice
      rather than price competition, which * * * is the usual reason
      why he would restrict his distribution, he will be hostile to
      price cutters because they will make it harder for his other
      distributors to recoup the expenditures that he wants them to
      make on presale services to consumers and on other forms of
      nonprice competition, and of course the undersold distributors
      will be equally or more hostile.

   Such a coincidence of desires, standing alone, can no more support
the inference of conspiracy in a dealer termination case than can
evidence of consciously parallel conduct support such an inference in
a case of horizontal price fixing.  /10/ Rather, something more is
needed to permit the trier of fact to infer that the supplier and
complaining distributors had "a common design and understanding, or a
meeting of minds in an unlawful arrangement" -- the essence of the
agreement element of a Section 1 violation.  American Tobacco Co. v.
United States, 328 U.S. 781, 810 (1946).  /11/

   To infer concerted action (in the absence of direct evidence of
collusion) /12/ requires a showing that the conduct is not in the
individual self-interest of the participants, acting independently,
and is in their collective and self-interest only when they coordinate
their actions.  /13/ It is "not enough to show that (the complaining
distributors), acting separately * * * wanted to get rid of a
competitor;  there must also be evidence that in terminating (the
plaintiff, the supplier) was acceding to their desire rather than
acting to promote an independent conception of its self-interest."
Valley Liquors, supra, 678 F.2d at 744.  At most, the evidence deemed
sufficient by the court of appeals here is probative only of the
existence of parallel desires on the part of Monsanto and some of its
distributors to see Spray-Rite terminated, and provides no guidance on
whether these parallel desires were the result of collusion.

   2. The standard adopted by the court of appeals would impede the
flow of information between a manufacturer and its distributors that
is crucial to the operation of efficient distribution systems, and
thus would injure consumer interests that the Sherman Act is meant to
protect.  /14/ Distributors are in a position to obtain considerable
insight into their supplier's distribution system and into
efficiencies that may arise from either the design of the system or
the manner in which it is implemented.  Distributors who would benefit
from a more efficient system have an incentive to communicate their
ideas for improvement to the supplier, and the supplier has an obvious
incentive to implement efficiency-enhancing ideas, even if they
require terminating some distributors.  In practical effect, however,
the Seventh Circuit's rule could virtually immunize dealers from
termination once a competitor has complained.  Suppliers who maintain
good communications with their distributors would be rendered
powerless to take action against disruptive dealers who threaten the
efficient operation of their distribution systems, unless the
suppliers are willing to run the risk of incurring treble damages with
no opportunity to show the procompetitive nature of their actions.
/15/ This is not, after all, a situation involving communications
between competitiors -- which is the prime concern of Section 1 -- but
between persons who are cooperating in the sale of a single product
and who have ongoing contractual relationships.  /16/

   This Court should reject the court of appeals' extraordinarily
broad interpretation of the concerted action requirement, an
interpretation that fails to require more than ambiguous evidence, and
threatens to disrupt long-established and competitively sound methods
of dealer-manufacturer communications.  /17/

   II. THE COURT OF APPEALS INCORRECTLY HELD THAT MONSANTO'S

      MARKETING PROGRAM WAS SUBJECT TO ANTITRUST SCRUTINY UNDER THE
      PER SE RULE

   As noted above, at about the time of Spray-Rite's nonrenewal,
Monsanto instituted a new marketing program, including territorial
assignments for distributors, compensation for distributors who
participated in Monsanto's new customer education programs, and free
delivery of herbicides to locations within the distributor's primary
area of responsibility.  The court of appeals erred in ruling that the
jury could find this new marketing program to be a per se violation of
Section 1 merely because it was alleged to have an effect on price,
and thus to be part of a resale price maintenance scheme (Pet. App.
A-11 to A-13).  /18/ By permitting the line between nonprice and price
arrangements to be blurred in this way, the court of appeals' ruling
undermines the approach adopted by this Court in Sylvania and
threatens to stifle many types of procompetitive nonprice measures
taken by manufacturers to improve their products' competitive
position.  More fundamentally, the court of appeals' decision exposes
the difficulties inherent in analyzing "nonprice" vertical
restrictions under the rule of reason, while treating vertical price
restrictions -- resale price maintenance -- as unlawful per se.

 A. In The Absence of Evidence Connecting Monsantos Marketing Program
to a Resale Price Maintenance Scheme, the Challenged Practices and
Restrictions Are Nonprice Vertical Restrictions That Should Be Tested
Against the Rule of Reason

   1. Although the Sherman Act, read literally, prohibits all
restraints of trade that result from concerted action, this Court long
has held that it precludes only those restraints that are
"unreasonably restrictive of competitive conditions." Standard Oil Co.
v. United States, 221 U.S. 1, 58 (1911);  accord, National Society of
Professional Engineers v. United States, 435 U.S. 679, 690 (1978).
The unreasonableness of a restraint of trade must be established by
either (1) evidence that the restraint is demonstrably anticompetitive
in the circumstances of the case (the rule of reason), or (2) a
conclusive presumption of unreasonableness based on the general
character of the challenged conduct (the per se rule).  See
Professional Engineers, supra, 435 U.S. at 687-692;  Sylvania, supra,
433 U.S. at 49-50;  Northern Pacific Ry. v. United States, 356 U.S. 1,
5 (1958).  The rule of reason is the normal test of the legality of a
restraint;  the per se rule is employed only in those limited
circumstance where courts have had considerable experience with the
type of conduct challenged, and consistently have found the conduct to
cause a "pernicious effect on competition and (to) lack * * * any
redeeming virtue." Northern Pacific, supra, 356 U.S. at 5;  see
Broadcast Music, Inc. v. CBS, 441 U.S. 1, 8 (1979).  In either event,
"the purpose of the analysis is to form a judgment about the
competitive significance" of the alleged restraint.  Professional
Engineers, supra, 435 U.S. at 692.

