NEWS OF THE WEEK
PRICE-FIXING DECISION: High court rules against Monsanto In a decision that avoids making major policy changes, but clarifies the law and makes price fixing somewhat harder to prove, the Supreme Court has decided unanimously that Monsanto conspired against the n o w - d e f u n c t Spray-Rite Service Corp. in requiring Spray-Rite to meet certain price restrictions. Monsanto thus must pay a $10 million penalty. But the court also said that the 7th Circuit Court of Appeals, which had tried the Monsanto case earlier, erred in its requirements to prove a pricefixing conspiracy. The high court made the rules more stringent. The case had been touted as a landmark issue because the Justice Department had asked the high court to change the 73-year-old precedent that makes any agreements between manufacturers and distributors establishing minimum resale prices automatically illegal. Justice asked that each such case be considered on its own, using the so-called "rule of reason." The Supreme Court refused to change the law, but did set tougher evidence standards to prove that such a conspiracy occurred. Both the district court that first tried the case with a jury and the circuit court held that there was sufficient evidence to prove Monsanto and its distributors had conspired to fix prices and had terminated SprayRite because it failed to go along. The big question was whether there actually was an agreement between these parties to maintain a certain base price. What the Supreme Court decided, and Monsanto had argued, was that the previous courts had not used the correct standards of evidence to prove that there had been an actual agreement among Monsanto and its distributors. In its opinion, written by Justice Lewis F. Powell Jr., the court says, "Permitting a price-fixing
agreement to be inferred from the existence of complaints from other distributors, or even from the fact that termination came about 'in response to' complaints, could deter or p e n a l i z e perfectly legitimate conduct." The opinion is not expected to make much difference to manufacturer-distributor relationships, but in theory it could give a little more leeway to the manufacturers in their policies, and discounters may have a tougher time proving a conspiracy by manufacturers.
Spray-Rite case was a long time in getting resolved Spray-Rite Service Corp. had become a Monsanto distributor in 1957, and by 1968, Monsanto agricultural products accounted for 16% of its sales. A discount dealer, Spray-Rite made its money on low margins and high volume. In 1967, Monsanto set new requirements for distributors, and announced it would approve distributors for one-year terms. In 1968, Monsanto terminated its agreement with Spray-Rite. By 1972, Spray-Rite was out of business, and owner Donald Yapp sued Monsanto, claiming it had conspired with the other distributors to put SprayRite out of business because of its price discounting practices. Monsanto said it had dropped the company because it had failed to hire trained salesmen and to promote sales to dealers adequately, as required in Monsanto's program. In the jury trial that followed, Monsanto was found guilty of conspiracy in violation of the Sherman Act and fined $3.5 million', which, in accordance with the law, was trebled to $10.5 million. The appeals court lowered the fine to $10 million. The Supreme Court agreed to hear the case early last year.
William F. Rogers, Monsanto's assistant general counsel for antitrust matters, says the decision will have no effect on Monsanto and its relationships with its distributors. The importance of the decision is that the law has been clarified, he says, and that the reasoning used by the appeals court was incorrect. The Supreme Court made two legal points that will affect this kind of case in the future. The first is that there must be a careful distinction between concerted action by a manufacturer and other distributors to fix prices, which is against the law, and independent action by the manufacturer, which is permitted. Unless there is evidence of a conscious agreement to establish fixed prices, there cannot be a violation of the law. The second point is that the law must distinguish between concerted action to set prices illegally, and concerted action to set nonprice restrictions, which are legal. This second factor, Justice Powell points out, is often overlooked. For its part, the Justice Department had asked that the Supreme Court change its opinion on the 1911 Doctor Miles Medical Co. case that established that any price-fixing agreement is illegal, per se. William F. Baxter, previously of Justice's antitrust division, asked the court to consider that some price-fixing cases actually may lead to increased competition and that they are based on sound business practices. Rejecting this argument, Justice William J. Brennan Jr. notes in a short separate opinion that this precedent has stood for 73 years and that Congress has had ample time to overturn this i n t e r p r e t a t i o n . If the court had changed its opinion, price maintenance cases would have to be considered on a case-by-case basis to determine if they were legal or not. D March 26, 1984 C&EN
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