Opposition Brief — Sharp Electronics Corp. v. Business Electronics Corp.

ie

Supreme Court, U.S,

FILED

JUL 24 jo8¢

f JO

NO. 85-2094 ~~ _]

Supreme Court of the United States

OCTOBER TERM, 1985

SHARP ELECTRONICS CORPORATION,

Cross-P etitioner,

V.

BUSINESS ELECTRONICS CORPORATION,

Cross-Respondent.

BRIEF IN OPPOSITION TO

CROSS-PETITION FOR CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

SUSMAN, GODFREY & MCGOWAN

Gary V. MCGOWAN

H. Lez GODFREY

RICHARD B. DRUBEL

2400 Allied Bank Plaza

Houston, Texas 77002

(713) 651-9366

Attorneys for Cross-Respondent,

Business Electronics Corporation

RRS A LN SNE

Alpha Law Brief Co., Inc-—5606 Parkersburg—Houston, Texas 77036—223-3003

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TABLE OF CONTENTS

TABLE OF CONTENTS .............. igende rape enes

TABLE OF AUTHORITIES ..... TesWerees serene saves

REASONS FOR DENYING THE CROSS-PETITION .

1. Congress Has Unambiguously Ratified The Per Se

Rule Against Vertical movement

oe Pr Ais og 166 1c bees 000 caeces

3. Cross-Petitioner Sharp Engaged In Classic, Naked

Vertical Price Fixing Which Is tensed —_

kaise cee nee vneeess

GEE. 00 nersnececsedcesncesesses jneoavdess:

CERTIFICATE OF SERVICE .............0.c-ses0.

Page

Ul

TABLE OF AUTHORITIES

CASES Page

Albrecht v. Herald Co., 390 US. 145 (1968) . eee

Arizona v. Maricopa County Medical Society, 457 U. Ss. 332

(1982) .... .4, 7, 8, 18, 19, 20

Burnet v. Coronado Oil & Gas Co, 285 US. 393 (1932) 10

Continental T. V., Inc. v. GTE Sylvania, Inc., 433 US. 36

| eT EPP oT Per er ert rT ere verre vobcety om te 48

Dr. Miles Medical Co. ». John D. Park & Sons Co., 220

US. 373 (1911) ..... aie Se

Illinois Brick Co. v. Illinois, “431 US. 720 (1977) . 10

Jefferson County Pharmaceutical Ass’n v. Abbott Labora-

tories, 460 U.S. 150 (1983) .......-.ee-eereeseeces 9

Keogh v. Chicago & Northwestern R. Co., 260 US. 156

(1922) . 8,9, 10

Kiefer-Stewart Co. ‘v. ». Joseph ‘E. ‘Seagram & Sons, Inc., 340

TB. BEL CIGSL) cine rcersastcsvccesistcecssosasve 20

Lewis Serv. Center, Inc. v. Mack Trucks, Inc., US.

me ee ey 13

Monsanto Co. v. Spray-Rite Service Corp., 465 US. 752,

"See 8s. | errr ry rrr rrr 4,11, 22

NLRB v. Longshoremen, 473 U.S. (1985) pecanaes 9

Northern Pac. Ry. v. United States, 356 U.S. 1 (1958) 20

Square D Co. v. Niagara Frontier Tariff Bureau, Inc.,

US. (1986), reprinted in [Current Develop-

ments] 1986-1 Trade Cas. (CCH) {67,105 ........ 2. se

United States v. Arnold, Schwinn & Co., 388 US. 365

CRE nc nud each snnaenisekds (ye -ktseesteekhe see es 7,14

United States v. Container Corp. of America, 393 US. 333

SUE good nave ctas ees Kerdaste<eleeesee ceuees 13

United States v. ‘Cooper Corp., 312 U.S. 600 (1941) . 9

United States v. - Socomy-Vacwsum Oil Co., 310 US. 150

(1940) ... .13, 20, 21

United States v. “Topco Associates, ‘Inc., “405 ‘US. "596

(1972) . a)

White Motor Co. ‘v. United ‘States, 372 ‘US. 253 (1967) . . 7,14,15

STATUTES

Antitrust Procedural Improvements Act of 1980, Pub. L.

No. 96-349, 1980 U.S. Code Cong. & Admin. News 5144 3

Antitrust Procedures and Penalties Act of 1984 (Tunney

Act), Pub. L. No. 93-528, 88 Stat. 1706 .............. 3

Consumer Goods Pricing Act of 1975, Pub. L. No. 94-145,

EEE Se 3,4,5,7,17

Departments of Commerce, Justice, and State, the Judiciary

and Related Agencies Appropriation Act, 1986, Pub. L.

No. 99-180, 99 Stat. 1136 (1985) .................... 12

Federal Trade Commission Improvements Act of 1980,

ee PPT eee 3

Foreign Trade Antitrust Improvements Act of 1982, enacted

as Title IV of The Export Trading Company Act of 1982,

ee SS S| | ee

Hart-Scott-Rodino Antitrust Improvements Act of 1976,

Pub. L. No. 94-435, 90 Stat. 1390 ..................

McGuire Amendment to the Federal Trade Commission Act,

ee PC RUSS Cc. cc cercercoscces.

Miller-Tydings Amendment to the Sherman Act, Ch. 690,

ee ee nce cbscewseecceceoce

Motor Carrier Act of 1980, Pub. L. No. 96-296, 94 Stat. 793

National Cooperative Research Act of 1984, Pub. L. No.

is se ov dic we ccdidbe cee cee- 3

Reed-Bulwinkle Act, Pub. L. No. 80-662, 62 Stat. 472

(1948) (current version at 49 U.S.C. § 10706) i xi 8

Pub. L. No. 98-166, § 510, 97 Stat. 1102 (1983) . - 11

of, f+ BB WwW

IV

MISCELLANEOUS

S. Rep. No. 94-466, 94th Cong., Ist Sess. (1975) ........

H. R. Rep. No. 94-341, 94th Cong., Ist Sess. (1975) .....

House Judiciary Committee Report on Vertical Restraints

Guidelines Resolution, H. R. Rep. 99-399, 99th Cong.,

Ist Sess., reprinted in 49 Antitrust & Trade Reg. Rep.

