Petition — Bowen v. New York News, Inc.
Supreme Court brief1976
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Supreme Court, U. &
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FEB 3 1915
MICHAEL RODAK, IR, CLERK |
me
ly THe
Supreme Court of the United States
October Term, 1975.
» %5-1102
CHARLES W. BOWEN, Jn, d/b/a Susurmia News Detivery SERVICE,
RICHARD CARTABUKE d/b/a R. Canranuxe News Dit, JO:
SETH DITTA and JOSEP AILLA, DELLA DAVIS, SOL L,
GOLDBERG 4/b/a Piainview News Deuivery, THEODORE
MARKOWITZ d/b/a_A.M.F, Newsraren Dettvery Service,
FRANK MIRRO and EMANUAL MIRRO d/b/a Franve. News
Servicn, JACK POSEROW as Aasignee of VALLEY Stream News
Service, INc.,, BENJAMIN and FLORENCE ROSENBLUM d/b/a
Srevans News Service, HOWARD B, SCHULZ and MARGARET
SCHULZ d/b/a Newspeaten, KENNETH SWEENEY, JOHN
KAHRS d/b/a New York Newasrarer Dewivery FLORAL PARK
NEWS DELIVERY, Inc.,, HUNTINGTON NEWS DELIVERY,
Inc, EDWARD A, SHANK d/b/a Frorat Park News Service,
HARRY FOX d/b/a Menit News Company, JACK GULLO d/b/a
F, & M, News Service, WALTER GREENBERG d/b/a Park
News Service, SALVIN SALES CORP., HAROLD 0. RATHSAM
a/b/a Aro. Newsrarer Service, HUGH HOLMAN d/b/a Nassau
N
ewaeraren DeLivery, EDWARD PERROT d/b/a LIncoLN Home
Nyws,
Petitioners,
againat
NEW YORK NEWS, Inc, JACK UNDERWOOD, ROBERT 0 SUL-
LIVAN, ANTHONY GATANZARO, DAVID AUERBACH, DON.
ALD A. NIZEN, GABRIEL LEWANDER, F. M. FLYNN, WIN-
FRED JAMES, JOHN ERWIN also known as Jonn Inwin, SY
HECHT, ERNEST SMITH, JOSEPH CONWAY, P. PASTOR.
ELLI, J. PASTORELLI, ‘BERNARD F. SMITH, HOWARD
ENT, BE. DeBELLA, MRS. ARTHUR C. ELLERMAN, RAY-
MOND LEDDA, MICHAEL LEPORE, VICTORE LEPORE,
ARNOLD BLUME, WALDO RODRIGUBZ, E. CAPAZZI, RON-
ALD PARKHURST, W. JOUBERT, C. McNALLY, J. RABEN,
CHARLES ASHDOWN, J. OCCHINO, R. CARRELL, B. SMITH,
and “JOHN” REILLY (whose first name is resentl unknown)
and “JOHN DOE”, “RICHARD ROE” and “JANE DOB", being
persons whose identities are presently unknown to — Om
¢ .
—_——— ——_ = = ===
Petition for Writ of Certiorari to the United States
Court of Appeals for the Second Circuit.
— —
pemeny Py pg an
torney for Pe ers
205 Madison Avenue
New York, N. Y, 10017
(212) 725-5959
Table of Contents.
Page
Ne eicinctncentnicnemnvespengeeemnsenepipcemnmsemnetienees 2
REESE AES REID ee er eee nee 2
Questions Presented for Review .............ccccenen 3
Statutory Provisions Involved o........66ccccceerene 7
Statement of the Case ................. Pe AREER ETS ED eee on |
A. Home delivery by The News prior to 1966 ... |
B. Termination of 16 plaintiffs 00.0000... 10
C, The status of the franchise dealers and The
News a8 Wholesalers ............ccccccccsceresereeeseeereeeees 12
DD, The operation and effect of the franchise sys
tem upon competition and circulation ............. 1h
EK. Price and other discriminations against the
route dealer in favor of the franchise dealer 18
F, Proceedings in the Distriet Court and Court
ff REESE ER Re ——
Port I, This Court should grant review to deter-
mine whether the Court below properly re-
versed the findings of the trial Court, with-
out any ruling that such findings of the trial
Court were clearly erroneous, when the findings
of the trial Court were based upon uncontra-
dicted testimony and concessions of the parties
successfully seeking reversal, and when such
factual findings were clearly supported by un-
contradicted evidence supplied by the parties
who sought reversal
Point
Por
Point
Pont
il,
Il. This Court should grant review to deter-
mine whether the Court below denied plain-
tiffe an opportunity for a hearing on the ques-
tion of whether the aggregate of The News’ re-
straints on trade—price fixing, termination of
route dealers, boycott, territorial and customer
restrictions, price and other discriminations,
and failure to make available copies of The
News in varying localities—amounted to an
unreasonable restraint of trade o00.0.00....0606 6
Ill. Since newspapers are unique rather than
fungible items, and are protected by the First
Amendment, price fixing was illegal per se under
the McGuire Act because The News was not in
free and open competition with commodities
of the same general class ............... amanda
IV. This Court should grant review to deter-
mine a conflict in decisions of Courts of Ap-
peals, and with this Court, as to standing of
plaintiffs to assert illegality of the customer
and territorial restrictions of The News’ fran-
chise agreements, The plaintiffs here had the
requisite standing because they were injured
by the restrictions
V. This Court should finally determine an
important issue: whether intent to monopolize
is a prerequisite for a conspiracy to monopo-
lize under Section 2 of the Sherman Act. In
any event, the findings of the Courts below that
such intent was not shown here were clearly
erroneous, and should be reversed
Page
$1
ili,
Point VI. This Court should grant review of the
denial of plaintiffs’ Robinson-Patman claims in-
volving price and other discriminations, to de-
termine whether when the components of the
article in question have passed through inter-
state commerce, discrimination is permissible
simply because the finished article itself (the
newspaper) is not the subject of price diserimi-
nation in actual interstate sales
COPTER RRR CRO eeee
Conciusion, This Court should grant review of the
eae oe
Index to Appendix,
Arrenvix A—Opinion of Bauman, D. J. .
Arrennix B—Opinion of Mansfield, Cireuit Judge .
Aprenpix C— Statutes Involved .
Page
43
iv,
TABLE OF CASES.
Albrecht v. Herald Co., 390 U. 8S. 145 (1968) ........ 20,
American Motor Inns, Ine., v. Holiday Inna, Ine.,
52 F. 2d 1280 (8rd Cir, 1975) ....cccvcccsereremennenns
Associated Press v. United States, 326 U. 8. 1, 27-
BB CABGBD cccccccsecccecescnsseccnccnsessercnssnmmsnnenenaan
Blankenship v. Hearst Corporation, 519 F, 2d 418
(Oth Cir, 1975) ORE!
Calderone Enterprises Corp, vy, United Artists
Theatre Cireuit, 454 F. 2d 1292, 1295, 1296
(2nd Cir, 1971), cert. den, 406 U, 8, 9380 (1972)
Cavender v, Cavender, 114 U, 8, 464, 471 (1885) ......
Kastinan Kodak v. Federal Trade Commission,
158 F. 2d 592 (2d Cir, 1946), cert, den, 330
U, S, 828 (1947) ae
Fleming v. Van Der Loo, 160 F, 2d 906, 909-10 (D.C,
Cir, 1947)
Gulf O} Corp. v. Copp Paving Co,, 419 U. SS. 186,
YOO (1974)
Hawaii v. Standard Oj! of California, 405 U. 8S, 251,
262, n. 14 (1972) ER
Industrial Bldg. Materials, Ine. v. Interchemical
Corp., 437 F. 2d 1336, 1343 fn, 8 (9th Cir,
1970) sosvevetdsisiinatiiaeaaaaa
31
= &
33
23
v.
Page
Kansas City Stockyards Co. of Maine v. Anderson,
119 F. 2d 91, 93 (8th Cir. 1952) —................. 23
Mandeville Island Farms, Inc., v. American Crystal
Sugar Co., 334 U. S. 219, 236 (1948) —.............. 35
Mercelis v. Wilson, 235 U. S. 579, 583 (1950) —.......... 24
Metropolitan Broadcasting Corporation v. Lebowitz,
293 F. 2d 524, 527 (D. C. Cir. 1961) ........... 23
Morning Pioneer, Inc., v. Bismarck Tribune Com-
pany, 493 F. 2d 383 (8th Cir. 1974) 20000000000... 42
In re Multidistrict Vehicle Air Pollution M. D. L.
No. 31, 481 F. 2d 122, 128 (9th Cir. 1973)
cert. den. 414 U. S. 1045 (1973) 20. 36
Nash v. United States, 229 U. S. 373, 378 (1913) ... 39
Noble v. McClatchy Newspapers, F. 2d (9th
Cir. 1975), 1975-2 Trade Cases 960,594 31, 37
Oseanyan v. Arms Co., 103 U. S. 261 (1880) —........ 24
Radovich y. National Football League, 352 U. S.
Ee 35
Shapleigh v. Mier, 299 U. S. 468, 475 (1936) 23
Stacher v. United States, 258 F. 2d 112, 116 (9th
EES SSS 23
Stewart v. Lansing, 104 U. S. 505, 511-2 (1881) 23
vi.
Page
United States v. Arnold, Schwinn & Co., 358 U. S.
8 2 yy 36, 37
United States v. Topco Associates, Inc., 405 U. 8.
kt) ee 36
United States v. Yellow Cab Co., 338 U. S. 338
COD cccreccncccescsansevnterstnamstinctanieniaceneninnidininnahennninian 22
Zenith Corp. v. Hazeltine, 395 U. S. 100, 123 (1968) .... 22, 23
STATUTES.
McGuire Act, 15 U.S.C. §45(a@) -..-.--------------------eeeeeee 5, 7
Sherman Act:
ee eee 7
15 U.S.C.:
ee ae 7
Robinson-Patman Act, 15 U.S.C. §13 ~...................... 7
Federal Rule of Civil Procedure 52(a) ................ 3,°7
New York Education Law $3228 .........................---.------ 7
United States Constitution:
2 RES ees 7
eee 7
Die GD ccseceticncscesssecreneieanisiiennteiintabeninaciniaiaes 2
eye 35
MISCELLANEOUS.
Antitrust Problems in the Newspaper Industry, 82
Harvard Law Review 319, 326 (1968) _........... 41
In THE
Supreme Court of the Anited States
October Term, 1975
No.
—_
Cuartes W. Bowen, Jr., et al.,
Petitioners,
against
New York News, Inc., et al.,
Defendants.
<>
Petition for Writ of Certiorari to the United States Court
of Appeals for the Second Circuit.
To the Chief Justice and the Associate Justices of the
Supreme Court of the United States:
Your petitioners, all of whom are or have been inde-
pendent route dealers (home deliverers of all news-
papers), hereby petition for a writ of certiorari to re-
view the order and judgment of the United States Court
of Appeals for the Second Circuit, 1) insofar as it
reversed the findings and judgment of the United States
District Court for the Southern District of New York,
which had held that certain agreements of the New York
News with its franchise dealers (dealers who re-sold
copies of The News to newsboys) were illegal price-
fixing agreements per se, that the franchise agreements
contained illegal territorial and customer restrictions
further in violation of Section 1 of the Sherman Act, and
that the defendants had conspired to monopolize part of
the newspaper home delivery market in violation of Sec-
- a
tion 2, such reversal being without any opportunity for
a determination as to whether the aggregate of price-
fixing, boycotting, territorial and customer restrictions,
price and other discriminations, termination of ‘certain
plaintiffs and harassment constituted unreasonable re-
straint of trade even if not per se violations; and 2) insofar
as that decision affirmed denial of plaintiff’s claims for
price and other discriminations under Robinson-Patman.
Opinions Below.
The opinion of the United States District Court for the
Southern District of New York (per Bauman, J.) is re-
ported at 366 F. Supp. 651, and is appended hereto as
Appendix A. The decision of the United States Court
of Appeals for the Second Circuit is reported at 522 F.
2d 1242, and is appended hereto as Appendix B.
Jurisdiction.
The judgment and order sought to be reviewed was
made and entered on July 23, 1975. On August 1, 1975,
a motion was made to extend the time to file a petition
for rehearing to and including August 27, 1975, which
motion was granted and entered on August 8, 1975. An
order, without opinion, denying the timely motion for
rehearing (en banc) was made and entered on November
5, 1975. The statutory provision believed to confer on
this Court jurisdiction to review the judgment and order
in question is 28 U. S. C. §1254(1).
3 eee.
Questions Presented for Review.
1. Whether the Second Circuit properly discharged its
appellate function under Rule 52(a) of the Federal Rules
of Civil Procedure, under which the findings of the trial
Court are not to be set aside unless “clearly erroneous,”
when:
a) Though the parties had testified and stipulated at
trial, as confirmed by exhibits, and without con-
tradiction, that, pursuant to the price-fixing agree-
ments between The New York News and its fran-
chise dealers, the franchise dealers re-sold copies
of The News to newsboys (and were hence whole-
salers), and that the news boys re-sold to the ulti-
mate consumers (and were hence retailers), and
the trial Court so found, the Court of Appeals re-
versed such findings on the basis of its own new
and inconsistent findings as to which there was no
evidentiary support in the record whatsoever,—
that The News sold directly to consumers—, and
i) the contentions upon which the Court of Appeals
reversed never having been raised below, and the
uncontradicted testimony having been that The
News did not sell directly to consumers, and
ii) the Second Cireuit thus permitting the appellants
before it to appeal successfully on the grounds
that their uncontradicted trial testimony was not
true, and
b) The Court below merely affirmed the trial court’s
findings of a lack of intent to monopolize, while
ignoring the evidence of The News’ intent to de-
stroy or seriously injure the independent route
dealer system so as to deprive potential publisher
4
competitors of access to the home delivery market
through the cost-free route dealer system, such
intent to monopolize being shown by i) termina-
tion of route dealers who would not become fran-
chise dealers, while advising them that, to be-
come franchise dealers, they would have to give up
other newspapers or dispose of them, and that
there was no time to sell their routes; ii) termina-
tion of suppliers of terminated route dealers; iii)
The News having had no home delivery department
until 1964, and having made no serious efiort to
increase home delivery circulation before introduc-
tion of the franchise system, adopted without hav-
ing made any cost studies, and iiii) the cost studies
later made before the franchise system became
operative in 1966 showed that The News would
lose money by the franchise system, and in much
larger amounts than those studies showed it would
lose from obtaining the same increase of circula-
tion through the route dealer system, and
c) The Court merely affirmed the trial Court’s finding
of The News’ lack of intent to monopolize, ignor-
ing the overwhelming evidence of such intent, such
as that The News’ franchise program had been
planned so that The News would lose money, its
termination of route dealers who would not become
franchise dealers while denying them the oppor-
tunity to sell their routes, termination of sup-
pliers of terminated route dealers, and a series
of predatory acts including surveillance, false ar-
rest and malicious prosecution, the intent of all
of which could only have been to destroy or se-
riously injure the route dealer system in order to
prevent any new or existing newspaper from hav-
ing access to the cost-free home delivery system
provided by the route dealers?
_——
Te eae
2. Whether the price fixing agreements between The
News and its franchise dealers were illegal per se, and
not immunized by the MeGuire Act, 15 U. S. C. §45(a),
because i) such agreements were between wholesaler and
wholesaler, or, under the reasoning of the Court below,
between retailer and retailer, the Court below having
found that both The News and the franchise dealers were
retailers, and ii) because The News was not in free and
open competition with commodities of the same general
class?
3. The trial Court having found per se price fixing
violations and therefore never having determined whether
The News’ franchise system, encompassing an aggregate
of trade restraints (termination of route dealers unwill-
ing to become franchise dealers, denial of opportunity to
sell routes before becoming a franchise dealer, boycott,
price-fixing, territorial and customer restraints, and re-
sultant restraints upon circulation of The News and other
papers) constituted an unreasonable restraint of trade, in
violation of Section 1 of the Sherman Act, a) was it
error for the Second Circuit to rule that there were no
per se violations, without remanding for trial or finding
on the issue of whether there had been an unreasonable
restraint of trade, and b) were petitioners thus denied
an opportunity for a judicial determination after a hear-
ing, and thus deprived of property without due process of
law in violation of the Fifth Amendment?
4. Whether the Court below properly found a lack of
standing of plaintiff route dealers to attack territorial
restraints upon franchise dealers on the theory that a
route dealer was thus assured of facing competition from
no more than one franchise dealer, when in fact the
record showed that there were several franchise dealers
at the same time in most route dealers’ areas?
5. Did the Seeond Circuit err in ruling that a retrial
of the Section 2 claim upon remand was unnecessary be-
cause of its affirmance of part of the Section 1 claim,
though the standard of proof of damages under the See-
tion 2 claim would be much broader than the narrowly
prescribed standards for damages laid down by the See-
ond Cireuit for the Section 1 claim?
6. Whether there is a requirement of proof of specific
intent in cases involving conspiracy to monopolize, as
opposed to cases involving attempts to monopolize and
whether such intent appears here?
7. Was the refusal of | News to deal with plaintiff
route dealers who had failed or refused to enter into
price fixing agreements, plus other acts by the respond.
ents—including a) detection by respondents of the sources
of plaintiffs’ supply, which were themselves then to be
terminated by the publisher; b) terminating or threaten-
ing to terminate all sales to such sources of supply or
reducing the number of copies the source receives so that
it could no longer be a source of supply: ¢) constant
surveillance by franchise dealers, the publisher’s em-
ployees and armed off-duty policemen; d) the publisher
instructing its franchise dealers to falsely tell route
dealer’s customers (potential, former and current) that
the plaintiffs were out of business and that they could
obtain home delivery of the newspaper only through the
franchise dealers—an unlawful conspiracy to eliminate
intrabrand competition in the home delivery market by
monopolizing trade in the said newspaper, in violation
of Section 2 of the Sherman Act?
