The opinion of the court was delivered by: POLLACK
The complaint in this action was filed on June 24, 1964 under Section 4 of the Sherman Act to prevent and restrain defendant from alleged continuing violations of Section 1 of the Act, 15 U.S.C. § 1, in interstate trade and commerce in rubber-soled canvas footwear, produced and sold by defendant under the names of "Keds" and "Kedettes".* The first paragraph of the multi-paragraph prayer for relief contains the customary request that this Court "adjudge and decree" that the defendant violated the Sherman Act. The remaining paragraphs specify the various injunctive remedies sought against the defendant to restrain its future conduct.
The defendant filed its answer on July 15, 1964 denying all of the substantive allegations of the complaint. On June 21, 1967, an order was filed amending the caption of the action to show defendant's change of name from United States Rubber Company to Uniroyal, Inc.
Both sides engaged in extensive discovery, by deposition and otherwise, which was completed shortly before the commencement of the trial. This included approximately 75 depositions, five sets of interrogatories, the exchange of a vast quantity of documents both by agreement of counsel and by formal process and requests to admit pursuant to Rule 36 of the Federal Rules of Civil Procedure. The parties stipulated to a number of matters and these are reflected in the findings of fact contained herein.
The Government claims that the defendant has combined and conspired to eliminate price competition among retail dealers and to curtail or eliminate the participation of discount retailers in the distribution of "Keds". As a result, the Government asserts, consumers were forced to pay high, arbitrary and non-competitive prices for "Keds" and "Kedettes".
The Government sought to establish that the defendant made known to its retailers "suggested" or "anticipated" resale prices and secured their promise, in advance of sales, to resell "Keds" and "Kedettes" only at those prices. The Government further claimed that, on the basis of complaints made by competing retailers, the defendant sought to convince price-cutting retailers to maintain prices in the future and that in most cases such retailers agreed. It also claimed that in a number of instances the defendant refused to sell "Keds" and "Kedettes" to retailers who did not adhere to the suggested or anticipated prices and renewed such sales only after receiving an assurance of future adherence. Further, it was claimed that to prevent price-cutters from obtaining the canvas footwear from other sources, the defendant secured agreements from retailers that they would not resell to other retailers; and that, to assure the elimination of retail price competition, the defendant obtained the agreement of price-cutting retailers to cease sales at particular locations.
Defendant denied the charge of conspiracy. It presented a defense consisting, in part, of its refutation and explanation of the circumstances of a substantial number of episodes of alleged unlawful activity. Defendant asserted that any unlawful practices on the part of its sales personnel were ancient, sporadic, isolated occurrences which had no anti-competitive effects at the time and have none now. Moreover, defendant contended that substantial direct and positive testimony and other evidence conclusively showed that these practices were unauthorized.
The evidence adduced at trial established the existence of thirty-eight episodes in which some of defendant's salesmen and occasionally, sales managers, took action intended to curb price-cutting. Although such episodes were too few in number to have had any significant impact on competition, they were nonetheless violative of the Sherman Act and should have been eradicated by a more alert and stern policing system than defendant had in effect at the time.
During the past six to eight years, there has been a substantial rise and spread of chain and discount operations and other price-cutting retailers. These have come to be accepted as a way of retail life. There has also been an increase in the number of lines of rubber-soled canvas footwear, including imported ones, competitive with "Keds" and "Kedettes". Concurrently with these developments, antitrust law has gradually reached a more restrictive definition of permissible conduct on the part of a manufacturer-supplier aimed at maintaining resale prices on its goods.
Defendant has abandoned the practices violative of the Sherman Act; it has instructed its sales staff that any attempt to maintain resale prices is unlawful; and it has changed personnel and assignments within its sales organization to insure proper business conduct on their part.
Looking backwards, it is plain that all parts of the sales organization did not fall into legal step at once. But the evidence is clear and convincing that the activity of the kind complained of by the Government has ceased; and the defendant's intent, expressed on the record, to comply with the law in the future is accepted as bona fide. Accordingly, on the entire record presented to this Court, no substantial basis has been established by credible evidence that there is any danger of recurrent violation. Hence, there is no warrant for injunctive relief.
The considerations in detail that have led the Court to these findings and conclusions are as follows.
Defendant is a New Jersey corporation. It has its principal place of business at 1230 Avenue of the Americas, New York, New York in this district. It engages in interstate commerce by manufacturing, advertising and selling rubber-soled canvas footwear (often called "canvas footwear") and other products.
Defendant is the largest manufacturer and distributor of rubber-soled canvas footwear in the United States. It markets certain of its men's, women's and children's footwear under its registered trademarks, "Keds" and "Kedettes". Defendant advertises such footwear nationally and locally by way of television, radio and periodicals, and distributes most of its "Keds" and "Kedettes" to retailers throughout the United States for resale to consumers.
Defendant does its domestic manufacturing and selling through separate operating divisions. It formerly manufactured and sold "Keds" and "Kedettes" through its footwear and general products division. That division was dissolved on April 17, 1962, and from that date defendant has continued to manufacture and sell "Keds" and "Kedettes" through its consumer and industrial products division. Both divisions have had their main headquarters in New York City and ancillary headquarters in Naugatuck, Connecticut.
