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Rice v. Norman Williams Co. (full text) :: 458 U.S. 654 (1982) :: Justia US Supreme Court Center Log In
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Rice v. Norman Williams Co. 458 U.S. 654 (1982)
U.S. Supreme CourtRice v. Norman Williams Co., 458 U.S. 654 (1982)Rice v. Norman Williams Co.No. 80-1012Argued April 21, 1982Decided July 1, 1982*458 U.S. 654CERTIORARI TO THE COURT OF APPEAL OF CALIFORNIA,
(a) A state statute, when considered in the abstract, may be condemned under the antitrust laws only if it mandates or authorizes conduct that necessarily constitutes a violation of those laws in all cases, or if it places irresistible pressure on a private party to violate the antitrust laws in order to comply with the statute. Such condemnation will follow under § 1 of the Sherman Act when the conduct contemplated by the statute is in all cases a per se violation. If the activity addressed by the statute does not fall into that category, and therefore must be analyzed Page 458 U. S. 655 under the rule of reason, the statute cannot be condemned in the abstract. Pp. 458 U. S. 655-661.
REHNQUIST, J., delivered the opinion of the Court, in which BURGER, C.J., and BRENNAN, MARSHALL, BLACKMUN, POWELL, and O'CONNOR, JJ., joined. STEVENS, J., filed an opinion concurring in the judgment, in which WHITE, J., joined, post, p. 458 U. S. 665. Page 458 U. S. 656
"licensed importer shall Page 458 U. S. 657 not purchase or accept delivery of any brand of distilled spirits unless he is designated as an authorized importer of such brand by the brand owner or his authorized agent."
California apparently enacted its designation statute in response to the effects of Oklahoma's alcoholic beverage laws. At the time, Oklahoma's statutes were understood to require any distiller or brand owner selling its products to Oklahoma wholesalers to sell to all wholesalers on a nondiscriminatory basis. [Footnote 2] Because of the perceived extraterritorial effect of Oklahoma's "open-wholesaling" statutes, a licensed California importer who was unable to obtain distilled spirits through the distiller's established distribution system could obtain them from Oklahoma wholesalers. As a result, a distiller who desired to sell its products to Oklahoma wholesalers was unable to rely on contractual undertakings to determine which California wholesalers would handle its products. California's designation statute, therefore, sought to close off the "Oklahoma connection" to California importers not authorized by the distiller to deal in its products. [Footnote 3] Page 458 U. S. 658
The Supreme Court of California denied review. We granted certiorari, 454 U.S. 1080 (1981), and now reverse. Page 458 U. S. 659
A party may successfully enjoin the enforcement of a state statute only if the statute, on its face, irreconcilably conflicts with federal antitrust policy. In California Retail Liquor Dealers Assn. v. Midcal Aluminum, Inc., 445 U. S. 97 (1980), we examined a statute that required members of the California wine industry to file fair trade contracts or price schedules with the State, and provided that, if a wine producer had not set prices through a fair trade contract, wholesalers must post a resale price schedule for that producer's brands. We held that the statute facially conflicted with the Sherman Act because it mandated resale price maintenance, an activity that has long been regarded as a per se violation [Footnote 5] of the Sherman Page 458 U. S. 660 Act. Id. at 445 U. S. 102-103; see Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U. S. 373, 220 U. S. 407-409 (1911).
"Although it is possible to envision circumstances under which price discriminations proscribed by the Robinson-Patman Act might be compelled by § 9, the existence of such potential conflicts is entirely too speculative Page 458 U. S. 661 in the present posture of this case. . . ."
California's designation statute merely enforces the distiller's decision to restrain intrabrand competition. It permits the distiller to designate which wholesalers may import the distiller's products into the State. It prevents an unauthorized wholesaler from obtaining the distiller's products from outside the distiller's established distribution chain. Page 458 U. S. 662 The designation statute does not require the distiller to impose vertical restraints of any kind; that is a matter for it to determine. The number of importers which may be designated by the distiller is not limited; the designated importer is not required to sell the imported brand to retailers within a specified area or from a specified location within the State.
