Petition — Adolph Coors Co. v. R. E. Spriggs Co.
Supreme Court brief1980
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IN THE
Supreme Court of the United S
DEC 5
IABL ROGAK JR., CLERK
“Gupreme Court, U.% »,
FILED
1979
October Term, 1979
No.-F-9~8 6 8
ADOLPH Coors COMPANY, a corporation,
Petitioner,
vs.
R.E. Spriccs Co., INc., a California corporation, and
PHOEBE SPRIGGS, Successor-in-interest to the Estate
of Ralph E. Spriggs, Deceased,
. Respondents.
Petition for a Writ of Certiorari to the Court of Appeal
of the State of California for the Second Appellate
District.
McCuTCHEN, BLACK, VERLEGER & SHEA,
G. WILLIAM SHEA,
FRANKLIN H. WILSON,
Jupp L. JORDAN,
3435 Wilshire Boulevard, 30th Floor,
Los Angeles, California 90010,
(213) 381-3411,
BRADLEY, CAMPBELL & CARNEY,
LEO N. BRADLEY,
1717 Washington Avenue,
Golden, Colorado 80401,
(303) 278-3300,
Attorneys for Petitioner
Adolph Coors Company.
Parker & Son, Inc., Law Printers, Los Angeles. Phone 724-6622
SUBJECT INDEX
Page
RE AS 2
a SESS CI 3
ESE ES Se 3
Constitutional Provisions and Statutes .................... 4
Neen ic esceseccdensncneloceness 5
Reasons for Granting the Writ .............................. 11
I.
The Decision Below Conflicts With the Due
Process Clause of the Fourteenth Amendment
of the United States Constitution .................... 11
Copper Liquor Involved Different Conduct
in a Different State at a Different Time at a
Different Level of Distribution .................. 14
FTC Did Not Involve Clearly Identical Issues
of Fact and There Is No Reference in FTC
to Los Angeles County at Any Time Peri-
od, Relevant or Otherwise, or to Spriggs .... 16
II.
The Decision Below Conflicts With the Decision
of pee. et ee ovens ................................ 17
III.
The Decision Below !s Contrary to Decisions of
the Federal Courts of Appeals ........................ 19
IV.
The Decision Below Conflicts With Section 5(a)
of the Clayton Act, 15 U.S.C. § 16(a) .......... 21
ES 23
ii.
Appendix. Section 5(a), Federal Trade Commis-
sion Act, ch. 311, § 5, 38 stat. 719 (1914), as
amended by Act of Feb. 13, 1925, ch. 229, § 2,
43 stat. 939, Act of Mar. 21, 1938, ch. 49, § 3,
52 stat. 111, Act of June 25, 1948, ch. 646,
§ 32(a), 62 stat. 991, Act of May 24, 1949, ch.
139, § 127, 63 stat. 107. Act of July 14, 1952,
ch. 745, § 2, 66 stat. 632, Act of Aug. 23, 1958,
Pub. L. 85-726, Title XIV, § 1411, 72 stat. 809,
Act of Sept. 2, 1958, Pub. L. 85-909, § 3, 72
stat. 1750 (current version at 15 U.S.C. § 45(a)
ee essa Sunapee eaten ees App. p. 1
I I ee p cicceiags cnavastoead tans 4
EERE RSA RSTES Re tent ireaie Sees Ns) RO) ERE R OPE RS TO 4
REE AION SARI ENS SPREE IN OCR TC 26
Reporter’s Transcript, Testimony of Everett L.
Barnhardt, Spriggs’ Adverse Witness ................-- 72
Reporter’s Transcript, Testimony of William
Kistler Coors, Spriggs’ Adverse Witness ............ 75
Reporter’s Transcript, Coors’ Objections to Ad-
mission of Spriggs’ Exhibit 80 ...........................- 76
a 77
Findings of Fact and Conclusions of Law .............. 83
sumgment Arter Trial Oy Cutt .........65eccsncccccances... 89
Coors’ Brief as Respondent in the California Court
OO PII Sos ies chitvccenslp ante ic evetuunescencieeabekiacniataiens 91
Coors’ Post Hearing Letter Dated February 1,
ik ee Mia cis Niinasiiartiaig tones Sashepeane pm aniageadendetices 94
Coors’ Post Hearing Letter Dated March 9, 1979.. 96
‘iii.
I i ee at ea
Coors’ Petition for Rehearing in the California
CE Oe TA iis ak a
Modification of Opinion (94 Cal.App.3d 419,
— Cal. Rptr. —) on Denial of Petition for
et COON CTR RI DAUR TSP US EDO Eh OR ROR APES thn
Coors’ Petition for Hearing in the Supreme Court
A adeisc ukibceccals Sepscdcta almohiinbaitoe
CAE TOT TROON onside ee eas
SE TE WN UO oa gan svssccinapiccessioa ceeronsanicas
| ae CEI PORN net Te RT ee PE ee OE
The Court of Appeal Uses the FTC and Copper
Liquor Decisions, Which Did Not Involve
Identical Issues, to Collaterally Estop Coors
From a Trial on Liability, Thus Denying
Coors Due Process of Law Under the Four-
teenth Amendment of the United States Con-
stitution and Article I, Section 7 of the Cali-
EE, ne
A. Copper Liquor Involved Different Con-
duct in a Different State at a Different
Time at a Different Level of Distribu-
a ed ee)
B. FTC Did Not Involve Clearly Identical
Issues of Fact and There Is No Refer-
ence in FTC to Los Angeles County at
Any Time Period, Relevant or Otherwise,
OP Se TI vase gehen astitncesitossenss
13]
134
iv.
Page
C. Spriggs If Is Contrary to Del Rio, A & S,
La Fortune and Sylvania ........................ 137
II.
A Judgment Affirming an FTC Order Under
Section 5 of the FTC Act Is Not Admissible
as Conclusive Evidence in a Private Treble
pmnmenges ANGE ancien Sicieuonens ae 141
Conclusion
V.
TABLE OF AUTHORITIES CITED
Cases Page
Adolph Coors Co. v. A & S Wholesalers, Inc., 561
P.26 Ger (10th Cir. 1977) (“A & S&S”) .....-........
SA aNeghdsstallenshenieiedkndaesideaseceibcccanesiivenn 2, 9, 13, 20, 21
Adolph Coors Co. v. FTC, 497 F.2d 1178 (10th
Cir. 1974), cert. denied, 419 U.S. 1105 (1975)
OR dee ek LS Zz, 3, &, 7, 4. 4,
ORO PLES NS CSR te ott ee 13, 16, 17, 19, 20,
Antibiotic Antitrust Action, In re, 333 F. Supp. 317
(S.D.N.Y. 1971) ..........-.. a a ea
Bernhard v. Bank of America, 19 Cal. 2d 807, 122
s&h, das ene nt ener Oran
Boddie v. Connecticut, 401 U.S. 371 (197 1) ree,
California Retail Liquor Dealers Ass’n v. Midcal
Aluminum, Inc., cert. granted, 48 U.S.L.W. 3217
(U.S. Oct. 2, 1979) (No. 79-97) ........ Prete a ae
Commissioner v. Sunnen, 333 U.S. 591 (1948)
Continental T.V., Inc. v. GTE Sylvania Inc., 433
CB. 36 CEST) CORVIVOIR } ov resisvcncciscessicssccien
Po STEN, SPUN RA RTO RIOTED ATONE 4, 8, 9, 17, 18, 20,
Copper Liquor, Inc. v. Adolph Coors Co., 506 F.
2d 934 (Sth Cir. 1975) (“Copper Liquor”) ....
BSI ran ern arg ea 2, 6, 7, 9, 10, 13, 14, 15, 16,
Cox Broadcasting Corp. v. Cohn, 420 U.S. 469
a teal dn inAidcte sek bdslaidam aaa laoesinnts
Del Rio Distributing, Inc. v. Adolph Coors Co.,
589 F.2d 176 (Sth Cir.), cert. denied, 48
U.S.L.W. 3219 (U.S. Oct. 2, 1979) (No. 78-
BPO) C BIOE TIP onnscccrexsnssterte a % 44, 33, 19,
10
21
21
11
11
10
14
21
19
20
Vi.
Page
Expert Electric, Inc. v. Levine, 554 F.2d 1227 (2d
Cir.), cert. denied, 434 U.S. 903 (1977) ............ 11
Farmington Dowel Products Co. v. Forster Mfg.
Co, O21 Fie Oe Etat Ce. FR) nnn ccinceccssc.. 17
FTC v. Cement Insti*ute, 333 U.S. 683 (1948) .... 22
Hardy Salt Co. v. State of Illinois, 377 F.2d 768
(8th Cir.), cert. denied, 389 U.S. 912 (1967) .... 15
Haung Tang v. Aetna Life Ins. Co., 523 F.2d 811
I IPE ois iit Gehencnscucsncecadsssasernauanesniers 1]
Hudson Distributors v. Eli Lilly, 377 U.S. 386
L RIRSRTSARID BLAIR pd oo tn Re RE OPS 3
Marin County Bd. of Realtors, Inc. v. Palsson, 16
Cal. 3d 920, 120 Cal. Rptr. 1, 549 P.2d 833
RI a aiken Caan ih Aciadieriounesdatedaiehvind 1
New Jersey Wood Finishing Co. v. Minnesota
Mining & Mfg. Co.:, 332 F.2d 346 (3d Cir.
1964), aff'd on other grounds, 381 U.S. 311
0) ARRESTS ITs ART esha deioto Mey a 21
North Carolina v. Chas. Pfizer & Co., 537 F.2d
67 (4th Cir.), cert. denied, 429 U.S. 870
SN sn tes ee zi. 22
Proper v. John Bene & Sons, Inc., 295 F. 729
RI, I ae oe Cd ey ho rs a
Purex Corp. v. Procter & Gamble Co., 453 F.2d
288 (9th Cir. 1971), cert. denied, 405 U.S. 1065
PIII > eee nacdn ud ingame tensmaicwdacsbcmuaa A, 22
R.E. Spriggs Co. v. Adolph Coors Co., 37 Cal. App.
3d 653, 112 Cal. Rptr. 585 (1974) ....0000002... 7, 14
Sam Fox Publishing Co. v. United States, 366 U.S.
a a ncaenld lo innntiascoe 22
Vii.
Page
State of Michigan v. Morton Salt Co., 259 F. Supp.
Jo CE FE. TOe ince ocr cane 15
Theatre Enterprises, Inc. v. Paramount Film Distrib.
Corp., 346. U.S. SOT CIBGS) -fncncecciane nt, 32
United States v. Arnold, Schwinn & Co., 388 U.S.
365 (1967) (“Schwinn”) ....2............. 4, 5, 7, 8, 20
White Motor Co. v. United States, 372 U.S. 253,
83 S.Ct. 696, 9 L.Ed.2d 738 (1963) ............22.... 6
Statutes
California Business and Professions Code, Secs.
REP ROT onsksernccencecnckcs lee uen 1
California Civil Code, Sec. 1790 ....02.0...2.2eee eee. 17
Clayton Act, Sec. 5(a) (15 U.S.C. § 16(a)
€ RIF RD ~ sccestadecdvenmaibeadsecd cane’ 4. 5. Fe Beco
Federal Trade Commission Act, Sec. 5 (15 U.S.C.
© RE scccoscsscvceaapaeee eee 4, 3, 6& di, 22
United States Code, Title 28, Sec. 1257(3) .......... 3
United States Constitution, Art. VI, Cl. 2 ................ 4
United States Constitution, Fourteenth Amendment
DF iccsinsinvinicttloet eka gealesdeucieaauiaaenadededaaaeaaae 4
Textbook
16 von Kalinowski, J., Antitrust Laws and Trade
Regulation, Sec. 111.02[3], pp. 111-25-26, 27-28
C2 FUED a vicénissnanssccchucennsouspirnaamivoeaaaaaanae 13, 15
IN THE
Supreme Court of the United States
October Term, 1979
Nt ete
ADOLPH Coors COMPANY, a corporation,
Petitioner,
vs.
R.E. Spriccs Co., INc., a California corporation, and
PHOEBE SPRIGGS, Successor-in-interest to the Estate
of Ralph E. Spriggs, Deceased,
Respondents.
Petition for a Writ of Certiorari to the Court of Appeal
of the State of California for the Second Appellate
District.
Petitioner Adolph Coors Company (“Coors”) re-
spectfully prays that a writ of certiorari issue to review
the judgment and opinion of the Court of Appeal
of the State of California for the Second Appellate
District dated June 26, 1979, as modified on denial
of petition for rehearing on July 23, 1979. Appendix
(“App.”) 98-112, 125.
The decision of the California court denies Coors
a trial on liability in a private antitrust action for
treble damages under the Cartwright Act (Cal. Bus.
& Prof. Code §§ 16700-16758).* It reversed the trial
*California’s Cartwright Act is similar, although not identical,
to the Sherman Act. Federal decisions interpreting the Sherman
Act are “applicable” under the Cartwright Act. E.g., Marin
County Bd. of Realtors, Inc. v. Palsson, 16 Cal. 3d 920,
925, 120 Cal. Rptr. 1, 549 P.2d 833 (1976).
a. ae
court judgment in favor of Coors and held Coors
liable as a matter of law with a new trial only on
the amount of damages. The California Court of Appeal
gave collateral estoppel effect to two federal Court
of Appeals decisions, Copper Liquor, Inc. v. Adolph
Coors Co., 506 F.2d 934 (Sth Cir. 1975) (“Copper
Liquor’), and Adolph Coors Co. v. FTC, 497 F.2d
1178 (10th Cir. 1974), cert. denied, 419 U.S. 1105
(1975) (“FTC”), despite the fact that the two Courts
ot Appeals that rendered these decisions have expressly
refused to give them collateral effect in subsequent
lawsuits involving Coors, Del Rio Distributing, Inc.
v. Adolph Coors Co., 589 F.2d 176 (Sth Cir.),
cert. denied, 48 U.S.L.W. 3219 (U.S. Oct. 2, 1979)
(No. 78-1876) (“Del Rio”), and Adolph Coors Co.
v. A & S Wholesalers, Inc., 561 F.2d 807 (10th
Cir. 1977) (“A & S”). (Copper Liquor and FTC
appear in the appendix at pages 27 and 5, respectively.)
Opinions Below.
The opinion of the California Court of Appeal is
reported at 94 Cal. App. 3d 419, modified on denial
of rehearing, 95 Cal. App. 3d 1028a, as modified,
_ 156 Cal. Rptr. 738 (1979), and appears in the appen-
dix. App. 98-112, 125.
The judgment and findings of fact and conclusions
of law on the second trial dated April 15, 1977 and
the notice of intended decision dated December 17,
1976 of the Superior Court of the State of California
for the County of Los Angeles are not reported and
appear in the appendix. App. 77-89.
nities
Jurisdiction.
The judgment of the California Court of Appeal
was filed on June 26, 1979. App. 98. A petition
for rehearing was denied on July 23, 1979. App. 125.
A petition for hearing in the Supreme Court of the
State of California was denied on September 6, 1979.
App. 143.
This petition for certiorari is filed under, section
1257(3) of Title 28 of the United States Code within
90 days from the denial of hearing in the Supreme
Court of the State of California.
This Court has jurisdiction to review the judgment
of the California Court of Appeal because that court
has imposed liability on Coors without a hearing on
that issue and sent the case back to the trial court
only to determine the amount of damages. It rejected
Coors’ argument that this result would be a denial
of due process under the Fourteenth Amendment. This
rejection was left undisturbed by the California Supreme
Court. On this federal issue the decision below is final
under state law and may be treated as final for purposes
of review by this Court. See Cox Broadcasting Corp.
v. Cohn, 420 U.S. 469, 476-87 (1975); Hudson Dis-
tributors v. Eli Lilly, 377 U.S. 386, 389 n.4 (1964).
Questions Presented.
1. Whether offensive collateral estoppel using fed-
eral antitrust judgments from different time periods
and different geographic markets to deny a defendant
a trial on liability in a state antitrust action violates
the Due Process Clause of the Fourteenth Amendment
of the United States Constitution.
2. Whether collateral estoppel using federal anti-
trust judgments that relied on the now defunct Schwinn
a ve
doctrine violates the decisional law of the United States
including the decision of this Court in Continental
T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36 (1977),
(“Sylvania”), overruling United States v. Arnold,
Schwinn & Co., 388 U.S. 365 (1967) (“Schwinn”).
3. Whether denying a defendant a trial on liability
in a private antitrust action using a government judg-
ment under section 5 of the Federal Trade Commission
Act (15 U.S.C. § 45) violates section 5(a) of the
Clayton Act (15 U.S.C. § 16(a)).
Constitutional Provisions and Statutes.
Supremacy Clause (Art. VI, cl. 2), United States
Constitution:
“This Constitution, and the Laws of the United
States which shall be made in Pursuance thereof;
.. Shall be the supreme Law of the Land;
and the Judges in every State shall be bound
thereby, any Thing in the Constitution or Laws
of any State to the Contrary notwithstanding.”
Due Process Clause (Section 1), Fourteenth Amend-
ment, United States Constitution:
“#* %* nor shall any State deprive any person
of life, liberty, or property, without due process
of law; * * *”
Section 5(a), Clayton Act, 15 U.S.C. § 16(a)
(1976):
“A final judgment or decree heretofore or here-
after rendered in any civil or criminal proceeding
brought by or on behalf of the United States
under the antitrust laws to the effect that a defend-
ant has violated said laws shall be prima facie
evidence against such defendant in any action
a oe
or proceeding brought by any other party against
such defendant under said laws or by the United
States under section 15a of this title, as to all
matters respecting which said judgment or decree
would be an estoppel as between the parties there-
to: Provided, That this section shall not apply
to consent judgments or decrees entered before
any testimony has been taken or to judgments
or decrees entered in actions under section 15a
of this title.”
Section 5, Federal Trade Commission Act:
Section 5 of the Federal Trade Commission Act
is lengthy and is therefore set forth in the appendix.
