Opinion ID: 406814
Heading Depth: 3
Heading Rank: 1

Heading: Termination of the Spray-Rite Distributorship

Text: 19 The court instructed the jury that a manufacturer has the right to select its distributors and set a suggested resale price for its products. The instructions explained that this right is limited, however, because the manufacturer may not coerce distributors to follow its suggested price by threatening to terminate their distributorships. The court then instructed the jury that (i)f the manufacturer's selection (of a distributor) is accompanied by unlawful purpose, conduct or agreement, it violates the Sherman Act. Tr. at 4363 (emphasis added). Monsanto contends that these instructions gave the jury the incorrect impression that a manufacturer that unilaterally decides to terminate a distributor violates the Sherman Act if the manufacturer had an improper motive. 20 A manufacturer may unilaterally fix a suggested resale price for its product. United States v. Colgate, 250 U.S. 300, 39 S.Ct. 465, 63 L.Ed. 992 (1919). It may also lawfully refuse to deal with any distributor that resells the product at a price other than that it has suggested. Id. If, however, the manufacturer does anything more than merely announce the suggested resale price and then refuse to deal with distributors that fail to comply with that price, the manufacturer is engaged in a per se unlawful resale price maintenance scheme. United States v. Parke, Davis & Co., 362 U.S. 29, 80 S.Ct. 503, 4 L.Ed.2d 505 (1960); United States v. Bausch & Lomb Co., 321 U.S. 707, 64 S.Ct. 805, 88 L.Ed. 1024 (1944); FTC v. Beech-Nut Co., 257 U.S. 441, 42 S.Ct. 150, 66 L.Ed. 307 (1922). An unlawful resale price maintenance scheme can be effected in either of two ways: the manufacturer and its distributors may enter into an express or implied agreement to maintain a fixed resale price, United States v. Bausch & Lomb Co., 321 U.S. 707, 721, 64 S.Ct. 805, 812, 88 L.Ed. 1024 (1944), or the manufacturer may secure adherence to its suggested resale price through coercion, including threats to terminate distributors if they do not follow the suggested price. United States v. Parke, Davis & Co., 362 U.S. 29, 43, 80 S.Ct. 503, 511, 4 L.Ed.2d 505 (1960). The manufacturer may not terminate a distributor if (1) the termination is at the request of a competing distributor and (2) the termination is motivated by a desire to reduce or eliminate price competition for the manufacturer's products. Contractor Utility Sales Co., Inc. v. Certain-Teed Products Corp., 638 F.2d 1061, 1072 & n.9 (7th Cir. 1981); Alloy International Co. v. Hoover-NSK Bearing Co., Inc., 635 F.2d 1222, 1225-26 (7th Cir. 1980). See also Battle v. Lubrizol Corp., 673 F.2d 984, 992 (8th Cir. 1982); Cernuto, Inc. v. United Cabinet Corp., 595 F.2d 164, 169-70 (3d Cir. 1979). 21 We agree with Monsanto that the jury should not have been instructed that a manufacturer's unilateral decision to terminate a distributor is unlawful if based on an improper motive. A manufacturer's unilateral termination of a distributor is not unlawful regardless of whether it is motivated by an illegal purpose. United States v. Colgate, 250 U.S. 300, 39 S.Ct. 465, 63 L.Ed. 992 (1919). We believe, however, that this one inaccuracy was harmless. The entire jury charge informed the jury that Spray-Rite had to prove the existence of an agreement, conspiracy, or combination and that Monsanto's termination of Spray-Rite was unlawful only if the decision to terminate was not unilateral. 3 The entire charge correctly instructed the jury that Spray-Rite had to adduce evidence of an illegal purpose and an unlawful combination, conspiracy, or agreement to prove that Monsanto's refusal to renew the Spray-Rite distributorship was unlawful. 4