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UNITED STATES v. GE

May 8, 1973

United States, Plaintiff
v.
General Electric Co., Defendant


Frederick van Pelt Bryan, District Judge


The opinion of the court was delivered by: BRYAN

FREDERICK VAN PELT BRYAN, DISTRICT JUDGE:

This civil antitrust action is brought by the United States of America under Section 4 of the Sherman Act, 15 U.S.C. § 4. The defendant General Electric Company (G.E.), a leading manufacturer of so-called "large lamps," *fn1" through a consignment agency system of marketing which it has used for more than 60 years, sets the price at which such lamps are to be sold by its agents. The Government alleges that this constitutes a per se violation of Sections 1 and 3 of the Act (15 U.S.C. §§ 1, 3). The complaint seeks a declaratory judgment to that effect and injunctive relief against continuation of such conduct in the future. The Government has moved for summary judgment pursuant to Rule 56, F.R. Civ. P.

 The issues in this case concern the viability and effect of United States v. General Electric Co., 272 U.S. 476, 71 L. Ed. 362, 47 S. Ct. 192 (1926) and United States v. General Electric Co., 82 F. Supp. 753 (D.N.J. 1949). *fn2" In each of those cases the Government attacked G.E.'s large lamp agency marketing system, which was not significantly different from the system which G.E. now uses. In the 1926 case the Supreme Court held that the G.E. system did not violate the Sherman Act. The 1949 decision of the District Court of New Jersey to the same effect was based on the 1926 Supreme Court case. The Government did not appeal from the 1949 decision. *fn3"

 In 1926 G.E. had a controlling patent position in large lamps. It did not have such a position in 1949, nor does it now.

 The Government contends that subsequent Supreme Court cases, notably Simpson v. Union Oil Co., 377 U.S. 13, 12 L. Ed. 2d 98, 84 S. Ct. 1051 (1964), have changed the law as stated in the 1926 and 1949 General Electric cases and, in effect, overruled them. It asserts that the prior cases are no longer binding or controlling and that under the law as it now stands the G.E. consignment agency marketing system in large lamps must be struck down as violative of the Sherman Act.

 G.E., in turn, contends that the prior General Electric cases are still the law and are stare decisis; that, in any event, these adjudications are a bar as to all the issues in this case under the doctrine of res judicata and, finally, that no per se violation of the Sherman Act has been shown but that the rule of reason must be applied, which raises triable issues requiring the denial of the motion for summary judgment.

 A previous motion for summary judgment by the Government, and a cross motion for summary judgment by G.E., both were denied by Judge Tyler. United States v. General Electric Co., 303 F. Supp. 1121 (S.D.N.Y. 1969). Judge Tyler found that the question of whether or not G.E. had a controlling patent position in large lamps at the present time was or might be crucial to the case. He was of the view that if G.E. did have such a controlling patent position, the 1926 G.E. decision was dispositive of the case. However, if G.E. did not have such a controlling patent position, then G.E. was engaging in price fixing in per se violation of the Sherman Act under Simpson and United States v. Arnold, Schwinn & Co., 388 U.S. 365, 18 L. Ed. 2d 1249, 87 S. Ct. 1856 (1967). Judge Tyler's denial of both motions was on the ground that the stipulated facts before him did not show whether or not G.E. now had such a controlling patent position and that therefore summary judgment could not be granted to either party.

 The parties have since expressly stipulated that General Electric no longer has a controlling patent position in large lamps and the patent question raised by Judge Tyler has thus been removed from the case. The Government has renewed its motion for summary judgment on the record as so revised.

 All of the material facts have been stipulated by the parties and are not in dispute.

 G.E. is one of the largest, if not the largest, manufacturers of large lamps, which it distributes and sells throughout the country. Its large lamp sales amount to in excess of $150,000,000 annually. About three-fourths of its large lamps are distributed and sold by the consignment agency system challenged here. The remainder are sold outright to non-agent dealers without restriction as to resale price.

 Under the consignment agency system, G.E. enters into standard forms of agreements of agency with many thousands of businesses which conduct independent business operations, such as retail hardware, grocery and drug stores, and wholesale electrical or industrial suppliers. The lamps are consigned to these agents by G.E. and G.E. retains title to the lamps until they are sold. Agents are required to sell the lamps at prices set by G.E. and this requirement of the agency contracts is strictly enforced. The agents must account to General Electric and pay for all lamps sold and are liable for all lamps lost, missing or damaged. General Electric assumes all risk of fire, obsolescence and market price decline. It is also stipulated that the agreements between G.E. and its consignee-distributors are genuine contracts of agency under private contract law.