App. 1.
Statement of the Case.
The fourteen year history of this case reflects the
birth of the Schwinn doctrine, its death in Sylvania,
and its attempted resurrection by the California Court
of Appeal:
1. In Schwinn, this Court held that territorial limi-
tations were per se violations of section | of the Sher-
man Act. 388 U.S. at 382.
2. In FTC, the Tenth Circuit affirmed an order
of the Federal Trade Commission under section 5
of the Federal Trade Commission Act’ (15 U.S.C.
§ 45) prospectively enjoining Coors from enforcing
its territorial limitations after July 24, 1973. The court
stated that it was “compelled to follow the Schwinn
per se rule rendering Coors’ territorial limitations illegal
per se... .” 497 F.2d at 1187, App. 20. The Tenth
Circuit expressly requested this Court to reconsider
the Schwinn per se rule for unique products such as
Coors beer:
a
“Although we are compelled to follow the
Schwinn per se rule rendering Coors’ territorial
restrictions oa resale illegal per se, we believe
that the per se rule should yield to situations
. here a unique product requires territorial restric-
tions to remain in business. For example, speed
of delivery, quality control of the product, refrig-
erated delivery, and condition of the Coors product
at the time of delivery may justify restraints on
trade that would be unreasonable when applied
to marketing standardized products. La Fortune
v. Ebie, supra. Perhaps the Supreme Court may
see the wisdom of grafting an exception to the
per se rule when a product is unique and where
the manufacturer can justify its territorial restraints
under the rule of reason. White Motor Co. v.
United States, 372 U.S. 253, 83 S.Ct. 696, 9
L.Ed.2d 738 (1963).
497 F.2d at 1187, App. 20.
In this case Coors’ petition for rehearing in the Court
of Appeal and petition for hearing in the Supreme
Court of California pointed out that a judgment under
section 5 of the FTC Act is neither admissible nor
conclusive in a private treble damages action. App.
113, 120-124, 127, 141-142.
3. In Copper Liquor, the Coors distributor in
Brownwood, Texas “felt constrained” not to deliver
Coors beer to a retailer who bought a store in Brown-
wood in January of 1966 and “advertised Coors at
less than his own cost, using it as a ‘loss leader.’ ”
506 F.2d at 936, 939, 950, App. 27-28, 35, 51. The
Fifth Circuit affirmed in part a jury verdict against
Coors under the Sherman Act, holding that Coors’ terri-
torial limitations were “ancillary to an illegal price fix-
~~
ing scheme” and illegal per se under Schwinn, 506 F.2d
at 947-48, App. 52-53.
4. At the 1976 trial in this case, the trial court
bifurcated liability from damages and determined that
during the relevant time period—the four years before
October 18, 1965—Coors’ territorial restrictions in Los
Angeles County, California were reasonable and did
not violate the Cartwright Act.* App. 85-88. In fact,
the trial court specifically found that Coors’ territorial
restrictions were the only effective way to enforce qual-
ity control and availability to small retailers and to
ensure compliance with extensive state regulation in
California. App. 85-86, 88. The trial court also held
that Coors was not collaterally estopped by FTC, Cop-
per Liquor and the district court decision in A & S,
which was thereafter reversed on appeal. App. 87.
In its notice of intended decision, the trial court ex-
plained that those cases did not involve identical issues:
“The Court finds that Coors is not bound
by the doctrine of collateral estoppel by reason of
the decisions in FTC, Copper Liquor and A & §
*This case was originally filed in the California Superior
Court for the County of Los Angeles by Coors in 1965 seeking
to terminate Spriggs as a distributor and to enjoin certain conduct
of Spriggs. Spriggs cross-complained and a trial was held in
the Los Angeles Superior Court in 1971. The court found
in Coors’ favor on all issues and. on the court’s own motion,
dismissed Spriggs’ cross-claims under the Cartwright Act on
the ground that the alleged restraints of commerce involved
interstate commerce and therefore were within the exclusive
jurisdiction of the federal court. The California Court of Appeal
in R.E. Spriggs Co. v. Adoiph Coors Co., 37 Cal. App.
3d 653, 112 Cal. Rptr. 585 (1974), held that the Superior
Court had jurisdiction over the Cartwright Act claim and re-
manded the case for further proceedings which resulted in the
second trial in the Superior Court in 1976 and the subsequent
appellate proceedings from which this petition is taken.
ec Wan
“The doctrine of collateral estoppel cannot be
used to require a court to apply inappropriate
law or appellate decision. The real thrust of
Spriggs’ argument on collateral estoppel is to re-
quire application of the per se approach. As in-
dicated above, such conclusion cannot be reached
by this Court.
“Secondly, the three cases relied upon by Spriggs
did not involve a determination of completely
identical issues.
“Thirdly, to the extent that the question is
open it does not appear to be appropriate to
apply the doctrine offensively in favor of a stran-
ger to the prior litigation, which is the result
Spriggs urges.”
App. 79 (emphasis added).
The non-identity of issues and injustice of applying
collateral estoppel were raised in the California Court
of Appeal in Coors’ brief as respondent, in Coors’
post hearing letter to the Court of Appeal of February
1, 1979 and in Coors’ petition for rehearing and were
reiterated in Coors’ petition for hearing in the California
Supreme Court. App. 92-95, 114-119, 126-127, 131-
137, 142. The petitions for hearing and rehearing speci-
fically cited and discussed the Due Process Clause of
the Fourteenth Amendment of the United States Con-
stitution and evidence that during the relevant time
period in Los Angeles County, California territories
were not imposed to carry out pricing policy. App.
113-114, 123-124, 127, 131, 142.
5. In Sylvania, this Court expressly overruled
Schwinn, noting that the Tenth Circuit in FTC had
expressly urged the Court
pom
“to consider the need in this area for greater
flexibility, Adolph Coors Co. v. FTC, 497 F.2d
1178, 1187 (CAI0O 1974).”
433 USS. at 49 n.14,
Sylvania was cited and discussed extensively in Coors’
brief as respondent in the California Court of Appeal
and in its petition for hearing in the California Su-
preme Court. App. 91-92, 128-!Z9, 139-141.
6. In A & S, the Tenth Circuit held that Coors’
territorial limitations were not illegal per se, expressly
refusing to follow its own decision in FTC because
Schwinn had been overruled by Sylvania. 561 F.2d
at 811-12.
7. In Del Rio Distributing, Inc. v. Adolph Coors
Co., the Fifth Circuit held that Coors’ territorial limita-
tions were not illegal per se and that the doctrine
of collateral estoppel could not be applied to its own
decision in Copper Liquor or to the decision of the
Tenth Circuit in FTC, because Schwinn had been over-
ruled by Sylvania. 589 F.2d at 179 & n.4. Del Rio
was cited by Coors and its significance discussed in
a letter to the California Court of Appeal dated March
9, 1979, enclosing a copy of the opinion. App. 96-97.
Del Rio was again raised in Coors’ petition for rehearing
in the Court of Appeal and in Coors’ petition for
hearing in the California Supreme Court. App. 113,
119-120, 130, 137-138.
8. On Spriggs’ appeal from the trial court judgment
in favor of Coors after the 1976 trial on_ liability
in this case, the California Court of Appeal* held
*Proper consideration of this petition unfortunately requires
that the opinion of the California Court of Appeal not be
taken at face value. For one example, the Coors policy manual
(This footnote is continued on next page)
_— oe
that Coors was collaterally estopped and reversed, not
for a new trial which would give Coors an opportunity
to be heard on the liability issue, but with an explicit
direction to the trial court to enter judgment against
Coors because of the decisions in Copper Liquor and
FTC.
quoted extensively by the Court of Appeal was not “admitted
to be relevant at all times” as the court states (App. 100)
but was dated June 1970 (more than four years after the
relevant time period) and was admitted into evidence over
Coors’ strong and repeated objections and evidence that it was
not relevant. E.g., App. 472-76. The Court of Appeal also noted
the unconstitutionality of the price provisions of California’s
Alcoholic Beverage Control Act (App. 104), an issue that
is currently before this Court in California Retail Liquor Dealers
Ass'n v. Midcal Aluminum, Inc., cert. granted, 48 U.S.L.W.
3217 (U.S. Oct. 2, 1979) (No. 79-97).
a on
REASONS FOR GRANTING THE WRIT.
I.
The Decision Below Conflicts With the Due Process
Clause of the Fourteenth Amendment of the United
States Constitution.
This Court has stated that due process of law requires
a meaningful opportunity to be heard:
“|D|ue process requires, at a minimum, that ab-
sent a countervailing state interest of overriding
significance, persons forced to settle their claims
of right and duty through the judicial process
must be given a meaningful opportunity to be
heard.”
Boddie v. Connecticut, 401 U.S. 371, 377
(1971).
Coors submits that, if collateral estoppel is to be applied
so aS to meet the due process standard, there must
be an identity of issues as well as parties for the
opportunity to be heard to be meaningful. See, e.g.,
Expert Electric, Inc. v. Levine, 554 F.2d 1227, 1233
(2d Cir.), cert. denied, 434 U.S. 903 (1977); Haung
Tang v. Aetna Life Ins. Co., 523 F.2d 811, 813 (9th
Cir. 1975); Bernhard v. Bank of America, 19 Cal. 2d
807, 811, 122 P.2d 892 (1942).
By its reversal of the second judgment that Coors
was not liable to Spriggs, the California court has
foreclosed Coors from any hearing on the liability
issue. This denial of due process to Coors rests upon
erroneous application of coliateral estoppel based on
two federal judgments which did not involve identical
issues. This Court expressly held application of col-
lateral estoppel based on different time periods and
geographic markets to be improper in Theatre Enter-
om
prises, Inc. v. Paramount Film Distrib. Corp., 346
U.S. 537 (1954):
“The trial judge instructed, in effect, that the
Paramount decrees alone could not support a re-
covery by petitioner; additional evidence was re-
quired to relate the presumed Paramount conspir-
acy to Baltimore and to the claimed damage
period. The reasons for this are clear. The Para-
mount decrees did not rest on findings, nor were
the findings based on evidence, of a particular
conspiracy concerning restrictions on runs and
clearances in Baltimore theatres; yet such a con-
spiracy is the nub of plaintiff's claim. The Para-
mount case involved a conspiracy found to exist
as of 1945, which was enjoined no later than
June 25, 1948; but the conspiracy alleged here
involves a claimed damage period running from
February 1949 to March 1950. Indeed, the rele-
vancy of Paramount to the instant case is slight.
We need not pass on respondents’ contention that
petitioner was entitled to no benefit at all from
the earlier decrees. We merely hold that petitioner
was entitled to no greater benefit than the trial
judge gave it.”
346 U.S. at 543-44 (footnote omitted).
Most recently this Court refused to review a Fifth
Circuit decision rejecting the use of collateral estoppel
based on the same two judgments against Coors to
impose liability upon Coors. Del Rio Distributing, Inc.
v. Adolph Coors Co., 589 F.2d 176 (Sth Cir.), cert.
denied, 48 U.S.L.W. 3219 (U.S. Oct. 2, 1979). This
also is in direct conflict with the decision of the Cali-
fornia Court of Appeal.
a. oe
An antitrust judgment not expressly dealing with
the same time and place has no estoppel effect in
a subsequent private treble damages action:
“The findings in a government antitrust judg-
ment or decree have an estoppel effect in a sub-
sequent treble damage action only as to the time
and place of the unlawful activity expressly dealt
with in the prior decree. Essentially, this means
that a finding that the defendant has violated
the law in some particular geographical area during
a specific period will not serve as proof that
he acted unlawfully in the same manner in a
different area or at another time.”
16 J. von Kalinowski, Antitrust Laws and
Trade Regulation § 111.02[3] at 111-25-
26 (1978).
In the instant case application of collateral estoppel
constitutes a denial of due process because both federal
decisions relied upon (FTC and Copper Liquor) in-
volved different conduct in a different geographical
area at a different time, and did not involve clearly
identical issues. In Del Rio and A & § the federal
courts deciding Copper Liquor and FTC expressly re-
fused to give collateral estoppel effect to their earlier
judgments. Despite the fact that the very courts that
decided FTC and Copper Liquor have subsequently
refused to find Coors collaterally estopped by those
decisions because of the intervening Sylvania decision,
the California Court of Appeal has now given collateral
estoppel effect to those decisions. —
In Commissioner v. Sunnen, 333 U.S. 591 (1948),
this Court rejected collateral estoppel based on such
obsolete decisions:
osigliilieds
“[A] subsequent modification of the significant
facts or a change or development in the control-
ling legal principles may make that [earlier] deter-
mination obsolete or erroneous, at least for future
purposes. . . . That principle [of collateral estop-
pel] is designed to prevent repetitious lawsuits
over matters which have once been decided and
which have remained substantially static, factually
and legally. It is not meant to create vested rights
in decisions that have become obsolete or erro-
neous with time, thereby causing inequities... .”
333 US. at 599.
Copper Liquor Involved Different Conduct in a Differ-
ent State at a Different Time at a Different Level
of Distribution.
The first trial in this case in 1971 determined that
Spriggs was properly terminated as a Coors distributor
on September 22, 1965. See R.E. Spriggs Co. v. Adolph
Coors Co., 37 Cal. App. 3d 653, 656, 112 Cal. Rptr.
585 (1974). After the second trial in 1976, the trial
court specifically found that
“lt}he ‘relevant period’ as sometimes referred to
in these findings of fact is the four years preceding
the filing of the cross-complaint on October 18,
1965.” Finding of Fact 16, App. 86.
In Copper Liquor the plaintiff was a retailer named
Letcher in Brownwood, Texas, who did not acquire
his store until 1966:
“Letcher acquired a sole proprietorship in the
Brownwood store in January of 1966. About the
same time, Coors entered the Brownwood market.”
506 F.2d at 939, App. 35.
ae
Thus, Copper Liquor clearly involved a different time
period.
Moreover, the relevant geographic market in Copper
Liquor had been designated as “the market for beer
in Brownwood, Texas.” 506 F.2d at 950, App. 59.
There was no question that the relevant geographic
market in this case was the market for beer in Los
Angeles County, California. See, e.g., Findings of Fact
3, 4, 7, 13, 14, 15, Conclusions of Law 8, 10, 11,
App. 83-84, 86, 88. The Copper Liquor judgment con-
cerning events in Brownwood, Texas after January 1,
1966 is not relevant evidence of events in Los Angeles
County, California prior to October 18, 1965.
“A judgment addressing itself to acts or prac-
tices committed in a defined geographical area
is not admissible in an action in which the plaintiff
is alleging unlawful activities elsewhere.”
16 J. von Kalinowski, Antitrust Laws and Trade
Regulation § 111.02[3] at 111-27-28 (1978).
See, e.g., State of Michigan v. Morton Salt
Co., 259 F. Supp. 35, 73-75 (D. Minn. 1966),
aff'd sub nom. Hardy Salt Co. v. State of
Illinois, 377 F.2d 768 (8th Cir.), cert. de-
nied, 389 U.S. 912 (1967).
Finally, the plaintiff in Copper Liquor was a retailer
who claimed that Coors refused to deliver beer to
him because he was selling Coors below his own cost:
“Letcher advertised Coors at less than his own
cost, using it as a ‘loss leader’.”
506 F.2d at 939, App. 35.
In this case not only are the plaintiffs different indi-
viduals; their status is also different. Spriggs was not
a retailer as was the plaintiff in Copper Liquor. Soriggs
was a distributor.
—)
FTC Did Not Involve Clearly Identical Issues of Fact
and There Is No Reference in FTC to Los Angeles
County at Any Time Period, Relevant or Other-
wise, or to Spriggs.
In FTC, the Court of Appeals and Federal Trade
Commission both relied very heavily upon the testimony
of Mr. Letcher, the plaintiff in Copper Liquor. See
497 F.2d at 1185, App. 15. As discussed above, Coors’
dealings with Letcher clearly involved different conduct
in a different state at a different time and at a different
level of distribution from Spriggs.
Moreover, the FTC opinion affirmed an equitable
decree operating prospectively from July 24, 1973.
497 F.2d at 1181-82 n.2, App. 6-8. Especially in view
of FTC’s reliance on the testimony of the plaintiff
in Copper Liquor, supra, it is clear that FTC did
not involve identical conduct at an identical time and
place to the conduct, time and place involved in this
case. Because FTC did not involve identical issues
of fact, application of collateral estoppel is clearly
error. Indeed, the only references in FTC to activities
of Coors in California were to the Oakland and Sacra-
mento areas in Northern California; there is no refer-
ence to any conduct of Coors in Los Angeles County
in Southern California at any time period, relevant or
otherwise, and no reference to Spriggs.
Coors in Copper Liquor and FTC never had any
motive or opportunity to litigate any liability to Spriggs
for any conduct by Coors in Los Angeles County
involving Spriggs. Thus, the Court of Appeal’s decision
denied due process to Coors by using cases involving
different facts to impose liability without trial.
The judgment in FTC determined only that there
was substantial evidence to support the findings of
a
the administrative agency, and did not determine that
Coors had violated the antitrust laws in Los Angeles
County prior to October of 1965, an essential element
of Spriggs’ claim. 497 F.2d at 1184-86, App. 13-17.
There appears to be a square conflict among the circuits
as to whether an FTC order is a judgment under
section 5(a) of the Clayton Act. Compare, e.g., Purex
Corp. v. Procter & Gamble Co., 453 F.2d 288, 291
(9th Cir. 1971), cert. denied, 405 U.S. 1065 (1972)
and Proper v. Join Bene & Sons, Inc., 295 F. 729
(E.D.N.Y. 1923) with Farmington Dowel Products
Co. v. Forster Mfg. Co., 421 F.2d 61 (1st Cir. 1969).
Il.
The Decision Below Conflicts With the Decision of
This Court in Syivania.
In Sylvania, this Court expressly overruled Schwinn.
