Legal Document

388 U.S. 365 87 Supreme Court Reporter 1856 18 United States Reports Lawyer’s Edition 2d Series KF101.8 U54 1249 UNITED STATES, Appellant,v.ARNOLD, SCHWINN & CO. et al. Number 25. Argued April 20, 1967. Decided June 12, [Syllabus from pages 365-366 intentionally omitted] Richard Atlantic Posner, Washington, D.C., for appellant. Robert C. Keck, Chicago, Ill., and Earl E. Pollock, appellees. Mr. Justice FORTAS delivered the opinion of Court. 1 The brought this appeal to review judgment District in a civil antitrust case alleging violations § Sherman Act, 26 Statutes-at-Large 209, as amended, 15 Code KF62 1. Direct is authorized by 2 Expediting 32 823, 29. complaint charged continuing conspiracy since 1952 between defendants other alleged co-conspirators involving price fixing, allocation exclusive territories wholesalers jobbers, confinement merchandise franchised dealers. Named were Arnold, Schwinn Company ('Schwinn'), Cycle Distributors Association ('SCDA'), baron Federal KF105 F3 Goodrich ('B. Goodrich').1 At trial, asserted that not only fixing but also Schwinn's methods distribution illegal per se under Act. trial lasted 70 days. evidence, largely offered appellees, elaborately sets forth information total market interaction interbrand competition, well program practices. 3 rejected charge fixing. With respect charges practices, court held territorial limitation was unlawful respects products sold its distributors; insofar it incident sales itself retailers where wholesaler or jobber (hereinafter referred distributor) functioned agent consignee, including pursuant 'Schwinn Plan' described below. 4 did Court's rejection pricefixing charge. appellees findings order invalidating restraints on resale distributors who purchase Schwinn. 5 In Court, has abandoned contention limitations are se. Instead we asked consider these light 'rule reason,' and, basis voluminous record below, conclude product 'agreement' wholesale retail they constitute an unreasonable restraint trade. 6 Appellee family-owned business which many years been engaged manufacture sale bicycles some limited bicycle parts accessories.2 SCDA association handling products. challenged marketing instituted 1952. 1951 had largest single share market—22.5%. 1961 fallen 12.8% although dollar unit risen substantially. same period, competitor, Murray Ohio Manufacturing Company, now leading producer, increased 11.6% 22.8% 1961. sells primarily Sears, Roebuck mass merchandisers. By 1962 there nine producers Nation, operating 11 plants. Imor ts amounted 29.7% 7 Forty percent all distributed national concerns operate their own stores franchise others. Another 20% giant chains merchandisers like Sears Montgomery Ward Company. together account sales. Most private label. About 30% cycle jobbers specialize trade, remaining 10% hardware general stores. 8 through 22 distributors, with public being made large number retailers. addition, about 11% There 5,000 6,000 dealers specialty shops, generally providing servicing. 84% Through such specialized label, never while 64% restricted brand. They may ordinarily do sell variety brands. 9 does contend any nor attempt sustain reference whole. Instead, invites us confine our attention intrabrand effect contested restrictions. It urges declare method brand bicycles, amounting less than one-seventh market, constitutes trade commerce among several States. 10 principal selling follows: (1) jobbers; (2) means consignment agency arrangements (3) so-called Plan involves direct shipment retailer invoicing dealers, extending credit, paying commission distributor taking order. fair-traded certain models at permitting this, suggested prices During 1952—1962 found, 'well over half have dealer (not sales.' Less distributors.3 After World War II, begun studying revamping pattern. As 1951—1952, reduced mailing list 15,000 outlets 5,500. practice franchising approved outlets. prevent brands, require promote give them least equal prominence competing area limited, designated location locations. Each serve particular area. He consumers, unfranchised found each Schwin f ranchised 'knows he unrestricted dealer, free his person wants buy basis. * (He) knows cannot act discount house *. When acts subjects cancellation will Schwinn.' 12 assigned specific distributors. These instructed accounts respective specifically allocated 'that fact competed so doing conspired unreasonably restrain competition contrary provisions Section Act.' court, however, finding consequent transactions purchased resale, distinguished consignee Plan. should revision decree forbid exclusivity regardless technical form transferred consumer.4 13 Government's canceled franchises because houses find cut off violation limitations. 'clearly erroneous.' event, clear entirely consistent 'firm resolute' insisting upon observance customer confining 'firmness' grounded communicated danger termination. Our analysis embrace conclusion, rather urged Government refused actually terminated reasons. 