8. a) Did the territorial and customer restrictions in
the franchise agreement, which the publisher conceded
prevented franchise dealers from selling to other than
newsbovs and from selling outside their allocated ter-
te
7
ritories, violate Section 1 of the Sherman Act, because
the publisher parted with title, dominion and risk of loss
when it sold its newspapers to franchise dealers without
the right to make returns and without supervision over
the actual home delivery, whether or not such restric-
tions were ancillary to price fixing, and ..
b) Did plaintiffs have standing to attack such restric-
tions?
9. Was it error to dismiss the claims of the plaintiffs
for violation of the Robinson-Patman Act, in the light of
price and delivery discrimination practices in favor of
the franchise dealers and against the route dealers by
The News, on the ground that no sales to any of the plain-
tiffs occurred in interstate commerce, though the franchise
system involved such discriminations in interstate com-
meree, the prices of the newspaper out of state being de-
termined on the same basis as within the state, and the
copies of the newspaper sold being composites of news,
features, advertising and paper, all of which had crossed
state lines?
Statutory Provisions Involved.
The following statutory provisions are involved in this
case: Sherman Act, §§1 and 2, 15 U. S. C. §§1 and 2;
Robinson-Patman Act, 15 U. S. C. §18; MeGuire Aet, 15
U. S. C. $45a; Federal Rule of Civil Procedure 52(a);
New York Education Law §3228; First and Fifth Amend.
ments, United States Constitution.
Their pertinent text is reproduced herein as Appendix
C,
Statement of the Case.
A. Home delivery by The News prior to 1966.
Newspaper home delivery in the New York City metro-
politan area has traditionally been handled by independent
route dealers, such as plaintiffs, who purchase routes
and home deliver all newspapers, including special in-
terest newspapers, to customers on such routes. This in-
volves some 20-22 newspapers (65a).*
The News conceded that it did practically nothing with
regard to developing home delivery sales in Nassau and
Suffolk Counties (part of New York City’s metropolitan
area) prior to 1963 (477a), and indeed had no home de-
livery circulation department until 1964 (1214a). Be-
tween 1963 and 1966, the only efforts towards develop-
ing such home delivery circulation made by The News
were occasional samplings and telephone solicitations
(477a), with route dealers cooperating in these limited
promotional efforts—even though The News on occasion
did not pay some of them as promised (S85a-86a, 182a-
183a, 416a)—with the route dealers doing their own
solicitation of orders.
In early 1965, The News began several pilot test fran-
chise programs in areas where there were no independent
route dealers, the newspapers being home delivered at less
than the cover (newsstand) price (965a-967a), one of
which showed a substantial gain in circulation, starting
*Such references are to the Appendix to the record filed in
the Second Circuit below, a copy of which Appendix will be certi-
fled to this Court. The Appendix contains all the testimuny.
9:
from zero delivery. No evidence was offered by The
News as to the success of the other programs, or of any
controls by attempting to have route dealers develop
the same or similar virgin territories (965a-966a, 837a-
838a).
Though The News was assigning franchise territories
by September or October of 1965 (718a-72la, 83la-834a,
837a-838a), studies were first made by The News in
early November, 1965, to determine the cost of achieving
a specified expanded circulation through the independent
route dealer system as against achieving the same in-
crease via the franchise system, These studies (Pl. Exs.
98 and 99, 1401a-1404a) showed a spiralling cost in both
cases, but with the cost of achieving the same increased
eirculation through the franchise method ranging (in
different years) from over 500% to 17% greater, both
studies projecting net losses from the increase of sales,
No evidence whatsoever was introduced to show that ad-
vertising revenues increased, or that an expected increase
in advertising revenues was considered, in determining
whether to embark upon the program.'
The News later revised its figures of net losses sub-
stantially upward (Pl. Ex. 97, 1399a), the projection of
the cost of the franchise system being some three times
'If clear errors in the cost studies are corrected, the projected
net loss in obtaining the same increased circulation via the fran-
chise method ranges from seven to three times higher. The errors
were: (1) The clearly invalid assumption that the actual cost of
printing and delivering the same increased number of copies of
the paper would be hundreds of thousands of dollara higher for
route dealer distribution than for franchise distribution; (2) Less-
ening the costs of the franchise system by an amount for ‘‘Sav-
ings on Returns’’ though the route dealers had no return priv-
ileges, Revised figures making such corrections were submitted
as Appendices A and B to our Proposed Findings of Fact in the
District Court.
greater than for obtaining the same increase in home de-
livery through the independent route dealer system, again
with the cost of the independent route dealer system de-
velopment being grossly overstated.
No evidence was ever offered to explain why The News
adopted a method of increasing circulation to incur
losses, nor why it sought to incur heavier losses by using
the more expensive franchise system. The franchise sys-
tem did give The News the control it desired over price,
exclusivity of product and method of distribution (1000a),
while the independent route dealer system provided a
cost-free method of home delivery to existing newspapers
as well as to possible new entrants into the marketplace
of newspapers, route dealers buying at wholesale rates
from the newspapers (or their distributors) and reselling
at retail to their customers for an added service (delivery)
charge.
B. Termination of 16 plaintiffs.
In late 1965 and early 1966, a number of the plaintiff
route dealers were contacted and offered the opportunity
to become franchise dealers, which meant they would
have to give up their then routes, sell only The News,
not at their price to their own customers, but to news-
boys at the maximum price stipulated by The News.
very route dealer who was invited by The News to be-
come a franchise dealer was told in the letter of invita-
tion that boys had to be used, the letters of invitation
uniformly noting that “The News is seeking the services
of qualified men to supervise the boy delivered franchise
district” (see Pl. Ex. 23, 1363a, and Pl. Exs. 27, 30, 31,
37, 47 and 75, not reproduced in the Appendix). It was
admitted by The News that the franchise system was a
hoy system (1228a); route dealers and other prospective
franchise dealers were told they had to use boys in the fran-
chise system (88a, 89a, 341a, 703a-704a, 8330), counsel for
11
The News noting that a purpose of the franchise system
was “to establish a boy system * * °” (355a).
Plaintiffs who were offered the opportunity to become
franchise dealers were told by The News that they would
have to give up other newspapers (207a, 303a, 349a,
384a, 599a, 66la) or dispose of that part of the route
(773a). The two plaintiffs who stated that they wanted
to sell their routes were told by The News that there
was no time to do so (Sa, 325a, 3400, 3414).
The plaintiffs were told that if they did not agree to
adhere to all the provisions of the franchise agreement,
their supplies of The News would be cut off. None of
the plaintiffs were willing to bow to its restrictive terms,
and within a short time, beginning on January 10, 1966,
16 of the plaintiffs were terminated by The News (12638a),
There ensued a conspiracy by The News and its fran-
chise dealers to prevent the 16 terminated plaintiffs from
obtaining copies of The News, which findings of con.
spiracy were upheld by the Second Cireuit (App. B,
infra, pp. 8la-85a), including harassment under which vary-
ing of the plaintiffs were followed, in ears manned by
armed off-duty policemen, in efforts by The News to
find out the source of supply of terminated franchise
dealers, delivery to which sources of supply would be
terminated (850a-85la), culminating in plaintiff Marko-
witz being arrested for allegedly stealing what were his
own newspapers. The charges against Markowitz were
dropped when The News was unsuccessful in its attempt
to obtain perjured testimony in an effort to convict
Markowitz (624a-626a).’
"Plaintiff Markowitz's separate claim for false arrest and
malicious prosecution was pursued in a separate action in the
New York Supreme Court, settled in November, 1975, for $50,000,
moments before a jury would have returned a verdict in his favor
for $157,500. Markowitz's claims for violation of antitrust laws
survived the settlement, by agreement.
C. The status of the franchise dealers and The News as
wholesalers.
Counsel for The News stated in his opening that “The
franchise dealer is in effect, as Mr. Levy [plaintiff's coun-
sel] noted, a wholesaler. He buys the papers and re-
sells them to a carrier boy who then makes the sale to
the subseriber” (59a),
At a later point, counsel engaged in the following
colloquy :
“Mr. Levy: As I understand it, under the
franchise agreements, The News wholesales to the
franchise dealers who in turn wholesale their
rs to the news boys, who eventually do the charg-
ing and billing. Is that correct?
“Mr. Hughes f[feounsel for The News]: I
wouldn’t use the word wholesale all the way down
the line there, but that is basically correct. The
News sells to the franchise dealer at a price. The
franchise dealer sells to the carrier boy at a price.
The carrier boy sells to the subscriber at a price
** (187a).
Still later, counsel for The News noted the following:
“This was strictly a vertical arrangement, your
Honor, where we dealt with the price which, of
course, we had the right to fix, initially to our cus-
tomer who purchased from us, the franchise dealer.
Under the Fair Trade Law we had the right to
fix the price at which he re-sold, and to the extent
that he is a wholesaler in that he delivered to the
hoys and the boys re-sold, we had the right to fix
that price” (914a-915a),
The testimony of the witnesses was in accord. Thus,
The News’ Cireulation Director Underwood, its principal
witness, testified that “We fixed the price at which the
hoy sells to the ultimate consumer and we fixed the price
at which the franchised dealer sells to the boy ° * °
(1140a). Then, relating the chain of distribution, Under-
wood went on to note that “The paper is produced by
The News, The News distributes to the franchised dealer,
the franchised dealer distributes to the boy, the boy dis-
tributes to the home,” and that under the franchise sys-
tem, “The News fixes all of those prices” (ibid.).
Underwood expressly disclaimed that there were any
occasions where The News sells directly to the carrier boy
or to the ultimate consumer, in the following colloquy:
“Q. Are there any occasions when The News sells
eee to the carrier boy in the franchise system?
. No.
“Q. Are there any occasions where The News
sells directly to the ultimate consumer for pur-
pose of home delivery in any area where the
ranchise system is established? A. No. That
would only be mail” (1140a).
An envelope was used by the franchise dealer, whose
use was specifically approved by defendant Catanzaro of
The News (Pl. Ex. 84, 1366a; 915a-9l6a), which was
given to the boys, which contained the following, ad-
dressed to the boy carriers:
“Your billing rate is $.0787 per daily i and
$.2375 for Sunday paper. The difference between
this rate and the retail rate you charge your cus-
tomer gives you a profit margin of ¢.1903 per daily
and Sunday customer.”
The franchise system did not provide for reimburse-
ment to the news hoy if he did not collect from his ecus-
tomer. Thus, defendant Lepore testified as follows
(858a-859a ) :
“Q. Suppose one of the kids on the route did not
collect from his customer, whose loss was that? A.
14
Well, technically that should be the carrier boy’s
loss. In our particular case, we have a policy
where we reimburse the carrier for any losses.
But there is no provision, as far as the franchise
system is concerned, to reimburse the carrier.”
Franchise dealer Carter further testified as follows:
“Q. Suppose one of the boys didn’t collect from
his customer, whose loss was that? A. Well, that
was the carrier boy” (744a).
Cireulation Director Underwood of The News testified
(1136a-1137a) that the use of a boy system “provided for
us an automatic sales force,” with about 5,000 boys in-
volved in the program.
All of the franchise agreements provided that the
franchise dealer “is and shall remain an independent
contractor and not an employee or agent of The News”
(1262a).
The franchise agreements themselves further reflected
the relationship between the franchise dealers and the
boys. Thus, in an interim agreement, in letter form ad-
dressed to the franchise dealers, the franchise dealer
was told that “You will not charge any carrier boy mak-
ing such deliveries and collections more than the presently
established wholesale rate * * *” (1350a). In the final
agreement, Plaintiffs’ Exhibit 10, it was provided in
TT(b) that the franchise dealer agrees “(b) To super-
vise and direct the delivery and resale of copies of The
Daily and Sunday News to such regular subscribers in
his territory at no more than the regular established home
delivery price” (1355a). (Italics supplied.) ITI (d) of
the final agreement again restates the relationsh:p, pro-
viding that the franchise dealer would not “Charge any
carrier boy engaged in making deliveries and collections
15
in his territory more than the price established therefor
by The News” (1358a).
The records of The News showed sales by the boys
(Deft. Exhs. O and P, 1100a, 110la, 1419a-1422a). The
boys did the canvassing, soliciting and sampling (214a,
217a, 255a, 333a). The franchise dealer sampled himself
only before his route became operative (750a, 75la,
922a), after which the boys and the franchise dealer both
did soliciting (924a). There was no evidence in the
record to show that The News did any sampling. It
merely solicited orders, by telephone, in an area only
after the boys had finished soliciting there (924a). The
News’ ads for boys, contained in Plaintiffs’ Exhibit 12,
introduced in evidence at 191a-192a, noted often that
boys were wanted to canvass, as well as deliver. And the
testimony of The News was that the “major part of the
orders came from boys soliciting” (925a).
D. The operation and effect of the franchise system upon
competition and circulation.
Because of the way the franchise system was developed
(see, infra, pp. 17-18), the franchise dealer could not in
the beginning of the operation of his route cover all cus-
tomers within that route. Thus, some customers in plain-
tiff Markowitz’s area were not able to purchase The News
from the franchise dealers in his area until 1972, though
plaintiff had been terminated in 1966. Had Markowitz
gone out of business, some 150 daily and 200 Sunday
customers for The News would not have been serviced
with any newspapers until 1972 (94a-95a). When a
terminated route dealer did go out of business, as did
plaintiff Bowen, there was no delivery made of the Times,
Wall Street Journal or other papers, although by the
time of the 1972 trial there was someone servicing parts
of Rowen’s area (414a-415a). Similarly, a route dealer
who had been terminated in early 1966 abandoned the
route; for several weeks thereafter, it was not serviced
with any newspapers except for copies of The News, un-
til plaintiff Davis moved into the route (497a-498a). As
the difficulty increased in securing papers, plaintiff Davis
ceased delivering The News to customers unless there was
a Times subscriber on the same block, a practice which
began in 1968 (535a-536a).
After the terminated route dealers went great distances
to secure copies of The News, they were unable, even
then; to secure enough copies of The News to fully serv-
ice their customers. Thus, Bowen on numerous occa-
sions received no deliveries of The News (419a-420a),
and on five occasions received no copies of The Sunday
News (45la). Gullo, for a month after termination, was
able to service only a few of his News customers (661a-
662a); Mirro was unable to service his customers on
certain occasions after May 9, 1966 (638a); Perrot was
able to get enough papers to service only 50% of his
customers the first day, and 75% of his customers the
second day after termination, with Perrot then having
315 News customers (649a); and Sweeney was unable
to service any of his customers with The News for a
couple of weeks after termination (216a).
Former franchise dealer Carter testified that although
the date of his written contract was January 7, 1966,
he did not start delivering copies of The News in his
territory until February, 1966. Had terminated route
dealer Markowitz not distributed copies of The News
at that time, there would have been no distribution of
The News at all in Carter’s territory until February,
1966 (729a).
In the two Lepore franchise territories, each about
twenty square miles in area, after the major route dealers
17
went ont of business in or: about 1968, there have been
no New York Times deliveries in most of those two areas,
Only about 15 to 20% of one area has home deliveries
of The Times; although there are some Sunday home
deliveries, in the other area, there is no normal delivery
of the daily editions of The Times or The Wall Street
Journal (834a-838a).
The franchise home routes were developed by sampling
one boy route, of 200 dwelling units, for a week, and
beginning regular service on that route thereafter at
the rate of one boy route per week (839a). Thus, there
were no deliveries of The News by either of the de-
fendants Lepore during the first week of operation, and
it was two weeks after January 10, 1966, before the
first deliveries of The News to Lepore customers began
(840a-841a). The routes were developed extremely slowly
(844a-846a, 922a-924a), and there is still a square mile of
the Lepore routes where no newspaper deliveries are
being made (846a-847a). It was not until late 1968
that the coverage of the areas by the Lepore’s was pretty
much total, with the exception noted above (848a).
And prior to the Lepore’s going into an independent
route dealer’s territory, the territories had been fully
serviced with all newspapers by independent route deal-
ers (913a).
When the independent route dealers had been invited
to become franchise dealers, The News did not have a
franchise man ready to work on that area in most cases
(971a). The News conceded that even when the fran-
chise dealer was ready to go into an area, it would be
from one to four weeks before a franchise man could
start in regularly delivering any papers at all, so that
unless an independent route dealer who had been termi-
nated was able to get copies of The News elsewhere,
all News snhseribers in that area wonld he withont home
18
delivered copies of The News for that one to four week
period (969a-970a).
When The News received home delivery orders for an
area in which there was no franchise dealer, the orders
were destroyed, and the customers were not notified
thereof (895a-896a).
There are less newsstands in the suburban area of
Long Island (Nassau and Suffolk Counties) than in New
York City, and less other retail outlets for newspapers,
such as stationery, candy and drugstores (983a-984a).
From 1966, until at least 1970, in a number of New York
City suburban areas, where newsstands exist, a number
of them were closed on Sundays and holidays, such as
railroad stations. Thus, persons living in a suburban
area could only receive copies of newspapers through de-
livery to their homes, unless they are willing to travel
long distances (802a, 983a-984a). For example, about
80% of the circulation of The News in the Lepore terri-
tories is home delivered (894a).
E. Price and other discriminations against the route dealer
in favor of the franchise dealer.
It was undisputed at the trial that The News subsidized
the franchise dealers till they reached a certain level of
revenue, and at all times sold to the franchise dealer at
a much lower price than it sold to the route dealer. Ad-
ditionally, a special franchise delivery system was set up,
which resulted in delivery of copies of The News to the
franchise dealers several hours earlier than to the route
dealers.
