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August 23, 1963

UNION ASBESTOS & RUBBER CO., Inc. and Pallet Sales Company, Inc., Defendants

The opinion of the court was delivered by: MACMAHON

These are motions by plaintiff, an ousted distributor, for a preliminary injunction restraining Pallet Sales Company Inc. (Pallet), the new distributor, from soliciting plaintiff's customers, and by Pallet to dismiss the complaint for failure to state a claim and lack of jurisdiction. Jurisdiction is invoked solely under the antitrust laws (15 U.S.C. §§ 1-7, 13, 13a, 15 and 26), and there is no claim of diversity. *fn1" Decision of the motions, therefore, turns not on whether the complaint states a claim for relief under any conceivable theory, but on the narrower question of whether it states facts constituting violations of the anti-trust laws, specifically, 15 U.S.C. §§ 1-7, 13 and 13a.

In essence, the complaint alleges that for many years plaintiff was the exclusive distributor in the Metropolitan area of industrial steel shelving known as Sturdi-Bilt racks, manufactured by defendant Union Asbestos & Rubber Co. Inc. (UNARCO). The distributorship was one at will. Nevertheless, it became a property right of great value because plaintiff spent substantial sums for promotion and advertising, created hundreds of new customers, built good will and generated re-orders for Sturdi-Bilt racks. Despite plaintiff's success, UNARCO violated the antitrust laws by terminating plaintiff's distributorship in reprisal for plaintiff's refusal to purchase 'other products' sold by UNARCO and pay discriminatory prices for Sturdi-Bilt racks. *fn2" UNARCO then gave the distributorship and a list of plaintiff's customers to defendant Pallet, who threatens to solicit them in violation of plaintiff's property rights.

Defendants contend that, assuming the truth of the facts pleaded, all the complaint alleges is a simple, independent refusal by a single seller, UNARCO, to deal with a single customer, plaintiff. Relying on United States v. Colgate & Co., 250 U.S. 300, 39 S. Ct. 465, 63 L. Ed. 992 (1919), they assert that, absent a combination, conspiracy or monopoly, a seller has an unqualified right to select his customers and may refuse to deal for any or no reason without offending the antitrust laws. Specifically, they argue that the Colgate rule has been repeatedly applied to uphold a seller's independent refusal to continue to deal with an exclusive distributor whose policies are not to the seller's liking. See, e.g., Packard Motor Car Co. v. Webster Motor Car Co., 100 U.S.App.D.C. 161, 243 F.2d 418 (D.C.Cir.), cert. denied, 355 U.S. 822, 78 S. Ct. 29, 2 L. Ed. 2d 38 (1957); Schwing Motor Co. v. Hudson Sales Corp., 138 F.Supp. 899 (D.Md.), aff'd on opinion below, 239 F.2d 176 (4th Cir. 1956), cert. denied, 355 U.S. 823, 78 S. Ct. 30, 2 L. Ed. 2d 38 (1957); Hudson Sales Corp. v. Waldrip, 211 F.2d 268 (5th Cir.), cert. denied, 348 U.S. 821, 75 S. Ct. 34, 99 L. Ed. 648 (1954); Fargo Glass & Paint Co. v. Globe American Corp., 201 F.2d 534 (7th Cir.), cert. denied, 345 U.S. 942, 73 S. Ct. 833, 97 L. Ed. 1368 (1953); Nelson Radio & Supply Co. v. Motorola, Inc., 200 F.2d 911 (5th Cir. 1952), cert. denied, 345 U.S. 925, 73 S. Ct. 783, 97 L. Ed. 1356 (1953); Green v. Victor Talking Machine Co., 24 F.2d 378, 382, 59 A.L.R. 1091 (2 Cir.), cert. denied, 278 U.S. 602, 49 S. Ct. 9, 73 L. Ed. 530 (1928).

 It is true that the complaint does not allege a combination or conspiracy nor any facts from which one could be implied. Nevertheless, it does allege more than a simple, unilateral refusal to deal. It alleges an offer to enter into a bi-lateral contract on condition that the offeree bow to terms claimed to be illegal under the antitrust laws. The proscriptions of the Sherman Act are leveled, not alone at combinations and conspiracies, but at 'every contract * * * in restraint of trade' (15 U.S.C. § 1) and every monopolization or attempt to monopolize 'any part of the trade or commerce among the several States' (15 U.S.C. § 2). United States v. South-Eastern Underwriters Ass'n, 322 U.S. 533, 553, 64 S. Ct. 1162, 88 L. Ed. 1440 (1944). A contract between a seller and a buyer, therefore, is enough to satisfy the joint conduct requirement of Section 1 of the Sherman Act.

