Opinion
November Term, 1900.
Henry T. Fay, for the appellant.
Henry Galbraith Ward, for the respondents.
The plaintiff is a foreign corporation engaged in the business of selling drugs and medicines, and especially proprietary articles so called, and has been thus engaged for a long time. The defendants are wholesale dealers in articles of the same kind, or are manufacturers of such articles. The complaint alleges that, before 1881, manufacturers of these goods had been accustomed to sell them through agents direct to the retailers, giving to each agent commissions on his sales, and charging each buyer such prices and selling to him on such terms as they saw fit. The goods were sold to wholesale dealers in the same way. The result of that manner of dealing, as set up in the complaint, was that the wholesale dealers in these articles were unable to make a living profit in the business, and they set about to devise a plan by which the prices of proprietary articles should be fixed and the wholesale dealers obtain a fair profit from dealing in them. The Wholesale Druggists' Association, which had the matter in charge, is composed of wholesale druggists who are active members and have control of the association, and manufacturers of proprietary articles who are associate members but have no voice or vote in the association. To carry out the plans of the dealers, it was proposed that the manufacturers should agree to sell their goods to the wholesale dealers at fixed prices, charging one dealer no more than another, and making no allowance to any of them which would enable the one favored to obtain goods indirectly at less than the price fixed, but requiring of every dealer that he upon his part would not sell to retail dealers or any one else at less than the proprietor's list prices, and upon the giving of such a contract the manufacturer would allow to the wholesaler a discount of ten per cent on the price charged him, which discount was to be the same to all buying the manufacturer's goods, and should be the sole profit to be made by the wholesale dealer from his dealing in those articles. It is alleged in the complaint that two-thirds of the wholesale dealers in these goods in the United States, representing ninety per cent of the whole business in such articles, acceded to this proposition, but that the plaintiff refuses so to do.
It is further alleged that the Wholesale Druggists' Association "compelled" the manufacturers to adopt this system and that in consequence of such compulsion the manufacturers agreed to make sales in the way prescribed by the plan and to allow the discount only to those wholesale dealers who accepted the plan and refused to sell to any one who did not so agree. It is further alleged that, for the purpose of injuring the plaintiff's business and to compel it either to accede to this plan or to prevent it from obtaining goods wherewith to supply its customers, steps were taken to find out what dealers supplied the plaintiff and such dealers when ascertained were placed upon "cut-off" lists. Those lists were sent to the various manufacturers so that they should not sell to the persons named in them, thereby making it impossible for the plaintiff to obtain the goods to carry on its business. These general allegations of the complaint are repeated over many pages, but the foregoing states substantially the cause of action relied upon by the plaintiff, except that the allegations stating the injury done the plaintiff's business and the damage accruing to it thereby are not here set out in detail.
The relief sought is that the contracts and agreements set out in the complaint may be declared illegal; that the Wholesale Druggists' Association and its members may be restrained from making any effort to induce manufacturers to adopt or use the scheme for the sale of their goods, or from making any effort to induce those who have adopted it to continue in use that plan, or to limit their sale of goods in accordance with it, or to do any act to carry it into effect, or from refusing to sell their goods to the plaintiff; and it also demands that the manufacturers be restrained from using or adopting the plan or taking any action under it.
The defendants who have appeared demur to the complaint upon several grounds going not only to the jurisdiction of the court but to the sufficiency of the cause of action. In the view we have taken of the case, however, we have only examined the complaint to discover whether it sets up a cause of action sufficient to enable the plaintiff to obtain equitable relief, and the question of the jurisdiction of the court over the defendants who are non-residents or foreign corporations has not been considered.
The injury to the plaintiff arises from the fact that the manufacturers of patent medicines have agreed together to fix the prices of their goods and the conditions under which they are willing to sell them. Except for this agreement it is quite clear that the plaintiff would have no reason to complain. It is not alleged that the manufacturers refuse to sell to the plaintiff if it will comply with the rules which they have established for dealing in their wares, but the gravamen of the complaint is that the manufacturers refuse to deal with the plaintiff except upon such terms and conditions as they have established; and the question arises in the first place, therefore, whether the manufacturers of goods of this description have the right to fix the prices at which they will sell their goods and the terms which they require of the different buyers as a condition of permitting them to purchase the goods which they have for sale.
