D.C. Civil Action No. 68-171 APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA.
Van Dusen, Aldisert and Adams, Circuit Judges. Adams, Circuit Judge, dissenting.
This appeal from a judgment for the defendants entered upon a jury verdict in a private antitrust action calls for an examination of certain practices in the distribution and sale of comic books to determine whether they constituted per se violations of the antitrust laws. We find that no per se violations occurred, that the trial court committed no reversible error, and will affirm.
Appellant Williams, plaintiff in the action below, was a distributor of off-sale full-copy return comic books. An off-sale full-copy return comic book is a comic book which (1) was not purchased by the public and which is no longer current, either because a newer issue has been distributed, or because the period for its distribution has expired, and (2) has been returned back up the chain of distribution from the retailer to the wholesaler to the distributor to the publisher, without either the cover or any part of the contents of the comic book removed.
Independent News (Independent) was a national distributor of magazines and periodicals, including comic books. National Periodical Publications (National) was a publisher of magazines and periodicals, including comic books. During the period in question, Independent was a wholly-owned subsidiary of National, and was the exclusive distributor of comic books published by National. Magazine Management (Magazine) was the publisher of a line of comic books known as "Atlas" comics,*fn1 for which Independent was the exclusive distributor.
Williams was in the business of purchasing and reselling the off-sale full-copy return comic books of several publishers, including Magazine's Atlas comics. His sole source of supply for off-sale full-copy return Atlas comic books was one Israel Waldman, a middleman, who from 1959 to 1963 purchased off-sale full-copy return Atlas comics from Magazine and resold some of them to Williams. During this period, Williams, purchasing approximately 350,000 off-sale full-copy return Atlas comics from Waldman each month, distributed all of these comics to wholesalers who would sell to retailers for resale to the public at a fraction of the cost of a current cover comic book.*fn2
In 1957, prior to Williams' entry into the off-sale full-copy return comic book business, Independent contracted with Magazine for the exclusive distribution rights to Magazine's Atlas comics. Pursuant to that agreement, Magazine would deliver to Independent its most current issue of Atlas comics. Independent then distributed these comics to its regional wholesalers throughout the country. The wholesalers then distributed these current Atlas comics to retailers who sold them to the public.
About the same time that new Atlas comics arrived at the retail level, the retailers gathered together any previously distributed Atlas comics which had not been sold, and returned them, with covers and bodies intact, to Independent's wholesalers, who in turn shipped them to Magazine. These returns constituted Magazine's off-sale full-copy return Atlas comics.
After receiving these off-sale full-copy return comics, Magazine sold a portion for use overseas, and also sold some to Waldman, allegedly under the representation that Waldman would use the comics as "premiums."*fn3 As previously stated, however, Waldman sold a large quantity of these comics to Williams, who in turn placed them in the general sales market, and did not limit their use as "premiums." After Williams resold to wholesalers and retailers, these off-sale full-copy return Atlas comics competed at the retail level with current cover Atlas comics. When Independent's wholesalers and retailers complained they were losing sales of current cover comic books because of the competition with full-copy returns sold at a discount, Independent reminded Magazine that their contract provided for the distribution of Atlas comics to news dealers and wholesalers solely through Independent, and suggested that Magazine investigate the source of these returns. Specifically, Independent advised Magazine to police their off-sale full-copy return sales to Waldman by making certain he was using the comics as premiums. When Magazine learned that Waldman was not using them as premiums, but rather was reselling these issues for distribution in competition with its current cover comic books, Magazine terminated its sale of Atlas comics to Waldman. As a result, Waldman could no longer supply Williams.
On January 23, 1968, Williams commenced this private antitrust action against Independent and National under Section 16 of the Clayton Act, 15 U.S.C. § 26, for equitable relief, and under Section 4 of the Clayton Act, 15 U.S.C. § 15, to recover treble damages against the defendants for violation of Section 1 of the Sherman Act, 15 U.S.C. § 1. The district court granted a motion for a directed verdict with respect to National, finding insufficient evidence of a conspiracy involving National to submit the question to the jury. The court did submit to the jury, however, the question of Independent's participation in a conspiracy to terminate appellant's supply, and the question of the legality of Independent's contract with Magazine. The jury returned a general verdict in favor of Independent. The court 350 F. Supp. 159, denied Williams' motions for judgment n.o.v. or a new trial, and this appeal followed.*fn4
Distillation of appellant's numerous assignments of error yields two cognizable arguments:
(1) the agreement between Independent and Magazine for the exclusive distribution of Atlas comic books, and their conduct which eliminated Williams as a competitor, constituted a per se violation of Section 1 of the Sherman Act; and
(2) the trial court's instructions to the jury were erroneous, confusing and misleading, and the trial court committed several additional prejudicial errors.
In United States v. Arnold, Schwinn & Co., 388 U.S. 365, 379, 382, 18 L. Ed. 2d 1249, 87 S. Ct. 1856 (1967), the Supreme Court held that an agreement which permits a party to retain control over either the destiny or the conditions of resale of a product after parting with title, dominion and risk over it, is a per se violation of Section 1 of the Sherman Act:
Under the Sherman Act, it is unreasonable without 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. Such restraints are so obviously 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.
Once the manufacturer has parted with title and risk, he has parted with dominion over the product, and his effort thereafter to restrict territory or persons to whom the product may be transferred -- whether by explicit agreement or by silent combination or understanding with his vendee -- is a per se violation of § 1 of the Sherman Act.
See also United States v. Topco Associates, Inc., 405 U.S. 596, 31 L. Ed. 2d 515, 92 S. Ct. 1126 (1972).
The agreement between Magazine and Independent gave Independent the exclusive right to distribute all of Magazine's Atlas comic books. Williams does not attack this agreement insofar as it was limited to the exclusive right to distribute Magazine's current cover comic books. Rather, appellant argues that this contract was treated and understood by the parties to encompass Magazine's off-sale full-copy return Atlas comic books as well as current cover books, notwithstanding the fact that Independent never distributed Magazine's off-sale full-copy return Atlas comics. Thus, appellant continues, "the common understanding of the parties was that the agreement between Magazine Management and Independent prohibited Magazine Management from selling its off-sale full-copy return Atlas comic books without Independent's prior approval." Appellant concludes that because Independent never distributed off-sale full-copy return Atlas comic books, and because Independent was without title, dominion and risk of loss over these comics, it was a per se violation of Section 1 of the Sherman Act for Independent to control the destiny and conditions of resale of these comics.
We take as our starting the language of the contract between ...