14 We come, then, legal issues case. here confronted vertical restrictions territory source manufacturer. horizontal restraints, actors without manufacturer's participation. case, purpose automobiles 'discounters,' 'classic trade' results. versus General Motors Corp., 384 127, 86 1321, 16 415 (1966); see Klor's, Incorporated Broadway-al e Stores, Inc., 359 207, 79 705, 741 (1959); Timken Roller Bearing company States, 341 593, 71 971, 95 L.Ed. 1199 (1951). Nor accompanied issue tendered, litigated, decided against appellant, appellant appealed. If otherwise—if part scheme result would be Sealy, 350, 1847, 1238; Bausch Lomb Co., 321 707, 724, 64 805, 814, 88 1024 (1944). Because posture failure urge point, pause whether might presented, short activities manufacturer affect prices—whether styled 'maintenance' 'stabilization' otherwise—would fatally infect conclusion violation. Act presented practices involved (that is, lower enjoined before us). Accordingly, remitted appraisal impact White Motor 372 253, 83 696, 738 (1963), affirm summary even though selection no showing 'an integral whole system' accordingly declined outlaw system possibility laying bare 'the economic stuff out emerge' demonstrate reasonableness. Id., 263, S.Ct., 702. So must look specifics marketplace make 'reasonable' special sense read purposes type inquiry. Chicago Board Trade 246 231, 238, 38 242, 243, 62 683 (1918); Standard Oil New Jersey 221 1, 51, 31 502, 512, 55 619 (1911); Apex Hosiery Leader, 310 469, 498, 60 982, 994, 84 1311 (1940).5 first observe facts come within illustrations articulated possible factors relevant sheltered rule reason anticompetive. newcomer, seeking break into stay business. 'failing company.' On contrary, initiation producer Nation. contends, reasons induced adopt enable small, independent merchants up chain compete more effectively marketplace. sought better way distributing product: sales, increase stability outlets, augment profits. But argument, appealing enough avoid proscription; because, sense, every restrictive designed profit competitive position participants. Price so, example, well-calculated division territories. See Socony-Vacuum 150, 811, 1129 (1940). outcome turn merely presence sound motive. Here, if test reasonableness adopted 'for good reasons' injure competitors, answer turned indeed 'good practice,' quarrel eloquent submission court. inquiry stop point. whether, assuming nonpredatory motives incentive volume considerations, substantially adverse. promotion self-interest alone invoke immunize otherwise conduct. conduct coincides statutory concern preservation protection achieved. Trade, U.S., 243. 17 basis, customers, horizontal, 'ancillary price-fixing' (White supra, U.s., 260, 700) system.' (Bausch Lomb, 720, 812). those situations, needless inquire further established doctrine that, unless permitted statute, others anticompetitive, unlawfulness infects Cf. supra. extreme, equivalent brands readily available select 'franchise' whom, alone, goods. Colgate 250 300, 39 465, 63 992 (1919). stops point—if nothing 'confinement' selected others, restriction, violate boundary lines analyze present limiting purchased. agreements divide such, confined purchases consignment, transactions, instances, right allocate agents salesmen territory.' reasonable view problem 'giant' retailerssu ch merchandisers, enjoin appellees' retailers, prohibit public. 19 noted above, appealed order, accordingly, pleas: reach Schwinn-Plan relationship requiring limit enjoined; preventing supplying nonfranchised stores, forbidden. 20 point (2), argues illogical inconsistent resales owns goods, having bought Schwinn, time, exonerate goods 'franchised' once product, indistinguishable law principle condemns. Both, argues, nature alienation beyond power impose vendees which, transaction includes agreement, combination understanding, Dr. Miles Medical John D. Park Sons 220 373, 376, 502 supra; Klor's Broadway-Hale Fashion Originators' Guild FTC, 312 457, 61 703, 85 949 (1941); 1321 (1966). agree, remand, revised freedom dispose products, whomever choose. course, equally applicable similarly making condition, agreement understanding retailer's whom resell 21 vigorously remedy situations acquire title provide partial relief; can enlarged however effected—whether agency, dealing embodying unilateral manufacturers, Motors. 'division' restrict Motors, concerned truly arrangement, raising fundamental question degree customers seel, access selected, franchised, conlu de proper application requires differentiation situation title, dominion, risk article, completely retains ownership loss. held, subject And, applies deal sold. Under seek areas persons article traded after parted dominion it. Motor, Miles, Such obviously destructive mere existence enough. transfers loss another, reserve control destiny conditions resale.6 To permit sanction ordinary instead unusual permissible appropriate impelling setting, most sale. hand, indicated prepared introduce inflexibility bring applied franchising, designating specified chosen instruments manufacturer, retaining distribute severely hamper smaller enterprises resorting meeting giants merchandising independen sharply accelerate trend towards integration process. allow goods—the usual situation—would ancient open door prudence permits. 