F. Proceedings in the District Court and Court of Appeals.
After agreement as to a bifurcated trial, first on lia-
bility, then on damages, the liability trial was held in
May of 1972, a non-jury trial. In June of 1973, Judge
Bauman held that The News’ franchise agreements were
illegal price fixing agreements; that sales of copies of
The News to the plaintiffs had been discontinued in
furtherance thereof, that. the frawehise agreements con-
tained illegal territorial and customer restrictions, all in
violation of Section 1 of the Sherman Act. He further
ruled that the defendants had conspired to monopolize
part of the newspaper home delivery market, in violation
of Section 2. The Court thus upheld the claims that
route dealers who had been terminated by The News on
or after January 10, 1976, as well as those who continued
to receive copies of The News from The News and who
operate in areas in which the franchise system has been
instituted, and the claim of one route dealer who ac-
quired his route from a terminated route dealer and who
had not sought to purchase from The News. The Court
dismissed the complaint of the route dealers who con-
tinued to receive copies of The News and who operated
in areas in which the franchise system had not been in-
stituted, and dismissed complaints of the remaining plain-
tiffs insofar as they were based on alleged violation of
the Clayton Act and the Robinson-Patman Act.
All of the defendants appealed from the resulting
judgment; the plaintiffs cross-appealed from the denial
of the Robinson-Patman claims, and to the extent that
the judgment did not afford the equitable relief requested
by the plaintiffs in their proposed judgment, and only
from such parts of the judgment (1343a-1344a).
The Second Circuit held that the franchise dealers were
not wholesalers, in that the selling function, including ad-
vertising, sampling and solicitation of prospective home
subscribers, was performed almost entirely by The News
and by the franchise dealers rather than by the boys,
and therefore the agreements between The News and its
franchise dealers were not agreements between whole-
salers and wholesalers, holding that the agreements thus
met the requirements of the MeGuire Act and therefore
did not violate the Sherman Act. While it affirmed the
finding that The News combined with the franchise deal.
ers in violation of Section 1 of the Sherman Act to pre-
vent some plaintiffs from obtaining copies of The News,
it reversed the District Court’s findings that this and
other activity amounted to a conspiracy to monopolize
in violation of Section 2. It affirmed the dismissal of the
plaintiffs’ claims of violation of the Robinson-Patman
Act. It held that no liability existed for injury caused
hy the introduction by The News of the franchise system,
the lower home subscription prices resulting from that
system, or The News termination of direct sales to in-
dependent route dealers because of its decision to sub-
stitute the franchise system, dismissing the claims of
those plaintiffs to whom The News continued to sell,
modifying the injunctive relief provisions of the District
Court judgment accordingly.
Within the time permitted for filing a petition for re-
hearing, plaintiffs sought an extension of such time, which
was granted by the Court below. A petition for rehearing
was filed squarely raising the question, inter alia, of
whether the Court had properly discharged its appellate
function under Rule 52(a) of the Federal Rules of Ap-
pellate Procedure. On November 5, 1975, the Second
Cirenit denied the rehearing petition, and subsequently
staved the mandate of the Court pending determination
of this petition for certiorari.
21
This Court should grant review to determine whether
the Court below properly reversed the findings of the
trial Court, without any ruling that such findings of
the trial Court were clearly erroneous, when the find-
ings of the trial Court were based upon uncontradicted
testimony and concessions of the parties successfully
secking reversal, and when such factual findings were
clearly supported by uncontradicted evidence supplied
by the parties who sought reversal.
The trial Court found that the price fixing exemption
of the Federal McGuire Act and its counterpart Feld-
Crawford Act in New York did not protect The News in
its agreements with its franchise dealers, since, of course,
the MeGuire Act exemption does not apply to contracts
between wholesalers and wholesalers. And the trial Court
found that The News was a wholesaler “within the normal
and customary definition of ‘wholesaler’ as one whose
business is the selling of goods in gross to retail dealers”
(1281a). As we showed above in our statement of facts,
counsel for The News conceded throughout that The News
sold copies of the newspapers in bulk to the franchise
dealers, who re-sold to the boys, with each boy in the
franchise system selling between 20 to 80 copies of The
Daily News and 45 to 50 Sunday editions to the ultimate
consumers (745a). The testimony of the Circulation
Director of The News, Underwood, its chief witness, com-
pletely confirmed that The News sold copies of the paper
to the franchise dealers who in turn re-sold to the boys,
who in turn sold to the ultimate consumer, with Under-
wood expressly denying that there were any occasions
when The News sells directly to the carrier boy or to the
ultimate consumer (see, supra, pp. 12-18).
Despite the uncontradicted admissions by counsel for
The News, and despite the testimony of its witnesses
as to the chain of title, the Second Cireuit determined
that The News was selling directly to the customers,
that The News did not sell to the franchise dealers, that
the franchise dealers did not sell to the boys, and that the
boys did not sell to the home delivered customers, all
flying in the face of the uncontradicted testimony of The
News and the statements of its counsel, and all without
any evidentiary support whatsoever.
This Court has not previously hesitated to review an
antitrust decision of a Cireuit Court to determine
whether it had properly discharged its appellate function
under Rule 52(a) under which the findings of the trial
Court are not be be set aside unless clearly erroneous
le. g., Zenith Radio Corp. v. Hazeltine, 395 U. 8. 100
(1969)}]. We submit that in the case at bar, such review
should be granted, for the decision below is in conflict
with decisions of this Court and of other Courts of Ap-
peal, as follows:
(a) Even if the evidence would have supported a con-
clusion either way as to whether the franchise deal-
ers are wholesalers and the news boys retailers,
a choice between two permissible views of the
weight of the evidence would not be clearly er-
roneous, and hence not reversible, 338 U, 8, 388
(1950), But the Court helow went even further,
and, as we show below at pages 26-29, made new
findings as to which there was no evidentiary sup-
port whatsoever, ignoring clear evidence in the ree.
ord contrary to what the Court below then found.
(b) The Court below failed to give the deference it
must give to the decision of the trial judge [Zenith,
(¢)
(d)
supra at 123), failing to give the plaintiffs “the ben-
efit of all favorable inferences from the facts proved
relative to the” issue [Stacher v. United States, 258
F. 2d 112, 116 (9th Cir. 1958)], though the Court
“must take that view of the evidence most favor-
able to” the appellees. Kansas City Stockyards Co,
of Maine v. Anderson, 119 F. 2d 91, 93 (8th Cir.
1952).
The defendants never contradicted, and never in-
troduced any evidence to contradict, the massive
evidence that franchise dealers were wholesalers
and the boys retailers. In the absence of such
evidence, it is elementary that the Court below
should have affirmed [Stewart v. Lansing, 104 U. 8.
505, 511-2 (1881)], especially when all -evidence
tended to confirm this massive evidence, even
though appellate counsel might have tried the case
differently. Metropolitan Broadcasting Corpora-
tion v. Lebowitz, 293 F. 2d 524, 527 (D.C. Cir.
1961). Cf. Shapleigh ». Mier, 299 U. S. 468, 475
(1936),
The Second Circuit improperly permitted the de-
fendants to prevail upon contentions they had
never raised in the District Court, in a matter as
to which there was absolutely no dispute at trial.
Moreover, its reversal was in conflict with the rule
of the Cirenit Court of Appeals for the District
of Columbia, which has ruled that reversal is im-
proper where, as here, an appellant not only failed
to seek a finding at trial, but failed to object to a
kev finding, such as here, that the franchise deal-
ers and news boys were respectively wholesalers
and retailers. Fleming v. Van Der Loo, 160 F.
24 906, 909.10 (D.C. Cir. 1947),
(e) Insofar as our research has been able to dis-
cover, for the first time a federal appellate Court
has reversed findings which were totally supported
by the admissions of appellants’ counsel and the
testimony of its witnesses, and worked a reversal
based upon an argument of appellants that their
testimony and their admissions should be disre-
garded, This cannot be done, for the admissions
were binding. Oscanyan v. Arms Co., 108 U. 8S.
261 (1880), “At all events, it does not lie
in the mouth of a defendant in equity to complain
that the court assumed his answer made under
oath to be true and decreed accordingly.” Cavender
v. Cavender, 114 U. 8. 464, 471 (1885). Yet the
Court below permitted the defendants to complain
that their uncontradicted testimony is not true.
Cf. Mercelis v, Wilson, 235 U. 8. 579, 588 (1950).
As nearly as we can ascertain, the Court below
apparently disregarded the admissions of defense
counsel on the theory that the significance of the
admissions had not been realized. But at the time
of trial, the case had been in the Courts for six
years, ample time for defense to have familiarized
itself with applicable law. Oscanyan, supra, held
admissions by counsel binding where he had two
days to prepare, could have requested an adjourn.
ment, and no new facts were set forth. More-
over, the trial court here noted that all counsel were
fully familiar with the implications of the antitrust
laws (297a), and defense counsel had repeatedly
conceded that except for the harassment issue,
there was no material dispute as to any of the
facts (f4a, 10388). A rule such as that sugested
by the Court below, that an honest admission by
counsel familiar with the law, or even unfamiliar
with the law, is to be disregarded, is totally novel
in our jurisprudential sys.em, and should as-
auredly be reviewed by this Court.
(f) Moreover, by a reversal based upon evidence not
contained in the record and totally contradictory
to the trial contentions of the parties who pre-
vailed on appeal, the Court below denied the plain-
tiffs due process of law, in that plaintiffs would
have and could have introduced the following ad-
ditional evidence at the trial, which had been con-
sidered at the time of trial wholly cumulative in
the light of the trial record: (I) An advertise-
ment by The News showing that the boys sold to
the consumers, photocopy of which, in reduced size,
is annexed hereto as Exhibit T; (TT) that franchise
dealers were wholesalers, in that they did sell, in
addition to the news boys, copies of The News to
motor route dealers; (ITT) that The News sold to
other vendors in such a manner as to make The
News a retailer under the rule of the opinion, mak-
ing the agreements between The News and the
franchise dealers (if they were retailers, as the
Court below ruled) agreements between retailers
and retailers, and the price-fixing agreements thus
illegal.
In any event, as we suggested in our petition for re-
hearing, if it were correct, as the Court below held, that
the selling function, including advertising, sampling and
solicitation of prospective home subscribers, was performed
almost entirely by The News and by the franchise dealers
rather than by the boys, then The News and the fran-
chise dealers were both retailers, and the price-fixing
agreements between them would not have been protected
by the McGuire Act, because they would have been agree-
ments between retailers. This point was not raised until
the petition for rehearing filed below, since even in the
Second Cireuit the defendants had not taken the position
that such selling functions were performed almost en-
tirely by The News and the franchise dealers.
To a certain extent, the decision below apparently
rested upon the tender age of the boys (App. B, infra,
p. 72a). This ignored that New York law recognizes
that boys of this age may engage in “selling and deliver-
ing newspapers * * * to customers at their homes or
places of business.” New York Education Law, $3228.
(Emphasis supplied.) The United States also recognizes
that boys may sell newspapers.’
In looking at what the Court below termed the substance
of the relationships, the Court made many findings of
fact de novo, contradicted by or inconsistent with the
record,
Firstly, the Second Cireuit found that the boys had
“no real risk and no chance of realizing independent
profits,” noting an absence of evidence that boys had sus-
tained losses on account of delinquent subscribers. But
two franchise dealers had testified, as we noted, supra,
pages 13-14, that, if a subseriber did not pay the boy, it was
the boy’s loss, under the system. This testimony was
never contradicted.
Secondly, when the Court recited that the selling function
was performed almost entirely by The News and the
franchise dealers, this was plainly untrue. See, supra,
pages 12-15, .
_ ™*The Bureau of Census Oceupational Classification System
in a recent revision of 52 of 441 occupational categories changed
‘newsboys’ to ‘newspaper carriers and vendors.’’’ American
Newspaper Publishers Aesociation Special Report: Handbook for
Maintaining the Independent Contractor Status of Newspaper Car-
mers (1974), page 5. (Emphasis supplied.)
Thirdly, the Court below relied upon the theory that
“The boy hardly has a proprietary interest in the sub
seribers or his route,” but this was untrue: If a boy “got
orders off of his route, then it would be put on the kid’s
route, whatever street the kid delivers on” (75la). De-
velopment of new orders thus enlarged the boy’s route.
Moreover, The News itself represented to potential news
boys that they would have their own route (Pl. Ex. 12,
191a-192a).
Fourthly, the Court below further based its finding
of a lack of retail standing of the boys partly upon the
alleged fact that “their profits remained limited to the
established rate per delivered paper” (App. B, infra,
p. 73a). But there never was such a rate. The profit
of the boys depended upon the spread between the price
at which they purchased from the franchise dealers and
sold to the consumers (1100a, 1101a; Pl. Ex. 84, 1366a;
915a-916a). The only reason for any limitation of profits
was that The News not only fixed the price at which the
franchise dealers sold to the boy, but also fixed the price
at which the boy sold to his customer (1140a), and never
allowed any requested increase in the boy’s profit (907a-
908a). Movreover, in any event, a large portion of the
boy's income came from tipping—not controlled by The
News (867a).
The Court below further completely ignored the con-
stant characterization by The News of what the boy earned
as being his profit, the difference between his retail rate
and the franchise dealers’ wholesale rate. We have al-
ready referred, supra, page 13, to the form approved by
The News and used by defendant Lepore so reporting,
and we note further that many other franchise men used
precisely the same language (859a-862a). The franchise
dealer’s profit—the difference between the wholesale rate
to him and his wholesale rate to the boy—was deducted
from The News’ subsidy to the franchise dealers (884a).
The boys were told that they had to buy papers (907a),
and the boy’s eventual compensation was referred to con-
stantly as his profit (908a). Though there were perhaps
eight or nine phone solicitors for The News (930a), there
were 5,000 boys operating as an automatic sales force
(1137a), with phone solicitation occurring only after the
boys had solicited (985a-6a).
The Court further noted that the franchise agreement
did not require the use of the carrier boys at all, which
was correct, but it failed to note that the entire franchise
system depended on the use of the boys. As we noted
above, supra, page 10, every route dealer who was in-
vited by The News to become a franchise dealer was
told in the letter of invitation that the system so re-
quired. Further, The News admitted that the franchise
system was a boy system (1228a); route dealers and other
prospective franchise dealers were told they had to use
boys in the franchise system, and The News’ counsel noted
that the purpose of the franchise system was to establish
a boy system. See, supra, pages 10-11.
Thus, for the first time in recent jurisprudential his-
tory, so far as our research has heen able to determine,
a Court of Appeals has found facts to exist directly
contra to all the uncontradicted and uncontested testimony
and concessions of the losing parties at the trial. Not
only was there a failure to make any determination that
the trial Court’s findings were clearly erroneous, but the
Court of Appeals recited “facts” which were directly
contrary to what the trial showed. We submit that under
these circumstances, there should be a review by this
Court to determine whether the Second Circuit properly
exercised its Rule 52(a) functions.
In yet another instance, the Court again ignored the
plain facts of the case. Thus, in finding the refusal
of The News to deal with plaintiffs not to be violative of
the anti-trust laws on the basis that plaintiff route dealers
were not terminated until they had first been offered an
opportunity to become franchise dealers, the Court below
wrote that “If they accepted [this opportunity to become
franchise dealers], it was anticipated that they would sell!
their independent routes to others, not they would deprive
competing papers of an outlet” (App. B, infra, p. 79a).
However, the Second Circuit to the contrary notwith-
standing, there was no such testimony as to such anticipa-
tion. On the contrary, as we noted in our statement
of facts, the plaintiffs were merely told that they would
have to give up other papers, or dispose of them, while the
two plaintiffs who stated that they wanted to sell their
routes were told by The News that there was no time to do
so (supra, p. 11).
Of course, the McGuire Act is no longer law. But we
submit that this should not be a consideration militating
against the grant of certiorari here, since the question we
bring for review is whether an appellate court has prop-
erly exercised its Rule 52(a) functions, the importance
of which question is not negatived in the least by the fact
that the legislation upon which it relied has since been
repealed.
Additionally, we note that the decision below is in con-
flict with that of the Ninth Cireuit in Blankenship v.
Hearst Corporation, 519 F. 2d 418 (9th Cir. 1975), which
treated carriers as bona fide purchasers and resellers.
The failure of the Court below to properly discharge
its appellate function is perhaps explainable by its hos-
tility to the majority opinion of this Court in Albrecht
v. Herald Co., 390 U. S. 145 (1968), which held maximum
price-fixing (as here) to be as restrictive of competition
as minimum price-fixing. For the Court below held that
limitations on maximum resale prices are less restrictive
of competition than minimum price restraints, citing the
dissenting opinion in Albrecht (App. B, imfra, p. 68a).
This ruling below is thus in a way in conflict with this
Court’s decision in Albrecht, and the conflict may have
been the (subconscious) motivating force in the Rule 52(a)
violation below.
POINT I.
This Court should grant review to determine whether
the Court below denied plaintiffs an opportunity for a
hearing on the question of whether the aggregate of
The News’ restraints on trade—price fixing, termina-
tion of route dealers, boycott, territorial and customer
restrictions, price and other discriminations, and fail-
ure to make available copies of The News in varying lo-
calities—amounted to an unreasonable restraint of
trade.
Since the trial Court found per se price fixing viola-
tions, and illegality in the customer and territorial re-
strictions of the franchise system, it never reached the
question of whether The News franchise system con-
stituted an unreasonable restraint of trade, as had been
argued at length in the post-trial brief filed with the trial
Court (pp. 49-77). The Second Circuit, by reversing the
findings of per se violations, without any remand for a
trial or a finding on the issue of whether there had been
any unreasonable restraint of trade, denied plaintiffs an
opportunity for a judicial determination of the question,
and they were thus deprived of a right to a hearing, and
of property, without due process of law in violation of
the Fifth Amendment. The attention of the Second Cir-
31
cuit was called to this in the plaintiffs’ petition for re-
hearing (pp. 1-2).