(BNA) 952 (er cia heh ine chew es taee-s

H. R. Res. 303 (1985) . Sas ex seen UL phy Bee

121 Congressional Record passim a, eee ee Te PPT CE

Hearings on S. 408 before the Subcommittee on Antitrust

and Monopoly of the Senate Judiciary Committee, 94th

Cong., Ist Sess. 1974 (1975) ......

Oversight Hearings of the Subcommittee on Monopolies and

Commercial Law, March 9, 1983 (Written Statement of

Se : rer ir er eee

Public Papers of President Gerald R. Ford, Vol. 11, ‘No. 50

ABA Antitrust Section, Antitrust Law Developments (Sec-

ond) (First Supp. 1983- Re ere eet e

ABA Antitrust Section, Monograph No. 2, Vertical Restric-

tions Limiting Intrabrand Competition (1977) pew se

Bowman, The Prerequisites and Effects of Resale Price

Maintenance, 22 U. Chi. L. Rev. 825 (1955) ..........

Cassady, Maintenance of Resale Prices by Manufacturers,

53 0. J. Boom. 454 (1909) 0c rccrcercecessvvccee.

Gellhorn, Antitrust Law and Economics (1976) .........

Grether, Experience in California with Fair Trade Legisla-

tion, 24 Cal. L. Rev. 640 (1936) ..........--ee-eeee-

Lee, The Impact of Fair Trade Laws on Retailing, 41 J.

of Retailing 210 (1965) .........cc-ce-cerccce-cvve

Posner, Antitrust Policy & the Supreme Court, An Analysis

of the Restricted Distribution, Horizontal Merger and

Potential Competition Decisions, 75 Colum. L. Rev. 282

tes a Pn arn rn tr lrr Tree eer t

Posner, Antitrust: Cases, Economic Notes and Other Ma-

ee re a a vie ie eles

Yamey, Resale Price Maintenance (1966) BT oR ee eee

Note, Vertical Territorial and Customer Restrictions in the

Franchising Industry, 10 Colum. J. L. & Soc. Prob. 497

15, 16, 21

16

16

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16

17

14

14

16

14

NO. 85-2094

IN THE

Supreme Court of the United States

OCTOBER TERM, 1985

SHARP ELECTRONICS CORPORATION,

Cross-Petitioner,

Vv

BUSINESS ELECTRONICS CORPORATION,

Cross-Respondent.

BRIEF IN OPPOSITION TO

CROSS-PETITION FOR CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

Cross-Petitioner, Sharp Electronics Corporation

(“Sharp”), has asked this Court to issue a writ of cer-

tiorari to decide whether the rule of per se illegality ap-

plied for the past seventy-five years to the fixing of mini-

mum resale prices by agreement between a manufacturer

and its dealers should now be overturned in _ this

case. Cross-Respondent, Business Electronics Corporation

(“BEC”), has petitioned this Court for a writ of cer-

tiorari (No. 85-1910) to review a judgment of the Fifth

Circuit Court of Appeals setting aside a jury verdict ap-

plying the per se rule against vertical price fixing in

BEC’s favor.

2

For the reasons set out below, it is neither neces-

cary nor appropriate for the Court to reexamine the

validity of the per se rule itself in the course of deter-

mining whether the Fifth Circuit incorrectly applied that

rule to the facts of this case. Far from constituting “an

important question of federal law which has not been,

but should be, settled by this Court”, see Rule 17.1(c),

Sup. Ct. R., as alleged by Sharp, the per se rule against

vertical price fixing is one of this Court’s longest-standing

precedents interpreting the Sherman Act. Moreover,

Congress, through legislative action, has emphatically

ratified the Court’s construction of the Sherman Act.

Finally, sound policy supports continued application

of the per se rule to vertical price fixing agreements,

particularly in cases such as this one, where only the

naked restraint of an agreement between a manufacturer

and its dealers to fix minimum resale prices is at issue.

BEC respectfully requests that this Court deny Sharp’s

Cross-Petition.

REASONS FOR DENYING THE CROSS-PETITION

1. Congress Has Unambiguously Ratified The Per

Se Rule Against Vertical Price Fixing As Part

Of The Sherman Act.

For seventy-five years it has been the law that vertical

price fixing constitutes a per se violation of Section 1 of

the Sherman Act. Dr. Miles Medical Co. v. John D.

Park & Sons Co., 220 U.S. 373 (1911) (fixing of mini-

mum resale prices by manufacturer per se illegal). Dur-

ing this period, Congress has amended the antitrust laws

on a variety of occasions, but has never overturned the

3

per se rule against vertical price fixing.’ The failure of

Congress to take any action to alter such a long-standing

construction of the Sherman Act has been recognized by

this Court as constituting a legislative ratification of the

per se rule. Thus, legislative action, rather than judicial

decision, is required if that construction is now to be

changed:

“Our adherence to the per se rule is grounded not

only on economic prediction, judicial convenience,

and business certainty, but also on a recognition of

the respective roles of the Judiciary and the Congress

in regulating the economy. . . . Given its generality,

our enforcement of the Sherman Act has required

the Court to provide much of its substantive con-

tent. By articulating the rules of law with some

clarity and by adhering to rules that are justified

in their general application, however, we enhance

the legislative prerogative to amend the law. The

respondents’ arguments against application of the

per se rule in this case therefore are better directed

to the Legislature. Congress may consider the ex-

1. Congress has amended the antitrust laws no less than six times

over the past ten years without changing the per se rule against

vertical price fixing by a single iota. Antitrust Procedures and

Penalties Act of 1984 (Tunney Act), Pub. L. No. 93-528, 88 Stat.

