John D. Park & Sons, Wholesaler
PARK CANCEL ON BATTLESHIP REVENUE
FREEDOM OF CONTRACT VS. MONOPOLY
John D. Park & Sons was a middleman in the drug industry. As a mid-west wholesaler located in Cincinnati, OH, it bought goods – mostly in the form of patent medicines – from national manufacturers and resold them to local retailers. Yet it holds an outsized place in the history of the pharmaceutical business in the United States because it waged a legal battle over approximately twenty years that permanently linked its name with the creation of a significant principle of American antitrust law that endured for almost one hundred years.
PARK CANCEL ON GOVERNMENT ISSUE REVENUE 1880c
After the Civil War, as business in America grew and thrived overall, such industries as oil, steel and sugar, which dealt in fungible goods, consolidated to the point where the linked corporate boards of the producing companies, referred to as an “interlocking trust directorate,” controlled, by means of a “horizontal” monopoly, the entire supply of that particular product available in the United States market. While admired for their efficiency in delivering commodities cheaply, quickly and uniformly, these trusts engendered public fear that industry monopolies would lead to unchecked and abusive retail prices. At the height of the Gilded Era, between 1890 and World War I, the trusts and their detractors fought a pitched battle to shape the continued growth and development of American business.
PARK POSTCARD TO CUSTOMER – 1877
Patent medicine manufacturers, wholesalers and retailers admired the efficiency and uniformity of the trusts and wished to emulate the trust structure within the pharmaceutical industry. However, because of the separate “patents” (meaning, in this case, secret and private formulae, rather than formally registered patents) for the manufacture of each medicine, the patent medicine business was not amenable to the same rigid domination as oil, steel or sugar. In 1876, drug wholesalers from eleven Midwestern states gathered in Indianapolis, IN to fashion a strategy which would allow them to maintain uniform resale prices across the industry in order that every member of the wholesale association, large or small, be able to compete on a level playing field. The organization that grew out of that meeting was called the Western Wholesale Druggists’ Association. In 1882, it changed its name to the National Wholesale Druggists’ Association (NWDA).
TRADE CARD FOR PRODUCT DISTRIBUTED BY PARK
Over years, the NWDA along with similar organizations of manufacturers and retailers, designed, developed, imposed and policed various contractual schemes to insure that all wholesalers followed the same rules in dealing with retailers. At first controlled by having manufacturers refund part of the wholesalers’ purchase price in the form of rebates after the wholesalers certified that the goods had been resold at the fixed resale price, these strategies ultimately evolved as far as to require manufacturers to individually mark and track goods package by package (or bottle by bottle, as it were). That these contractual plans had the additional benefit of ensuring maximum retail sales prices for the participants did not offend these manufacturers, wholesalers, retailers or their sponsoring organizations in the least.
PARK COVER TO A PATENT MEDICINE MANUFACTURER – 1889
The efforts by the NWDA, and the associations of manufacturers and retailers, can be viewed two different lights. On the one hand, most businessmen thought the NWDA and the other trade organizations were simply vindicating one of the oldest principles in commercial law: the legal doctrine of “freedom of contract” which holds that parties are free to sell only to those customers with whom they choose to do business and only upon such terms as they desire to set in the contract. They also believed that the inverse also held true: parties could not be forced to sell to those with whom they did not wish to conduct business nor could such sales be coerced upon terms that interfered with the sellers’ freedom to condition sales as they chose. In the Gilded Era, this doctrine, wielded both as an offensive and defensive weapon, seemed ingrained as deeply as capitalism is itself, and was always the first position argued in litigation. Moreover, businessmen regarded Park’s actions as ungentlemanly, rude and sharp business practice when it purchased goods from wholesalers and retailers who had made contractual promised to the manufacturer to resell the goods at the prices the manufacturer specified. In addition, because the nostrums were prepared from privately held formulae, the drug industry always asserted the additional claim that there was a legitimate element of secrecy in the manufacture of these concoctions that earned it an extra cloak of limitations, such as setting the price the wholesaler could supply retail customers. While patent medicines are now largely extinct, such claims of additional protection for items developed from specific processes, thoughts and ideas still exist and are now fought over in modern litigation under the rubric of “intellectual property” rights.
