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JOHNSON & JOHNSON v. AVENUE MERCHANDISE CORP.

April 7, 1961

JOHNSON & JOHNSON, Plaintiff,
v.
AVENUE MERCHANDISE CORP., Defendant. JOHNSON & JOHNSON, Plaintiff, v. MILSHAP DRUG SALES CORP., Defendant. JOHNSON & JOHNSON, Plaintiff, v. RITE PRICE MERCHANDISE CORP., Defendant. JOHNSON & JOHNSON, Plaintiff, v. DEAL RITE MERCHANDISE CORP., Defendant



The opinion of the court was delivered by: BRYAN

Plaintiff, a large producer of surgical dressings, elastic products, ointments and related articles, sues to restrain the respective defendants, who operate retail drug or variety stores which carry plaintiff's trademark products, from selling such products at less than established fair trade prices in violation of the Feld-Crawford Act (New York General Business Law, McKinney's Consol. Laws, c. 20, § 369-a et seq.). It now moves for a preliminary injunction in each of these actions.

Plaintiff is a New Jersey corporation with its principal place of business there. Defendants in each of these actions are New York corporations operating retail stores in New York. Jurisdiction is based on diversity of citizenship. 28 U.S.C. § 1332.

 All of these motions have common questions of law and fact and by agreement of counsel for all parties the decision in the Avenue Merchandise case will determine the other cases also.

 The facts in the Avenue Merchandise case are substantially undisputed. As part of its general marketing program plaintiff has numerous contracts with retailers in New York which obligate the retailers to sell plaintiff's products at prices not lower than those established by the plaintiff, that is, its 'fair trade' prices. A representative contract between plaintiff and Cohen, a retailer in Levittown, New York, is in the record. The defendant itself has never signed such an agreement.

 Under the Feld-Crawford Act nonsignatory retailers are bound to observe retail prices established by contract. *fn1"

 It is not seriously disputed that defendant is selling plaintiff's trademark products at less than their established prices. Moreover, it appears that plaintiff has made and is continuing to make reasonable and diligent efforts to enforce its fair price structure. The defendant's continued disregard for plaintiff's rights under the Feld-Crawford Act is undermining plaintiff's fair trade price structure and unless restrained such conduct may lead to the destruction of plaintiff's fair trade system and the impairment of its good will. The relief which plaintiff seeks is for the sole purpose of enforcing its fair trade rights. The granting of a preliminary injunction which restrains defendant only from underselling plaintiff's fair trade prices and not from selling plaintiff's products could impose no undue hardship on defendant.

 Thus, it would appear that plaintiff has established its right to a preliminary injunction, provided it is entitled to maintain this action. *fn2"

 Defendant contends, however, that the relief must be denied because it is not permitted by the Sherman Anti-Trust Act, 15 U.S.C.A. § 1, 26 Stat. 209, as amended by the Miller-Tydings Act, 15 U.S.C.A. § 1, 50 Stat. 693, and the McGuire Act, 15 U.S.C.A. § 45, 66 Stat. 632.

 The Sherman Act, as originally drawn, forbade resale price maintenance contracts such as that between plaintiff and Cohen. See, e.g., United States v. Bausch & Lomb Optical Co., 321 U.S. 707, 64 S. Ct. 805, 88 L. Ed. 1024; Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373, 31 S. Ct. 376, 55 L. Ed. 502. The Miller-Tydings Act, passed in 1937, amended the Sherman Act to permit such contracts where they were legal under state law, provided that they were not contracts '* * * between manufacturers, or between producers, or between wholesalers, or between brokers, or between factors, or between retailers, or between persons, firms, or corporations in competition with each other.' *fn3" It did not, however, exempt from the Sherman Act actions brought against non-signers, such as that at bar, even where such actions were authorized by state law. Schwegmann Bros. v. Calvert Distillers Corp., 341 U.S. 384, 71 S. Ct. 745, 95 L. Ed. 1035.

 The McGuire Act, *fn4" passed shortly after the Schwegmann case, did permit such actions where authorized by state law, and where they were also not based on contracts '* * * between manufacturers, or between producers, or between wholesalers, or between brokers, or between factors, or between retailers, or between persons, firms, or corporations in competition with each other.'

 The defendant contends that plaintiff's contract with Cohen is a contract 'between retailers' forbidden by the Sherman Act, and specifically excluded from the exemptions provided by the Miller-Tydings Act and the McGuire Act. *fn5" It bases this contention primarily on certain sales made by plaintiff in this state.

 The facts concerning these alleged activities are not in serious dispute.

 Plaintiff sells its products, in lots of $ 50 or more, directly to an infirmary operated by the General Electric Company at its Schenectady, N.Y., plant. These products are used by General Electric to treat employees injured at the plant. The products are used on the premises and are not resold. General Electric is the only industrial customer of Johnson & Johnson in the entire state. Johnson & Johnson will not sell to other industrial accounts even though they do not resell its products and directs such potential customers to retail or wholesale outlets. It sells directly to General Electric only at General Electric's insistence and even then, only in quantities of $ 50 or more.

 The defendant argues that these sales to General Electric in Schenectady, N.Y., make Johnson & Johnson a 'retailer' and that therefore its contracts with Cohen and other retailers are 'contracts between retailers' specifically excepted from paragraph ...


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