The Court noted that the Tenth Circuit in FTC had
“expressly urged [the Court] to consider the
need in this area for greater flexibility. Adolph
Coors Co. v. FTC, 497 F.2d 1178, 1187 (CA
10 1974).”
433 USS. at 49 n.14.
Then, this Court in Sylvania expressly recognized that
vertical restrictions promote interbrand competition by
allowing the manufacturer to achieve distribution ef-
ficiencies and noted that federal and state regulations
increasingly require such control. 433 U.S. at 54-55
& n.23, citing, e.g., Cal. Civ. Code § 1790 et seq.
However, the opinion of the Court of Appeal in
this case ridiculed the specific findings of the trial
court that Coors’ territorial restrictions were necessary
and reasonable for reasons recognized by this Court
in Sylvania:
=)
“Eventually the trial court signed findings and
conclusions. We summarize the highlights: 1. Com-
pliance with various state laws could ‘be accom-
plished in an effective way only by absolute desig-
nation of responsibility under territorial guidelines.’
2. Territorial limitations on distributorships were
the only practicable way for insuring quality con-
trol. 3. Further, such territorial limitations and
certain regulations which Coors enforced prevented
distributors from servicing only the large, profita-
ble accounts. Thus the system vindicated the pub-
lic’s ‘right to the widest availability of Coors beer.’
4. The territorial limitations had no restraining
effect on interbrand competition. 5. There was
no evidence that the people of Los Angeles would
have benefited from intrabrand competition and
there was evidence to the contrary. 6. There was
no collusion among Coors’ distributors. 7. The
territorial limitations were a vertical restraint but
did not, per se, violate the Cartwright Act. 8.
The territorial limitations were reasonable under
the Cartwright Act in the light of Coors’ legiti-
mate need to insure quality control and compliance
with all applicable state laws and regulations.”
94 Cal. App. 3d at 425, App. 102.
Thus, the California court summarily rejected the
antitrust policy of the United States articulated by
this Court in Sylvania.
—
III.
The Decision Below Is Contrary to Decisions of the
Federal Courts of Appeals.
The United States Court of Appeals for the Fifth
Circuit, the court that decided Copper Liquor, recently
refused to give collateral estoppel effect to that decision
in Del Rio. The plaintiff in Del Rio had been a
Coors distributor until termination by Coors, Del Rio
sued alleging violations of the antitrust laws by Coors
by means of “fixing of wholesale and retail prices
and the limiting of territories where Coors beer could
be resold.” 589 F.2d at 177.:
Following an adverse jury verdict and denial of mo-
tions for new trial or judgment n.o.v., Del Rio appealed
and urged that Copper Liquor and FTC should be
given collateral estoppel effect.
“Del Rio contends that adverse judgments en-
tered against Coors in Adolph Coors Co. v. Federal
Trade Commission, 497 F.2d 1178 (10th Cir.
1974), and Copper Liquor, Inc. v. Adolph Coors
Co., 506 F.2d 934 (Sth Cir. 1975) serve as
collateral estoppel on the issue of liability.‘ We
disagree and find several bases for distinguishing
those cases. One of the most obvious distinctions
of Copper Liquor is that it was decided under
the per se rule of Schwinn that has now been
replaced by the rule of reason under Sylvania.
“The F.T.C. case, decided in another circuit.
was based on an appeal of an F.T.C. cease and
“4We also find that the trial judge did not err in refusing
to take judicial notice of Adolph Coors Co. v. Federal
Trade Commission, 497 F.2d 1178 (10th Cir. 1974)
or in refusing to enter into evidence the F.T.C. Com-
plaint and the F.T.C. Cease and Desist Order.”
a. oe
desist order brought under § 5 of the Federal
Trade Commission Act. The Federal Trade Com-
mission had overturned the decision of an admin-
istrative law judge who had found no violation
of the act. In reaching its decision on vertically
imposed territorial restrictions, the Tenth Circuit
was compelled to rely on law in effect at that
time; the Schwinn per se rule.
“In light of the reliance on Schwinn in both
Copper Liquor and the F.T.C. case we hold that
the doctrine of collateral estoppel has no appli-
cation in the instant case.”
589 F.2d at 178 & n.4.
Although Del Rio had been decided by the Fifth
Circuit and cited by Coors, the original opinion of
the California Court of Appeal in this case did not
even mention Del Rio. On denial of rehearing that
court at last took note of this decision but rejected
Del Rio’s teaching by adding a footnote stating that
it was “not persuaded by that court’s [the Fifth Cir-
cuit’s] narrow legal view of collateral estoppel.” App.
125.
As noted earlier, this Court refused to review the
Fifth Circuit’s rejection of the same collateral estoppel
applied in this case. Del Rio Distributors, Inc. v. Adolph
Coors Co., 48 U.S.L.W. 3219 (U.S. Oct. 2, 1979)
(78-1876). |
Finally, in A & S. the Tenth Circuit expressly refused
to follow its own decision in FTC, stating that its
FTC decision was “firmly anchored” to Schwinn, which
was overruled in Sylvania:
“We see no merit in this contention [for a directed
verdict under FTC| inasmuch as it relies almost
exclusively on the same predicate discussed in
lil sin
(1) above: ‘A & S was entitled . . . to have
the jury informed that the vigorously enforced
territorial restrictions of Coors was a per se viola-
tion of the Sherman Act and that all that they
had to determine was the fact and amount of
damages.’ [Brief of A & S, Appellant, Cross-
Appellee, p. 23.| The Supreme Court decision
in Continental T.V., Inc. v. GTE Sylvania, In-
corporated, supra, disposes of this issue adversely
to A & S.” 561 F.2d at 811-12.
IV.
The Decision Below Conflicts With Section 5(a)
of the Clayton Act, 15 U.S.C. § 16(a).
The California Court of Appeal decision in this
case holds that the FTC order in the FTC case is
conclusive against Coors. This is not the law. Such
an order is made under section 5 of the Federal Trade
Commission Act, 15 U.S.C. § 45, which is much broader
than the Clayton and Sherman Acts. It is not a judg-
ment “under the antitrust laws” under section 5(a)
of the Clayton Act, 15 U.S.C. § 16(a), and therefore
is not admissible in a private treble damages action.
See North Carolina v. Chas. Pfizer & Co., 537 F.
2d 67 (4th Cir.), cert. denied, 429 U.S. 870 (1976);
New Jersey Wood Finishing Co. v. Minnesota Mining
& Mfg. Co., 332 F.2d 346 (3d Cir. 1964), aff'd
on other grounds, 381 U.S. 311 (1965); In re Anti-
biotic Antritrust Action, 333 F. Supp. 317 (S.D.NLY.
1971); Proper v. John Bene & Sons, Inc., 295 F.
729 (E.D.N.Y. 1923).
In North Carolina v. Chas. Pfizer & Co., supra,
for example, the Fourth Circuit held that collateral
estoppel did not apply to a judgment under section
=,
5 of the FTC Act, which was “an administrative pro-
ceeding, not a judicial trial.” 537 F.2d at 74. The
court declared the difference between the FTC Act
and the antitrust laws:
“The issue before the Commission was whether
the respondents in that proceeding were guilty
of unfair methods of competition in violation of
Section 5 of the Federal Trade Commission Act
which is a regulatory statute much broader in
its scope than the Clayton and Sherman Acts
under which the present litigation was instituted.
* * *
“(Bly the very terms of the Federal Trade Com-
mission Act, proceedings under section 5 appear
to be incompatible with the doctrine of collateral
estoppel.” 537 F.2d at 74.
Moreover, section 5(a) of the Clayton Act, 15
U.S.C. § 16{a), provides that judgments in actions
brought by the United States under the Sherman Act
(but not the FTC Act) create at most a rebuttable
presumption. E.g., Purex Corp. v. Procter & Gamble
Co., 453 F.2d 288, 291 (9th Cir. 1971), cert. denied,
405 U.S. 1065 (1972) (“takes no question of fact
from either court or jury . .. [n]or does it in any-
wise work a denial of due process of law”). See
Sam Fox Publishing Co. v. United States, 366 U.S.
683, 690 (1961) (Clayton Act § 5 is a “definitive
legislative pronouncement that a government suit cannot
be preclusive of private litigation”); FTC v. Cement
Institute, 333 U.S. 683, 706 (1948) (“the effect of
the Commission’s order is not to punish or to fasten
liability on respondents for past conduct but to ban
specific practices for the future in accordance with
the general mandate of Congress”).
a
Conclusion.
Since the petition presents a constitutional conflict
on the proper scope of collateral estoppel between
federal and state court application involving federal
court decisions, a writ of certiorari should issue to
review the judgment and opinion of the Court of Appeal
of the State of California for the Second Appellate
District in this case.
Respectfully submitted,
McCuTCHEN, BLACK, VERLEGER & SHEA,
G. WILLIAM SHEA,
FRANKLIN H. WILSON,
Jupp L. JoRDAN,
BRADLEY, CAMPBELL & CARNEY,
LEO N. BRADLEY,
Attorneys for Petitioner
Adolph Coors Company.
APPENDIX
PERRI En BR haba CSR a 8
2 ee
Section 5(a), Federal Trade Commission Act, ch. 311,
§ 5, 38 stat. 719 (1914), as amended by Act of
Feb. 13, 1925, ch. 229, § 2, 43 stat. 939, Act
of Mar. 21, 1938, ch. 49, § 3, 52 stat. 111, Act
of June 25, 1948, ch. 646, § 32(a), 62 stat. 991,
Act of May 24, 1949, ch. 139, § 127, 63 stat.
107, Act of July 14, 1952, ch. 745, § 2, 66 stat.
632, Act of Aug. 23, 1958, Pub. L. 85-726, Title
XIV, § 1411, 72 stat. 809, Act of Sept. 2, 1958,
Pub. L. 85-909, § 3, 72 stat. 1750 (current version
at 15 U.S.C. § 45(a) (Supp. I 1977)).
(a) Declaration of unlawfulness; power to prohibit un-
fair practices.
(i) Unfair methods of competition in commerce,
and unfair or deceptive acts or practices in commerce,
are declared unlawful.
(2) Nothing contained in this section or in any
of the Antitrust Acts shall render unlawful any contracts
or agreements prescribing minimum or stipulated prices,
or requiring a vendee to enter into contracts or agree-
ments prescribing minimum or stipulated prices, for
the resale of a commodity which bears, or the label
or container of which bear the trade-mark, brand, or
name of the producer or distributor of such commodity
and which is in free and open competition with com-
modities of the same general class produced or distrib-
uted by others, when contracts or agreements of that
description are lawful as applied to intrastate transac-
tions 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.
cilia
(3) Nothing contained in this section or in any
of the Antitrust Acts shall render unlawful the exercise
or the enforcement of any right or right of action
created by any 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 knowingly advertising, offering for sale, or selling
any commodity at less than the price or prices pre-
scribed in such contracts or agreements whether the
person so advertising, offering for sale, or selling 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
as described in paragraph (2) of this subsection, nor
the exercise or enforcement 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 sub-
section shall make lawful contracts or agreements pro-
viding for the establishment or maintenance of minimum
or stipulated resale prices on any commodity referred
to in paragraph (2) of this subsection, between manu-
facturers, 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.
(6) The Commission is empowered and directed
to prevent persons, partnerships, or corporations, except
banks, common carriers subject to the Acts to regulate
commerce, air carriers and foreign air carriers subject
to the Federal Aviation Act of 1958, and persons,
Pr, Se
partnerships, or corporations insofar as they are subject
to the Packers and Stockyards Act, 1921, as amended,
except as provided in section 406(b) of said Act, from
using unfair methods of competition in commerce and
unfair or deceptive acts or practices in commerce.
scalallbeas
Spriggs’ Exhibit 80.
COORS PRICING POLICY
Regardless of geographic location or quantities of
purchases, all Distributors pay the same price F.O.B.,
Golden, Colorado.
The Adolph Coors Company requires certain things
of its wholesalers, including but not limited to:
1. Refrigerated Warehouses.
2. Adequate, well-qualified employees in clean uni-
forms.
Necessary insulated, clean trucks.
4. Good community image and relationship.
5. Excellent service to all retailers.
In order to maintain a successful wholesale or retail
business, pricing integrity is essential. Pricing integrity
will resuJt in an adequate and equitable profit to both
Distributor and retailer and is fair to the ultimate
consumer.
It is the policy of the Adolph Coors Company to
suggest, if it so chooses, to either the wholesaler or
retailer level, suggested minimum pricing. We reserve
the right to further that policy by simply refusing
to deal with anyone who doesn’t adhere to said policy.
ws)
The Adolph Coors Company and its agents must
only state the policy. They cannot make agreements,
threaten, coerce, or intimidate wholesalers or retailers
in any manner. They can enforce the policy only by
reserving the right to refuse to deal with those who
don’t adhere to the suggested prices. Rev. 6-70
Opinion.
Adolph Coors Company, Petitioner-Appellant. v.
Federal Trade Commission, Respondent-Appellee. No.
73-1567.
—_ os
United States Court of Appeals, Tenth Circuit.
Filed: June 4, 1974.
Leo N. Bradley, Golden, Colo. (Earl K. Madsen,
Golden, Colo., on the brief), for petitioner-appellant.
Robert E. Duncan, Washington, D. C. (Calvin J.
Collier, Gen. Counsel, Gerald Harwood, Acting Asst.
Gen. Counsel, W. Baldwin Ogden, Washington, D. C.,
on the brief), for respondent-appellee.
Before HOLLOWAY and BARRETT, Circuit
Judges, and DURFEE,* Judge Court of Claims.
BARRETT, Circuit Judge.
Adolph Coors Company appeals an Order to Cease
and Desist issued by the Federal Trade Commission.
The FTC filed a complaint alleging that Coors was
engaged in anticompetitive practices in violation of Sec-
tion 5 of the Federal Trade Commission Act.’ An
Initial Decision was issued by the Administrative Law
Judge after hearings were conducted in Denver extend-
ing over a period of thirty days. The Law Judge
found that Coors had not violated the Act. He recom-
mended that the complaint be dismissed. The FTC
appealed the Initial Decision to the five-member Federal
Trade Commission. The Commission substituted its
findings for those of the Law Judge and found, as
*Honorabie James R. Durfee, sitting by designation.
1Section 5 of the Federal Trade Commission Act, 15 U.S.C.A.
§ 45, provides in part:
(a)(1) Unfair methods of competition in commerce,
and unfair or deceptive acts or practices in commerce,
. are declared unlawful.
* * a
(6) The Commission is empowered and directed to prevent
persons, partnerships, or corporations, ... . from using unfair
methods of competition in commerce and unfair or deceptive
acts or practices in commerce.
—_ a
a matter of law, that Coors had violated Section 5
of the Act.*
Adolph Coors Company, a Colorado corporation,
is engaged in brewing, distribution and sale of beer,
using the trade name of “Coors”. Coors has one brewery
in Golden, Colorado, and distributes its beer in an
eleven-state area. The beer is sold to the distributors
2The Commissioners ordered that Coors cease and desist
from:
1. Entering into, maintaining or enforcing any contract,
agreement, combination, understanding or course of conduct
which has as its purpose or effect the fixing, maintaining, estab-
lishing or setting of the prices at which distributors sell Coors
beer to retailers or the prices at which retailers sell Coors
beer to consumers.
2. Publishing, disseminating or providing any price list or
other document indicating suggested or mandatory prices for
the sale of Coors beer by any distributor to any retailer or
any price list or other document indicating suggested or manda-
tory prices for the sale of Coors beer by any retailer to any
consumer. * * *
3. Publishing, disseminating or providing to any distributor
or any retailer any information or suggestions concerning what
Coors may believe to be an appropriate or proper mark-up
or profit for Coors beer when the distributor sells to the retailer
or when the retailer sells to the consumer or a mark-up or
profit below which the distributor or retailer is advised not
to sell Coors beer. * * *
4. Refusing to sell beer to any Coors distributor or terminat-
ing or threatening to terminate any Coors distributor because:
A. the distributor has in the past or might in the future
sell Coors beer at prices, mark-ups, or profits different
from those approved or recommended by respondent:
B. one or more of the distributor’s customers sold Coors
beer or advertised Coors beer for sale at prices, markups,
or profits different from those approved or recommended
by respondent:
C. the Coors distributor sold Coors beer to another dis-
tributor or to a retailer whose business is located outside
of the territory granted to the distributor; or
D. the Coors distributor distributes, has distributed, or
proposes to distribute in the future the product of another
brewer.
5. Entering into, maintaining or enforcing any contract,
agreement, combination, understanding or course of conduct
Witter
— a
who in turn sell to retailers. While Coors is the fourth
largest beer brewer in the United States, it alone among
the nation’s some 70 brewers is a “shipping” brewery,
i.e., Coors ships all of the beer brewed at its single
“regional” brewing plant at Golden, Colorado, F.O.B.
to the various distributors in Arizona, California, Colo-
rado, Idaho, Kansas, Nevada, New Mexico, Oklahoma,
Texas (some counties only), Utah and Wyoming. In
to fix, establish, limit or restrict the territory in which or
the persons to whom a distributor may sell Coors beer.
* * *
6. Allocating Coors beers among its distributors in times
of beer shortage at the Coors brewery, by any means other
than by allocating shares to distributors equal to their proportion-
ate purchases of Coors beers from the brewery during the
last three months before the allocation or when the distributor
has not been in business for more than a year as a Coors
distributor, on some other equitable basis.
7. Refusing to deliver all of a distributor's order because
the distributor has made sales to customers outside of the
territory granted the distributor or because the distributor or
the distributor’s customer is selling Coors beer at prices, mark-
ups or profits lower than those approved by respondent.
8. Prohibiting its distributors from selling for central ware-
house delivery; provided, however, that respondent can establish
refrigeration standards for the central warehouse which are sub-
stantially similar to those established for distributors and can
require its distributors to be responsible, directly or indirectly,
for maintenance of such refrigeration standards and for rotation
of Coors beer in the central warehouse and at the retail delivery
locations where the beer is redelivered from the central ware-
house, if respondent changes its container dating system so
that the retailer and the consumer will recognize the date without
reference to a code or measuring stick.