 We think it plain, therefore, that if the conditions proposed here run afoul the antitrust laws, the complaint must be sustained. The Colgate remnant may sanction simple refusals to deal (see House of Materials, Inc. v. Simplicity Pattern Co., 298 F.2d 867 (2 Cir. 1962)), but refusals to continue to deal unless the buyer join with the seller in a contract violative of the antitrust laws are clearly illegal, United States v. Parke, Davis & Co., 362 U.S. 29, 80 S. Ct. 503, 4 L. Ed. 2d 505 (1960), and this is true without the existence of other combination or conspiracy. United States v. Loew's Inc., 371 U.S. 38, 83 S. Ct. 97, 9 L. Ed. 2d 11 (1962). See Refusals to Deal with Antitrust Suitors: 'Doric Simplicity' or 'Dirty Pool'?, 39 U.Det. L.J. 414 (1962); A Simple Refusal to Deal, 71 Yale L.J. 1565 (1962); Halper, Individual Refusals to Deal: Customer Selection or Dealer Protection?, 22 A.B.A. Antitrust Section 49.

 The question here, under the Sherman Act, is thus reduced to whether this proposed tie-in-sale violates the antitrust laws, specifically, 15 U.S.C. §§ 1-7. *fn3" We hold that it does not.

 The Sherman Act does not prohibit all contracts which restrain trade but only those which unreasonably restrain competition. Standard Oil Co. of New Jersey v. United States, 221 U.S. 1, 31 S. Ct. 502, 55 L. Ed. 619 (1911). Certain agreements are conclusively presumed to be unreasonable restraints or per se violations of the Sherman Act, and the Supreme Court has said that tying arrangements are in that category, Northern Pac. R. Co. v. United States, 356 U.S. 1, 6, 78 S. Ct. 514, 518, 2 L. Ed. 2d 545 (1958), but added that:

 '* * * They are unreasonable in and of themselves whenever a party has sufficient economic power with respect to the tying product to appreciably restrain free competition in the market for the tied product and a 'not insubstantial' amount of interstate commerce is affected. * * *

 More recently, we are taught in United States v. Loew's Inc., supra, 371 U.S. at 45, 83 S. Ct. 102, that:

 '* * * The standard of illegality is that the seller must have 'sufficient economic power with respect to the tying product to appreciably restrain free competition in the market for the tied product * * *.' Northern Pacific R. Co. v. United States, 356 U.S. 1, 6, 78 S. Ct. 518, 2 L. Ed. 2d 545. Market dominance -- some power to control price and to exclude competition -- is by no means the only test of whether the seller has the requisite economic power. Even absent a showing of market dominance, the crucial economic power may be inferred from the tying product's desirability to consumers or from uniqueness in its attributes.'

 The most recent pronouncement of the Supreme Court on the subject in White Motor Co. v. United States, 372 U.S. 253, 262, 83 S. Ct. 696, 9 L. Ed. 2d 738 (1963), is that:

 '* * * Tying arrangements or agreements by a party 'to sell one product but only on the condition that the buyer also purchases a different (or tied) product, or at least agrees that he will not purchase that product from any other supplier's * * * may fall in that category (per se violations), though not necessarily so.'

 Thus it seems that, despite earlier statements that tying arrangements are illegal per se, they are 'not necessarily so.' We conclude, therefore, that tying arrangements are not per se violations of Section 1 of the Sherman Act. They become violations of Section 1 if (1) the seller has sufficient economic power with respect to the tying product, such as monopoly, market dominance, patent, copyright, unique attributes, distinctiveness or consumer appeal, to exert economic leverage to induce his customer to take the tied product along with the tying item, and (2) a substantial volume of commerce in the tied product is restrained. United States v. Loew's Inc., supra; Northern Pac. R. Co. v. United States, supra; Times-Picayune Publishing Co. v. United States, 345 U.S. 594, 73 S. Ct. 872, 97 L. Ed. 1277 (1953); International Salt Co. v. United States, 332 U.S. 392, 396, 68 S. Ct. 12, 92 L. Ed. 20 (1947). See also Turner, The Validity of Tying Arrangements Under the Antitrust Laws, 72 Harv.L.Rev. 50 (1958); Antitrust -- Tying Agreements -- Block Booking of Motion Pictures for Television, N.Y.L.F. (March 1963), Vol. IX, No. 1, p. 85; Stedman, Tying Arrangements, 22 A.B.A. Antitrust Section 64.

 Both of the foregoing conditions are essential before a tying arrangement offends Section 1 of the Sherman Act. The instant complaint, however, fails to state any facts showing either UNARCO's economic power over Sturdi-Bilt racks -- the tying product -- or restraint of a substantial volume of commerce in the unidentified tied items. Indeed, there is nothing in the complaint which even suggests any effect whatever of the tying arrangement on commerce or competition, or its economic impact on ...

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