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PITCHFORD SCI. INSTRUMENTS CORP. v. PEPI

July 13, 1977

PITCHFORD SCIENTIFIC INSTRUMENTS CORPORATION, Plaintiff,
v.
PEPI, INC., North American Philips Corporation, and Philips Electronic Instruments, Inc., Defendants



The opinion of the court was delivered by: DUMBAULD

 Following a lump sum verdict of $825,000 for plaintiff in an antitrust triple damage suit under 15 U.S.C. §§ 1 and 15, the Court of Appeals concluded that damage to plaintiff arising from price-fixing, exclusive dealing, and full-line forcing had not been sufficiently proved, and remanded for further proceedings to determine the "amount of damage in connection with the territoriality count." Pitchford v. Pepi, 531 F.2d 92, 111 (C.A.3, 1976). See also ibid., 101-105. The facts of the case are sufficiently stated in the thorough opinion of the Court of Appeals, and need not be repeated here, as we are now concerned only with a question of law: namely, whether the opinion and mandate of the Court of Appeals are consistent with, or conflict with, the subsequent decision of the Supreme Court in Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 97 S. Ct. 2549, 53 L. Ed. 2d 568, decided June 23, 1977. *fn1"

 Five days later, upon defendant's petition to recall the mandate and stay the retrial as to damages, the Court of Appeals denied the relief sought, holding that the District Court should make the initial determination with respect to the issue of inconsistency. The Court of Appeals said:

 
If in fact the mandate of this Court is in conflict with a subsequent decision of the Supreme Court, the rule announced by the Supreme Court, rather than the mandate of this Court, will be the appropriate rule and should be followed by the district court. The controlling effect of the mandate from a higher to a lower court is an application of the law of the case doctrine, and that doctrine yields to the authority of a source of law higher than that of the court which issued the mandate. See Banco Nacional de Cuba v. Sabbatino, 383 F.2d 166 (2d Cir. 1967), cert. denied, 390 U.S. 956, 88 S. Ct. 1038, 19 L. Ed. 2d 1151 (1968).

 Stated generally, the Continental T.V. case overruled U.S. v. Arnold, Schwinn & Co., 388 U.S. 365, 87 S. Ct. 1856, 18 L. Ed. 2d 1249 (1967), and reverted to the standards of White Motor Co. v. U.S., 372 U.S. 253, 83 S. Ct. 696, 9 L. Ed. 2d 738 (1963), where "the Court had refused to endorse a per se rule for vertical restrictions." [ 433 U.S. at 41, 97 S. Ct. at 2556]. The Court abandoned reliance upon the "witty diversities of the law of sales" *fn2" with respect to transfer of title as the criterion of whether to apply a per se rule, in favor of "demonstrable economic effect," with the result that both sale and non-sale transactions are to be judged under the "rule of reason" in case of non-price vertical restrictions. *fn3"

 One dangerous consequence of the decision is the possible impetus given to potential erosion of the per se ban on price-fixing. As Judge Browning pointed out in his cogent dissenting opinion: "Indeed, 'any argument that can be made on behalf of exclusive territories can also be made on behalf of resale price maintenance.'" 537 F.2d at 1019. And Mr. Justice White observes in his concurring opinion that "the economic arguments in favor of allowing vertical nonprice restraints generally apply to vertical price restraints as well." 433 U.S. at 42 and note 10, 97 S. Ct. at 2568, as well as note 18 of the majority opinion at 433 U.S. 36, 97 S. Ct. 2549, 53 L. Ed. 2d 568.

 Vertical restrictions may be understood as those imposed by agreement between a manufacturer and a distributor or dealer, where the parties occupy a different rank in the hierarchy of distribution. Horizontal restrictions may be understood as those imposed by agreement between parties of the same rank or level in the system of distribution.

 A priori one would have supposed that this was a factitious and unprofitable distinction; that if a contract or agreement between two parties operated to restrain trade it would not matter what position either of them occupied in the distribution system. However, the distinction is recognized as very important and controlling by the Supreme Court in the Continental T.V. case. One would also have supposed that the transfer of title test affords a simple and workable rule, based on the fundamental distinction between meum and tuum. One's power to do what he will with his own (see Mt. 20:15) would seem quite different from his power to do what he will with the property of someone else.

 Strangely, the Court does not cite at all two landmark cases, Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373, 31 S. Ct. 376, 55 L. Ed. 502 (1911), and U.S. v. General Electric Co., 272 U.S. 476, 47 S. Ct. 192, 71 L. Ed. 362 (1926), which are mentioned only in Mr. Justice White's concurring opinion. And Addyston Pipe,4 the fons et origo of the law on price-fixing, division of customers, and allocation of territory, is entirely overlooked in all the opinions.

 Hence it is probable that the Continental T.V. case will produce as much confusion and controversy as the Schwinn case which it superseded. *fn5" A full discussion of the subject, frequently cited in the Continental T.V. case, is contained in the American Bar Association Antitrust Section, Monograph No. 2, Vertical Restrictions Limiting Intrabrand Competition. It is likely that the long-continuing controversy on this topic which as there said (p. 98) "goes to the very heart of antitrust policy," will not be forever laid to rest by the impact of the Supreme Court's latest pronouncement.

 For present purposes, however, we must accept Continental T.V. as the dernier cri on the subject-matter involved, scrutinize carefully its scope, and see how it squares with the views of the Court of Appeals.

 Careful examination of the Supreme Court's Continental T.V. decision and the opinion of the Court of Appeals in the case at bar reveals no inconsistency or conflict which would warrant departure from the mandate of the latter court to proceed with trial of the issue of damages under the territoriality count. This conclusion is supported by a number of reasons:

 1. The T.V. case deals only with vertical restrictions. The Supreme Court opinion speaks of such restrictions passim. In note 18, for example, it is said: "As in Schwinn, we are concerned here only with nonprice vertical restrictions." In the last paragraph of the opinion the Court says: "In sum, we conclude that the appropriate decision is to return to the rule of reason that governed vertical restrictions prior to Schwinn." In note 28 the Court says: "There is no doubt that [horizontal] restrictions. . . would be illegal per se," citing cases.

 In the case at bar, however, the Court of Appeals found that the evidence established a horizontal restraint, which would be a violation per se without regard to the Schwinn rule. "In the present case . .. the record reveals an explicit agreement between PEI and each dealer to divide territories. Thus a horizontal restraint, a per se violation of the Sherman Act, could be found on this ...


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