This case presents a question as to the standard of proof required to find a vertical price-fixing conspiracy in violation of § 1 of the Sherman Act.
Petitioner Monsanto Co. manufactures chemical products, including agricultural herbicides. By the late 1960's, the
Spray-Rite was an authorized distributor of Monsanto herbicides from 1957 to 1968. In October 1967, Monsanto announced that it would appoint distributors for 1-year terms, and that it would renew distributorships according to several new criteria. Among the criteria were: (i) whether the distributor's primary activity was soliciting sales to retail dealers; (ii) whether the distributor employed trained salesmen capable of educating its customers on the technical aspects of Monsanto's herbicides; and (iii) whether the distributor could be expected "to exploit fully" the market in its geographical area of primary responsibility. Shortly thereafter, Monsanto also introduced a number of incentive programs,
In October 1968, Monsanto declined to renew Spray-Rite's distributorship. At that time, Spray-Rite was the 10th largest out of approximately 100 distributors of Monsanto's primary corn herbicide. Ninety percent of Spray-Rite's sales volume was devoted to herbicide sales, and 16% of its sales were of Monsanto products. After Monsanto's termination, Spray-Rite continued as a herbicide dealer until 1972. It was able to purchase some of Monsanto's products from other distributors, but not as much as it desired or as early in the season as it needed. Monsanto introduced a new corn herbicide in 1969. By 1972, its share of the corn herbicide market had increased to approximately 28%. Its share of the soybean herbicide market had grown to approximately 19%.
Spray-Rite brought this action under § 1 of the Sherman Act, 26 Stat. 209, as amended, 15 U. S. C. § 1. It alleged that Monsanto and some of its distributors conspired to fix the resale prices of Monsanto herbicides. Its complaint further alleged that Monsanto terminated Spray-Rite's distributorship, adopted compensation programs and shipping policies, and encouraged distributors to boycott Spray-Rite in furtherance of this conspiracy. Monsanto denied the allegations of conspiracy, and asserted that Spray-Rite's distributorship had been terminated because of its failure to hire trained salesmen and promote sales to dealers adequately.
The case was tried to a jury. The District Court instructed the jury that Monsanto's conduct was per se unlawful if it was in furtherance of a conspiracy to fix prices. In answers to special interrogatories, the jury found that (i) the termination of Spray-Rite was pursuant to a conspiracy between
The Court of Appeals for the Seventh Circuit affirmed. 684 F.2d 1226 (1982). It held that there was sufficient evidence to satisfy Spray-Rite's burden of proving a conspiracy to set resale prices. The court stated that "proof of termination following competitor complaints is sufficient to support an inference of concerted action." Id., at 1238.
In substance, the Court of Appeals held that an antitrust plaintiff can survive a motion for a directed verdict if it shows that a manufacturer terminated a price-cutting distributor in response to or following complaints by other distributors. This view brought the Seventh Circuit into direct conflict with a number of other Courts of Appeals.
This Court has drawn two important distinctions that are at the center of this and any other distributor-termination
The second important distinction in distributor-termination cases is that between concerted action to set prices and concerted action on nonprice restrictions. The former have been per se illegal since the early years of national antitrust enforcement. See Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373, 404-409 (1911). The latter are judged under the rule of reason, which requires a weighing of the relevant circumstances of a case to decide whether a restrictive practice constitutes an unreasonable restraint on competition. See Continental T. V., Inc. v. GTE Sylvania Inc., 433 U.S. 36 (1977).
Nevertheless, it is of considerable importance that independent action by the manufacturer, and concerted action on nonprice restrictions, be distinguished from price-fixing agreements, since under present law the latter are subject to per se treatment and treble damages. On a claim of concerted price fixing, the antitrust plaintiff must present evidence sufficient to carry its burden of proving that there was such an agreement. 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.
