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Janel Sales Corp. v. Lanvin Parfums Inc.

decided: June 5, 1968.

JANEL SALES CORP.
v.
LANVIN PARFUMS, INC., BY CHANGE OF NAME LANVIN-CHARLES OF THE RITZ, INC.; CARLTON DRUG, INC. V. LANVIN PARFUMS, BY CHANGE OF NAME LANVIN-CHARLES OF THE RITZ, INC.



Moore, Woodbury*fn* and Smith, Circuit Judges.

Author: Moore

MOORE, Circuit Judge:

Defendant-appellee, Lanvin Parfums, Inc., by change of name Lanvin-Charles of the Ritz, Inc. (hereinafter Lanvin), produces, imports and sells fragrances and other cosmetics. During the years in question here, it had only two places of business, an office in New York City, and an office, warehouse and factory in Long Island City, New York. It averaged about $17,000,000 in national sales annually and about $3,000,000 in New York sales.

All of its sales were made at 40% off its recommended list price or, in States which had fair trade laws, at 40% off the fixed resale price. Most of its sales were made directly to retail dealers. However, the trial judge found that annually approximately $85,000 of the total sales were "accommodation" sales to employees, to firms which did business with Lanvin for their employees (e.g., Bankers Trust), to employees of firms which dealt with Lanvin (e.g., Parents Magazine) and to persons who serviced Lanvin (e.g., the Pepsi-Cola delivery man). Approximately another $93,000 of its annual New York sales were termed "promotional" by the Court. Usually in larger quantities, these sales were either for the promotion of Lanvin and its customer together (e.g., American Airlines) or primarily for the customer's own promotional campaign (e.g., Paragon Containers). Most of these promotion sales were for the customer's own campaign. However, in both cases, the purchaser had to have had some prior business dealings with Lanvin (e.g., Paragon supplied it with containers).

Prior to the bringing of this suit, Lanvin had entered into fair trade agreements with several retailers in New York.*fn1 The standard contract provided, inter alia, that:

(1) "Retailer" will not (except as specifically permitted by said Fair Trade Act) directly or indirectly advertise, offer for sale, or sell any of such "Commodities" in said State at less than the minimum retail prices stipulated therefor by "Manufacturer."

(6) "Retailer" will not, where statute or law permits such restriction, sell any of the "Commodities" except to consumers for use.

Lanvin diligently enforced clause (1). The evidence is conflicting as to how insistently it enforced clause (6), if it enforced that provision at all.

Janel Sales Corp. and Carlton Drug, Inc. (hereinafter plaintiffs) were large discount drug stores in New York City. Together they averaged approximately $650,000 in annual sales, roughly 7% of which is in the cosmetic field. They were not direct accounts of Lanvin and they were non-signers to the resale price maintenance contract; nevertheless, they acquired (by diversion from other retail stores) Lanvin's products and sold them at a slight discount.

Most of their sales were to individuals; in some instances, they sold to the same people who bought perfume from Lanvin at 40% off the fair trade price. Plaintiffs also sold cosmetics in bulk to various firms for gifts and promotional campaigns. Usually these businesses were in the neighborhood. Lanvin also sold its products to several businesses in plaintiffs' vicinity, including one company in plaintiffs' building (e.g., Pop's Textiles). These sales were for promotional campaigns and Lanvin made them at 40% off the fixed resale price. Nevertheless, Lanvin sought to enjoin plaintiffs from selling Lanvin perfumes to any of these customers at a price below the stipulated fair trade price. The New York court issued the injunction. Lanvin Parfums, Inc. v. Carlton Drug, Inc., 1962 TRADE CASES para. 70,563 (N.Y. Sup. Ct.); Lanvin Parfums, Inc. v. Carlton Drug, Inc., 1963 TRADE CASES para. 70,645 (N.Y. Sup. Ct.) aff'd 24 A.D.2d 934, 264 N.Y.S. 2d 212 (1965).