PARK PRICE LIST – APRIL 1892
Opposed to the notion of “freedom of contract” was an older common law doctrine, developed over hundreds of years, that a businessman could not unfairly manipulate the market to do deliberate injury to his competitors. Claiming such unfair market manipulation, the pleas of two constituencies opposed the trust defenders’ arguments of efficiency, speed, scale and uniformity (as buttressed by claims of special reward attaching to the generation of the underlying idea). First, there was the public outcry from those who had to truckle to the high prices set by the trusts for the goods that they manufactured, processed or even moved. For example, a particular sore spot was agrarian anger at the railroad trust over charges for carrying farm products to market. Second, and to a lesser degree, there were the complaints from the businesses squeezed out by the trusts, who decried the unfair methods of competition deployed against them to drive them under. These pleas, when combined with a general public skepticism of centralized economic power wielded by an elite class of “robber barons” routed in the old common law doctrine, became so constant and so poignant that they led to the passage of the Sherman Antitrust Law in 1890, which was intended to curb the worst abuses by limiting the monopoly power that any one company could wield within a single industry. Since, as noted above, the nostrum business operated differently from the big trusts, like oil, sugar and steel, it was not immediately apparent that the Sherman Act even applied to it. Park ultimately proved that it did.
PARK COVER TO ANOTHER WHOLESALER – 1894
Within the drug industry, the NWDA, through its restrictive contract systems, acted as the surrogate for the trust structure that other industries created. John Park & Sons emerged as the company that bucked these constrictive schemes by price-cutting and underselling its competitors. Park insisted upon its right to determine itself the price at which it re-sold goods purchased from the manufacturers. Because of Park’s stance, NWDA blacklisted Park by ordering its members not to sell goods to Park. No matter who initiated the litigation nor was actually named as the opposing party in the litigation, it was really the NWDA that Park was fighting. Park soon became a pariah within the drug trade, although it had begun in much the same way as other wholesalers had.
In fact, the firm of John D. Park & Sons had existed for nearly half a century before it began its struggle with the NWDA. Its founder was John D. Park, who was born in 1816 in the hamlet of Livingston Manor, Sullivan County, in the Catskill Region of New York State and spent his youth there farming and learning medicine. In 1841, he moved to Cincinnati and opened a retail drug store with Benjamin F. Sanford, another New Yorker, born in 1818 in the town of Camden, Oneida County, northwest of Rome, N.Y. To expand the scope of their business, Park and Sanford soon became the local agents for the eastern patent medicines they were selling.
SANFORD & PARK AD – 1842
One of Park’s patent medicines was Wistar’s Balsam of Cherry. In or around 1843, Sanford and Park apparently obtained the right both to manufacture and sell this nostrum west of the Allegheny Mountains from L. Williams & Co., a Philadelphia firm, which had purchased the formula for the medicine from Henry Wistar, a Virginia doctor, himself a scion of a famous glass and bottle making family. As was often the case with nostrums, Williams later dealt its remaining interest in the formula to another party, in this case one Isaac Butts, who, in turn, quickly sold it in 1845 to Seth W. Fowle (1812-1867), himself an ambitious Boston retail druggist with the same desire as Park to expand into the manufacturing and wholesaling business.
TRADECARD FOR WISTAR’S BALSAM OF CHERRY (SETH W. FOWLE)
Unlike Park, Fowle’s company issued its own private die proprietary stamp to pay the earlier tax on patent medicines imposed during and after the Civil War, and was therefore profiled by Holcombe, although the material mostly describes the Fowle stamp, and reveals little about Fowle himself. Also, unlike Park, Fowle concentrated heavily on Wistar’s Balsam of Cherry as its principal product.
SETH W. FOWLE PRIVATE DIE PROPRIETARY MEDICINE REVENUE STAMP
After the Mexican-American War, about 1850, the shape of the United States changed with the formal annexation of the western third of the country. Park and Fowle both continued to manufacture and market Wistar’s Balsam of Cherry, occasionally competing for the small volume of sales in the newly acquired territory. As later alleged by the Fowle company, in 1869, finally recognizing the potential for growth in the western region of the country (as well as Canada and Mexico), Fowle negotiated an agreement with Park which: 1) clearly defined Park’s territory as lying between the crests of the Alleghenies and the Rockies, Park’s former traditional central region of the country; 2) set a uniform minimum price per dozen for volume sales of the Wistar’s Balm of Cherry manufactured by either company; and 3) compensated Park for accepting these limitations. However, according to Fowle, Park continued to sell its Wistar Balsam both in New York City and on the West Coast as well as to undercut the agreed upon volume sale price to retailers. After doing a slow burn for years (as well as meticulously collecting evidence of Park’s clandestine sales), in 1886, Fowle sued Park in Cincinnati to enjoin its continuing encroachments on Fowle’s territory. Perhaps because of Park’s home town connections, the suit appears to have been summarily dismissed without a formal opinion. Just as strangely, Park submitted no argument and made no appearance when Fowle appealed the case to the Supreme Court, and that Court, noting both Park’s non-appearance and the lack of explanation by the lower court of its reasoning for the dismissal, in a decision, aptly titled Fowle v. Park, just as summarily reversed the lower court and, in 1889, entered judgment for Fowle.
