United States v. Parke, Davis & Company

PETITIONER:United States
RESPONDENT:Parke, Davis & Company
LOCATION:District Court for the District Court of Columbia

DOCKET NO.: 20
DECIDED BY: Warren Court (1958-1962)
LOWER COURT:

CITATION: 362 US 29 (1960)
ARGUED: Nov 10, 1959
DECIDED: Feb 29, 1960

Facts of the case

Question

Audio Transcription for Oral Argument – November 10, 1959 in United States v. Parke, Davis & Company

Earl Warren:

Number 20, United States of America, versus Parke, Davis and Company.

Mr. Friedman you may proceed.

Daniel M. Friedman:

Mr. Chief Justice and may it please the Court.

The principal issue in this case which is here on direct appeal to the District Court for the District of Columbia is whether certain actions taken by the appellee, one of the country’s major pharmaceutical manufacturers in attempt to maintain resale prices in the District of Columbia and in Richmond, Virginia, amounted to an illegal conspiracy in restraint of trade in violation of the Sherman Act or whether as the District Court held in dismissing the case at the close of the Government’s evidence, Parke Davis’ actions did not amount to a conspiracy but constituted no more than the unilateral selection of its customers which is permissible under the doctrine of United States against Colgate & Co.

The Government’s civil complaint in this case charged Parke Davis with violating Sections 1 and 3 of the Sherman Act and the District Court as I say dismissed it on the ground that no conspiracy had been established and alternatively, the Court concluded that even if violations had been established, there was no need for injunctive relief because he found there was no reasonable probability that these attempts to maintain resale prices might be repeated in the future.

Now, Parke Davis —

Felix Frankfurter:

He didn’t — didn’t retain the bill?

Daniel M. Friedman:

Pardon me.

Felix Frankfurter:

He did not retain the bill?

Daniel M. Friedman:

No, Mr. Justice, he dismissed it.

Parke Davis has accused the Government in this case of bringing an antitrust case before this Court for a trial de novo.

They say that all the factual issues were determined adversely to the Government before the District Court and that should be the end of the matter.

Now, I want to emphatically deny that we are asking this Court to retry the factual issues in this case.

As I believe my brief statement of the facts will show, we don’t think there’s any real dispute into — in this case as to what Parke Davis in fact did.

I don’t think there’s any denial of the actual operative facts in the case.

The critical issue is whether these actions taken by Parke Davis amounted to a conspiracy and that is the legal inferences to be drawn from the particular course of conduct.

Now, the case grew out of an attempt in 1956 by Parke Davis to stop price cutting by certain retailers in the District of Columbia and in the City of Richmond, Virginia.

At the time of this action, neither the District of Columbia nor Virginia was a fair trade area.

So that, at that time, had Parke Davis attempted to enter into resale price maintenance with these individuals, the contracts would have been illegal.

Parke Davis’ distribution system entails selling directly to the retailers, primarily from its Baltimore area office, and also selling to certain selected wholesalers in the area and the wholesalers then in turn sell to the retailers.

However, since Parke Davis gives quantity discounts, which it does not permitted wholesaler to give, it is cheaper to the retailers to purchase directly from Parke Davis than to purchase through the wholesalers.

Now, the principal activities of Parke Davis in this case were taken against five retailers in this area.

Parke Davis emphasized that they are only five out of some 200 involved because the five retailers who were singled out were the leaders in this price cutting campaign and that’s why Parke Davis took action against them.

The Parke Davis price policy towards the retail stores is set out in its price list and the Parke Davis price list policy states that in areas having Fair Trade Laws, these prices are to be followed and in areas which do not have Fair Trade Laws, these prices are suggested.

In June of 1956, the manager of the Parke Davis’ Baltimore office attended a meeting of the company at the company’s headquarters in Detroit and at that time he raised the question what they could do about this price cutting that is going on in the district, and he was he told by the president of the company that they had a policy that they would not sell to price-cutting retailers in non-fair trade areas.

When he returned from his meeting in Detroit, the branch manager called in his area manager for Washington and instructed this area manager to go and cut off these price cutting retailers if they refused to conform to Parke Davis’ policy and at the same time also tell them to see to it that the wholesalers cut off any of the retailers who refused to go along with this policy.

In 19 — early in July 1956, the Parke Davis representatives visited a number of these price cutting retailers.

They advised these price cutting retailers that Parke Davis had this policy of selling only to people who observed the state of resale prices and furthermore, warned them that if they didn’t stop this practice of price cutting, Parke Davis would cut them off on its own direct sales and would also cut them off on the sales to wholesalers.

In several instances, when they spoke to the retailers, they also advised them that they were seeing other retailers in the areas.

Five of these people who were approached, refused to stop price cutting.

Daniel M. Friedman:

Parke Davis then cut them off on direct sales and also told the wholesalers or requested the wholesalers to stop selling to them.

Now, Parke Davis suggests that all it did in approaching the retailers and the wholesalers was to announce its policy to them and that’s its basic defense in this case.

They said, “We have a policy, we wouldn’t sell to you, and we just announced this policy and left it up to them to decide what to do.”

