Source: https://www.law.cornell.edu/supremecourt/text/321/707
Timestamp: 2019-04-23 12:22:31+00:00

Document:
The United States of America brought suit in the District Court for the Southern District of New York against the Bausch & Lomb Optical Company, a corporation, and the Soft-Lite Lens Company, Inc., and several of the chief officers of each, to restrain violations of the Sherman Act. Jurisdiction was conferred on the trial court by Section 4 of the Act, 15 U.S.C. 4, 15 U.S.C.A. § 4 and upon this Court by Section 2 of the Act of February 11, 1903, 15 U.S.C. 29, 15 U.S.C.A. § 29, and Judicial Code § 238, 28 U.S.C.A. § 345.
The complaint alleged that Bausch & Lomb and Soft-Lite and their officers contracted, combined and conspired to restrain trade in pink tinted lenses for eyeglasses, contrary to Sections 1 and 3 of the Sherman Act. 1 The allegations of the complaint were upheld by the trial court as to Soft-Lite and certain of its officers and dismissed as to Bausch & Lomb and its officers. United States v. Bausch & Lomb Optical Co., D.C., 45 F.Supp. 387.
The judgment directs Soft-Lite to cancel its license agreements with retailers and its Fair Trade resale price maintenance contracts and agreements with wholesalers fixing prices and restricting their resales to Soft-Lite's retail licensees. Soft-Lite and its agents are enjoined from enforcing these contracts or using identification devices, such as the 'Protection Certificates,' for tracing resales of lenses or blanks purchased from Soft-Lite. They are likewise forbidden to enter into any other agreement similar in effect or purpose to those adjudged unlawful, except the Fair Trade contracts. These latter may be renegotiated after six months from the notices of cancellation which the judgment directs to issue. There is also a prohibition against Soft-Lite's and its officers' systematically suggesting resale prices on lens or blanks for said six months. Bausch & Lomb and various individuals are adjudged to be free of the violations which are charged in the complaint. The right to inspect records and to interview officers and employees is reserved to the Department of Justice in the manner set out below. 3 Finally, jurisdiction of the case is retained for further orders or directions, including modification or termination of any of the provisions as well as their enforcement. Cf. Sugar Institute v. United States, 297 U.S. 553, 605, 56 S.Ct. 629, 644, 80 L.Ed. 859.
These illegal contracts cannot be considered, however, as happenings completely insulated from other incidents of the Soft-Lite distribution system. When we turn to the provisions of the decree which are attacked here by Soft-Lite, requiring it to cancel its resale price agreements with wholesalers as well as retailers and to avoid such requirements for six months either by contract or suggestion, and thereafter to act only in accordance with the Miller-Tydings Act, we must first note that it is plain that the arrangements for price maintenance in the wholesalers' sales to retailers are an integral part of the whole distribution system. Not only are Soft-Lite wholesalers carefully selected and cooperative but they may sell only to Soft-Lite's retail licensees. Undesirable wholesalers are excluded from the system and the District Court found that by means of published wholesale price lists, put in the hands of wholesalers and retailers alike, resale prices of wholesalers are designated by Soft-Lite. The requirement of the wholesalers' recommendation as to the business character of the applicant for a retail license, the evidence of espionage, the limitation of resales to Soft-Lite retail licensees, the existence of the 'Protection Certificate' to mark the wholesaler who might violate the arrangement, the unformity of the prices, as prescribed in Soft-Lite's published lists, which are charged retailers by wholesalersall amply support, indeed require, the inference of the trial court that a conspiracy to maintain prices down the distribution system existed between the wholesalers and Soft-Lite through the years prior to this suit.
Soft-Lite is the distributor of an unpatented article. It sells to its wholesalers at prices satisfactory to itself. Beyond that point it may not project its power over the prices of its wholesale customers by agreement. A distributor of a trade-marked article may not lawfully limit by agreement, express or implied, the price at which or the persons to whom its purchaser may resell, except as the seller moves along the route which is marked by the Miller-Tydings Act. Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373, 404, 31 S.Ct. 376, 383, 55 L.Ed. 502. Even the additional protection of a copyright, Bobbs-Merrill Co. v. Straus, 210 U.S. 339, 28 S.Ct. 722, 52 L.Ed. 1086; Interstate Circuit, Inc. v. United States, 306 U.S. 208, 221, 59 S.Ct. 467, 472, 83 L.Ed. 610, and cases cited, or of a patent, United States v. Masonite Corp., 316 U.S. 265, 276, 62 S.Ct. 1070, 1076, 86 L.Ed. 1461; Mercoid Corp. v. Mid-Continent Investment Co., 320 U.S. 661, 64 S.Ct. 268, at pages 270, 271, and cases cited, add nothing to a distributor's power to control prices of resale by a purchaser. The same thing is true as to restriction of customers. Fashion Guild v. Trade Comm'n, 312 U.S. 457, 465, 61 S.Ct. 703, 706, 85 L.Ed. 949; Standard Sanitary Mfg. Co. v. United States, 226 U.S. 20, 4749, 33 S.Ct. 9, 14, 15, 57 L.Ed. 107; Montague & Co. v. Lowry, 193 U.S. 38, 45, 24 S.Ct. 307, 309, 48 L.Ed. 608.