1706; National Cooperative Research Act of 1984, Pub. L. No.

98-462, 98 Stat. 1815; Foreign Trade Antitrust Improvements Act

of 1982, enacted as Title IV of the Export Trading Company Act

of 1982, Pub. L. No. 97-290, 96 Stat. 1233: Antitrust Procedural

Improvements Act of 1980, Pub. L. No. 96-349, 1980 U.S. Code

Cong. & Admin. News 5144; Federal Trade Commission Improve-

ments Act of 1980, Pub. L. No. 96-252, 93 Stat. 374; Hart-Scott-

Rodino Antitrust Improvements Act of 1976, Pub. L. No. 94-435,

90 Stat. 1390.

In the last major revision of antitrust law relating to vertical price

fixing, Congress repealed previous legislation that permitted certain

vertical price fixing agreements and endorsed an across-the-board

application of the per se rule to all such agreements. Consumer Goods

Pricing Act of 1975, Pub. L. No. 94-145, 89 Stat. 801, discussed at

pp. 4-7, infra.

4

ception that we are not free to read into the statute.”

(emphasis added)

Arizona v. Maricopa County Medical Society, 457 US.

332, 354-55 (1982).

It lies with Congress, and not this Court, to decide

if the Sherman Act should now be amended by

eliminating the per se rule against vertical price fixing.

See Monsanto Co. v. Spray-Rite Service Corp., 104

S. Ct. 1464, 1473 (1984) (Brennan, J., concurring)

(the per se rule against vertical price fixing in Dr.

Miles “has stood for 73 years and Congress has cer-

tainly been aware of its existence throughout that time.

Yet Congress has never enacted legislation to overrule

the interpretation of the Sherman Act adopted in that

case. Under these circumstances, I see no reason for us

to depart from our long-standing interpretation of the

Act.”)

This conclusion is further strengthened where, as here,

Congress has continuously and emphatically voiced its ap-

proval of the per se rule against vertical price fixing. In

enacting the Consumer Goods Pricing Act of 1975, Pub.

L. No. 94-145, 89 Stat. 801 (amending 15 U.S.C. §§ 1,

45(a)), Congress repealed the so-called “fair trade” ex-

emption for certain State-authorized resale price main-

tenance agreements under the 1937 Miller-Tydings

Amendment to the Sherman Act, Ch. 690, 50 Stat. 693

(1937), 15 U.S.C. § 1, and the 1952 McGuire Amend-

ment to the Federal Trade Commission Act, Ch. 745, 66

Stat. 632 (1952), 15 U.S.C. § 45(a). The legislative his-

tory of the Consumer Goods Pricing Act of 1975 provides

extensive evidence that Congress was awzre of and ap-

proved a uniform per se rule against vertical price fixing.

5

The House and Senate reports accompanying the 1975

Act reflect a clear congressional understanding that re-

pealing “fair trade” meant restoring an unqualified ban on

vertical price fixing under the per se rule. The Senate

Report stated that:

“Without these [fair trade] exemptions the agree-

ments they authorize would violate the antitrust

laws, . . . [and that fair trade laws] are, in fact,

legalized price fixing.” :

S. Rep. No. 94-466, 94th Cong., Ist Sess. 1 (1975).

The same view was expressed by the House Report

accompanying the 1975 Act:

“An agreement between a manufacturer and a re-

tailer that the retailer would not resell the manu-

facturer’s product below a specified price is an ob-

vious form of price fixing. As such it is per se illegal

under Section 1 of the Sherman Act.”

H. R. Rep. No. 94-341, 94th Cong., Ist Sess. 2 (1975).

Both the House and Senate Judiciary Committees

unanimously reported the Consumer Goods Pricing Act

legislation. The Senate then approved the bill by unani-

mous consent and the House voted 380 to 11 in favor of

the 1975 Act.’ In signing the bill into law on December

TO

2. 121 Cong. Rec. S20874 (Dec. 2, 1975); 121 Cong. Rec. H7104

(July 21, 1975).

The floor debates attending passage of the 1975 Act are also re-

plete with statements by the bill’s sponsors and others acknowledging

that by voting to eliminate the sole exception to the per se rule

Congress was thereby endorsing a general ban against vertical price

fixing. Representative Rodino, a co-sponsor of the bill and Chairman

of the House Judiciary Committee and its Sub-Committee on Mo-

nopoly and Commercial Law which reported the bill to the House,

stated in floor debate that: “they [fair trade laws] have aged to the

6

12, 1975, President Ford succinctly stated the purpose of

the 1975 Act:

“(The 1975 Consumer Goods Pricing Act] will make

it illegal for manufacturers to fix the prices of con-

sumer products sold by retailers.”

Public Papers of President Gerald R. Ford, Vol. 11, No.

50, at p. 1368, cited in House Judiciary Committee’s

Report on Vertical Restraints Guidelines Resolution, H. R.

Rep. 99-399, 99th Cong., Ist Sess. 7-8, n.22, reprinted in

49 Antitrust & Trade Reg. Rep. (BNA) 952, 954, n.22

(1985).

This Court has likewise concluded that Congress, by

enacting the 1975 Consumer Goods Pricing Act, has legis-

point where they preserve classic restraints of trade, which but for

the protective umbrella they provide, would be considered per se

violations of the antitrust laws.” 121 Cong. Rec. 23659 (1975).

