as if the dealers themselves had combined and agreed upon prices generally.

All this is a faithful adherence to the outward form of certain rules without, it is believed, any regard for their actual meaning.

We have, for instance, a faithful adherence to the form of the rule that restraints and forfeitures upon alienation of absolute interests in personal property are illegal. It is entirely overlooked that this expressed a rule of public policy, and is properly qualified whenever the courts have to deal with a distinctive transaction which does not infringe the policy which the rule carries out. Thus one may provide for forfeiture upon alienation to a particular person or group of persons. Some cases have even gone so far as to permit a forfeiture on alienation to any one except a certain group of persons. The question always is, has the restraint or forfeiture on alienation been restricted in so distinctive a way that the public policy behind the rule has not been infringed? Perhaps it would be better to say that upon a balance of all considerations the freedom of action of the party restricting alienation to some extent outweighed the dangers to the public from the limitation on alienation. The moment the case in question is approached in this way, what do we find? The manufacturer is in the business of selling products to the public. He cannot prosper unless sales are made. His goods are in competition with goods of other manufacturers who are as strong commercially as he is. These are distinctive features which the courts can lay hold of. They automatically require a price at which the manufacturer's goods will sell. This means that any restraint or forfeiture on alienation is reduced to the minimum. It means that there is a restraint or forfeiture on alienation to the class of people who will buy only at the reduced price which dealers not subject to the contract might make. The distinctive feature of the transaction makes it clear that this will be a small group in comparison with those who are ready to buy at the established price. Properly analyzed the restraint or forfeiture on alienation whether it proceeds from an expressed forfeiture of the title on alienation or a restraint on its alienation below a certain price, or from the specific enforcement of the contract in equity, is reduced to such a point as to exclude it from the infringement of any public policy against general provisions of forfeiture or restraints on alienation of personal property. When we add the special grounds for freedom of economic action

"Littleton, 361.

'Doe v. Pearson, 6 East (Eng.) 173 (1805); In re Macleay, L. R. 20 Eq. 186 (1875). Contra, Attwater v. Attwater, 18 Beav. (Eng.) 330 (1853). And see In re Rosher, 26 Ch. Div. 801 (1884).

in transactions having the distinctive features of this one, the validity of the arrangement in question should not be in doubt.

The manufacturer of a "specialty" or of "branded goods" succeeds commercially by doing a large part of the selling himself. He packs his own goods. He standardizes them. He advertises them in competition with similar goods of other equally strong manufacturers. The only thing he does not do is to distribute them. He cannot succeed if he attempts to do that. These goods are of the sort that the purchaser comes to know and to call for wherever he is, and he pays for them, very largely, over the counter of the distributor. The manufacturer, therefore, needs a large number of convenient distributing points. He needs all the grocieries in the United States or all the pharmacies. These are not really purchasers of goods for sale. They are distributors of goods for the manufacturer-the manufacturer having by his advertising, standardizing and packing, done a large part of the business of selling. Now comes the prime difficulty with this system of selling. Grocers in small groups all over the United States compete with each other. So do the owners of pharmacies in small groups. The smaller retailer is in competition with the better organized department store. The moment that the retailers are permitted to compete with each other as to the price of "specially" or "branded" goods, the manufacturer's distributing plan, which is vital to his success is impaired. If his goods are very popular some retailer or department store will advertise a cut rate below cost in order to attract customers to whom other goods will be sold at a compensatory profit. Such a course disrupts the manufacturer's distributing units. Others who cannot or will not meet the cut cease to be interested in carrying or pushing the manufacturer's goods. This arrangement tends to exist everywhere because some unit will always be in a state of cutting prices on a popular branded article in order to stimulate general trade for the unit.

This is the condition which the manufacturer seeks to meet by his contract to stabilize prices upon resale. That such contracts are necessary to this method of doing business is plain; that the method of doing business itself has some advantages to the public is equally clear. It centralizes advertising, and, therefore, saves greatly on this item. It centralizes the labor of packing, which saves also on the cost of the article. It standardizes articles so that the time spent at the counter in determining what to buy is cut down, and in this way the selling cost is reduced. It is efficient. in service because of the large number of convenient distributing points which are used. To tell the manufacturer that he cannot

work out the marketing end of his business by the method in question is to tell him that he cannot distribute most efficiently through a large number of retailers without suffering the consequences of their tendency to compete with each other. This is to condemn a new method of conducting business to inefficiency and waste, or to disrupt it entirely. Such a course neglects the fact that, while title technically passes to the retailer, the manufacturer is in reality, to a considerable degree, the seller by reason of his having done a large and expensive part of the work of selling to the ultimate consumer. It overlooks the fact that he is, in a sense, a partner with the retailer until the goods have come to the ultimate consumer, and as such is entitled to control the price in the interest of his method of distribution.

Economists and students of business may discuss whether the method of manufacturing and selling "specialty" and "branded" goods coupled with contracts on the part of the retailer to keep up the price on resale is a valuable or the wisest method or not. There may be differences of opinion about the matter. Where, however, there are opposing advantages and disadvantages in the way the business is conducted and where it remains a matter of opinion or speculation whether good or ill to the public preponderates, the fundamental social interest in the freedom of economic action requires the courts to refrain from throwing a monkey wrench into the commercial effort in question.

