Hudson Distributors, Inc. v. Eli Lilly & Company

PETITIONER:Hudson Distributors, Inc.
RESPONDENT:Eli Lilly & Company
LOCATION:New York Times Office

DOCKET NO.: 490
DECIDED BY: Warren Court (1962-1965)
LOWER COURT:

CITATION: 377 US 386 (1964)
ARGUED: Apr 29, 1964 / Apr 30, 1964
DECIDED: Jun 01, 1964

Facts of the case

Question

  • Oral Argument – April 29, 1964
  • Audio Transcription for Oral Argument – April 29, 1964 in Hudson Distributors, Inc. v. Eli Lilly & Company

    Audio Transcription for Oral Argument – April 30, 1964 in Hudson Distributors, Inc. v. Eli Lilly & Company

    Earl Warren:

    Hudson Distributors, Inc., versus Eli Lilly & Co.

    Mr. Krotinger.

    Myron N. Krotinger:

    Thank you, Your Honor.

    Mr. Chief Justice and members of the Court, if the Court please.

    This case is a companion case to the Upjohn case.

    It has some different aspects.

    Its history and how it arose, follow in many respects the Upjohn litigation following the effectiveness of the Ohio Fair Trade Act or, rather, its passage in June of 1959.

    On October 1st, 1959, Hudson was nullified by Eli Lilly & Co. that Eli Lilly will continue to vigorously support fair trade and which is to give you notice of this policy.

    This letter invited Hudson to enter into a contract.

    This invitation was to — was not taken up and on December 10th, 1959, a warning letter was sent from Eli Lilly to Hudson informing of the information that’s come to Eli Lilly of sales below fair trade prices, again, enclosing duplicate copies of the fair trade agreement, enclosing “We trust your future operations will be strictly in accordance with the obligations imposed upon you under the Ohio Fair Trade Act so there will be no need — occasion for any further controversy or litigation.”

    The — Hudson filed its petition for a declaratory judgment on the 22nd of October, 1959.

    This was followed by this warning letter and then by a second warning letter of January 26th, 1960 in which Hudson was told, “We are prepared to file suits for injunctions where contract violations cannot be worked out in a voluntary basis and we trust your future operations will be in accordance with your obligations under the contracts and under the Ohio Fair Trade Act.”

    In other words, the demand was made that Hudson observe both the provisions of the Ohio — rather, of the Lilly contract, as well as the fair trade pricing.

    As in Upjohn, a cross-petition was filed.

    Responsive pleadings were filed both to the petition and the cross-petition, and the case moved into a courtroom.

    Unlike Upjohn, in this case, there was a stipulation of facts and evidence.

    Again, like Upjohn, the litigation on the Hudson pleading — rather, on the complex of pleadings was limited solely to the petition, the answer and the reply.

    The rulings made by the courts below, the Court of Common Pleas, the Court of Appeals, the Highest Court of Ohio were all made in the — both cases as written by the Court.

    And as stated to the Court yesterday, the issues before the courts were limited to the constitutionality of the statute under the State and the Federal Constitutions.

    Now, Your Honors, as we noted yesterday, the Supreme Court of Ohio limited and placed its ruling solely upon the issues of the State of Ohio Constitution.

    It’s as if the federal law did not exist and we believe that the Supreme Court of Ohio was misled or, at least, adopted the positions set forth both by Upjohn and by Lilly in their briefs, excuse me, namely, that the federal law had nothing to do with the legality of the Ohio Fair Trade Act.

    This position was taken both by Lilly and by Upjohn forthrightly in the court below, and net result was that we have a situation where, in the brief of Eli Lilly & Co. in this Court, the claim is made that a valid contract was instituted under the Ohio Fair Trade Act under Section 5 (a) (2).

    Seven pages of the Lilly brief in this Court are devoted to that proposition.

    In fact, Your Honors, at page 48, 48 or 49 of the Lilly brief in this Court, Lilly argues such a contract is within the common law meaning of a contract that is, under Section 1333.31, an implied contract.

    Williston states that a contract may arise from a “sellers making a general offer to all the world in this way to be accepted by taking ownership on the property, provided consideration could be found from the promise of the purchaser and also, such communication to the promisee as is necessary for a contract.”

    The next sentence of this section of Williston which deals with notices on merchandise is to the effect, if the ultimate purchase is not from the offeror but from one who has acquired from him absolute and unqualified ownership, it would seem impossible to treat the purchase of the property as consideration for a promise of the purchaser to the original seller, unless it leads to the facts warranting the assumption that the immediate seller demanded, as part of the consideration of the sale, a promise to the original seller.

    Arthur J. Goldberg:

    (Inaudible)

    Myron N. Krotinger:

    Only if the federal law so-permits, Your Honor.

    Under Section 5 (a) (2), this Court has held and has plainly held repeatedly that the words “contracts and agreements” in the McGuire Act are to be taken in their ordinary and usual meaning.

    In the ordinary and usual meaning of the term, Mr. Justice Goldberg, a notice is not a contract.

    Myron N. Krotinger:

    A notice of another man’s trademark is not a contract.

    Arthur J. Goldberg:

    (Inaudible)

    Myron N. Krotinger:

    Yes, Your Honor.

    Arthur J. Goldberg:

    (Inaudible)

    Myron N. Krotinger:

    Except, Your Honor, I would suggest that the issue in the case is the interpretation of the federal exemption.

    In other words, where the Supreme Court of Ohio committed, in our opinion, basic error, is impending this case and the validity of a fair trade contract and price fixing in commerce as a matter of state law, rather than as a grant of federal exemption.

    The issue is a federal one.

    Indeed, Your Honor, whenever a claim has been made, either by private party, administrative agency or government, that a price fixing contract is sought to be imposed upon anyone, the federal court, as in Schwegmann, looked at the statute and said, “Are there critical differences between the federal act and the state statute?”