The wholesale price levels of the different styles of the "Keds" and "Kedettes" that are offered by the defendant differ substantially from one another. The cheaper lines of "Keds" have included at different times such styles as the "Rover", the "Duo-Life Bal", the "Olympia" and the "Gladiator".
Defendant from prior to 1958 to the present has communicated "suggested" or "anticipated" retail prices to many of its retailers throughout the United States through published lists or oral communications to such retailers by defendant's employees and agents.
Such prices have been distributed locally by defendant's district sales managers or salesmen and not on a nationwide basis by defendant's central offices. In some districts some salesmen have distributed such lists, and others have not. Some of the salesmen have given such lists only to those who have asked for them. The suggested retail prices given in the lists distributed by the district sales managers or salesmen have not necessarily coincided with those contained in the lists distributed by defendant's central offices.
The relevant legal rules are clear. A combination or conspiracy between a manufacturer-supplier and its retailer-customers which interferes with the setting of retail prices by free market forces is unlawful per se. Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373, 55 L. Ed. 502, 31 S. Ct. 376 (1911); Albrecht v. Herald Co., 390 U.S. 145, 19 L. Ed. 2d 998, 88 S. Ct. 869 (1968). Nor may a manufacturer-supplier lawfully restrict its retailer-customers' dispositions of the goods it sells them. United States v. Arnold, Schwinn & Co., 388 U.S. 365, 18 L. Ed. 2d 1249, 87 S. Ct. 1856 (1967).
The authorities have always distinguished between situations, on the one hand, in which a manufacturer-supplier simply announces its suggested retail prices and refuses to sell to distributors and dealers which do not maintain the suggested price and those situations, on the other hand, in which the manufacturer-supplier takes further steps to effectuate compliance with its suggestion. In the former category, the manufacturer is merely exercising its lawful right to select its customers where other and equivalent brands are readily available on the market. United States v. Colgate & Co., 250 U.S. 300, 63 L. Ed. 992, 39 S. Ct. 465 (1919), cited and explained in United States v. Arnold, Schwinn & Co., 388 U.S. at 376 87 S. Ct. 1856; United States v. Parke, Davis & Co., 362 U.S. 29, 43, 4 L. Ed. 2d 505, 80 S. Ct. 503 (1959); United States v. Bausch & Lomb Optical Co., 321 U.S. 707, 722, 88 L. Ed. 1024, 64 S. Ct. 805 (1944); FTC v. Beech-Nut Packing Co., 257 U.S. 441, 452-453, 66 L. Ed. 307, 42 S. Ct. 150 (1922); Susser v. Carvel Corp., 332 F.2d 505 (2d Cir. 1964), cert. dismissed, 381 U.S. 125, 85 S. Ct. 1364, 14 L. Ed. 2d 284 (1965); Interphoto Corp. v. Minolta Corp., 295 F. Supp. 711, 1969 TRADE CASES P72,694 (S.D.N.Y. 1969, Herlands, J.).
Although a unilateral refusal to deal which does not eventuate in an agreement does not itself violate Section 1 of the Sherman Act, no matter what the reason, see Turner, The Definition of Agreement under the Sherman Act, Conscious Parallelism and Refusals to Deal, 75 Harv. L. Rev. 655, 690 (1962), any express resale price-fixing agreement is per se unlawful. Albrecht v. Herald Co., 390 U.S. 145, 19 L. Ed. 2d 998, 88 S. Ct. 869 (1968); Simpson v. Union Oil Co., 377 U.S. 13, 12 L. Ed. 2d 98, 84 S. Ct. 1051 (1964); United States v. Bausch & Lomb Optical Co., 321 U.S. 707, 88 L. Ed. 1024, 64 S. Ct. 805 (1944); United States v. Univis Lens Co., 316 U.S. 241, 86 L. Ed. 1408, 62 S. Ct. 1088 (1942); United States v. A. Schrader's Son, Inc., 252 U.S. 85, 64 L. Ed. 471, 40 S. Ct. 251 (1920); Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373, 55 L. Ed. 502, 31 S. Ct. 376 (1911). The combination or conspiracy required by Section 1, however, need not be express; concerted action may be inferred from a course of conduct by the alleged participants. Interstate Circuit, Inc. v. United States, 306 U.S. 208, 83 L. Ed. 610, 59 S. Ct. 467 (1939); Girardi v. Gates Rubber Co. Sales Div. Inc., 325 F.2d 196 (9th Cir. 1963). Moreover,
an unlawful combination is not just such as arises from a price maintenance agreement, express or implied; such a combination is also organized if the producer secures adherence to his suggested prices by means which go beyond his mere declination to sell to a customer who will not observe his announced policy. United States v. Parke, Davis & Co., 362 U.S. at 43.
Thus, a comprehensive and firmly enforced retail price policy, resulting in some cases in unwilling compliance by retailers, constitutes a violation. Albrecht v. Herald Co., 390 U.S. 145, 19 L. Ed. 2d 998, 88 S. Ct. 869 (1968). "[A] supplier may not use coercion on its retail outlets to achieve resale price maintenance. . . . [It] matters not what the coercive device is." Simpson v. Union Oil Co., 377 U.S. at 17.