Had the Court below found that the institution of
the franchise system and termination of some plaintiffs
was not an unreasonable restraint—or if it so found sub
silentio—its decision would be in conflict with of the Ninth
Circuit in Noble v. McClatchy Newspapers, F. 2d
(9th Cir. 1975), 1975-2 Trade Cases 960,594. Elimination
of distributors pursuant to a program may be an un-
reasonable restraint of trade when, as here, there was an
effort to establish market dominance or extend a natural
monopoly of the manufacturer’s own product, or other re-
strictive trade practices. Industrial Bldg. Materials, Inc.,
v. Interchemical Corp., 437 F. 2d 1336, 1343, fn. 8 (9th
Cir. 1970). Cf. American Motor Ins, Inc., v. Holiday Inns,
Inc., 52 F. 2d 1230 (3rd Cir. 1975).
POINT II.
Since newspapers are unique rather than fungible.
items, and are protected by the First Amendment, price
fixing was illegal per se under the McGuire Act because
The News was not in free and open competition with
commodities of the same general class.
The trial Court found, and the Second Circuit affirmed,
that The News is in free and open competition with The
New York Times and other local newspapers in the
suburban area. However, we believe that this Court should
review this decision, especially since the decision below is
in a way in conflict with Mr. Justice Frankfurter’s con-
curring opinion in Associated Press v. United States, 326
U. S. 1, 27-28 (1945), where he ruled that newspapers
are not wares like peanuts or potatoes, and that therefore
“the incidence of restraints upon the promotion of truth
through denial of access to the basis for understanding
calls into play considerations very different from com-
parable restraints in a cooperative enterprise having
merely a commercial aspect. * * * The interest of the
public is to have the flow of news not trammelled by the
combined self-interest of those who enjoy a unique con-
stitution position precisely because of the publie de-
pendence on a free press.”
Serious questions are raised by the treatment below
of different newspapers as interchangeable commodities.
To the reader or subscriber, different newspapers are not
so fungible :—The Daily News sells for 15¢, The Times for
20¢, The Sunday News for 30¢, The Sunday Times for
60¢—and if these newspapers »re to be treated as pea-
nuts or potatoes, then it is plain that The New York Times
should have been driven out of business long, long ago.
Such great newspapers as The New York News and The
New York Times are simply not of the same general class,
nor are either of them in the same general class as local
newspapers. To lump them all together in one general
class is to do violence to the very diversity of newspapers
fostered by the First Amendment.
The contents of different newspapers ar® unique. Quite
apart from the vast differences in editorial policy between
The News and The Times, quite apart from The News’
attempting to simplify stories so as to make them more
understandable while The Times gives thorough back-
ground information, The News emphasizes photographs
(958a-959a). The News is a tabloid, unlike The Times
and The Wall Street Journal (959a-960a); The News has
columnists who do not appear elsewhere in the city press
(961a), and is the only morning newspaper (except the
33
local Staten Island Advance) with comic strips (960a-
961a).
The Times and The News may no more be considered
competing commodities of the same general class than
beer and Coca-Cola could be so considered, because both
are beverages and a person desiring to quench his thirst
must choose which to buy. Cf. Eastman Kodak v. Federal
Trade Commission, 158 F. 2d 592 (2nd Cir. 1946), cert.
den. 330 U. S. 828 (1947).
POINT IV.
This Court should grant review to determine a con-
flict in decisions of Courts of Appeals, and with this
Court, as to standing of plaintiffs to assert illegality of
the customer and territorial restrictions of The News’
franchise agreements. The plaintiffs here had the
requisite standing because they were injured by the re-
strictions.
In the last page of its opinion, the Court of Appeals
modified the trial court’s judgment by eliminating the
injunctive provisions against both the customer and ter-
ritorial restriction provisions of The News’ franchise
agreements. The Court firstly disposed of the territorial
restrictions on the theory that by virtue of the exclusive
territory provisions of the agreements, the independent
route dealers “are assured of facing competition from
no more than one franchise dealer, who is confined to a
certain area” (App. B, infra, p. 80a). In so ruling, the
Court flew in the face of the record, since, without record
support, it assumed a non-existent territorial congruity
between a franchise dealer and a route dealer, when in
fact, the testimony was that there were several franchise
dealers at the same time in most route dealer’s areas
34
(610a). Thus, plaintiff Markowitz had five to seven
franchise dealers in his area at the same time (11l4a);
plaintiff Rosenblum two-four (350a-35la); plaintiff Fox
two or three (327a, 33la); plaintiff Davis three (502a) ;
plaintiffs Cartabuke, Perrot, and Amato each had two
(575a-576a; 649a; 759a); while plaintiff Hand had several
(610a).
As to the customer restrictions of the franchise agree-
ments, which prohibited resale except to news boys, the
Court below, though apparently ruling that plaintiffs had
standing to attack this restriction (App. B, infra, p. 81a).
nonetheless eliminated the injunetive prohibition against
this restriction (App. B, infra, p. 88a) on the theory that,
whether this restriction standing alone would be illegal
was rendered academic because of the conspiracy be-
tween The News and franchise dealers to prevent the in-
dependent route dealers from obtaining copies of The
News for distribution. However, the question was by
no means rendered academic, since the customer restric-
tions still persist in the eases of plaintiff ronte dealers
who, though their complaints have now been dismissed
hecause they were not the vietims of such conspiracy, still
find nonetheless that they cannot purchase copies of The
News from franchise dealers. They might well be able to
purchase such copies at prices more favorable than at
which they presently buy, and indeed one franchise dealer,
Lepore, had suggested below that he would willingly set
up a distribution system under which he would sell copies
of The News to route dealers. By striking the provisions
of the injunction issued by the District Court which pro-
hibited customer restrictions, the Court below, though
stating that the point is academic, has actually legiti-
mized the customer restrictions, which are of course il-
legal under the antitrust laws.
35:
But perhaps more importantly, from this Court’s point
of view, the test for standing of the Second Circuit below,
essentially a restatement of its “target area” test (Calder-
one Enterprises Corp. v. United Artists Theatre Circuit,
454 F. 2d 1292, 1295, 1296 (2nd Cir. 1971), cert. den. 406
U. S. 930 (1972), is one which would seem to be in a way
in conflict with the decisions of this Court. This Court
has historically taken a broad view of standing under
the antitrust laws, and has never adopted or endorsed
any of the restrictive tests laid down by the lower Courts.
See Hawaii v. Standard Oil of California, 405 U. S. 251,
262, n. 14 (1972), where the Court lists several lower
court cases with no more than a general comment ac-
knowledging their restrictive approach. And in Mande-
- -'e Island Farms, Inc., v. American Crystal Sugar Co.,
334 U. S. 219, 236 (1948), the Court permitted a suit by
growers alleging monopolization by refiners of a local
sugar beet market and wrote:
“The statute does not confine its protection to
consumers, or to purchasers, or to competitors, or
to sellers * * * [but protects] all who are made
victims of the forbidden practices by whomever they
may be perpetuated.” (Emphasis added.)
This Court confirmed this position in Radovich v. Na-
tional Football League, 352 U. S. 445, 454 (1957), a suit
by a professional football player claiming a boycott by
teams, and supported its holding by pointing to Con-
gressional support for private antitrust enforcement which
it found in the prima facie weight accorded by Congress,
in Section 5 of the Clayton Act, 15 U. S. C. §16, to final
judgments in a Government suit when used by private
litigants. The Court concluded:
“In the face of such a policy this Court should
not add requirements to burden the private litigant
beyond what is specifically set forth by Congress
in [the antitrust] laws.”
Moreover, the “target area” test of the Court below
is in conflict with the test of the Ninth Circuit. Thus,
in In re Multidistrict Vehicle Air Pollution M. D. L. No. 31,
481 F. 2d 122, 128 (9th Cir. 1973), cert. den. 414 U. S.
1045 (1973), the Ninth Cireuit formulated its test as
follows, at 128:
“To attain standing, a plaintiff must thus allege
that the antitrust violation injured a commercial
enterprise of the plaintiff in the area of the economy
in which the elimination of competition occurred.
Standing is denied, on the other hand, if the claim-
ant’s commercial activity occurred outside that area
of the economy.”
It needs no argument to demonstrate that plaintiffs here
are well within the Ninth Cireuit test.
The illegality of the customer and territorial restric-
tions are clear from the decision of this Court in United
States v. Arnold, Schwinn d& Co., 388 U. S. 365, 378 (1967),
since under the franchise agreements, the manufacturer
parted with dominion over his product, and transferred
risk of loss to another (the franchise dealer), and there-
fore could not reserve control over its destiny or the
conditions of resale (id. at 379) (1294a). The franchise
dealers had no right to return any copies of The News,
so that title had been parted with; The News transferred
risk or loss, for the risk of selling or not was wholly that
of the franchise dealer. The News parted with dominion,
for it was up to the franchise dealer to select and super-
vise the boys to whom he would in turn re-sell. Yet
The News did reserve control over the destiny of copies
of the papers, since under the franchise agreement they
could only be resold to news boy carriers, and by news
boy carriers to ultimate consumers, at prices stipulated
by The News. Such horizontal arrangements for cus-
tomer and territorial restraints are per se violations of
the antitrust laws. United States v. Topco Associates,
Inc., 405 U. S. 596 (1972).
The decision below, permitting the franchise system
and its restraints to operate to the disadvantage of in-
dependent route dealers, is squarely in conflict with the
recent decision of the Ninth Circuit in Noble v. McClatchy
Newspapers, supra, page 31, where the Ninth Circuit
ruled, 1975-2 Trade Cases at page 67,634:
“Because of such advantages to manufacturers, in-
dependent distributors continue to survive, and
bring to the public the benefits of added competi-
tion in the distribution of goods and services. These
benefits would be lost if manufacturers could ob-
tain the private economic benefits of a system of
distribution through independent businessmen, and
at the same time restrict the freedom of such inde-
pendent businessmen to compete. It was to prevent
the wholesale destruction of this opportunity for
competition that Schwinn forbade manufacturers to
control the disposition of products after sale. “To
permit this would sanction franchising and con-
finement of distribution as the ordinary instead of
the unusua! method which may be permissible in
an appropriate and impelling competitive setting,
since most merchandise is distributed by means of
purchase and sale.’ 388 U.S. at 379.”
And the effect of the decision below is to sanction fran-
chising and confinement of distribution as the ordinary
method; thus, the decision below was still in another
way in conflict with this Court’s decision in Schwinn.
In any event, the territorial limitations should have
fallen under the standard of reasonableness, because of the
anti-competitive effects of the franchise system, including
38
the territorial limitations, which we documented, supra,
at pages 15-18. When a route dealer went out of busi-
ness, not only were copies of The News not delivered in
that area for considerable time, but there was a lack of
home delivery of all other newspapers—which still con
tinues in some areas. Had there been no territorial re-
strictions of the franchise dealers, the franchise dealer
from one area might have serviced at least other areas
with copies of The News, and might have sold copies of
The News to terminated route dealers outside his area.
Moreover, as the trial Court had noted, the exclusivity
of the territory insured that “* * * each dealer would con-
centrate on taking business away from The News’ competi-
tors rather than from his fellow franchise dealers” (1293a,
n. 45).
Indeed, franchise dealers had sold copies of The News
to terminated route dealers, until this violation of the
franchise agreement was stopped by The News (e. g.,
540a-544a).
The territorial and customer restrictions are clearly
illegal; plaintiffs have been injured by them; they should
not be allowed to stand.
POINT V.
This Court should finally determine an important is-
sue: whether intent to monopolize is a prerequisite for a
conspiracy to monopolize under Section 2 of the Sher-
man Act. In any event, the findings of the Courts be-
low that such intent was not shown here were clearly
erroneous, and should be reversed.
The Court below ruled that it was necessary to demon-
strate an intent to monopolize the designated segment of
commerce here—intrabrand competition in the home de-
livery market—before sustaining a Sherman Act Section
2 conspiracy. The Court below thus, for the first time,
imported the requirement of intent—previously required
only in attempt, not conspiracy, cases—into conspiracy
cases, and reversed the trial Court’s finding of such a con-
spiracy. We believe that this novel and substantial doc-
trine of law— inconsistent with this Court’s dictum in Nash
v. United States, 229 U. S. 373, 378 (1913)—should be re-
viewed by this Court. See also, App. A, infra, pages 46a-
48a.
The trial Count had found that there was no such
specific intent to monopolize, but that its absence was ir-
relevant ;* the Court of Appeals found the absence of in-
tent fatal, and reversed the Section 2 conspiracy finding,
while affirming the finding of the absence of intent. Both
Courts below thus made clearly erroneous findings, for
the evidence of intent to monopolize, much of which was
ignored by both Courts in their opinions, was overwhelm-
ing.
The Court of Appeals apparently attempted to justify
The News’ adoption of the franchise system on the theory
that it had not been doing well in circulation on Long
Island (Nassau and Suffolk Counties) despite initiation
of specialized suburban zone sections—but this finding not
only was not supported by any evidence, but also contra-
dicted the record which showed that the Long Island
Edition of The News first appeared when the franchise
‘The trial Court did not clearly find that there was an ab-
sence of intent, but only that this was not the primary intent. Said
the Court, App. A, infra, at page 46a:
‘*In any event, plaintiffs have failed to prove that The
News had the requisite specific intent to monopolize. Not-
withstanding the predatory nature of many of its acts, I am
convineed that its primary concern was not the elimination
of its competitors.’’ (Emphasis supplied.)
system became operational on or about January 10, 1966
(255a-256a). Moreover, as we showed above (p. 8),
The News did practically nothing to develop home delivery
there prior to 1963, first had a home delivery circulation
department in 1964, and prior to the adoption of the fran-
chise system only engaged in occasional samplings and
telephone solicitation, not even paying route dealers as
promised.
There can be no explanation of The News’ adoption
of the franchise program except an intent to monopolize.
Absent such intent, why did The News embark upon the
program without cost studies? Absent such intent, why
did it choose to gain expanded sales through what its
later cost studies showed to be the more expensive fran-
chise system, instead of giving the less expensive route
dealer system a chance? Why, indeed, did it choose to
expand sales when such expanded sales would have created
net losses of ever-increasing hundreds of thousands of
dollars? Why had The News not had a long Island Edition
prior to the franchise program, and why had it neglected
home delivery?
Again, if The News had no predatory motive, why did it
refuse permission to route dealers to sell their routes
if they were to become franchise dealers? Why did it
stop supplying route dealers who were selling copies of
The News, and thus making money for The News, especially
in areas not yet covered by franchise dealers?
Thus, the inescapable conelusion is that The News
acted completely “insanely” (to use the words of its
parent company’s circulation manager at 994a-995a), or
else with predatory motive. The latter is obviously the
reason. There could only have been one motive, for
. there is no other explanation of why The News felt
41
compelled to lose several million dollars; that by de-
stroying or severely injuring the independent route
dealer system, a system of home delivery available to
present publishers and to any new publisher without any
cost whatsoever, The News could not only foreclose the
possibility of a new publisher of a morning paper appear-
ing, who would have to invest in setting up his own home
delivery system, but could restrict home delivery of its
“competitiors,” as happened here (supra, pp.15-18).
This kind of a motive, predatory though it is, is not
novel. Thus, in an article “Antitrust Problems in The
Newspaper Industry,” 82 Harvard Law Review 319, 326
(1968), the following appears:
“Newspapers naturally prefer to have distribu-
tors whose zeal in obtaining subscriptions they
ean depend on. On the other hand, in a market
with two or more newspapers, having separate
distributors for each is highly inefficient. More
important for purposes of antitrust law, exclusive
distributorships seriously impede new entry, since
they require each new paper to build its own
system. In addition to requiring additional capital
and personnel, the creation of a new distribution
system may take more time than a new entrant
ean easily afford. Indeed, the most likely explana-
tion why newspapers have overlooked the use of
multipaper carriers in the past is a desire to block
new entry.”
But be that as it may, the net effect upon competition
has been horrendous. Defendant’s Exhibit F (1405a) shows
the number of carriers, including franchise dealers and
independents, while Defendant’s Exhibit I (141la) shows
merely the number of franchise dealers. In 1965, accord-
ing to Defendant’s Exhibit F there were 125 carriers, all of
whom, of course, would have been independent route
dealers. In 1972, the total number of carriers, accord-
42
ing to Defendant’s Exhibit F, went to 133, of which, ac-
cording to Defendant’s Exhibit I, 97 were franchise deal-
ers, meaning that there were 36 independent route dealers
in Nassau left ont of the 125 route dealers existing in
1965. Of the 34 route dealers in Suffolk County exist-
ing in 1965 (Defendant’s Exhibit F) there were only
two left in 1972, since Defendant’s Exhibit I shows that
there were 50 franchise dealers in Suffolk County in
1972 as against a total of 52 carriers shown in Defend-
ant’s Exhibit F for 1972.
The intent to monopolize seems clear,’ and it is clear
also that price-fixing was a part of that conspiracy
as well. This Court should grant review, determine whether
intent must be proved, and, if it should rule that intent
must be proved, reverse the findings below as clearly
erroneous.
*The Court below found that The News did extensive sam-
pling under the franchise system (App. B, infra, p. 73a). There
is no record support for this finding, and it is contra to the record
(supra, p. 15). But the decision below is in conflict with Morn-
ing Pioneer, Inc., v. Bismarck Tribune Company, 493 F. 2d 383
(8th Cir. 1974), which held an intent to monopolize was suf-
ficiently shown by distribution of thousands of free newspapers.
Here, in any event, The News did provide hundreds of thousands
of sample free papers for the 5,000 news boys to give away, and
thus, despite the erroneous finding that The News did the sam-
pling, such sampling was enough to establish intent under the
Eighth Cireuit rule.
43
POINT VI.