    In —

    Arthur J. Goldberg:

    (Inaudible)

    Myron N. Krotinger:

    Well, Your Honor, may I answer that by stating that the question is perhaps stated over-broadly in that you would — you would suggest by the question that there was a total commitment of price fixing for the states by the McGuire Act without relevance to the federal standard.

    And I would again suggest to Your Honor that the rulings of the Court, this Court foreclosed that approach.

    Contracts and agreements, signers and nonsigners have been two of the most bitterly litigated terms in American legal history where, for example, the McGuire Act was passed in 1952 to, one, due to the results of Schwegmann.

    This was by means of the nonsigner concept.

    At the time of the passage of that Act, there were 45 Fair Trade Acts in effect, each of which contained a nonsigner clause committed to the concept of signer and nonsigner.

    The Congress knew perfectly well what was the image and contour of those statutes.

    Section 5 (a) (3) said, states, “We will now allow you where you have nonsigner clauses to make them operative.”

    Beyond that, the Congress did not go.

    It said in Section 5 (a) (2), “You may enter into contracts and agreements.

    The section-by-section analysis of the bill talked about contracts.”

    The Congress further said, “You may enter into contracts by which you may require your contractee to enter into a further contract.”

    A statutory system was created and with that statutory system came, as professor McLaughlin pointed out, the resentment of holding a man to a contract he never made, so that over this basic nonsigner clause came this round of litigation through the different States whereby 24 such States have now held that the nonsigner clause is ineffectual.

    Now, we find a different solution upon a different basis with a different premise in commerce undertaken by the State of Ohio based upon what was originally a national solution to a hotly contended economic issue but which one, basically, was a matter of national policy and as this Court pointed out, there has been no subject, perhaps in American history, so closely patrolled as the price fixing agreement.

    Excuse me?

    Byron R. White:

    Suppose you have your — I don’t suppose Ohio changes its law in putting in this new statute because of any federal law.

    It did it to — to avoid its own state constitutional ruling, isn’t it?

    Myron N. Krotinger:

    Yes, Your Honor.

    Byron R. White:

    Now, I would suppose you would concede that in a State — that — that Ohio’s previous law would’ve been fully constitutional under the McGuire Act.

    Myron N. Krotinger:

    Yes, Your Honor.

    It was a typical little four-sectioned —

    Byron R. White:

    Sure.

    Myron N. Krotinger:

    — statute designed —

    Byron R. White:

    This allowed you to — this allowed you to get release against nonsigner.

    Myron N. Krotinger:

    Yes, Your Honor.

    Byron R. White:

    You — and I also gather, you concede that in this case, there were many actual agreements.

    Myron N. Krotinger:

    Oh, yes.

    Lilly signed —

    Byron R. White:

    Both Lilly and Upjohn.

    Myron N. Krotinger:

    Yes, Your Honor.

    Byron R. White:

    And both the evidence of these agreements were in the record.

    Myron N. Krotinger:

    Yes, Your Honor.

    Byron R. White:

    Now, what makes you think that the Ohio court construed its Act as though there were no agreements?

    Myron N. Krotinger:

    I am suggesting, Your Honor, that what the Ohio court did was to construe the statute as if there were a nonsigner policy in the State of Ohio in violation of the federal provisions.

    Section 5 (a) (2) permits the enforcement of contracts between Lilly and those who have signed, perfectly valid.

    By Section 5 (a) (3), the nonsigner provisions might be enforced.

    A minority of the Supreme Court of Ohio held that it could not reverse a decision of the Court of Appeals of Cuyahoga County, finding such statute to be constitutional.

    However, Your Honor, the basic issue, now occur, is the interpretation of contracts and agreements in federal law.

    Byron R. White:

    Well, I agree with you.

    I agree with you.

    Myron N. Krotinger:

    That’s —

    Byron R. White:

    There — it — you — you say that even if you’re right on what the federal law requires, that it requires actual consensual agreement, not an implied obligation —

    Myron N. Krotinger:

    That’s right.

    Byron R. White:

    — even if you’re right, the federal law is satisfied here because there were some agreements.

    Myron N. Krotinger:

    Your Honor, it is —

    Byron R. White:

    But many of them are actual agreements.

    Myron N. Krotinger:

    Your Honor, it is not satisfied —

    Byron R. White:

    Well, isn’t that true or not?

    Myron N. Krotinger:

    It is not satisfied —

    Byron R. White:

    They were — both Lilly and Upjohn had several agreements, wasn’t it?

    Myron N. Krotinger:

    Yes, but it’s not satisfied as to Hudson because the only way in which Hudson can be cabined in to a price fixing agreement —

    Byron R. White:

    (Voice Overlap) is a nonsigner.

    Myron N. Krotinger:

    It’s a nonsigner.

    Therefore, what this statute —

    Byron R. White:

    But the federal offer permits enforcement again.

    Myron N. Krotinger:

    Only where the policy of the State is to permit such enforcement and the policy of the State of Ohio is to abandon the nonsigner technique and may I quote, Your Honor —

    Byron R. White:

    Do you think the federal law would bar the State from permitting nonsigners to be — to be proceeded against by — by an implied contract rather than by no contract at all?

    Myron N. Krotinger:

    In a State where by definition, the state legislature has said, “We are binding only signers” and may I point out in the amicus brief filed here by Mr. Gorrell, the — who was the sponsor in the legislature, in enacting the new Ohio Fair Trade Act, at page 32, the Ohio legislature decided to shift the emphasis from the nonsigner concept and to develop contractual rights and obligations between the proprietor of a trademark or trade name and the retailer desiring to use that mark in the sale of products.

    Now, this provision in Ohio, Your Honor, was gotten from Virginia, which had a notice provision, after the Virginia courts had held a nonsigner clause not to be binding within the State.

    Byron R. White:

    Under their own constitution.

    Myron N. Krotinger:

    Right.

    Now, in the case of Zale-Norfolk against Bulova Watch, a nonsigner — rather, a nonsigner was before the Court, practically on all force with the facts in this case, where Zale-Norfolk had proceeded to buy merchandise from a wholesaler other than Bulova.