The Colgate case turned upon the sufficiency on demurrer of an indictment under the Sherman Act against a manufacturer for requiring its dealers to maintain prices. As the indictment was construed to allege only specification of resale prices by the manufacturer and refusal to deal with customers who did not maintain them, this Court held the indictment insufficient as no reference was made in it to a purpose to monopolize and in such a posture the Sherman Act 'does not restrict the long recognized right of trader or manufacturer engaged in an entirely private business, freely to exercise this 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.' 250 U.S. at pages 302, 306, 307, 39 S.Ct. at pages 466468, 63 L.Ed. 992, 7 A.L.R. 443. Cf. United States v. A. Schrader's Sons, 252 U.S. 85, 99, 40 S.Ct. 251, 253, 64 L.Ed. 471.
The Beech-Nut case recognizes that a simple refusal to sell to others who do not maintain the first seller's fixed resale prices 4 is lawful but adds as to the Sherman Act, 'He (the seller) may not, consistently with the act, go beyond the exercise of this right, and by contracts or combinations, express or implied, unduly hinder or obstruct the free and natural flow of commerce in the channels of interstate trade.' 257 U.S. at page 453, 42 S.Ct. at page 154, 66 L.Ed. 307, 19 A.L.R. 882. The Beech-Nut Company, without agreements, was found to suppress the freedom of competition by coercion of its customers through special agents of the company, by reports of competitors about customers who violated resale prices, and by boycotts of price cutters. 257 U.S. pages 451, 454, 455, 42 S.Ct. at pages 153155, 66 L.Ed. 307, 19 A.L.R. 882. As the decision as to the Curtis Company involved only selling agencies, 260 U.S. at page 581, 43 S.Ct. at page 213, 67 L.Ed. 408, and that as to Sinclair the restricted use of a distributor's gasoline tanks, 261 U.S. at page 474, 43 S.Ct. at page 453, 67 L.Ed. 476, they are inapplicable to a consideration of a refusal by a distributor to sell except to chosen dealers.
So far as the wholesalers are concerned, Soft-Lite and its officers conspired and combined among themselves and with at least some of the wholesalers to restrain commerce by designating selected wholesalers as sub-distributors of Soft-Lite products, by fixing resale prices and by limiting the customers of the wholesalers to those recommended by the wholesalers and approved by Soft-Lifeall in violation of the Sherman Act. This finding justifies the order directing cancellation of the wholesale arrangements and cessation by Soft-Lite of systematic price suggestions. Whether this conspiracy and combination was achieved by agreement or by acquiescence of the wholesalers coupled with assistance in effectuating its purpose is immaterial.
Soft-Lite makes objection also to the clause of the decree which holds null and void certain resale price maintenance contracts entered into by Soft-Lite and many of its wholesalers after the passage of the Miller-Tydings Amendment to the Sherman Act on August 17, 1937, 50 Stat. 693, 15 U.S.C.A. § 1. See note 1, supra. Objections on the same grounds apply to other clauses of the decree forbidding enforcement of these existing 'Fair Trade' contracts with wholesalers and Soft-Lite's entering into any others until six months after certain notices of cancellation which are required by the decree but which have not yet been given owing to this appeal. Soft-Lite contends that the 'Fair Trade' agreements are strictly within the terms of the Miller-Tydings Act and we assume the correctness of that position. 5 The disadvantage at which these clauses place Soft-Lite towards its customers and competitors is pointed out.
The District Court 45 F.Supp. 399 said that these contracts 'came into existence as a patch upon an illegal system of distribution' and as an integral part of that system. As some wholesalers do certain cutting and edging work on the blanks for sale to retailers who do not do this grinding for themselves, the 'Fair Trade' contracts for fixing resale prices apply only to those sales, known as 'stock' sales, where the lenses and blanks are resold in the same form in which they come from Soft-Lite. See United States v. Univis Lens Co., 316 U.S. 241, 253, 254, 62 S.Ct. 1088, 1094, 1095, 86 L.Ed. 1408. We think that where a distribution system exists, prior to the making of such price maintenance contracts, which is illegal because of unallowable price fixing contracts and where that illegality necessarily persists in part because a portion of the resales are not covered by the 'Fair Trade' contracts, as just explained, subsequent price maintenance contracts, otherwise valid, should be cancelled, along with the invalid arrangements, in order that the ground may be cleansed effectually from the vice of the former illegality. Equity has power to eradicate the evils of a condemned scheme by prohibition of the use of admittedly valid parts of an invalid whole. United States v. Univis Lens Co., 316 U.S. 241, 254, 62 S.Ct. 1088, 1095, 86 L.Ed. 1408; Ethyl Gasoline Corp. v. United States, 309 U.S. 436, 461, 60 S.Ct. 618, 627, 84 L.Ed. 852. Cf. Standard Oil Co. v. United States, 221 U.S. 1, 78, 31 S.Ct. 502, 523, 55 L.Ed. 619, 34 L.R.A.,N.S., 834, Ann.Cas.1912D, 734; United States v. Union Pacific R. Co., 226 U.S. 61, 96, 33 S.Ct. 53, 61, 57 L.Ed. 124; Id., 226 U.S. 470, 476, 477, 33 S.Ct. 162, 165, 57 L.Ed. 306; Aikens v. Wisconsin, 195 U.S. 194, 205, 206, 25 S.Ct. 3, 5, 6, 49 L.Ed. 154.