PARK’S WISTAR BOTTLE
Fowle v. Park marked Park’s first major engagement in the courts. The dispute was of a fairly common variety in this period. Infringement claims often arose between manufacturers and wholesalers over territorial rights to market a product, or copying of medicine bottles or labels too closely. Perhaps because of the outcome of the case – which appears to have been a resounding defeat for it – Park both learned how to conduct business as an outsider in the industry and how to employ the grit and determination to stay the roughly twenty year course it took to ultimately prevail in the later dispute over resale price control, which, while only a subsidiary issue in Fowle v. Park, became the dominant matter in subsequent litigation.
FOWLE’S WISTAR BOTTLE
However, long before the battle concerning Wistar’s Balsam of Cherry concluded, Park had enlarged his scope of endeavors by cementing a formal alliance with an eastern drug wholesaler. After Sanford had dissolved his partnership with Park in 1850, Park went into business with the major New York City drug wholesaler Demas Barnes (1827-1888) . Through Barnes, Park also for a time was involved in a San Francisco partnership, called Park and White, with one Thomas White (1825-1902).
PARK & WHITE AD IN HONOLULU NEWSPAPER “THE POLYNESIAN” – 1861
As an aside, Barnes, whose business flourished in the 1850s and 60s before he left its active management to pursue careers in politics and publishing, was an adventurous entrepreneur who acquired a number of nostrums from earlier proprietors, and, like Fowle, exploited the advertising value of issuing his own private die proprietary stamps to pay the tax imposed during and after the Civil War. According to Holcombe, at its peak, Barnes’s business had subsidiary offices as well in San Francisco, Montreal and New Orleans. Later, he used his fortune to finance a variety of other companies whose stories in the Civil War period have been explored by Holcombe. In due course, these stories will be explicated and further enlarged in subsequent columns.
SELECTION OF PRIVATE DIE PROPRIETARY REVENUE STAMPS USED BY DEMAS BARNES
Through his partnership with Barnes, Park leveraged himself into a major position in the pharmaceutical industry, for Park, as recounted by Holcombe, had a hand in the direction and guidance of a number of other smaller firms in the industry: A. L. Scoville & Co., a wholesale druggist with offices in Cincinnati and New York City; S. N. Smith & Co., a wholesale druggist in Dayton, OH; the Lyon Mfg. Co. a drug manufacturer and wholesaler in New York City; and D. H. Seelye & Co. a manufacturer in Freeport, IL. With the sundry products manufactured and sold by these different companies, Wistar’s Balsam of Cherry became a much smaller part of Park’s focus. For his part, Park was able to channel patent medicines manufactured in the Midwest to Barnes and also supplied Ohio Catawba wine to Barnes for sale in his New York City drug depot.
SAMPLE OF PRIVATE DIE PROPRIETARY REVENUE STAMPS
OF OTHER COMPANIES ALLIED WITH BARNES & PARK
A. L. SCOVILLE & CO. AND DR. D. H. SEELYE & CO.
S. N. SMITH & CO. AND LYON MANUFACTURING CO.
Although Park seems to have officially ended his business partnership with Barnes in 1861 (and, according to one source, not particularly cordially, since Barnes advertised in 1862 that Park was selling a counterfeit version of another of his products) the web of connections with so many other manufacturers and suppliers which Park was able to form through the association with Demas Barnes in this era appear to have sustained the Park company throughout the years of fighting with the industry after its break with NWDA over retail pricing took place. Park was somehow always able to obtain sufficient goods through its connections with firms that operated in large cities, such as St. Louis, Chicago, and, in particular, New York City, where the market was so fluid that competition was always too keen for NWDA to effectively impose its price control schemes.
PARK AD – 1877
Over the years the Park firm endured ups and downs. In 1877, as it moved into new quarter in Cincinnati, it discontinued its retail trade entirely in order to concentrate totally on the wholesale pharmaceutical market. While that action also might have been taken in conjunction with a reorganization in bankruptcy (which drew an extremely rare mention of a Cincinnati firm in the New York Times), a trade magazine later implied that the 1877 move was the natural outcome of the continued growth of the wholesale business, and reported that when the Park firm incorporated in 1891, its stated capital was $2,000,000 which had only grown thereafter.