 I.

 The first question is whether the 1926 decision of the Supreme Court in United States v. General Electric Co., supra, insofar as it held that price fixing pursuant to genuine contracts of agency under private contract law did not violate the Sherman Act, is still the law or whether that holding has been in effect overruled or so limited as to make it no longer viable. If the 1926 case still represents the law on this subject, then the doctrine of stare decisis relied on by G.E. controls, there is nothing further to decide, and G.E. is entitled to judgment. Thus, the 1926 General Electric case and the subsequent decisions dealing with this question must be carefully scrutinized.

 There were two basic questions presented in the 1926 case. One was the legality under the Sherman Act of the price-fixing agreements pursuant to G.E.'s consignment agency system and the second was the right of G.E., as the holder of the controlling patent position in large lamps, to fix the price at which its licensees could sell. Both questions were decided in favor of G.E.

 With respect to the first of these issues, the Court stated:

 
We are of the opinion, therefore, that there is nothing as a matter of principle, or in the authorities, which requires us to hold that genuine contracts of agency like those before us, however comprehensive as a mass or whole in their effect, are violations of the Anti-Trust Act. The owner of an article, patented or otherwise, is not violating the common law, or the Anti-Trust law, by seeking to dispose of his article directly to the consumer and fixing the price by which his agents transfer the title from him directly to such consumer. 272 U.S. at 488.

 The proposition that the genuineness of the principal-agent relationship is determinative of whether or not price fixing by the principal violates the Sherman Act has since been thoroughly eroded. United States v. Masonite Corp., 316 U.S. 265, 86 L. Ed. 1461, 62 S. Ct. 1070 (1942) pointed the way. In holding that Masonite's del credere agency agreements with its competitors were a device for the purpose of fixing prices and therefore violated the Sherman Act, the Supreme Court rejected reliance on the General Electric genuine agency concept:

 
So far as the Sherman Act is concerned, the result must turn not on the skill with which counsel has manipulated the concepts of "sale" and "agency" but on the significance of the business practices in terms of restraint of trade. 316 U.S. at 280

 In Simpson v. Union Oil Co., 377 U.S. 13, 12 L. Ed. 2d 98, 84 S. Ct. 1051 (1964), the Supreme Court again dealt with this problem. There Simpson, a retail gas station operator, sought damages under the Sherman Act for the refusal of Union to renew the lease of his station, solely because he sold consigned gasoline below the price fixed by Union. Union's retailer-lessees were agents of Union, required to sell only Union's gasoline at prices set by the Company. The District Court held that Simpson had failed to establish that Union's consignment lease program violated the Sherman Act and the Court of Appeals affirmed. The Supreme Court held that an agency relationship, though genuine under private contract law, does not immunize an arrangement by which a supplier controls the prices charged by independent businessmen from the price-fixing prohibitions of the Sherman Act. The Court determined that the public policy expressed in the antitrust laws was preeminent and held that Union's scheme of distribution constituted price fixing and was, therefore, a per se violation of the Sherman Act. In so holding, the court expressly pointed out that, despite the similarities between the consignment system used by Union Oil and the system used by G.E. in 1926, the Union Oil case was not controlled by the 1926 General Electric decision:

 
Union Oil correctly argues that the consignment in General Electric somewhat parallels the one in the instant case. The Court in the General Electric case did not restrict its ruling to patented articles; it, indeed, said that the use of the consignment device was available to the owners of articles "patented or otherwise." [272 U.S. 476 at 488] But whatever may be said of the General Electric case on its special facts, involving patents, it is not apposite to the special facts here.
 
The Court in that case particularly relied on the fact that patent rights have long included licenses "to make, use and vend" the patented article "for any royalty or upon any condition the performance of which is reasonably within the reward which the patentee by the grant of the patent is entitled to secure." Id., at 489.
 
* * *
 
The patent laws which give a 17-year monopoly on "making, using, or selling the invention" are in pari materia with the antitrust laws and modify them pro tanto. That was the ratio decidendi of the General Electric case. See 272 U.S. at 485. We decline the invitation to extend it. 377 U.S. at 22-24.

 Thus, the Court limited the 1926 General Electric decision to the proposition that the G.E. consignment agency system did not violate the Sherman Act when used by a manufacturer who held controlling patents, but not otherwise. Accord, Sun Oil Co. v. FTC, 350 F.2d 624, 635 (7th Cir. ...


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