Representative Seiberling, also a co-sponsor of the bill, agreed, stating

that the fair trade laws shielded practices that “otherwise would have

amounted to a per se violation of the Federal antitrust laws.” 121

Cong Rec. 23662 (1975). The same views were expressed by Repre-

sentative Jordan, another co-sponsor (fair trade laws “legitimized

what, without the exemption granted by those Acts, would be per se

violations of the antitrust laws”), 121 Cong. Rec. 23659 (1975);

Senator Brooke, the main sponsor in the Senate (“without these

!

in violation of the most basic of our anti

Antitrust Act and the Federal Trade i

Rec. 38049-50 (1975); Senator Hruska, the ranking minority member

of the Senate Judiciary ittee who chaired three of the

days of sub-committee hearings on the laws

a manufacturer to enter into an agré@ment with a retailer to set

|

provisions

Cong. Rec. 23660 (1975); and Representative

Chairman of the Subcommittee on Consumer Protection Finance

(“without this helping hand from Washington, such

would be illegal under the antitrust laws”), 121 Cong.

(1975).

7

latively ratified the per se rule against the vertical price

fixing:

“The per se illegality of price restrictions has been

established firmly for many years. . . . Congress has

recently expressed its approval of a per se analysis

of vertical price restrictions by repealing those pro-

visions of the Miller-Tydings and McGuire Acts

allowing fair-trade pricing at the option of the indi-

vidual States... .”

Continental T.V., Inc. v. GTE Sylvania, Inc., 433 USS.

36, 51, n.18 (1977).

When confronted with “a longstanding statutory con-

struction that Congress has consistently refused to dis-

turb, even when revisiting this specific area of the law”,

Square D Co. v. Niagara Frontier Tariff Bureau, et all,

U.S. (1986), reprinted in (Current Develop-

ments] 1986-1 Trade Cas. (CCH) 4 67,105 at 62,690, this

Court has consistently and properly deferred to con-

gressional intent, rather than itself engaging in the for-

mulation of national economic policy.’ See Arizona v.

3. As the Court noted in GTE Sylvania, the context was strik-

ingly different with respect to the Court’s revoking application of the

per se rule to vertical nonprice restrictions in 1977. 433 U.S. at 50-52.

First, no expression of legislative approval comparable to the 1975

Consumer Goods Act existed for vertical nonprice restrictions.

433 US. at 51, n.18. , the per se treatment of vertical non-

price restrictions announced by the Court in United States v. Arnold,

Schwinn & Co., 388 US. 365 (1967), represented “an abrupt and

largely unexpiained ” from the Court’s previous construc-

tion of the Sherman Act. 433 U.S. at 47. During the 14-year period

from 1963 to 1977, the Court changed its position on vertical non-

price restrictions three times: first analyzing such restraints under

the rule of reason, White Motor Co. v. United States, 372 US. 253

(1967), then abruptly declaring such restraints per se illegal, United

States v. Arnold, Schwinn & Co., supra, and finally returning to the

rule of reason standard, GTE Sylvania, supra. Throughout this entire

period, however, the Court never even considered judging vertical

price fixing agreements by anything other than the “firmly estab-

lished” per se standard. 433 U.S. at 51, n.18.

Maricopa~County Medical Society, supra, 457 U.S. at

355, n.30 (“[Congress] can, of course, make per se rules

inapplicable in some or all cases, and leave courts free

to ramble through the wilds of economic theory in order

to maintain a flexible approach”), quoting United States

v. Topco Associates, Inc., 405 U.S. 596, 610, n.10

(1972).

In Square D this Court faced a situation very simi-

lar to the claim sought to be raised by Cross-Petitioner in this

case. Petitioners in Square D asked the Court to overturn a

sixty-four year old precedent, Keogh v. Chicago & North-

western R. Co., 260 U.S. 156 (1922), holding that Inter-

state Commerce Commission approval of tariff rates fixed

in violation of the antitrust laws does not give rise to a

private treble-damage action under Section 7 of the Sher-

man Act. Petitioners argued, among other things, that

Keogh’s ban on treble-damage actions was inconsistent

with the policies underlying subsequent legislation affect-

ing interstate carriers under the antitrust laws, although

such legislation had not explicitly overruled Keogh.* The

Court rejected that argument, stating that, even assuming

Keogh was unwise as a matter of policy, it should not be

abandoned without explicit legislative action by Con-

gress. ___ U.S. at ___., id. at 62,689. The Court rea-

soned that because Congress had addressed this area of

the law in srbsequent legislation and had left the Keogh

rule undisturbed, it was inappropriate for the Court to

take the initiative in effecting what would amount to a

statutory amendment:

4. Petitioners relied on the 1948 Reed-Bulwinkle Act, Pub. L.

No. 80-662, 62 Stat. 472 (1948) (current version at 49 U.S.C.

§ 10706), and the Motor Carrier Act of 1980, Pub. L. No. 96-296, 94

Stat. 793, delineating an antitrust immunity for specific rate making

activities.

9

“Particularly because the legislative history reveals

clear congressional awareness of Keogh . . . the

fact that Congress specifically addressed this area

and left Keogh undisturbed lends powerful support

to Keogh’s continued viability.”

Id.

Whatever policy objections might be made to the Keogh

rule now, the Court observed that:

“it nevertheless remains true that Congress must be

presumed to have been fully cognizant of this in-

terpretation of the statutory scheme, which had been

a significant part of our settled law for over half a

century, and that Congress did not see fit to change

it when Congress carefully reexamined this area of

the law in 1980.”

