Syllabus.

UNITED STATES v. PARKE, DAVIS & CO.

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA.

No. 20. Argued November 10, 1959.-Decided February 29, 1960.

In a civil suit under § 4 of the Sherman Act charging appellee with combining and conspiring to maintain resale prices of its products in areas which have no "fair trade" laws, the Government introduced evidence showing that appellee had (1) announced a policy of refusing to deal with retailers who failed to observe appellee's suggested minimum resale prices or who advertised discount prices on appellee's products, (2) discontinued direct sales to those retailers who failed to abide by the announced policy, (3) induced wholesale distributors to stop selling appellee's products to the offending retailers, (4) secured unanimous adherence by informing a number of the retailers that if each of them would adhere to the announced policy one of their principal competitors would also do so, and (5) permitted the retailers to resume purchasing its products after they had indicated willingness to observe the policy. The evidence further established that appellee had terminated these practices after becoming aware that the Department of Justice had begun an investigation of its price maintenance activities. The District Court dismissed the complaint on the ground that the Government had not shown a right to relief. Held: The judgment is reversed and the case remanded with directions to enter an appropriate judgment enjoining appellee from further violations of the Sherman Act, unless it elects to submit evidence in defense and refutes the Government's right to injunctive relief established by the present record. Pp. 30-49.

(a) The District Court erred in holding that these practices constituted only unilateral action by appellee in selecting its customers, as permitted by United States v. Colgate & Co., 250 U. S. 300. Appellee did not merely announce its policy and then decline to have further dealings with retailers who failed to abide by it, but, by utilizing wholesalers and other retailers, it actively induced unwilling retailers to comply with the policy. The resulting concerted action to maintain the resale prices constituted a conspiracy or combination in violation of the Sherman Act, although it was not based on any contract, express or implied. Pp. 36–47.

Opinion of the Court.

362 U.S.

(b) Rule 52 of the Federal Rules of Civil Procedure does not require affirmance of the District Court's ultimate finding that respondent did not violate the Sherman Act, because that conclusion was based on an erroneous interpretation of the law. Pp. 43-45.

(c) The District Court's alternative holding that dismissal of the complaint was warranted because there was no reasonable probability that appellee would resume its attempts to maintain resale prices is erroneous, because it is not supported by the evidence. Pp. 47-48.

164 F. Supp. 827, reversed.

Daniel M. Friedman argued the cause for the United States. With him on the brief were Solicitor General Rankin, Acting Assistant Attorney General Bicks, Richard A. Solomon, Edward R. Kenney and Henry Geller.

Gerhard A. Gesell argued the cause for appellee. With him on the brief were Edward S. Reid, Jr. and Weaver W. Dunnan.

MR. JUSTICE BRENNAN delivered the opinion of the Court.

The Government sought an injunction under § 4 of the Sherman Act against the appellee, Parke, Davis & Company, on a complaint alleging that Parke Davis conspired and combined, in violation of §§ 1 and 3 of the Act,' with

The pertinent provision of Sections 1, 3 and 4 of the Act of July 2, 1890, 26 Stat. 209, as amended (15 U. S. C. §§ 1, 3, 4), commonly known as the Sherman Act, are as follows:

"Sec. 1. Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is hereby declared to be illegal. . . . Every person who shall make any contract or engage in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of a misdemeanor . . . ."

"Sec. 3. Every contract, combination in form of trust or otherwise, or conspiracy, in restraint of trade or commerce in . . . the District

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Opinion of the Court.

retail and wholesale druggists in Washington, D. C., and Richmond, Virginia, to maintain the wholesale and retail prices of Parke Davis pharmaceutical products. The violation was alleged to have occurred during the summer of 1956 when there was no Fair Trade Law in the District of Columbia or the State of Virginia. After the Government completed the presentation of its evidence at the trial, and without hearing Parke Davis in defense, the District Court for the District of Columbia dismissed the complaint under Rule 41 (b) on the ground that upon the facts and the law the Government had not shown a right to relief. 164 F. Supp. 827. We noted probable jurisdiction of the Government's direct appeal under § 2 of the Expediting Act.3 359 U. S. 903.