   2. In Sylvania, this Court held that nonprice vertical restrictions
present sufficient procompetitive potential to preclude per se
treatment.  433 U.S. at 49-50.  Although the Court only ten years
before in United States v. Arnold, Schwinn & Co., 388 U.S. 365 (1967),
had ruled that distributional restrictions similar to those involved
in Sylvania were illegal per se, the Court, upon reexamination,
overruled Schwinn and held that such vertical restrictions do not
invariably have the necessary "pernicious effect on competition" to
justify per se condemnation.  Sylvania, supra, 433 U.S. at 58.  This
Court stated in Sylvania (id. at 54) that while vertical restrictions
"reduce intrabrand competition by limiting the number of sellers of a
particular product competing for the business of a given group of
buyers," they also "promote interbrand competition by allowing the
manufacturer to achieve certain efficiencies in the distribution of
his products." Because of these opposing competitive effects, the
Court concluded that antitrust plaintiffs should be required to prove
that particular nonprice vertical restrictions are anticompetitive.
/19/

   As Sylvania recognized, many products require considerable pre-sale
promotion and post-sale assistance in order to enhance consumer
acceptance and demand.  Some manufacturers may determine that their
product is most competitive with other brands when these services are
offered wihout separate charge to the consumer, with the cost being
calculated into the retail price of the product.  /20/ In order to
persuade dealers to offer such services, manufacturers must either
compensate the dealers to earn the higher gross margins necessary to
defray the costs attributable to providing the services.  Otherwise,
dealers offering "free" ancillary services will have their prices
undercut by, and lose sales to, dealers who have lower costs because
they offer no such services.  The prospect of "free-riding" by some
dealers on the promotional and educational services of other dealers
diminishes the incentives of dealers generally to offer these services
in amounts necessary to ensure the most effective distribution.  As a
result, fewer of the manufacturer's products find their way into the
market -- to the detriment of consumers.

   Sylvania recognized that in some circumstances nonprice vertical
restrictions that constrain intrabrand competition are a legitimate
and socially desirable way to cure the "free-rider" problem and to
promote interbrand competition.  See 433 U.S. at 54-55.  Because
Monsanto's marketing program on its face did not pertain to price, it
falls squarely within that class of vertical restrictions that
Sylvania held to be subject to rule of reason analysis.  There is no
evidence that, prior to adopting the new marketing program, Monsanto
consulted with any distributors concerning its desirability.  Rather,
Monsanto perceived that demand for its products was unnecessarily low
because many potential customers understood neither which Monsanto
herbicides were appropriate for particular farming needs, nor the
proper method of applying the products (Tr. 3237-3238);  the dealer
and farmer education programs were aimed at solving these problems
(ptr. 3239, 3244-3247).  After the new program was implemented,
Monsanto significantly increased its share of the corn herbicide
market (from 15% to 28% in a four-year period) at the expense of the
dominant manufacturer (whose market share fell from 70% to 55%) (J.A.
A-114 to A-115).  This evidence strongly suggests that Monsanto's
marketing program had exactly the type of procompetitive effects that
Sylvania was intended to encourage.

   3. Although Monsanto's marketing program had no direct effect on
price, Spray-Rite contended below that it had the indirect effect of
making it economically undesirable for Monsanto distributors to sell
to Spray-Rite, thus preventing Spray-Rite from purchasing sufficient
quantities of Monsanto herbicides at low enough prices to engage in
price competition.  /21/ But many restrictions commonly regarded as
nonprice vertical restrictions, including the location clause at issue
in Sylvania, may have an upward effect on the resale price of the
manufacturer's products.  /22/ For example, a manufacturer may create
exclusive territorial distributorships, a practice that is
economically indistinguishable from the practice involved in Sylvania
and one that has been held subject to rule of reason analysis, /23/
even though one probable effect of this arrangement is to limit
intrabrand price competition.

   Any time a manufacturer attempts to ensure that its goods receive a
more costly type of treatment at the point of sale -- as Monsanto did
here -- the manufacturer must cope with potential "free riders" who
undersell those dealers that comply with the manufacturer's marketing
program.  To the extent that the manufacturer is successful in
eliminating the free-rider problem and encouraging its dealers to
provide demand-enhancing services, the vertical restrictions will
raise the resale price of the product indirectly, as dealers attempt
to recover the additional costs of those services.  But although
vertical restrictions increase both dealer costs and price, such
restrictions will be unprofitable for the manufacturer unless they
also increase the quantities of product that dealers sell.  This is
the critical, procompetitive respect in which such vertical
restrictions differ from a mere widening of dealer margins, which
would increase price but reduce the quantities of product sold.
Indeed, the manufacturer usually will anticipate that its marketing
program will enable its dealers to increase their prices, precisely so
that they can recover their added costs.  That is true whether the
manufacturer uses restricted sales territories, location clauses,
exclusive dealing arrangements, or some other vertical restriction.

   But if any dealer who refuses to abide by a manufacturer's
marketing plan could establish a per se violation of Section 1 simply
by showing that the manufacturer's "nonprice" arrangement has lessened
price competition in some way, then the rule of Sylvania would be
seriously undermined.  /24/ After all, Spray-Rite conceded at trial
that it had not attempted to prove that Monsanto's marketing program
violated Section 1 when analyzed under the rule of reason (ptr.
3982-3984).  In this context, the court of appeals' transmutation of
those practices into per se violations solely on the basis of a claim
that they were part of a price-fixing scheme, as shown by their effect
on price, effectively negates Sylvania's careful treatment of nonprice
vertical restrictions and threatens to chill the efforts of
manufacturers to implement numerous procompetitive vertical marketing
decisions.  /25/

 B. The Court of Appeals Should Not Have Presumed Monsanto's Marketing
Program to Have Been Unlawful Even If It Was Adopted as Part of a
Resale Price Maintenance Scheme

   Even if the evidence shows that Monsanto adopted the challenged
marketing program as part of a resale price maintenance scheme, this
Court should still vacate and remand because resale price maintenance
should not be deemed per se unlawful.