This Court should grant review of the denial of plain-
tiffs’ Robinson-Patman claims involving price and other
discriminations, to determine whether, when the com-
ponents of the article in question have passed through
interstate commerce, discrimination is permissible sim-
ply because the finished article itself (the newspaper)
is not the subject of price discrimination in actual in-
terstate sales.
Both the trial Court and the appellate Court rejected
our argument that price and time of delivery discrimina-
tion—-prices of The News to its franchise dealers, and
the delivery times, both being much more favorable than
to the route dealers—were violative of Robinson-Pat-
man, because we did not show that the transactions gen-
erated discriminations across state lines. The Court be-
low relied upon this Court’s decision in Gulf Oi Corp.
v. Copp Paving Co., 419 U. S. 186, 200 (1974). As we
read that case, however, it leaves open the question of
whether there may be price discrimination, even in purely
intrastate sales, when the component parts of the mer-
chandise being sold had themselves passed through inter-
state commerce. Here it was stipulated (Court’s Exhibit
1), that the news which The News received, the news-
print and ink used, the articles it featured, ete., were all
part of interstate commerce. There need be no extended
diseussion here, since certainly this Court knows its mind
better than the undersigned could ever divine it.
We do pause to note, however, that only subsection (a)
of 15 U. S. C. 13 contains the requirement that the pur-
chases be “in commerce,” while the price discrimination—
partly in the form of lower prices to the franchise, partly
in the form of subsidization to them—and discrimina-
4
tion in time of delivery would seem to be prohibited
under subsections (d), (e) and (f), which do not contain
any requirement that the purchase be “in commerce.”
We also note that the franchise system was expanded
in 1967 to other counties in New York City, and in New
Jersey (968a-969a).
CONCLUSION.
This Court should grant review of the decision below.
Respectfully submitted,
HERBERT MONTE LEVY,
Attorney for Petitioners.
ee _
45
LET iS FEET BG
THE WALKING FOR YOU.
Whose feet are they? They belong to the youn man who delivered your fee copy of
The News this morning.
These fast-moving feet can save you ncedless steps—and precious tire—ev_ry morning
by trotting The News up to your front door in time for breakfast.
Weekly home delivery rates are low ... only 90c for service seven dys a week, 60c fur
delivery Monday through Saturday, and 30c for the Sunday News.* Your own steps and time
ere worth much more then that.
Later this week your newspaper boy will step up and ask you for your order... don't be
surprised if he does a little dance when you say “yes.”
Or you cen place your order far early morning home delivery now, by calling one of the
numbers listed below.
New Jersey: 798-9407 Suffolk: $43.41 4!
The Bronx & $teten Island: 458-9556 Ve THE NEWS
Nessau: 433-1220 Brooklyn & Queens: 458-0320 Mev TONEY UAE WEBER
* There it © wall service cherge in motor rote areas of Lang lila i New York N ; 1 Best S D
~.
APPENDIX.
la
APPENDIX A.
1256a
Opinion
UNITED STATES DISTRICT COURT
SoutHern District or New York
67 Civ. 1030
Cuartes W. Bowen, Jr., et al.,
Plaintiffs,
v.
Tue News, et al.,
Defendants.
APPEARANCESB:
Hersert Monte Levy, Esq.,
Attorney for Plaintiffs
Nicuo.as L. Coc, Esq.,
Attorney for Defendants Michael Lepore and Victore
Lepore
Town ey, Upprxe, Carter & Ropcrers, Esqs.,
Attorneys for other Defendants (Andrew L. Hughes,
Esq., Ronald S. Daniels, Esq., John M. Callagy, Esq.,
of counsel)
Bauman, D.J.
This is an action by thirty independent home delivery
dealers’ of The Daily News and the Sunday News against
New York News, Inc (“The News”), the publisher of those
newspapers, and various of its employees and franchise
dealers for treble damages and injunctive relief under
Sections 4 and 16 of the Clayton Act, 15 U.S.C. §4 15, 26.
1 Plaintiff Robert C. Harding withdrew from this action on
May 22, 1972 (Tr. 1916-17).
2a
1257a
Ovini
The request for relief is based upon alleged violations of
Sections 1 and 2 of the Sherman Act, 15 U.S.C. §$1, 2;
Section 3 of the Clayton Act, 15 U.S.C. § 14; and Sections
2(a), 2(c), 2(d), 2(e) and 2(f) of the Clayton Act, as
amended by the Robinson-Patman Act, 15 U.S.C. §§ 13(a),
(c), (d), (e) and (f). At issue is the effort of The News
to change its home delivery system from one employing
independent route dealers to one utilizing carrier boys
operating in conjunction with “franchised dealers.” ?
I,
In order to understand the exact nature of the alleged
antitrust violations set forth in the complaint, it is neces-
sary to describe in some detail the parties to this action
and their relationships with each other.
The News is a New York corporation engaged in the
business of publishing and distributing the “Daily News”
and “Sunday News”, newspapers published in New York
City and generally distributed in the New York metro-
politan area and, to a lesser extent, in the United States
* The changeover was part of an effort by The News to obtain
greater control over the resale price and method of distribution
of its paper.
The route dealers purchased newspapers from The News (at
wholesale prices) and delivered them to their customers by use of
automobile. However, since the routedealers also distributed com-
peting newspapers, The News was not in a position to dictate the
home delivered price of its newspaper.
For reasons which will appear later in the opinion, The News
felt that this limitation seriously impaired its ability to compete
in the home delivery market. It decided therefore to institute its
own home delivery system and structured it around independent
contractors which it designated “franchise dealers”. These fran-
chise dealers agreed to deal only in The News and to purchase
quantities of The News in bulk for resale to carrier boys at prices
fixed by The News. The carrier boys, in turn, resold to the public
“at no more than the regulerly assigned home delivered price.”
3a
1258a
Opinion
and foreign countries. At the time of this lawsuit, its
circulation was approximately 2,000,000 papers daily and
3,000,000 on Sunday, the largest of any newspaper in the
United States.
The News concedes, as well it might, that it is engaged
in interstate commerce within the meaning of the Sherman
and Clayton Acts. It is undisputed that it carries local,
state, national and international news, including sports,
nationally known columnists, comics and other syndicated
features. Its enormous advertising content includes the
messages of industrial giants from every corner of the
United States.
The remaining defendants are either present or former
News employees or present or former franchise dealers.’
The plaintiffs are, or were, independent route dealers
dealing in a number of newspapers, periodicals and
2 Aside from The News itself, the first eight named individual
defendants in the amended caption (Ct. Ex. 2) are present or
former News employees.
Jack Underwood was Circulation Manager of The News from
October, 1964 to June, 1970, and is presently Director of Circula-
tion.
Robert O'Sullivan was Home Delivery Area Supervisor for The
News from March, 1968 to July, 1969, and is presently the Manager
of The News’ Brooklyn plant.
Anthony Catanzaro was Assistant Suburban Area Sales Manager
from February, 1966 to November, 1966, and is presently Assistant
Circulation Sales Manager for Home Delivery.
David Auerbach has been a Cireulation Sales Representative
since October, 1962.
Donald A. Nizen was Suburban Area Sales Manager from May,
1964 to May. 1967, and is no longer employed by The News.
Gabriel Lewander was Circulation Sales Manager from January,
1970 to December. 1970, and is no longer employed by The News.
F. M. Flynn was President of The News from May, 1947 to May,
1970, and is currently Chairman of the Board of the Corporation
and Publisher of The News.
W. H. James was Executive Vice President of The News from
April, 1965 to May, 1970, and is currently its President.
The remaining defendants are or have been franchise dealers.
4a
1259a
Opinion
special interest publications. In general, they purchase
these items from wholesalers and resell them to home
delivery subscribers in defined territories.‘ Because each
confines his activities to his own territory, the routes have
become more or less valuable and salable.
Prior to 1965, The News was home delivered exclusively
by such route dealers. However, owing to circumstances to
be related, The News became dissatisfied with its growth of
home delivery circulation and decided to test a new distri-
bution system in certain areas of the suburban metro-
politan area, principally in Nassau and Suffolk Counties,
using carrier boys who would buy their papers from
franchised dealers. At the same time, it continued to deal
with many of the route dealers in the time honored way.
For this reason, the plaintiffs in this action fall into four
separate categories.
(1) Route dealers to whom The News terminated sales .
on or after Jnuary 10, 1966;°
(2) Route dealers who continue to receive copies of The
News and who operate in areas in which the franchise
system has not been instituted ;*
* This exclusivity had its genesis in horizontal arrangements of
doubtful legality prepared in the “Danby office.” This office, which
represented all the major newspapers published in New York City,
was authorized to award exclusive territories for the home delivery
of all member newspapers; and most of the plaintiffs purchased
their routes with its written approval. Since the demise of the
“Danby office”, the route dealers have continued to respect these
boundaries.
* Plaintiffs Bowen, Cartabuke, Ditta & Failla, Davis, Goldberg,
Gullo, Markowitz, Mirro, Poserow, Rosenblum, Schulz, Sweeney,
Kahrs, Floral Park News Delivery Inc. (Gold), Amato, and Perrot.
* Plaintiffs Freilich, Marston, Rosenblatt, Theall, Salant, Silver-
stein, Cestaro, and Ellis. Plaintiffs Ellis, Marston, and Silverstein
5a
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Opinion
(3) Route dealers who continue to receive copies of The
News and who operate in areas in which the franchise
system has been instituted ;’
(4) One route dealer who acquired his route from a
terminated route dealer and who never sought to purchase
from The News.°
The application of the legal theories advanced by the
plaintiffs vary with respect to each of these categories and
this difference will be noted as each of the theories is
discussed.
Il.
In the early 1960’s, The News’ circulation in New York
City began to decline largely because of the fall off in
sales of its evening edition which eventuated from the
increasing popularity of television and the decreasing
number of retail outlets remaining open in the evening. At
the same time, the suburban explosion was creating a
burgeoning market for newspaper sales which coincided
with a similar shift of commercial enterprises from the
city to the suburbs and their evolution as prime advertis-
ing markets. Since the bulk of The News’ revenues comes
from advertising, its appetite for its share was, quite
naturally, whetted.
To this end, it attempted to compete with regional and
local newspapers for circulation and advertising by publish-
have sold their routes, but received copies of The News during the
entire time they operated them.
7 Plaintiffs Huntington News Delivery, Inc. (Hand), Shank,
Foz, Greenberg, and Holman. Plaintiff Fox has sold his route,
but received copies of The News during the entire time he oper-
ated it.
* Plaintiff Rathsam.
6a
1261a
Opinion
ing a number of suburban or zone sections, each of which
was and is distributed as part of The News in a specific
geographic area. These suburban sectjons, which carry area
news, also carry local advertising at lower rates than are
charged for the full run of the paper.
However, under the route dealer system, The News’
campaign was something less than successful. While the
population of Nassau and Suffolk Counties rose by approx-
imately 350,000 between 1960 and 1966 (Defendants’ Ex-
hibit T), The News’ home delivered circulation in that area
increased by only 2,383 copies (Defendants’ Exhibit F), At
the same time, Newsday’s home delivered circulation in-
creased dramatically as did that of the Long Island Press.
The News decided that its failure resulted from the
disinterest of route dealers and hired Jack Underwood to
develop a new distribution system.
In 1965 he instituted a pilot franchise dealer program in.
an area of Nassau County not then being serviced by a
route dealer. This was so successful that it became the
model for The News’ new distribution system which was
then expanded into certain parts of New York City and
almost throughout Long Island. The franchise dealers who
participated in the program were signed to contracts, the
relevant provisions of which are:
(1) that The News agrees to assign an exclusive terri-
tory to the dealer;
(2) that the dealer agrees to purchase all newspapers
required by home delivery customers at prices fixed by
The News and supervise the delivery of them “at no more
than the regularly assigned home delivery price”;
(3) that the dealer agrees not to sell or distribute copies
of any other newspaper, or any advertising material not
authorized by The News;
7a
1262a
Opinion
(4) that the dealer agrees not to charge any carrier boy
engaged in making deliveries and collections more than
the price established therefor by The News;
(5) that the dealer does not have the right to return
unsold copies of The News;
(6) that The News may terminate the agreement with-
out advance notice if the dealer breaches any of its pro-
visions; but that the dealer must give sixty days’ notice
in writing; and
(7) that the dealer “is and shall remain an independent
contractor and not an employee or agent of The News.”
In late 1965 and early 1966, a number of the plaintiffs
were contacted by letter or telephone and offered the oppor-
tunity to become franchise dealers.’ Those who responded
*E.g. Bowen, Jaycox, Ditta & Failla, Gold, Fox, Goldberg,
Gullo, Kahrs, Markowitz, Perrot, Rosenblum, Sweeney, Poserow,
Schulz.
The letter read:
“The News plans to expand its Franchise Home Delivery opera-
tion in certain areas of New York City and Long Island. It has
been proven that this type of Home Delivery is productive and
beneficial to the publisher and that it insures a steady, healthy
growth in circulation.
In order to accomplish this task, The News is seeking the ser-
vices of qualified men to supervise the boy delivered franchise
districts. If you are interested in joining the team as a full time
exclusive News Franchise Manager, please telephone Mr. D.A.
Nizen MU 2-1234 ex. 8046 of the News Suburban Circulation Sales
Department.
An appointment for an interview will be arranged at the earliest
possible convenience. Please respond promptly since our selections
of Franchise Managers will be made within the next few weeks.
Sincerely,
Gabriel Lewander”
(Plaintiffs’ Exhibits 23 [letter to Schulz]; 30 [letter to Fox];
37 [letter to Goldberg]; 47 [letter to Poserow]; 75 [letter to
Shank} ).
8a
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Opinion
were told that if they did not agree to adhere to all of the
provisions of the franchise agreement their supplies of
The News would be cut off. None of them was willing to
bow to its restrictive terms and, within time, each was
notified by letter or otherwise that The News would no
longer deal with him.”® In all, sixteen plaintiffs were cut
off.”
© The letters read:
“The News has decided to institute an independent franchise
home delivery system in the area in which you now serve. The
franchised home delivery carrier will handle the Daily and Sunday
News on an exclusive basis.
Therefore, we must advise you that effective on
sales to you of the Daily and Sunday News will be discontinued
Davis
to Amato] ).
* The following plaintiffs were cut off on the dates set forth
below :
Plaintiff
Ditta & Failla
Markowitz
Perrot
Sweeney
Schulz
Bowen
Kahrs
Mirro
Goldberg
Poserow
Davis
Gullo
Rosenblum
Cartabuke
Gold
Amato
56 [letter to Ditta
Very truly yours,
News Synopicate Co., Ino.
By
Gabriel Lewander”
(Plaintiffs’ Exhibits 6 [letter to Markowitz] ; 25 [1
27 [letter to Kahrs} ; 35 [letter to Rosenblum] ;
berg] ; 40 [letter to Ditte} ; 48 [letter to Poserow] ; 54 [letter to -
; ; 59 [letter to Cartabuke]; 60 [1
to Geld). 63 [letter to Mirro]; 65 [letter to —_ were
Date of Termination
January 10, 1966
January 10, 1966
January 10, 1966
January 10, 1966
February 14, 1966
February 28, 1966
May 9, 1966
May 9, 1966
June 13, 1966
July 4, 1966
July 24, 1966
July 24, 1966
October 31, 1966
December 5, 1966
May 12, 1968
July 26, 1971
Date of Notice
December 25, 1965
December 27, 1965
December 25, 1965
None
January 31, 1966
February 16, 1966
April 22, 1966
April 22, 1966
June 1, 1966
June 20, 1966
July 11, 1966
None
October 17, 1966
November 25, 1966
April 26, 1968
July 7, 1971
etter to Schulz] ;
[letter to Gold-
; 74 [letter
9a
1264a
Opinion
In the meantime, The News continued to recruit fran-
chise dealers who were subsidized to help them through
the early organizational phase of their operation and were
charged less for The News than the route dealers who had
not been terminated.
The climinated route dealers attempted to buy copies of
the paper from local newsdealers, but, with rare exception,
found no one in Nassau or Suffolk willing to cooperate
with them. As a result, they were forced to travel great
distances and pay close to cover price to obtain its early
editions. However, when franchise dealers complained that
they were still facing competition from the “cut off” route
dealers, defendants O’Sullivan and Cantanzaro directed
them to ascertain the sources of the route dealers’ supplies
and promised that they would be eliminated. This pre-
cipitated a relentless campaign by the franchise dealers
to learn the route dealers’ sources of supply in which News
employees enlisted and, as a result of which, the route
dealers were under constant surveillance by franchise deal-
ers, employees of The News and off-duty policemen re-
eruited for this purpose. In some instances, the policing
activities of the defendants turned into sheer harassment.
Thus, when plaintiff Markowitz was observed removing
papers from a drug store, The News had him arrested de-
spite the fact that he claimed he had a written contract
with the owner, one Max Seltzer, which authorized him to
do so. When Seltzer was asked by defendant Auerbach
to prosecute Markowitz, he confirmed Markowitz’ story.
He was told that if he did not agree to press charges The
News would no longer supply him with papers. Seltzer
refused and was cut off the next day.
10a
1265a
Opinion
III.
Plaintiffs contend that (1) The News’ franchise agree-
ment is an illegal price fixing agreement and that sales
to them were discontinued in furtherance thereof; (2) the
defendants have combined, in violation of Section 1 of the
Sherman Act, to exclude them from access to copies of
The News; (3) the franchise agreement contains illegal
territorial and customer restrictions; (4) The News has
attempted to monopolize the newspaper home delivery
market; (5) the defendants have conspired to monopolize
a part of the newspaper home delivery market; (6) the
exclusive dealing provision of the franchise agreement
violates Section 3 of the Clayton Act; and (7) The News
violated the Robinson-Patman Act by discriminating in
prices hetween ditferent purchasers of The News.
IV.
THe News’ Reta Price Marntexance AGREEMENTS ARE
Nor Exemprep From tue Antitrust Laws By
THE Fam Trape Acts.