I would like to read to the Court the testimony, two sentences from one of the wholesalers, it’s at page 198 of the record.

This is the vice president of one of the wholesalers who was describing his conversations with the Parke Davis representatives when they came to visit them, at the top of page 198 and after he was asked if he could stop selling.

Question, “What did you tell them, sir?”

Answer, “I asked them if they were requesting it of me alone or would they go to the other wholesalers, and they said they would visit the local wholesalers and then I agreed to abide by it” and he repeated the same statement later on at page 206.

So, that we think at this initial stage of approaching the — the wholesalers and the retailers, Parke Davis then and there did far more than just announcing its policy.

The testimony of, Mr. Grips, the area manager of Parke Davis in Baltimore is to the effect that he instructed his man to go and request them to give this out.

Potter Stewart:

Who is this witness testify — which witness was testifying on page 198?

Daniel M. Friedman:

That is Mr. Estren — I’m sorry Mr. Levin who was the vice president of the district wholesalers, one of the three drug wholesalers in the district, who — Mr. Aspirin — Mr. — Mr. S — Mr. Levin — sorry, was initially was approached by Parke Davis and then sometime later, he was again approached by Parke Davis with a complaint from Parke Davis that they had found an invoice of this company in one of the retail stores and thereafter, instructions went out to completely discontinue dealing with the company.

Potter Stewart:

That’s the testimony.

Was all that accepted as true by the District Court?

Daniel M. Friedman:

Not — well, it’s — we don’t know whether it was accepted as true because the District Court did not refer to that.

The District Court seemingly as far as we can tell, based his decision on the erroneous, we believe, legal conclusion that absent anything in a way of specific agreements, this conduct was perfectly permissible.

Parke Davis did not put in its case.

The case was dismissed at the conclusion of the Government’s evidence and we just —

Potter Stewart:

Well, there were quite elaborate findings of fact by the District Court.

Daniel M. Friedman:

They were quite elaborate findings of fact, but the findings of fact do not deal with respect with this issue of the —

Potter Stewart:

But the testimony be —

Daniel M. Friedman:

— of the testimony except to one extent and we do challenge the finding to the extent that it suggests that Parke Davis did not discuss with the individuals that visited, what it was doing with respect to the other ones and that finding, we think is somewhat ambiguous, but we are not attacking in this case, the any — with two miles exception to the specific findings in that area.

We are challenging what we believe to be the conclusory findings that all of these did not amount to an agreement.

That is our basic attack on the District Court’s decision.

With one brief exception after Parke Davis had visited the retailers and the wholesalers, the retailers were unable to buy any Parke Davis products for approximately seven weeks, although there is evidence by the wholesalers that a few orders might have been filled.

Now, we then skip to the end of August at which point the retailers had been cutoff on Parke Davis products.

On that day, the two principal officials of the Baltimore office of Parke Davis, on their own initiative, visited three of the price-cutting retailers in the district.

The first man they went to was the president of the Dart Drug Company, a Mr. Haft.

There’s a disagreement into the testimony as to where the suggestion emanated, but it is conceded that at that meeting it was suggested that if Mr. Haft would take down this sign, these advertisements in the windows cutting prices that Parke Davis would then resume shipping to him and at the point, Mr. — and also the, some of the newspaper ads, at that point, Mr. Haft indicated that this was agreeable.

They then left Mr. Haft and went to each of the two — two other price cutters in the area and they told each of these individuals that they had discussed the matter with Haft and it was agreeable to Haft to take down his signs if Parke Davis would resume selling to them and queried them whether they would be willing to go along with such a proposal and each of these individuals in effect said yes, they would if the others were doing it.

After these visits, the stores took down their signs although they were free under Parke Davis’ suggestion to continue selling their products inside and Parke Davis resumed selling to them and also notified the wholesalers that the wholesalers might again resume selling to the price-cutting retailers.

Daniel M. Friedman:

And of course the importance of the advertising and the signs is that if you are a price cutter, it’s obviously terribly important that that fact be brought home to the members of the consuming public.

For a period of about two-and-half months thereafter, with one exception again which apparently was inadvertent, there was no price-cutting advertising in the District of Columbia.

In the middle of November, the situation as Parke Davis described, it blew up again when one of these people again ran an ad and thereafter, the price cutting again resumed.

Now, these facts that I have stated, I believe are basically not disputed.

I mean, Parke Davis does not deny that it approached the retailers and said it would cut them off, that it went to the wholesalers and it told the wholesalers that was dealing with others that it requested the wholesalers to cut them off on that on its own initiative, it subsequently approached the retailers and suggested a modification of the situation as it had existed.

Felix Frankfurter:

Was there any explicit indication that it presents if they did not fall in with the policy of Parke Davis, Parke Davis would not sell to them?

Daniel M. Friedman:

To the wholesalers Mr. —

Felix Frankfurter:

Yes.

Daniel M. Friedman:

There — there was testimony by the wholesalers that they knew if they did not agreed to Parke Davis request’, Parke Davis would cut them off.