Where the customers' acquiescence in the suggested prices of the manufacturer is not "a matter of individual free choice prompted alone by the desirability of the product ", an agreement or combination in violation of the antitrust laws may be found. United States v. Parke, Davis & Co., 362 U.S. at 47. The manufacturer may not induce the acquiescence of some retailers by promising the adherence of others or institute a program of making threats or a system for detection and reporting. United States v. Parke, Davis & Co., supra; Ethyl Gasoline Corp. v. United States, 309 U.S. 436, 84 L. Ed. 852, 60 S. Ct. 618 (1940); FTC v. Beech-Nut Packing Co., 257 U.S. 441, 66 L. Ed. 307, 42 S. Ct. 150 (1922).
Mere complaints by a manufacturer's customers that retailers are engaging in price-cutting or discounting do not in themselves constitute a combination and violation of Section 1. Interphoto Corp. v. Minolta Corp., 1969 TRADE CASES at 86,478, n. 3; Carbon Steel Products Corp. v. Alan Wood Steel Co., 289 F. Supp. 584 (S.D.N.Y. 1968); and cf. Klein v. American Luggage Works, Inc., 323 F.2d 787, 791 (3d Cir. 1963). However, if a manufacturer reacts to such complaints by cutting off the offending retailers, a conspiracy or combination may be found to exist. And if the manufacturer goes still further and induces the retailers to discontinue their discounting practices, the requisite agreement is apparent. United States v. Parke, Davis & Co., 362 U.S. 29, 4 L. Ed. 2d 505, 80 S. Ct. 503 (1959); FTC v. Beech-Nut Packing Co., 257 U.S. 441, 66 L. Ed. 307, 42 S. Ct. 150 (1922).
Once the previous affirmative efforts of the manufacturer to secure compliance with its suggested retail prices have been shown sufficiently to establish the existence of an unlawful conspiracy or combination, then a refusal to deal, undertaken in pursuance of the conspiracy or combination, transgresses the antitrust laws. United States v. General Motors Corp., 384 U.S. 127, 16 L. Ed. 2d 415, 86 S. Ct. 1321 (1966); Ethyl Gasoline Corp. v. United States, 309 U.S. 436, 84 L. Ed. 852, 60 S. Ct. 618 (1940); Interphoto Corp. v. Minolta Corp., 295 F. Supp. 711 (S.D.N.Y. 1969).
Turning now to the case at bar, the relevant products include numerous items.
Although defendant's "Keds" and "Kedettes" have sustained a loss in their share of the market, defendant has sold these products to between 25,000 and 30,000 retailers at any given time during the period of the alleged conspiracy,
through over 200 salesmen across the country.
It is against this background that we must view the thirty-eight incidents of violations of the Sherman Act by resale price maintenance acts or interference with disposition of merchandise sold to a retailer which the proof established. These occurred in sixteen
of defendant's twenty-five then existent branches.
The defendant's conspiratorial conduct actually proven over a period exceeding a decade involved slightly over fifteen one-hundredths of one percent (0.15%) of the total number of customers on defendant's books at any given point in that period.
Of the thirty-eight episodes proven, nine arose in or prior to 1962 in the Boston Branch area while Kenneth M. Kaligian was Assistant District Sales Manager or District Sales Manager. Thus, one of defendant's then twenty-five branches contributed almost one-fourth of the incidents proven by the Government. Five other episodes occurred in or prior to 1962 in the Cincinnati Branch area, in which John R. Eble was the District Sales Manager. Cincinnati, then, contributed almost one-eighth of the incidents proven. Together, these two branches account for almost thirty-seven percent of the violations of the Sherman Act charged to defendant.
Nineteen alleged episodes, in thirteen branches, adduced by the Government as evidence of unlawful resale price interference, coercion or agreements are resolved on the facts and issues of credibility against the Government and in favor of the defendant.
Of these, two episodes occurred in the Newark, New Jersey branch in which no other proof of violations was offered by the Government. Additionally, defendant has conclusively shown that in regions as to which the Government has adduced no credible proof, retail resale pricing has been free of interference by defendant for at least the past five to six years; these were chiefly the major metropolitan regions.
The present case, involving de minimis economic consequences of isolated pricing practices adopted by a few salesmen contrary to their employer's unequivocal instructions, is to be sharply distinguished from the broad restrictive impact on competition resulting from a pervasive price-fixing scheme designed to impose market-wide controls over the prices at which the manufacturer's goods are sold. E.g., Simpson v. Union Oil Co., 377 U.S. 13, 12 L. Ed. 2d 98, 84 S. Ct. 1051 (1964); United States v. Parke, Davis & Co., 362 U.S. 29, 4 L. Ed. 2d 505, 80 S. Ct. 503 (1959); and Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373, 55 L. Ed. 502, 31 S. Ct. 376 (1911).
In this case, the violations were not indicative of any national price-fixing scheme. There were no express, written resale price-fixing agreements. There was no attempt at the higher levels of the defendant's organization to enforce or ...