The News relies heavily in its defense on 92 of the
McGuire Act, 15 U.S.C. §45(a)(2)"? and the New York
Feld-Crawford Act, N.Y. Gen. Bus. L. § 369-a et seq." It
contends that these provisions permit it to fix the maximum
resale price of its papers without violating the antitrust
laws. Plaintiffs, on the other hand, vigorously oppose this
reading of these two statutes and have advanced four rea-
sons for the proposition that they do not exempt the de-
fendants’ conduct from §1 of the Sherman Act.
In order properly to evaluate these competing positions,
some preliminary, perhaps elementary, observations are
necessary. The Sherman Act, as originally drawn, forbade
18 See footnote 16 infra.
** See footnote 29 infra.
lla
1266a
Opinion
resale price muintenance contracts whether horizontal or
vertical, see e.g., United States v. Bausch & Lomb Co., 321
U.S. 707 (1943); United States v. Trenton Potteries Co.,
273 U.S. 392 (1927); United States v. Socony-Vacuum Co.,
310 U.S. 150 (1940); Kiefer-Stewart Co. v. Joseph E.
Seagram & Sons, Inc., 340 U.S. 211 (1951); Dr. Miles
Medical Co. v. John D. Park & Sons Co., 220 U.S. 373
(1911).
The Miller-Tydings Act,’* passed in 1937, amended the
Sherman Act to permit such contracts where they were
legal under state law, provided that they were not contracts
“ — . between manufacturers, or between wholesalers, or
.. . between persons, firms or corporations in competition
with each other.” In 1951 the Supreme Court held that it
did not apply to price-fixing agreements made binding by
state law on “non-signers” of such agreements. Schweg-
14 The Miller-Tydings resale price maintenance act, 50 Stat. 693
(1937), 15 U.S.C. § 1, was enacted as an amendment to Section 1
of the Sherman Act and Section 5 of the Federal Trade Commis-
sion Act. Taking the form of a proviso in Section 1 of the Sherman
Act it states:
“Provided, that nothing herein contained shall render illegal,
contracts or agreements prescribing minimum prices for the resale
of a commodity which bears . . . the trade mark, brand, or name
of the producer or distributor of such commodity and which is
in free and open competition with commodities of the same general
class produced or distributed by others, when contracts of agree-
ments of that description are lawful as applied to intrastate trans-
actions, under any statute, law or public policy now or hereafter
in effect in any State, Territory or the District of Columbia in
which such resale is to be made, or to which the commodity is to
be transported for such resale, and the making of such contracts
or agreements shall not be an unfair method of competition under
section 35, as amended and supplemented, of the Act entitled “An
Act to create a Federal Trade Commission, .. .
Provided further, that the preeeding proviso shall not make
lawful any contract or agreement, providing for the establishment
or maintenance of minimum resale prices on any commodity herein
involved, between manufacturers, or between producers, or between
wholesalers. or between brokers or between factors, or between
retailers or between persons, firms or corporations in competition
with each other... .”
mann Bros. v. Calvert Distillers Corp., 351 U.S. 384
(1951)."*
Responding to that decision, Congress passed the Mc-
Guire Act Amendment to Section 5(a) of the Federal Trade
Commission Act.’* The McGuire Act not only reaffirmed
* Prior to Schwegmann many statutes permitted a trademark
owner to require retailers who had notice of such agreements to
observe resale price maintenance. In that case, the Court examined
the Miller-Tydings Act and concluded that Congress had intended
the words “contracts or agreements” to be used “in their normal
and customary meaning”, and to cover only agreements whereby
the retailer voluntarily agreed to be bound by the resale price
restrictions. It held that state resale price laws could not be ap-
plied to non-signers—“recalcitrants .. . d d in by the heels
and compelled to submit to price fixing.” 341 U.S. at 390.
°66 Stat. 631, 15 U.S.C. §45 (1952). The Act provides in
relevant part:
“Be it enacted by the Senate and House of Representati f
the United States of America in Congress pole we That it ‘s
the purpose of this Act to protect the rights of States under the
United States Constitution to regulate their internal affairs and
more particularly to enact statutes and laws, and to adopt policies, -
which authorize contracts and agreements prescribing mini
or stipulated prices for the resale of aueudiies and to extend
the minimum or stipulated prices prescribed by such contracts and
agreements to persons who are not parties thereto. It is the further
purpose of this Act to permit such statutes, laws, and public
policies to apply to commodities, contracts, agreements, and ac-
tivities in or affecting interstate or foreign commerce.
‘See. 2. Section 5(a) of the Federal Trade Commissi
amended, is hereby amended to read as 6 Al mmission Act, as
‘See. 5(a)(1) Unfair methods of competition in commerce, and
unfair or deceptive acts or practices in
clared unlawful. , commerce, are hereby de-
‘(2) Nothing contained in this Act or in any of the Anti
Acts shall render unlawful any contracts or egseemante Romine
minimum or stipulated prices, or requiring a vendee to enter into
contracts or agreements prescribing minimum or stipulated prices
for the resale of a commodity which bears, or the label or con-
tainer of which bears, the trade-mark, brand, or name of the pro-
ducer or distributor of such commodity and which is in free and
open competition with commodities of the same general class
produced or distributed by others, when contracts or agreements
13a
1268a
Opinion
the policy of the Miller-Tydings Amendment," but also
eliminated the restrictive effect of the Supreme Court’s
of that description are lawful as applied to intrastate transactions
under any statute, law or public policy now or hereafter in effect
in any State, Territory, or the District of Columbia in which such
resale is to be made, or to which the commodity is to be transported
for such resale.
‘(3) Nothing contained in this Act or in any of the Antitrust
Acts shall render unlawful the exercise or the enforcement of any
right or right of action created by statute, law, or public policy
now or hereafter in effect in any State, Territory, or the District
of Columbia, which in substance provides that willfully and know-
ingly advertising, offering for sale, or selling any commodity at
less than the price or prices prescribed in such contracts or agree-
ments, whether the person so advertising, offering for sale, or sell-
ing is or is not a party to such a contract or agreement, is unfair
competition and is actionable at the suit of any person damaged
thereby.
‘(4) Neither the making of contracts or agreements prescribed
in paragraph (2) of this subsection, nor the exercise or enforce-
ment of any right or right of action as described in paragraph (3)
of this subsection shall constitute an unlawful burden or restraint
upon, or interference with, commerce.
‘(5) Nothing contained in paragraph (2) of this subsection
shall make lawful contracts or agreements providing for the estab-
lishment or maintenance of minimum or stipulated resale prices
on any commodity referred to in paragraph (2) of this subsection,
hetween manufacturers, or between producers, or between whole-
salers, or between brokers, or between factors, or between retailers,
or between persons, firms, or corporations in competition with each
Gc.
The McGuire Act did not repeal the Miller-Tydings Amendment
to the Sherman Act and there .are, therefore, two federal laws
presently exempting state fair-trade acts from the prohibitions
of the federal antitrusts. It is apparent, however, that the McGuire
Act was intended to supersede the Miller-Tydings Amendment,
See Callman, Unfair Competition, Trademarks and Monopolies,
§ 22.2.
17In order to safeguard interbrand competition, the Act pro-
hibits horizontal price-fixing agreements and denies fair-trade con-
tracts its protection unless the fair-traded product is “in free and
open competition with commodities of the same general class.”
Thus, the Act contemplates the elimination of intraband price
competition and relies for protection of the public interest upon
interbrand price competition.
l4a
1269a
Opinion
decision in Schwegmann by permitting states to enact laws
for the enforcement of fair trade contracts against non-
signers.'* However, like the Miller-Tydings Amendment, it
legalizes only vertical price maintenance contracts which
are lawful in the state where the resale is made. Conse-
quently, any analysis of The News’ resale price mainte-
nance system must begin with an examination of the New
York Fair Trade Law.
The Feld-Crawford Act, as the New York Fair Trade
Law” is commonly referred to, was modeled after the
California Fair Trade Act of 1933.%° Section 369-a permits
vertical price fiting by authorizing the producer or owner
of any brand-name commodity “which is in fair and open
competition with commodities of the same general class”
to fix by contract, a stipulated resale price and to require
any dealer who may resell it to agree not to do so at other
than the stipulated price. Section 369-b characterizes devi-
ation from the agreement as unfair competition actionable
by any person damaged, whether or not the violator is a
party to the contract. Section 369-c completes the statutory
“* The Report of the House Committee on I
which accompanied the McGuire Act declared a Commerce
“The primary purpose of the bill is to reaffi
plication and enforcement of State fair-trade E. -, 04S the
non-signer provisions of such laws— .. . shall not cunaitelie a
violation of the Federal Trade Commission Act or the Sherman
Antitrust Act. This reaffirmation is made necessary because of
the deciai a ;
bord wang hed a ee Court in Schwegmann v. Calvert
** N.Y. Gen. Bus. L. § 369-a et seq. ‘
*° See Bristol-Myers Co. v. Picker, 302 N.Y. 6
constitutionality of the California Act, (Cal. hone ton oe oe
Deering s Gen. Laws of Cal., 1931, Act 8782, as amended, Cal. Laws
, Ch. 269, Deering’s Gen. Laws Supp. 1933, Act 8782), was
upheld in The Pep Boys, M :
Inc., 299 U.S. 198 (1936). anny, Moe & Jack v. Pyroil Sales Co.,
15a
1270a
Opinion
scheme by excluding horizontal resale price maintenance
agreements from the operation of the statute.
The News’ franchise agreement provides, among other
things that the franchise dealer shall purchase from The
News on each day of publication a sufficient number of
copies of the newspaper to supply “all single copy home
delivery subscribers within his territory” and shall super-
vise the delivery and resale of the newspapers to such
regular subscribers at “no more than” the regular home
delivery price established by The News.
Plaintiffs claim this provision is not within the protec-
tion of the Feld-Crawford and McGuire Acts and violates
Section 1 of the Sherman Act. They allege that:
(1) The News is not in fair and open competition with
commodities of the same general class;
(2) The News is controlling not merely the resale prices,
but also the home delivery service charge ;
(3) The Feld-Crawford and McGuire Acts only permit
minimum resale prices to be fixed, not maximum resale
prices; and
(4) The franchise agreement is an illegal horizontal
agreement between wholesalers.
Plaintiffs’ contention that The News is not in “free and
open competition with commodities of the same general
class” can be disposed of briefly.
The existence of “free and open competition” is a con-
dition precedent to the legality of any resale price mainte-
‘nance system.” See 1 Callman, Unfair Competition Trade-
21 The quoted language is used in both the McGuire Act and the
Miller-Tydings Act. The same requirement appears with a minor
variation in the Feld-Crawford Act which permits resale price
maintenance contracts relating to commodities in “fair and open
competition.”
marks and Monopolies § 23.3(a) (3rd Ed. 1971). This re-
quirement is designed to assure that fair trade is limited
to products which face sufficient interbrand competition to
prevent them from eliminating horizontal price competi-
tion.2? See Eastman Kodak Co. v. F.T.C., 158 F.2d 592,
594 (2d Cir. 1946), cert. denied, 330 U.S. 828 (1947); Her-
man, Free and Open Competition, 9 Stan. L. Rev. 323
(1957) ; Note, 105 U. Pa. L. Rev. 415, 417 (1957).
Though the case law in this area is sparse, the decisions
on point establish that a product is in “free and open com-
petition” when there are other products which are pur-
chased by consumers for the same purpose.”* See Columbia
Records vy. Goody, 278 App. Div. 401, 105 N.Y.S.2d 659
(1st Dept. 1951); General Electric Co. v. S. Klein-on-the-
Square, 121 N.Y.S.2d 37, 49-50 (1953). See also Glen Roven
Knitting Mills v. Sanson Hosiery Mills, 189 F.2d 845, 854
(4th Cir. 1951); Fulda, Resale Price Maintenance, 21 U.
Chi. L. Rev. 175, 198 (1954).
22 Though fair trade acts expressly sanction the elimination of
intraband price competition, they seek to preserve interbrand com-
petition by prohibiting horizontal price &xing and denying pro-
tection to products which are not in free and open competition
with conimodities of the same general class. ;
In this connection, the legislative history of the Miller-Tydings
Act is instructive. It clearly indicates that Congress sought to
validate resale price maintenance agreements only with respect to
commodities which are in effective competition with similar com-
modities. 81 Cong. Rec. 7495 (1937) (remarks of Senator Tydings).
23 Fastman Kodak v. F.T.C., 158 F.2d 592 (2d Cir. 1946), cert.
denied, 330 U.S. 828 (1947), cited by plaintiffs, does not hold to
the contrary. In that case, the Second Circuit affirmed an F.T.C.
order which was based on the Commission’s finding that color film
is not in the same general class as black and white film. This deci-
sion is of little precedential value because the Commission’s find-
ings are conclusive if they are supported by any evidence. See
F.T.C. v. Education Society, 302 U.S. 112, 117 (1937).
17a
1272a
Opinion
Applying this test to the case at bar it becomes clear
that The News is in free and open competition with the
New York Times and a number of local newspapers in
the suburban areas. Indeed, to meet this competition The
News has been forced to embark on an aggressive home
delivery system and to publish a number of suburban or
zone sections.”*
Plaintiffs’ second contention is that The News is “not
merely controlling resale prices, but .. . is actually con-
trolling the home delivery service charge.” This, they main-
tain, is not permitted by the Feld-Crawford Act. The only
authority cited is u brief passage from Bristol-Myers Co.
v. Picker, 302 N.Y. 61 (1950).*
The Bristol-Myers case involved a drug store and other
retail establishments which, as members of the “Lynbrook
Dividend Club”, issued “cash register receipts” to their
customers with all sales. These receipts were redeemable
in merchandise for 242% of the sale at any store in the
club. Bristol-Myers contended that this amounted to an
** These suburban sections are distributed as part of The News
in specific geographic areas and carry local news and advertising.
Currently The News produces special sections for the following
areas: Manhattan, Bronx-Westchester, Passaic-Bergen, Newark,
New Jersey, Brooklyn, Queens and Long Island, and Nassau-
Suffolk.
28 The passage reads:
“Considered as a method of advertising, the challenged scheme
must be differentiated from types of service such as free parking,
self-service, care of infants, entertainment, free delivery and the
like, which we are not presently concerned. These other types of
services have no direct relation to the article purchased or the
price paid. They are completely separated and too remote from
the pricing element to come within the statute’s prohibition.” 302
N.Y. at 68.
Plaintiffs made no attempt to develop any argument in support
of their position and rely exclusively on this passage.
18a
1273a
Opinion
illegal reduction of its fair trade price and sued for an
injunction.’*
The New York Court of Appeals held that this practice
constituted price cutting within the meaning of the Feld-
Crawford Act and that Bristol-Myers was entitled to the
relief requested, noting that:
“The challenged scheme must be differentiated from
types of service such as free parking, self-service,
care of infants, entertainment, free delivery and the
like .. . These other types of service ... are too re-
mote from the pricing element to come within the
statute’s prohibition.” 302 N.Y. at 68.
Thus, rather than support plaintiffs’ position, Bristol-
Myers would seem to indicate that nothing in the Feld-
Crawford Act prevents The News from fixing the home
delivery price of its paper.”
Plaintiffs’ third contention is that the Feld-Crawford
Act does not authorize the fixing of maximum resale |
prices. Here, they argue that the New York decisions dis-
cussing the purposes for which the statute was enacted*®
** Bristol-Myers had fixed minimum retail prices for i
pursuant to the New York Fair Trade ae and Le ae
provided against sales below the established prices “by any means,
device, combination sale, trading stamp, free goods, discount, rebate
or other allowance .. .” See Note, 63 Harv. L. Rev. 366, 367 (1949).
id It is significant that The News’ franchise agreement makes no
mention of service charges. Instead, it provides that the franchise
dealer supervise the delivery and resale of the newspapers to sub-
seribers at “no more than” the regula j i
established by The News. a ao
** Plaintiffs rely principally upon General Electric v. Masi
307 N.Y. 229 ( 1954) ; Bristol-Myers Co. v. Picker, 302 NY. 61
(1950) ; and Bourjois Sales Corp. v. Dorfman, 273 N.Y. 167 ( 19387).
and the statute read as a whole’ require the conclusion
that the sole legislative purpose was to permit the setting
of minimum resale prices.
Although there is a dearth of decisional law in this area,
and no square holding on point, what few cases there are
lend support to the view that the terms “minimum” and
“stipulated” are not synonymous, and that both the Mc-
Guire Act and the Feld-Crawford Act authorize the
setting of either a minimum or a stipulated (absolute)
price. See Schwegmann Brés. v. Calvert Corp., 341 US.
384, 388 (1951); Graham v. Triangle Publications, Inc., 233
F.Supp. 825, 830-831 (E.D. Pa. 1964), aff'd per curiam 344
F.2d 775 (3rd Cir. 1965); Mead, Johnson & Co. v. West
29 Section 369-a(1) of the Feld-Crawford Act permits the pro-
ducer of a commodity which bears its trademark, brand or name,
and which is in “fair and open competition with commodities of
the same general class produced by others” to “stipulate” the
price at which its buyer may resell and also to provide that the
buyer will not, in turn, resell except at the price stipulated.
Section 369-b provides that willfully and knowingly advertising,
offering for sale or selling a commodity at less than the price
stipulated by any contract pursuant to § 369-a is unfair competi-
tion and actionable by any person damaged thereby.
In support of their argument, plaintiffs stress the fact that
§ 369-b creates a cause of action only against those who knowingly
and willfully sell “at less than the price stipulated in any con-
tract” pursuant to § 369-a. However, the fact that § 369-b is silent
with respect to enforcement against parties who sell above the
stipulated price is not dispositive of this issue. In the ordinary
situation there is no need for enforcement of maximum prices
since anyone selling at a price higher than a generally observed
maximum price would quickly lose sales as a natural consequence
of competition. See Fulda, Resale Price Maintenance, supra, at
190. Cf. Adams, Resale Price Maintenance: Fact and Fancy, 64
Yale L. J. 967, 972 (1955).
