John D. Park & Sons Co. v. National Wholesale Druggists' Ass'n

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *Page 3 The question presented for review is as to whether the complaint states facts sufficient to constitute a cause of action. The relief sought by the plaintiff is an adjudication that the resolutions, agreements, plans and modes for the conducting of the business of the sale of proprietary medicines by the National Wholesale Druggists Association are illegal and that an injunction issue restraining the members of the association from continuing to make efforts to induce any manufacturer or proprietor of what is known as patent or proprietary medicines from adopting the rebate or contract plan for the sale of their goods or of continuing such plan if they have previously adopted the same. The complaint is very voluminous and I have not attempted to give even a fair synopsis, for that would necessarily cover many pages, and I have not deemed it necessary, for it appears to me that the rights of the parties must depend upon a few controlling facts which may be briefly stated. It appears from the allegations of the complaint that the matter in controversy has reference to the sale by manufacturers of those particular medicines or remedies covered by trade marks, copyrights or patents which secure to the manufacturer or proprietor the exclusive right to manufacture and sell the same. These medicines are known as "proprietary goods" and their manufacture and sale are confessedly under the control and management of the owner or manufacturer, who may fix his own price and adopt such plan for the sale thereof as he, in his judgment, may determine. At one time the sale of these goods was largely made through traveling sales agents who worked upon commissions and supplied the goods to the consumer or retailer. Later on they were sold largely through the druggists, but many of the manufacturers did not maintain a uniform price. They would supply goods to some of the wholesalers upon more favorable terms than to others, thus permitting large dealers to make a profit while a great number of the smaller druggists found the handling of proprietary goods unprofitable. This resulted in the organization *Page 6 of the National Wholesale Druggists Association, an unincorporated body, which, in 1882 and 1883, represented ninety per cent of the wholesale jobbing trade of the United States. At a meeting of this association a plan was devised and adopted for the conduct of the business of the sale of proprietary goods, which was in the form of a petition addressed to the proprietors asking them to fix a uniform jobbing price for fixed quantities, and also a selling price by the druggists which they were to agree to maintain and that the druggists should be allowed the difference between the jobbing and the selling price as their profit or rebate which they asked should be not less than ten per cent, the proprietors defraying the expenses of boxing and freight to the nearest transportation station of the buyer. It is alleged that a large number of the proprietors consented to this arrangement and adopted the plan suggested by the wholesale druggists. And this mode of conducting the business appears to have been continued until the December meeting of the association in 1893, at which time a committee, to whom the Detroit plan, so called, had been referred, reported, among other things, the following: "That in order to strengthen and render this plan more effective it is respectfully recommended that proprietors accept orders for full quantities with rebate, discounted only from regular houses recognized as belonging to the number who will faithfully observe the prices and conditions established by the manufacturers." This appears to have been adopted and was acquiesced in by the manufacturers and became the plan under which the business was conducted at the time this action was commenced. It further appears from the allegations of the complaint that the plaintiff never acquiesced in this plan of conducting the business, but always insisted on its right to sell proprietary goods at such price or prices as it saw fit, in its discretion, and would not be bound by the price established by the manufacturers; that thereupon the manufacturers refused to sell or ship goods to the plaintiff, and it was compelled to procure goods from other druggists; that the National Wholesale *Page 7 Druggists Association caused the plaintiff's premises to be watched by spies or detectives, and that they made reports to the manufacturers of the druggists who purchased goods of the proprietors and caused them to be delivered at the plaintiff's premises, and that the association also furnished the manufacturers with a list of all of the druggists throughout the United States who were willing to be controlled by the contract plan. The complaint then alleges that the defendants "were combining and conspiring to obtain an exclusive control of the wholesale and jobbing trade, as between the manufacturer and the retailer, in all classes of patent medicines or proprietary goods; and to regulate and control the methods upon which the said trade shall be carried on throughout the entire United States, and to control the prices at which, and the discounts, allowances for freight and the terms of credit upon which the said proprietary goods shall be sold to the various retail druggists throughout the United States; and to destroy and prevent any and all competition between the said wholesale and jobbing druggists in the wholesale and jobbing trade in said proprietary goods, and limit and restrict the business of each of the wholesale and jobbing druggists, or such of them as are in one locality, to certain exclusive territory tributary, or proximate, to each of them respectively." The demurrer is an admission of the facts alleged, but not of the conclusions of law. The allegations just above quoted, I understand to be conclusions of law drawn from the allegations of fact alleged in the complaint, and are not, therefore, admitted by the demurrer. It, therefore, becomes necessary to determine whether the plan for the conducting of the business of the sale of proprietary goods, adopted by the association and which it requested the proprietors or manufacturers to adopt and carry out, is lawful. The question thus presented is of considerable importance. The plan, as we have seen, in its substantial features, has been in operation nearly twenty years and in its final completed form nearly ten years. This plan, as I understand, is not one confined to the sale of proprietary medicines, but is one that has been *Page 8 adopted by many manufacturers of merchandise and other goods where manufacturers have established a trade mark and have gained a reputation which they wish to maintain throughout the country for character, quality and durability of the goods which they manufacture. They have, consequently, established prices at which their