8. Entering into, maintaining or enforcing any contract,
agreement, combination, understanding or course of conduct
with its distributors which has as its purpose or effect requiring
that retailers serve Coors draught beer as their only light-
colored draught beer.
10. Entering into, maintaining, or enforcing any contract,
agreement or understanding. cr taking any action or course
of conduct with any of its distributors which has as its purpose
or effect the requirement that the distributor eliminate, or refrain
(This footnote is continued on next page)
%
a
1971 the average barrel of Coors beer traveled 961
miles to its market place.
The beer is made by the aseptic brewing process
which requires refrigerated marketing. It is uncontro-
verted that Coors beer is substantially more expensive
than any other beer consumed in the United States,
and yet because of its popularity, Coors has climbed
from the 49th largest brewery in 1948 to its number
4 position today. Coors maintains market leadership
in total sales agasint all competitors except in its terri-
tory served in Texas. Because of the delicacy of the
from obtaining and handling rival brands of beer in order
to become or remain a Coors distributor.
11. Hindering, suppressing or eliminating competition or at-
tempting to hinder, suppress or eliminate competition between
or among distributors or between or among retailers handling
Coors beer.
12. Cancelling any distributor agreement unless and until
the respondent has pursued the following procedure:
A. Cancellation With Cause
(a) Respondent has given the distributor sixty days’ notice
of respondent’s intention to cancel its agreement with the
distributor; .. .
B. Cancellation Without Cause
(a) Respondent has given the distributor one hundred
and eighty days’ notice of respondent’s intention to cancel
its agreement with the distributor;
13. IT IS FURTHER ORDERED that respondent, within
three (3) months from the date this Order becomes final,
shall provide for arbitration, in the city in which a distributor
resides, by an independent and neutral arbitrator, to determine
in the case of any announced termination, and upon the request
of a distributor, whether or not said termination is made in
good faith (in the case of termination without cause) or whether
or not said termination is made in good faith and for material
violation of one or more contract provisions which are relevant
to the effective operation of the franchise (in the case of
termination with cause). * * * *
/s/ Charles A. Tobin
Secretary
ISSUED: July 24, 1973
a
product, it is essential that the refrigeration controls
and expeditious marketing techniques be strictly moni-
tored. Once the beer is delivered to the distributors,
this obligation is assumed by them under an agreement
with Coors. It is the distributor who is required to
protect the “integrity” of the Coors beer quality. by
guarding against a retailer’s failure to rotate the beer,
and failure to insure proper refrigerated storage. Coors
beer retained over 90 days must be destroyed.
Coors has 35 area representatives to help market
the product. Each representative is assigned certain
distributors to work with and .to see that Coors’ Policy
Manual is followed. The price Coors charges to its
distributors is set by Coors. Coors suggests to its
distributors and retailers the price at which to sell
its beer.
Each distributor is assigned a territory in which
to market Coors’ products. Coors may reduce the terri-
tory or add distributors to a particular territory. There
are 166 independent distributors and one wholly owned
subsidiary company.
In 1964 Coors eliminated sales to central warehouse
accounts. Central warehouse accounts are either re-
tailers such as large chain supermarkets who buy for
redelivery to their own outlets, or independents who
purchase for redelivery to nonaffiliated retail outlets
or retailer warehouses.
Coors favors draught accounts. It has a draught
policy in which tavern owners are given 30 days to
discontinue handling other brands of light draught beer.
If the owner-retailer continues to sell another brand
of light draught beer, Coors discontinues its supply
of light draught beer to the tavern.
a"
The contract between Coors and the distributors en-
ables Coors to cancel its contract for any breach by the
distributor, with a five-day notice. Either Coors or the
distributor may cancel the contract without cause with
a 30-day notice.
Coors contends that: (1) it did not engage in whole-
sale or retail price fixing; (2) its vertically imposed
territories are reasonable and legal; (3) it has no
policy of requiring exclusive draught accounts; (4)
it has the right to protect its quality product and
not distribute its beer through central warehousing;
(5) its contract termination rights are reasonable and
legal; (6) the provisions of the Commission’s Order
are not supported by substantial evidence, are not
reasonable, and are in conflict with important public
policies; (7) the FTC internal procedures have preju-
diced its right to a fair hearing; and (8) this court.
must exercise its power and set aside the Commissioner’s
Order.
5.
Coors contends that it did not engage in price fixing
agreements with its distributors. Its practices are set
out in the Coors Policy Manual which states as follows:
In order to maintain a successful wholesale
or retail business, pricing integrity is essential. Pric-
ing integrity will result in an adequate and equi-
table profit to both Distributor and retailer and
is fair to the ultimate consumer.
It is the policy of the Adolph Coors Company
to suggest, if it so chooses, to either the whole-
saler or retailer level, suggested minimum pricing.
We reserve the right to further that policy by
—)
simply refusing to deal with anyone who doesn’t
adhere to said policy.
The Adolph Coors Company and its agents
must only state the policy. They cannot make
agreements, threaten, coerce, or intimidate whole-
salers or retailers in any manner. They can en-
force the policy only by reserving the right to
refuse to deal with those who don’t adhere to
the suggested prices.
Coors’ sales manager, Harvey Gorman, testified that
the product is controlled by agreeing individually with
each distributor. This policy is enforced by a provision
in the contract between Coors and the distributor
enabling Coors to terminate a distributorship in 30
days without cause. Since there are about 7,000 appli-
cants for distributorships, any distributor who does
not conform to Coors’ pricing policies could readily
be replaced. Coors’ area representatives constantly ob-
tain wholesale price information and send the informa-
tion to the home office in Golden. The area representa-
tives also resolve any conflicts between the prices pro-
posed by a distributor and those suggested by Coors.
John Hemphill, a former Coors distributor, testified
that he would only go so far in making a request
to use his own prices, knowing that Coors could ter-
minate him in 30 days. He also testified that a Coors’
area representative told him that the best thing for
him to do is not to be a distributor if he could
not agree to Coors’ policies on pricing and territories.
The Law Judge had questioned Hemphill’s credibility
because of a suit he has pending against Coors, but
the Commissioners rejected this fact as bearing on
the issue of credibility.
=, =
Jay Wagnon, a Coors’ distributor, testified that Coors
insisted on controlling distributor price increases and
that when he refused to adopt wholesale prices sug-
gested by the Coors’ area representative he was sum-
moned to Golden and requested to change his prices.
He stated that Coors’ personnel told him to bring
his prices in line with Coors’ recommendations or they
could put another distributor in his area. He testified
that he was afraid; that he had been threatened; and
that he therefore conformed to the suggested prices.
The Law Judge did not find Wagnon’s testimony cred-
ible. The Commissioners, on the other hand, found
that his testimony was credible.
Jay Thurman, a former distributor, testified that
he was given pricing sheets by the area representative
which were to be followed. He was told that if the
prices were changed, it would go through Mr. Straight,
a Coors official, who, in turn, would determine if the
changes were justified.
Peter Tinetti, a former distributor, testified that Coors
sent him the prices at which to sell Coors beer.
The area representatives submitted reports to the
Golden headquarters about agreements or understand-
ings they had made with distributors on wholesale
prices.
Price fixing is illegal per se under the Sherman
Antitrust Act. 15 U.S.C.A. § 1; Northern Pacific Rail-
way Co. v. United States, 356 U.S. 1, 4-5, 78 S.Ct.
514, 2 L.Ed.2d 545 (1958); United States v. Socony-
Vacuum Oil Co., Inc., 310 U.S. 150, 218, 60 S.Ct.
811, 84 L.Ed. 1129 (1940). Price fixing is also illegal
per se under Section 5 of the Federal Trade Commission
Act. 15 U.S.C.A. § 45. Prices are fixed when they
=, =
are agreed upon. United States v. Masonite Corporation,
316 U.S. 265, 276, 62 S.Ct. 1070, 86 L.Ed. 1461
(1942). The agreement to fix prices renders the conspir-
acy illegal. The agreement may be inferred or implied
from the acts and conduct of the parties, as well
as from surrounding circumstances. Pearl Brewing Co.
v. Anheuser-Busch, Inc., 339 F.Supp. 945 (S.D.Tex.
1972); National Macaroni Manufacturers Association
v. Federal Trade Commission, 345 F.2d 421 (7th
Cir. 1965).
. the test . . . . is whether the agreement,
or conduct, interfers with the freedom of sellers
or traders in such a manner as to prohibit or
restrain their ability to sell in accordance with
their own judgment, and not what particular effect
the agreement or conduct, has on the actual prices.
339 F.Supp. 945 at 952.
The findings of the Commission must be accepted
by this court if there is substantial evidence on the
record considered as a whole to support them. Uni-
versal Camera Corp. v. National Labor Relations
Board, 340 U.S. 474, 71 S.Ct. 456, 95 L.Ed. 456
(1951). The Commission’s overruling of the Law
Judge’s findings on the credibility of two witnesses
is not required to be supported by a very substantial
preponderance of the evidence. Federal Communica-
tions Commission v. Allentown Broadcasting Corp.,
349 U.S. 358, 75 S.Ct. 855, 99 L.Ed. 1147 (1955).
And where there is a possibility of drawing two incon-
sistent inferences from the evidence, the Commission
is not prevented from drawing one. National Labor
Relations Board v. Nevada Consolidated Copper Corp.,
316 U.S. 105, 62 S.Ct. 960, 86 L.Ed. 1305 (1942);
National Macaroni, supra. If the inference is supported
_
by substantial evidence, it cannot be set aside even
though .the court could draw a different inference.
National Macaroni, supra.
The Commission must consider the initial decision
of the Law Judge and the evidence in the record
on which it was based. Cinderella Career and Finishing
Schools, Inc. v. Federal Trade Commission, 138 U.S.
App.D.C. 152, 425 F.2d 583 (1970). But the findings
and conclusions of the Law Judge are not sacrosanct
and are not necessarily binding on the Commission
or the court; they are part of the record to be consid-
ered on appeal. OKC Corp. v. Federal Trade Commis-
sion, 455 F.2d 1159 (10th Cir. 1972). When the
Law Judge and the Commission reach opposite results,
the Law Judge’s findings should be considered on review
and given such weight as they merit within reason
and the light of judicial experience. But this does
not modify the substantial evidence rule in any way.
OKC Corp., supra.
There is substantial evidence from the record as
a whole to support the Commission’s findings of price
fixing agreements between Coors and its distributors.
Coors also challenges the Commission’s finding that
Coors has a resale price maintenance program and
that it has in some cases secured adherence to its
suggested retail prices by unlawful means. There is
substantial evidence to support the Commission’s find-
ing.
Coors’ policy is to establish pricing integrity which
means that a certain profit is allowed on each level
of resale. Pricing integrity is not possible with price
discounting. Coors implements pricing integrity by refus-
ing to deal with anyone not adhering to its price sug-
—
gestions. A Coors’ area representative threatened to
refuse sales to an offending retailer unless he would
adhere to the prices suggested by Coors. Coors used
its distributors to secure retailers’ adherence to suggested
minimum prices. One area representative reported that
a retailer was cut off by a distributor because the
retailer was advertising Coors beer at cut prices. An-
other area representative reported that a distributor
planned to take appropriate action against a retailer
who refused to sell at suggested prices. A distributor
reported that Coors beer was not delivered to a retailer
who cut prices. An area representative reported that
action would be taken against a retailer who refused
to raise his prices to a profit level.
Mr. Letcher, a retailer, testified that he was selling
Coors at special weekend prices and that he was warned
by the Coors distributor to discontinue the practice.
Letcher refused to cooperate and the distributor termi-
nated deliveries to his store. The distributor told Letch-
er that deliveries would be received if he would agree
not to discount the beer, and that Letcher might lose
the retail account if he continued to discount the beer.
Letcher was also told by the distributor that Coors
does not tolerate price cutting. Letcher sold his business.
The distributor resumed deliveries to the new owners
who agreed not to discount the beer. The distributor
did not act independently in cutting off Letcher as
Coors suggests, but cut him off in accordance with
Coors’ pricing policies.
United States Supreme Court decisions hold that
if a manufacturer advances beyond a simple refusal
to deal and takes affirmative action to secure compli-
ance with its prices, a combination in violation of
Section | of the Sherman Antitrust Act and Section
a)
5 of the Federal Trade Commission Act occurs. United
States v. Parke, Davis & Co., 362 U.S. 29, 80 S.Ct.
503, 4 L.Ed.2d 505 (1960); Federal Trade Commission
v. Beech-Nut Packing Company, 257 U.S. 441, 42
S.Ct. 150, 66 L.Ed. 307 (1922). Any trespass on
the independence of a reseller or wholesaler to set
his own prices is a violation of the Sherman Act.
Pearl Brewing Co., supra. A seller may refuse to deal
with one failing to adhere to its specified prices, United
States v. Colgate & Company, 250 U.S. 300, 39 S.Ct.
465, 63 L.Ed. 992 (1919), but where a concerted
effort is used to interfere with the distributors’ pricing
independence and to compel them to adhere to suggest-
ed prices, there is a violation of the Sherman Antitrust
Act. A manufacturer may choose those to whom it
will sell to as long as its conduct has no monopolis-
tic purposes. Colorado Pump & Supply Company v.
Febco, Incorporated, 472 F.2d 637 (10th Cir. 1973),
cert. denied 411 U.S. 987, 93 S.Ct. 2274, 36 L.Ed.2d
965 (1973).
The Commission found that:
.... [Coors] has pursued a policy of fixing, con-
trolling and maintaining prices at which Coors beer
is sold at both the wholesale and retail level, that
in furtherance of this policy it has engaged
in various acts and practices such as: suggested
resale prices to both distributors and retailers,
checking prices at which distributors and retailers
sell Coors beer, advising distributors and retailers
that it is contrary to Coors pricing policy for
them to deviate from prices approved by respond-
ent, threatening to terminate distributorships and
threatening to force distributors to sell their busi-
nesses for refusing to adhere to suggested retail
—17—
prices, entering into agreements and understand-
ings with distributors as to the wholesale prices
which the distributors will charge for Coors beer,
joining with distributors in attempting to coerce
retailers to refrain from selling Coors beer at prices
below those approved by respondent, encouraging
distributors to prevent retail price cutting by refus- |
ing to deliver Coors beer to price cutters, or
to reduce the amount of beer delivered, and enter-
ing into agreements and understandings with re-
tailers as to the retail prices or range of prices
at which such retailers will sell Coors beer.
There is substantial evidence in the record to support.
the Commission’s findings.
II.
Coors “alleges that its vertically imposed territories
are reasonable and legal. The Commission held that
Coors vigorously enforces its territorial restrictions and
that it has engaged in unlawful price fixing which
is: ’
. .. . [s]trong grounds for presuming that the
most injurious effects of vertical territorial division
may be operative, and, therefore, for holding the
entire arrangement of territories with price fixing
illegal per se.
The Coors’ distributor contract provides, in part,
as follows:
While this agreement is in effect the Distributor
will conduct the business of wholesale distribution
of Coors Becr in the above territory only....
In United States v. Arnold, Schwinn & Co., 388
U.S. 365, 87 S.Ct. 1856, 18 L.Ed.2d 1249 (1967), the
=
United States brought an antitrust action against Ar-
nold, Schwinn & Co., an association of Schwinn distrib-
utors and a Schwinn distributor, seeking a declaratory
judgment to invalidate the distribution franchising sys-
tem of its products. Schwinn bicycles are shipped direct-
ly to franchised retailers who agree to sell only to
ultimate consumers. Schwinn also distributed its bicycles
to franchised distributors who agreed not to resell to
anyone outside their assigned territories. The Court
held that:
Under the Sherman Act, it is unreasonable with-
out more for a manufacturer to seek to restrict
and confine areas or persons with whom an article
may be traded after the manufacturer has parted
with dominion over it. White Motor, [Co. v. Unit-
ed States, 372 U.S. 253, 83 S.Ct. 696, 9 L.Ed.2d
738 (1963)]; Dr. Miles [Medical Co. v. Park
& Sons Co., 220 U.S. 373, 31 S.Ct. 376, 55
L.Ed. 502 (1911)]. Such restraints are so obvi-
ously destructive of competition that their mere
existence is enough. If the manufacturer parts with
dominion over his product or transfers risk of
loss to another, he may not reserve control over
its destiny or the conditions of its resale.
388 US. at 379.
The rule of law in Schwinn is clear and unequivocal.
Once the manufacturer has parted with title
and risk, he has parted with dominion over the
product, and his effort thereafter to restrict terri-
tory or persons to whom the product may be
transferred—whether by explicit agreement or by
silent combination or understanding with his ven-
dee—is a per se violation of § 1 of the Sherman
Act. 388 U.S. at 382.
a ae
See Federal Trade Commission v. Sperry & Hutchinson
Co., 405 U.S. 233, 247, 92 S.Ct. 898, 31 L.Ed.2d
170 (1972); United States v. Topco Associates, Inc.,
405 U.S. 596, 92 S.Ct. 1126, 31 L.Ed.2d 515 (1972);
Williams v. Independent News Co., Inc., 485 F.2d
1099 (3rd Cir. 1973); Warriner Hermetics, Inc. v.
Copeland Refrigeration Corporation, 463 F.2d 1002
(Sth Cir. 1972), cert. denied 409 U.S. 1086, 93 S.Ct.
688, 34 L.Ed.2d 673 (1972); Beverage Distributors,
Inc. v. Olympic Brewing Co., 440 F.2d 21 (9th Cir.
1971), cert. denied 403 U.S. 906, 91 S.Ct. 2209,
29 L.Ed.2d 682 (1971); Fontana Aviation, Inc. v.
Beech Aircraft Corporation, 432 F.2d 1080 (7th Cir.
