United States v. Parke, Davis & Co., 362 U.S. 29 (1960), was a 1960 decision of the United States Supreme Court limiting the so-called Colgate doctrine, which substantially insulates unilateral refusals to deal with price-cutters from the antitrust laws. The Parke, Davis & Co. case held that, when a company goes beyond "the limited dispensation" of Colgate by taking affirmative steps to induce adherence to its suggested prices, it puts together a combination among competitors to fix prices in violation of § 1 of the Sherman Act. In addition, the Court held that when a company abandons an illegal practice because it knows the US Government is investigating it and contemplating suit, it is an abuse of discretion for the trial court to hold the case that follows moot and dismiss it without granting relief sought against the illegal practice..
Background Parke-Davis makes pharmaceutical products and markets them through drug wholesalers and drug retailers. The retailers buy these products from the wholesalers or make large quantity purchases directly from Parke Davis. Parke Davis placed in its wholesalers' catalogue a Net Price Selling Schedule listing suggested minimum resale prices on the Parke Davis products that wholesalers sold to retailers and stating that it was "Parke Davis' continuing policy to deal only with drug wholesalers who observed that schedule." The retailers' catalog contained a schedule of minimum retail prices applicable in States with Fair Trade laws, and stated that this schedule was suggested for use also in places such as Virginia and D.C. where there were no Fair Trade laws.362 U.S. at 31-32.
There were about 260 drugstores in D.C., and about 100 in Richmond, Virginia. Many of these stores were units of the large Peoples Drug Store chain (now CVS). Five drug wholesalers handled Parke Davis products in these areas. The wholesalers observed the resale prices suggested by Parke Davis. However, during the spring and early summer of 1956, drug retailers in the two cities advertised and sold several Parke Davis vitamin products at prices substantially below the suggested minimum retail prices. As a result, the Baltimore office manager of Parke Davis in charge of the sales district that included the two cities sought advice from his head office on how to handle this situation. The Parke Davis attorney advised that the company could legally "enforce an adopted policy arrived at unilaterally" to sell only to customers who observed the suggested minimum resale prices. He further advised that this meant that "we can lawfully say 'we will sell you only so long as you observe such minimum retail prices' but cannot say 'we will sell you only if you agree to observe such minimum retail prices,' since, except as permitted by Fair Trade [laws], agreements as to resale price maintenance are invalid."362 U.S. at 32-33.
The Baltimore branch manager put into effect a program for promoting observance of the suggested minimum retail prices. In order to ensure that retailers who did not comply would be cut off from sources of supply, representatives of Parke Davis visited the five wholesalers and told them, in effect, that not only would Parke Davis refuse to sell to wholesalers who did not adhere to the policy announced in its catalogue, but also that it would refuse to sell to wholesalers who sold Parke Davis products to retailers who did not observe the suggested minimum retail prices. Each wholesaler was interviewed individually and informed that his competitors were also being apprised of this. The wholesalers each indicated a willingness to go along with the Parke Davis policy. Parke Davis representatives also called on the price-cutter retailers and told each that, if he did not observe the suggested minimum retail prices, Parke Davis would refuse to deal with him, and that, furthermore, he would be unable to purchase any Parke Davis products from the wholesalers. Each retailer was also told that his competitors were being similarly informed.362 U.S. at 33-34.
Several retailers refused to give Parke Davis any assurances of compliance and continued despite these interviews to advertise and sell Parke Davis products at prices below the suggested minimum retail prices. Parke Davis furnished their names to the wholesalers. Parke Davis refused to fill any direct orders from such retailers, and the wholesalers likewise refused to fill any of their orders. This ban extended to all Parke Davis products, even those necessary to fill prescriptions (on which price cutting had not occurred).362 U. S. at 34.
The president of Dart Drug, one of the price-cutter retailers that Parke Davis had cut off, protested to the assistant branch manager of Parke Davis that Parke Davis was discriminating against him because a drugstore across the street, one of the Peoples Drug chain, had a sign in its window advertising Parke Davis vitamin products at cut prices. The retailer was told that, if this were so, the branch manager "would see Peoples and try to get them in line." The branch manager then visited a vice-president of Peoples and told him "that anyone that did not go along with our policy, we were not interested in doing business with them." Peoples then told Parke Davis that it would stop cutting prices on Parke Davis products. However, five retailers, including Dart Drug, continued their price cutting. Parke Davis decided that at least advertising cut prices should stop and that would lessen the price cutting. A Parke Davis representative visited Dart's president and he said that he might be willing to stop advertising, although continuing to sell at discount prices if shipments to him were resumed. Parke Davis representatives then told each of the other price-cutter retailers that Dart was ready to discontinue price-cut advertising. Each of the retailers said that, if Dart stopped advertising, he would also. Parke Davis reported this to Dart, and then all five retailers discontinued advertising of Parke Davis vitamins at less than suggested minimum retail prices, and Parke Davis and the wholesalers resumed sales of Parke Davis products to them.362 U.S. at 35-36.