goods shall be sold to the consumer and require all wholesale and retail dealers to supply the consumer at the price list established. The decision, therefore, reached herein may largely affect the plan of conducting business in other articles of commerce. It is said that the National Wholesale Druggists Association was organized and continued for the purpose of monopolizing and controlling the business of the wholesale druggists and jobbers in the sale of proprietary or patent medicines in the United States. The association, doubtless, was organized and continued for the purpose of devising and procuring to be carried into effect a plan for the sale of such goods throughout the United States, which would do away with the necessity of maintaining traveling sales agents and which would secure to the dealers a uniform commission for the handling of the goods, but I do not understand that this was the establishing of a monopoly on the part of the members of the association; for, under the plan adopted, every dealer has the right to purchase goods from the manufacturers upon the same terms as the members of the association, with the right to the same rebate or commissions upon complying with the requirements of the manufacturers with reference to following their price list in making sales of goods. The members of the association clearly had the right to work for their own interests; they had the right to devise and adopt a plan for the conduct of the business in which they could make a commission or a profit, so long as they did not unlawfully interfere with the rights of others. They had the right to petition the manufacturers to adopt the plan devised by them and to support their petition with all of the arguments and persuasions that they could bring to bear, so long as they did not resort to threats or intimidation. The proprietors, having the *Page 9 exclusive right to manufacture and sell their goods, had the right to adopt such plan with reference to the disposal thereof as they saw fit, and if they became convinced that the contract or rebate plan, so called, was more advantageous to them and more fair and just to the public, by establishing a uniform price in all sections of the country, they had the right to adopt the same and no one could complain. Nor does the plan appear to me to be in restraint of trade. It is true that it does away with the competition among dealers as to prices, but it creates no restriction upon them as to the quantities that they may be able to sell or the territory within which they may confine their transactions; but upon the question of prices we must bear in mind that the goods are covered by patent rights and trade marks, which give the proprietors the exclusive right of specifying prices at which the articles shall be sold, and following this, the right also to require dealers to maintain the prices specified. The plan does not operate to restrict sales in any localities, but contemplates a ready method of distributing the goods throughout the entire country. It is, in effect, the creating of an agency on the part of the proprietors, by which every druggist throughout the United States may receive the goods and dispose of them as agents of the principal, receiving the commissions agreed upon therefor. Is this plan against public policy? An active competition and rivalry in business is, undoubtedly, conducive to the public welfare, but we must not shut our eyes to the fact that competition may be carried to such an extent as to accomplish the financial ruin of those engaged therein and thus result in a derangement of the business, an inconvenience to consumers, and in public harm. While public policy demands a healthy competition it abhors favoritism, secret rebates and unfair dealing and commends the conduct of business in such a way as to serve all consumers alike. That this is the tendency of modern times is evident from the recent discussions and legislation upon the subject of interstate commerce. One of the cardinal and chief principles of the plan adopted is the *Page 10 establishing of a uniform price by proprietors which necessitates the service of all persons alike throughout the United States, the proprietors subjecting themselves to the extra expense for freight, etc., in remote sections of the country. I can discover nothing in this which is detrimental to the public policy of the country. The right would certainly not be denied to the manufacturer of a given remedy to adopt the rule that he would only sell it to the jobbers of the country at a certain long price and would not allow a discount of ten per cent where they refused to maintain his price. In other words, the manufacturer says to the jobbers of the country, I manufacture a medicine that I will sell for one dollar a bottle, and it is my desire that it shall be sold at that price per bottle throughout the country. If you will take consignments of this medicine from me, billed to you, at that price per bottle, I will allow you a rebate of ten per cent, and if I find that you are selling at a lower price than billed to you, I will allow no rebate. If this arrangement is not satisfactory to you, I prefer to keep my manufactured stock on hand. These are the only conditions under which I will ship my manufactured article. Surely, there is nothing in this approaching restraint of trade or the violation of the principle of public policy. It is simply allowing a man to do what he will with his own. I do not understand that the complaint charges that the manufacturers were compelled to adopt the plan by reason of threats or intimidation on the part of the members of the association. It is true that the complaint contains the allegation repeated a number of times, to the effect that the proprietors or manufacturers were prevented from selling the plaintiff proprietary goods, for the reason that they wished to protect themselves "with the wholesale and jobbing druggists." And, also, that at one of the meetings of the association the committee on proprietary goods reported that with a few exceptions the proprietors of all the prominent proprietary medicines had adopted the contract or rebate plan for the sale of their goods, and then concluded its report with the *Page 11 recommendation "that continued and untiring opposition be shown to the sale of the articles of those proprietors who do not adopt said contract or rebate plan for the sale of their goods, or who withdraw from the plan." There is no allegation, however, that this resolution was served upon the proprietors or was otherwise presented to them. The first allegation alluded to does not, as I understand it, amount to a threat when taken in connection with the other allegations of the complaint with reference to the plan devised for the conduct of the business. The proprietors might well deem it to be for their best interests to act in accord with the wishes of the druggists rather than those of the plaintiff. As to the second