Felix Frankfurter:

I want to know if there’s any expression by anybody on behalf of Parke Davis, not the inferences that would you please the likely inferences drawn by the wholesales.

If Parke Davis ever make order that they would cut off wholesalers who didn’t fall into the line.

Daniel M. Friedman:

They —

Potter Stewart:

I think the findings of fact on page 34 — on page 34 finding of fact 13 seems to state the District Court’s views on the subject, this portion, page 34 of the record.

Daniel M. Friedman:

That as for — that that the District Court concluded there was no evidence that they had solicited an agreement with them.

I don’t believe that —

Felix Frankfurter:

I’m not telling you — I’m not talk — talking about the legal of consequences of the answer, whatever it may be to my question, but you’re not challenging that finding, are you?

Daniel M. Friedman:

We challenging it to the extent that it embodies a legal conclusion.

Felix Frankfurter:

Well, I understand that but you’re not challenging that the finding, you’re not — you — you’re not pointing to anything in the record whereby Parke Davis were explicit in saying if we do this of course you understand the consequences to any similar suggestions.

Daniel M. Friedman:

I — I don’t think it was — it was necessary, Mr. Justice.

Felix Frankfurter:

What I said is a different question?

I’m asking whether they were explicit?

Daniel M. Friedman:

There is nothing to show that they explicitly came and said, “If you do not stop selling to these people, we will cut you off.”

There’s nothing explicit about that statement.

Felix Frankfurter:

Was there any evidence that — is there any evidence that such, they knew that that the inference could be drawn, I’m going over to your suggestion of it, the inference would — could be drawn because of past experience.

Daniel M. Friedman:

Yes, Mr. Justice.

The wholesalers testified that they knew if they did not exceed —

Felix Frankfurter:

That isn’t my question.

I mean know something in sense that I draw an inference but the basis of that inference is what I’m after.

Have they had experience?

Daniel M. Friedman:

There is nothing to show in this record that at anytime, a wholesale had been in the past —

Felix Frankfurter:

The reason —

Daniel M. Friedman:

— cut off.

Felix Frankfurter:

— for my question is of course the Colgate case to which you will come, and the use of the term “coercion” by the judge in his opinion.

Tom C. Clark:

Was there —

Felix Frankfurter:

So I want to know what exactly the facts are for which I can draw my inference.

Tom C. Clark:

Without finding 13, what does it say, if you — what Parke Davis told the wholesalers at page 34, it says here and so the wholesalers in the District of Columbia generally that it would discontinue selling to them if they sold Parke Davis product to those retailers, (Inaudible)

Daniel M. Friedman:

Well I’m — I’m sorry, I don’t recollect the specific evidence in the record that reflected this conversation but I assume this finding is based on the implicit understanding of the —

Tom C. Clark:

You don’t attack that, do you?

Daniel M. Friedman:

Oh, no.

Tom C. Clark:

Haven’t told — told you say, the inference?

I have wondered if you’re attacking it on —

Daniel M. Friedman:

No, were not attacking that.

Felix Frankfurter:

What you are attacking is the judges’ failure to draw your inference on that finding.

Daniel M. Friedman:

We — we think the inference had to be drawn from that.

Felix Frankfurter:

And that’s what you’re after?

Daniel M. Friedman:

Yes.

Now, I’d like to come to the basic law in this field which we think is the basic principles are not disputed.

The Colgate case as it has been interpreted by this Court subsequently, has very strictly limited a right to the manufacturer in refusing to sell, where refusal to sell is a means of enforcing resale price maintenance.

The cases have indicated that the manufacturer’s right is limited to an announcement of the policy.

They may announce in advance the policy, the conditions under which they will not sell and they will also — may also cut off, refuse to deal with someone who does not exceed to that policy.

The cases have also indicated, however, that a manufacturer cannot go beyond the simple right of refusing to sell and announcing his policy.

Now, we think that in this case, what the record shows is something far more than unilateral action by Parke Davis in announcing a policy and refusing to deal with individuals who fail to comply with that policy.

In the first place, Parke Davis cut off the wholesalers, the retailers and refused to deal with them when they didn’t accede to its policy, it didn’t stop at that point.

It then went to the wholesalers and told the wholesalers that they too must stop selling to Parke Davis.

This in simple antitrust language is what is called a boycott.

Parke Davis in combination with the wholesalers brought the economic pressure to bear on the retailers.

The evidence shows that the wholesalers were not only told of this fact, but were told — not only requested to do this but were also advised that other wholesalers were being brought into this thing and this Court has repeatedly found that — held the conscious participation in a common plan where the aim of the plan is restraint of trade is enough to establish a conspiracy.

The evidence further shows that the brining of the wholesalers into the case was an integral part of the whole plan at the very beginning.

The manager of Parke Davis’ Baltimore branch told his assistant to bring pressure to bear not only on the retailers but on the wholesalers and the retailers in turn were warned, that if they didn’t go along with Parke Davis, not only would they be cut off on purchases from Parke Davis but also on purchases from the wholesalers.