The flaw in the evidentiary standard adopted by the Court of Appeals in this case is that it disregards this danger. Permitting an agreement to be inferred merely from the existence of complaints, or even from the fact that termination came about "in response to" complaints, could deter or penalize perfectly legitimate conduct. As Monsanto points out, complaints about price cutters "are natural — and from the manufacturer's perspective, unavoidable — reactions by distributors to the activities of their rivals." Such complaints, particularly where the manufacturer has imposed a costly set of nonprice restrictions, "arise in the normal course of business and do not indicate illegal concerted action." Roesch, Inc. v. Star Cooler Corp., 671 F.2d 1168, 1172 (CA8 1982), on rehearing en banc, 712 F.2d 1235 (CA8 1983) (affirming District Court judgment by an equally divided court). Moreover, distributors are an important source of information for manufacturers. In order to assure an efficient distribution system, manufacturers and distributors constantly must co-ordinate their activities to assure that their product will
Thus, something more than evidence of complaints is needed. There must be evidence that tends to exclude the possibility that the manufacturer and nonterminated distributors were acting independently. As Judge Aldisert has written, the antitrust plaintiff should present direct or circumstantial evidence that reasonably tends to prove that the manufacturer and others "had a conscious commitment to a common scheme designed to achieve an unlawful objective." Edward J. Sweeney & Sons, supra, at 111; accord, H. L. Moore Drug Exchange v. Eli Lilly & Co., 662 F.2d 935, 941 (CA2 1981), cert. denied, 459 U.S. 880 (1982); cf. American Tobacco Co. v. United States, 328 U.S. 781, 810 (1946) (Circumstances must reveal "a unity of purpose or a common design and understanding, or a meeting of minds in an unlawful arrangement").
Applying this standard to the facts of this case, we believe there was sufficient evidence for the jury reasonably to have concluded that Monsanto and some of its distributors were parties to an "agreement" or "conspiracy" to maintain resale prices and terminate price cutters. In fact there was substantial direct evidence of agreements to maintain prices. There was testimony from a Monsanto district manager, for example, that Monsanto on at least two occasions in early 1969, about five months after Spray-Rite was terminated, approached price-cutting distributors and advised that if they did not maintain the suggested resale price, they would not receive adequate supplies of Monsanto's new corn herbicide. Tr. 1929-1934. When one of the distributors did not assent, this information was referred to the Monsanto regional office, and it complained to the distributor's parent company. There was evidence that the parent instructed its subsidiary to comply, and the distributor informed Monsanto that it would charge the suggested price. Id., at 1933-1934. Evidence of this kind plainly is relevant and persuasive as to a meeting of minds.
An arguably more ambiguous example is a newsletter from one of the distributors to his dealer-customers. The newsletter is dated October 1, 1968, just four weeks before Spray-Rite was terminated. It was written after a meeting between the author and several Monsanto officials, id., at 2564, 2571-2573, and discusses Monsanto's efforts to "ge[t] the `market place in order.' " App. A-65. The newsletter reviews
It is reasonable to interpret this newsletter as referring to an agreement or understanding that distributors and retailers would maintain prices, and Monsanto would not undercut those prices on the retail level and would terminate competitors who sold at prices below those of complying distributors; these were "the rules of the game."
If, as the courts below reasonably could have found, there was evidence of an agreement with one or more distributors to maintain prices, the remaining question is whether the termination of Spray-Rite was part of or pursuant to that agreement. It would be reasonable to find that it was, since it is necessary for competing distributors contemplating compliance with suggested prices to know that those who do not comply will be terminated. Moreover, there is some circumstantial evidence of such a link. Following the termination, there was a meeting between Spray-Rite's president and a Monsanto official. There was testimony that the first thing the official mentioned was the many complaints Monsanto had received about Spray-Rite's prices. Tr. 774, 1295.
We conclude that the Court of Appeals applied an incorrect standard to the evidence in this case. The correct standard is that there must be evidence that tends to exclude the possibility of independent action by the manufacturer and distributor. That is, there must be direct or circumstantial evidence that reasonably tends to prove that the manufacturer and others had a conscious commitment to a common scheme designed to achieve an unlawful objective. Under this standard, the evidence in this case created a jury issue as to whether Spray-Rite was terminated pursuant to a price-fixing conspiracy between Monsanto and its distributors.