    Bulova went to court and said, “We want to find out where you got that merchandise and we also want to bind you,” and the Virginia court said a fair trade contract or rather, a fair trade statute, referring to contracts, means voluntary contracts, “We are not going to resurrect the nonsigner clause.”

    So, the interpretation of the Virginia courts was that the statute was not binding upon a nonsigner.

    Now, may I —

    Byron R. White:

    Yes, just like — just like the majority of the — of the Court here.

    Myron N. Krotinger:

    Yes, that’s correct, Your Honor.

    Byron R. White:

    On — on state constitutional ground.

    Myron N. Krotinger:

    No, upon state —

    Byron R. White:

    But you started out talking about federal policy.

    Myron N. Krotinger:

    Yes, sir.

    Byron R. White:

    Well, we ought to keep talking about it.

    Myron N. Krotinger:

    Yes.

    Now, the parity of policy of a federal ground also bars the enforcement against a nonsigner in the State because the only ground in the federal law is where there is a nonsigner policy in a State, and we see clearly in the State of Ohio that this is now construed as a contract.

    Byron R. White:

    Well, there is a nonsigner policy in Ohio.

    Myron N. Krotinger:

    Your Honor, this — now.

    Byron R. White:

    There is a nonsigner policy.

    It’s just that — that they justify proceedings against nonsigners in a different way.

    Myron N. Krotinger:

    Well, except this, Your Honor.

    Byron R. White:

    Instead of saying that there’s no contract that will hold them anyway, we will say, by law, there’s an implied contract —

    Myron N. Krotinger:

    Now, may I state, Your Honor —

    Byron R. White:

    — which doesn’t make them a non — where anything else whether it’s a nonsigner.

    Myron N. Krotinger:

    And this denies the entire basic concept of what the state legislature in Ohio was doing.

    What I’m suggesting to the Court is that, by means of a play upon words, signer or nonsigner, a contract which we have here in Court this morning and a — and a statute calls a signer, what is a nonsigner, contrary to the federal intent because what this concept does is to destroy any distinction between Section 5 (a) (2) and 5 (a) (3).

    Everybody is now a contractor.

    Arthur J. Goldberg:

    (Inaudible)

    Myron N. Krotinger:

    Yes, sir.

    Arthur J. Goldberg:

    (Inaudible)

    Myron N. Krotinger:

    Your Honor, I don’t go so far as to say signatures.

    There is no form as such in the fair trade law, but the term “signer,” as construed in Schwegmann case, in the McKesson case, in the entire history of the McGuire Act, means a contractor is one who has evidence to consensual agreement in such form — in some form, where within the valid conception of contractor agreement, we may find one.

    May I further point out, Mr. Justice Goldberg, what the implication is of saying that there is no longer any difference between a signer and a nonsigner.

    It means that all the States which have been struggling with this conception of signer and nonsigner, the basic matrix of the Miller-Tydings Act and the McGuire Act, this suddenly disappears in a concept of everybody is a contractor on an implied theory of notice where there is nothing in the law which makes a notice, except by prior to the legislature, which, in turn, depends upon the will of Congress.

    The further factor is that this is —

    Arthur J. Goldberg:

    (Inaudible)

    Myron N. Krotinger:

    Well —

    Arthur J. Goldberg:

    (Inaudible)

    Myron N. Krotinger:

    Yes.

    Arthur J. Goldberg:

    (Inaudible)

    Myron N. Krotinger:

    Your Honor —

    Arthur J. Goldberg:

    (Inaudible)

    Myron N. Krotinger:

    It — this is what the statute was intended to accomplish.

    Mr. Gorrell said so, this is all through the legislative hearings, and in fact the dialogue in the legislature was to the effect.

    A Mr. Rod turned to Mr. Gorrell and he said, “Mr. Gorrell, why don’t you please get us into a contract fill where you — we at least employ a third-party beneficiary contract between a wholesaler who sells to the defendant and the manufacturer?”

    And Mr. Gorrell said, “Well, we can’t find a very much in the way a contractual theory there because suppose the wholesaler never made such a request to the — rather, of the retailer.”

    And to this, Mr. Rod said, “Well, then what do we do?” and Mr. Gorrell replied, “Well, that’s the reason we join the crowd, shuffling up on the law of privity of contract in the implied warranty cases,” implied warranty.

    May I state further, Your Honor that this conception is found embedded in the matrix of the statute where a proprietary interest is found, a wholly new concept which is found for the first time in the 1958 and 1959 congressional legislation.

    In other words, this concept in the Ohio statute does not stand alone.

    It is part of a much larger system designed to overturn the basis of the McGuire Act.

    I should like to reserve 10 —

    Arthur J. Goldberg:

    (Inaudible)

    Myron N. Krotinger:

    Pardon me?

    Arthur J. Goldberg:

    (Inaudible)

    Myron N. Krotinger:

    Of course, Mr. Justice Goldberg.

    Arthur J. Goldberg:

    (Inaudible)

    Myron N. Krotinger:

    Yes, Your Honor.

    Arthur J. Goldberg:

    (Inaudible)

    Myron N. Krotinger:

    An — yes, sir.

    Arthur J. Goldberg:

    (Inaudible)

    Myron N. Krotinger:

    Right.

    Arthur J. Goldberg:

    (Inaudible)

    Myron N. Krotinger:

    Yes, as to which —

    Arthur J. Goldberg:

    (Inaudible)

    Myron N. Krotinger:

    Yes, Your Honor.

    Arthur J. Goldberg:

    Therefore, you say (Inaudible)

    Myron N. Krotinger:

    Yes.

    Arthur J. Goldberg:

    But that’s a non (Inaudible)

    Myron N. Krotinger:

    Regards policy and I might add, Mr. Justice Goldberg, this is the reason that the Court and the proponents of the statute analogized this proprietary interest is novel theory to a house, a candy bar, an apple, in other words, as if our client, when they bought the Lilly trademarked product in Michigan, bought something analogous to a (Inaudible).