Parke Davis makes some 600 pharmaceutical products which it markets nationally through drug wholesalers and

of Columbia, or in restraint of trade or commerce . . . between the District of Columbia and any State or States or foreign nations, is hereby declared illegal. Every person who shall make any such contract or engage in any such combination or conspiracy, shall be deemed guilty of a misdemeanor.

"Sec. 4. The several district courts of the United States are hereby invested with jurisdiction to prevent and restrain violations of this act; and it shall be the duty of the several United States attorneys, in their respective districts, under the direction of the AttorneyGeneral, to institute proceedings in equity to prevent and restrain such violations. . . ."

2 Congress has provided that where a State adopts a "Fair Trade Law" which permits sellers under certain circumstances to make price-fixing agreements with purchasers, such agreements shall not be held illegal under the Sherman Act, 15 U. S. C. § 1. The Fair Trade Laws adopted in 16 States have been invalidated by their state courts on state grounds. H. R. Rep. No. 467, 86th Cong., 1st Sess. 6-7. On June 9, 1959, the House Committee on Interstate Commerce favorably reported a bill which, if passed, would enact a National Fair Trade Practice Act.

3 32 Stat. 823, 15 U. S. C. § 29, as amended by § 17 of the Act of June 25, 1948, 62 Stat. 989.

Opinion of the Court.

362 U.S.

drug retailers. The retailers buy these products from the drug wholesalers or make large quantity purchases directly from Parke Davis. Sometime before 1956 Parke Davis announced a resale price maintenance policy in its wholesalers' and retailers' catalogues. The wholesalers' catalogue contained a Net Price Selling Schedule listing suggested minimum resale prices on Parke Davis products sold by wholesalers to retailers. The catalogue stated that it was Parke Davis' continuing policy to deal only with drug wholesalers who observed that schedule and who sold only to drug retailers authorized by law to fill prescriptions. Parke Davis, when selling directly to retailers, quoted the same prices listed in the wholesalers' Net Price Selling Schedule but granted retailers discounts for volume purchases. Wholesalers were not authorized to grant similar discounts. The retailers' catalogue contained a schedule of minimum retail prices applicable in States with Fair Trade Laws and stated that this schedule was suggested for use also in States not having such laws. These suggested minimum retail prices usually provided a 50% markup over cost on Parke Davis products purchased by retailers from wholesalers but, because of the volume discount, often in excess of 100% markup over cost on products purchased in large quantities directly from Parke Davis.

There are some 260 drugstores in Washington, D. C., and some 100 in Richmond, Virginia. Many of the stores are units of Peoples Drug Stores, a large retail drug chain. There are five drug wholesalers handling Parke Davis products in the locality who do business with the drug retailers. The wholesalers observed the resale prices suggested by Parke Davis. However, during the spring and early summer of 1956 drug retailers in the two cities advertised and sold several Parke Davis vitamin products at prices substantially below the suggested minimum retail prices; in some instances the prices apparently

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Opinion of the Court.

reflected the volume discounts on direct purchases from Parke Davis since the products were sold below the prices listed in the wholesalers' Net Price Selling Schedule. The Baltimore office manager of Parke Davis in charge of the sales district which included the two cities sought advice from his head office on how to handle this situation. The Parke Davis attorney advised that the company could legally "enforce an adopted policy arrived at unilaterally” to sell only to customers who observed the suggested minimum resale prices. He further advised that this meant that "we can lawfully say 'we will sell you only so long as you observe such minimum retail prices' but cannot say 'we will sell you only if you agree to observe such minimum retail prices,' since except as permitted by Fair Trade legislations [sic] agreements as to resale price maintenance are invalid." Thereafter in July the branch manager put into effect a program for promoting observance of the suggested minimum retail prices by the retailers involved. The program contemplated the participation of the five drug wholesalers. In order to insure that retailers who did not comply would be cut off from sources of supply, representatives of Parke Davis visited the wholesalers and told them, in effect, that not only would Parke Davis refuse to sell to wholesalers who did not adhere to the policy announced in its catalogue, but also that it would refuse to sell to wholesalers who sold Parke Davis products to retailers who did not observe the suggested minimum retail prices. Each wholesaler was interviewed individually but each was informed that his competitors were also being apprised of this. The wholesalers without exception indicated a willingness to go along.

Representatives called contemporaneously upon the retailers involved, individually, and told each that if he did not observe the suggested minimum retail prices, Parke Davis would refuse to deal with him, and that fur