   1. The Court should take this opportunity to consider whether
resale price maintenance, alone among vertical restrictions, should
always be deemed unlawful, as the Court first ruled 70 years ago in
Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373,
404-409 (1911).  As discussed below, the logic of Sylvania compels the
conclusion that resale price maintenance -- like other vertical
restrictions -- is unsuitable for per se treatment.  /26/ It is true
that Monsanto has denied engaging in resale price maintenance;  but
the per se unlawful status of that practice has been universally
assumed by courts for so long and the consequences of being adjudged
to have engaged in the practice are so severe -- treble damages and
possible felony prosecution -- that few antitrust defendants can be
expected to concede participating in such an agreement, a concession
that is necessary as a matter of litigation strategy if they wish to
argue that the practice was procompetitive.  /27/ For 70 years, then,
it has been unlikely that the per se status of resale price
maintenance would be placed directly in issue by an antitrust
defendant.  At the same time, the record here suggests that resale
price maintenance may be competitively justified in certain cases, see
pages 21-22, infra, and the court of appeals' decision clearly
illustrates the risks of failing to perform any competitive analysis
at all.

   Nor should the longevity of the Dr. Miles rule shield it from
inquiry about whether it in fact furthers consumer welfare.  This
Court often has recognized the broad mandate that Congress has given
it in interpreting the Sherman Act so as to promote competition, /28/
and the Court has not been reluctant to reconsider previous antitrust
decisions whose economic rationales have been called into question.
/29/

   2. This Court has always regarded the rule of reason as the normal
test of the legality of an alleged restraint;  per se rules are
invoked only where economic and judicial experience have shown that
certain practices invariably have a "pernicious effect on competition"
and lack "any redeeming (competitive) virtue." Sylvania, supra, 433
U.S. at 49-50;  see pages 13-14, supra.  The Court recognized in
Sylvania that this policy is particularly appropriate in the case of
vertical marketing arrangements between manufacturers and distributors
of a product, for such arrangements typically are conducive to intense
interbrand competition.  See 433 U.S. at 51-53.  Accordingly, a per se
rule against resale price maintenance can be justified only if there
is some persuasive basis for supposing that the practice reduces
output, retards innovation, or otherwise interferes with Sherman Act
goals.  But the Court has never analyzed resale price maintenance in
terms of its actual economic effects, much less found that those
effects are so necessarily anticompetitive as to justify a per se ban.
 Such an analysis would show that resale price maintenance, like the
nonprice vertical restrictions in Sylvania, can have significant
procompetitive effects.

   3. a. Resale price maintenance is not likely to be used by
manufacturers merely as a way to raise resale prices;  there are
simpler -- and safer -- ways to do that.  /30/ Rather, a manufacturer
who employs resale price maintenance usually will be attempting to
provide to distributors an incentive to handle its product in a way
that the manufacturer expects will be advantageous in interbrand
competition.  See generally Telser, Why Should Manufacturers Want Fair
Trade?, 3 J. L. & Econ. 86, 89-96 (1960);  R. Posner, Antitrust Law,
An Economic Perspective 148-149 (1976).  Resale price maintenance can
have the same types of procompetitive effects recognized in Sylvania
as possible consequences of nonprice vertical restraints.  By
eliminating intrabrand price competition, the manufacturer may enable
its distributors to provide costly promotional, warranty, or other
ancillary services and thereby increase the attractiveness of the
product.  Indeed, it is the indirect lessening of price competition by
nonprice vertical restrictions that eliminates the free-rider problem
and gives such restrictions their procompetitive potential.  See pages
15-16, supra.  Price-related vertical restrictions in general, and
resale price maintenance in particular, accomplish directly what
nonprice vertical restraints accomplish indirectly:  both types of
practice are designed to increase both price and sales volume.  /31/

   There often will be several ways in which a manufacturer can
preserve his distributors' service incentives in the face of potential
free riders;  as this Court recognized in Sylvania, exclusive
territories are one effective and reasonable method.  See 433 U.S. at
54-59.  But, as Professor (now Judge) Posner has explained, resale
price maintenance

      is more flexible than exclusive territories as a method of
      limiting price competition among dealers, and it may be the only
      feasible method where effective retail distribution requires
      that dealers be located close to one another;  any free-rider or
      other arguments that are available to justify resale price
      maintenance.  /32/

   In this case, assuming that Monsanto sought to restrict the freedom
of its distributors to set resale prices, the record indicates that
such a restriction had significant procompetitive effects.  Monsanto
had an apparently good reason to desire that expert point of sale
advice be available to dealers and farmers who purchased its
herbicides (see note 3, supra).  Moreover, Monsanto was in the process
of introducing a new herbicide (see Pet. App. A-3) whose commercial
success might depend on careful and expert point-of-sale instruction.
/33/ The evidence shows that Monsanto's new policies apparently had
the desired effect, not of decreasing quantities sold as a mere price
increase would do, but of increasing demand and making Monsanto's
herbicides more competitive in the interbrand market.  See page 3,
supra.

   b. Of course, resale price maintenance also can cause adverse
competitive effects at which the antitrust laws properly are aimed.
But the existence of the conditions under which such adverse effects
might occur usually are ascertainable through examination of a limited
set of objective factors, and, when such effects are demonstrated, the
practice will be unlawful under the rule of reason.  Virtually all of
the adverse competitive effects of resale price maintenance will
occur:  (1) where a group of manufacturers attempts to use the
practice to police and strengthen a cartel among themselves;  or (2)
where one or more of a manufacturer's distributors, in order to
exercise market power or form or police a cartel, coerce the
manufacturer (and perhaps other suppliers) to impose an inefficient
resale price maintenance system -- one that reduces quantities sold --
for the benefit of the coercing distributors.