allegation, untiring opposition was to be continued against the sale of articles of proprietors who did not accept the contract plan, or, in other words, to the sale of proprietary goods under the old system. I do not understand that by this allegation it was intended to charge that the plan adopted prohibited druggists from dealing with proprietors or manufacturers who did not adopt the contract plan with reference to the sale of proprietary goods, for, under other allegations of the complaint, it appears that the failure of a manufacturer to adopt the plan simply left his goods upon the unrestricted list, for which druggists could contract in such manner as they saw fit. This is apparent from the resolution adopted by the association at its Washington meeting in 1890. Is there any boycott of the plaintiff? It is true many of the proprietors refused to sell to the plaintiff proprietary goods except at the long price, which I understand to be the selling price. They have refused to allow it commissions or a rebate upon the goods purchased, but this refusal is based upon the ground that the plaintiff refused to sell at the prices fixed by the proprietors. The plaintiff can, at any time, avail itself of the right to purchase upon the contract plan by complying with the requirements of the proprietors. The reply made by one of the proprietors to a letter of John D. Park Sons under date of January 25, 1889, annexed to and made a part of the complaint, answers this question so completely that I *Page 12 here repeat it: "We think you are in error in calling the action of the Association, or the action of any one of its members, `boycotting.' A boycott means to refuse to sell or do business with a concern, and to prevent anybody else from doing business with a concern on any conditions. This is not the attitude of the Association with you. The Association has implored you over and over again to abide by your contracts and sell goods as your neighbors do, and you have distinctly defied them and told them that you would do just exactly as you liked. There is no `boycott' in this, good friends, and nobody knows it better than you do; and you also know that, even if you choose to call it a boycott, you can end the boycott in twenty-four hours by simply agreeing when you sign a document that you will keep it." Complaint is made with reference to the watching or spying upon plaintiff's business. All there is of this is the watching for the purpose of determining who the druggists were that furnished the plaintiff with proprietary goods in violation of the contract plan under their agreements with the proprietors. I think there is nothing in this calling for the intervention of a court of equity. The whole success of the plan adopted for conducting the business depended upon the faithful observance of the contract of the druggists with the proprietors, for whom they were acting as agents. If one could be permitted to violate his contract it would seriously prejudice all the dealers who lived up to the provisions of their contract and carried it into execution in good faith. As was said in the letter of Parke Davis Co., to plaintiff's predecessor, under date of February 12, 1889: "The contract in force between us and the members of the Wholesale Drug Association during the three years prior to 1887 was objectionable to many because of the opportunities offered to those so disposed for an evasion of its provisions; thus, those who lived up rigidly and honestly to their agreement were made to suffer for the benefit of those disposed to regard their agreement and promises simply as a means for taking advantage of others who fulfilled their agreements." *Page 13 I am, thus, brought to a consideration of the reasons for objecting to the plan by the plaintiff. As stated in the allegations of the complaint they are as follows: "That all of the said manufacturers and proprietors who have adopted the said rebate or contract plan for the sale of their respective proprietary goods were persuaded to adopt it entirely by the representation of the benefit which would accrue to the majority of their distributing agents or vendees, the wholesale and jobbing druggists, who were unable to handle the goods ascheaply as the few who could command large capital." It is also alleged that the firm of John D. Park Sons and this plaintiff since its organization, before the happening of the matters alleged in the complaint, had made large purchases as wholesale and jobbing druggists, of the proprietary goods of all or nearly all of the various manufacturers, and had it not been for the happening of the matters set forth in the complaint it would have continued to make large purchases as wholesale and jobbing druggists of such goods and would have been an active and constant competitor of all the other wholesale and jobbing druggists in the United States. The meaning of these allegations is obvious. It is that the plaintiff or the firm of John D. Park Sons, of which the plaintiff is successor, could command large capital, and by reason of this they could purchase proprietary goods in larger quantities and more cheaply than the other wholesale and jobbing druggists, and that by reason of the adoption of the contract plan the plaintiff was unable to so do. Under the contract plan the prices of these goods were made uniform for fixed quantities, and dealers possessing large capital and thereby enabled to purchase in large quantities could not purchase for a less sum than the ordinary wholesale and jobbing druggist, and not being able to purchase for a less sum could not handle the goods more cheaply. The situation is not new. It is one to which the attention of the public has been frequently drawn in recent years. The great merchants possessed of large capital will persuade and induce manufacturers to sell to them more cheaply in consequence of their *Page 14 taking large quantities, and thus they are enabled to undersell and drive out of business the small merchants in their vicinity. I am not here going to question the right of the big fish to eat up the little fish, the big storekeeper to undersell and drive out of business the little storekeeper, but I do believe that the little fellows have the right to protect their lives and their business, and if they can by force of argument and persuasion induce manufacturers to establish a uniform price for fixed quantities so that they can purchase as cheaply as the great merchants and thus compete with them in the retail trade, they have the right to do so, and that no court of equity ought to interfere and restrain them from the exercise of this privilege. The authorities have been largely discussed by my associates. I do not understand that we widely differ with reference to the law. Our chief controversy appears to arise out of the different conclusions to which we have arrived with reference to the allegations of facts contained in the complaint. The judgment should be affirmed, with costs.