PARK AD – 1895
Park also developed the commercial model during this period which allowed it to differentiate its pricing from the others in the trade. The firm made no secret about how it was able to undersell its competitors. The usual method for wholesalers to solicit orders was to send their traveling salesmen to the retailers. Park simply employed no “travelers;” retailers mailed in their orders. The firm estimated it saved about six to eight percent of its overhead, which it gladly passed on to the retailers. To the rest of the industry, Park’s pricing method became known as “cutting.”
EXHIBITS TAKEN FROM PARK’S TWENTY YEAR DAMAGE LAWSUIT
NWDA MEMBERS REGRETFULLY COMPLYING WITH NWDA CUTOFF
THE BATTLE JOINED
When NWDA took as its mission the stamping out of “cutting” and “cutters,” it found it had its hands full with Park. In 1894, Park opened its attack on retail price control by suing NWDA and the four other wholesale drug firms in the Ohio Superior Court in Cincinnati claiming that they were all part of a “combination” formed “for the sole purpose of maintaining excessive rates and charges for certain proprietary articles or medicines throughout said United States,” and asking for an injunction both barring them from placing Park, and those companies which chose to do business with it, on a national “cut list” and from interfering with sales made to Park. However, when the case came on for hearing, NWDA’s lawyers argued simply that the defendants were exercising their freedom of contract. The court agreed and Park’s lawsuit was summarily dismissed.
MORE REFUSALS BY NWDA MEMBERS TO DEAL WITH PARK
A month after the failure of the Ohio state lawsuit, in September, 1894, John D. Park died at age 78. The dual nature of Park’s role both as an important western wholesaler and as an industrial provocateur is captured in the tribute paid to him after his death. Although the lawsuit remained on everyone’s mind and was discussed in his obituary, a special gathering of his colleagues in Cincinnati drafted memorial resolutions to send to his family and to “the principal trade papers” in the country.
TRADE MAGAZINE PUBLICATION OF JOHN D. PARK MEMORIAL RESOLUTIONS
Park had traversed the Nineteenth Century trajectory from rags to riches. He had amassed a fortune, a handsome city house and a country estate. Married in 1845, he was survived by seven of his ten children, five of whom were involved in the business. The mantle of leadership passed easily to his eldest son, Ambro R. Park. Ambro was born in 1849, joined his father’s firm right after graduation from Berea College in Kentucky, and was quoted as saying about the Ohio lawsuit: “All we want is our rights.”
GREATER PRESSURE APPLIED BY NWDA UPON MEMBERS – 1894
The firm continued its campaign to undermine the NWDA contract scheme. Its actions weighed heavily on the organization’s deliberations. In 1895, after a meeting of a special Proprietary Committee appointed at its annual meeting in New York in 1894, an NWDA representative “admitted” to a New York Times reporter that Park was “the only conspicuous backslider among 300 wholesalers and jobbers, and all measures of control and punition [sic] were aimed at that firm because its system is inimical to the interests of all. “
“EMBARRASSED” MANUFACTURER REJECTS PARK’S PURCHASE ATTEMPT
Ambro Park kept his father’s fight going next by filing two huge complaints in New York City. In the first suit, the Park firm again sued NWDA and other large wholesalers alleging they cooperated together through the NWDA to blacklist Park. The firm sought a court order to bar this practice. In second lawsuit, filed in 1897, Park did not name the NWDA but rather approximately twenty of the largest wholesalers and manufacturers in New York City, together with their partners individually, asking for the monetary damages it had suffered as a result of their joint action against it. Because of the complexity of the issues the suits raised, together with the sheer number of persons, business and specific transactions they touched upon, the complaints were complicated. While modern legal pleading style requires discrete and succinct statements of facts individually alleged, even in their more stylistically and linguistically convoluted times, these complaints were considered “voluminous.” The second complaint, occupying some 120 single spaced pages of a later appellate record volume, stretched to 378 discursive and prolix allegations, sought damages in the enormous amount of $500,000, and was accompanied by 156 exhibits, mostly letters received and compiled by Park from various companies specifically citing the NWDA blacklist as the reason for its declining to do business with it. The complaint in the first action was slightly larger and longer.