1970), cert. denied 401 U.S. 923, 91 S.Ct. 872, 27
L.Ed.2d 826 (1971). Cf. Carter-Wallace, Inc. v. United
States, 449 F.2d 1374, 196 Ct.Cl. 35 (1971); Tripoli
Company v. Wella Corporation, 425 F.2d 932 (3rd
Cir. 1970), cert. denied 400 U.S. 831, 91 S.Ct. 62,
27 L.Ed.2d 62 (1970); LaFortune v. Ebie, 26 Cal.App.
3d 72, 102 Cal.Rptr. 588 (Cal.Ct.App.1972).
Coors, a manufacturer, enters into an agreement
with its distributors to distribute Coors beer in the
assigned territory only. Coors maintains that the terri-
torial restrictions are necessary to retain the quality
and proper refrigerated handling of its beer, and that
the territorial restrictions are legal. However, since
Coors parts with title and risk to the product when
it sells and delivers the beer to distributors, and thus
has parted with dominion over the product, its further
effort to restrict the territories or persons to whom
the product can be transferred is a per se violation
of Section 1 of the Sherman Act and Section 5 of
the Federal Trade Commission Act. Coors may still
condition its sales to distributors and others upon main-
"a
tenance of procedures necessary to control the quality
of the product.
Although we are compelled to follow the Schwinn
per se rule rendering Coors’ territorial restrictions on
resale illegal per se, we believe that the per se rule
shiculd yield to situations where a unique product re-
quires territorial restrictions to remain in business. For
example, speed of delivery, quality control of the prod-
uct, refrigerated delivery, and condition of the Coors
product at the time of delivery may justify restraints
on trade that would be unreasonable when applied
to marketing standardized products. La Fortune v. Ebie,
supra. Perhaps the Supreme Court may see the wisdom
of grafting an exception to the per se rule when a
product is unique and where the manufacturer can
justify its territorial restraints under the rule of reason.
White Motor Co. v. United States, 372 U.S. 253,
83 S.Ct. 696, 9 L.Ed.2d 738 (1963).
The dissenters in Schwinn contended that the new
per se rule cannot be justified, automatically invalidating
vertical restraints in a distribution system based on
sales to wholesalers and retailers.
. . the Court has, sua sponte created a bluntly
indiscriminate and destructive weapon which can
be used to dismantle a vast variety of distribution-
al systems—-competitive and anticompetitive, rea-
sonable and unreasonable.
388 U.S. at 394.
Thus we are foreclosed from considering the reasonable-
ness of the restriction or its business justification. We
are cognizant of the unpredictability which is created
in relationship to the Coors operation.
Coors contends that it Iwas no policy of requiring
exclusive draught accounts. Te Commission found that
Coors combined with its dis\ributors in the practice
of encouraging and coercing \retailers to sell Coors
draught beer to the exclusion \of light draught beer
competitors in violation of Section 5 of the Federal
Trade Commission Act.
Mr. Coors testified that exclusive draught accounts
were desirable. Several distributors’, testified that the
purpose of obtaining exclusive draught accounts is to
encourage draught customers to buy béer to take home.
To implement the policy, Coors threatened to terminate
a retailer's supply of Coors draught keer unless he
eliminated competitive draught beers within 30 days.
Coors’ distributors did, in fact, take out \their Coors
draught. beer if the retailer did not comply with the
policy. \
Agreements foreclosing a competitor’s products are
unlawful. Federal Trade Commission v. Brown Shoe
Co., Inc., 384 U.S. 316, 86 S.Ct. 1501, 16 L,Ed.2d
587 (1966); Fashion Originators’ Guild of America,
Inc. v. Federal Trade Commission, 312 U.S. 457, ‘668,
61 S.Ct. 703, 85 L.Ed. 949 (1941); Standard Fashion
Company v. Magrane-Houston Company, 258 U.S. 346,
42 S.Ct. 360, 66 L.Ed. 653 (1922). The policy of
pursuing an exclusive draught policy violates Section
5 of the Federal Trade Commission Act. There is
substantial evidence in the record to support the Com-
mission’s finding.
IV.
Coors asserts that it has the right to protect its
quality product and not distribute its beer through
central warehousing. The Commission held that Coors’
ae We
prohibition of central warehouse sales, or a _ re-
quirement that wholesale prices to those accounts
equal those to other retailers is a substantial restraint
on the capacity of the distributor to resell to whomever
he chooses and threatens the same anticompetitive re-
sults as other illegal restraints on alienation. Therefore,
the Commission found that the practices are unfair
methods of competition in violation of Section 5 of
the Federal Trade Commission Act.
The central warehouse method of distribution in-
volves purchase by the warehouser of beer from the
brewer or the distributor. The beer is delivered by
the retailer to its outlets. This method of distribution
could cut the price of the beer to the retailer and
consumer. Coors eliminated sales to central warehouse
accounts in 1964. The distributors viewed central ware-
housing as a threat to the integrity of their territorial
restrictions. Coors alleges that sales to central ware-
housers affects the quality of its beer because of poor
procedures used by the warehousers.
The Order imposed by the FTC does not prevent
Coors’ distributors from conditioning its sales to central
warehouse accounts on the maintenance of procedures
necessary to the quality control of its products. The
Order only enjoins Coors from requiring its distributors
from refusing to sell to central warehouse accounts.
The restriction by Coors, limiting those with whom
the distributors may deal, amounts to a restriction
on resale and violates the mandates of Schwinn and
the Federal Trade Commission Act. There is substantial
evidence in the record to support the FTC’s finding.
a. an
V.
Coors alleges that its contract termination rights
are reasonable and legal and that its conduct in the
rare instances of its use has been proper and legal
in every respect. The Commission held that:
Whether or not any actual terminations of Coors
distributors, or sales forced by threat of termina-
tion can be ascribed entirely, solely and unambig-
uously to the failure of the terminated or coerced
distributor to participate in an antitrust violation,
it is abundantly clear from the record in this
case that Coors representatives have used the ex-
plicit or implicit threat or speedy termination is
often successful in efforts to force the acqui-
escence of its distributors in anti-competitive be-
havior.
The Coors distributor contract provides in part as
follows:
This agreement and any supplements now or
hereafter effective (whether fixing prices and terms
to the Distributor, or otherwise) may be cancelled
in entirety at any time by the Company for any
breach by the Distributor on five (5) days’ written
notice to the Distributor. This agreement and such
supplements may be cancelled in entirety by either
party without cause upon the giving of notice
to that effect to the other party, in which event
termination shall become effective thirty (30) days
after delivery or the mailing of the written notice
of cancellation, whichever first occurs. * * *
The Commission held that Coors used the threat
of speedy termination to force its distributors into anti-
competitive behavior. There is substantial evidence in
the record to support the Commission’s holding.
— it
—
Coors has the right to terminate distributors accord-
ing to the contract provisions which the distributors
have agreed to. Bushie v. Stenocord Corporation, 460
F.2d 116 (9th Cir. 1972). However, it may not use
the contract termination provisions to force its distrib-
utors into anticompetitive behavior.
The Law Judge was correct in stating that the termi-
nation provisions of Coors and its distributors, based
upon their contractual obligations, are a matter of
private contract and are not subject to interference
by third parties. The termination provisions are reason-
able but may not be used by Coors to force any
unlawful conduct. Therefore the Commission’s attempt
to rewrite Coors’ contract termination provisions in
paragraphs 12 and 13 of its Order must be set aside.
The contract termination provisions do not violate Sec-
tion 5 of the Federal Trade Commission Act.
VI.
Coors alleges that FTC internal procedures have
prejudiced its right to a fair and impartial hearing.
Coors asserts that Mr. Steinitz, a staff attorney of
the FTC, performed investigative and prosecuting func-
tions in preparing the case against Coors, and that
he also participated in the review of the case as attorney-
advisor to Commissioner Paul Rand Dixon in violation
of 5 U.S.C.A § 554(d) and 16 CFR 4.7(a).
Coors’ contention was not raised in the administrative
proceeding and therefore is not properly before this
court. Moog Industries, Inc. v. Federal Trade Commis-
sion, 355 U.S. 411, 78 S.Ct. 377, 2 L.Ed.2d 370
(1958). In any event, Coors’ contention has no merit
because Mr. Steinitz, in an affidavit in the record,
states that upon leaving FTC's staff he did not discuss
=
the merits of the Coors case with any of the Commis-
sioners or the Commission’s trial staff. There was no
error.
Vil.
Coors alleges that the provisions of the Commission’s
Order are not supported by substantial evidence, are
not reasonable, are in conflict with important public
policies, and must be rejected. It alleges that Paragraphs
4C, 5 and 7, if adopted, would force it to abandon
its right to choose those it will authorize to serve
as its distributors in its marketing area, eliminating
its ability to obtain required ‘market penetration for
its survival. Coors states that Paragraph 6, a formula
devised by the FTC for beer rationing, is too simplistic
to work effectively for Coors.
The Order by the Commission is reasonably related
to the violations by Coors. The Commission is vested
with wide discretion in its choice of remedy to cope
with unlawful practices, and its choice will not be
disturbed unless it has no reasonable relation to the
unlawful practices found. Federal Trade Commission
v. Mandel Brothers, Inc., 359 U.S. 385, 79 S.Ct.
818, 3 L.Ed.2d 893 (1959); Jacob Siegel Co. v.
Federal Trade Commission, 327 U.S. 608, 66 S.Ct.
758, 90 L.Ed. 888 (1946). Once the Government
has borne its burden of establishing violations of the
law, all doubts about the remedy are resolved in its
favor. United States v. E. I. du Pont de Nemours
& Co., 366 US. 316, 81 S.Ct. 1243, 6 L.Ed.2d
318 (1961).
We hold that paragraphs 1 through 11 of the FTC’s
Order are enforced; paragraphs 12 and 13 of the
FTC’s Order are set aside.
a
HOLLOWAY, Circuit Judge (concurring in part
and dissenting in part):
I fully concur in the well-reasoned opinion of the
court in upholding paragraphs 1 through 11 of the
Commission’s order and disagree only as to the setting
aside of paragraphs 12 and 13.
It is true that paragraphs 12 and 13 require a
substantial change in the contract provisions on termina-
tion of distributorships. However, the Commission has
found that it is abundantly clear the Coors representa-
tives have used the explicit or implicit threat of speedy
termination in efforts to force acquiescence of its
distributors in anticompetitive behavior. We are agreed
that there is substantial evidence in the record to support
the finding.
The Commission has wide discretion in its choice
of a remedy deemed adequate to cope with unlawful
practices in this area of trade and commerce. See
Siegel Co. v. FTC, 327 U.S. 608, 611, 66 S.Ct. 758,
90 L.Ed. 888. The courts interfere only where there
is no reasonable relation between the remedy and the
violation. Atlantic Refining Co. v. FTC, 381 USS.
357, 377, 85 S.Ct. 1498, 14 L.Ed.2d 443. And orders
affecting contractual relationships have been upheld
where unlawful practices involved similar subtle pres-
sures and threats of termination of dealers’ leases.
Id. at 374-375.
On this record and the findings made I would
uphold as reasonable the Commission’s choice of a
remedy to cope with the unlawful practices.
Opinion.
Copper Liquor, Inc., and Harold Letcher (Robert
Earl Basham, Jr., H. A. Anthony and Willis Ray
Loving, as the personal representative of Appellee,
_—.
Harold Letcher, substituted in the place and stead
of Appellee, Harold Letcher, Deceased), Plaintiffs-Ap-
pellees, v. Adolph Coors Company, Defendant-Appel-
lant. No. 73-3913.
United States Court of Appeals, Fifth Circuit.
Jan. 17, 1975.
Rehearing and Rehearing En Banc Denied March
17, 1975. See 509 F.2d 758. ,
Leo N. Bradley, Golden, Colo., William B. Browder,
Jr., Midland, Tex., for defendant-appellant.
Vann Culp, Midland, Tex., James R. Warncke, San
Antonio, Tex., for plaintiffs-appellees.
Appeal from the United States District Court for
the Western District of Texas.
Before TUTTLE, WISDOM and GEE, Circuit
Judges.
WISDOM, Circuit Judge:
On May 14, 1970, the plaintiff, Harold Letcher,’
a retail liquor-store owner in Brownwood, Texas,
brought this action under the Sherman Anti-Trust Act
of 1890, §§ 1 and 2,’ against the Adolph Coors
1Mr. Letcher died while the appeal was pending in this
Court. The cause of action survives his death. Barnes Coal
Corp. v. Retail Coal Merchants Ass’n, 4 Cir. 1942, 128 F.2d
645. A motion for substitution of his executors was allowed.
The retail liquor store of which he became sole proprietor
in January of 1966 experienced several changes treated fully
in this opinion.
5135 US. § 1;
Every contract, combination in the form of trust or other-
wise, or conspiracy, in restraint of trade or commerce
among the several States, or with foreign nations, is de-
clared to be illegal...
15 U.S.C. § 2:
Every person who shall monopolize, or attempt to monopo-
lize, or combine or conspire with any other person or
(This footnote is continued on next page)
Company. Letcher contended that Coleman Distributing
Company, a Coors distributor, had refused to deliver
Coors beer to him. At trial Letcher abandoned the
claim under section two of the Sherman Act, and
the court submitted the case to the jury only under
section one. The jury found liability and assessed dam-
ages of $101,011. The trial court trebled the damages
to $303,033, as it was required to do under 15 U.S.C.
§ 15,° and awarded attorneys’ fees of $75,000.
The plaintiff's theory under section one of the Sher-
man Act is based on two interrelated contentions. First,
Letcher contends that Coors conspired or combined
with its distributors to fix the retail price of its beer
and caused its distributor, servicing the plaintiff's retail
liquor store, to discontinue the supply of Coors beer
to the plaintiff when he sold below the suggested retail
price and declined to give assurances that he would
not do so in the future. Second, Letcher contends
that Coors conspired or combined with its distributors
to create and enforce exclusive territories within which
each distributor was to conduct his business, making
it impossible for the plaintiff to obtain a supply of
persons, to monopolize any part of the trade or commerce
among the several States, or with foreign nations, shall
be deemed guilty of a misdemeanor, and, on conviction
thereof, shall be punished by fine not exceeding fifty thou-
sand dollars, or by imprisonment not exceeding one year,
or by both said punishments, in the discretion of the
court.
315 U.S.C. § 15:
Any person who shall be injured in his business or prop-
erty by reason of anything forbidden in the antitrust laws
may sue therefor in any district court of the United States
in the district in which the defendant resides or is found
or has an agent, without respect to the amount in contro-
versy, and shall recover threefold the damages by him
sustained, and the cost of suit, including a reasonable
attorney’s fee.
—29—
Coors beer from another distributor once his original
supply had been cut off. We hold that the plaintiff
adduced sufficient evidence to show a violation of
section one of the Sherman Act, but we remand the
case for further proceedings (1) to determine whether
the violation caused Letcher injury and, (2) if so,
to determine damages in the light of the principles
stated in this opinion.
I.
The Adolph Coors Company, founded in 1873, an
entirely family-owned business, is the fourth largest
brewer of beer in the United States. All its brewing
is done at a single plant at Golden, Colorado, a small
town in a little valley in the foothills of the Rocky
Mountains. The plant is the largest single brewery
in the world. Coors is a “regional” brewer that markets
its beer only in ten western states and half of Texas,
unlike its three larger competitors, which have estab-
lished “branch” breweries at various locations through-
out the country and sell in all fifty states. Coors
restricted its market area, in large part because of
the process by which its beer is brewed. Coors is
expanding its capacity at a rate of ten percent a
year, all of it internally financed.
William Coors, the chief executive officer of the
firm, testified as to the care taken in the brewing
technique. The water used is nearby Rocky Mountain
spring waiter that is remarkably free of microorganisms
and organic matter. The flavoring agent for beer is
hops; Coors imports a ‘special German hop. There
is no accounting for taste. But it is undisputed that
this German hop imparts a flavor to Coors beer that,
as Coor’s witnesses testified, is “very characteristic
— wn
and very delicate”. The firm has developed its own
variety of brewing barley, and maintains a staff of
about fifty persons, some of whom are geneticists and
agronomists, to supervise the production of the barley
crop. To impart lightness to the beer, Coors dilutes
the barley ingredients in the brew with a form of
neutral starch obtained from a short-grain variety of
rice of Asiatic origin that is twice as expensive as
other varieties of rice available for that purpose. Mr.
Coors concluded, “Coors beer is by a wide margin
the most expensive beer made from the standpoint
of the raw materials and the processing.” According
to his testimony, the brewing process at Coors takes
about eighty days, as compared with forty days at
the breweries of one of its three largest national com-
petitors and twenty days at the breweries of another
of the three national competitors.
Mr. Coors testified that Coors beer is brewed in
an “aseptic” process, rather than by a technique employ-
ing pasteurization. In this process the firm employs
refrigeration and rotation of stock so that beer past
a certain age is removed from the marketplace. Special
refrigerated railroad cars or other refrigerated vehicles
are used in transporting the beer from Golden to the
distributors, who must maintain the Coors beer in
refrigerated warehouses and vehicles until it is delivered
to the retailers. The retailers, in turn, are urged to
keep it refrigerated until the ultimate consumer pur-
chases it. Coors, its distributors, and its outlets maintain
substantial efforts to reduce the exposure of the beer
to light, heat, and agitation, for these factors have
an adverse effect upon the flavor of the beer. Distribu-
tors have heavy responsibilities to maintain Coors’s
standards in this regard.
a
Coors limits its market to the states of California,
Arizona, Nevada, Utah, Idaho, Wyoming, Colorado,
New Mexico, Kansas, and Oklahoma, and to roughly
the northern half of the state of Texas. This is about
the same market Coors has enjoyed since the 1930s,
after the repeal of Prohibition. Expansion of the firm
is directed more toward increasing market penetration
within areas already serviced than toward expanding
the geographical area serviced. This policy is dictated
by the centralization of Coors’s brewing facilities. For
example, the average shipment to the California market
for Coors is thirteen hundred miles, while the average
shipment of Budweiser in California is around one
hundred miles. Coors beer is sold to the distributors
at one price, f. o. b. Golden. Since the distributor
pays the freight, the cost of shipment works a substan-
tial practical limitation on the expansion of the market
area. Moreover, Coors has experienced for many years
a shortage of production capacity to meet the existing
demand within the geographical area currently serviced
by its distributors. Mr. Coors characterized market
penetration within that area as crucial to the firm’s
survival. Since the beer is sold only in a limited area,
a large amount of advertising expense is saved, so
that per barrel the firm spends on advertising only
a quarter of what its major competitors spend. In
part, this saving is made possible, as Professor Cundiff,
Coors’s marketing expert, testified, because Coors beer
enjoys a high degree of customer loyalty and brand
identification unusual, if not unique, in the beer market
in the United States; and the savings, of course, help
offset the transportation disadvantage.
