Legal Document

388 U.S. 350 87 Supreme Court Reporter 1847 18 United States Reports Lawyer’s Edition 2d Series KF101.8 U54 1238 UNITED STATES, Appellant,v.SEALY, INC. Number 9. Argued April 20, 1967. Decided June 12, Daniel M. Friedman, Washington, D.C., for appellant. Richard W. McLaren, Chicago, Ill., appellee. Mr. Justice FORTAS delivered the opinion of Court. 1 Appellee and its predecessors have, more than 40 years, been engaged in business licensing manufacturers mattresses bedding products to make sell such under Sealy name trademarks. In this civil action charged that appellee had violated § Sherman Act, 26 Statutes-at-Large 209, as amended, 15 Code KF62 1, by conspiring with licensees fix prices at which retail customers might resell bearing name, allocate mutually exclusive territories among manufacturer-licensees. 2 After trial, District found was a continuing conspiracy manufacturer-licensees agree upon minimum on police so fixed. It enjoined from conduct, 'Provided, however, nothing herein contained shall be construed prohibit defendant disseminating using suggested purpose national advertising products.' did not appeal finding or order relating price-fixing. 3 With respect charge conspired territory manufacturers, held proved conduct 'in unreasonable restraint trade violation Section Act.' The appealed Expediting 32 823, 29. We noted probable jurisdiction. 382 806, 86 58, 57 (1965). 4 There is no dispute were allotted agreed each licensee license any other person manufacture designated area; 'Sealy products' outside area. A manufacturer could his private label anywhere he choose. 5 Because has distinguished between horizontal vertical territorial limitations purposes impact it first necessary determine whether arrangements here are treated creature licensor, Sealy, product arrangement licensees. White Motor company versus States, 372 253, 83 696, 9 738 (1963). 6 If we look substance rather form, there little room debate. These must classified restraints. Cmp General Motors Corp., 384 127, 141—148, 1321, 1328—1332, 16 415 (1966); id., 148—149, 1332 (Harlan, J., concurring result); Parke, Davis & Co., 362 29, 80 503, 505 (1960). 7 about 30 'licensees.' They own substantially all stock.1 Selay's bylaws provide director stockholder stockholder-licensee's nominee. Sealy's managed controlled board directors. Between meetings, executive committee acts. composed president five members, licenseestockholders. Control does reside only matter form. exercised them day-to-day including grant, assignment, reassignment, termination licenses. Action sort taken either directors both which, have said, manned, wholly almost entirely, licensee-stockholders. 8 argues 'there evidence mere instrumentality stockholders.' support proposition, stoutly asserts 'the stockholders wore hat' when they acting behalf Sealy.' But obvious inescapable facts joint venture of, by, stockholder-licensees; stockholder-licensees themselves directly, without even semblance insulation, operations. For example, some crucial findings describe actions having 'stockholder representatives' committee. 10 true an interest effectiveness efficiency, and, stockholders, welcomed profitability—at rate within limits set their willingness pay royalties venture. chargeable Sealy. seek central situation, periphery;2 pursuit, moved identity persons who act, hats. necessarily whose interests supposed promote who, through select guaranteed withheld power terminate licenses inadequate performance. regarded would violate reality treat equivalent imposed independent dealers incident sale trademarked product. Inc., allocation. principal. 11 Accordingly, case supra, involved limitation. case, pointed out restraints embraced condemnation Timken Roller Bearing 341 593, 71 971, 95 L.Ed. 1199 (1951), prior trial summary judgment proceedings, declined extend 'to venic al one restricting distributors dealers.' U.S., 261, S.Ct., 701. 12 agreements British, French companies division world markets antifriction bearings. included fixing sold others; imports exports States; excluding competition. This 'aggregation those existing illegal (Sherman) 598, 974. 13 present also faced restraints.' Since early days 1925 continuously thereafter, retailers whom licensee-stockholders fixed policed itself, collaboration them. As found: 14 stockholder-licensee representatives * directors, Executive Committee, committees Incorporated discuss, '(a) sold; '(b) advertised; 17 '(c) comparative advertise products; '(d) below 19 '(e) 20 '(f) means inducing enforcing adhere these prices.' 21 activities, held, constitute Act. Their anticompetitive nature effect apparent serious courts will pause assess light rule reason. See, e.g., Socony-Vacuum Oil 310 150, 210—218, 60 811, 838—842, 84 1129 (1940); 147, 1331, (1966). 22 enjoining continuation price-fixing, but existence practice cannot ignored our appraisal limitations. place, flagrant pervasive law, was, court found, activity mechanisms. underlines enterprise, use separate entity, individual manufacturers. second unlawful resale price-fixing refutes appellee's claim incidents lawful program trademark licensing. Cf. supra.3 part policing. specific show, gave enclave zealously effectively maintain prices, free danger incursions. may true, vigorously argues, exclusivity served many purposes. connection enough require condemned reatraint prevented continued further use. 23 urged us should condone limitation because absence showing unreasonable. argued, number small grocers basis common advertisements, competition, per se unlawful. certainly go far condemn quite different whatever result if presented decision.4 here, 'an aggregation restraints' Compare 147—148, 1331—1332, (1966).5 Within settled doctrine, Act necessity inquiry particular economic justification, marketplace, reasonableness. 24 reversed remanded entry appropriate decree. 