Id. See Jefferson County Pharmaceutical Ass’n vy. Ab-

bott Laboratories, 460 U.S. 150, 170 (1983) (“Al-

though Congress is aware of these criticisms, the [Robin-

son-Patman] Act has remained in effect for almost half

a century. And it certainly is not for [this Court] to in-

dulge in the business of policy-making in the field of anti-

trust legislation. . . .”), quoting United States v. Cooper

Corp., 312 U.S. 600, 606 (1941).

This Court’s refusal in Square D to overturn a long-

standing statutory construction absent explicit congres-

sional action is equally applicable to the case at bar.

The Court’s conclusion in Square D rests on the “strong

presumption of continued validity that adheres in the

judicial interpretation of a statute.”___ U.S. at__, n.34,

id. at 62,691, n.34, citing NLRB v. Longshoremen, 473

US. ; (1985) (slip op. 22) (“[W]e should

follow the normal presumption of stare decisis in cases

10

of statutory interpretation”); I/linois Brick Co. v. Illinois,

431 U.S. 720, 736 (1977) (“[W]e must bear in mind

that considerations of stare decisis weigh heavily in the

area of statutory construction, where Congress is free

to change this Court’s interpretation of its legislation” ).°

This presumption of stare decisis is strengthened where,

as in the present case, Congress has addressed the area

of law at issue without changing the precedent established

by the Court:

“We are especially reluctant to reject this presump-

tion in an area that has seen careful, intense, and

sustained congressional attention. If there is to be

an overruling of the Keogh rule, it must come from

Congress, rather than from this Court.”

—___ US. at —_., id. at 62,691.

Like the losing petitioners in Square D, Cross-Peti-

tioners in the case at bar can point to “no specific statu-

tory provision or legislative history indicating a specific

congressional intention” to overturn a longstanding

statutory construction of this Court. See ___ U.S. at ___,

id. at 62,689. On the contrary, Congress has consistently

and vigorously supported continued application of the

per se rule against vertical price fixing. As indicated

above, the last major revision of the antitrust laws re-

specting vertical price fixing by Congress, the Consumer

5. The Court in Square D aptly quoted Justice Brandeis,

the author of the opinion in Keogh, commenting later upon the

presumption of continuity in statutory interpretation:

“Stare decisis is usually the wise policy because in most matters,

it is more important that the applicable rule of law be settled

than that it be settled right. . . . This is commonly true, even

where the error is a matter of serious concern, provided cor-

rection can be had by legislation.”

US. at , id. at 62,691, quoting Burnet v. Coronado Oil &

Gas Co., 285 U.S. 393, 406 (1932) (Brandeis, J., dissenting).

11

Goods Pricing Act of 1975, clearly expresses congressional

approval of continuing per se treatment for such agree-

ments.

Moreover, as Congress has subsequently revisited this

area of the law it has without exception endorsed the per se

rule for vertical price fixing. For example, in 1983, when

the Justice Department filed briefs for the United States

as amicus curiae in Monsanto Co. v. Spray-Rite Service

Corp., 465 U.S._752 (1984), suggesting that the Court re-

consider the per se rule against vertical price fixing, Con-

gress quickly enacted legislation amending appropriations

for the Department of Justice to prevent the Department

from engaging in any activity “the purpose of which is

to overturn or alter the per se prohibition of resale price

maintenance in effect under the Federal Antitrust Laws.”

Pub. L. No. 98-166, § 510, 97 Stat. 1102 (1983).

Congress again addressed the issue of per se treatment

for vertical price fixing following publication of the

Department of Justice’s Vertical Restraints Guidelines.

On December 9, 1985, the House of Representatives

passed a House resolution, H. R. Res. 303, criticizing the

Guidelines for “qualifying the accepted rule that vertical

price fixing in any context is illegal per se”. The House

Resolution specifically faulted the Guidelines for propos-

ing to avoid the rule of per se of illegality applied to

vertical price fixing agreements since Dr. Miles.°

6. The House Judiciary Committee’s Report accompanying H.R.

Res. 303 reiterates that “Congress, likewise, in 1975 affirmatively

expressed its views that retail price fixing is illegal under the anti-

trust laws by passing the Consumer Goods Pricing Act.” House Judiciary

Committee’s Report on Vertical Restraints Guidelines Resolution, H.R.

Rep. No. 99-399, 99th Cong., Ist Sess. 6, reprinted in 49 Antitrust &

Trade Reg. Rep. (BNA) 952, 953 (1985). The House Judiciary

Committee Report specifically criticized the Guidelines for attempt-

ing “to dilute or trivialize the generality of the per se rule against

price fixing, both horizontal and vertical.” /d. at 14; id. at 956.

es

12

In separate legislation signed into law by the President

on December 13, 1985, Congress included in the 1986

fiscal year appropriations bill for the Department of

Justice a version of H. R. Res. 303 as well as a specific

limitation that:

“None of the funds appropriated in titles II and V

of this Act may be used for any activity to alter the

per se prohibition on resale price maintenance in

effect under the Federal Antitrust laws. .. .”

Departments of Commerce, Justice, and State, the Judici-

ary and Related Agencies Appropriation Act, 1986, Pub.

L. No. 99-180, 99 Stat. 1136, 1169 (1985).

The Justice Department Appropriation Act further states

that the Department’s Vertical Restraints Guidelines do

not accurately state current antitrust law and are objec-

tionable because:

“{they] propose the avoidance of the per se rule of

illegality applied by the Supreme Court in 1911 in

Dr. Miles Medical Company against John D. Park

and Sons Company (220 U.S. 373) to price-related

restraints of trade and subsequently applied by the

Supreme Court and endorsed by the Congress on

many occasions... .