%® Paragraph 2 of the MeGuire Act provides in pertinent part
that nothing contained in the Antitrust Acts “shall render un-
lawful any contracts or agreements preseribing minimum or stipu-
lated prices,” lawful under State law.
20a
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Opinion
Chester Discount Health & Vitamin Center, Inc., 212
F.Supp. 310 (E.D. Pa. 1962). See also General Electric
Co. v. 8. Klein-on-the-Square, Inc., 121 N.Y.S8.2d 37 (Sup.
Ct. 1953).
Thus, in Schwegmann, supra, the Supreme Court con-
sidered a provision in the Louisiana Fair Trade Law
which prevented a buyer from reselling “except at the
price stipulated by the vendor.” After contrasting it with
the provision in the Miller-Tydings Act which provides
for contracts or agreements prescribing “minimum prices”,
the Court concluded that “. . . Louisiana law sanctions
the fixing of maximum as well as minimum prices . . .”
341 U.S. at 388."
Similarly, in Mead, Johnson & Co. v. West Chester Dis-
count Health & Vitamin Center, Inc., supra, the court con-
strued §1 of the Pennsylvania Fair Trade Act which pro-
vides “[(t]hat the buyer will not resell such commodity
except at the price stipulated by the vendor.” It found
“... that the fixing of a minimum retail price is an exer-.
cise of some, but not all, of the authority conferred by the
statutory right to set a stipulated price.” 212 F.Supp. at
1 This dicta assumes even greater significance when the lanen
of paragraph 2 of the McGuire Act is examined. In ponnitting
contracts or agreements prescribing minimum or stipulated prices,
Congress clearly intended to make lawful a tvpe of contract not
covered under the Miller-Tydings Act. See H. R. Report No. 1437,
72nd Congress, 2d Session, 1952, at pp. 5-6; Fulda, Resale Price
Maintenrnce, 21 U.Chi. L. Rev. 175, 190 (1954). Since it had
the benefit of the Supreme Court’s construction of the Louisiana
statute the conclusion is inescapable that it intended to sanction
‘the fixing of maximum as well as minimum prices.”
Furthermore, to read “stipulated” as synonymous with “mini-
mum” would violate the cardinal rule that “significance and effect
shall if possible, be accorded to every word” in a statute. Wash-
ington Market Co. v. Hoffman, 101 U.S. 112, 115 (1879). See
also United States v. Menasche, 348 U.S. 528, 538-539 (1955) ;
Ginsburg & Sons v. Popkin, 285 U.S. 204, 208 (1932).
2la
Pi
Opinion
313. This language was quoted with approval in Graham
v. Triangle Publications, Inc., supra.
Moreover, despite plaintiffs’ characterization of the New
York decisions on this question, not one holds or states
by way of dicta that the sole purpose of the New York
legislature in enacting the Feld-Crawford Act was to allow
for the maintenance of minimum resale prices,
Furthermore, contrary to plaintiffs’ assertion, at least
one New York decision, General Electric Co. v. S. Klem
on-the-Square, Inc., supra, clearly holds that it authorizes
agreements whereby “the buyer agrees to sell neither above
nor below” a stipulated price.
“There of course is a difference between preventing
under-selling or price-cutting and preventing price
gouging by selling above a designated price, and it
may be that some fair trade laws forbid both while
others forbid only one or the other. It is unnecessary
to go into that. The N.Y. statute forbids selling at
less than the price stipulated in a contract, and a
price is stipulated in a contract by which the buyer
agrees not to sell below a stated price as well as in
a contract by which the buyer agrees to sell neither
above nor below that price.
“ a price is stipulated or prescribed in a con-
tract by which the buyer agrees not to sell below a
stated price as well as in a contract by which the buyer
agrees tc sell neither above nor below that price, or,
in the phrase defendant likes ‘at that price’.” 121
N.Y.S.2d at 46, 47.
In the absence of any square holding to the contrary,
I find the reasoning of the General Electric case persuasive.
22a
1277a
Opinion
Accordingly, I reject plaintiffs’ contention that the Feld-
Crawford Act permits only the fixing of minimum prices.
Plaintiffs’ final argument is that the franchise agreement
is one between wholesalers and, therefore, is not protected
by the McGuire Act. They contend that The News is a
wholesaler in that it sells its newspapers directly to news-
stand and franchise dealers and that the franchise dealers
are also wholesalers because they, in turn, sell, at whole-
sale, to the carrier boys.
The News, on the other hand, denies that such direct sales
make it a wholesaler. It contends that it is on a different
functional level than its franchise dealers and argues that
any agreement between them is vertical. It asserts that
nothing in the Feld-Crawford Act prohibits an integrated
manufacturer-wholesaler from making fair trade contracts
with independent wholesalers.
I am prepared to accept this construction of the New
York Fair Trade Laws. See Eastman Kodak Co. v.
Schwartz, 133 N.Y.S.2d 908 (Sup. Ct. 1954) ; Gillette Safety’
Razor Co. v. Green, 3 N.Y.S.2d 822 (Sup. Ct.), aff’d 258 App.
Div. 723, 15 N.Y.S. 142 (1938). However, whatever reach
the New York courts might give the New York Fair Trade
Laws is subject to McGuire Act limitations. See Janel Sales
Corp. v. Lanvin Parfums, Inc., 396 F.2d 398, 401 (2d Cir.),
cert. denied, 393 U.S. 938 (1968); Sunbeam Corp. v. Mas-
ters, Inc., 157 F.Supp. 689, 691 (S.D.N.Y. 1957).
That Act expressly condemns “horizontal” price fixing
agreements. Paragraph 5 provides that:
“Nothing contained in paragraph (2) of this subsec-
tion shall make lawful contracts or agreements provid-
ing for the establishment of minimum or stipulated
resale prices on any commodity referred to in para,
graph (2) of this subsection, between manufacturers,
or between producers, or between wholesalers, or be-
tween brokers, or between factors, or between retailers,
or between persons, firms, or corporations in competi-
tion with each other.” 15 U.S.C. § 15(a)(5).
In spite of what seems to be quite clear, the interpretation
of this paragraph is still somewhat unsettled. See gener-
ally, Callman, Unfair Competition, Trademarks & Monopo-
lies § 23.3(c).
In United States v. McKesson & Robbins, 351 U.S. 305
(1956), the Supreme Court held that a manufacturer-whole-
saler could not enter into fair trade agreements with
independent wholesalers who competed with its wholesale
division on the ground that both the Miller-Tydings and
McGuire Acts specifically exclude from their antitrust ex-
emption all agreements “. . . between wholesalers . . . in
competition with each other.” In reaching this result, the
Court rejected McKesson’s argument that in contracting
with independent wholesalcrs it acted solely as a manufac-
turer seiling to buyers rather than as a competing whole-
saler. It refused to compartmentalize McKesson’s business
and stated that “the statutes provide no basis for sanc-
tioning the fiction of McKesson . . . acting only as a manu-
facturer when it concludes ‘fair trade’ agreements with
competing wholesalers. These were agreements between
wholesalers.” 351 U.S. at 312.
The McKesson decision cast substantial doubt on the
legality of fair trade agreements between vertically inte-
grated manufacturers and independent wholesalers and
retailers; Herman, Fair Trade and McKesson & Robbins,
44 Cal. L. Rev. 853, 857 (1956); Note, 46 Georgetown L.J.
166, 175 (1957); Note, 24 Univ. of Chi. L. Rev. 533, 538
(1957); see also Weston, Resale Price Maintenance and
Market Integration: Fair Trade or Foul Play?, 22 Geo.
Wash. L. Rev. 658 (1954), but did not completely clarify
the meaning of paragraph 5. As recently as 1967 it was
unclear whether the final phrase of the section, “in compe-
tition with each other”, modifies only the immediately pre-
ceding phrase, “between persons, firms, or corporations”,
or also modifies the other preceding phrases, such as “‘be-
tween manufacturers”, “between retailers” and “between
wholesalers”. Compare Johnson ¢ Johnson v. Avenue
Merchandise Corp., 193 F.Supp. 282, 287 (S.D.N.Y. 1961),
with Upjohn Company v. Charles Labs, Inc., 277 F.Supp.
445 (S.D.N.Y. 1967) and Parke, Davis & Co. v. Rocket
Drugs, Inc., 214 F.Supp. 937, 938 (S.D.N.Y. 1963). See
also, Esso Standard Oil Co. v. Secatore’s Inc, 246 F.2d 17,
21 (ist Cir.), cert. denied, 355 U.S. 834 (1957).
In Janel Sales Corp. v. Lanvin Parfums, Inc., 396 F.2d
398 (2d Cir.), cert. denied, 393 U.S. 938 (1968), the Second
Circuit considered this specific question and concluded that
“the legislative history indicates that it is immaterial
whether a manufacturer-retailer and a signing retailer are.
in actual competition.” 396 F.2d at 403. Accord, Ar-Ex
Products Co. v. Capital Vitamin & Cosmetic Corp., 351 F.2d
938 (1st Cir. 1965).
In Janel, ihe defendant was a widely known manufac-
turer of perfumes and other toiletries which sold its prod-
“If the pharse “in competition with each other” modifies all
the preceding phrases there rust be a showing of some quantum
of competition between the vertically integrated manufacturer and
the signing retailer or wholesaler before the agreement falls within
the seope of paragraph (5). See Janel Sales Corp. v. Lanvin Par-
fums, Inc., 396 F.2d 398, 403 (2d Cir.), cert. denied, 363 U.S. 938
aie However, if it ~¥- not, the presence or absence of com-
ion is immaterial and any contract “between manufacturers,
or between producers, or between wholesalers .. . or between re-
tailers” is unlawful. See Note, 43 N.Y.U. L. Rev. 997, 1002 (1968).
Either interpretation is possible.
25a
ucts directly to retail outlets pursuant to a fair trade
agreement. The plaintiff, Janel Sales Corp., operated a
chain of discount drug stores in New York City, but was
not a direct account of Lanvin. It acquired Lanvin’s prod-
ucts from other retail stores for less than the stipulated
resale price and sold them at a discount. Lanvin success-
fully sued in the state court to enjoin Janel from selling
Lanvin perfumes below the fair trade price. Janel coun-
tered with a federal action against Lanvin attacking the
legality of the fair trade contract underlying the state
injunction.
It charged that certain “promotional” and “accommoda-
tion” sales made by Lanvin were retail sales which, as a
matter of law, deprived Lanvin’s fair trade agreements of
the protection of the McGuire Act. Lanvin, on the other
hand, contended that its “promotional” and “accommoda-
tion” sales did not render it a “retailer” or a “competitor”.
The Court of Appeals held that these assertions raised tri-
able issues of fact.
Though it did not supply a precise standard for deter-
mining whether a party is a “retailer” or a “competitor”
within the terms of the McGuire Act, it followed McKes-
son’s teaching that the words of the statute are to be read
“in their normal and customary reading.” United States v.
McKesson & Rob¥ins, supra, at 312; see also, Schwegmann
Bros. v. Calvert Corp., 341 U.S. 384, 388 (1951).
More importantly, the Court of Appeals held that any
manufacturer or producer who maintains retail or whole-
sale outlets of his own (one who engages in any direct sell-
ing aside from “promotional” or “accommodation” sales)
is a “retailer” or “wholesaler” and is therefore not per-
mitted to establish fair trade agreements with any other
retailer or wholesaler.
26a
128la
Opinion
Applying these principles to the case at bar, the conclu-
sion is inescapable that The News is a wholesaler, Cf. Dah!
v. Hearst Corp., 1972 Trades Cases 974,196 (C.D. Cal.),
within the normal and customary definition of “wholesaler”
as one whose business is the selling of goods in gross to
retail dealers. See Harris v. Hammond, 51 F.Supp. 91, 94
(S.D. Ga. 1943), aff'd, 145 F.2d 333 (5th Cir. 1944); Zehr-
ing v. Brown Materials, 48 F.Supp. 740, 743 (S.D. Cal.
1943) ; Veazey Drug Co. v. Bruza, 169 Okl. 418, 37 P.2d 294
(1934) ; Monoco Oil Co. v. Town of Pittsford, Co. of Mon
roe, 300 N.Y.S.2d 488, 493 (1969).
The News distributes its newspapers to retailers through
mixed channels. It acts as a wholesaler by making direct
Sales to retailers (e.g., street sale dealers) and also sells
through independent wholesalers. In so doing, its status
as a producer or manufacturer is changed into that of a
manufacturer-wholesaler. Janel Sales Corp. vy. Lanvin
Parfums, Inc., supra; Ar-Ex Products Co. v. Capital Vita-
min & Cosmetic Corp., supra, at 940; Dahl v. Hearst Corp.,
supra. Cf. United States v. McKesson & Robbins, supra.
Since The News’ franchise dealers also function as whole-
salers in selling to their carrier boys, it follows that their
relationship with The News is horizontal and not vertical.
Therefore, The News and its franchise dealers are both
wholesalers within the meaning of the McGuire Act and
they are not free to enter into price fixing agreements which
affect “interstate commerce” as that term is used in the
Sherman Act. United States v. McKesson & Robbins
supra; Janel Sales Corp. v. Lanvin Parfums, Inc., supra.
Accordingly, I hold that The News’ franchise agreement
is not immunized from the Sherman Act by the McGuire
Act and that it entered into illegal price maintenance agree-
ments with its dealers. See United States v. Socony-Vacuum
27a
1282a
Opinion
Oil Co., supra; Kiefer-Stewart Co. v. Joseph E. Seagram
é Sons, Inc., supra.
This result is a harsh one. Nonetheless, it is the result
dictated by the Supreme Court’s admonition that the ex-
emption accorded by Congress in the Miller-Tydings and
McGuire Acts be narrowly construed.”
Plaintiffs also contend that The News is a retailer within
the meaning of the McGuire Act because it distributes its
newspaper through the mails. Relying on Janel Sales Corp.,
supra, they maintain that these “retail” sales place it on
the same functional level as its ca: boys and therefore
bar it from fixing the prices at which they sell The News.
This contention can be disposed of briefly.
In the six month period ending September 30, 1971, The
News had only 391 mail subscribers in the entire metro-
politan area.** These subscribers received the paper a day
or more after the issue date and paid a higher price than
the newsstand or home delivery price. Generally, only clip-
ping services, libraries, or persons without access to news-
papers subscribe by mail.
In my view, these sales must be classified as “legitimate
accommodation sales” and common sense requires their
exclusion in determining whether The News is functionally
a retailer. See Janel Sales Corp. v. Lanvin Parfums, Inc.,
supra, at 403; General Electric Co. v. Hess Brothers, Inc.,
33 See e.g. United States v. McKesson & Robbins, supra, at 316:
“Congress has marked the limitations beyond which price fixing
cannot go. We are not only bound by those limitations but we
are bound to construe them strictly, since resale price maintenance
is a privilege restrictive of a free economy.”
% This represented about one-hundredth of 1% (.0001) of ite
total average paid circulation.
28a
1283a
Opimon
155 F.Supp. 57, 62 (E.D. Pa. 1957).** In any event, these
sales are de minimus. See Janel Sales Corp. v. Lanvin Par-
fums, Inc., supra; Johnson & Johnson v. Avenue Merchan
dise Corp., supra, at 289-290.
V.
Tse News’ Rervsat to Dea, Wits Puiaintirrs Was
Pursuant To An Itzeca, Price Fixinc AGREEMENT
anp THEREFORE ConstiTUTES A Per Se VioLaTion
or Section 1 or tHe SHeRMan Act.
The News contends that its refusal to deal with plain-
tiffs** is totally unrelated to any of the provisions of the
franchise agreement and is merely an exercise of its right
In Janel Sales Corp. v. Lanvin Parfums, Inc., supra, the
Second Circuit indicated that a retail sale could be identified by
considering “the actual size of the sale, the dollar value of the
sale and the number of similar sales that are made.” 396 F.2d at
403. Applying this test to the News’ mail subscriptions, it be-
comes clear that they do not rise to the level of “retail sales.”
, 86 Plaintiffs Freilich, Rosenblatt, Theall, Salant and Cestaro con-
tinue to receive copies of The News. Though plaintiff Theall testi-
fied that he observed a franchise dealer operating on his route
(Tr. 1078), it is undisputed that there is no franchise dealer in
his area or any adjoining area. Since all of these plaintiffs operate
in areas in which the franchise system has not been instituted, they
have no standing to challenge any of The News’ policies or any
of the provisions of the franchise agreement. See Billy Bazter,
Inc. v. Coca-Cola Company, 411 F.2d 183 (2d Cir. 1970), cert.
denied, 401 U.S. 923, reh. denied, 401 U.S. 1014 (1971) ; SCM Corp.
v. Radio Corp. of America, 407 F.2d 166 (2d Cir.), cert. denied,
395 U.S. 943 (1969). Cf. Continental Ore Co. v. Union Carbide &
Carbon Corp., 370 L -3. 690 (1962). The same is true of plaintiffs
Ellis, Marston and Silverstein who continued to receive The News
until they sold their routes. All of these plaintiffs have failed to
show that their competitive positions have been injured and con-
sequently, they fail to make out a claim for relief under the anti-
trust laws. GAF Corporation v. Circle Floor Co., Inc., 463 F.2d
752 (2d Cir. 1972), petition for cert. filed, 41 U.S.L.W. 3410 (U.
Jan. 12, 1973) (No. 72-984). _ _
29a
1284a
Opinion
to choose its customers and its methods of distribution. It
claims that its decision to discontinue selling to plaintiffs
was a business judgment that the institution of a franchise
system would increase its circulation and provide better
and more efficient service to its home delivery subscribers.