Plaintiffs brought this action (before Court and jury) for treble damages*fn2 and for injunctive relief, 15 U.S.C. §§ 15, 26, based on Lanvin's alleged violation of the Sherman Act, 15 U.S.C. § 1. The district judge correctly ruled that the New York State decisions enjoining plaintiffs are not binding on the federal court, Lyons v. Westinghouse Electric Corp., 222 F.2d 184 (2 Cir.), cert. den. 350 U.S. 825, 100 L. Ed. 737, 76 S. Ct. 52 (1955). Furthermore, he correctly recognized that whatever reach the New York courts might give the New York Fair Trade Laws, such decisions are subject to McGuire Act*fn3 limitations. Sunbeam Corp. v. Masters, Inc., 157 F. Supp. 689, 691 (S.D.N.Y. 1957). Nevertheless, in our opinion he incorrectly ruled (1) that Lanvin was not a "retailer" as a matter of law, and even if it were, the quantity of accommodation-retail sales was de minimis and (2) that as a matter of law the amount of competition between Lanvin and plaintiffs was irrelevant.

Therefore, he erred in directing a verdict on these two points.

I.

Price maintenance agreements are per se violations of the Sherman Act § 1. This is true for horizontal contracts, as, for example, where two competing manufacturers contract not to sell below a specified price, United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 84 L. Ed. 1129, 60 S. Ct. 811 (1940); Kiefer-Stewart Co. v. Joseph E. Seagram & Sons, Inc., 340 U.S. 211, 95 L. Ed. 219, 71 S. Ct. 259 (1951); it is also true for vertical agreements, as, for example, when a retailer of a specified product agrees with the manufacturer of the product not to sell it below a specified price. Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373, 55 L. Ed. 502, 31 S. Ct. 376 (1911). However, such agreements, otherwise per se violations of the antitrust laws, may be immunized by federal statute. See United States v. McKesson & Robbins, Inc., 351 U.S. 305, 100 L. Ed. 1209, 76 S. Ct. 937 (1956). And the Miller-Tydings Act*fn4 was Congress' first immunizing statute in this area. In amending the Sherman Act § 1, this Act provided for legal resale price maintenance in states in which such vertical contracts were allowed, providing, however, that the prior prohibition on per se horizontal agreements would be retained.*fn5 But in Schwegmann Bros. v. Calvert Distillers Corp., 341 U.S. 384, 95 L. Ed. 1035, 71 S. Ct. 745 (1951), the Supreme Court held that this Act did not permit a producer to enforce a resale price maintenance contract against nonsigning retailers. In that Court's opinion, not only was such an interpretation not intended by Congress, but it would also be "price-fixing by compulsion."

Congress reacted to the Schwegmann case with the McGuire Act. It was passed as an amendment to the Federal Trade Commission Act,*fn6 and its primary purpose was to reverse the limiting features of the Schwegmann decision. The Report of the House Committee on Interstate Commerce, which accompanied the McGuire Act, declared that:

"The primary purpose of the bill is to reaffirm the very same proposition which, in the committee's opinion, the Congress intended to enact into law when it passed the Miller-Tydings Act . . ., to the effect that the application and enforcement of State fair-trade laws -- including the nonsigner provisions of such laws -- with regard to interstate transactions shall not constitute a violation of the Federal Trade Commission Act or the Sherman Antitrust Act. This reaffirmation is made necessary because of the decision of a divided Supreme Court in Schwegmann v. Calvert Distillers Corporation (341 U.S. 384, 95 L. Ed. 1035, 71 S. Ct. 745, May 21, 1951). In that case, six members of the Court held that the Miller-Tydings Act did not exempt from these Federal laws enforcement of State fair trade laws with respect to nonsigners. Three members of the Court held that the Miller-Tydings Act did so apply."

Paragraphs (3) and (4) were newly added (paragraphs (2) and (5) were almost identical to the Miller-Tydings Act) to provide that if the State statutory scheme permitted price maintenance against nonsigners, such contracts would be immunized from anti-trust violations. It was clear, however, that Congress purported to do no more. It did not intend to immunize additional horizontal arrangements. United States v. McKesson & Robbins, Inc., supra at 310-311. Paragraph (5) of the ...


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