“(and because] such policy guidelines are inconsist-

ent with established antitrust law, as reflected in

Supreme Court decisions and statements of congres-

sional intent. . . .” (emphasis added)

99 Stat. at 1169.

The evidence that Congress has ratified the per se rule

against vertical price fixing is overwhelming.’ The Court

7. It is difficult to imagine a clearer expression of current legis-

lative intent on this issue than that expressed in the current Appro-

priation Act for the Department of Justice, quoted above, whereby

13

should follow its own precedents and require that any

effort to amend this settled construction of the Sherman

Act be addressed to Congress rather than to the Court.

This Cross-Petition for writ of certiorari should accord-

ingly be denied. See also Lewis Serv. Center, Inc. v. Mack

Trucks, Inc., ___U.S.___, 104 S. Ct. 2678 (1984),

(cert. denied as to whether per se rule still applies to

vertical price fixing agreements).

2. Vertical Price Fixing Should Remain A Per Se

Violation Of The Sherman Act.

Vertical price fixing warrants application of the per se

rule because it completely and unqualifiedly eliminates

price competition generated by dealers. In the present

case, BEC’s termination by Sharp ended what had here-

tofore been lively intra- and interbrand price competi-

tion by BEC.

This Court has long recognized that price is the most

significant dimension in which market competition takes

place and is therefore deserving of special protection under

the antitrust laws. See Albrecht v. Herald Co., 390 US. 145,

154 (1968) (Douglas, J., concurring) (“fixing of prices for

resale is conspiciously unreasonable because of the great

leverage that price has over the market”); United States

v. Container Corp. of America, 393 U.S. 333, 338

(1969) (“price is too critical, too sensitive a control to

allow it to be used even in an informal manner to restrain

competition”); United States v. Socony-Vacuum Oil

Co., 310 US. 150, 226, n. 59 (1940) (price is the

“central nervous system” of our economy).

the Department is prevented as a matter of law from engaging in

“any activity” to alter the per se tule against vertical price fixing

including, for example, filing an amicus brief in cases such as the

present one.

14

Accordingly, the Court has distinguished between prac-

tices affecting prices only indirectly, such as vertical

territorial or customer restrictions which are judged under

the rule of reason, Continental T.V., Inc. v. GTE Syl-

vania, Inc., 433 U.S. 36 (1977), and direct agreements

on price which are subject to the per se rule.” As the

Court noted in GTE Sylvania, while overturning the rela-

tively recent application of the per se rule to non-price

vertical restrictions:

“As in Schwinn, we are concerned here only with

nonprice vertical restrictions. The per se illegality of

price restrictions has been established for many years

and involves significantly different questions of analy-

sis and policy. . . . [U]nlike nonprice restrictions,

‘{r]esale price maintenance is not only designed to,

but almost invariably does in fact, reduce price com-

petition not only among sellers of the affected pro-

duct, but quite as much between that product and

competing brands.’”

433 US. at 51, n. 18, quoting White Motor Co. v. United

States, 372 U.S. 253, 268 (1967) (Brennan, J., con-

curring).°

8. The per se ban on agreements between competitors (hori-

zontal agreements) allocating territories or customers has been

described as arising from the greater likelihood that such agreements

will have the same antitcompetitive effects as price fixing. See United

States v. Topco Associates, Inc., 405 U.S. 596, 608 (1972); ABA

Antitrust Section, Antitrust Law Developments (Second) (First Supp.

1983-86) 23.

9. The Court in GTE Sylvania also noted that industry-wide

resale price maintenance may facilitate cartelization. 433 U.S. at 51,

n.18. See Posner, Antitrust Policy and the Supreme Court: An

Analysis of the Restricted Distribution, Horizontal Merger and

Potential Competition Decisions, 75 Colum. L. Rev. 282, 294 (1975);

R. Posner, Antitrust: Cases, Economic Notes and Other Materials

134 (1974); E. Gellhorn, Antitrust Law and Economics 252 (1976);

Note, Vertical Territorial and Customer Restrictions in the Fran-

chising Industry, 10 Colum. J.L. & Soc. Prob. 497, 498, n.12.

15

Under a vertical price fixing scheme, dealers are pre-

vented from adjusting their prices to meet interbrand

price competition as well as to meet intrabrand price

competition.*® The invariable result is less price competi-

tion for consumers.

Empirical studies of vertical price fixing support this

Court’s conclusions in White Motor and GTE Sylvania.

For example, a 1970 survey by the Antitrust Division of

the Department of Justice of 78 different consumer goods

showed that in States where vertical price fixing was

illegal (non-“fair trade” States) consumers could pur-

chase more than half the items surveyed at prices lower

than in States where vertical price fixing was permitted.

Hearings on S. 408 before the Subcommittee on Anti-

trust and Monopoly of the Senate Judiciary Committee,

94th Cong., Ist Sess. 174 (1975) (“1975 Senate Fair

Trade Hearings”); ABA Antitrust Section, Monograph

No. 2, Vertical Restrictions Limiting Intrabrand Compe-

tition 79, n. 327 (1977) (“ABA Vertical Restrictions

Monograph No. 2”).’’ Higher prices for consumers are

10. The fact that, under vertical price fixing agreements, dis-

tributors cannot lower their prices in response to competition from

other brands represents a significant difference between such agree-

ments and vertical territorial or customer restrictions. Under vertical

territorial or customer restrictions there is no hindrance of interbrand

price competition since dealers remain free to lower their prices

in response to competition from a competing brand. Vertical price

fixing, on the other hand, necessarily eliminates such competition.

11. A 1956 Antitrust Division survey compared prices on 119

“fair traded” items (subject to vertical price fixing) in eight cities.

For all of the items surveyed, consumers in cities where vertical

price fixing was illegal paid on average 19% less than in “fair trade”

areas. 1975 Senate Fair Trade Hearings, supra, at 174.

Studies by the Justice Department indicate that vertical price

fixing practices permitted under the “fair trade” laws increased

prices of the affected goods by 18 to 27 percent. See S. Rep. No.