In the examination of this question it is not to be forgotten that the articles sold are not necessities of life as to which public policy might restrain a combination to fix an exorbitant price, nor have the manufacturers combined to establish a price for any particular article, but each manufacturer fixes his own price for the goods which he makes, and the agreement is simply to require the dealers to whom he sells to supply their customers at the price which the manufacturer has fixed for his own goods. It is not a combination of manufacturers to fix and establish prices, but an agreement as to the terms upon which goods of the same general character, but of different kinds, shall be sold and to insure their sale at the price which the manufacturer of each kind sees fit to put upon the goods which he makes. It cannot be denied that each manufacturer has the right to refuse to sell to any one if he sees fit. If he chooses to make his goods and sell them he has the right to fix any price he chooses upon them. Not only so, but he has the right to select his own customers. He may agree to dispose of all his goods to one person or he may be willing to supply the whole trade except one person, and whatever he chooses to do is a matter with which the law has no concern, because the goods are his to be kept or sold as he pleases. So he may not only fix his own price, but he may impose such terms as he sees fit, or can exact from his customers. These matters are absolutely within his own control. If each manufacturer is at liberty thus to control the sale of his goods, undoubtedly all may, if they see fit, agree together to enforce conditions which each one seeks to impose upon the dealing with the article which he makes. The action of each manufacturer in fixing prices and imposing conditions of sale is undoubtedly legal. Having fixed the prices and the terms of sale, they combine for the purpose of enforcing their contracts. As the end to be accomplished is legal, and they do not propose to take any step in carrying it into effect which each might not properly take if he was working for himself, no right of action can arise to any one as a result of their combination. That the manufacturers have this right is a necessary deduction from the cases, in support of which the following may be cited: Walsh v. Dwight ( 40 App. Div. 513); Lough v. Outerbridge ( 143 N.Y. 271); Continental Ins. Co. v. Board of Fire Underwriters of The Pacific (67 Fed. Rep. 310); Anderson v. United States ( 171 U.S. 604); Mogul Steamship Co. v. M'Gregor, Gow Co. (15 Q.B. Div. 476; affd., L.R. [1892 App. Cas.] 25). Indeed, some of these cases go to the extent of holding that a combination to keep up prices which has for its express object the destruction of the business of a competitor is not unlawful at common law, but it is not necessary here to consider whether the law does benefit such a combination.
We do not understand that the right of the manufacturers, having fixed their prices, to agree together for the purpose of imposing terms and conditions upon which they shall sell their goods, is disputed by the appellant, and in what was said in that regard we concur with the opinion of the learned justice at the Special Term. But it is said that such is not the cause of action presented by the complaint. The plaintiff claims that its real grievance arises not from the agreement of the manufacturers solely, but because of the fact that the members of the Wholesale Druggists' Association, who are competitors of the plaintiff, have combined together for the purpose of compelling the manufacturers to adopt a particular agreement, which, if enforced, will take away its business; and so while it is aggrieved by the acts of the manufacturers yet the moving cause is the compulsion of the members of the association, because of which the manufacturers have agreed to do a thing which they would not have done in the absence of that compulsion.
The following is the opinion of the justice at Special Term:
RUSSELL, J.:
The demurrer to the complaint fairly presents the legal questions at issue, for the events are fully narrated which form the statement of facts on which the plaintiff relies to justify the charge that the defendants have conspired to seriously impair the plaintiff's business and destroy its power to purchase and sell proprietary drugs and medicines and are proceeding in the execution of their conspiracy. The plaintiff is a corporation doing business at Cincinnati, succeeding a partnership composed mainly of those now interested in the corporation, and has with its predecessor for many years conducted a wholesale business in drugs and medicines both of the proprietary and free lots, and here seeks injunctive relief.
The defendants, 125 in number, variously carry on separate business from New England to California as manufacturers, jobbers or wholesalers of proprietary drugs and medicines in part, and are united by the common tie of the association called the National Wholesale Druggists' Association, which is an unincorporated company existing only by the voluntary union of the manufacturers, jobbers and wholesalers for the common action and benefit of all its members.
The grievance of the plaintiff consists in its inability to directly buy so that it can sell those proprietary goods which are manufactured by some of the defendants from recipes owned by those defendants, possibly protected by trade marks, and which are commonly called patent medicines. Its custom is seriously impaired as a natural consequence by the inability to supply customers with the entire range of patent medicines as well as free drugs. And it is quite apparent that, if the rules of the association are effective to protect its own members, they are also effective to prevent the freedom of the plaintiff to purchase and sell such articles.