Now, the participation of the wholesalers was of course a vital element in the whole plan because as long as the retailers had an alternative source of supply available, even at a somewhat higher price, there wouldn’t be any very effective pressure on them.

Daniel M. Friedman:

It was only when Parke Davis brought to bear the combined force of cutting them off directly and also indirectly that this thing would have a really vital pinch.

And finally, we think the situation is doubly significant because not only did Parke Davis request the wholesalers not to sell to the retailers, but it didn’t give them the green light to resume selling until after the retailers had indicated that they would take down their signs and stop their advertising.

Tom C. Clark:

But that did — one retailer would say that if they get down — the others would likewise (Inaudible)?

Daniel M. Friedman:

There was not quite in those terms, there was testimony that they advised each of the retailers as to what the other was doing and in one instance I believe, one of the men did say that if it’s agreeable with — if the other people are doing it, I will do it.

There’s not ever a I have a testimony showing —

Tom C. Clark:

Who is referred to?

Unless — unless it means (Inaudible)

Daniel M. Friedman:

Yes, Mr. Justice and also with respect to Mr. Strauss of State Drugs, pages 119 and 120 of the record another one of the —

Tom C. Clark:

119.

Daniel M. Friedman:

119 and 120.

Tom C. Clark:

19.

Daniel M. Friedman:

The way about six or eight lines from the bottom of the page.

“The gentleman asked if I would be willing to take my prices down, of course sell it on the inside if the other so called discounts stores ceased advertising in the paper.

I informed them that I would be very paper happy to.”

Now, another respect we think in which Parke Davis went beyond the mere exercise of its rights to select customers is the fact that after the retailers had been cut off, it was Parke Davis that took the initiative in re-approaching the wholesalers in an obvious attempt to see if this matter couldn’t be straightened out.

Parke Davis made its selection of customers when it cut these people off, but we don’t think that the Colgate case permits a manufacturer and it selects its customers, to then come around and say, “We’ll be glad to have you again as a customer, but we want you to do certain things which have the effect of minimizing the effectiveness of your price competition.”

Felix Frankfurter:

But if he — but he does, if he pursues that conduct without announcing it, would that be — offends the Sherman law as you conceive it?

Suppose he does all that, suppose these are all dumb people who can’t speak but they do this thing without announcing what they are doing?

Daniel M. Friedman:

I don’t think it would make any difference whether —

Felix Frankfurter:

But it would not.

Daniel M. Friedman:

— whether he used the words or not.

It’s — it’s the actual fact that happened, in other words the actual business relation.

Felix Frankfurter:

It wasn’t the fact that he announced that he is going to not deal with people who don’t observe his price shifting, is that right?

Daniel M. Friedman:

That is right and refuses to —

Felix Frankfurter:

Are you asking us to overrule Colgate flat or you think that you can distinguish it?

Daniel M. Friedman:

We think that it can be distinguished.

Felix Frankfurter:

Would you mind doing that when you get around to it?

Daniel M. Friedman:

I’ll attempt to do it right now.

The — I think the distinction is that all that Colgate permits is the announcement of your policy and the refusal to deal with people who refuse to accede to your policy.

Felix Frankfurter:

Both wholesalers and retailers.

Daniel M. Friedman:

Both wholesalers and retailers.

Felix Frankfurter:

And both announcing to wholesalers, they won’t deal with them?

I’m talking Colgate, I’m not announcing to the wholesalers, we won’t deal with them, if they don’t observe the price to the retailers and also the same thing to the retailers.

Daniel M. Friedman:

If you had — if — if —

Felix Frankfurter:

And announcing it and knowing that those consequences would follow?

Daniel M. Friedman:

If — if all we had was a mere announcement, I think that probably would be covered by Colgate, but that’s not what we have in this case, we have a lot more than mere announcement.

Felix Frankfurter:

What else have you got?

Daniel M. Friedman:

We have the approaching of these individuals, requesting them affirmatively to cease dealing.

We have the going back to the —

Felix Frankfurter:

You don’t think that was Colgate?

Daniel M. Friedman:

No.

I don’t think so, Mr. Justice.

Felix Frankfurter:

You think Colgate were much more general in — in trying to effectuate their policy?

Daniel M. Friedman:

No, but I think as Colgate came to this Court on merely a construction of the indictment, this Court held that under the Colgate doctrine, there had been no agreement alleged in that case.

Felix Frankfurter:

So was there agreement here for the president of club? You can call them agreement?

Daniel M. Friedman:

We — we think there was an agreement going out of the fact that —

Felix Frankfurter:

This has been — this was consensual rather than coercive, do you think?

Daniel M. Friedman:

I think it was —

Felix Frankfurter:

Consensual.

Daniel M. Friedman:

It was coerced, I think —

Felix Frankfurter:

Well —

Daniel M. Friedman:

— economic coercion.

Felix Frankfurter:

Where is your disagreement?

Daniel M. Friedman:

But also (Voice Overlap) gave — I think the coercion resulted a consensual undertaking.

Felix Frankfurter:

But fellow that is coerced doesn’t agree.

He agrees on the compulsion and that is in consensual.