94-466, 94th Cong., Ist Sess., 1-3 (1975). Similar findings of supra-

competitive prices as a result of vertical price fixing have been re-

16

the result of protecting dealers from price competition

under vertical price fixing agreements:

“(T]hat ‘fair trading’ historically resulted from pres-

sure upon producers by retailers, and that it chiefly

benefits retailers by insulating them from price

competition, is generally accepted. . . . It is diffi-

cult to doubt that the ‘fair trade’ minimum prices

are high-margin prices, protecting the inefficient and

insuring a more than reasonable return. It would

seem that many distributors prosper as price cutters.

This could not be the case unless resale price main-

tenance provided high profit margins.”

Testimony ~f Assistant Attorney General, Thomas A.

Kauper, 1975 Senate Fair Trade Hearings, supra, at 174,

176.

Preventing dealers from initiating or responding to

competition at the retail level also results in decreased

price competition at the manufacturing level. Under ver-

tical price fixing agreements, the manufacturer is the sole

source of any price reductions for its product. However:

“As a general rule, the manufacturer will be less

likely to make frequent price cuts than individual

distributors because of the broader impact of the

manufacturer’s action.”

ABA Vertical Restrictions Monograph No. 2, supra, 82.

Vertical price fixing has been found not only to lead to

higher prices, but also to lower output, providing yet

ported by private studies as well. See, e.g., Resale Price Maintenance

96-97 (B.S. Yamey ed. 1966); Grether, Experience in California

with Fair Trade Legislation, 24 Cal. L. Rev. 640 (1936); Bowman,

The Prerequisites and Effects of Resale Price Maintenance, 22 U. Chi.

L. Rev. 825, 830-31, n.326 (1955); Cassady, Maintenance of Resale

Prices by Manufacturers, 53 Q.J. Econ. 454 (1939); and sources

cited in 1975 Fair Trade Hearings, supra, at 175, n.5.

17

another justification for per se treatment of such agree-

ments. A 1969 study by the Department of Justice

“suggests that sales volume per retail outlet is sys-

tematically lower under resale price maintenance.

The almost universal pattern developed in this study

was higher sales per store in cities or states without

resale price maintenance laws, a lower figure for

Stores in jurisdictions without the non-signer clause

in their ‘fair trade’ acts, and even lower sales figures

for stores in resale price maintenance jurisdictions

with a non-signer clause.”

1975 Senate Fair Trade Hearings, supra, at 176 (State-

ment of Assistant Attorney General Thomas A. Kauper).

See also id. at 51-52 (Statement of Thomas Gale Moore);

and see Lee, The Impact of Fair Trade Laws on Re-

tailing, 41 J. Retailing 210, 212-14 (1965).

The massive amount of empirical evidence condemning

vertical price fixing led Congress to endorse across-the-

board per se treatment to such agreements in the 1975

Consumer Goods Pricing Act. The same evidence equally

supports this Court’s continued application of the per se

rule to vertical price fixing agreements on the grounds

that they result in higher prices and lower output, in

addition to facilitating horizontal cartelization.

Cross-Petitioner Sharp has given this Court no ground

for reversing itself on the long-standing application of the

per se rule to vertical price fixing agreements. Sharp cites

several articles arguing that certain vertical price fixing

arrangements, in addition to their obvious and immediate

anticompetitive effects, may also have some procompetitive

effects under certain circumstances. Cross-Petition at 6-7.

Sharp, however, misunderstands the role of the per se rule.

18

As outlined recently by this Court in Arizona v. Maricopa

County Medical Society, 457 U.S. 330 (1982):

“The elaborate inquiry into the reasonableness of a

challenged business practice entails significant costs.

Litigation of the effect or purpose of a practice often

is extensive and complex. Judges often lack the ex-

pert understanding of industrial market structures

and behavior to determine with any confidence a

practice’s effect on competition. .. .

The costs of judging business practices under the

rule of reason, however, have been reduced by the

recognition of per se rules. . . . As in every rule of

general application, the match between the presumed

and the actual is imperfect. For the sake of business

certainty and litigation efficiency, we have tolerated

the invalidation of some agreements that a full

blown inquiry might have proved to be reasonable.”

457 U.S. at 343-44.

Thus, even if a particular business practice may, under

certain circumstances, have some procompetitive effects,

this would not be sufficient to make the per se rule inap-

plicable:

“Per se rules thus require the Court to make broad

generalizations about the social utility of particular

commercial practices. The probability that anticom-

petitive consequences will result from a practice and

the severity of those consequences must be balanced

against its procompetitive consequences. Cases that

do not fit the generalization may arise, but a per se

rule reflects the judgment that such cases are not

sufficiently common or important to justify the time

and expense necessary to identify them.”

Continental T.V., Inc. v. GTE Sylvania, Inc., 433 USS.

36, 50, n. 16.

19

The anticompetitive consequences of vertical price fixing

are so clear—the immediate extinguishing of intra- and

interbrand price competition generated at the retail level

—and any arguably procompetitive effects of such agree-

ments are so limited and speculative, that continued ap-

plication of the per se rule to vertical price fixing is

clearly warranted.**

A common problem in all vertical price fixing agree-

ments is that they seek to substitute the price judgment

of a single manufacturer for the competitive interplay

of market forces at the retail level:

“the solution of letting the manufacturer decide what

mix of product and service are desirable, instead of

letting the market decide that question, is incon-

sistent with our whole commitment to a competitive

process.”

Oversight Hearings of the Subcommittee on Monopolies

and Commercial Law, March 9, 1983 (Written Statement

of Dean Robert Pitofsky 12).