The inability of this plaintiff to compete is primarily due to its own volition. No charge is made of a refusal to sell goods under the same conditions as freely to it as to any one. The charge is that the plaintiff must conform to the rules of the association on the same basis as all seeking membership, or be an outcast in the commerce of these particular goods. No especial discrimination is made against the plaintiff not common or incidental to all without the pale, unless it may be that the vigorous efforts of plaintiff to break up the solidity of the association have induced precautionary measures by the latter which have individualized it as an example, but which measures might have been taken against any in similar case.
It is, therefore, necessary to consider how far the owners of patent medicines, which no one else may make and sell in the combination or form devised by the owners, can guard their own powers of sale by limitations which are so far lawful as not to expose them to the charge of illegal restraint of trade, whether or not those limitations can be enforced as valid executory agreements between the different manufacturers, or between them, the jobbers and wholesalers. It is not quite material whether these defendants have a contract binding between themselves if a united action on their part from common understanding and concerted effort works unlawful harm to the plaintiff. But it is equally clear that they do not have to plead an enforcible contract to protect themselves from the charge of wrong to one not claiming any rights or privileges from the contract, or the rights on which it is based.
This contract of the members provided that none would sell their proprietary articles, or allow the ten per cent commission and freight charges, to any one who would not conform to the rules, nor would they undercut the price fixed by the manufacturer owner. Is this a reasonable restriction upon the sale of the inventor's production, or is it in unlawful restraint of trade? Is the agreement of several vicious while the refusal of one to sell would be justifiable? Shall the united action through each separate interest protecting itself be unlawful if designed solely for protection and not for punishment? Is not the necessity of combination evident if the individual may control the price for which his article is to be sold? Will not in such case combination result in a larger and more unrestricted sale to the public than isolated action?
Of course, all depends upon the right of the inventive manufacturer to utilize in some way the benefits of his own originative skill. I understand this right to be conceded; but it is apparent. He can refrain from selling below a given price in the honest or mistaken belief of the value to the public. He may lawfully insist that his purchaser shall not cheapen the product by selling below a stated rate. He cannot prevent that purchaser from passing a good title to another for nothing, but he can close the door on that purchaser's procuring from his manufactory his product after violation of a fair agreement. With this power of protection he may use reasonable means to enforce it. He may join with others in similar need to accomplish by concerted action that which would be too burdensome, expensive or impracticable to achieve alone, and without which concert his power to fix the price of his own product would be barren of good result. To do this reciprocity of action is essential. If another agrees to share the expenses of detecting violations of faith in his purchasers, he must reciprocate. Any reciprocal agreement would be ineffective if the one could freely sell his own product to the breaker of faith with the other. Reciprocity of action rightfully used tends to promote and enlarge the sphere of trade; and every presumption favors such a design where the benefits to the manufacturer increase with the extension of the market.
These defendants are not dealing in the prime necessities of life, like food, fuel or clothing. They may use the simples of nature which are free to all, and which may not be impounded by any form of monopoly endeavor. But the compounds, when protected by secrecy of manufacture or trade mark associations, are inventions valuable to the combiner if the public, critical or credulous, believes in the utility of the product. These products, however, are not necessaries of existence. Hair restorers and liver pills may be deemed efficacious by those who use them, but the combinations of ingredients in the particular forms adopted by the remedy discoverer are not yet recognized as staples of health, or even commerce, and the earnest seeker for them must yet buy them under the reasonable requirements of the inventor, and cannot demand the sale under the freedom of competitive offerings.
With the care which should always be used in referring to judicial opinions when the mind is concentrated upon the application of general rules to particular facts — a care needed especially in the analysis of contracts limiting the power of free-trading, because the lines of legal interference are not plainly marked as yet — we may note briefly some pertinent cases, digesting the principles applied.
In Walsh v. Dwight ( 40 App. Div. 513) it was decided that an agreement to sell at a certain price the manufacturer's soda and other similar goods was not unlawful. Our Court of Appeals decided in Lough v. Outerbridge ( 143 N.Y. 271) that a common carrier might give privileged rates to some and refuse others. The Supreme Court of the United States held in Anderson v. United States ( 171 U.S. 604) that an exchange association had the reasonable privilege to adopt resolutions restricting the persons with whom sales or purchases might be made and contracts and rates of employment effected. A combination of insurance companies excluding business intercourse with non-members is not illegal. ( Continental Insurance Company v. Board of Fire Underwriters, 67 Fed. Rep. 310, McKENNA, C.J.) But a restriction of general freedom to pursue a lawful calling unless a person becomes a member of an association is unlawful. ( Curran v. Galen, 152 N.Y. 33.) And agreements to control price and destroy competition in necessities like food or fuel are lawful. ( Judd v. Harrington, 139 N.Y. 105; People v. Sheldon, Id. 251; People v. Milk Exchange, 145 id. 267.)