Daniel M. Friedman:

Well —

Felix Frankfurter:

Of course he does that rather than suffer the consequences of not being good.

Daniel M. Friedman:

But I think they meant —

Felix Frankfurter:

It wasn’t an agreement?

Daniel M. Friedman:

There are many situations where —

Felix Frankfurter:

Or rather, is it an agreement different from — from Colgate, that’s what I want to know?

Are you asking us to overrule Colgate?

Daniel M. Friedman:

No.

We’re not, Mr. Justice.

Felix Frankfurter:

You’re not.

Daniel M. Friedman:

No.

Felix Frankfurter:

Why not?

[Laughter]

Daniel M. Friedman:

Well, I think because Colgate does reflect a basic right of a manufacturer, that a manufacturer has the right to select his customers.

I think that an example of the exercise of that right is shown in this record.

After Mr. Haft had testified at the criminal case which the Government lost here, Parke Davis sent him a letter saying, “We do not wish to have any further dealings with you and we’re closing your account.”

They cut him off, they did not attempt to persuade the wholesalers not to deal with them.

They let him go have his business.

I think that’s the reason we’re not asking this Court to overrule Colgate because we recognize that Colgate does represent a basic right of the manufacturer, but we are asking this Court to make — to indicate that the rights under Colgate must be strictly limited merely to give the manufacturer the right to select his customers and to announce his policy that —

Felix Frankfurter:

You think — you think if this, if the Government wins this case and Parke Davis hadn’t scrupulously followed Colgate, the result would be in the slightest different to the negligence or to commerce or to business or to anything.

Daniel M. Friedman:

I think it might, Mr. Justice.

Felix Frankfurter:

Accept the words.

Daniel M. Friedman:

I think it might, Mr. Justice, because I think without these devices of enforcing this policy that they will not be able carry the —

Felix Frankfurter:

But — but Colgate enforced them, people knew their business, they knew it, they didn’t — because they didn’t live up that Colgate would cut them off, they told them so.

Daniel M. Friedman:

Yes, but I think there’s more here than is shown in the Colgate record.

I — I would like to refer briefly to one of the aspect of this case at this time which is the District Court’s alternative holding that even if a conspiracy had been established, there was no need for any injunctive relief.

The District Court based that holding on three different grounds.

First, the District Court held that the practices had been abandoned.

And then it went on to say the abandonment had been made in good faith and has been forced upon the company by the economic and business conditions in the field.

And that in fact, the company could not resume these practices without heavy economic loss.

Now, the only thing shown by this record as to the reason for abandonment is the testimony of Parke Davis’ Assistant General Attorney that one of the reasons for abandonment was this antitrust investigation.

There is nothing in this record to show that Parke Davis could not resume these practices without heavy loss or that they were forced upon it, this abandonment was forced on it by business and economic conditions.

There is not even in this record a disclaimer by Parke Davis that it will not resume these challenged practices in the future, unlike the Grant case where the men involved in the interlocking the record state that he would not resume.

There’s no such evidence at all in this case.

Daniel M. Friedman:

All that we had basically here is abandonment resulting in part from the investigation conducted by the Government.

And we think that it’s well settled that the mere fact of abandonment alone is not sufficient to deny the Government the right to injunctive relief and we think that on this face of the case too, the District Court erred in the case should be remanded for further proceeding.

Earl Warren:

Mr. Gesell.

Gerhard A. Gesell:

May it please the Court.

This is the third time I’ve to argue this question to a Court.

We had it in the criminal case and the judge threw the case out of the close of that record.

They called the same witnesses and a few more in the civil case, I argued it again and he threw the case out.

And now, I find myself in this situation that I come up before a nine of you gentlemen and I have to discuss a testimonial case.

You could put the exhibits in this case in the back of this book and pay no attention to them.

This is not exhibit antitrust case.

There were 17 human beings who took the stand and who testified and their testimony was analyzed and examined by the judges who sat as triers of fact.

Their testimony is conflicting.

They said sometimes on cross something quite different than they said under direct when they were led by Mr. Kenny down the route, he wanted them to go.

They said things differently than our witnesses said about the same transactions and the judge who tried this case had the obligation of weighing and deciding what the true facts were.

Now, when the Government comes up here on one of these cases and the defendant has lost and the defendant says that the evidence in some way or other wasn’t properly weighed by the judge, there are cries of anguish from the Government table that the rule of this Court must prevail, that the — that you will not go back into a record and reexamine it that the findings will stand.

If you want to read what I say in this case, just read what the Government said to you in the International Boxing case which I’ve cited in my brief.

Now, that’s by way of preliminary, but I — I say to you that this is a case where if you follow the route that has been suggested to you by counsel who just argued, you will be obligated to go down into this record and makeup your own mind as to the trustworthiness and the reliability of conflicting testimony from witnesses.

The principal witness here, Mr. Haft, who was the complaining witness to the antitrust division was working under the careful guidance of his own counsel looking forward to treble damage case.

He was caught in frequent inconsistencies.

And I say to you that if you sat in the courtroom and watched him gait when some these questions were asked and watched him squirm on the stand, you wouldn’t have believed the word he said.