Coors enters into distributorship agreements for cer-
tain geographical territory granting to the distributor
=
a “non-assignable, non-exclusive, personal right to en-
gage in the wholesale distribution of the companv’s
beer products” within the described territory. The dis-
tributor promises to conduct his wholesale distribution
exclusively within the prescribed territe~y. The agree-
ment provides that either party m°, cancel the agree-
ment without cause with thirty days’ written noiice,
and that Coors may cancel the agreement “for any
breach by the distributor” upon five days’ written notice.
Coors has such agreements with 160 distributors within
its market area. A Coors distributorship is highly sought
after; the company has about 7,090 applications on
file. Mr. Coors testified that without the territorial
restrictions imposed in the agreements, it would be
difficult if not impossible to maintain the efficiency
of the distribution system. Although one entering into
a distribution agreement with Coors pays nothing for
the right granted him, the distributor must make a
substantial capital expenditure to establish refrigerated
facilities for warehouses, trucks, and related equipment.
Mr. Coors stated that unless the distributor could be
assured that he would not be confronted with competi-
tion from another Coors distributor within his territory
—-assured that there would be no intrabrand competi-
tion—the distributor would be unwilling to make the
necessary capital expenditure, and lending institutions
would be unwilling to extend credit to him. Aside from
difficulties intrabrand competition among distributors
would create in attracting capital, Mr. Coors indicated
that such competition, if permitted, would eventually
erode the firm’s market penetration. In the short run, so
he said. intrabrand competition among distributors
wold primarily manifest itself in wholesale nrice cqm-
netition and nerhaps lower retail prices in comretition
in service. However, as time passed, the weaker of
those who had been able to make the capital expenditure
to undertake a non-caclusive distributorship would be
eliminated from the competition, the “price” of competi-
tion would decline, and there would be a rise in the
level of wholesale prices. In the long run, the effect
of such competition on the smaller retail accounts
would, he thought, be highly undesirable. Because there
is almost always a shortage of Coors for the ‘market
area, the company allocates the supply with two primary
goals: maintaining retail price stability and servicing
the maximum number of retail outlets within the area
with a supply as dependable as possible, so that consum-
er exposure and prompt stock rotation are promoted.
Coors employs a computer to help balance its produc-
tion capability with the inventory requirements of the
distributors.
~ Mr. Coors and Professor Cundiff implied that in
the earlier phrases of intrabrand competition, distrib-
utors would concentrate their efforts on the larger ac-
counts to the detriment of the smaller accounts. They
stressed that having more than one distributor respon-
sible for a given geographical area would make it
difficult for the company to monitor the treatment
of the beer to ensure its proper refrigeration and rotation
so that beer over sixty days old would be removed
from the market. Additional problems arise in the case
of draught beer, since it is the responsibility of the
distributor to make sure that the draught facilities in
retail establishments are properly cleaned and main-
tained. The flavor of beer is especially susceptible to
deterioration if this responsibility is not meticulously
discharged. Moreover, with exclusive distributorships,
it is easier for the supplier to supervise compliance
a
with state statutes and rules regulating the sale of
alcoholic beverages.
On the pricing policies of Coors there is, of course,
conflicting evidence. Mr. Coors testified that the com-
pany occasionally suggests to its distributors both whole-
sale and retail prices to ensure to both distributors
and retailers a fair return on their investment and
effort. He stated that the company has no policy regard-
ing dealing with retailers who sell Coors beer at a
discount, but that from time to time the company
and its distributors try to persuade retailers not to
sell at a discount, primarily because a larger than
usual volume of sales disrupts the orderly allocation
of Coors’s supply, which generally is ‘ess than the
demand. Mr. Coors and other witnesses for the com-
pany denied that it had ever terminated or threatened
to terminate a distributorship on any ground related
to its pricing suggestions. They maintained that the
company had no power to direct its distributors to
deal or to refuse to deal with particular retailers, or
to otherwise interfere with the relationship between
distributor and retailer, and that the company did not
do so. Its terminations of distributorships were based
upon a breach of the agreement or upon poor per-
formance within an assigned territory. It was not dis-
puted, however, that the company’s right to terminate
the distributorship without cause on short notice was
a formidable one because of the substantial investment
in equipment primarily suitable for the distribution
of Coors. There was evidence, sharply contested, that
one distributorship in Texas, owned by a Mr. Dixon,
had been terminated because the distributor refused
to cut off the supply of certain retailers who had
sold Coors at a discount. But there was also evidence
a oe
that distributorships were held at the time of trial
by individuals who had declined to abide strictly by
the territorial limitations or to take any action to drive
home to the discounting retailer the company’s displeas-
ure with the discounting. There was also evidence that
from 1966 to the time of trial Coors beer was in
fact advertised at a discount by retailers doing business
in the general vicinity of the plaintiff's store in Brown-
wood, Texas. |
Letcher acquired a sole proprietorship in the Brown-
wood store in January of 1966. About the same time,
Coors entered the Brownwood market. Letcher adver-
tised Coors at less than his own cost, using it as
a “loss leader”. Coleman, the distributor for that area,
spoke to Letcher and to Mrs. Williams, an employee
at the time, later a partner, and still later a shareholder
in the business. She testified that Coleman said that
he could not deliver any more Coors to them unless
Letcher would promise not to offer it at a discount.
Letcher refused to make that promise. Mrs. Williams
testified that Coleman replied, “Well, it isn’t my fault,
I would like to sell you the beer but the brewery
won't let me” and “I have a $100,000.00 investment
here and I can’t take a chance on losing it.” There
were some further deliveries after this exchange, but
when Letcher again advertised Coors at a discount,
the deliveries terminated, on June 3, 1966. Coleman
resumed deliveries in August 1971, after Letcher had
sold his interest in the store.
Coleman, on the other hand, testified that Letcher’s
advertising Coors at a discount had nothing to do
with his discontinuing service to the Brownwood store.
Coleman said that he did not get along well with
Letcher on a personal level, that Letcher demanded
— =
a wholesale discount, that he did not give Coors ade-
quate storage space, and that the beer was not adequate-
ly displayed to the customers. In these circumstances,
he testified, he determined not to do business with
Letcher. According to the records introduced at trial,
Coors had no knowledge of Coleman’s refusal to service
Letcher until July 1966. Campbell, Coors’s represen-
tative in that part of Texas and its liaision with Cole-
man, testified that he became aware of Coleman’s refus-
al to service Letcher only after the initial termination
in June of 1966, when Letcher wrote to the company
to see if he could obtain a supply directly from the
brewery. He interviewed the two men individually. He
found the source of the difficulty to be a difference
of opinion as to how the beer should be treated at
the retail store, colored by mutual dislike. He advised
Letcher that he could not force Coleman to do business
with him because Coleman was wholly independent
in this respect. Business records Coors introduced into
evidence, however, tend to support Letcher’s version
of the difficulties experienced with the distributor.‘
‘For example, the report of Mr. Campbell, Coors’ field repre-
sentative, to his superior at the firm, dated August 20, 1966,
reads in part:
Bill Reed called me Monday morning and said that
a Mr. Letcher (owner of the Handy Liquor Store in Brown-
wood) wanted to buy beer from him. Stuart Coleman,
our Brownwood distributor, is not servicing Mr. Letcher
because he has been advertising our beer at cut rate prices.
I filled Bill Reed in on this situation, and Mr. Letcher
was informed that Reed only had enough beer to supply
the retailers he has been supplying.
His report of July 16, 1966, stated in part:
One problem developed from a local liquor store which
is cutting Coors prices and advertised same in the news-
paper.
Mr. Coleman stopped delivery to this retailer [Letcher]
and the retailer wrote Golden a complaint claiming Mr.
~< a
—
In a report to his superiors at Coors, Campbell noted,
“I have suggested to Stuart Coleman to cooperate with
Mr. Letcher if he shows interest in selling our beer
at the right price.”
Il.
The key case in determining whether Coors’s system
of distribution violated section one of the Sherman
Act is United States v. Arnold, Schwinn & Co., 1967,
388 U.S. 365, 87 S.Ct. 1856, 18 L.Ed.2d 1249. In
Schwinn, the Supreme Court had before it a record,
generated in a seventy-day trial, replete with “informa-
tion as to the total market interaction and interbrand
Coleman said it was a brewery policy and a Texas brewery
rep said to stop delivering.
I talked with this retailer about our thinking about re-
tailers making a profit on our product. He, however, said
he would still cut our prices on Coors and adv it in
the newspaper just as he does the other beers he handles.
I talked with Mr. Coleman and asked that he not use
us aS an escape route or excuse but to precede (sic)
on his own principles.
I don’t see any reason for Coleman to deliver to. this
retailer, however, until he is ready to stop these practices
with our product.
His report of February 11, 1967, stated in part:
As per Bob Eke’s request, I stopped in Ballinger, Texas,
and I talked with Mr. Harold Letcher. Mr. Letcher is
is the owner of the Handy Liquor Store in Ballinger and
Brownwood. He has the stores which Mr. Coleman has
not been selling in Brownwood because he is a price
cutter. Mr. Letcher has written several letters to Mr. Cole-
man and letters to Mr. Eke stating his position in ordering
beer. In my conversastion with Mr. Letcher, he was very
congenial, but he still feels he is right in his feelings
that he has to treat all beers the same and when it comes
our turn, he will advertise and cut our prices. He says
he understands our beliefs, but he did not say what he
plans to do.
I have suggested to Stuart Coleman to cooperate with
Mr. Letcher if he shows interest in selling our beer at
the right price.
The record contains a number of similar exhibits with comments
in the same vein regarding other retail accounts,
—
competition, as well as the distribution programs and
practices [challenged by the Government].” 388 U.S.
at 367, 87 S.Ct. at 1859. The distribution scheme
in Schwinn was more complex than the one we have
in the present case. Schwinn had instituted the practice
of franchsing retail outlets for its bicycles. The fran-
chisees were free to sell other brands of bicycles, and
to set their own prices for sales of Schwinn bicycles.
They were forbidden to act as wholesalers or agents
for unfranchised dealers. They obtained their wholesale
supply of Schwinn bicycles from the wholesale distribu-
tor for their area. Schwinn established geographic areas,
each of which was assigned exclusively to one whole-
sale distributor. Schwinn required the distributors to
sell only to franchisees and forbade them to sell outside
their territories. Schwinn sold directly to distributors.
It also made “sales to retailers by means of consign-
ment or agency arrangement with distributors” and
“sales to retailers under the so-called Schwinn Plan
which involves direct shipment by Schwinn to the re-
tailer with Schwinn invoicing the dealers, extending
credit, and paying a commission to the distributor taking
the order.” 388 U.S. at 370, 87 S.Ct. at 1861.
The Schwinn Court noted that in White Motor Co.
v. United States, 1963, 372 U.S. 253, 83 S.Ct. 696,
9 L.Ed.2d 738, the Supreme Court had refused to
say whether certain exclusive allocations of territories
and customers were per se violations of the Sherman
Act; not enough was known of the competitive effect
of the practices to justify departure from the usual
application of the “rule of reason”. The Schwinn Court
prefaced its holding by remarking that “we are remitted
to an appraisal of the market impact of these practices.”
388 U.S. at 373, 87 S.Ct. at 1862. The Court noted
a
that in White it had cited cases of a new firm just
entering a business or a “failing company” as instances
in which the anticompetitive effect of vertical restraints
is minimal or non-existent and therefore permissible
under a rule of reason analysis, and that neither applied
to the Arnold, Schwinn Company. The Court observed:
“We are here concerned with a truly vertical arrange-
ment, raising the fundamental question of the degree
to which a manufacturer may not only select the cus-
tomers to whom he will sell, but also allocate territories
for resale and confine access to his product to selected,
or franchised, retailers.” 388 U.S. at 378, 87 S.Ct.
at 1865. The Court then drew a crucial distinction
between “the situation where the manufacturer parts
with title, dominion, or risk with respect to the article,
and where he completely retains ownership and risk
of loss.” Jd. Then the Court flatly stated: “where a
manufarturer sells products to his distributor subject
to territorial restrictions upon resale, a per se violation
of the Sherman Act results. And . . . the same
principle applies to restrictions of outlets with which
the distributors may deal and to restraints upon retailers
to whom the goods are sold.” 388 U.S. at 379, 87
S.Ct. at 1865. The rule of reason would apply, however,
in a case where the manufacturer retains ownership
and risk of loss because, said the Court: “we are
not prepared to introduce the inflexibility which a
per se rule might bring if it were applied to prohibit
all vertical restrictions of territory and all franchising,
in the sense of designating specified distributors and
retailers as the chosen instruments through which the
manufacturer, retaining ownership of the goods, will
distribute them to the public. Such a rule micht severely
hamper smaller enterprises resorting to reasonable meth-
ods of meeting the competition of giants and of mer-
_—
chandising through independent dealers, and it might
sharply accelerate the trend towards vertical integration |
of the distribution process.” 388 U.S. at 379-380, 87
S.Ct. at 1866.
Whether a per se rule should attach to any sort
of vertically imposed territorial restriction had been
a subject of debate among anti-trust specialists for
some time before and after Schwinn.” But the Supreme
‘For a view that would tolerate many types of market
division, see Bork, The Rule of Reason and the Per Se
Concept: Price Fixing and Market Division, 75 Yale L.J.
373 (1966). For a view that contradicts many of: Professor
Bork’s tenents, and that suggests that most territorial divisions
serve to enhance trends toward monopoly power, and to impede
the efficient allggation of capital and other resources of society,
see Comanor, Vertical Territorial and Customer Restrictions:
White Motor and its Aftermath, 81 Harv.L.Rev. 1419 (1968).
For a paper that is more descriptive than argumentative, see
Presion, Restrictive Distribution Arrangements: Economic Anal-
ysis and Public Policy Standards, 30 L. & Contemp. Probs.
506 (1965).
Vertically imposed territorial restraints have the obvious effect
of reducing or eliminating intrabrand competition, whatever
their effect may be on interbrand competition. Professor Com-
anor posits that firms manufacturing the same general sort
of product will seek to insulate themselves from the effects
of interbrand price competition by “product differentiation”,
that is, by reducing the substitutability of their product and
thereby diminishing consumers’ sensitivity to price.
Advertising of course plays a large part in this process.
In the present case, for example, Coors would have a powerful
incentive to bring home to the consumer the real or imagined
uniqueness of its product in order to decrease the consumer’s
tendency to respond to the lower price of, say, Schlitz. There
is nothing unlawful in this; indeed, in cases brought under
section two of the Sherman Act, the defense of “superior
skill, foresight, and industry” has been recognized since the
decision in United States v. Alumnium Co. of America, 2d
Cir. 1945, 148 F.2d 416 at 430.
Sometimes product differentiation is achieved in part by
Strategies at the retail dealer level that increase the dealer
markup. The refrigeration, the development of its special alum-
inum packaging techniques, and some of the other measures
Coors insists upon, at least insofar as its distributors are
concerned, would fall into this category of methods to increase
_— on
Court has not departed from its holding in Schwinn.
If anything, the Court, in partial reliance upon
Schwinn, has intensified the per se rule in the area
of territorial restrictions. See, for example, United States
v. Topco Assoc., Inc., 1972, 405 U.S. 596, 92 S.Ct.
1126, 31 L.Ed.2d 515. Topco invoved territorial re-
straints that, though apparently primarily horizontal
in nature, had strong vertical aspects as well. Topco
product differentiation. In this connection, Comanor notes,
“Islales by discount houses or other outlets where price is
the major condition of sale are hardly likely to promote
buyer concern for the peculiar attributes of the products of
a particular manufacturer,” and -are therefore viewed with
disfavor by the manufacturer. 81 Harv.L.Rev. at 1427.
One obvious justification for territorial restrictions is that
urged in the present case: that dealers on the wholesale and
retail level will simply not make the capital investment required
unless they can be assured of an absence of intrabrand com-
petition and the greater risk it entails to capital investment.
Just as obvious is the response that activities regarded most
worthy of promotion by a society will offer prospective rates
of return sufficient to attact the additional capital necessary,
that risk is inherent in all capital investment to one degree
or another, and that the most efficient allocation of capital
resources may be achieved by eliminating restrictions that serve
to insulate artificially a particular industry from competition.
Closely related to the investment argument is the argument
that, absent the restrictions, there will be insufficient incentive
for dealers to provide necessary services in relation to the
product. The same counterargument based upon the necessity
for the efficient allocation of economic resources applies.
Another justification frequently proffered, though not present
in the case before us, is that vertically imposed restrictions
are necessary to promote wider coverage of geographic markets.