   The first concern cannot arise unless the market structure
indicates some reasonable likelihood of collusion.  If, for example,
concentration at the manufacturing level is low or if only a small
fraction of output is sold subject to vertical price arrangements,
allegations that such arrangements are being used to facilitate
manufacturer collusion are implausible on their face.  In other
situations, market characteristics such as minimal entry costs, high
entry and exit rates, or particular product characteristics, may
minimize the probability that collusion could occur even in the
presence of a "facilitating" vertical price arrangement.  In at least
some cases, these market characteristics will so thoroughly negate the
possibility of an anticompetitive effect arising from the challenged
practice that further inquiry is unnecessary.

   Similarly, market characteristics may negate the possibility of an
anticompetitive effect resulting from dealer coercion:  if the
coercing dealers, individually or collectively, lack market power in
the resale market, they will be unable to prevail against the
manufacturer's own interests in maintaining an efficient distribution
system.  And even if the dealers have the market power necessary to
subvert the manufacturer's distribution system, they will have no
incentive to do so unless the manufacturer itself has market power
that the dealers hope to exploit -- for without market power, the
manufacturer cannot succeed in sustaining a higher price for the
benefit of its dealers without disproportionately large losses of
volume.  /34/

   4. Given the actual competitive effects of resale price
maintenance, there is no basis for this Court to assume, as it has
since the Dr. Miles decision in 1911, that resale price maintenance is
so unfailingly anticompetitive as conclusively to be presumed unlawful
in all situations.  See, e.g., Rice v. Norman Williams Co., No.
80-1012 (July 1, 1982);  California Retail Liquor Dealers Association
v. Midcal Aluminum, Inc., 445 U.S. 97, 102 (1980).  See generally
Levi, The Parke, Davis-Colgate Doctrine:  The Ban on Resale Price
Maintenance, 1960 Sup. Ct. Rev. 258.

   a. Indeed, the Court's few discussions of the basis for the per se
ban during the last 70 years have not been consistent in justifying
the rule.  In Dr. Miles, the Court first relied on the common law
proposition that "a general restraint upon alienation is ordinarily
invalid." 220 U.S. at 404.  The Court then concluded that resale price
maintenance is a practice in which the manufacturer has little
economic interest;  rather, "the advantage of established retail
prices primarily concerns the dealers" and thus is equivalent to a
horizontal price fixing agreement among dealers.  220 U.S. at 407-408.
 /35/ But this explanation cannot be supported:  a price-fixing
combination at the retail level would tend to reduce quantities sold
and thereby damage a manufacturer's objectives -- an economic effect
that would bear little resemblance to the consequences of resale price
maintenance sought by a manufacturer who chooses to institute such a
system.  See pages 21-22, supra;  R. Posner, Antitrust Law, supra, at
152-153.  /36/ And in any event, a dealer cartel would be per se
unlawful even in the absence of a hard and fast rule on resale price
maintenance.  /37/

   Many years after Dr. Miles, in Simpson v. Union Oil Co., 377 U.S.
13 (1964), the Court justified the condemnation of resale price
maintenance on the ground that the practice "was being used to
(deprive) independent dealers of the exercise of free judgment." 377
U.S. at 16.  Condemned in Dr. Miles because it was thought to be
indistinguishable from a retailer cartel, the practice now was
characterized as a manufacturer's device for exploiting dealers.  And
in Albrecht v. Herald Co., 390 U.S. 145 (1968), the Court found that a
system of maximum resale pricing intended to prevent price gouging by
distributors was per se unlawful because it subjected the marketplace
to the "perhaps erroneous judgment of a seller" in setting the price
level and tended to "acquire all the attributes of an arrangement
fixing minimum prices." 390 U.S. at 152-153;  footnote omitted.  /38/
But neither Dr. Miles nor Simpson had suggested that the antitrust
laws were intended to prevent sellers from making mistakes in pricing,
and such a purpose is antithetical to the very notion of competition;
if sellers are to be free to compete with one another, they must have
the freedom to make mistakes, and sellers should pay the price for
those mistakes in the marketplace, not in treble damage actions.

   b. Although the Sylvania Court itself suggested possible reasons
why resale price maintenance might be treated differently from
"nonprice" vertical restraints, see 433 U.S. at 51 n.18, the Court
neither ruled on that question nor reexamined the conflicting
justifications posited in Dr. Miles, Simpson, and Albrecht.  None of
the concerns expressed in Sylvania justifies the continued
characterization of resale price maintenance as a per se offense.

   First, the Court noted the possibility that industrywide resale
price maintenance might facilitate cartelization.  But while that
concern might be borne out in a particular case, see pages 23-24,
supra, it is properly addressed on a case-by-case basis, since cartels
-- whether at the manufacturer or dealer level -- are per se illegal
in themselves;  such a concern provides little justification for an
absolute ban.  /39/ Second, the Court suggested that resale price
maintenance might reduce competition among competing brands.  But at
least in cases where a court finds that market and product
characteristics negate the possibility that resale price maintenance
resulted in anticompetitive effects, per se condemnation of the
practice would unjustifiably deprive consumers of the benefit of
intensified interbrand competition.