Now, our position is simply this that we instructed our salesmen, Parke Davis instructed our salesmen to got out and say to the trade the following.

“If you do not sell at our suggested minimum prices, we will cut you off.”

And they went out, were instructed to go up to the wholesalers and say, “If you do not sell, if you do sell to price cutting retailers, we will cut you off.”

The Court found that those were the instructions and the Court also found that’s exactly what the salesmen did.

Now, I can’t conceive of anything that is purer Colgate than that, a simple statement, announcement of the policy and a carrying out of that policy in accordance with the instructions that were given.

And those instructions incidentally, are shown by this record to have been given to these people under confident legal advice as to what the guideposts were under this Colgate doctrine.

Now I say to you that the Colgate doctrine is not some theoretical abstract idea, but this is a rule that has guided businessmen ever since the case came down and it’s an integral part of our commercial life.

And when these people who are responsible businessmen went about it with regard to their right to select their customer and the Court found that is all they did then it seems to me the findings must be sustained below, and there is no basis here for upsetting the judgment.

Now, let’s examine what the government says are the reasons why this case must be upset.

They — they say as I understand them in effect that a legal implication of agreement is essential here because of two aspects of the conduct.

Gerhard A. Gesell:

One, that the Colgate doctrine was applied as to wholesalers and the second, that some of these customers were reinstated.

Now, those are the two points that would make you an argument today.

There were wholesalers in the Colgate case.

There were wholesalers in the Beech-Nut case.

This Court has never said that the Colgate doctrine doesn’t apply to wholesalers just as much as it does to any other class of customer or trade.

Potter Stewart:

Did the Colgate case come here after the trial or just from an indictment?

Gerhard A. Gesell:

Pure — purely pleading question, Mr. Justice Stewart.

Potter Stewart:

It’s only a matter of date.

Gerhard A. Gesell:

Very — the absence of the indictment to plead agreement resulted in the indictment being thrown out.

So, there was no —

Potter Stewart:

(Voice Overlap) if there were allegations in that indictment of sales to hold up (Voice Overlap) —

Gerhard A. Gesell:

That — that is right.

Potter Stewart:

(Voice Overlap) —

Gerhard A. Gesell:

Their allegations in the indictment of sales, the wholesalers but it came up on purely procedural basis.

Potter Stewart:

Yes.

Gerhard A. Gesell:

There were also wholesalers in Beech-Nut when the decree there was passed in by the Court, there was no prohibition against defying the Colgate rule to wholesalers.

Now, counsel here says, you — this is a boycott, and that’s simply an example of the use of a nasty word to get over a deficiency in his proof.

If we reach an agreement with the wholesalers for concerted action, of course it would have been a boycott, but the question is, did we reach an agreement or did we as the Court found merely say to these wholesalers, “If you sell to price-cutting retailer, we’ll cut you off.”

That is no boycott, that’s merely the exercise of a Colgate right.

And when they suggest to you it’s a boycott, they jump over the fact that the Court throughout here found there was no agreement of that kind with the wholesalers.

Of course, if there was an agreement with the wholesalers, you don’t have to call it a boycott.

It doesn’t come within Colgate anyhow.

It’s a price of arrangement and it’s improper, but there was no such agreement on these findings.

Now, I — I think that perhaps what I can do here is to put this case in a bit more perspective than you had it today.

In the first place what we’re concerned with here is a case that involved conduct in this District of Columbia area for a period of about six or eight months at the most, in 1956.

We — counsel referred Parke Davis as one of the leading drug company, it’s what it is.

The record shows that in this market it had about 5% of the business.

It had no system of policing, no card-index system, no marked goods, no cooperative arrangement with its wholesalers or its jobbers, no system of licensing, no joint trade activities of any kind.

This — this company was simply going ahead selling here in the District of Columbia like its many competitors and there was as between them very substantial price competition.

What happened was, that a man by the name of Haft who ran Dart Drug Company, a — a corporate drug house here in — in Washington, began to advertise very substantial, very deep price cuts.

Gerhard A. Gesell:

The District Court found that that completely demoralized Parke Davis’ trade.

Why?

Because when Mr. Haft advertised these deep price cuts, he was not advertising for the purpose of selling Parke Davis goods.

He was advertising for the purpose of enticing into his store customers who came to get a bargain on Parke Davis and then he switched them to his own brands for his own purposes and that the Court found was one of the purposes of this price cutting.

He was using our goods and our name as scenery to get people, as one of the witnesses said, to get people into his store so that his salesman who got a commission for selling his goods and didn’t get any commission for selling Parke Davis goods could push his own goods on which he had a larger margin of profit.

He was also demoralizing the trade because he was cutting these prices to a point where he was offering the products below the price of which the ordinary everyday corner drug store could buy these products.

And so, all of these retailer drugstores lost interest in trying to promote Parke Davis goods and that was the trade in the traffic on which Parke Davis depend.

So, what happened?

