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Simpson v. Union Oil Co. of California - 377 U.S. 13 (1964) :: Justia US Supreme Court Center
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Case	U.S. Supreme CourtSimpson v. Union Oil Co. of California, 377 U.S. 13 (1964)Simpson v. Union Oil Co. of CaliforniaNo. 87Argued January 15-16, 1964Decided April 20, 1964377 U.S. 13CERTIORARI TO THE UNITED STATES COURT OF APPEALS
This is a suit for damages under § 4 of the Clayton Act, 38 Stat. 731, 15 U.S.C. § 15, for violation of §§ 1 and 2 of the Sherman Act, 26 Stat. 209, as amended, 50 Stat. 693, 15 U.S.C. §§ 1, 2. The complaint grows out of so-called retail dealer "consignment" agreement which, it is alleged, Union Oil requires lessees of its retail outlets to sign, of which Simpson was one. The "consignment" agreement is for one year and thereafter until canceled, is terminable by either party at the end of any year, and, by its terms, ceases upon any termination of the lease. The lease is also for one year, and it is alleged that it is used to police the retail prices charged by the consignees, renewals not being made Page 377 U. S. 15 if the conditions prescribed by the company are not met. The company, pursuant to the "consignment" agreement, sets the prices at which the retailer sells the gasoline. While "title" to the consigned gasoline "shall remain in Consignor until sold by Consignee," and while the company pays all property taxes on all gasoline in possession of Simpson, he must carry personal liability and property damage insurance by reason of the "consigned" gasoline, and is responsible for all losses of the "consigned" gasoline in his possession, save for specified acts of God. Simpson is compensated by a minimum commission, and pays all the costs of operation in the familiar manner.
After two pretrial hearings, the company moved for a summary judgment. Simpson moved for a partial summary judgment -- that the consignment lease program is Page 377 U. S. 16 in violation of §§ 1 and 2 of the Sherman Act. The District Court, concluding that "all the factual disputes" had been eliminated from the case, entertained the motions. The District Court granted the company's motion and denied Simpson's, holding as to the latter that he had not established a violation of the Sherman Act and, even assuming such a violation, that he had not suffered any actionable damage. The Court of Appeals affirmed. While it assumed that there were triable issues of law, it concluded that Simpson suffered no actionable wrong or damage, 311 F.2d 764. The case is here on a writ of certiorari. 373 U.S. 901.
"Congress has, by legislative fiat, determined that such prohibited activities are injurious to the public, and has provided sanctions allowing private enforcement of the antitrust laws by an aggrieved party. These laws protect the victims of the forbidden practices as well as the public. "Page 377 U. S. 17
Consignments perform an important function in trade and commerce, and their integrity has been recognized by many courts, including this one. See Ludvigh v. American Woolen Co., 231 U. S. 522. Yet consignments, though useful in allocating risks between the parties and determining their rights inter se, do not necessarily control Page 377 U. S. 18 the rights of others, whether they be creditors or sovereigns. Thus, the device has been extensively regulated by the States. 22 Am.Jur., Factors, § 8; Hartford Indemnity Co. v. Illinois, 298 U. S. 155. Congress, too, has entered parts of the field, establishing by the Act of June 10, 1930, 46 Stat. 531, as amended, 7 U.S.C. § 499a et seq., a pervasive system of control over commission merchants dealing in perishable agricultural commodities.
We are enlightened on present-day marketing methods by recent congressional investigations. In the automobile field, the price is "the manufacturer's suggested retail price," [Footnote 3] not a price coercively exacted; nor do automobiles Page 377 U. S. 19 go on consignment; they are sold. [Footnote 4] Resale price maintenance of gasoline through the "consignment" device is increasing. [Footnote 5] The "consignment" device in the gasoline field is used for resale price maintenance. The theory and practice of gasoline price-fixing in vogue under the "consignment" agreement has been well exposed by Congress. A Union Oil official, in recent testimony before a House Committee on Small Business, explained the price mechanism:
"Mr. RATH. Yes. We do it on this basis: you see, he is paid a commission to sell these products for us. Now, we go out into the market area and find out what the competitive major price is, what that level is, and we set our house-brand price at that. [Footnote 6] "Page 377 U. S. 20
Dealers like Simpson are independent businessmen, and they have all or most of the indicia of entrepreneurs, except for price-fixing. The risk of loss of the gasoline is on them, apart from acts of God. Their return is affected by the rise and fall in the market price, their commissions declining as retail prices drop. [Footnote 7] Practically Page 377 U. S. 21 the only power they have to be wholly independent businessmen, whose service depends on their own initiative and enterprise, is taken from them by the proviso that they must sell their gasoline at prices fixed by Union Oil. By reason of the lease and "consignment" agreement, dealers are coercively laced into an arrangement under which their supplier is able to impose noncompetitive prices on thousands of persons whose prices otherwise might be competitive. The evil of this resale price maintenance program, like that of the requirements contracts held illegal by Standard Oil Co. of California v. United States, supra, is its inexorable potentiality for, and even certainty in, destroying competition in retail sales of gasoline by these nominal "consignees" who are, in reality, small struggling competitors seeking retail gas customers.