The sacred right of the toiler to earn the means of subsistence for himself and dependents is and always will be recognized; the freedom of competitive purchase of the necessaries of life will be maintained; trade and commerce will not be shackled by monopolies designed to extort unnatural prices; but inventive skill, even though applied to medicinal compounds, may yet have protection from outlawry if the inventor reasonably uses his property rights and does not trespass into another's privileges.
I do not find from the complaint the use of unlawful means to execute the lawful agreement. No instance is stated of any watching which interferes with plaintiff's proper business. The committee of the association may not have judicial powers, but any agent may act for an unwieldy association if such action is within the lines of the rules, and no specific deviation prejudicial to plaintiff is averred.
Nor does plaintiff set forth his occasional conformity to the rules of the association as a cause for a rightful demand of the benefits of participation in the privileges of that body. These isolated instances are rather stated by way of confession and avoidance. Plaintiff plants itself firmly on the illegality of the agreement and combination, repudiating their lawfulness and seeking their destruction.
Nor do I deem the privilege of amendment useful. Three years of litigation in this action have presented the original complaint to the scrutiny of counsel and court; the amended complaint states fully the facts relied on, and, as counsel for both sides seem to believe, this case may well be decided upon the facts as stated by plaintiff in its complaint.
Judgment for defendants sustaining demurrer, with costs.
It is said that such was the cause of action recognized by this court when the case was here before on the appeal from the order striking out certain provisions of the complaint as irrelevant and redundant. It is quite true that in the opinion then given by the court it was recognized that such a cause of action was sought to be set up, but it was not said that the facts thus set up gave to the plaintiff a right to the relief demanded. No such question was presented. The only question the court was then called upon to decide was whether certain allegations in the complaint were redundant or irrelevant to the cause of action which the plaintiff sought to set out. To decide that question it was necessary to consider what the cause of action was in order to determine whether the allegations bore upon it or not. The court, therefore, accepted at that time the plaintiff's statement as to what the cause of action was which it sought to present and examined each allegation with reference to that claim of the plaintiff only, but in reaching a decision in that case the court was not called upon to consider anything more than the pertinence of each allegation in view of the claim made by the plaintiff; and although the court said that the cause of action set up in the complaint was substantially what the plaintiff now claims, yet it did not say, and could not have said, that the facts were sufficient to establish that cause of action. ( Park Sons Co. v. National Druggists' Assn., 30 App. Div. 508.)
There is no suggestion in the complaint that the manufacturers having been compelled to take these steps, are not willing to continue this mode of transacting business. They certainly have not complained of it so far as appears, and if they do not complain of it and are doing only a thing which the law permits them to do, it is difficult to see why a third party who has no real grievance except that he is not willing to buy goods upon their terms, should be permitted to come in and interfere with them.
We have examined the cases cited by the appellant to establish its contention and we do not see that any of them contravene the principles laid down above. The case of Curran v. Galen ( 2 Misc. Rep. 553; 77 Hun, 610; 152 N.Y. 33) does not sustain the plaintiff's contention. In that case it appeared that the plaintiff had a valid contract for work with the brewer who discharged him at the demand of the defendant, and it is very clear that the plaintiff was thereby damaged because although he may not have had an enforcible contract with the brewer, yet the evidence showed that his employer was willing to keep him and would have kept him but for the act of the defendant in insisting upon his discharge, but in this case the plaintiff has no contract with any of the manufacturers nor are they willing to give it one except upon certain terms with which it refuses to comply. There is no sort of a parallel between the cases.
We cannot find from an examination of the complaint that any facts are alleged warranting the charge that the defendants are engaged in watching the plaintiff's business or have been guilty of anything like spying or picketing which calls for the interference of the court. Upon the whole case we do not see that the plaintiff has established any right to an injunction because of any of the facts alleged in the complaint.
The judgment must, therefore, be affirmed, with costs to the respondents.
VAN BRUNT, P.J., PATTERSON, O'BRIEN and McLAUGHLIN, JJ., concurred.
Judgment affirmed, with costs.