However, after a month one of the retailers again started newspaper advertising, and, despite the efforts of Parke Davis to prevent it, the others quickly followed suit. At this point, the Antitrust Division of the Department of Justice, on complaint of Dart Drug, began investigating Parke Davis for price fixing. Parke Davis then stopped trying to promote the retailers' adherence to its suggested resale prices, and neither it nor the wholesalers since declined further dealings with the price cutters.362 U.S. at 36.
The US Government sued Parke Davis under §§ 1 and 3 of the Sherman Act for combining and conspiring "with retail and wholesale druggists in Washington, D.C., and Richmond, Virginia, to maintain the wholesale and retail prices of Parke Davis pharmaceutical products."See The district court held that the Government's proofs did not establish a violation of the Sherman Act because Parke Davis's actions "were properly unilateral, and sanctioned by law under the doctrine laid down in the case of United States v. Colgate."164 F. Supp. at 829.
Ruling of Supreme Court The Government appealed to the Supreme Court, which reversed. Justice Brennan wrote for the majority, Justice Stewart concurred in the judgment, and Justice Harlan, joined by Justices Frankfurter and Whittaker dissented.
Majority opinion
Justice Brennan's opinion for the Court began with a review of what the Court had held in its 1919 decision in United States v. Colgate & Co.,. since the issue before the Court was whether the conduct of Parke Davis fell under the protection of the Colgate doctrine. The Government conceded for the purposes of the Parke Davis case that, under the Colgate doctrine, a manufacturer, having announced a price-maintenance policy, may bring about adherence to it by refusing to deal with customers who do not observe that policy. The Government contended, however, that "subsequent decisions of this Court compel the holding that what Parke Davis did here by entwining the wholesalers and retailers in a program to promote general compliance with its price maintenance policy went beyond mere customer selection, and created combinations or conspiracies to enforce resale price maintenance in violation of . . . the Sherman Act."362 U.S. at 37-38.
Dr. Miles "The history of the Colgate doctrine is best understood," the Court said, "by reference to a case which preceded the Colgate decision, Dr. Miles Medical Co. v. John D. Park & Sons Co.. In that case, Dr. Miles entered into contracts with wholesale and retail merchants that required them to resell a medicine at prices that Miles fixed. Park refused to sign the contracts, induced customers of Miles to resell to Park, and then Park sold the medicines at cut prices in violation of Miles's resale-price maintenance program. Miles sued Park for inducing Miles's customers to breach their contracts with him. Citing Coke on Littleton, § 360 and Mitchel v Reynolds, the Court held the restrictive agreements that Miles sought to enforce were invalid at common law and under the Sherman Act as well. In the Colgate case, however, there was no agreement, just a refusal to deal with price cutters. "The Colgate decision distinguished Dr. Miles on the ground that the Colgate indictment did not charge that company with selling its products to dealers under agreements which obligated the latter not to resell except at prices fixed by the seller.See Dr. Miles, 220 U.S. at 378.
Schrader's Son In the next case, United States v. Schrader's Son, Inc.,. the Government indicted a parts manufacturer for entering into price-fixing agreements with retailers, jobbers and manufacturers who used or resold his products. The Schrader's Son Court held that Colgate did not immunize the conduct, and explained that Colgate
meant no more than that a manufacturer is not guilty of a combination or conspiracy if he merely "indicates his wishes concerning prices and declines further dealings with all who fail to observe them ..."; however, there is unlawful combination where a manufacturer "enters into agreements—whether express or implied from a course of dealing or other circumstances—with all customers . . . which undertake to bind them to observe fixed resale prices.See Schrader's, 252 U.S. at 99.
Cudahy The next decision was Frey & Son. Inc. v. Cudahy Packing Co.,. That was a treble damage suit alleging a conspiracy in violation of the Sherman Act between the manufacturer and jobbers to maintain resale prices. In that case, the Court held improper a jury instruction that a Sherman Act violation (price-fixing agreement) could be found if the defendant repeatedly called to the attention of the wholesales and jobbers the minimum price provision of its sales plan and "the great majority of them not only [expressed] no dissent from such plan, but actually [cooperated] in carrying it out by themselves selling at the prices named." But the authority of Cudahy "has been seriously undermined by subsequent decisions," The Parke Davis Court said.
Beech-Nut