(Coors claims that its primary aim is to increase “market
penetration” within existing geographical markets.) On the mar-
ket coverage point, Comanor responds: “What is important
is not whether these restrictions enhance market coverage or
customer contact, for this they may well do, but rather whether
restrictions of this character are likely to improve the compe-
titive processes through which resources are allocated to these
activities. While society generally approves of improved market
coverage, it also generally deplores higher dealer markups
and higher costs of distribution. Whether the additional gains
(This footnote is continued on next page)
_—
Associates was an association of small and medium-
sized supermarket chains organized to obtain merchan-
dise under private labels, so that they might compete
more effectively with larger chains. No member of
the association was permitted to retail Topro brand
merchandise outside the territory in which it was li-
censed to operate. There were similar restrictions upon
sales at wholesale. The Court agreed with the finding
of the district court that intrabrand competition in
Topco brands would not be increased, and, in fact,
the ability of the member chains to compete with
the national chains might well be diminished by out-
lawing the challenged restrictions. The Court was not
disposed “to ramble through the wilds of economic
are worth the additional costs, is of course, the essence of
the problem of resource allocation—a problem whose solution
he normally leave to the market place.” 81 Harv.L.Rev. at
1431.
A further justification offered for vertically imposed restric-
tions is that without them, dealers would “invade” the territories
of other dealers, seeking to take advantage of special sales
efforts the local dealer has made in the form of advertising,
provision of repair and other types of services and the like.
However, many sorts of promotional activity that potentially
redound to the benefit of any dealer in a given geographical
area are usually undertaken by the manufacturer anyway
(e.g., regional or national advertising), and those efforts that
are undertaken by particular dealers (e.g., a liquor store ad-
vertisement in the local media advertising a “weekend special’’)
are likely to be tailored to the local dealer and therefore
difficult for the interloper to take advantage of.
But, it is argued, the existence of restrictions will be an
incentive for the dealer to supply more “free” services, over
and above those afforded by the manufacture, than he would
otherwise. One rejoinder to this is that there are, in reality,
no “free” services; that they are, in effect, paid for out
of the single price charged for the product, and that pricing
them in this manner leads to further “product differentiation”
and a concomitant increased tendency toward monopoly power
for the manufacturer of the particular product in question.
The alternative, of course, is obvious in the case of many
sorts of products (but not the product involved in the present
— on
theory in order to maintain a flexible [as opposed
to per se] approach”. 405 U.S. at 610, 92 S.Ct. at
1134. Instead, the Court considered a judgment that
competition with the national chains was to be favored
at the expense of intrabrand competition was appro-
priate for Congress, not the Court, to make. It therefore
held the territorial restrictions to be per se violations
of the Sherman Act. Notwithstanding, Standard Oil
Co. v. United States, 1911, 221 US. 1, 31 S.Ct.
502, 55 L.Ed. 619, Topco and Schwinn, read together,
suggest that at this point we must accept the fact
that the Court has set its face against both horizontal
and vertical territorial restrictions, with the possible
exception of vertically imposed restrictions by “new
case): additional services providec on the dealer level should
be charged for separately, and consumer demand will then
more accurately determine the level at which and_ variety
at which they should be applied.
Another justification sometimes advanced for vertically im-
posed restraints is that they facilitate price discrimination among
various classes of customers. This seems indisputable, as does
the assertion that they also facilitate price fixing on the retail
level. The question is whether price discrimination (when it
is legal at all) is a sufficient justification for the otherwise
anticompetitive effect of vertically imposed restraints. Price
discrimination itself implies that less competitive (higher) prices
will be charaged to some classes of customers. Moreover,
the increased revenues possible through price discrimination
are really available only to manufacturers already enjoying
an “entrenched market position”, and they tend to enhance
monopoly power with no countervailing benefit to the consuming
public.
Finally, it is sometimes argued that forward vertical integra-
tion will result if vertically imposed territorial restrictions are
not allowed, and that such integration either (a) is somehow
bad in and of itself, or (b) is uneconomical for the manufacturer
relative to distribution through independent wholesalers and
retailers. And of course there are the possible justifications,
mentioned in the text, of the necessity of restrictions to promote
new entrants or new products, or to promote safety when
a particular product is subject to misuse.
«ptbitinin
entrants” and “failing companies” briefly mentioned
in Schwinn.
A number of lower federal courts have sought to
escape this conclusion. Some have centered their efforts
to distinguish the case before them from Schwinn by
focusing their attention on the following observation
of the Court:
In any event, it is clear and entirely consistent
with the District Court’s findings that Schwinn
has been “firm and resolute” in insisting upon
observance of territorial and customer limitations
by its bicycle distributors and upon confining sales
by franchised retailers to consumers, and that
Schwinn’s “firmness” in these respects was ground-
ed upon the communicated danger of termination.
388 U.S. at 372, 87 S.Ct. at 1862.
In Janel Sales Corp. v. Lanvin Parfums, Inc., 2
Cir. 1968, 396 F.2d 398, cert. denied, 393 U.S. 938,
89 S.Ct. 303, 21 L.Ed.2d 275, for example, the
court refused to find a contract clause prohibiting
sales of Lanvin products by its retailers “except to
consumers for use”, a per se violation because the
evidence was conflicting with respect to whether the
clause was enforced in a “firm and resolute manner”,
or enforced at all. At least one other court has required
some evidence of enforcement of vertically imposed
restrictions before holding per se violations of the Sher-
man Act. Colorado Pump & Supply Co. v. Febco,
Inc., 10 Cir. 1973, 472 F.2d 637, cert. denied, 411
U.S. 987, 93 S.Ct. 2274, 36 L.Ed.2d 965. In that
case the court also stated that a mere designation in
a contract of an area of primary marketing responsibil-
ity, without more, would not be a per se violation,
following the suggestion of Plastic Packaging Materials,
— a
Inc. v. Dow Chemical Co., E.D.Pa. 1971, 327 F.Supp.
213. This Court, however, has held that similar loose
contractual designations and circumstances from which
an understanding to adhere to the previous restrictions
could be inferred, would constitute a per se violation.
Hobart Brothers Co. v. Malcolmn T. Gilliland, Inc.,
5 Cir. 1973, 471 F.2d 894.
Even this group of exceptions to Schwinn would
not help Coors’s position in the present case. From
our summary of the evidence it is apparent that, al-
though there is some evidence that some distributors
from time to time made some sales outside their terri-
tories, the jury’s finding that Coors had been “firm
and resolute” in enforcing the territorial restrictions
is not contrary to the manifest weight of the evidence,
and must be upheld.
There are, however, other cases potentiaily helpful
to Coors in that they attempt to temper Schwinn’s
per se rule where the character of the product in
question requires special safeguards in distribution. The
outstanding example is Tripoli Co. v. Wella Corp.,
3 Cir. 1970, 425 F.2d 932, cert. denied, 400 USS.
831, 91 S.Ct. 62, 27 L.Ed.2d 62, a case involving
customer restrictions. A long-standing distributor of
beauty supplies, manufactured by Wella, distributed
certain Wella products intended for use by professional
beauticians to members of the consuming public. Wella
refused to deal with the distributor. The Third Circuit
affirmed a grant of summary judgment for Wella in
a treble damage action brought against it by the distrib-
utor, noting that the customer restrictions were reason-
ably necessary to protect the public, since some of
the products involved could cause serious physical in-
juries if not applied by properly trained personnel;
_— i
the Schwinn per se rule was said to be inapplicable.
Another example is the consent order in United States
v. Safety First Products Corp., 1972 Trade Cases
€74,223 (S.D.N.Y.1972), which permitted restrictions
of sales of potentially dangerous fire protection equip-
ment to “qualified persons” who met certain qualifica-
tions with respect to training, insurance, and experience.
The present case presents a tempting invitation.
Tripoli suggests that we broaden the exception to
Schwinn to products susceptible to damage in the dis-
tribution process unless that process is closely moni-
tored. One may accept the testimony of witnesses of
Coors that beer is just beer—unless it is Coors. But
a great many products are good and popular. If an
analog were sought to support such a departure from
Schwinn, it could best be found in United States v.
Jerrold Electronics, E.D.Pa.1960, 187 F.Supp. 545,
aff'd, mem. 365 U.S. 567, 81 S.Ct. 755, 5 L.Ed.2d
806 (1961). In that case a tying arrangement, other-
wise a per se violation of the Sherman Act, was permit-
ted, because the services “tied in” with the sales of
certain community television antenna equipment neces-
sary to prevent malfunction of that equipment.
Assuming the validity of the Tripoli exception for
the moment, we are unwilling to extend it to the
facts of this case. The most important reason for our
reluctance is that, whatever may be said of the effi-
cacy of the territorial restrictions here in maintaining
quality control, the restrictions also play a vital role
in Coors’s maintaining control over the wholesale and
retail prices of its beer. Even if this element were
not in the case, we think that the present record
would not support the conclusion that the vertically
imposed territorial restrictions are essential to the integ-
—
rity of Coor’s product to the survival of the firm.
It may be that the process by which Coors beer is
brewed necessitates refrigerated marketing and rotation
of stock, and that vertical territorial restraints are help-
ful in supervising the proper application of these tech-
niques, as well as in facilitating “orderly” allocation
of the limited supply of beer to Coors’s market areas
and ensuring compliance with state law. But there
is not enough in the present record to demonstrate
that these ends could not be met by less restrictive
means than those presently employed.® Moreover, al-
though Coors has made a good case for its contention
that its special marketing techniques are necessary to
®It is impossible for us to say, on the basis of this record,
that there is or is nct a less restrictive alternative than the
exclusive territories to maintain adequate quality control. The
manufacturer here has never experimented with nonexclusive
distributorships, for example. In any event, the strong evidence
that the restrictions in this case were used to forward an
illegal price fixing scheme renders further consideration of
this point academic at best. Without this evidence of price
fixing, the case would be in a much more favorable posture
for such consideration.
The question whether there exists an alternative less destruc-
tive of competition than the restrictions imposed by Coors
in this case is, of course, a proper inquiry under the tradi-
tional rule of reason analysis (which we hold foreclosed to
us on these facts), well summarized by Judge Davis in Carter-
Wallace, Inc. v. United States, 1971, 449 F.2d 1374, 1381,
196 Ct.Cl. 35: :
Conduct which can conceivably violate the Sherman Act
may be examined in terms of three basic variables: (1)
its economic effects, positive (furthering efficient perform-
ance of economic functions) and negative (anti-competitive
impact on the free play of market forces); (2) the
power of the parties in the markets which they serve;
and (3) the motives underlying the conduct. A full rule-
of-reason standard requires scrutiny of all three variables
before a judgment is reached that a given practice is
“reasonable” (permissible under the Act) or “unreasonable”
(proscribed). A rule of reason inquiry may also eliminate
examination of one or more elements, so that, for instance,
anti-competitive effect wil be assessed but motive excluded
as immaterial.
,
—
maintain the quality of the product, it is likely that
many manufacturers could make—and support—such
claims to one degree or another. There is many a
whiskey the quality of which is allegedly based on
spring water and close monitoring by the manufacturer.
Any justification of restrictions on the ground of
special techniques for manufacturing or supervising dis-
tribution should be premised on the absence of less
restrictive means to assure the same control over quality.
It is true that Mr. Coors testified that it would
be impossible to get people to undertake distributorships
without the assurance that their distributorships would
be exclusive within their respective territories. Yet the
record does not support that conclusion, beyond the
testimony of one distributor that he would not have
invested in the distributorship had it not been exclusive.
There is no showing that willingness to make capital
investments in distributorships would be seriously im-
paired or that adequate measures to protect the product
would not be taken if the distributorship were not
exclusive. And, even if these were demonstrated, there
remains the problem, so strongly emphasized in the
Court’s opinion in Topco, of determining the utility
of decreasing competition in one segment of the econo-
my in order to enhance it in another.
We do not say that vertically imposed territorial
restrictions may never comport with the Sherman Act;
Schwinn itself conceded they might be proper in the
case of new entrants in a highly competitive field
or “failing companies”. And there may be other excep-
tions. We say only that this record does not, as a
matter of law, provide justification for excepting Coors
from the effect of Schwinn, in light of the price fixing
evidence.
a
Schwinn may be subject to criticism. Indeed, it has
been criticized.. We must bear in mind, however,
that the Supreme Court’s entire discussion of the dis-
tribution scheme in Schwinn was premised on the lack
of evidence that the scheme was used to facilitate
price fixing. The Court said:
If it were otherwise—if there were here a finding
that the restrictions were part of a scheme in-
volving unlawful price fixing, the result would
be a per se violation of the Sherman Act. United
States v. Sealy, Inc., 388 U.S. 350, 87 S.Ct.
1847, 18 L.Ed.2d 1238; United States v. Bausch
& Lomb Optical Co., 321 U.S. 707, 64 S.Ct.
805, 88 L.Ed. 1024.
388 U.S. at 373, 87 S.Ct. at 1862. The restrictions
Coors imposed necessarily facilitated price fixing.
In United States v. Colgate & Co., 1919, 250 USS.
300, 307, 39 S.Ct. 465, 468, 63 L.Ed. 992, 997,
the Supreme Court held:
In the absence of any purpose to create or maintain
a monopoly, the |Sherman| act does not restrict
the long recognized right of trader or manufacturer
engaged in an entirely private business, freely to
exercise his own independent discretion as to par-
ties with whom he will deal; and, of course, he
7See generally Handler, The Twentieth Annual Antitrust
Review—1967, 53 Va.L.Rev. 1667, 1680-89; Pollock, Alterna-
tive Distribution Methods After Schwinn, 63 Nw.L.Rev. 595
(1968); Sadd, Territorial and Customer Restrictions After Sealy
and Schwinn, 38 U.Cin.L.Rev. 249 (1969); The Supreme
Court, 1966 Term. 81 Harv.L.Rev. 69, 235-39 (1967); Note,
Restrictive Distribution Arrangements After the Schwinn Case,
53 Corn.L.Rev. 515 (1967); Note Territorial and Customer
Restrictions: A Trend Toward a Broader Rule of Reason?
40 Geo.Wash.L.Rev. 123 (1971).
— es
may announce in advance the circumstances under
which he will refuse to sell.
As we understand its position, Coors does not even
rely on the Colgate doctrine insofar as its own actions
are concerned. Rather, Coors urges that it had nothing
at all to do with what happened between its distributor
and the plaintiff, and implies that this conduct was
shielded by Colgate. The Colgate doctrine operates
within a narrow ambit, and does not immunize conduct
that goes beyond a simple refusal to deal. The leading
case limiting the scope of Colgate is United States
v. Parke, Davis & Co., 1960, 362 U.S. 29, 80 S.Ct.
503, 4 L.Ed.2d 505. In Parke, Davis the Court de-
scribed the conduct that exceeded the limits of Colgate
in the following terms:
Parke Davis did not content itself with announcing
its policy regarding retail prices and following
this with a simple refusal to have business rela-
tions with any retailers who disregarded that policy.
Instead Parke Davis used the refusal to deal with
the wholesalers in order to elicit their willingness
to deny Parke Davis products to retailers and
thereby help gain the retailers’ adherence to its
suggested minimum retail prices. The retailers who
disregarded the price policy were promptly cut
off when Parke Davis supplied the wholesalers
with their names. The large retailer who said
he would “abide” by the price policy . . . was
not cut off. In thus involving the wholesalers
to stop the flow of Parke Davis products to the
retailers, thereby inducing retailers’ adherence to
its suggested retail prices, Parke Davis created
a combination with the retailers and wholesalers
a ee
to maintain retail prices and violated the Sherman
Act.
See also F.T.C. v. Beech-Nut Packing Co., 1922, 257
U.S. 441, 42 S.Ct. 150, 66 L.Ed. 307; United States
v. Bausch & Lomb Optical Co., 1944, 321 U.S. 707,
64 S.Ct. 805, 88 L.Ed. 1024; Albrecht v. Herald
Co., 1968, 390 U.S. 145, 88 S.Ct. 869, 19 L.Ed.2d
998.
The court correctly charged the jury that a con-
spiracy, combination, or agreement to fix prices was
a per se violation of the Sherman Act.’ There was
evidence that would support a jury finding of such
an agreement. There was testimony that a Mr. Dixon’s
distributorship had been terminated because he refused
to “refuse to deal” with discounting retailers. There
was evidence that Coleman refused to deal with the
plaintiff because he felt constrained to enforce Coors’s
suggested retail prices. And there was evidence, chiefly
in business records of Coors introduced at trial, that
Coors’s representatives were very attentive to wholesale
and retail price levels. In the language of some of
the reports, these representatives were quick to “sug-
gest” to the distributors that they “take appropriate
action” with respect to retailers who were not selling
at the “right” price. A jury could reasonably conclude
from these reports that the territorial restrictions have
as much to do with Coors’s attempts to maintain whole-
sale and retail price levels as with its concern with
maintaining the quality of its beer on the market.
Although we recognize that some form of territorial
8Two leading cases are United States v. Socony-Vacuum
Oil Co., 1940, 310 U.S. 150, 60 S.Ct. 811, 84 L.Ed. 1129,
and Keifer-Stewart Co. v. Joseph F. Seagram & Sons, Inc.,
1951, 340 US. 211, 71 S.Ct. 259, 95 L.Ed. 219.
restrictions might be shown to be justified to protect
a product unusually susceptible to damage in distri-
bution, for example, or dangerous in the hands of the
untrained, the restrictions here are too intimately related
with practices within the per se proscription of Parke,
Davis. The plaintiff therefore need not have alleged
or proved a “public injury,” as Coors contends. See
Radiant Burners, Inc. v. Peoples Gas, Light & Coke
Co., 1961, 364 U.S. 656, 81 S.Ct. 365, 5 L.Ed.2d
358; Klor’s Inc. v. Broadway-Hale Stores, Inc., 1959,
359 U.S. 207, 79 S.Ct. 705, 3 L.Ed.2d 741.
Our conclusion is strengthened by the fact that the
Teath Circuit has recently upheld a cease and desist
order issued by the Federal Trade Commission against
Coors, holding that there was substantial evidence to
support the Commission’s findings that Coors engaged
in a conspiracy with its distributors to fix prices, that
its territorial restrictions imposed upon its distributors
were per se violations of the Sherman Act as interpreted
in Schwinn, and that Coors used the termination pro-
visions of its contracts with its distributors to enforce
these anticompetitive policies. Adolph Coors Co. v.