In these respects, therefore, we find these cases to be much like Joseph E. Seagram & Sons, Inc. v. Hostetter, 384 U. S. 35 (1966). As in Hostetter, upholding the validity of the designation statute will not insulate a distiller's invocation of the statute from scrutiny under the Sherman Act. The manner in which a distiller utilizes the designation statute and the arrangements a distiller makes with its wholesalers will be subject to Sherman Act analysis under the rule of reason. [Footnote 8] There is no basis, however, for condemning the statute itself by force of the Sherman Act. [Footnote 9] Page 458 U. S. 663
Respondents contend that the California designation statute is preempted by § 5(a) of the Federal Alcohol Administration Act, 49 Stat. 981, as amended, 27 U.S.C. § 205(a). [Footnote 10] Section 5(a) prohibits a distiller or wholesaler from establishing exclusive retail outlets. See S.Rep. No. 1215, 74th Cong., 1st Sess., 7 (1935); H.R.Rep. No. 1542, 74th Cong., 1st Sess., 10-11 (1935). In other words, § 5(a) prohibits a distiller or wholesaler from requiring a retailer to buy only the distiller's or wholesaler's products to the exclusion of the products of other distillers or wholesalers. The statute does not prohibit a distiller from requiring its wholesalers to purchase the distiller's products from the distiller itself, rather Page 458 U. S. 664 than from a third party. [Footnote 11] California's statute in no way requires exclusive retail outlets. By its terms, the designation statute does not even require exclusive wholesale arrangements. One might be able to hypothesize an arrangement enforced by the designation statute that might be prohibited by § 5(a), but this is insufficient to invalidate a state statute pursuant to the Supremacy Clause.
We find this contention without merit. The designation statute merely enforces the distiller's decision to deny permission to a California wholesaler to deal in the distiller's products. We do not think that respondents possess any constitutionally protected liberty or property interest in obtaining the distiller's permission. Thus, the Due Process Clause is not offended by the wholesaler's inability to challenge the distiller's decisionmaking. What respondents are really challenging is the California Legislature's decision to give such a power to the distiller without establishing any criteria to govern the exercise of that power. The Due Process Clause does not authorize this Court to assess the wisdom of the California Legislature's decision. See Ferguson v. Skrupa, 372 U. S. 726, 372 U. S. 729-732 (1963). Page 458 U. S. 665
Under the California designation statute, each distiller is empowered to decide whether to regulate its product distribution within California by designating those importers that may sell its product. The statute contemplates a private market decision, but provides a nonmarket mechanism for enforcing the decision. Hybrid restraints of this character require analysis that is different from a public regulatory scheme, on the one hand, see, e.g., Exxon Corp. v. Governor of Maryland, 437 U. S. 117; Joseph E. Seagram & Sons, Inc. v. Hostetter, 384 U. S. 35, [Footnote 2/1] and a purely private restraint on Page 458 U. S. 666 the other, see, e.g., Continental T.V., Inc. v. GTE Sylvania Inc., 433 U. S. 36; Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U. S. 373. We have twice held that hybrid price-fixing restraints are prohibited by the Sherman Act. Schwegmann Bros. v. Calvert Distillers Corp., 341 U. S. 384; California Retail Liquor Dealers Assn. v. Midcal Aluminum, Inc., 445 U. S. 97. In both cases, the private decision to fix prices was unsupervised by the State, but made effective by state law.
Even though the private agreements to fix resale prices were not unlawful, Schwegmann held that the distributor could not place the same restraint on the market by using the Page 458 U. S. 667 state statute as a "club." 341 U.S. at 341 U. S. 395 (emphasis in original). The Court's holding teaches that a state statute that facilitates the manufacturer's decision to impose a vertical restriction is not lawful simply because the Sherman Act permits the manufacturer, if it has sufficient power in the private market, to impose that same restriction without the aid of the statute. In other words, a statute that gives distributors additional power over the wholesale or retail market to impose an otherwise permissible restraint might not pass muster under the Sherman Act. [Footnote 2/2]
The inquiry in these cases therefore cannot simply be whether the Sherman Act would have been violated had the distillers obtained the control over their California distribution systems without the aid of the designation statute. For the distillers' power to impose resale restrictions on California importers has been drastically affected first by the Oklahoma "open wholesaling" and "free export" provisions and second by the California designation statute enacted as a response to the Oklahoma laws. It may be that the amount of distiller control over California importers under the two statutes is not significantly greater than the amount that would exist if neither State intervened in the private market. Contrary to the Court's perception, ante at 458 U. S. 662, [Footnote 2/3] however, the character of control is different. For the designation statute Page 458 U. S. 668 gives the distillers direct authority over California importers, [Footnote 2/4] whereas, in the private market, the distillers must persuade Oklahoma wholesalers not to resell to California importers. It is possible that, absent the state laws, the distillers would have insufficient market power to obtain and enforce such agreements. The designation statute therefore may give the distillers more power over California importers than was taken away by the Oklahoma laws.
The validity of the designation statute obviously presents a more difficult question than was presented in Schwegmann and Midcal. [Footnote 2/5] For, in both cases, the Court had the benefit of a conclusive presumption that resale price maintenance is anticompetitive. This case, however, not only involves a species of vertical nonprice restriction with respect to which there are no sure rules relating to effect on competition; it also involves a nonmarket enforcement mechanism that, according to Schwegmann, can make the difference between legality and illegality. The statute conceivably could create such an unacceptable and unnecessary risk of anticompetitive effect as to result in its invalidation. The removal of the Oklahoma legal obstacle to the purely private imposition of vertical restrictions in the California liquor market significantly enhances this possibility. Page 458 U. S. 669