25 Reversed remanded. CLARK WHITE took decision case. 27 HARLAN, dissenting. 28 N Dec. Immigration Nationality Decisions record restrictive challenged properly 'horizontal,' hence established antitrust doctrine. believe 'vertical' thus, recognizes, subject evaluation. 29 owner trademarks branded bedding. various parts country produce products. addition, Sal y provides technical managerial services them, conducts promotional programs, engages research quality control activities. Government's theory essentially allocation spite legitimate activities actually 'front' created used camouflage collusive *' Plaintiff's Brief Opposition Defendants' Briefs, October 1961, Pages 15. characterization se. Horizontal divide long laws regard asserted justification See Addyston Pipe Steel 175 211, 96, 44 136; National Lead 332 319, 67 1634, 91 2077; 1199. reason divisions prevent open where effected horizontally sellers normal course things competing themselves, immediately suspect. 263, 702, 738, 'naked except stifling competition.' On hand, restraints—that is, dealers, licensor licensees—may valid justifications. imposing said Quite contrary, can expected enhance competitive position vis-a -vis brands. 31 restrictions, recognized engage effective interbrand competition necessary. Restraints type 'may allowable protections against aggressive competitors practicable breaking into staying (cf. Brown Shoe (v. 370 294), 330, 82 1502, 1526, 1527, 510; Jerrold Electronics 187 F.Supp. 545, 560—561, aff'd, 365 567, 81 755, 806) 'rule reason." 702; see 267—272, 704—706 (Concurring Brennan, J.). reasons vertically tested reason, namely, context industry, merely regulates perhaps thereby promotes suppress destroy Chicago Board Trade 246 231, 238, 38 242, 244, 62 683. Indeed reaffirms principles announces today Arnold, Schwinn 365, 1856, 1249. question prima facie matter, deemed purposes, combination licensees, simply vehicle effectuating made Court, am unable accept Court's classification contrived. following findings: 33 '4. proceding (detailed factual) indicate demonstrates never conspiratorial compete. main proper exploitation exchange fact remains restricted However, shows restriction secondary, ancillary, contracts. 34 '119. evidence, read whole, conclusively proves developed 1920's entirely royalty income Sugar Land Industries, owned patents, benefits purchasing, research, engineering, merchandising. objectives carried successor companies, defendant, directed toward market obtaining additional intensive sales coverage.' 35 Solicitor presenting stated explicitly contend 'that facade competition,' Brief, Page since admittedly genuine me findings, Government accepts appeal, take category agreements, thus well.1 ligitimate own: vigorous large integrated chains selling products.2 goal maximize nationwide, royalties. test circumstances same governing relationships, structure reasonable practices, given laws. supra; Sandura FTC, Cir., 339 Federal Reporter, 2nd 847. shareholders Such relationship doubt requires special scrutiny.3 itself automatically striking down policy territorialization. correct approach, my view, consider corporate decision-making process (but one) relevant factor determining one. Penn-Olin Chem. 378 158, 170, 1710, 1716, 775. 36 reaching relies heavily restraints," ante, 354, engaging price fixing. 'The restraints,' says, 'were policing,' 356. Nothing, supports conclusion. Indeed, opposite conclusion tenable guilty time unlawfully territories. contended entitled injunction restrictions relief aspect issue assume obtain adequate injunctive seems ill-conceived. 37 find persuades abandon traditional reason' approach court. judging liability insisted trying terms, attempting prove conspiracy. Although introduce concerning territorialization tried terms reasonableness restrictions. motion subpoena seeking discovery leading successfully supported Government,4 directly aimed justifying method industry taken. justification. voted remand proceedings rules deliberately chose stand dd prevail, able relitigate alternative theory, especially opposed efforts way. 39 affirm dismissal nonlicensee, Bergmann, 1950's, owns remaining stock; preemptive rights. Cf., (1951); New Wrinkle, 342 371, 72 350, 96 417 (1952); American Tobacco 221 106, 632, 55 663 (1911). Timken, argued steps system. summarily rejected argument, do here. went beyond protection includd nontrademarked items, concluded that: 'A legally device violation.' 599, 975. Lanham 438, 1115(b) (7). covered nonbranded merchandise well 'Timken' line. only. products, appears, enforcement. difference consequential article, otherwise permitted defended ancillary scheme. 142—143, 1329—1330, Northern Pacific R. 356 6—7, 78 514, 545 (1958): 'As simple dozen food stores community refuse flour unless buyer sugar hardly tend restrain ready itself.' MR. JUSTICE HARLAN observed, 1332, 415, 'Although Parke related alleged discern differentiating involving, boycotting.' seem apply division, like group boycotts, tying arrangements, 5, 518, (1958). 140—141, 1327—1328, undisputed Chevrolet initiate boycott discount houses. precisely impetus shown exist view differently. Motors, 148, 1332. testimony introduced seriously contravened appears largest nationwide local, advertising—particularly advertising—is important factorin industry. originally manufactured subsidiary, Mattress licensed new corporation, E. Edwards 1933, depression eliminated producers, corporation reorganized At owning approximately 90% stock. joint-venture maintained, 'for purposes,' 'of merchandising.' Finding 119. Serta Associates, F.R.D. 136, companion another similar quashed after Government. noted: complaint alleges allocations Serta, denied. Defendant restraints, sought completely corroborate plaintiff, Government, filed brief supportive quash subpoena. raises violations renders irrelevant subpoenaed material, tending confirm defendant's conduct.'

Classification Label: 7