   Third, Sylvania cited Congress' repeal in 1975 of the
Miller-Tydings and McGuire Acts (the "Fair Trade" laws) that had
permitted resale price maintenance at the option of individual states.
 But there is no incongruity between Congress' action eight years ago
and a more flexible treatment of resale price maintenance under the
Sherman Act.  In repealing the broad per se legality afforded by the
Fair Trade laws and once again subjecting resale price maintenance
systems to antitrust scrutiny, Congress did not delineate the standard
for such scrutiny.  /40/ Nor do the views of some legislators in 1975
concerning the competitive effects of resale price maintenance offer
much assistance in discerning the meaning of a statute enacted 85
years previously.  /41/ It thus remains for this Court to "give shape
to the statute's broad mandate" /42/ by determining whether a per se
rule should be applicable, based on the predictable competitive
effects of the practice.  In the case of resale price maintenance,
both the economic evidence and the adverse consequences of the
opposite course demonstrate that resale price maintenance should not
be treated differently from all other vertical arrangements between
manufacturers and their distributors.

                              CONCLUSION

   The judgment of the court of appeals should be vacated and the case
remanded for further proceedings.

   Respectfully submitted.

   REX E. LEE

      Solicitor General

   WILLIAM F. BAXTER

      Assistant Attorney General

   LAWRENCE G. WALLACE

      Deputy Solicitor General

   ABBOTT B. LIPSKY, JR.

      Deputy Assistant Attorney General

   JERROLD J. GANZFRIED

      Assistant to the Solicitor General

   ROBERT B. NICHOLSON

   EDWARD T. HAND

      Attorneys

   MAY 1983

   /1/ In 1968, Spray-Rite styled itself as a "brokerage house."
pltff. Exh. 19;  Tr. 976-978.

   /2/ This was not uncommon.  The court of appeals noted that
Monsanto assigned approximately 10 to 20 distributors to each area.
Pet. App. A-2.

   /3/ Great care must be taken in the selection and application of
herbicides, taking into account the location, soil, weather, and the
like;  selecting an inappropriate herbicide or misapplying an
appropriate one can result either in the failure of the herbicide to
deal with the problem it was purchased to solve, or even in serious
damage to crops.  E.g., Tr. 915-917, 946-952.

   /4/ Even so, Spray-Rite was Monsanto's tenth largest distributor of
one herbicide.  Pet. App. A-3.

   /5/ One Spray-Rite witness testified that "it was standard
practice" for Monsanto distributors to complain about one another;
"(i)f it didn't happen it would be like snowing in July." Tr. 184.

   /6/ The interrogatories read as follows (J.A. A-27 to A-28):

   1. Was the decision by Monsanto not to offer a new contract to
plaintiff for 1969 made by Monsanto pursuant to a conspiracy or
combination with one or more of its distributors to fix, maintain or
stabilize resale prices on Monsanto herbicides?

   2. Were the compensation programs and/or areas of primary
responsibility and/or shipping policy created by Monsanto pursuant to
a conspiracy or combination with one or more of its distributors to
fix, maintain or stabilize resale prices of Monsanto herbicides?

   3. Did Monsanto conspire or combine with one or more of its
distributors so that one or more of those distributors would limit
plaintiff's access to Monsanto's herbicides after 1968?

   /7/ Monsanto has not sought certiorari on the boycott issue.  See
Pet. 3-4 n.4.  However, the jury's award of damages did not attribute
a particular amount to any of the three alleged antitrust violations,
nor did Spray-Rite adduce particularized evidence on that subject.
Pet. App. A-18 to A-25.

   /8/ See Continental T.V., Inc. v. GTE Sylvania, Inc., 433 U.S. 36,
52 n.19 (1977) ("(i)nterbrand competition * * * is the primary concern
of antitrust law").

   /9/ See Continental T.V., Inc. v. GTE Sylvania, Inc., supra, 433
U.S. at 56;  Davis-Watkins Co. v. Service Merchandise, 686 F.2d 1190,
1196 (6th Cir. 1982), petition for cert. pending, No. 82-848.

   /10/ Compare Theatre Enterprises, Inc. v. Paramount Film
Distributing Corp., 346 U.S. 537, 541 (1954), with Eastern States
Retail Lumber Dealers Association v. United States, 234 U.S. 600
(1914), and Interstate Circuit, Inc. v. United States, 306 U.S. 208,
227 (1939).  See Turner, The Definition of Agreement Under the Sherman
Act:  Conscious Parallelism and Refusals to Deal, 75 Harv. L. Rev.
655, 659 (1962).

   /11/ It is for this reason that four courts of appeals have
concluded that evidence of the sort deemed dispositive by the court of
appeals here -- dealer complaints and subsequent termination --
reflects a common occurrence so often devoid of competitive
significance that, standing alone, it cannot support a finding that
termination was the result of concerted action between the complaining
dealers and the manufacturer.  Edward J. Sweeney & Sons, Inc. v.
Texaco, Inc., 637 F.2d 105, 111, 115-117 (3d Cir. 1980), cert. denied,
451 U.S. 911 (1981);  Bruce Drug, Inc. v. Hollister, Inc., 688 F.2d
853, 856-857 (1st Cir. 1982);  Schwimmer v. Sony Corp., 677 F.2d 946,
952-953 (2d Cir. 1982), cert. denied, No. 82-277 (Nov. 8, 1982);  H.L.
Moore Drug Exchange v. Eli Lilly & Co., 662 F.2d 935, 941-945 (2d Cir.
1981), cert. denied, No. 81-2215 (Oct. 4, 1982);  Davis-Watkins Co. v.
Service Merchandise, supra, 686 F.2d at 1199.

   On the other hand, the Fourth Circuit recently followed the rule
enunciated by the Seventh Circuit here.  Bostick Oil Co. v. Michelin
Tire Corp., 702 F.2d 1207 (4th Cir. 1983).  And two panels of the
Eighth Circuit have reached conflicting results on this issue.
Compare Battle v. Lubrizol Corp., 673 F.2d 984, 991-992 (1982)
(concluding that complaint-and-termination evidence is sufficient to
prove agreement) with Roesch, Inc. v. Star Cooler Corp., 671 F.2d
1168, 1172 (1982) (concluding that it is not).  In October 1982, those
two cases were reargued before the Eighth Circuit sitting en banc;  a
decision is expected soon.  The United States filed a brief as amicus
curiae in the en banc proceeding in Battle, urging that Battle be
vacated and Roesch affirmed.