FTC, 10 Cir. 1974, 497 F.2d 1178. Perhaps uneasy
with its holding on the territorial limitations point,
the Tenth Circuit noted:
Although we are compelled to follow the Schwinn
per se rule rendering Coors’ territorial restrictions
on resale illegal per se, we believe that the per
se rule should yield to situations where a unique
product requires territorial restrictions to remain
in business. For example, speed of delivery, quality
control of the product, refrigerated delivery, and
condition of the Coors product at the time of
delivery may justify restraints on trade that would
oa
be unreasonable when applied to marketi 1g stand-
ardized products . . . ?erhaps the Supreme Court
may see the wisdom of grafting an exception to
the per se rule when a product is unique and
where the manufacturer can justify its territorial
restraints under the rule of reason.
Id. at 1187. We recognize the validity of the reasons
underlying the exception the Tenth Circuit might en-
graft on the Schwinn rule. But the exceptions might
engulf the rule itself. Many manufacturers may assert
a claim of uniqueness with respect to their products,
and in good faith believe. that they would be “driven
out of business” without the restraints in question.
Coors itself in the present case has argued that it
needs the restrictions to survive, yet the record shows
that the firm is thriving, not struggling, that it is
expanding at a rate of ten percent of capacity a year,
and that its expansion is internally financed. The core
facts of this case suggest caution in assessing a manu-
facturer’s assertion that a marketing restriction with
demonstrable anticompetitive effegts is necessary to its
“survival”. At the very least, assuming such an “excep-
tion” to the per se rule were to be allowed, a manu-
facturer should be required to demonstrate, as we have
noted, the absence of means less restrictive of competi-
tion to achieve the same end.’ But we need pursue
the question no further here. Coors’s restraints were
ancillary to an illegal price fixing scheme.
"For a recent case rejecting “considerations relating to
quality control of the product [and shortages of the product],”
advanced to justify enforcement of territorial restrictions similar
to those involved in the present case, see Todhunter-Mitchell
& Co., Ltd. v. Anheuser-Busch, Inc., E.D.Pa.1974, 375 F.Supp.
610, 622. 10 4k ce)
For a case suggesting that territorial restrictions are subject
to the rule of reason if it could be show:: that there were
(This footnote is continued on next page)
a” en
III.
Before passing to the damage problems in_ this
case, we must briefly address Coors’s remaining conten-
tions on the liability issue. Coors argues that it was
necessary for the plaintiff here to allege and prove
a combination or conspiracy involving the plaintiff's
competitors. Whatever may be said of cases involving,
for example, group boycotts, we think that a private
suit based upon price fixing and territorial limitations
enforced by a manufacturer and his distributors may
be maintained by a retailer hurt by those practices
without proof that other retailers who continued to
do business with the manufacturer or distributor were
part of an illegal combination. None of the cases relied
upon by the parties confronts this problem directly,
nor have we found any.
Some cases, however, such as Simpson v. Union
Oil Co., 1964, 377 U.S. 13, 84 S.Ct. 1051, 12 L.Ed.2d
98 and Lehrman v. Gulf Oil Corp., 5 Cir. 1972,
464 F.2d 26, support our conclusion that a retailer
hurt by the practices complained of in this case may
maintain a treble damage action. The plaintiff here
has adduced evidence sufficient to support the jury’s
conclusion that Coors conspired with its local distributor
to deny him their product, because he would not abide
by their pricing policy, and that because of the territorial
no “other practicable method of carrying on a prepaid insurance
towing system,” see Anderson v. American Automobile As-
sociation, 9 Cir. i972, 454 F.2d 1240. However, the majority
opinion noted: “If . . . the dominant motive for the restric-
tive arrangements is to compensate the contract stations
for unprofitably low towing charges by limiting competition
for repair work on members’ vehicles, the whole vertical arrange-
ment may operate to unreasonably restrain trade in the auto-
mobile repair market.” /d. at 1246.
<x
restrictions he was unable to obtain an alternate supply.
The role played by other retailers in these practices
should not affect the injured retailer’s standing to sue,
whatever other relevance that role might have to the
case.
IV.
Coors argues that the practices complained of did
not occur in or affect interstate commerce. This conten-
tion may be dismissed largely upon the authority of
Burke v. Ford, 1967, 389 U.S. 320, 88 S.Ct. 443,
19 L.Ed.2d 554. In that case, the plaintiffs in a treble
damage action sought review of dismissal of their com-
plaint. The action had been dismissed, and the dismis-
sal affirmed in the court of appeals, on the ground
that the division of territories among the liquor whole-
salers involved in that case did not occur in or affect
interstate commerce, since the liquor “came to rest”
in the wholesalers’ warehouses before being shipped
to the retailers. The Supreme Court held that the dismis-
sal was improper:
Horizontal territorial divisions almost invariably
reduce competition among the participants....
When competition is reduced, prices increase and
unit sales decrease. The wholesalers’ territorial di-
vision here almost surely resulted in fewer sales
to retailers—hence fewer purchases from out-of-
state distillers—than would have occurred had free
competition prevailed among the wholesalers.
389 U.S. at 321-322, 88 S.Ct. at 444. Price fixing
was not involved in that. case, as it is in the present
one. Moreover, the effects upon interstate commerce
ascribed to horizontal division of territories in Burke
are equally attributable to the vertically imposed restric-
tions in this case.
— )
The record shows that Coors’s shipments into the
state of Texas are substantial—their value was around
$20 million in 1970—and it cannot be said that Coors’s
policies respecting pricing and distribution of its prod-
ucts moving into the state do not have sufficient impact
upon interstate commerce to bring them within the
ambit of the federal antitrust laws. Coors says there
is no effect upon interstate commerce because there
is always a shortage of their beer and the amount
shipped to Texas “is not a product of fluctuations
in retail sales.” Regardless of whether we accept the
full import of this last statement in Coors’s brief,
we must reject the argument that the application of
the federal antitrust laws turns on whether, if the illegal
practices were halted, a change would occur in the
volume of the product involved crossing the boundaries
of the state in which the particular plaintiff does busi-
ness, particularly where the practices are widespread
and constant, rather than sporadic and wholly local
in character. In any event, there is evidence in the
record tending to show that the unavailability of Coors
.at a retail outlet led to a diminution in demand for
other products on sale at that outlet that moved in
interstate commerce. This impact on other products
has been held to have a sufficient effect on interstate
commerce to bring the case within the federal antitrust
laws. Lehrman v. Gulf Oil Corp., 5 Cir. 1972, 464
F.2d 26, 34-36.
V.
Coors has vigorously contended throughout this law-
suit that the cause of action asserted by the plaintiff
Letcher cannot include any cause of action of the
partnership composed of Letcher and Mr. and Mrs.
Williams, nor of the Corporation subsequently formed,
ad
= =
of which the three individuals were the sole sharehold-
ers. The record shows that Letcher operated the retail
liquor store in question from January 1, 1966, to
January 1, 1967, as a sole proprietorship. On January
1, 1967, he sold a one-half interest to Mr. and Mrs.
Williams, who had worked as salespeople in the store
during the preceding year. Then, on September 1, 1967,
the partnership was incorporated with Letcher and Mr.
and Mrs. Williams as the sole shareholders. They oper-
ated the store from that date until July 17, 1971.
The corporation was subsequently dissolved and its
assets, apart from any legal causes of action against
Coors, transferred to Mr. and Mrs. Williams, who re-
opened the store on August 14, 1971, and operated
it as a sole proprietorship from that date to the time
of trial. The legal causes of action against Coors were
assigned to Letcher by an instrument dated April 13,
1972. The plaintiff also introduced into evidence a
ratification signed by Mr. and Mrs. Williams reciting
that they owned a one-half interest in the store as
a partnership with Letcher from January 1, 1967, to
the date of incorporation of the corporation, and that
it was the intention of the partners that all assets of
the partnership including leading causes of action were
to become assets of the corporation. It further recited
that Mr. and Mrs. Williams “ratify” the institution
of the present lawsuit by Letcher and that neither
of them had any further personal interest in the cause
of action.
Relying on cases holding that an antitrust action
may not be brought individually by a partner in a
partnership nor by a shareholder of a corporation,
Coors advances two primary objections to Letcher’s
standings to bring this suit. The first is that the “ratifica-
— a
tion” was ineffective to transfer the cause of action
to the corporation, and that the partnership therefore
should have been named as a party to the suit. Since
by the time of trial the four-year statute of limitations
had run on any claim that might have arisen during
the existence of the partnership, Coors says, no damages
may be awarded for any harm suffered by the partner-
ship attributable to Coors’s violation of the antitrust
laws. Coors does not, however, specify in what respects
the ratification was inadequate, nor does it suggest
what the proper manner of transferring the cause of
action would have been. Second, with respect to the
assignment of the corporation’s cause of action to Letch-
er, Coors argues that
in reality [the assignment] is not corporate action
but merely signifies the desires of two persons
who happen to be on the Board of Directors
of the corporation. No certified copy of
any resolution of the Board of Directors of the cor-
poration accompanied said exhibit. Furthermore,
there was no evidence whatsoever that the corpora-
tion ever did any business with a Coors distributor
or that it ever requested and was refused Coors
beer.
In our view, these objections? given the factual con-
text of this case, seek to exalt corporate form over
substance. All the testimony at trial, taken together
with the “assignment” and the “ratification”, would
certainly estop Mr. and Mrs. Williams from ever bring-
ing a suit against Coors on the same cause of action.
We are dealing with a small retail outlet, owned and
operated by three individuals over the period of time
relevant to this suit, and in these circumstances we
think that Coors must have been aware of the identity
eee
—59—
of the plaintiff and the genesis of his cause of action.
There is nothing in the record to the contrary. There
is no danger of exposure to multiple suits arising out
of the facts here. Moreover, there is no demonstration
of any other prejudice to Coors attributable to the
failure—if there were a failure—to comply strictly with
Texas law regarding the transfer of assets from one
form of business organization to another or the ratifica-
tion of corporate action. Though Coors’s objections
are grounded on this purported failure, its counsel
did not examine Letcher or the Williamses, the only
individuals owning or operating the store during the
period in question, as to whether they complied with
the formalities of the Texas corporation and partnership
law, what their intent was in changing the corporate
form, or pursue other lines of inquiry relevant to its
objections. On these facts, we hold Coors’s objections
to the plaintiff's standing to sue to be insubstantial.
VI.
Coors objects to the admission of certain statements
of Mr. Coors describing the degree of market penetra-
tion the firm had achieved in its various marketing
areas. This general sort of information was relevant
to the cause of action alleged under section two of
the Sherman Act. The section two claim was abandoned
at trial. Coors now urges that the admission of this
testimony prejudiced the jury. Because the relevant
market had been designated as the market for beer
in Brownwood, Texas, in the pretrial order (a designa-
tion we neither approve nor disapprove), the relevance
of the challenged statements regarding market penetra-
tion in other areas is open to serious question, but,
in light of the entire record, the substantial evidentiary
—
basis for the jury’s verdict, and considering the nature
of the statements, we cannot say that admitting the
evidence was so prejudicial as to require setting that
verdict aside.
VI.
Coors objects to the trial court’s action in reopening
the case before charging the jury to receive into evidence
as an exhibit the “ratification” already discussed. We
note that when Mr. and Mrs. Williams, who signed
the challenged instrument, were on the stand, counsel
for Coors did not delve into the irregularities now
complained of in connection with the transformations
of the store’s corporate form from sole proprietorship
to partnership to corporation and back to sole propri-
etorship. This failure, coupled with the absence of any
showing of prejudice to Coors stemming from the irregu-
larities, leads us to conclude that the trial court did
not abuse its discretion in admitting the exhibit.
Vil.
Coors complains that the trial court demonstrated
a prejudicial attitude toward it. We dismiss this conten-
tion as insubstantial.
IX.
This case is unusual in that the plaintiff is seeking
damages because his supplier cut off his supply of
a product he had always sold for less than it cost
him. )
Between January 1, 1966, and June 3, 1966, the .
date after which no further deliveries of Coors were
a
made,’ Letcher testified that he sold roughly 1,000
cases of Coors at the Brownwood store, and that all
Coors beer was sold at less than he paid the distributor
for it. Letcher stated that he sold Coors below his
cost, as a “loss leader”, in order to attract business.
Mrs. Williams testified that, after deliveries of Coors’s
were halted in June, 1966, the store experienced a
decline in business. She said that customers, before
the termination of service by Coors’ distributor, would
come into the store primarily to purchase Coors but
would frequently buy other items as well, as a matter
of convenience, and it was her impression that these
customers no longer patronized the store after the termi-
nation. Coor’s marketing expert disputed the accuracy
of this recollection or impression. He stated that the
market for beer and liquor items was very sensitive
to variations in price, and that consumers often made
purchases of different types of items at different retail
establishments, depending on relative prices. Letcher
and the Williamses testified that they experienced a
loss on sales of all products at the store, and that,
in order to compensate for the loss, they reduced
their markup on all items, from an average of 25
percent to an average of 15 percent after the termina-
tion. Moreover, Mrs. Williams testified that, based upon
her daily experience as a salesperson at the store,
The record shows that the store ran out of its supply
of Coors on June 20, 1966, and Coors contends that if
any comparison is to be made of bank deposits (and it
denies this method is valid), that comparison should be of
the thirty-day period before June 20 and the thirty-day period
following. This suggestion may have some merit if we assume
the bank deposits accurately reflect sales, but, as will appear
in the text, we cannot make that assumption on the present
record.
eer, Wa
her opinion was that the “loss of markup profits”
attributable to the termination was $75 to $100 per
business day. She did not offer any facts in support
of that conclusion, nor was “loss of markup profits”
defined.
Most of the evidence relating to damages was present-
ed by Dr. Dickson, the plaintiff's expert, and, because
the jury returned a verdict for damages in the amount
of $101,011, the exact amount of his estimated compu-
tation of “lost profits and good will”, we must examine
his testimony carefully. His testimony was based upon
a rather limited store of business records tendered
to him by the plaintiff, including the corporate income
tax returns for the years in question, certain “operating
statements” of a highly summary character, and certain
receipts from the Coleman distributing concern. These
items are all we have in the record. Dr. Dickson
apparently based his testimony on certain other financial
records as well that were present in the courtroom
and examined by the defendant for the first time at
trial. These further items contained certain bank state-
ments, but what else they contained is unclear to us.
What is clear, however, from the testimony is that
no accurate records of the sales for 1966, on an
itemized product-by-product, daily or weekly basis or
otherwise, were offered into evidence, nor were there
any inventory records from which such a breakdown
could be derived. That is, all products sold were lumped
together, and Dr. Dickson testified that he analyzed
sales by looking at the gross bank deposit records
for the store. On that basis alone, he concluded that,
because the bank deposits for June 1966 were $20.270,
— wn
and those for July 1966 were $13,144, the termination
of service by Coors’ distributor cost the plaintiff the
difference between the two sums. The difference was
53 percent of the lower figure, or, put another
way, if one wanted to derive what the June deposits
had been, one would multiply the July deposits by
.53 and add that product to the July deposits.
Coors, of course, strenuously objected to this part
oi the calculation, noting, first, that there were unusual-
ly large bank deposits made in the opening days of
August 1966, and that if one averaged the deposits
‘for the months of June, July, and August together,
or, alternatively, included the early August deposits
with the July deposits, there would be no discernible
decline in “sales”. Second, Coors objected to the post
hoc ergo propter hoc trand of reasoning applied to
the decline in sales, if there were any decline at all.
There was, Coors says, no showing at all of any
causal relationship between the termination and a de-
cline in sales. There was, in fact, no actual decline
in sales in the months after July 1966. Using though
not approving the plaintiff's own measure of sales—
bank deposits—, the exhibits demonstrate that the sales
actually increased after the termination in June. The
circumstance, coupled with the dubious character of
the July “decline” in bank deposits, the fact that no
records were introduced into evidence relating to daily
or weekly sales on a product-by-product basis and
the fact that by his own admission Letcher sold all
the Coors he ever purchased from the distributor at
a loss, raises serious doubt that Coors’ violation of
the antitrust laws caused Letcher any injury at all.
We will return to this problem after tracing Dr. Dick-
— *
son’s thread of computations, as the jury apparently
did, to its bottom line.”
Dickson assumed that by multiplying the actual bank
deposits (“sales”) by .53 and adding the product,
he would arrive at a “gross sales” figure that would
accurately reflect what the sales would have been had
the termination of Coors not occurred. He then deter-
mined that the markup on goods sold was the gross
sales minus the cost of goods sold, divided by the
cost of goods sold. The striking difficulty with this
formula is the computation of “cost of goods sold”
for 1966, for Coors’s expert in accounting testified
11The following equations, derived from the exhibits, may
clarify the discussion in the text.
Actual sales—Cost of goods sold
Cost of goods sold
(Markup was derived for each fiscal period from
1966 through 1971)
Lost sales = .53 x Actual sales
(How the multiplier of .53 was derived is explained
Markup =
in the text.)
a = Lost sales
Lost gross profits = Lost sales (i + markup)
Lost net profits = Lost gross profits — (sales taxes + inventory
carrying costs +
salaries)
(The record does not reveal how the figure of “inventory
carrying costs” was derived.)
Total lost net profits
Total months of alleged x 12x .78x 15x .14
antitrust violation
Goodwill lost =
(The division by number of months’ alleged violation and multi-
plication by 12 is to annvalize the figure; the multiplier of .78
is to deduct “sales tax or corporate profits tax”; the multiplier
of 15 represents, presumably, Dr. Dickson’s judgment as to how
many years in the future an antitrust plaintiff should be com-
pensated for lost profits; and the multiplier of .14 is intended
to reduce—the record does not show how or why—the figure
already derived to its present value.)
=
that, based upon his study of the books tendered to
Coors for the first time at trial, he concluded that
they were incomplete; that “sales” were in fact bank
deposits made; that there was no breakdown of the
ledger into the traditional sections for capital, assets,
liabilities, or i
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