Parke Davis representatives went to these various retailers, and there’re five of them in this case and it said, “If you don’t stop cutting prices, we will not sell to you” and these retailers said, “Well, in effect, we’ll cut your papers” and they went right ahead cutting prices, and they cut prices throughout this entire period.

They never stopped.

They were never in a situation where they couldn’t get goods because even though Parke Davis had gone to the wholesalers and said, “If you sell to price-cutting retailers, we will not sell to you.”

It is not clear that all of those wholesalers exceeded or accepted that position.

And in any event, the record is clear that the retailers continued to have the product and continued to sell it cut prices in the store.

So, then we come to this question or reinstatement and it is suggested that there are some kind of element of contract in reinstating a customer.

I don’t understand that.

I — I don’t see how that can be so.

I don’t see how they can be any different element of agreement there than when you say to a man strictly within your Colgate rule, “I will not sell to you if you cut prices” and he goes ahead and does not cut prices that you sell to him.

There’s just as much an element of agreement there, but what happened was that Parke Davis finding the price cutting continued, that it had been completely unsuccessful in eliminating any price cutting, went and suggested that they would continue to sell to these customers and that they would be free to charge any price they wanted in their store but they simply would not advertise in order to pull in these customers for other purposes.

And for a period of about a month or six weeks, there were not cut price ads in the District of Columbia on Parke Davis goods.

At the end of about six weeks, that was the end of that.

An advertisement appeared on the paper.

Everybody else began to advertise and Parke Davis threw up its hand and said, “Well, that’s all, we’ve had it.”

Just lots of — as we suggest in the brief, supporting the position that Mr. Chaipy took in his article of this whole problem, famous article of this whole problem.

He said, “Nobody really can prevent price cutting and maintain prices if he strictly followed the requirements of the Colgate doctrine.”

We never were able to prevent it.

We never did and price cutting continued throughout this period and has continued ever since.

Now, I don’t know what process this Court is going to go through if it undertakes to reexamine this record to see whether these various challenged findings are correct.

The findings say that an agreement was not solicited.

The findings say specifically as to each of these particular retailers and wholesalers that not agreement was made.

The trial judge stated not only that he followed the testimony, but that he’d read the daily transcript.

Gerhard A. Gesell:

We had elaborate arguments about these findings.

The government opposed our finding.

They submitted alternative findings.

They filed separate motion thereafter to set aside the findings.

In all, I think we had two or three briefs in argument on this issue and the trial judge came to his conclusion.

If you go through this evidence and you undertake this task of retrying this case, I urge that you not be misled by selective bits of the testimony such as been offered to you on argument today because you will find by a reading of the entirety of the record that are totally different kind of a picture of what occurred pertained than those by — if you select a particular item, here or there.

Hugo L. Black:

May I ask you what — that the Court made in the finding as to what the wholesalers did lamenting that count in finding 13 on page 34?

Gerhard A. Gesell:

The finding is that the wholesalers, three of the wholesalers — in finding 14, Mr. Justice Black, three of the wholesalers attempted to stop their sales of products to those retailers in order not to be cutoff themselves.

Although occasionally, such products were sold by inadvertence to those retailers, I think that’s the finding.

Felix Frankfurter:

Where is this?

Hugo L. Black:

This —

Gerhard A. Gesell:

14

Hugo L. Black:

This count — this count 13 means — on the finding 13 means that what Parke Davis said, “If you continue to sell to these people, we will cut you off.”

Gerhard A. Gesell:

Yes.

Hugo L. Black:

So what does it mean if they do not continue to sell to them?

Gerhard A. Gesell:

Well, if — if they — if they do not continue to sell to the price-cutting retailers —

Hugo L. Black:

Suppose they agree with it.

Gerhard A. Gesell:

— then they would remain customers of Parke Davis.

Hugo L. Black:

They agreed to continue not to sell?

Gerhard A. Gesell:

No, sir.

There’s no question of agreement here.

Hugo L. Black:

Don’t have to agree to it, they just quit.

Gerhard A. Gesell:

They’re simply told a policy and they can accept the policy or not as they choose.

The Court found that they accepted the policy not because of any agreement, but that they accepted the policy because of their own self interest.

They desired —

Hugo L. Black:

Suppose —

Gerhard A. Gesell:

— to remain —

Hugo L. Black:

Suppose — suppose they had not done that, what would have happened to them?

Gerhard A. Gesell:

They would have been cut off, just as the retailers were cut off.

Felix Frankfurter:

The point about Colgate is that if they agree, they can be sued for breach of contract.

Felix Frankfurter:

If they don’t agree, you say Colgate says a businessman has a right to say, “I’ll sell you my goods but on these conditions.”

Gerhard A. Gesell:

That is right.

Felix Frankfurter:

And free either to accept or reject the condition.

Gerhard A. Gesell:

And —

Felix Frankfurter:

That’s the —

Gerhard A. Gesell:

That — that’s what —

Felix Frankfurter:

— that’s what the matter?

Gerhard A. Gesell:

That’s our position.

Hugo L. Black:

Do you accept that argument?

