Question

Submit a short paper (3-5 pages, essay form, double-spaced): What were the issues in the Monsanto Company v. Spray-Rite Service Corporation case? What was the significance of the Court's ruling in this case on channel practices?

Answer 1

answer-

In Monsanto Co. v. Spray-Rite Service Corp. (1984) 465 U.S. 752, a distributor of agricultural chemicals alleged that the manufacturer had terminated the distributorship pursuant to a resale price maintenance agreement with other distributors.

The jury found that the manufacturer had violated the Sherman Act, and the circuit court of appeals affirmed the judgment, holding that the manufacturer's termination of the distributorship in response to complaints from other distributors was sufficient evidence from which to infer a conspiracy to set resale prices. ( Monsanto, at pp. 757-759 104 S. Ct. at pp. 1467-1468.)

The Supreme Court rejected that analysis but affirmed the judgment based on a more rigorous standard of proof designed to distinguish "independent action by the manufacturer" from "price-fixing agreements." ( Id. at pp. 759, 763 104 S. Ct. at pp. 1468, 1470.)

The Monsanto court first distinguished between "concerted and independent action." (Monsanto, supra, 465 U.S. at p. 761 104 S. Ct. at p. 1469.)

It noted the statutory requirement of a " 'contract, combination . . . or conspiracy' " to establish a Sherman Act violation, and stated that the act therefore does not proscribe independent action. ( Monsanto, at p. 761, citing 15 U.S.C. § 1.)

It also distinguished between price and nonprice restrictions, noting that the former are per se illegal while the latter are judged under the rule of reason. ( Monsanto, at p. 761 104 S. Ct. at p. 1469.)

The Monsanto court stated that the distinctions between concerted and independent action and between price and nonprice restrictions are difficult to apply in practice, and acknowledged that the economic impact of both proscribed and permitted behavior in many cases may be the same and that the parties' conduct may be indistinguishable. (Monsanto, supra, 465 U.S. at p. 762 104 S. Ct. at p. 1470.)

It noted that a manufacturer and its distributors may have legitimate reasons to discuss resale prices and marketing strategy and to maintain reasonable nonprice restrictions that may affect resale prices. ( Id. at pp. 762-763, citing Continental T. V., Inc. v. GTE Sylvania Inc. (1977) 433 U.S. 36, 55.)

Nonprice restrictions affecting resale prices may help to ensure that retailers promote products and offer services, and may help to avoid " 'free riders.' " ( Monsanto, at pp. 762-763 104 S. Ct. at p. 1470; Sylvania, at p. 55.)

"Nevertheless," the Monsanto court stated, it is important to distinguish between independent action, "concerted action on nonprice restrictions," and "price-fixing agreements, since under present law the latter are subject to per se treatment and treble damages. . . ." If an inference of such an agreement may be drawn from highly ambiguous evidence, there is a considerable danger that the doctrines enunciated in Sylvania and Colgate will be seriously eroded. ( Monsanto, at p. 763 104 S. Ct. at p. 1470.)

The court concluded as a matter of law that to permit the inference of a price fixing agreement based solely on a manufacturer's termination of a distributorship in response to a complaint from another distributor would unduly inhibit legitimate conduct by manufacturers. (Monsanto, supra, 465 U.S. at pp. 763-764 & fn. 8 104 S. Ct. at pp. 1470-1471.)

It stated that there must be some other evidence showing that the manufacturer and distributors were not acting independently, but had achieved " 'a meeting of the minds' " or " 'a common scheme.' " ( Id. at p. 764 & fn. 9 104 S. Ct. at p. 1471.)

It stated that the fact that a distributor had conformed to a suggested retail price is insufficient to support an inference of an agreement to maintain resale prices without some other evidence, and that "evidence must be presented both that the distributor communicated its acquiescence or agreement, and that this was sought by the manufacturer." ( Id. at p. 764, fn. 9 104 S. Ct. at p. 1471.)

The court stated that evidence of a resale price maintenance agreement must "tend to exclude the possibility that the manufacturer and nonterminated distributors were acting independently" and must "reasonably tend to prove that the manufacturer and others had a conscious commitment to a common scheme designed to achieve an unlawful objective." (Monsanto, supra, 465 U.S. at pp. 764, 768.)

It concluded that in the case before it there was sufficient direct and circumstantial evidence of an agreement and sufficient evidence to show that the termination was pursuant to that agreement. ( Id. at pp. 765-767.)

The direct evidence of an agreement was that the manufacturer had notified price-cutting distributors that they would not receive adequate supplies if they did not maintain the suggested retail price and later instructed a noncompliant distributor to comply, and the distributor then informed the manufacturer that it would charge the suggested price. ( Id. at p. 765.)

There also was evidence that the manufacturer had sought an agreement from and threatened to cut off the distributor at a particularly vulnerable time "as a lever to force compliance." ( Id. at p. 765, fn. 10.)

The court also noted that a newsletter circulated by a distributor to his customers could be construed to refer to a price-fixing agreement among the distributors and the manufacturer. ( Id. at p. 766.)

The standard of proof articulated in Monsanto is based largely on the court's desire to protect the right of a manufacturer, under the Colgate doctrine, to announce resale prices and refuse to deal with dealers who do not comply, and the dealers' freedom to acquiesce in the manufacturer's demand in order to avoid termination. (Monsanto, supra, 465 U.S. at pp. 761, 763 104 S. Ct. at pp. 1469, 1470.)

Monsanto therefore reaffirms that principle and imposes a heightened standard of proof to establish an implied agreement on resale prices. (Accord, Matsushita Elec. Industrial Co. v. Zenith Radio (1986) 475 U.S. 574, 588 106 S. Ct. 1348, 1536-1537, 89 L. Ed. 2d 538.)

Thus, a manufacturer's announcement of a resale price policy and its refusal to deal with dealers who do not comply coupled with the dealers' voluntary acquiescence in the policy does not constitute an implied agreement or an unlawful combination as a matter of law. (Monsanto, supra, 465 U.S. at p. 761 104 S. Ct. at p. 1469).

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