   /12/ Mere communication between distributor and supplier, such as
occurred here, is not in itself sufficient to prove collusion.  Cf.
Smith v. Northern Michigan Hospitals, Inc., 703 F.2d 942, 948 (6th
Cir. 1983) ("Close ties between (alleged co-conspirators) * * * are
not, by themselves, sufficient predicates for inferring the existence
of a conspiracy to restrain trade").  Nor does such communication
involve the danger to competition posed by advance exchange of price
information by competitiors.  Cf. United States v. Container Corp.,
393 U.S. 333 (1969).

   /13/ See Valley Liquors, supra, 678 F.2d at 744;  Edward J. Sweeney
& Sons, Inc. v. Texaco, Inc., supra, 637 F.2d at 111, 114;  Bogosian
v. Gulf Oil Corp., 561 F.2d 434, 446 (3d Cir. 1977), cert. denied, 434
U.S. 1086 (1978).

   /14/ See Edward J. Sweeney & Sons, Inc. v. Texaco, Inc., supra, 637
F.2d at 111 n.2, citing P. Areeda, Antitrust Analysis 560 (2d ed.
1974).  Unlike horizontally competing firms, a manufacturer and its
distributors must constantly coordinate their activities to assure
that their product will reach the consumer in an efficient manner.  If
the manufacturer cannot rely on its distributors to inform it about
the operation of the distribution system, it will have to employ some
alternative monitoring system at additional cost.  See P. Kotler,
Marketing Management 553-555 (2d ed. 1972);  see also F.
Warren-Boulton, Vertical Control of Markets 13-21 (1978);  O.
Williamson, Markets and Hierarchies:  Analysis and Antitrust
Implications 20-40, 102-103 (1975).

   Moreover, a dealer who maintains low prices either is a
highly-prized dealer to the manufacturer, often having atypically low
costs and generating substantial sales volumes, or else is a
potentially disruptive dealer that may be cutting costs by free-riding
on the marketing programs of other dealers.  See page 15, infra.  Even
a manufacturer that is making no effort to control resale price has
good reasons for monitoring the operations of such price-cutting
dealers.

   /15/ See Posner, The Next Step in the Antitrust Treatment of
Restricted Distribution:  Per Se Legality, 48 U. Chi. L. Rev. 6, 12-13
(1981).  Distributors routinely complain to suppliers about the
supposed price-cutting activities of competing distributors;
Spray-Rite itself made such complaints to Monsanto.  Tr. 181;  see
note 5, supra.  Indeed, the supplier's first information about an
infraction often will come in the form of complaints by other
distributors.

   /16/ Another adverse consequence of the court of appeals' rule
stems from its open-ended nature:  so long as termination follows at
any time subsequent to the complaint, the jury may infer concerted
conduct.  There was no evidence that Monsanto received any complaints
about Spray-Rite during the entire year preceding its termination, see
page 4, supra;  yet the court of appeals held that complaints made two
to four years previously were sufficient evidence that Monsanto acted,
not unilaterally, but in concert with its distributors.

   /17/ Spray-Rite has contended (Br. in Opp. 19-24), that there was
more evidence at trial of the alleged agreement between Monsanto and
its distributors than the complaint-and-termination evidence relied on
by the court of appeals.  On remand, the court of appeals would be
free to consider whether there was sufficient evidence in addition to
the complaints and termination to support the conclusion that the
termination resulted from an unlawful agreement between Monsanto and
its distributors.

   /18/ Spray-Rite also contends (Br. in Opp. 21-23), that it did more
than merely allege a connection between the nonprice policies and a
price-fixing scheme, i.e., that it proved the connection and that the
jury so found.  But the court of appeals' analysis, on its stated
terms, found the allegation itself to be dispositive (Pet. App. A-13);
 the court expressly linked the invocation of a per se approach to
Spray-Rite's allegations and not to the proof at trial.  This
statement of the law is incorrect and would be an inappropriate
standard for decision in future cases.  Should this Court reverse, it
would remain for the court of appeals on remand to decide whether
Spray-Rite proved its allegations.

   /19/ On remand in Sylvania, the Ninth Circuit held that the
nonprice vertical restrictions there were reasonable:  "The restraint
was likely to promote interbrand competition given the market
structure in the television manufacturing industry * * *." 694 F.2d
1132, 1140 (9th Cir. 1982).

   /20/ For example, a manufacturer may conclude it would be
beneficial for its product to be sold with a service warranty that
would be honored by retailers.  Should some retailers sell the product
without offering repair and maintenance services, consumers would be
left with the less convenient alternative of sending the product to
the manufacturer or with no recourse at all.  The result would be an
increase in complaints and the loss of the good-will the manufacturer
had hoped to generate.

   /21/ See Spray-Rite's brief filed in the court of appeals, at
19-25;  Tr. 4254-4256 (argument at close of trial).  For example,
Spray-Rite's expert witness testified that Monsanto's creation of
primary areas of distributor responsibility and free delivery of
herbicides within those areas had the effect of "precluding" Monsanto
distributors from selling to persons outside their areas, including
Spray-Rite (Tr. 2668), and that the compensation program encouraged
sales to retailers and thereby discouraged sales to nonretailers, such
as Spray-Rite.  Tr. 2668, 2675-2676;  see Pet. App. A-19, A-23.