    Byron R. White:

    Mr. Krotinger, you’ve got two different points here.

    One is that — that you’re saying that the Ohio law doesn’t require contracts at all.

    That’s one point.

    Myron N. Krotinger:

    That’s correct, Your Honor.

    Byron R. White:

    The other point was the one that you and I were discussing, namely, that Ohio has abandoned, you say, the so-called nonsigner policy which is a little different point, a little different point.

    As to the first point, there were contracts in this case and the Ohio courts knew it.

    Myron N. Krotinger:

    Yes, Your Honor.

    Byron R. White:

    I’m not sure you could say with confidence that the Ohio courts construed their statute in the absence as a — as a valid in the light of the McGuire Act even though there were no contracts.

    That’s the —

    Myron N. Krotinger:

    Yes.

    Byron R. White:

    — on the first point but on the second point, your — your issue is — your — your argument is that — that Ohio doesn’t treat nonsigners as non — as non-contracting parties at all.

    Myron N. Krotinger:

    It treats everybody as a contractor.

    Byron R. White:

    And that — that unless the State really treats them as a nonsigner, non-contractually bound, it violates the McGuire Act.

    Myron N. Krotinger:

    Within the intent and purpose of the federal (Inaudible), Your Honor.

    Myron N. Krotinger:

    I’d like to reserve my time, Your Honors.

    Earl Warren:

    Mr. Willis.

    Everett I. Willis:

    Mr. Chief Justice, may it please the Court.

    I’d like to go right to the notice question that Mr. Krotinger has been discussing and then discuss —

    Byron R. White:

    At the outset, do you concede that the notice — as to the notice question that it was raised in the — in the trial court, it was raised in the Appellate Courts of Ohio.

    Everett I. Willis:

    Yes, sir, it was raised, but, as has been pointed out, it — it is not raised by the facts of this case because there were contracts and there’s an unadjudicated question of interpretation of the Ohio Act as to whether the contracts are only permitted, which they clearly are —

    Byron R. White:

    Well, that depends on —

    Everett I. Willis:

    — for our rebuttal.

    Byron R. White:

    — that depends on what you think the scope of the notice question is but anyway, the notice question, however that is —

    Everett I. Willis:

    Yes, sir, it was raised.

    Byron R. White:

    — probably raised.

    Everett I. Willis:

    I do not deny that.

    I do not — not deny that.

    I want to discuss that and I want to discuss one other question which is heavily stressed on the merits in — in the brief of Hudson and was not raised in the pleadings of the case, indeed, until the reply brief in the Supreme Court of Ohio but it’s — it’s stressed in the brief.

    Now, I want to discuss that.

    If I have time, I will make one or two observations on the jurisdictional aspect after I discuss the merits but I think it’s important to get to the merits first.

    Now, Hudson’s argument does boil down to this.

    Oh, I want to say one more thing.

    A major difference between the Upjohn case and the Lilly case is that the McKesson & Robbins case issue that was discussed yesterday based on the claim that Upjohn has agreements with wholesalers, although it competes with them, is not an issue in the Lilly case.

    It was stipulated between the parties as a fact that Lilly does not sell to any retailers and therefore, does not compete with its wholesalers and that’s — so, that’s not in the case.

    Now, due process has been raised.

    I don’t think I need bother to discuss that beyond what is in our brief.

    There can’t be any question about the applicability of the Old Dearborn case here.

    There’s a rather timorous suggestion that it ought to be reconsidered.

    It’s a bedrock decision, a 30-year standing.

    It was a unanimous court.

    The Due Process Clause reads exactly the same now as it did then.

    Now, on — on the notice question, Hudson’s argument just is that the McGuire Act sanctions only state statutes which require at least one express contract before you combine all the rest of the retailers in the State by notice.

    Now — and that the Ohio Act exceeds that congressional mandate because it permits fair trade enforcement by notice only.

    Now, that just is not the meaning of these statutes or their interrelationship.

    Everett I. Willis:

    I — I have no hesitation making the flat statement that if one reads the McGuire Act with the objective of giving effect to the purpose of the Congress in enacting it, it’s not possible to conclude that it doesn’t permit what Ohio did here.

    Congress intended it.

    I realize it had to say it, too, in the statute but it did say it.

    Now, what was the background of the McGuire Act?

    In 1937, Congress had enacted the Miller-Tydings Act.

    It didn’t mention nonsigners.

    As we have now been told by the House Report on the McGuire Act, Congress intended in the Miller-Tydings Act to permit fair trade to be enforced against all alike, whether parties to a contract or not.

    Congress thought, as we have now been told in the House Report that there wasn’t any Sherman Act violation anyway without a contract.

    And if you — and if Congress said the state law may authorize the contract, enforcement against — enforcement rights against nonsigners would follow automatically.

    Now, unfortunately, the language that Congress used in the Miller-Tydings Act didn’t reveal its intention with unmistakable clarity and so, in the Schwegmann case, this Court held the Sherman Act bans not only expressed fair trade contracts but the implied obligation that arises when a purchaser with notice acquires goods and then uses the trademark which has been notified the subject to the price restrictions in the resale.

    And the Court held Congress didn’t articulate its intention to accept from the Sherman Act that implied obligation.

    Now, what did Congress do then?

    It very promptly passed the McGuire Act and this time, to make sure nobody could misunderstand its intention again, it laid it out in about 10 or 12 different ways, both in the House Report which explained and recommended the McGuire Act in the very form in which it passed and in the Act itself.

    Let me just review briefly what they did say.

    In the House Report, first, they said, in substance, “We intended the Miller-Tydings Act to permit state Fair Trade Acts to be enforced with respect to the implied obligation reaching with respect to the fellow who purchases with notice and then uses the trademark and cuts the price.”

    Then they said, in the Schwegmann case, it was held to the contrary.

    We overruled it, not part of it, all of it.

    They said, “We want to make it abundantly clear that Congress means to let these state Fair Trade Acts operate and be enforced in their totality” and they didn’t stop there.