MORE NWDA MEMBER REJECTIONS OF PARK ORDERS
Considering the sheer bulk of these complaints, defendants first successfully moved to strike out parts of the both complaints as irrelevant and redundant. The trial court granted defendants’ motions, beginning a saga, not unlike Dickens’s Jarndyce v. Jarndyce in Bleak House, that continued for no less than 18 years, for Park immediately exercised its right to make an intermediate appeal of these rulings. Naturally, prosecution of an appeal touching upon the appropriate scope of the subject matter of the lawsuit necessitated delays in the actual prosecution of the claims made in the suit. The next year the reviewing courts required Park to restate its claims in fresh complaints in both suits, so Park was forced to begin again.
After several more years, the parties agreed to have the court hear the issue directly involving the NWDA first. Since the issue of stopping the blacklisting of Park, was considered a matter of equity, or a judgment the court could itself make by its study and application of the appropriate law, it made sense to determine this issue first. If the court found in Park’s favor, the issue of the monetary compensation due to Park for the injury, if any, considered a matter of common law damages requiring elaborate proof of facts, could properly be left for determination by a jury in the trial court after complete and final resolution of the equitable issues. If defendants won, the lawsuit would be over, or, at least, so the parties thought.
On the pure legal question of whether NWDA and its members could blacklist Park, all the defendants simply entered a legal “demurrer;” they took the legal position that the court could accept the facts as stated by Park, BUT EVEN IF [the BUT EVEN IF being the “demurrer”] the court accepted the facts as stated by Park, the court possessed no power under law to compel them to do business with Park. Relying essentially on the “freedom of contract” argument, they asserted simply that Park had pleaded no claim that the court could act upon to grant Park’s wish. In 1900, the trial court agreed and dismissed Park’s equitable claims. Park again appealed to the intermediate level court which affirmed the trial court’s decision.
In 1903, the Court of Appeals of the State of New York, New York’s highest court, affirmed the lower court’s rulings in NWDA case. The ruling was a split decision. Of the seven judges ruling, two judges entered two opinions upholding the NWDA’s rights, with which four judges in total agreed, and two judges entered two opinions upholding Park’s claims, with which three judges in total agreed. The principal opinion favoring the NWDA stressed the fairness of the NWDA’s plan of uniform distribution and profit protection for small wholesalers, as well as NWDA’s lack of coercion of Park, and applauded the NWDA for protecting the little distributors against predation by larger unscrupulous wholesalers like Park whose capacity for bulk purchases might force the smaller distributors out of business. The secondary opinion supporting NWDA stressed that the NWDA’s scheme did not directly impact the retail price of goods offered to the public because it was merely an agreement among manufacturers and wholesalers, and that because neither party to the suit was attempting to aid the public, no public interest was involved, thus depriving the court of the authority to intervene in one merchant’s rules about its sales to another merchant.
On the other hand, the principal dissenting opinion, holding that the NWDA’s plan effectively placed pricing of goods in the hands of the customers rather than the manufacturers, and pointing to the number of manufacturers and wholesalers who had previously dealt with Park who declined to sell to it only after the adoption of the NWDA’s pricing plans, found in such actions the requisite coercion of Park to constitute an improper attempt at monopoly sufficient to sustain Park’s charge of a boycott against it. The second dissenting opinion, agreeing with the first, sharpened the nub of the dissenters’ disagreement with the pro-NWDA judges by finding that the public was perniciously impacted by the requirement of resale at a fixed retail price placed on the those who endorsed the NWDA plan.
Even without the goad of the federal Sherman Act, the final vote of the New York court was a razor-thin 4-3 margin in support of the NWDA and against Park. However, only one dissenting judge articulated the growing trend of both legal and public opinion to focus upon the potential harm to the public inherent in fixing the ultimate price retailers might resell their goods to the public. While times were beginning to change, Park still had not prevailed and both New York State lawsuits should have ended at this point, but, by means of a legal manoeuver, Park’s attorneys managed to preserve the damage suit (the one not naming the NWDA) even though the Court of Appeals ruling in the injunction suit had cut off its legal rationale for proceeding.
A SECOND FRONT OPENED
THE PERUNA DRUG MANUFACTURING CO. COVER – 1901
For a time, though, other litigation came to dominate Park’s concerns. One of the hottest sellers of the first decade of the Twentieth Century was a beverage known as Peruna, classified as a “bitter,” but, in reality, so prized for its “medicinal effect” that many bars sold it in individual “doses” by the shot glass. Its manufacturer, the Peruna Drug Manufacturing Co. of Columbus, Ohio, owned by a figure named Samuel B. Hartman (1830-1918 – a character who, in due course, will receive his own column) governed Peruna’s distribution through its own individual contract system which resembled the NWDA’s because its terms pledged wholesalers who purchased from Hartman to sell only to retailers: 1) with whom Hartman specified had signed an agreement with Hartman to retail Peruna at the price Hartman had set; 2) who adhered to Hartman’s coded system for tracking its bottles; and 3) who reported their adherence to Hartman’s pricing schedule back to Hartman. Hartman alleged that Park was buying Peruna from some of its wholesalers or retailers, and sued Park to enjoin Park both from purchasing Peruna from such wholesalers or retailers and from attempting to induce such wholesalers or retailers to sell Peruna to it in breach of their agreements with Hartman.