23 used—as here—to implement Where function are, fact, salesman 'unreasonably' results confinement, unencumbered culpable Simpson Union 377 13, 1051, 98 (1964). programs dominated command large-scale advertising promotion, choice both owned adequate sources supply. claimed circumstances resulted inadequate market; ter record—after elimination price-fixing issue—to lead exceeded limits reasonably necessary meet problems posed powerful competitors. circumstances, satisfied. 24 suggest adoption pattern justified demonstrated need competition. certainly, vertically imposed restraints—absent alternative needs unfranchised—may Government, concedes 25 record, clearly erroneous ourselves them—so long indicia ownership, risk, 'unreasonable' Critical facts: marketplace, interchangeable articles product;7 handle Schwinn's; intermixture fixing; (4) disagree program; by, went required pressures; net preserve damage market. Application whole, This not, excuse condone substance, consist thereof. Once effort thereafter explicit silent vendee—is reversed cause remanded entry accordance opinion. ordered. 27 Reversed remanded. 28 CLARK WHITE took decision 29 STEWART, HARLAN joins, concurring dissenting part. 30 N Dec. Immigration Nationality Decisions agree basic determination reason, consonant laws. understand how becomes instances effectuated policies developed late 1940's early 1950's. Studies undertaken time revealed Scwi nn's existing haphazard inefficient, size variety. Many inactive, resulting unprofitable overhead costs wasted promotional expenditures Moreover, service resources comport traditional policy manufacturing quality bicycles. believed active stable organization, composed experienced people could properly promote, assembly small repair unassembled carton provided facilities.1 determined want Tom, Dick Harry collecting paid, 'kissing goodbye,' depositing forgetting customer, generally.'2 assure efficiency system. consulting experts government industry clearing Commission, 5,500 chose best credit risks, bicycles.'3 predominantly mentioned above represent nearly 33 forming hoped 60% Although past decade one unprecedented vigorous industry, spurred flood imported succeeded. While profits margins squeezed,4 substantially, pared inactive high-volume reaped greater return expenditures. concluded:5 34 'The evidence abundantly eliminating dead timber, useless relatively accounts, firms unable unwilling replacements, adopting adhering restraining greatly enhanced salvation gunuine industry.' 35 Of premise qualified franchised.6 unilaterally ensuring supplied same, winn deliveries arrangements, shows implemented request persuasion 36 selective said embody scrutiny, scrutiny label 'restraint.' words written Brandeis unanimous bear repeating: 37 'Every concerning regulation restrains. bind, restrain, very essence. true legality regulates perhaps thereby promotes suppress destroy determine peculiar applied; condition imposed; effect, actual probable. history restraint, evil exist, remedy, end attained, facts.' reaffirmed formulation rules invalidate analogous here. explicitly followed directive examined detail historical context applied. fully supports ultimate enhance undermine join approval today. worth emphasizing justifications rest larger social policy. recognized Congress' disappearance merchant face integrated giants. Brown Shoe 370 294, 333, 346, 82 1502, 1535, 510. cases reflects inexorable realities modern marketing. promises become efficient effective competitor firms. various forms assured franchisee enjoys backing know-how financial assistance.7 significant contributions importance society, federal noted: 40 operation advantage, standpoint American economy, enabling numerous groups individuals capital entrepreneurs. economy employees. creates class businessmen; provides opportunity get uniform points contractors, employees ava st chain.'8 41 Indiscriminate invalidation eliminate creative force 'suppliers abandon integrate forward detriment words, inadvertently compel concentration' misguided zealousness.9 result, '(t)here (would be) place independent.' Rptr. California (West’s) Stations 337 293, 315, 69 1064, 93 1371 (separate Douglas). man (would) supplanted clerks.' 321, 1067. 42 For approach recognizes outlawry 'might process.' acknowledges operated 'to competition,' concludes reason' upholds Plan, heart system, accounting 75% arrangements. 43 inexplicably turns back values flexible wisdom when effected wholesalers. mode plays subsidiary role, serving 'fill-in' orders whose stock obtained Without considering function, declares aspect invalid. likewise automatic illegality strike down thus subvert distributional scheme. 44 Despite concession aspects nevertheless reaches potent rule. No previous justifies action.10 repudiates Motor. much stringent apply restrictions, declared tested examining context. today why, four later, preceen t overruled. Surely, interim accumulated sufficient new experience insight justify embracing automatically based 264—266, S.8ct., 702 (concurring Brennan). Indeed, cite discuss data support radical change law. And am fathom yet uphold identical takes deliveries. somehow anticompetitive justifiable contractual relations 'sale' 'agency' 'consignment.' irrelevant formulae false guides adjudication field: 'Our abstractions industrial life.' 320, 1067 45 advances two either persuasive. First, correctly observes invalidated then states 'illogical inconsistent' involved. overlooks 'division nature.'11 played conspiracy, just 140, 1327, alter fundamentally trade'. striking markets simply following familiar precedent. 