Accordingly, it argues that this case is controlled by United
States v. Colgate, 250 U.S. 300 (1919), and other cases hold-
ing that a unilateral decision by a producer to substitute
one distributor for another is not actionable under the anti-
trust laws.”
Plaintiffs Hand, Shank, Greenberg and Holman also continue to
receive copies of The News even though they operate in areas in
which the franchise system has been instituted. Plaintiff Fox was
in the same position before he sold his route. Accordingly, these
plaintiffs do not challenge The News’ decision to terminate sales
to the other plaintiffs. Instead, they contend that they have been
injured by the provision in the franchise agreement which requires
the franchise dealers to resell The News at stipulated prices and by
the price discrimination practiced by The News against them. They
allege that the franchise agreement substitutes the judgment of
The News for the forces of the competitive market and severely
limits their ability to compete and survive. Cf. Albrecht v. Herald
Co., 390 U.S. 145, 152 (1968); United States v. Socony-Vacuum
Oil Co., 310 U.S. 150, 223 (1940).
Since the record’ 4mply demonstrates the validity of this con-
tention, they have established all the elements of a Sherman Act
violation and are entitled to recover treble damages regardless of
whether The News could lawfully have terminated sales to them
or to the other plaintiffs. See United States v. Parke, Davis & Co.,
supra; GAF Corporation v. Circle Floor Co., Inc., supra.
37 The News cites many cases for the proposition that a producer
is free to replace on distributor with another. See eg., United
States v. Arnold, Schwinn & Co., 388 U.S. 365, 376 (1967) ; Anaya
v. Las Cruces Sun News, 455 F.2d 670 (10th Cir. 1972) ; Joseph £.
Seagram & Sons, Inc. v. Hawaiian Oke & Liquors, Ltd., 416 F.2d
71, 76 (9th Cir. 1969), cert. denied, 396 U.S. 1062, reh. denied,
397 U.S. 1003 (1970); Ace Beer Distributors, Inc. v. Kohn, Inc.,
318 F.2d 283, 286-87 (6th Cir. 1963). In doing so, it argues that
“(t]he record clearly shows that any adverse economic impact on
plaintiffs’ businesses is attributable solely to The News’ termina-
30a
1285a
Opinion
Plaintiffs, on the other hand, contend that The News’
decision to terminate sales to them was part of an effort to
enforce an illegal price maintenance scheme.” They allege
that The News combined with its franchise dealers and
others to prevent them from acquiring copies of The News
in order to protect the franchise dealers from intrabrand
competition and to allow The News to control the home
delivered price of its paper.”
tion of sales to such plaintiffs.” Brief for Defendants at 20. Thus,
tt contends tha’ even if the franchise agreement is illegal, the
plaintiffs were no’ injured by reason of anything in it and that
the only private parties with standing to challenge it are the fran-
chise dealers.
** The News concedes that this allegation raises the “most critical
issue” in the case. The reason is clear.
It is well settled that any attempt by a producer to secure
resale price maintenance which goes beyond the “mere announce-
ment of his policy” regarding prices and “the simple refusal to
deal” is unlawful. United States v. Parke, Davis & Co., 362 US.
29, 44-45 (1960). See also, Albrecht v. Herald Co., 390 U.S. 145
(1968) ; Simpson v. Union Oil Co., 377 U.S. 13, 17 (1964). Cf.
Joseph E. Seagram & Sons, Inc. v. Hawaiian Oke & Liquors, Ltd.,
416 F.2d 71, 78 (9th Cir. 1969), cert. denied, 396 U.S. 1062, reh.
denied, 397 U.S. 1003 (1970). Thus, if The News terminated sales
to the plaintiffs pursuant to an illegal price fixing scheme, they
have been injured by reason of something “forbidden in the anti-
trust laws.” See Interphoto Corporation v. Minolta Corporation,
295 F.Supp. 711, 721 (S.D.N.Y.), aff'd, 417 F.2d 621 (2d Cir.
1969). Cf. Albrecht v. Herald Co., 390 U.S. 145 (1968) ; United
States v. General Motors, 384 U.S. 127, 146-48 (1966) ; Barber,
Refusals to Deal Under the Federal Antitrust Laws, 103 U. Pa.
L. Rev. 847, 877-82 (1955).
” Plaintiff Rathsam relies solely on these allegations. He ac-
quired his route from a cut-off route dealer and never sought to
purchase directly from The News. However, he testified that
he was subjected to the same type of predatory conduct that the
other rete dealers experienced (Tr. 869-870) and therefore claims
that he was injured by reason of the illegal combination to fix
prices.
3la
In Colgate, supra, the Supreme Court recognized the
general right of a businessman to select his customers and
refuse to deal.** However, in successive decisions, the teach-
ing of that case has been considerably narrowed. See e.g.,
Albrecht v. Herald Co., 390 U.S. 145 (1968) ; United States
vy. Arnold, Schwinn & Co., 388 U.S. 365 (1967); United
States v. Parke, Davis ¢ Co., 363 U.S. 29 (1960).
In United States v. Parke, Davis € Co., supra, the defen-
dant sought to maintain resale prices by refusing to sell
its products to retailers who resold below its suggested
prices. A similar policy was enunciated with respect to its
wholesalers who were informed that it would refuse to
sell them if they cut prices or sold to price-cutting retailers.
When certain retailers persisted in cutting prices, the com-
pany and the wholesalers stopped supplying them. Subse-
quently, it informed the price-cutters that their source of
supply would be reopened if they would indicate a willing-
ness to cooperate; when the retailers agreed, sales were
resumed. The government sought an injunction against
these practices and the company defended on the ground
that its conduct was legal under the Colgate doctrine.
4°In Colgate, the defendant manufacturer had secured substan-
tial control over resale pricing by wholesalers and retailers by an-
nouncing that it would not deal further with price cutters. The
government obiained un indictment charging an unlawful combina-
tion under Section 1 of the Sherman Act. The Supreme Court
sustained dismissal because it did “not charge Colgate with selling
its products to dealers under agreemerits which obligated the latter
not to resell except at prices fixed by the Company.” 250 U.S. at
307. In doing so, the Court noted that:
“The purpose of the Sherman Act . . . to preserve the right
of freedom to trade. In the absence of any purpose to create
or maintain a monopoly, the act does not restrict the long
recognized right of trader or manufacturer .. . freely to exer-
cise his own discretion as to parties with whom he will deal.
And, of course, he may announce in advance the circumstances
under which he will refuse to sell.” 250 U.S. at 307.
32a
1287a
Opinion
Looking at this series of allegedly unilateral acts, the
Supreme Court found that Parke, Davis had embarked
upon a program to promote compliance with its suggested
resale prices which “plainly exceeded the limitations of the
Colgate doctrine” and which constituted an unlawful com-
bination in restraint of trade. The Court stated that:
“.. . an unlawful combination is not just such as
arises from a price maintenance agreement, express or
implied; such a combination is also organized if the
producer secures adherence to his suggested prices by
means which go beyond his mere declination to sell
to a customer who will not observe his announced
policy ...
When the manufacturer’s actions, as here, go beyond
mere announcement of his policy and the simple refusal
to deal, and he employs other means which effect adher-
ence to his resale prices . . . he has put together a
combination in violation of the Sherman Act.” 362 U. 8.
at 43, 44.
The scope of Parke, Davis was somewhat clarified in
Simpson v. Union Oil Co., 377 U.S. 13 (1964). There, the
plaintiff, a retail service station lessee, signed a consign-
ment agreement for a term concurrent with his lease under
which Union set the prices at which he would sell gasoline
to the public.“* When he sold gasoline below the fixed price
to meet competition, Union refused to renew his lease.
The Court found that Union had used the threat of ter-
mination of the lease as the means of enforcing its pricing
scheme and held Union’s consignment system illegal. In
‘The agreement plaintiff signed was Union’s standard retail
consignment agreement and provided that his compensation was
to be on a commission basis. 377 U.S. at 15.
33a
rejecting the claim that its termination of the plaintiff's
dealership was a more refusal to deal within the meaning
of Colgate, the Court said:
“We made clear in United States v. Parke, Davis €
Co., 362 U.S. 29, that a supplier may not use coercion
on its retail outlets to achieve resale price mainte-
nance. We rciterate that view, adding that it matters
not what the coercive device is. United States v. Col-
gate, 250 U.S. 300, as explained in Parke, Davis, 362
U.S. at 37, was a case where there was assumed to be
no agreement to maintain retail prices. Here we have
such an agreement; it is used coercively, and it prom-
ises to be equally if not more effective in maintaining
gasoline prices than were the Parke, Davis techniques
in fixing monopoly prices on drugs.” 377 U.S. at 17.
(Emphasis added).
Union Oil was followed by United States v. General
Motors, 384 U.S. 127 (1966),** in which the Court reiter-
‘2 In United States v. General Motors, supra, the government
brought a civil action under Section 1 of the Sherman Act against
General Motors Corporation and three associations of Chevrolet
dealers in the Los Augeles area to enjoin them from conspiring
to prevent certain franchised dealers from maintaining sales
relationships with discount houses. As a result of pressure from
dealers who were losing sales to the discount houses, General
Motors advised all its franchisees that selling cars to discount
houses might constitute a violation of the franchise agreement, and
elicited promises from them to desist from further sales. The de-
fendant associations jointly financed the policing of these prom-
ises and, as violations were discovered, General Motors enforced
compliance.
Finding a “classic conspiracy in restraint of trade”, the Court
held the arrangement unlawful per se
“The principle of these cases is that where businessmen concert
their actions in order to deprive others of access to merchan-
dise which the latter wish to sell to the public, we need not
inquire into the economic motivation underlying their conduet.
34a
1289a
Opinion
ated its view that agreements or combinations to main-
tain prices are unlawful per se no matter what form they
take.
“The protection of price competition from conspira-
torial restraint in an object of special solicitude under
the antitrust laws. We cannot respect that solicitude
by closing our eyes to the effect upon price competition
of the removal from the market, by combination or
conspiracy, of a class of traders. Nor do we propose
to construe the Sherman Act to prohibit conspiracies
to fix prices at which competitors may sell, but to allow
conspiracies to put competitors out of business en-
tirely.” 384 U.S. at 148.
The most recent case interpreting Colyate is Albrecht v.
Herald Co., 390 U.S. 145 (1968). A newspaper publisher
announced that it would compete with or refuse to deal
with any distributor who refused to abide by its suggested
resale price. When Albrecht raised its price over the sug-
gested maximum, it hired an independent sales solicitation
firm (Milne) to contact his customers and offer delivery
at a lower rate. As a result, some of Albrecht’s customers
switched to direct delivery by the publisher, and it subse-
quently turned these customers over to another dealer
(Kroner) with the understanding that he might have to
return them to Albrecht if he accepted the maximum price
ceiling.
* © * Exclusion of traders from the market by means of com-
bination or conspiracy is so inconsistent with the free-market
principles embodied in the Sherman Act that it is not to be
saved by reference to the need for preserving the collaborators’
ty — or their system [of iistribution] * * *.” 384
». at
35a
In holding that the publisher had put together a combina-
tion to fix resale prices which was per se illegal under the
Sherman Act, the Court rejected the defendant’s contention
that its conduct was wholly unilateral.
“4 1 of the Sherman Act . . . covers combinations in
addition to contracts and conspiracies, express or im-
plied. The Court made this quite clear in United States
v. Parke, Davis & Co., 362 U.S. 29 (1960), where it held
that an illegal combination to fix prices results if a
seller euggests resale prices and secures compliance
by means in addition to the ‘mere announcement of his
policy and the simple refusal to deal. . . .’
If a combination arose when Parke Davis threatened
its wholesalers with termination unless they put pres-
sure on their retail customers, then there can be no
doubt that a combination arose between respondent,
Milne, and Kroner to force petitioner to conform to
the advertised retail price.” 390 U.S. at 149.
Thus, the controlling decisions have distinguished be-
tween situations on the one hand, in which the manufacturer
simply announced a suggested resale price and refused to
sell to dealers who would not adhere to it,** and on the other,
*? Despite limitations of the Colgate doctrine in recent years, it
is still true that a mere refusal to deal, without more, is not a
Sherman Act violation. GAF . oe v. Circle Floor Co.,
329 F.Supp. 823, 828 (S.D.N.Y. 1971), af’d, 463 F.2d 752 (2d
Cir. 1972), petition for cert. filed, 41 U.S.L.W. 3410 (U.S. Jan. 12,
1973) (No. 72-984). See also, House of Materials, Inc. v. Pattern
Co., 298 F.2d 867 (2d Cir. 1962); Carbon Steel Products Corp. v.
Alan Wood Stecl Company, 289 F.Supp. 584 (S.D.N.Y. 1968).
“The Supreme Court has left a narrow channel through which a
manufacturer may pass even though the facts would have to be of
such Dorie simplicity as to be somewhat rare in this day of com-
plex business enterprise.” Warner & Co. v. Black & Decker Mfg.
Co., 277 F.2d 787, 790 (2d Cir. 1960).
those in which the manufacturer took further steps to effec-
tuate compliance. If, above and beyond a mere unilateral
announcement and refusal to deal steps are taken in order
to secure compliance with price maintenance policies, the
arrangement constitutes a combination to maintain prices,
and is a per se violation of the Sherman Act. Albrecht v.
Herald Co., supra; Simpson v. Union Oil Co., supra; United
States v. Parke, Davis # Co., supra.
Applying this test to the facts of the instant case, it
becomes clear that The News’ reliance on Colgate is totally
misplaced. The record clearly demonstrates that The News
terrsinated sales to most of the plaintiffs only after they
refused to participate in its resale price mainienance
scheme. When this failed, it enlisted the aid of its fran-
chise dealers and third parties to detect the route dealers’
“unauthorized sources” of supply, which, according to
O’Sullivan and Catanzaro, would be terminated. (Tr. 1087;
1106; 1323-24). As a result, the route dealers were under
constant surveillance by franchise dealers, employees of
The News, and off-duty policemen recruited for this pur-
pose. (Tr. 127-28; 631-33; 704; 779-80; 795-97 ; 826; 869-70;
1087-88; 1090-91; 1099-1100; 1106-1107). The News even
went so far as to have two-way radios installed in four of
its cars so that it could coordinate its surveillance activities.
(Tr. 1098-1101 ; 1104). When sources of supply were located,
The News terminated (or threatened to terminate) all sales
to that source or reduced the number of copies it received
so that it could no longer supply the cut off route dealers.
(Tr. 711-12; 727; 763; 906-907).
The News also instructed its franchise dealers to tell
potential home delivery subscribers that the route dealers
were no longer in business and that they could obtain home
delivery of The News only through authorized franchise
37a
dealers. (Tr. 1114-15; 1334-35). Cf., United States v.
Albrecht, supra, at 190 n. 6.
These anticompetitive practices cannot be considered as
isolated incidents, unrelated to The News’ illegal price
maintenance system. Rather, the record indicates that this
concerted activity was designed and executed so as to pre-
vent plaintiffs from dealing in, The News and to allow it
to control the home delivered price of its paper.
Accordingly, I find that The News’ refusal to deal
with the plaintiffs is part of an aggregation of trade re-
straints and predatory practices designed to fix prices in
violation of §1 of the Sherman Act. Cf. United States v.
General Motors, supra; Interphoto Corp. v. Minolta Corp.,
295 F.Supp. 711, 723 (S.D.N.Y.) aff'd 417 F.2d 621 (2d Cir.
1969). It follows that the route dealers who were cut off
by The News on o: after January 10, 1966 have established
all of the necessary elements of a § 1 Sherman Act violation.
The same is true for plaintiff Rathsam against whom The
News and its franchise dealers conspired to prevent from
obtaining papers.
Plaintiffs also contend that the territorial** and cus-
tomer“ restrictions in the franchise agreement violate Sec-
tion 1 of the Sherman Act. These contentions do not re-
quire extended discussion.
In United States v. Arnold, Schwinn, 388 U.S. 365 (1967),
the Supreme Court considered such restrictions and found
them to be per se violations of the Sherman Act.
The Schwinn distribution network consisted of 22 whole-
sale distributors wh. were permitted to resell Schwinn
products only to franchise dealers in assigned territories.
** Section III of The News’ Independent Home Delivery Carrier
Agreement provides, inter alia, that:
“The territory to which this agreement shall apply and in which
the sales of copies of the Daily and Sunday News to home delivery
subscribers shall be made by the carrier is known and designated
as Home Delivery Area Number ——.. .”
The News strenuously urges that the franchise agreement does
not limit the area in which the franchise dealers are permitted
to sell The News. I fin this reading of the agreement is contrary
to its plain language and spirit. Cf. Lepore v. The New York
News, Inc., 346 F.Supp. 755, 761 (1972).
The News granted each franchise dealer an exclasive territory
in order to insure that he woulld devote his time and effort to
developing sales in that territory. In this way, each dealer would
concentrate on taking business away from The News’ competitors
rather than from his fellow franchise dealers. See Note, Restricted
Channels of Distribution Under the Sherman Act, 75 Harv. L.
Rev. 795 (1962); Cf. Stewart, Exclusive Franchises and Terri-
torial Confinement of Distributors, 22 A.B.A. Antitrust Section
33, 37 (1963).
** Section II of the Agreement provides that the franchise dealer;
“.. . agrees... to purchase from The News, on each day of
publication, a sufficient number of copies of the Daily and Sunday
News to supply all single copy home delivery subscribers within
his territory ... [and] to supervise and direct the resale of the
Daily and Sunday News to such regular subscribers in his terri-
Git s<s” ,
The News concedes that this clause of the agreement prohibits
the franchise dealers from reselling newspapers purchased from
it to anyone other than their delivery boys.
39a
Schwinn would ship its bicycles to the distributors on a
sale or consignment basis, or alternatively would ship
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