Vertical price fixing agreements have consistently been

condemned as per se illegal in light of the basic policy

of the Sherman Act “that the unrestrained interaction

12. As the Court noted in Maricopa County, supra:

“The aim and result of every price fixing agreement, if effective,

is the elimination of one form of competition.”

457 USS. at 345.

Sharp’s allusions to supposed procompetitive justifications for vertical

price fixing in certain situations are therefore beside the point. Since

it is the

“anticompetitive potential inherent in all price fixing agreements

[that] justifies their facial invalidation even if procompetitive

justifications are offered for some. Those claims of enhanced

competition are so unlikely to prove significant in any particular

case that we adhere to the rule of law that is justified in its

general application.”

457 US. at 351.

20

of competitive forces will yield the best allocation of

our economic resources, the lowest prices, the highest

quality and the greatest material progress”. Northern

Pac. Ry. v. United States, 356 U.S. 1, 4 (1958). Ac-

cordingly, any combination formed for the purpose or

effect of “raising, depressing, fixing, pegging, or stabiliz-

ing” prices is condemned as per se illegal under the

Sherman Act. United States v. Socony-Vacuum Oil Co.,

310 U.S. 150, 213 (1940). This Court has therefore

rejected all previous attempts by manufacturers to sub-

stitute their judgment as to an appropriate retail price

for the judgment of competition in the marketplace:

“[S]chemes to fix maximum prices, by substituting

the perhaps erroneous judgment of a seller for the

forces of the competitive market, may severely in-

trude upon the ability of buyers to compete and

survive in that market. Competition, even in a single

product, is not cast in a single mold.”

Albrecht v. Herald Co., 390 U.S. 145, 152-53 (1968).

See Arizona v. Maricopa County Medical Soc., 457 US.

332, 348 (1982) (“per se rule is grounded in faith in

price competition as a market force”); Kiefer-Stewart

Co. v. Joseph E. Seagram & Sons, Inc., 340 US. 211,

213 (1951) (vertical price fixing agreements “cripple the

freedom of traders and thereby restrain their ability to

sell in accordance with their own judgment”); and United

States v. Socony-Vacuum Oil Co., supra, 310 U.S. at 221-

22 (all schemes “directly interfering with the free play

of market forces” are beyond the pale of the Sherman

Act, which “protects that vital part of our economy

against any degree of interference”).

There simply can be no justification for requiring

elaborate economic inquiry into the effects of a practice

which immediately and conclusively eliminates price

21

competition by retailers, when weighed against uncertain

claims of limited, procompetitive effects under some cir-

cumstances that can possibly be made for such a practice.

3. Cross-Petitioner Sharp Engaged In Classic,

Naked Vertical Price Fixing Which Is Properly

Judged Under A Per Se Standard.

In its Cross-Petition Sharp argues that, when vertical

nonprice restrictions become intertwined with vertical

price fixing, the result is a series of “irreconcilable deci-

sions” and an antitrust jurisprudence which is incompre-

hensible to Sharp. Whatever may be Sharp’s opinion of

the state of antitrust jurisprudence, such considerations

are completely irrelevant to the case at bar. In this case,

there are no territorial or customer restrictions employed

by Sharp which could even arguably complicate a straight-

forward application of the per se rule to a naked vertical

price fixing agreement.

Similarly, Sharp’s assertion that the prices of elec-

tronic calculators (including its own) declined fol-

lowing BEC’s termination is beside the point. Cross-

Petition at 3-4. Sharp does not and cannot represent

what the price of its calculators would have been if BEC

had remained in the market free to compete. If past ex-

perience is a guide, BEC’s competition would have re-

sulted in even lower prices than those actually experienced.

This conclusion is reinforced by the fact that, following

BEC’s termination, the remaining Sharp dealer in the

territory increased its gross profit margin on Sharp cal-

culators from 33% in 1972 and 34% in 1973, to 43% in

1974 and 45% in 1975. Tr. 1156, 389-91. Compare testi-

mony of Assistant Attorney General, Thomas A. Kauper,

1975 Senate Fair Trade Hearings, supra, at 176 (“It is

difficult to doubt that ‘fair trade’ minimum prices are

22

high-margin prices, protecting the inefficient and insuring

a more than reasonable return.”)

This case presents a pristine application of the per se

rule against vertical minimum price fixing. Whatever

difficulties there may be in applying the per se rule

in other contexts, no such problems are presented by

this case, which involves the simple termination of

BEC pursuant to a price-fixing conspiracy between

Cross-Petitioner, Sharp, and one of Sharp’s other dealers.

See Monsanto, supra, 104 S. Ct. at 1473. This Court

should resist Sharp’s attempt to confuse the issues

by inviting the Court to address alleged problems which

are not presented by the facts of this case.

CONCLUSION

For the foregoing reasons, the Court should deny

Sharp’s Cross-Petition. This case is no occasion for

reexamining the continued validity of the per se rule

as applied to the unadorned vertical price fixing engaged

in by Sharp.

Signed this 24th day of July, 1986.

Respectfully submitted,

Gary V. MCGowan

H. Lee GopFREY

RICHARD B. DrRUBEL

Gary V. McGowan

SUSMAN, GODFREY & MCGOWAN

2400 Allied Bank Plaza

Houston, Texas 77002

(713) 651-9366

Attorneys for Cross-Respondent,

Business Electronics Corporation

23

CERTIFICATE OF SERVICE

This is to certify that on the 24th day of July, 1986,

three true and correct copies of the foregoing Brief in

Opposition to Cross-Petition for Writ of Certiorari to the

United States Court of Appeals for the Fifth Circuit by

Cross-Respondent, Business Electronics Corporation, were

served by airmail on counsel of record for Cross-Peti-

tioner, Peter J. Gartland, Wender, Murase & White, 400

Park Avenue, New York, New York 10022.

_ Lay Le

Gary V