SAMUEL B. HARTMAN
This time the litigation “shoe” ought to have been on the other foot. In the prior litigation, Park had tried to force others to do business with it, and the courts simply would not exercise their injunctive power to “mandate” (coerce) parties to enter into business transactions if one side was unwilling. The courts kept finding that “freedom of contract” allowed such resistant parties simply to decline to do business. In this lawsuit, however, Hartman was trying to have a court use its injunctive power to “enjoin” (prevent) Park from entering into contracts with parties that Hartman itself had alleged were willing to sell Peruna to Park. Since injunctions preventing defined acts judged to be improper are much easier to police and enforce than those directing or compelling some undefined form of proper conduct, the court was being asked to make a much more traditional kind of ruling and, in the area of business relations between parties, apply well-worn rules against unfair competition. Yet even against that background, the local federal district court had no trouble finding that Park was interfering in a most unsavory way with the appropriate contractual arrangements Miles had put in place. The “freedom of contract” rationale once again prevailed and Park had chalked up another litigation loss.
EARLIER HARTMAN REJECTION OF A PARK ORDER
Park appealed to the federal Circuit Court, the intermediate court between the district courts and the Supreme Court. In this forum, it received a more sympathetic hearing. This Court began its analysis from the perspective that age-old common law, tracking public suspicion against monopolies, acts to keep commerce unfettered and to prevent one business from gaining an unfair or improper advantage over its competitors. The Court measured Hartman’s complaint both against this old common law bias against monopolies and restraints of trade as well as the provisions of the new and still developing federal anti-trust law stemming from the Sherman Act of 1890. Having set a legal framework much more cordial to Park, the Court then centered its analysis on whether Hartman could assert some palpable legal grounds to use its contract system to trump the usual prohibition against monopolistic practices.
NWDA CIRCULAR LISTING COMPANIES THAT DO BUSINESS WITH PARK
AND DIRECTING ITS MEMBERS NOT TO SELL TO THEM
Hartman argued that its rights derived from the proprietary nature of Peruna’s medical formula, likening its secret nature to a patent or a trademark. In such patent or trademark cases, the government recognizes the uniqueness of the invention or marketing device by issuing to the person holding a patent or trademark an exclusive license – a monopoly – to condition its further use by others who make contracts to license the patent or trademark (often called grantees or licensees) as the grantor of the license wishes, in recognition of the effort expended by the grantor in devising the patented product or trademark. A part of the protection such a license carries is that the grantor also is permitted to place restrictive conditions upon its subsequent use by a sub-licensee or subsequent licensee who derives its rights from the original grantee or licensee.
JUDGE HORACE LURTON
In its decision, Hartman v. Park, the Circuit Court, speaking through Judge Horace Lurton, drew a distinction between the mere secrecy protecting the formula of a patent medicine and an actual patent or trademark, which is issued only after the unique or innovative nature of the object patented or trademarked is demonstrated. The Court held that the mere secret formula used by Hartman to prepare Peruna was not a patented and did not warrant the protection of a patent. In addition, the Court found there was a difference between a contract involving actual manufacture of the underlying formula, which might be enforced to the extent of preventing disclosure of that formula by a party contractually bound not to disclose, and the kind of sale of the already-bottled medicine involved in the present suit. By drawing that distinction, the Court could discuss and “distinguish” – avoid being bound by the reasoning of – both the earlier decision in Fowle v. Park, and the 1903 New York Court of Appeals Park opinions discussed above, saying that in the former the court had credited the assertion that the challenged contract involved the actual improper use of the formula by a contractually restricted party, and in the later, that Court believed that the NWDA’s contract system was bottomed on protection of patented or trademarked formulae.