    They said, “We want to remove any federal obstacle to a broader interpretation of the state fair trade laws in interstate commerce” and lest anybody think that they were only talking about just the fair trade contracts that were in — then on the books, they said, “We think the states should be permitted to experiment further with fair trade legislation” and they still didn’t stop.

    They said, “So far as the Federal Government is concerned, we want to leave the States free to protect their trade against these predatory price practices in the manner best known to them.”

    Now, that’s the House Report.

    There couldn’t be any question about their purpose.

    Now, let’s see whether this time, they were able to find the English words to give effect to — to reveal the purpose.

    Hugo L. Black:

    Is that quoted in your brief, the part that you have just said?

    Everett I. Willis:

    Yes, sir.

    Well — well, it’s — yes, it is, yes, it is in a reference to the House Report, which is House Report No. 1437, 82nd Congress, Second Section — Second Session, February 27, 1952.

    Now —

    Hugo L. Black:

    You don’t have — you don’t have it quoted in your brief?

    Everett I. Willis:

    Yes, sir.

    Well, I don’t know that I have the quotes.

    Everett I. Willis:

    I —

    Hugo L. Black:

    That’s fine.

    I don’t want to delay you.

    It could take up your time.

    Everett I. Willis:

    Alright.

    Well, it’s all there.

    Hugo L. Black:

    (Voice Overlap) was —

    Everett I. Willis:

    All — all that I’ve said is in the brief, yes, sir.

    All that I’ve said is in the brief.

    Now — now, let’s look at the — at the Act itself.

    We know what the purpose was.

    Let’s see if they were able to say it.

    In the first place, the preamble of the Act says that its purpose is to protect the rights of the States to regulate their internal affairs by adopting laws and policies authorizing the enforcement of fair trade prices against all alike, whether parties to a contract or not.

    There are more words than that.

    That’s the substance.

    Hugo L. Black:

    Would you mind stating what fair trade prices, what they mean just exactly?

    Everett I. Willis:

    Oh, yes, sir.

    Under — under the state fair trade laws and under the Ohio law, if the owner of a trademark enters into contract specifying minimum prices for resale, these are vertical.

    Hugo L. Black:

    Fixing the prices for resale.

    Everett I. Willis:

    Yes, sir, minimum prices for resale.

    Those — those contracts are made lawful.

    It is also made lawful to enforce those prices against one who hasn’t signed any contract if he’s notified that “this is our trademark and if you acquire the goods and if you use our trademark in the resale, you don’t use the trademark, it doesn’t matter, if you use our trademark in the resale, this minimum price applies to you even though you are not a party to the contract,” so the preamble said, as I have recited.

    Now, when they got to the main operative provision of — in paragraph 2 of the McGuire Act, they did not just repeat the language that this Court had regarded as applying only to express contracts.

    They said, “We want any, any contracts or agreements that are lawful under the state law for resale price maintenance to be enforceable despite the Sherman Act.”

    Now, I note in passing that that phrase — that in using that phrase “any contracts”, they were using a phrase that this Court, many years ago, had construed when the phrase was included in another federal statute to be comprehensive enough to include “not only expressed contracts but contracts which arise by implication.”

    Now, to further forestall any misinterpretation, they said — they added paragraph 3 to the Act which said that “the antitrust laws of the United States were not to prevent the exercise or the enforcement of any right or any right of action created by any state statute, state law or state policy against a person willfully failing to observe state fair trade prices, whether party to a contract or not.”

    Now, lest anybody might think that they were putting the States in a straight jacket of just the fair trade laws they had then, both in paragraph 2 about the contract and in paragraph 3 about enforcement against parties not party to a contract, they said, “We mean contracts and rights of enforcement recognized by state statutes now or hereafter in effect.”

    And in paragraph 3, they said, “This nonsigner enforcement we’re talking about is the enforcement permitted by any state statute which, in substance, provides that willfully and knowingly disregarding the prices is actionable.”

    And then, I think this is about number 12 on the list.

    To — To just put an additional copper rivet in it, they added paragraph 4, which said, “None of these contracts, any contracts in 2, none of these enforcement rights under 3 shall constitute an unlawful burden on interstate commerce, restrain on interstate commerce or interference with the interstate commerce.”

    Everett I. Willis:

    Now, this time, Congress left nothing to the imagination.

    It didn’t whisper its intention.

    It — it roared, it repeated itself and it underscored that the antitrust laws are not a part of the Constitution of the United States.

    They’re made by Congress.

    And Congress wanted to make clear this time that they meant to accommodate the right of the States to permit vertical resale price maintenance as they saw fit.

    Now, Hudson has a chivilla for this.

    They say, well, this Ohio Act permits fair trade enforcement by notice only and the McGuire Act requires at least one express contract before you combine the other 2000 by notice.

    Now, among other things, that assumes facts that are not in this case.

    Lilly established its fair trade prices by express contracts with 1400 retailers, 65% of the retailers in the State of Ohio and gave notice to all the others of the prices established in those contracts.

    And furthermore, the argument assumes an interpretation of the Ohio statute that the Ohio courts have not made.

    The Ohio statute can be read to mean that you establish your price in the first instance by an express contract and control it from thereon by contracts or notices.

    Now, I don’t say that’s inevitable that it has to be read that way, but it could, particularly if it was thought they were a constitutional question if it were interpreted the other way and as a matter of fact, although the Ohio Supreme Court didn’t discuss the matter, if you look at page 402 of the Upjohn record where the Court of —

    Byron R. White:

    Did they include the Ohio law (Inaudible)?

    Everett I. Willis:

    Well, yes, it says “Establish and control by contract or by notice”.

    Now, just — there isn’t a comma after establish but suppose there were, it would say “Establish, and control by contract or notice”.

    You see, it could — it could be.

    I don’t say it’s compelling.

    At page 402 of the Upjohn record, the Court of Appeals did interpret the — the Ohio statute that way.