   /22/ Posner, The Next Step in the Antitrust Treatment of Restricted
Distribution:  Per Se Legality, supra, 48 U. Chi. L. Rev. at 11-12;
Baker, Interconnected Problems of Doctrine and Economics in the
Section One Labyrinth:  Is Sylvania a Way Out?, 67 Va. L. Rev. 1457,
1467-1470 (1981).

   /23/ E.g., Ron Tonkin Gran Turismo, Inc. v. Fiat Distributors,
Inc., 637 F.2d 1376, 1385-1388 (9th Cir.), cert. denied, 454 U.S. 831
(1981);  see Copy-Data Systems, Inc. v. Toshiba America, Inc., 663
F.2d 405, 408-411 (2d Cir. 1981);  R. Posner, Antitrust Law, An
Economic Perspective 160 (1976);  Baker, supra, 67 Va. L. Rev. at
1515-1518.

   /24/ Indeed, under the decision below, a dealer could immunize
itself against termination by underselling its competitors, even if
this is accompanied by a variety of departures from the manufacturer's
nonprice policies.  Should the dealer be terminated, it could contend
that this action was triggered by its price-cutting and, hence, that
the termination was part of a price-fixing scheme.  Under the Seventh
Circuit's holding, this would suffice to establish per se liability.
Even a distribution plan that would be lawful under Sylvania could be
held hostage by such tactics.

   /25/ The court of appeals concluded that Sylvania was not
controlling (Pet. App. A-12);  instead, the court relied (ibid.) on
United States v. Sealy, Inc., 388 U.S. 350 (1967).  Sealy, however,
involved horizontal restraints, as this Court expressly stated.  Id.
at 352.  The decision in Sealy correctly recognizes that a distinction
exists between horizontal and vertical cases, with a different
standard for determining liability applicable to each.  Id. at 354.
As noted above (page 15, supra), there was no evidence that Monsanto
adopted the programs here as a result of horizontal collusion among
its distributors.

   In contrast to the court of appeals' rule here, two other courts
have held that the fact that a distribution restriction indirectly
exerts some pressure on dealers' prices is not enough to transform a
nonprice arrangement into resale price maintenance.  Butera v. Sun Oil
Co., 496 F.2d 434, 437-438 (1st Cir. 1974);  JBL Enterprises, Inc. v.
Jhirmack Enterprises, Inc., 519 F.Supp. 1084, 1088-1089 (N.D. Cal.
1981), aff'd, 698 F.2d 1011 (9th Cir. 1983).

   /26/ The similarities in purpose and effect between resale price
maintenance and nonprice vertical restrictions led Justice White to
observe in his concurring opinion in Sylvania that the "effect * * *
of the Court's opinion is necessarily to call into question" the per
se rule against resale price maintenance.  433 U.S. at 70.

   /27/ For this reason, antitrust defendants have not given the Court
any occasion to look carefully at the actual competitive effects of
resale price maintenance.  See, e.g., United States v. Parke, Davis &
Co., 362 U.S. 29, 36-38 (1960);  United States v. Bausch & Lomb
Optical Co., 321 U.S. 707, 721 (1944).

   /28/ E.g., Associated General Contractors of California, Inc. v.
California State Council of Carpenters, No. 81-334 (Feb. 22, 1983),
slip op. 12;  Professional Engineers, supra, 435 U.S. at 688.  See
United States v. Associated Press, 52 F. Supp. 362, 370 (S.D.N.Y.
1943) (3-judge court), aff'd, 326 U.S. 1 (1945) (in deciding Sherman
Act cases, the courts have "a legislative warrant, because Congress *
* * has delegated to the courts the duty of fixing the standard of
each case").

   /29/ See, e.g., Sylvania, supra, 433 U.S. at 58-59 (overruling
United States v. Arnold, Schwinn & Co., 388 U.S. 365 (1967);  Simpson
v. Union Oil Co., 377 U.S. 13, 22-25 (1964) (effectively overruling
United States v. General Electric Co., 272 U.S. 476 (1926)).

   /30/ If mere elevation of resale price were the manufacturer's
purpose, the manufacturer could simply raise its own price to the
distributor and keep the higher revenues commensurate with that higher
price.

   /31/ This Court has recognized that resale price maintenance can
increase output by inducing dealers to engage in "demand-creating
activity" (such as product promotional activities) that may, in
certain cases, outweigh the loss of sales that might have been made in
the absence of resale price maintenance.  Albrecht v. Herald Co., 390
U.S. 145, 151 n.7 (1968).  See Sylvania, supra, 433 U.S. at 69-70
(White, J., concurring).

   /32/ Posner, supra, 48 U. Chi. L. Rev. at 9.  See Telser, supra, 3
J.L. & Econ. at 91-92.  The likelihood of a free-rider problem is
increased where, as in Monsanto's distribution system, numerous
distributors serve the same area, so that the promotional efforts of
one distributor will benefit others in its area.

   /33/ Cf. Telser, supra, 3 J.L. & Econ. at 95-96;  Bowman, The
Prerequisites and Effects of Resale Price Maintenance, 22 U. Chi. L.
Rev. 825, 840-843 (1955).

   /34/ Conversely, if the market characteristics allow the
possibility of anticompetitive effects and no free-rider problem is
apparent, then in the absence of a showing by the defendant that the
particular resale price maintenance system promotes competition, it
should be deemed unlawful.

   /35/ In analogizing resale price maintenance to a horizontal
arrangement among dealers, the Court observed that such behavior has
for its "sole purpose the destruction of competition and the fixing of
prices." 220 U.S. at 408.  This logic has no place in a case involving
a vertical arrangement that on its face involves nonprice measures to
which the per se test does not apply.  See Sylvania, supra.  Such
measures do not have for their "sole purpose" the fixing of prices.