The first sentence requires Soft-Lite to permit authorized representatives of the Department of Justice to have access to all records and documents of Soft-Lite which are in Soft-Lite's control, 'relating to any of the matters contained in this judgment * * * subject to any legally recognized privilege.' 6 The second sentence we construe to forbid Soft-Lite or its officers from directing its personnel to refuse to discuss with investigators of the Department the affairs of Soft-Lite relating to any of the matters contained in the judgment and from barring from their property investigators who may appear unprovided with search warrants. This second sentence purports to give no other right of investigation of the affairs of the appellants. The third and last sentence directs the defendants to submit on the written request of the Department such reports in writing 'with respect to any of the matters contained in this judgment' as may be necessary to enforce it.
There is nothing in the United States Code relating to monopolies and combinations in restraint of trade which makes provision for such broad visitatorial powers. Without this statutory authority, United States officials could not require the corporation to submit to this examination without a search warrant. Go-Bart Importing Co. v. United States, 282 U.S. 344, 356-358, 51 S.Ct. 153, 75 L.Ed. 374; United States v. Louisville & N.R. Co., 236 U.S. 318, 329-338, 35 S.Ct. 363, 366369, 59 L.Ed. 598. Cf. Guthrie v. Harkness, 199 U.S. 148, 158, 26 S.Ct. 4, 7, 50 L.Ed. 130, 4 Ann.Cas. 433. The provision was evidently sought and allowed to enable the Government to obtain information as to the operations of Soft-Lite subsequent to the judgment declaring Soft-Lite's distribution operations unlawful, to guide the responsible officials of the Department of Justice in their duty to protecting the public against a continuance of the illegal combination and conspiracy without the necessity of the expense and difficulty of extended investigation or renewed hearings under the jurisdiction retained for modification or enforcement. If reasonably necessary to wipe out the illegal distribution system, we see no constitutional objection to the employment by equity of this method. In the immediately preceding paragraphs of this opinion which discuss the power of the trial court to compel the cancellation of 'Fair Trade' agreements, executed during and as a part of the unlawful distribution system, we cited important precedents of this Court which uphold equity's authority to use quite drastic measures to achieve freedom from the influence of the unlawful restraint of trade. These precedents are applicable here. The test is whether or not the required action reasonably tends to dissipate the restraints and prevent evasions. Doubts are to 'be resolved in favor of the government and against the conspirators.' Local 167 v. United States, 291 U.S. 293, 299, 54 S.Ct. 396, 399, 78 L.Ed. 804; Warner & Co. v. Lilly & Co., 265 U.S. 526, 532, 44 S.Ct. 615, 618, 68 L.Ed. 1161.
The wording of the sentence includes the papers of the individual defendants who are officers of Soft-Lite. The United States disclaims in its brief, page 55, so broad a meaning. We accept the suggested interpretation that the paragraph relates only to the papers belonging to the corporation. Cf. Wilson v. United States, 221 U.S. 361, 376, 385, 31 S.Ct. 538, 542546, 55 L.Ed. 771, Ann.Cas.1912D, 558.
ASPEN SKIING COMPANY, Petitioner v. ASPEN HIGHLANDS SKIING CORPORATION.
UNITED STATES, Appellant, v. LOEW'S, INCORPORATED, et al. LOEW'S, INCORPORATED, et al., Appellants, v. UNITED STATES. C & C SUPER CORP., Appellant, v. UNITED STATES.
FEDERAL TRADE COMMISSION, Petitioner, v. NATIONAL LEAD COMPANY et al.
UNITED STATES v. CRESCENT AMUSEMENT CO. et al. (two cases). CRESCENT AMUSEMENT CO. et al. v. UNITED STATES.
KLOR'S, INC., Petitioner, v. BROADWAY-HALE STORES, INC., Admiral Corporation, Admiral Distributors, Inc., et al.
HARTFORD-EMPIRE CO. et al. v. UNITED STATES, and five other cases.
MAY DEPARTMENT STORES CO. v. NATIONAL LABOR RELATIONS BOARD.

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