    They — after reciting that they adopted an Act which — that Ohio adopted an Act somewhat enlarging on the Virginia Act and — and by the way, on the reference to the ball of the case where he said the — that the Virginia courts held that remote parts wasn’t as good.

    The Virginia statutes differ for one thing.

    The Ohio statute says and the Virginia statute does not, whether buying from the original vendor or not, but the — the Court of Appeals said, in referring to the Ohio system of resale price maintenance, this is accomplished by fixing fair trade prices by contracts with other retailers with notice of such prices to the retailer involved and the retailer then purchasing such articles for resale on the retail market with knowledge that under the law, he has impliedly contracted to maintain fair trade prices by purchase for resale under such circumstances.

    Now, the — the relationship of the nonsigner, under Ohio law, is one of implied contract.

    That made a difference in Ohio because the courts had held if it wasn’t contractual, it wasn’t — Ohio requirements weren’t satisfied.

    The Ohio legislature created that as a method of entering into a contract by action of the party and the courts then said, in this case, Ohio requirements are satisfied.

    Now, I want to mention one other thing that Mr. Krotinger — he cited Williston on common law which, of course, Ohio is not bound by whatsoever, but he quoted a provision that indicate that there might not be a contract if the purchaser was remote, in other words, not the immediate purchaser but one further down.

    We must always distinguish between the commodity and the trademark.

    Nobody acquires ownership of our trademark when they buy the goods.

    Now, I say, whether it was an implied contract, it made a difference in Ohio but under Ohio only.

    Federally, it made not slightest difference whether the State denominated this relationship, a contract or not.

    If it’s an implied — if you’re in a State that calls it an implied contract, then it’s clearly enforceable under paragraph 2 of the McGuire Act.

    Everett I. Willis:

    If it isn’t a contract, but there are contracts with others and Hudson is notified of the prices in those contracts, then it’s — it’s — Hudson is caught under paragraph 3.

    And since here, it’s both an implied contract and there are other contracts of which it had notice, it’s got under both so the only difference it makes federally is which section you’re proceeding under.

    Now, I would like to turn to the other question which, as I say, is briefed but has not been discussed by Mr. Krotinger and that is their argument that Section 29 (b) (2) of the Ohio Act permits horizontal agreements between competitors and horizontal boycotts and therefore, cannot apply in interstate commerce because of paragraph 5 of the McGuire Act.

    Now, the provision he bases it on is the provision in paragraph 29 (2) that says that a fair trade contract may require a vendee to obtain fair trade contracts from those to whom he resells on resale, an exact counterpart of the same provision in paragraph 2 of the McGuire Act.

    This wasn’t in the Miller-Tydings Act but Congress is taking no chances this time and it put it in and it’s — and it wasn’t anew.

    This is not an Ohio invention.

    Every Fair Trade Act in the country had such a provision in it in one form of words or another at the time Congress enacted the McGuire Act.

    The argument, as I understand it, of Hudson is that the resale by the vendee, who’s required to get further contracts, might be a competitor and if so, paragraph 5 of the McGuire Act would prevent one retailer from getting a fair trade contract from another.

    Well, if that’s so, and I think there’s a lot of argument as to whether it is so that I won’t go into, but suppose it is so, well, then the same is true under Section 34 of the Ohio Act which similarly prevents contracts between retailers, between wholesalers and between manufacturers and that provision of Section 34 limits every provision of the Ohio Act unless specifically excluded and Section 29 (b) (2) does not specifically exclude it.

    Byron R. White:

    Well, how about the (Inaudible)

    Everett I. Willis:

    No, sir.

    Oh, no, it did not.

    Not at all, not at all.

    Byron R. White:

    (Inaudible)

    Everett I. Willis:

    Well, this — this question wasn’t raised in the pleadings.

    It wasn’t raised in Hudson’s petition.

    The Court of Common Pleas was never heard of until the reply brief in the Supreme Court.

    Are there any other cases in Ohio that do construe that provision?

    Everett I. Willis:

    Not that I know of.

    Now, of course, there is no — there is no provision in Lilly’s expressed fair trade contracts like this that the vendees have to get a — a fair trade contract on resale.

    I’ve been arguing a little bit hypothetically because the argument I’m meeting is hypothetical.

    Hudson’s argument is, there is a provision in the expressed contract of Lilly that requires the retailer not to resell to fair trade violators and he says, as I understand it, Hudson says this is enough like the 29 (b) (2) provision that it may be impliedly authorized and — and involve the horizontal ban and — and so — and — and therefore, it’s not a good provision.

    Now, I should say that it’s doubly hypothetical.

    There is no — not a word in the record, no claim that Lilly’s — has entered into any horizontal agreements with anybody.

    There’s no suggestion and there couldn’t be that Lilly or anybody else had refused to sell to Hudson.

    Indeed, Mr. Krotinger’s statement that Lilly called upon Hudson to observe this paragraph 6, this refusal to sell, to the provision is not supported by the record if you look at the very warning letter that he referred to, it’s at page 17 and 18 of our record.

    You will — you will see that the only obligation that they referred to on Hudson’s part was an obligation, “You are obligated to uphold our minimum retail resale prices, whether you’ve signed the contract or not” and in the cross-petition in the Court of Common Pleas, the only injunctive relief they sought against Hudson — Lilly sought against Hudson was injunction against disregarding the fair trade prices, no other, no other provision of the contract.

    Now, the Ohio courts have not —

    Byron R. White:

    Mr. Willis, in — the complaint in this case, it seems the — there’s this allegation that the Ohio law provides that after giving notice, a proprietor may require the distributor to sell it not less than a minimum resale price as stipulated by the proprietor and may further require the distributor not to sell to any other distributor without first obtaining an agreement from such other distributor.

    He will not sell it at price that’s less than the minimum resale prices.

    Byron R. White:

    Now, is this the horizontal argument that you’ve been talking about or not?