When the court declares the contract to keep up the price on re-sale is invalid because it is the same as a contract or combination between all the retailers to eliminate competition between themselves and fix prices, we again have a faithful adherence to the form of a legal rule without the slightest regard for its substance or the reasons which determine its limitations. When retailers who are competing combine and eliminate competition between themselves by agreements as to prices, we have the recorded assumption that in their sphere of business, at least, they have a preponderant or monopolistic position, and that they will keep it by using their power to exclude others by unfair and illegal methods of competition. The agreement as to price is the admission of facts which make an illegal attempt at monopoly. But where the manufacturer sells his "specialty" or "branded" goods to distributors who agree to keep up the price on re-sale, we have no such admission or, at least, the inference of any such admission is rebutted. The manufacturer has no preponderant position in the business. He is in competition with many other manufacturers who sell goods of the same sort. Nor is the posiSee A. M. Kales, Good and Bad Trusts, 30 Har. L. Rev. 830, 852.

tion of the manufacturer preponderant because he deals through a large number of retailers who agree to keep up the price on re-sale. These retailers may handle the goods of the competitors of the manufacturer on exactly the same terms or on terms more favorable to the buyers. The manufacturer by reason of having taken care of the advertising, standardizing and packing of the goods and requiring of the retailer only the function of distributing and receiving payment is in substance a partner with the retailer in selling, and has a legitimate interest in controlling the price to prevent the disorganization of his distributing system. This does not eliminate any competition between the manufacturer and other manufacturers who are doing the same sort of business. There is no exclusion of others from the manufacturing business or from the business of retailing. It is the free competition among the manufacturers which determines the price to the public. The contract to keep up the price on re-sale is thus reduced to a device to preserve the most effective distributing organization for the manufacturer who is also in part, at least, the actual seller as well.

In Bobbs-Merrill Co. v. Straus the Supreme Court held that the holder of a copyright on a book who had sold it with a restriction that it was not to be resold for less than $1.00 could not have an injunction against the violation of the restriction by a third party who had notice of it. This ruling seems to have proceeded solely upon a construction of the copyright act, for the jurisdiction of the court was founded, not on diverse citizenship and the specific performance of a restrictive agreement, but upon the protection afforded by the Federal statutes against infringement of copyrights. The copyright act gave the holder of the copyright the "sole right of vending the same." This was construed to include no right whatever to fix the price at which the copyrighted article might subsequently be sold. In Bauer v. O'Donnell1o the same ruling was made where a patented article was involved. This also proceeded upon the construction of the patent act which gave the patentee "the exclusive right to make, use and vend the invention or discovery." In Straus v. Victor Talking Machine Co. an attempt to retain title to the patented article in the manufacturer who merely licensed the use subject to a condition and covenant that the article should not be resold for less than a certain price was equally ineffective and unenforceable. Again an injunction against a third party who had no contract relations with the plaintiff, but who had notice of the restriction, was denied.

9210 U. S. 339 (1908).

11243 U. S. 490 (1917).

10229 U. S. 1 (1913).

Suppose in these cases the complainant had abandoned all reliance upon the copyright or patent act and had treated the articles sold as the "specialty" product of his manufacture which he desired to market by securing a covenant requiring the price to be kept up on re-sale. Suppose the United States court secured jurisdiction on the basis of diverse citizenship, or suppose the suit were in a state court and the covenants were of the sort which equity gave specific performance of by injunction even against third parties with notice. Would the result have been the same? Clearly it would if the Dr. Miles Medical case were followed.12 But suppose the result in that case had been to enforce the restriction by injunction, would the same result have been reached in a case where a patented or copyrighted article was being marketed? Perhaps so and perhaps not. If the patent were a fundamental one which controlled an entire industry like the original Bell Telephone patent, a court of equity might say: "You have a monopoly by the patent or copyright act, but we shall not aid that monopoly by giving you anything beyond what you are entitled to by the terms of the statute." On the other hand if the patent or copyright gave no monopoly in the given business-if the patented or copyrighted article was in competition with other articles of the same sort-the patented or copyrighted article should not be any worse off for that reason. The same relief, therefore, might be given as in the case of "specialty" or "branded" goods which are in competition with others of the same sort.

II

The Supreme Court of the United States first held in Henry v. A. B. Dick Co.13 that where the holder of a patented article licensed its use, the license may be made subject to the condition or stipulation that the licensee would use with the patented article only unpatented accessories, manufactured and sold by the licensor, and that upon the violation of this stipulation there would be an infringement by the user of the patented article. In the recent case of Motion Picture Patents Co. v. Universal Film Manufacturing Co.14 the decision in the Dick case was overruled, and it was held that the violation of the condition or stipulation does not make the use of the patented article an infringement. In both cases alike the court appears to have been obliged to deal with a controversy between the parties as if it involved the infringement of a patent, for only on that ground did the United States Court obtain jurisdiction. The Dick

12 Dr. Miles Medical Co. v. Park & Sons Co., supra, note Ia.

13224 U. S. 1 (1912).

14243 U. S. 502 (1917).