971. contrast, quite different nature, elsewhere opinion: 46 '(W)e arrangement.' Ante, 378. 47 emphasizes, principles different.12 Thus, applying wholesalers' markets. 48 second justification 'ancient alienation.' property certainly ancient—it traces lineage Coke Littleton.13 hardly grounds antiquity. common-law rigid implies. original arbitrary severe alienation, prohibition resale.14 1711 proscribed, ancillary legitimate unduly effect. Mitchel Reynolds, P.Wms. 181, Eng.Rep. 347. Tulk Moxhay, Ph. 774, 1143. assimilated jurisprudence country nineteenth century. Oregon Steam Navigation Winsor, Wall. 64, 315; Addyston Pipe Steel Cir., 271. 49 Centuries ago, assumed interest what happened middleman started channel distribution. assumption longer holds day sophisticated policies, advertising, manufacturer-distributors.15 Restrictions able claim doctrine. 50 state common 400 100 ago us: laws difficult complex,16 response reasoned sensitive simple acceptance hoary formula. 'It seem twentieth centuries contributed conceptions growing types inappropriate' base 'overthrow contemporary commercial judicial views reign Queen Elizabeth.'17 makes everything arrangement denominated 'agency.' ignores conceals 'economic which' fashioned. emphasized differencs often 'differences substance.' 22, 1057. Draftsmen cast molds law, identifically terms latter show consequences implementation differed, depending resorted suppose variations formal packaging produce differences contrary. stated Masonite 316 265, 278, 280, 1070, 1077. 51 '(T)his consistently parties govern. 52 'So far skill counsel manipulated concepts significance trade.' 53 today's slight, done Perhaps rearrange terminology alienation' adopts. manufacturers use likewise. can, created considerable draftsmen. cannot, competitors likely follow. Meanwhile, has, sua sponte, bluntly indiscriminate weapon used dismantle vast systems—competitive unreasonable. 54 commendably careful realistic taken analyzing structure program, particularly disappointing balk 'sale,' wooden negotiated consent prior dropped Its accessory 4% Like producers, manufactures components producers. brief represents presently Plan; agreements; remain contract. perfect Jurisdictional Statement expressly decree. Appellees strenuously refuse States' argument stated. Rules 15(1)(c)(1) 40(1)(d)(2); Talking Pictures Western Electric 304 175, 177—179, 58 849, 850—751, 1548 (1938). regard disfavor theory, shall reject tendered substance relief embraced adversely affected. 'a standard presumptive illegality,' presumably customers. additional subtlety advanced burden proof remains plaintiff, deriving help particularized law—such (Indiana) 283 163, 179, 421, 427, 75 926 (1931). occasion patentee rights respect. Compare 272 476, 192, 362 (1926), Wrinkle, 342 371, 72 96 417 (1952); Line Material 333 287, 68 550, 92 701 (1948); 1461 (1942). excellence establishing that: 'Bicycles constant service. Hardware department furnish services. Retail do. That establishment local representatives.' 237 F.Supp. 323, 335. F.Supp., 338. Ibid. 1951—1961 fell 9% 12%, declined. during period. franchising. Lewis Hancock, Franchise System Distribution 4, (1963). (1963); Small Business Administration, Management Aids Manufacturers, 182, 'Expanding Sales Franchising' Susser Carvel 206 636, 640, aff'd, 332 Reporter, 2nd 505, cert. granted, 379 885, 158, 91, dismissed, 381 125, 1364, 284. Problems Affecting Business, Hearings Subcommittee Antitrust Monopoly, Senate Committee Judiciary, 89th Cong., 1st Sess., 7—9, 12—13 (statement Administration Administrator Eugene Pacific KF135 P2 Foley), 90 Commission Chairman Paul Rand Dixon) (March 1965); 91—92 Handler, Before Bull. 417, 419. Wilson, Some Relative Arrangements, 473, 488. start litigation, wholesaling integration. cites price-fixing, 342. One difference serious 'contract, conspiracy' tat. Judge 'contract,' 'combination' 'conspiracy.' conceived, hatched born life minds officials,' agreed action nature.' essential failed raise Statement, register my disagreement cursory treatment matter. notes observance' 'communicated termination' policies. amount 'conspiracy' 465; Parke, Davis 262 29, 80 503, 505. Coke, Institutes Laws England 360 (Day ed. 1812). Elman, 'Petrified Opinions' Competitive Realities, 66 Col.L.Rev. 625. Jordan, Exclusive Restricted Areas Laws, U.C.L.A.L.Rev. 111; McLaren, Territorial Restrictions, Dealing, Related Prac.Law. 79; Preston, Restrictive Arrangements: Economic Analysis Public Policy Standards, Law Contempt. Prob. 506; Robinson, Restraints Orderly Marketing Goods, Cornell L.Q. 254; Note, Channels Harv.L.Rev. 795. Chafee, Equitable Servitudes Chattels, 945, 983.

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