NWDA MEMBERS’ LETTERS REFUSING TO SELL TO
COMPANIES ALLEGED TO DO BUSINESS WITH PARK
ORDER REFUSAL LETTER FROM HARTMAN TO CHICAGO COMPANY
ISSUED UNDER DIRECTION OF NWDA CIRCULAR
The Court then bowled over seriatim Hartman’s remaining arguments. It disposed of any separate trademark claim, since it found Park was not attempting to fool the consumer by insinuating a look-alike product in place of Hartman’s. As for any other potential contract claims, not only did it reiterate that Hartman had not even alleged any direct contract relationship with Park, it also disposed of other contractual relationships that Hartman attempted to allege. It found that Hartman could not claim that Park was interfering with his “agents,” since it found Hartman’s sales to its wholesalers to be completed transaction, and commented that Hartman was merely attempting to “juggle words” when it argued that the wholesalers or retailers were acting as Hartman’s agents. It also found that Park, as a buyer from parties who had purchased from Hartman, had assumed none of those parties’ contractual obligation to Hartman, even if Park were aware that those parties were not complying with the terms of their contracts with Hartman. The court noted that Park’s purchase transferred absolute title to the medicine to Park and that any obligations which had run between the seller and Hartman remained entirely with that seller.
Thus, using the common law tests concerning business relationships, the Court found that Hartman could assert no patent or trademark restrictions to block Park, could demonstrate no direct contractual relationship with Park, and could impute none of the limitations it imposed upon its contract-holders to Park. Moreover, the Court found that several other courts had begun to apply the Sherman Act prohibitions against monopoly to contract systems resembling Hartman’s. It ruled that Hartman was entitled to no relief. In March, 1907, Park had finally achieved its first legal victory.
THE TIDE CHANGES
Within two months after the Hartman decision, another significant case reached its conclusion as well. President Theodore Roosevelt had energized his Justice Department to seek out and prosecute Sherman Act violations. Among the industries it had sued was the pharmaceutical industry. As discussed previously in the article on the United States Pharmacal Co., the government prosecuted a single action against associations representing manufacturers, wholesalers and retailers in the United States District Court for Indiana sitting in Indianapolis, IN. The “Indianapolis Decree,” issued in May, 1907, required the scrapping of all of the proprietary medicine industry’s contract systems on the grounds that because two or more manufacturers, wholesalers or retailers, acting as “horizontal” classes, had joined together to sponsor them, they were “conspiracies in restraint of trade” as defined in the Sherman Act. Among the systems proscribed by the Indianapolis Decree was the NWDA’s scheme.
Now that the NWDA’s plan was officially dead, could Park collect for the damage it had suffered at the hands of the NWDA? There might yet be a chance. Notwithstanding the loss of the lawsuit against the NWDA in its New York lawsuit in 1903, Park had thereafter filed yet another amended complaint in its second New York lawsuit seeking damages against the individual defendants in the original 1897 litigation, apparently with the permission of defendants. Simultaneously, Park had filed an action in the federal district court of New York seeking the same injunctive relief under federal law, including the kind of injunctive relief it had just been denied by the New York state courts. Because the Hartman case and the government’s case in Indianapolis were both pursuing the same questions, the parties held both this new complaint in Park’s state damage action and the new federal injunction action in abeyance pending those rulings. Eventually Park also filed a damage suit in federal court as well to complement the injunctive relief it was seeking. Such federal Sherman Act damage suits had the additional bonus of permitting the injured party to ask that its damages be tripled as a penalty for the defendants’ violation. While also held in abeyance, Park’s damage claim was pleaded now at $2,000,000.
In 1909, Park filed two different motions in its dormant New York state lawsuit. First, it asked the New York State court to permit it file a new complaint embodying the facts of the favorable Hartman ruling and the favorable Indianapolis Decree into its original state lawsuit while upping its damage claim to $3,500,00. Although the trial court agreed with Park that the new circumstances were germane to the issue, the intermediate reviewing court disagreed and the parties returned again for a final ruling to the New York Court of Appeals. In another written opinion, that Court ruled that Park could not incorporate subsequent events into the original complaint. That litigation proved to be another costly, time-consuming paper blizzard leading to another defeat for Park.
Second, Park moved to conduct discovery – that is, it asked the trial court’s permission to formally collect the evidence it needed to prove its damage claims in the 1897 litigation by taking the testimony of defendants under oath, particularly those not readily available within the New York Court’s jurisdiction. Since the trial court believed that the current state of affairs, rather than the original circumstances, ought to govern the final outcome of the litigation, that court appeared inclined to allow Park to collect the accurate facts it needed to prove its damages. Because of the appeal of the other motion amending the complaint and the twisted history of rulings on that issue, the litigation surrounding this discovery motion seems yet again to have remained pending for a number of years.
