Appeal by the defendants, the New York News, and its franchise dealers, from a judgment of the United States District Court for the Southern District of New York, Arnold Bauman, Judge, finding that defendants' establishment and operation of a newspaper home delivery system under which defendants' paper, The Daily News, is distributed by franchise dealers, each of whom distributes it only in an exclusive territory at prices established by defendants, with sales to plaintiff independent home newspaper dealers being terminated unless they became franchise dealers, violated §§ 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2. Affirmed in part and reversed in part.
Moore, Feinberg and Mansfield, Circuit Judges.
MANSFIELD, Circuit Judge:
This action was brought in the Southern District of New York by 30 independent home newspaper delivery dealers against New York News, Inc. ("The News" herein), publisher of The Daily News and The Sunday News ("News" herein), various employees of The News and franchise dealers of the News, seeking injunctive relief and damages under §§ 4 and 16 of the Clayton Act, 15 U.S.C. §§ 15, 26.*fn1
Plaintiffs alleged that The News and its franchise dealers engaged in a conspiracy in restraint of trade in violation of § 1 of the Sherman Act, 15 U.S.C. § 1, when, in early 1966, the News established in certain parts of Long Island a system of home newspaper delivery whereby dealers with the aid of carrier boys would distribute only the News in exclusively assigned territories. These franchise dealers, distributing through carrier boys, sold the newspapers at prices fixed by The News. Prior to institution of this system, the News had been delivered in many areas by the plaintiffs as independent "route dealers," and by adult carriers who handled various other publications and delivered them primarily by motor vehicle. Following introduction of the franchise dealer system, The News ceased selling newspapers to most competing independent route dealers.
The trial judge, after a lengthy trial, rejected a defense that the agreement's provision for stipulated resale prices was protected from antitrust attack by the federal Fair Trade law, 15 U.S.C. § 45(a)(2) (the McGuire Act) and by New York's Feld-Crawford Act, N.Y. Gen. Bus. L. § 369-a, et seq., holding that the agreements constituted an illegal conspiracy to fix prices. He further found that The News' refusal to deal with the plaintiffs, and certain actions taken by The News and its franchise dealers to restrict or prevent access by independent route dealers to copies of The Daily News, were taken pursuant to the illegal resale price conspiracy, and that the latter activities also constituted a conspiracy to monopolize intrabrand competition in the home delivery market of the News. See 366 F. Supp. 651 (S.D.N.Y. 1973).*fn2 Since we hold that the Fair Trade laws did protect the stipulated price agreements between The News and its franchise dealers, we reverse Judge Bauman's finding of an illegal conspiracy to fix prices.*fn3 We affirm, however, his finding of a conspiracy to restrain trade by restricting access of independent dealers to copies of the News, modify the award of injunctive relief as hereafter stated, and remand for determination of damages pursuant to the agreement of the parties that this determination would await a finding of liability.
The adoption of the system of home delivery by franchise dealers, the legality of which is at issue, was prompted by a decline in distribution in the early 1960's suffered by The News, which by the time of this lawsuit had the largest circulation of any newspaper in the United States. This decline was largely attributable to a decline in sales of an evening edition published by The News, and by the pronounced shift in population and in commercial enterprises, which led to a shift of advertising markets from city to suburbs. Unfortunately for The News, its efforts to compete in this suburban market met with limited success. Despite initiation of specialized suburban zone sections, which carried regional advertising and local news, between 1960 and 1966 the circulation of the home-delivered News in Nassau and Suffolk Counties (suburban Long Island) increased by less than 2,400 copies, failing to keep up with dramatic population gains in the area of about 350,000 persons and equally dramatic increases in the circulation in the Long Island market of The News' major competitors, Newsday and the Long Island Press.
Before 1966 the News was home-delivered on Long Island by the independent route dealers. The route dealers purchased various publications wholesale and resold them to home delivery subscribers within defined territories, the boundaries of which each route dealer respected. The News concluded that use of the independent route dealers was an impediment to its effort to substantially increase circulation of its newspaper in Long Island. After testing in 1965, The News determined to change its mode of home distribution in some parts of New York City and much of Long Island to the system of franchise dealers and carrier boys. The dealers who participated in this program signed "Carrier Agreements" with The News which generally provided that the dealer would be assigned an exclusive territory, that he would deliver only the News, and that the prices charged to customers and to carrier boys engaged in delivery would not exceed maximum prices set by The News.