It is so ordered.
JUSTICE BRENNAN, concurring.
As the Court notes, the Solicitor General has filed a brief in this Court for the United States as amicus curiae urging us to overrule the Court's decision in Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373 (1911). That decision has stood for 73 years, and Congress has certainly 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 longstanding interpretation of the Act. Because the Court adheres to that rule and, in my view, properly applies Dr. Miles to this case, I join the opinion and judgment of the Court.
"1. Was the decision by Monsanto not to offer a new contract to plaintiff for 1969 made by Monsanto pursuant to a conspiracy or combination with one or more of its distributors to fix, maintain or stabilize resale prices of Monsanto herbicides?
"2. Were the compensation programs and/or areas of primary responsibility, and/or shipping policy created by Monsanto pursuant to a conspiracy to fix, maintain or stabilize resale prices on Monsanto herbicides?
"3. Did Monsanto conspire or combine with one or more of its distributors so that one or more of those distributors would limit plaintiff's access to Monsanto herbicides after 1968?" 684 F.2d 1226, 1233 (CA7 1982).
The jury answered "Yes" to each of the interrogatories.
If this were what the Court of Appeals held, it would present an arguable conflict. We think, however, that Monsanto misreads the court's opinion. Read in context, the court's somewhat broad language fairly may be read to say that a plaintiff must prove, as well as allege, that the nonprice restrictions were in fact a part of a price conspiracy. Thus, later in its opinion the court notes that the District Court properly instructed the jury that "Monsanto's otherwise lawful compensation programs and shipping policies were per se unlawful if undertaken as part of an illegal scheme to fix prices." 684 F. 2d, at 1237 (emphasis added). The court cited White Motor Co. v. United States, 372 U.S. 253, 260 (1963), in which this Court wrote that restrictive practices ancillary to a price-fixing agreement would be restrained only if there was a finding that the two were sufficiently linked. And the Court of Appeals elsewhere noted the jury's finding that the nonprice practices here were "created by Monsanto pursuant to a conspiracy to fix . . . resale prices." 684 F. 2d, at 1233.
Monsanto does not dispute Spray-Rite's view that if the nonprice practices were proved to have been instituted as part of a price-fixing conspiracy, they would be subject to per se treatment. See Brief for Petitioner 23-27. Instead, Monsanto argues that there was insufficient evidence to support the jury's finding that the nonprice practices were "created by Monsanto pursuant to" a price-fixing conspiracy. Monsanto failed to make its sufficiency-of-the-evidence argument in the Court of Appeals with respect to this finding, see Brief for Defendant-Appellant Monsanto Co. in No. 80-2232 (CA7), pp. 27-34, and the court did not address the point. We therefore decline to reach it. See, e. g., Adickes v. S. H. Kress & Co., 398 U.S. 144, 147, n. 2 (1970); Duignan v. United States, 274 U.S. 195. 200 (1927).
In view of Monsanto's concession that a proper finding that nonprice practices were part of a price-fixing conspiracy would suffice to subject the entire conspiracy to per se treatment, Sylvania is not applicable to this case. In that case only a nonprice restriction was challenged. See 433 U. S., at 51, n. 18. Nothing in our decision today undercuts the holding of Sylvania that nonprice restrictions are to be judged under the rule of reason. In fact, the need to ensure the viability of Sylvania is an important consideration in our rejection of the Court of Appeals' standard of sufficiency of the evidence. See infra, at 763.
Certainly in this case we have no occasion to consider the merits of this argument. This case was tried on per se instructions to the jury. Neither party argued in the District Court that the rule of reason should apply to a vertical price-fixing conspiracy, nor raised the point on appeal. In fact, neither party before this Court presses the argument advanced by amici. We therefore decline to reach the question, and we decide the case in the context in which it was decided below and argued here.