    Everett I. Willis:

    May I just ask where — where you were reading —

    Byron R. White:

    Well, I was reading — well, actually, I was reading out of the Upjohn record, out of the Upjohn record at page 12.

    Everett I. Willis:

    Well, that’s — that’s a —

    Byron R. White:

    This is the second amended petition for declaratory judgment.

    Hugo L. Black:

    It’s on page 5 of your brief.

    Everett I. Willis:

    Well, you see — well, that was a reference to that provision of the Ohio Act and then there as a statement that the McGuire Act only permits enacting legislation authorizing contracts prescribing minimum resale prices.

    There were no — no reference at all to this paragraph.

    Byron R. White:

    Well, I just read you what the — maybe you did — was –was this the same — is the complaint the same in the Lilly and the Upjohn cases?

    Everett I. Willis:

    I believe so.

    Byron R. White:

    Oh, I just read out of the — out of his petition which refers to the Ohio Acts permitting a distributor — forbidding a distributor to sell to other distributors without first obtaining an agreement to sell only at these prices.

    This is a horizontal arrangement.

    Everett I. Willis:

    To that extent, yes, sir.

    No reference at all to Section 5 (a) (5) of the McGuire Act or to paragraph 6 of our — of our contract.

    Byron R. White:

    Well, it goes right on and says that it’s contrary and inconsistent with a section of the Sherman Act as admitted by the Miller-Tydings Act and the McGuire Act.

    Everett I. Willis:

    Section 5 (a) (2) and 5 (a) (3) of the McGuire Act, 5 (a) (5) is the one that would raise this question and — that is said to raise this question.

    Byron R. White:

    Well, it seems I — is this the — is this the issue though, the — the business about selling to the other distributors, is this the horizontal issue —

    Everett I. Willis:

    Yes, sir.

    Byron R. White:

    — that you’re talking about?

    Everett I. Willis:

    Yes, sir.

    I suppose you might say it was handed out there.

    Now, the Ohio courts have not said whether this paragraph seeks refusal to — to sell is or is not authorized by the Ohio Act by Section 29 (b) (2).

    I must say that in most States, the refusal to sell is a permissible method of enforcement because one fundamental aspect of fair trade is that if you’re going to have a program, it’s got to be uniform against all alike, not let some go merrily along violating while the others comply, but the Ohio courts haven’t said.

    Now, if it is alright under paragraph 29 (b) (2) in the Ohio court note, then it’ also alright under paragraph 2 of the McGuire Act because it has the same provision.

    If it runs afoul of paragraph 5 of the McGuire Act, it also runs afoul of Section 34 of the Ohio Act and if it’s not a good provision, the Ohio Act can’t be tainted by it.

    This has nothing to do with the constitutionality of Ohio Act.

    It’s just a question of whether Lilly can enforce a particular contract provision.

    They’ve made no attempt to and we don’t know whether they can or not, very frankly.

    Now, let me make one last assumption.

    Let’s suppose paragraph 6 isn’t authorized by either Act or although the reasoning by which this might be done eludes me, let’s suppose we could find that it is authorized by the Ohio Act but not by the McGuire Act, it — it wouldn’t make the slightest difference.

    Everett I. Willis:

    Paragraph 9 of the same Lilly contract, our record at page 14, says this, “This contract shall be interpreted under and shall be subject to the limitations imposed by the Fair Trade Act of the State in which the retailer does business.

    And in the event any provision of this contract shall be held invalid under such Act or any other statute, law or public policy or to be held inapplicable with respect to any given set of facts or circumstances, then or in either such events, this — that provision is severed out of the contract and the rest of the contract remains.

    So even if paragraph 6 were bad under the Ohio Act, it just couldn’t under this — it would be severed out and couldn’t apply to intrastate commerce.

    If it’s good under the Ohio Act but not good under the McGuire Act, well, paragraph 9 says you sever it out in interstate commerce.

    It just doesn’t apply.

    Now, I — I believe — I submit that if there was ever a case in which Congress went to unusual lengths to guarantee that its decision to turnover to the States a particular area of regulation would not be thwarted.

    This is that case.

    The will of Congress was thwarted once or the intention of Congress, I should say, when the Miller-Tydings Act was held not to be enforceable against persons who hadn’t signed a contract and to be sure that’s Congress’ own fault, that can be laid to the fact they didn’t use enough words in the Miller-Tydings Act to reveal their real intention, but this time, they have and I respectfully submit that the will of Congress should not be thwarted a second time.

    Now, I — I believe I have time to say just a brief word about the jurisdictional aspect and I want to refer particularly to a question which was raised yesterday in the course of the Upjohn argument.

    Hugo L. Black:

    May I ask you before you go to that, can you just give me the number of the House Report from which you quote on?

    Everett I. Willis:

    Yes, sir.

    The House Report on the McGuire Act was No. 1437.

    Hugo L. Black:

    14?

    Everett I. Willis:

    1437.

    Hugo L. Black:

    37.

    Everett I. Willis:

    And it’s the 82nd Congress, Second Section — Session and is dated February 27, 1952.

    Potter Stewart:

    I think it’s a — that appears on page 46 of your brief as well as the quotation policy.

    Everett I. Willis:

    It appears on that page and on other pages shown at page IX of our index.

    There are a number of references to it.

    Now, on jurisdiction, we have briefed fully that we believe, and we do believe, that the case should be dismissed for want of jurisdiction.

    The question was asked yesterday, suppose these questions were raised in the Ohio courts but the Ohio courts just didn’t discuss them, does that preclude jurisdiction in this Court?

    Well, stated in that way, of course not, of course not.

    But there are some pretty rigid requirements to get these questions properly raised and decided and before this Court and it’s the burden of the appellant to show that he has got them here.

    The questions have got to be properly raised below and that has to do with the — under Ohio practices, including them both in the assignments of error and in the brief, and preserving them from one court to another and not raising it here, skipping the intermediate court and then raising it in the Ohio Supreme Court.

    It has to be properly raised.

    Furthermore, it’s got to be either.