Gerhard A. Gesell:

Yes and our position — our position is that in this case, none of the — none of the facts — none of the facts in this case fall within the ambit of the cases like Bausch & Lomb and Effo and Beech-Nut where you had a complicated pattern of systematic control of the market, tied together with license arrangements, tied together with espionage and reporting system with trade association and other types of cooperative activity.

This is simply the conduct of a single seller in a small market, dealing for a short time unsuccessfully with a small specific aspect of his problem.

And if — if you say that Colgate doesn’t apply to this, what you are doing is what I suggest the Government really wants you to do, you’re making Colgate an absolutely meaningless rule of law.

Hugo L. Black:

Suppose Parke Davis had gone to every — every wholesalers here after having gone to the retailers and said to every wholesaler, “We’re not going to sell to you if you sell to these people,” yet obtained by that the refusal to sell.

You would say that unless they used the word “we agree not to sell” that there is no agreement and it cannot be found?

Gerhard A. Gesell:

No, sir.

I do not think the magic words agree, Mr. Justice —

Hugo L. Black:

(Voice Overlap) accepted to it.

Gerhard A. Gesell:

— Black determinant.

I think this — I think an agreement can be inferred from a course of conduct where there are elements of coercion and practice which would support that, but the Court found nothing of that kind here and there was nothing of that kind here.

Take — take your Bausch & Lomb kind of situation, where everyone is tied together by a system of licensing that makes each dependent on the other and where over a long period time, people in the status of wholesalers were working in collaboration with the seller to — to report violators and bring information to their attention and to see that they were stamped out, then you get a pattern of conduct which in particularized cases could lead to particular results.

But I say here, none of those elements are present and the Court found that none of those elements are present.

And that this is simply the pure simple expression by the seller of his Colgate rights and if he hasn’t the right to do this, he hasn’t the right to do anything under the Colgate doctrine.

Now, let’s look at the practicalities of this matter, if I may will you for a minute.

Reference is made to the fact that we — there was some discussion concerning what others were doing.

Well, in — on occasion when a salesman went and said, “If you — if you don’t — if you don’t observe our policy and you cut prices, we won’t sell to you.”

The other fellow says, “What about the guy across the street?”

Perfectly natural question to arise or a man says, you say to a man, “I will not sell to you if you cut prices,” and he says, “I agree.”

Is that an agreement within the Colgate doctrine?

Or he says, “I’ll abide by your wishes, alright I’ll go along.”

These are just human discourse that has nothing to do with the question as to whether an agreement was sought, an agreement was solicited or an agreement in — in any legal sense to coercion or otherwise, was obtained.

Hugo L. Black:

Do you think our cement company — cement case discussion and decision has any relevance in connection with this case?

Gerhard A. Gesell:

No.

The Government has suggested that it does and that Interstate Circuit from some of these other parallel conduct type of cases too.

But as I see those cases, Mr. Justice Black, it seems to me there are certain elements present that are not present here.

In — in the first — in the first place, it has seemed to me that some of the conduct that was parallel is conduct that is — is conduct that comes for conspiratorial reason only and you infer therefore, collaboration because there is a working together in a manner that can only be explained in terms of conspiracy.

The — the movie cases are — are classic example of that.

Or they are situations where the parallel conduct remains wholly unexplained where there isn’t any explanation of it.

Well, in this instance, we have neither of those.

The — the conduct of the wholesaler is explained on this record and explained quite clearly, and it is not inconsistent with their own simple economic interest.

It doesn’t in anyway purport to collaboration or cooperation with the seller in his design or even if there’s no showing that they have any stake in his design.

There is not a single instance here of joint action, of interdependent action, of meetings of — of group approach to this problem at all.

Hugo L. Black:

Why do say they wouldn’t have stake in the design.

He would have a stake of getting his goods or not getting them.

Gerhard A. Gesell:

Well, they — they would have — (Voice Overlap) if — the only stake they would have would be of getting his goods and of course that they — they have to cut him off in order to stay as a customer.

So, they’re — they’re operating contrary to that state and that’s the only state they have.

These wholesalers handle many, many products and many, many companies and they want to sell to everybody.

They don’t gain anything by this.

This — the — this was a situation that Parke Davis was concerned about because of the protection of its own trade.

Thank you, Your Honor.

Earl Warren:

Mr. Friedman.

Daniel M. Friedman:

Mr. Chief Justice and may it please the Court.

Mr. Gesell has stated that all that was involved in this case was a simple expression of Colgate right as he calls them by Parke Davis.

They just announced the policy and left it to individuals whether to accept the policy or to reject the policy.

I just like to refer the Court briefly to the testimony of the wholesalers as to how this policy was put up to them.

First, page 125 of the record, one of the wholesalers questioned by Mr. Gardner, “Did they say anything about you selling to retailers who cut prices?”

“Yes, that was the statement that we shouldn’t sell to retailers at cut prices” and at page 164, testimony by Mr. Russell, a wholesaler in Richmond, Virginia.

About halfway down the page, “I was instructed — called and instructed not to sell Parke Davis goods to Standard Drug Store or any of its branches.

There — there are several others, Mr. Chief Justice, also in the record which shows, we believe (Inaudible)