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L. S. AMSTER & CO. v. MCNEIL LABS.

December 30, 1980

L. S. AMSTER & CO., INC. and Interstate Cigar Co., Inc., Plaintiffs,
v.
McNEIL LABORATORIES, INC., Defendant



The opinion of the court was delivered by: LASKER

L. S. Amster & Co., Inc. (Amster) and Interstate Cigar Co., Inc. (Interstate) sue McNeil Laboratories, Inc. (McNeil) alleging that McNeil's enforcement of its advertising allowance program for its product Tylenol violated the Robinson-Patman Act, 15 U.S.C. §§ 13 et seq., and the Sherman Act, 15 U.S.C. §§ 1 et seq. McNeil moves for summary judgment dismissing the complaint, and on its first counterclaim which alleges breach of contract. Plaintiffs cross-move for summary judgment on their claim that the granting of off-invoice allowances was discriminatory.

I. The Advertising Allowance Program

 Pursuant to its "Basic Advertising Agreement," McNeil sells Tylenol at a discount price to purchasers who agree to perform advertising services for the Tylenol purchased. The advertising is to be published within a specified time. To qualify for the allowance, participating purchasers must identify those retail stores which they "control" for advertising purposes, that is, those stores where the Tylenol will be available on a retail level while the advertising is running.

 Prior to 1976, McNeil permitted purchasers to receive price reductions without requiring them to perform the advertising. In 1976, McNeil ran the so-called "Bell Ringer" promotion, under the terms of the Basic Advertising Agreement. On the last day of the promotion, Amster ordered 45,000 dozen promotionally priced Tylenol. McNeil determined that amount to be in excess of Amster's advertising capabilities, and supplied Amster with a significantly reduced amount which McNeil believed Amster would be able to promote pursuant to the Basic Advertising Agreement.

 II. The Plaintiffs' Contentions

 Although the complaint alleges other claims than those set forth here, *fn1" plaintiffs' brief in response to this motion asserts the following five claims:

 (1) By granting the advertising allowances to certain customers on an "off-invoice" basis (that is, by reducing the purchaser's bill instead of paying by separate check after receiving the purchase price), McNeil discriminated against those customers who did not receive allowances off-invoice.

 (2) The advertising allowance program was not realistically available to all McNeil customers. Plaintiffs sold Tylenol nationally prior to the "Bell Ringer" promotion, but nevertheless were unable to meet the advertising requirements of the Basic Advertising Agreement on a nationwide basis.

 (3) The advertising allowance program discriminates against indirect buying retailers and the wholesalers who supply them and in favor of direct-buying retailers.

 (4) McNeil's advertising allowance program is a "vertically imposed scheme" intended to divide customers and territories, in violation of Section 1 of the Sherman Act.

 (5) McNeil did not consistently enforce its program, but required advertising performance from only certain of its participating customers.

 III. McNeil's Position

 McNeil argues (1) that the granting of off-invoice allowances effectively constitutes an extension of credit which is permitted under decided cases, (2) that the advertising allowance program was available to the plaintiffs who could have expanded their participation to meet the requirements of the program, (3) that McNeil may as a matter of law treat direct-buying retailers differently from plaintiffs who are wholesalers, (4) that no limit on plaintiffs' market is imposed by the program because plaintiffs are free to advertise anywhere and thereby sell discounted Tylenol anywhere, and (5) that plaintiffs show no evidence of uneven enforcement of McNeil's program.

 IV. Discussion

 A. Off-Invoice Allowances

 Plaintiffs argue that McNeil granted off-invoice allowances to certain favored customers and that McNeil failed to advise all its customers, including plaintiffs, that such an arrangement was available.

 McNeil admits that its standard procedure was to pay allowances by separate check after proof of performance of advertising had been submitted, but that a few customers received their allowances off-invoice. However, McNeil argues that since it issued guidelines to its salesmen which explain how customers could qualify for this arrangement, its practice was legal by analogy to cases permitting the extension of credit to certain customers.

 McNeil's analogy to the credit situation appears apt: plaintiffs' complaint as to the off-invoice allowance is not that the purchase price differs, but that the customer does not have to pay as much at the invoice stage, and consequently has more money on hand for a larger purchase, or may receive interest on the money not paid. While we therefore agree with McNeil that the credit extension cases are a good guide for determining whether selective off-invoice allowances violate the Act, nevertheless as appears below, we believe that McNeil reads these cases too broadly.

 Turning to the credit cases, then, in Diehl & Sons, Inc. v. International Harvester Company, 426 F. Supp. 110 (E.D.N.Y.1976), a truck distributor and its subsidiary sued the truck manufacturer and the manufacturer's subsidiary (IHCC) which extended credit to finance truck sales, alleging assorted violations of the antitrust laws and the Dealer's Day in Court Act. On defendants' motion for summary judgment, the court held that as to the granting of more favorable credit terms to other truck distributors, no Robinson-Patman claim was stated against IHCC:

 
"Decisions affecting the granting or withholding of credit involve many factors of business judgment and consequently it has been uniformly held that discrimination in credit terms is outside the Act's coverage."

 Id. at 122 (citations omitted).

 A case relied on in Diehl, but not cited by McNeil, is Craig v. Sun Oil Company of Pennsylvania, 515 F.2d 221 (10th Cir. 1975). There plaintiff, a distributor franchised by Sun Oil, alleged that Sun Oil engaged in price discrimination by virtue of the credit terms available to him. The court affirmed the district court's conclusion that the differences between the credit terms given to plaintiff and those given to his predecessor did not constitute price discrimination.

 
"It is obvious that differences in the borrower's financial strength, business experience, and many other factors bring about differences in the terms of credit, security required, guarantees, and other devices used by creditors under these circumstances.... We do not say that there could not be a discrimination in credit of such magnitude or nature as to constitute a violation, but no such extreme situation was alleged here by any means."

 Id. at 224 (citations omitted). It should be noted that in Craig the Tenth Circuit refused to foreclose the possibility that an extension of credit might constitute a violation of Robinson-Patman, but held that the complaint before it did not allege price discrimination.

 Similarly, in Carlo C. Gelardi Corp. v. Miller Brewing Company, 421 F. Supp. 237 (D.N.J.1976), the court held that Miller's extension of credit to beer distributors other than the ...


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