    Actually, to bring the question here, either actually decided by the courts so you can read it and see it or it’s got necessarily to have been decided in the sense that there are no possible interpretation of the state statute under which the Court could have been concluded that the Constitution was violated because the statute is not to be interpreted in such a way as to raise it and then, finally, the judgment of the highest court of the State, the Ohio Supreme Court in this case, must be final and here in our case, as in the Upjohn case, there has been a remand and as a matter of fact, one or two other questions that are being raised here are — have been raised in the remand proceedings and yet, they say they’re here and so, I believe that the — that this appeal should be dismissed for want of jurisdiction.

    If it is not, if Your Honors retain jurisdiction, I think it’s as clear as the English language could make it, that the McGuire Act carefully and explicitly and completely almost repetitiously authorized what Ohio has done here and the judgment holding the Ohio act constitutional should be affirmed.

    Earl Warren:

    Mr. Krotinger, would you mind addressing yourself for a moment to — to what Mr. Willis said about the — the Report, House Report —

    Myron N. Krotinger:

    Yes, Your Honor.

    Earl Warren:

    — on the McGuire bill?

    Myron N. Krotinger:

    Yes, Your Honor.

    I believe that Mr. Willis is reading of the legislative history is a reading after the event.

    Earl Warren:

    I beg your pardon?

    Myron N. Krotinger:

    Is a reading after the event.

    Congress never so understood such a legislative history.

    The legislative — the understanding of Congress, as shown by the Harris Bill Report, House Report 1253 of June 9th, 1959 when, for the first time, a proposal appeared in Congress to add notice to the statute to amend the McGuire Act, at page 18, states the only change proposed in paragraphs 2, 3 and 4, that is the McGuire Act, is to where reference to notices in the provisions referring to contracts and agreements.

    This change is made so that where a state law permits a manufacturer to establish a stipulated, a minimum resale price by the giving of notice, the McGuire Act provisions will apply to the same extent they do now in the case of state laws which permit the establishment of such prices by contracts or agreements between manufacturers and the distributors.

    Your Honors, there has never been so closely cabined as the piece of legislation as the McGuire Act which was subject to a vicious three-way fight through both House of the Congress.

    I have here the House release from —

    Earl Warren:

    May I —

    Myron N. Krotinger:

    — the House Report.

    Earl Warren:

    — may I ask this.

    Does or does not this House Report that Mr. Willis paraphrased for us apply to the — to this Act?

    Myron N. Krotinger:

    No, sir.

    In no sense —

    Earl Warren:

    What Act — what Act did it refer to?

    Myron N. Krotinger:

    Only the McGuire Act of 1952 and the Miller-Tydings Act and may I state, Your Honor, in the section-by-section analysis of this statute at page 5 of the House Report, paragraph 2 —

    Hugo L. Black:

    (Voice Overlap) which House Report?

    Myron N. Krotinger:

    On — on the HR 5767, the 1952 House Report, Your Honor.

    Paragraph 2, with the two exceptions referred to below, this paragraph contains substantially the same provisions as those contained in the first proviso of the Miller-Tydings Act.

    In substance, this paragraph provides that neither the Federal Trade Commission Act nor any of the Antitrust Acts shall make unlawful a contract proscribing minimum or stipulated prices for the resale of a trademarked commodity in open competition of other commodities.

    This paragraph differs from the Miller-Tydings Act in two respects.

    First, it includes a provision expressly covering contracts which proscribe stipulated prices.

    Such contracts are not expressly covered by the Miller-Tydings Act.

    Second, it includes a provision expressly covering a contract which requires a vendee to enter into another contract.

    In other words, Your Honors, nobody in 1952 thought about notices.

    It wasn’t even an issue before the Congress.

    This is all reading back after the event.

    And as Mr. Priest, the Chairman of the House Committee, as shown in our brief, said to the Congress, “Our purpose is to let the laws now, in effect, operate as they operated from 1937 until the date of the Schwegmann relief, the laws then in effect.”

    Myron N. Krotinger:

    Now, Your Honors, the effect of the broadened reading that Mr. Willis would like to give us would be to state that the State of Ohio can, for example, take a proprietary interest concept in the Old Dearborn case which was made in 1936 in an intrastate transaction, without relationship to a federal enabling law, take a formula and a standard which wasn’t even mentioned in the Miller-Tydings Act and the McGuire Act.

    And so, now, we say, in 1958, the notice was contemplated by the Congress in 1952, not at all.

    The proprietary interest of 1958 was contemplated in 1952, not at all, not a word about this.

    Why do we get both notice and proprietary interest in 1958, because this is the third round of fair trade legislation?

    This is the solution, Your Honors, and the answer to the declarations of unconstitutionality of the nonsigner clauses in 24 States and where the Congress points out in the report on the Harris Bill that unless we do this, fair trade is dead in 16 States, now 24 and this is the manufacturer’s means of giving notice of his proprietary interest and reestablishing his rights.

    This history you have been hearing, Your Honors, is after the event, reading events of 1952 backward in a way which was never contemplated at the time and which any reasonable reading of a legislative history will show.

    Point 2, Your Honors, we come to the business of the due process issue and how it was raised and its reasonable scope.

    Your Honors, due process —

    Arthur J. Goldberg:

    (Inaudible)

    Myron N. Krotinger:

    Yes, sir.

    Arthur J. Goldberg:

    (Inaudible)

    Myron N. Krotinger:

    Yes, sir.

    Arthur J. Goldberg:

    (Inaudible)

    Myron N. Krotinger:

    Section 5 (a) (3) may not be enforced, Your Honor.

    Section 5 (a) (3) turns upon state policy and I reiterate to Your Honors that the whole purpose of the Ohio legislation was to solve the problems of fair trade and not as was done in 1952 by adding the nonsigner clause but to redefine a conception of contract so as to eliminate the problem altogether.

    The problem is solved by killing it.

    There is no longer a signer or nonsigner case.

    Thank you (Inaudible).

    Earl Warren:

    Very well.