   /36/ Justice Holmes dissented from the Dr. Miles decision on the
ground that resale price maintenance had not been shown to be
anticompetitive on balance, see 220 U.S. at 411-413, and (with Justice
Brandeis) continued to dissent from decisions presuming resale price
maintenance to be unlawful.  United States v. A. Schrader's Son, Inc.,
252 U.S. 85, 100 (1920);  FTC v. Beech-Nut Packing Co., 257 U.S. 441,
456-457 (1922).  In his dissent in Dr. Miles, Justice Holmes urged
that the

      point of most profitable returns (to the manufacturer) marks the
      equilibrium of social desires and determines the fair price in
      the only sense in which I can find meaning in those words.  The
      (manufacturer) knows better than we do what will enable it to do
      the best business. * * * I cannot believe that in the long run
      the public will profit by * * * permitting (retailers) to cut
      reasonable prices for some ulterior purpose of their own and
      thus to impair, if not to destroy, the production and sale of
      articles which * * * the public should be able to get.

   220 U.S. at 412.  More recent observers have expressed the same
view.  E.g., R. Bork, The Antitrust Paradox 33, 288-290 (1978).

   The Dr. Miles majority's reliance on the Elizabethan law of
restraints on alienation has been criticized for decades.  See Chafee,
Equitable Servitudes on Chattels, 41 Harv. L. Rev. 945, 983 (1928);
R. Bork, The Antiturst Paradox, supra, at 284-285.  As this Court
noted in Sylvania:  "We quite agree * * * that 'the state of the
common law 400 or even 100 years ago is irrelevant to the issue (of)
the effect of the antitrust laws upon vertical * * * restraints in the
American economy today." 433 U.S. at 53 n.21.

   /37/ While it is theoretically possible that a group of
distributors might fix a price at the same level that a manufacturer
would choose to have his goods resold, this is highly unlikely.  The
manufacturer would attempt to choose a resale price level that would
stimulate demand-enhancing promotional or service activities by its
dealers and thus would increase output;  his interest in maximizing
profits and society's interest in enhancing output (and promoting
interbrand competition) generally will coincide.  By contrast, if the
dealer cartel were to set the price, it would find that a still higher
price, causing a reduction in demand from that which would result from
the manufacturer's preferred price, would yield greater profits to the
cartel members;  the cartel would attempt to maximize its profits at
the expense of restricting overall output of the product below the
socially optimal level.  Thus, horizontal dealer price-fixing poses
great dangers not present in resale price maintenance by a
manufacturer and therefore is properly subject to per se prohibition.

   /38/ See Baker, supra, 67 Va. L. Rev. at 1486 n.96.

   /39/ See R. Bork, The Antitrust Paradox, supra, at 292-294;
Posner, The Rule of Reason and the Economic Approach:  Reflections on
the Sylvania Decision, 45 U. Chi. L. Rev. 1, 7-8 (1977).

   /40/ Both the House and Senate reports on the 1975 legislation
indicate Congress' awareness that by repealing the Fair Trade laws,
they were remitting resale price maintenance to Dr. Miles' per se ban.
 See H.R. Rep. No. 341, 94th Cong., 1st Sess. 3 (1975) ("House Rep.");
 S. Rep. No. 466, 94th Cong., 1st Sess. 1-2 (1975).  But the
legislative history suggests that Congress merely intended to end a
special "exemption from the Federal antitrust laws" that had existed
for many years and that could no longer be justified, see House Rep.,
supra, at 5;  it does not suggest that in returning resale price
maintenance to its pre-Fair Trade status as a per se offense, Congress
also intended to freeze that status and deprive the courts of their
long-acknowledged flexibility to interpret the Sherman Act's general
language in accordance with improved understanding of commercial
realities.

   /41/ "'(T)he views of a subsequent Congress form a hazardous basis
for inferring the intent of an earlier one.'" CPSC v. GTE Sylvania,
Inc., 447 U.S. 102, 117-118 (1980);  see United States v. Clark, 445
U.S. 23, 33 n.9 (1980);  Regional Rail Reorganization Act Cases, 419
U.S. 102, 132 (1974);  United States v. United Mine Workers, 330 U.S.
258, 281-282 (1947).  This principle is fully applicable to
post-passage congressional views about the scope of the antitrust
laws.  See United States v. Philadelphia National Bank, 374 U.S. 321,
348-349 (1963).

   Congress' views about resale price maintenance -- and Dr. Miles --
have varied over the years.  In 1937, after prolonged debate on the
competitive effects of resale price maintenance, the Miller-Tydings
bill was passed to place "the stamp of approval upon price maintenance
transactions under State (fair trade laws), notwithstanding the
Sherman Act of 1890." 81 Cong. Rec. 8138 (1937) (statement of Rep.
Dirksen);  see H.R. Rep. No. 382, 75th Cong., 1st Sess. 2 (1937);  81
Cong. Rec. 7495-7496 (1937) (statement of Sen. Tydings);  81 Cong.
Rec. 8140 (1937) (statement of Rep. Culkin).  Moreover, almost
immediately after this Court narrowly construed the Miller-Tydings
exemption in Schwegmann Bros. v. Calvert Distillers Corp., 341 U.S.
384 (1951), an overwhelming majority of both houses of Congress passed
the McGuire Act -- after another lengthy debate on the competitive
virtues of resale price maintenance -- to overrule Schwegmann and
permit State fair trade laws to bind even those dealers who refused to
sign resale price maintenance agreements.  See H.R. Rep. No. 1437, 82d
Cong., 2d Sess. 1-2 (1952);  H.R. Rep. No. 1516, 82d Cong., 2d Sess.
4-7, 15 (1952);  97 Cong. Rec. 13404 (1951) (statement of Rep.
McGuire);  98 Cong. Rec. 8718-8743 (1952) (Senate debate).

   /42/ Associated General Contractors of California, Inc. v.
California State Council of Carpenters, supra, slip op. 12;
Professional Engineers, supra, 435 U.S. at 688.