As we have said, an owner of an article may send it to a dealer, who may, in turn, undertake to sell it only at a price determined by the owner. There is nothing illegal about that arrangement. When, however, a "consignment" device is used to cover a vast gasoline distribution system, fixing prices through many retail outlets, the antitrust laws prevent calling the "consignment" an agency, [Footnote 8] for then the end result of United States v. Socony-Vacuum Page 377 U. S. 22 Oil Co., supra, would be avoided merely by clever manipulation of words, not by differences in substance. The present, coercive "consignment" device, if successful against challenge under the antitrust laws, furnishes a wooden formula for administering prices on a vast scale. [Footnote 9]
Reliance is placed on United States v. General Electric Co., 272 U. S. 476, where a consignment arrangement was utilized to market patented articles. Union Oil correctly argues that the consignment in that case somewhat Page 377 U. S. 23 parallels the one in the instant case. [Footnote 10] The Court in the General Electric case did not restrict its ruling to patented articles; it, indeed, said that the use of the consignment device was available to the owners of articles "patented or otherwise." Id. at 272 U. S. 488. But whatever may be said of the General Electric case on its special facts, involving patents, it is not apposite to the special facts here.
"Every patent shall contain a short title of the invention and a grant to the patentee, his heirs or assigns, for the term of seventeen years, of the right to exclude others from making, using, or selling the invention throughout the United Page 377 U. S. 24 States, referring to the specification for the particulars thereof."
The case must be remanded for a hearing on all the other issues in the case, including those raised under the McGuire Act, 66 Stat. 631, 15 U.S.C. § 45, and the damages, if any, suffered. We intimate no views on any other issue; we hold only that resale price maintenance through the present, coercive type of "consignment" agreement is illegal under the antitrust laws, and that petitioner suffered actionable wrong or damage. We reserve the question Page 377 U. S. 25 whether, when all the facts are known, there may be any equities that would warrant only prospective application in damage suits of the rule governing price-fixing by the "consignment" device which we announce today.
I think the reasoning upon which the Court of Appeals proceeded is untenable. The gravamen of the petitioner's complaint was that he had been coerced into a lease conditioned upon acceptance of the respondent's allegedly unlawful system of selling. If, as the Court of Appeals assumed, there had been such a violation of the Sherman Act, it was inconsistent to assume that the petitioner could not have been subject to the coercion he alleged and could not have suffered damages. But the root error in this case, it seems to me, was the District Court's decision to terminate the controversy by way of a summary judgment. I therefore agree with the Court that the judgment of the Court of Appeals should be set aside, and the case remanded to the District Court for a Page 377 U. S. 26 trial on the merits. Poller v. Columbia Broadcasting System, 368 U. S. 464. But I think that, upon remand, there should be a full trial of all the issues in this litigation, because I completely disagree with the Court that whenever a bona fide consignor, employing numerous agents, sets the price at which his property is to be sold, "the antitrust laws prevent calling the consignment' an agency," and transform the consignment into a sale. In the present posture of this case, such a determination, overruling as it does a doctrine which has stood unquestioned for almost 40 years, is unwarranted, unnecessary and premature.
In United States v. General Electric, 272 U. S. 476, this Court held that a bona fide consignment agreement of this kind does not violate the Sherman Act. The Court today concedes that "the consignment in that case somewhat parallels the one in the instant case." The fact of the matter is, so far as the record now before us discloses, the two agreements are virtually indistinguishable. [Footnote 2/1] Instead of expressly overruling General Electric, Page 377 U. S. 27 however, the Court seeks to distinguish that case upon the specious ground that its underpinnings rest on patent law.
It is, of course, true that what was sold in General Electric was not gasoline, but lamp bulbs which had been manufactured under a patent. But, until today, no one has ever considered this fact relevant to the holding in Page 377 U. S. 28 that case that bona fide consignment agreements do not violate the antitrust laws, "however comprehensive as a mass or whole in their effect. . . ." Id. at 272 U. S. 488. In addition to the unambiguous statement in Chief Justice Taft's opinion for a unanimous Court that
To answer that question, the Court examined the operative provisions of the consignment agreement to determine whether the agreement created a valid agency or whether, in fact, title effectively passed to the so-called consignee. Id. at 272 U. S. 483-488. If the latter were the case, the price-fixing requirement would have made the agreement nothing more than a resale price maintenance scheme, unlawful under the antitrust laws, cf. Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U. S. 373, regardless of whether or not the article sold was patented. Similarly, if the agreement created a bona fide agency, the consignment would be valid under the antitrust laws, again regardless of whether or not the article consigned were patented. Page 377 U. S. 29
It is clear, therefore, that the Court today overrules General Electric. It does so even though the validity of that decision was not challenged in the briefs or in oral argument in this case. I should have thought that a decision of such impact and magnitude could properly be reached only after careful consideration of all relevant considerations, and preferably by a full Court. [Footnote 2/3] Today's upsetting decision carries with it the most severe consequences to a large sector of the private economy. We cannot be blind to the fact that commercial arrangements throughout our economy are shaped in reliance upon this Court's decisions elaborating the reach of the antitrust Page 377 U. S. 30 laws. Everyone knows that consignment selling is a widely used method of distribution all over the country. By our decision today outlawing consignment selling if it includes a price limitation, we inject severe uncertainty into commercial relationships established in reliance upon a decision of this Court explicitly validating this method of distribution. We create, as well, the distinct possibility that an untold number of sellers of goods will be subjected to liability in treble damage suits because they thought they could rely on the validity of this Court's decisions.
311 F.2d at 767. Page 377 U. S. 31