On initiation of the new program late in 1965 and early in 1966, The News offered to some of the plaintiff independent route dealers the opportunity to become franchise dealers. They were advised that franchise dealers would handle home delivery of the News within their territories on an exclusive basis, and that if the independent route dealers did not agree to the franchise contract, supplies of the News to them would be terminated. While some independent route dealers did choose to become News franchise dealers, none of the plaintiffs did so and 16 of the plaintiffs were thereafter cut off. Meanwhile, The News filled out its franchise dealer ranks from other sources, and subsidized the early stages of the organization of franchise dealerships.
Terminated independent route dealers did not cease in their efforts to service their customers with copies of the News even though they could no longer obtain the newspapers directly from the publisher. They sought to purchase copies from other newsdealers and local outlets, but met substantial difficulty in finding anyone who would sell to them on a continuing basis. Many plaintiffs thus had to travel long distances to obtain copies of the News, usually to Brooklyn or Queens, and were forced to pay close to home delivery price. Even then, many route dealers had difficulty obtaining sufficient copies to service their customers, and could obtain only early editions and editions which did not contain the local Long Island news section.
In addition, the trial court found on evidence hotly disputed by appellants that employees of The News engaged with the franchise dealers in a campaign of surveillance and harassment to root out and eliminate the sources of supply of the competing independent route dealers. The trial judge found that some retail dealers who sold to the route dealers were threatened with termination, and in at least one instance were cut off by The News.
I. Application of the Fair Trade Laws to the Franchise Agreements
The district court's opinion relies heavily upon the conclusion that the agreements between the franchise dealers and The News amounted to an illegal conspiracy to fix maximum resale prices. There is no doubt that this agreement would be per se illegal under § 1 of the Sherman Act unless protected by the Fair Trade laws, Albrecht v. Herald Co., 390 U.S. 145, 19 L. Ed. 2d 998, 88 S. Ct. 869 (1968); Kiefer-Stewart Co. v. Joseph E. Seagram & Sons, Inc., 340 U.S. 211, 95 L. Ed. 219, 71 S. Ct. 259 (1951); Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373, 55 L. Ed. 502, 31 S. Ct. 376 (1911). The "Carrier Agreement" clearly states that "the parties desire to avail themselves of the fair trade acts now and hereafter in effect." The issue is whether they succeeded.
In amending the Sherman Act § 1, the Miller-Tydings Act of 1937, 50 Stat. 693 (1937), provided that vertical contracts requiring resale price maintenance would be lawful in states which permitted such contracts, 15 U.S.C. § 1. Following the Court's decision in Schwegmann Bros. v. Calvert Distillers Corp., 341 U.S. 384, 95 L. Ed. 1035, 71 S. Ct. 745 (1951), which held that the Miller-Tydings Act did not permit enforcement of a resale price maintenance contract against nonsigning retailers, Congress passed the McGuire Act, 66 Stat. 631 (1952), amending § 5(a) of the Federal Trade Commission Act, 15 U.S.C. § 45(a), by adding language making clear that if the state statutory scheme permitted enforcement of resale price maintenance agreements against nonsigners these contracts and their enforcement would not constitute violations of the antitrust laws.*fn4 The McGuire Act, like the Miller-Tydings Act before it, see 15 U.S.C. § 1, made clear that it intended to permit only vertical and not horizontal price maintenance agreements, see 15 U.S.C. § 45(a)(5).*fn5
Since the McGuire Act protects only those resale price maintenance contracts which are lawful under state law, Judge Bauman properly began analysis of the Fair Trade problems here by determining whether the contracts complied with New York's Feld-Crawford Act, N.Y. Gen. Bus. L. § 369-a, et seq. Paralleling much of the federal law, see note 4, supra, the New York statute provides in part that
"No contract relating to the sale or resale of a commodity which bears, or the label or content of which bears, the trade mark, brand, or name of the producer or owner of such commodity and which is in fair and open competition with commodities of the same general class produced by others shall be deemed in violation of any law of the state of New ...