DR. MILES MEDICAL CO. COVER – 1898
Even with the Hartman decision and the Indianapolis Decree now looming in its face, NWDA was not willing to concede the injunction issue and Park still faced challenges to the principle that manufacturers and wholesalers could not control the retail price of their goods when resold. After the Indianapolis Decree, another major manufacturer, the Dr. Miles Medical Co., promptly filed suit against Park under its own individual contract system. It contended that unlike the NWDA’s system, Miles was a single manufacturer acting by itself to protect its own business. As a single manufacturer, it argued that it simply set the price at which the goods would be sold at retail, that intermediate wholesalers and retailers were merely its agents and, therefore, it conspired with no one to fix any price Twenty years before it began marketing Alka-Seltzer, the name which carried its fame into the modern era, Miles was then selling as its principal product Nervine, an effervescent pre-cursor of Alka-Seltzer claimed to soothe nerves and headaches. Specifically because the suit was filed after the Indianapolis Decree, the industry hailed it as the vindication of the individual manufacturer’s right to impose its will upon retailers, and dismissed Hartman as an aberration.
JUSTICE CHARLES EVANS HUGHES IN 1911 AND AS HONORED BY THE U.S.
THE MILES V. PARK DECISION
The federal District Court and Circuit court (again speaking through Judge Lurton) quickly disabused the industry of its pipe dream that the old way could continue by adopting the reasoning of the Hartman decision. Still, it is the Supreme Court that has the final say as to what becomes the law of the land. At the very beginning of January, 1911, the Supreme Court (with the now appointed Supreme Court Justice Lurton not participating because it was his ruling being appealed) heard the parties’ arguments. Very much like the Hartman case, Miles required wholesalers and retailers who offered its product for sale to sign individual “agency” contracts pledging themselves to market to the public at pre-determined retail prices, and Miles similarly sought an injunction prohibiting Park from interfering with its contractual relationships with its wholesalers and retailers. Applying the reasoning of Hartman, the Court, this time speaking by Justice Charles Evans Hughes, found in April, 1911 that the transfers of the bottled medicine were completed sales rather than transitory placements with “agents,” were therefore properly classified as attempts to control the retail price of Peruna, and thus constituted a monopoly in restraint of trade. Rather than finding a traditional “horizontal”conspiracy in the concerted activity of multiple manufacturers, wholesalers or retailers acting together with each other to fix prices, in this case, the Court found for the first time that the conspiracy was “vertical,” encompassing not only the manufacturer but also the wholesalers and retailers. It judged these wholesalers and retailers not to be the manufacturer’s “agents” but rather separate entities who “conspired” with the manufacturer by signing the manufacturer’s contracts. Moreover, in the Miles case, the Supreme Court pronounced a hard and fast rule that any attempt by a producer or manufacturer to control the retail price of its product after that product was sold in commerce was “per se” – by itself – a violation of the federal anti-trust law. Such “per se” violations do not require the party alleging the violation to engage in a complicated economic analysis to demonstrate the existence of a monopoly in the market where the price of an article is being fixed; proof of the act of price-fixing by itself – per se – serves as proof of the violation.
JUSTICE OLIVER WENDELL HOLMES IN 1911 AND AS HONORED BY THE U.S.
No less a judge than Oliver Wendell Holmes, voiced a lone dissent in Miles, finding that wholesalers ought to be regarded as agents of the manufacturer and that retailers could be converted into such legal agents with a few changes in the contractual language. Stressing one last time the businessman’s freedom of contract (by now a minority notion) and claiming that an overemphasis was being placed upon price competition for items not necessities, Holmes found Park’s conduct in inducing breaches of the Miles system of contracts to be distasteful. He warned that the majority’s decision was “reached by extending a certain conception of public policy into the public sphere.” This new public policy, embodying Theodore Roosevelt’s crusade against conspiracies to control retail prices, remained the law of the land for nearly one hundred years.
With the law now firmly fixed in its favor, Park now finally attempted to set the trial of its New York damage case. In 1915, the New York Times reported that it had secured an order requiring Dr. William Jay Schieffelin (1866-1955), the chief of one of the most important drug wholesalers in New York City and himself head of the New York City Citizen’s Union, then, as now, a political watchdog organization supporting good municipal government, to give testimony about the manner in which the NWDA attempted to blacklist Park. Curiously, while the original complaint had named Schieffelin and his company as defendants, none of the exhibits attached to the original complaint had demonstrated wrongdoing by the Schieffelin firm. The Times summarized the history of the litigation in the following paragraph:
NEW YORK TIMES ARTICLE FROM 1915 AND DR WILLIAM JAY SCHIEFFELIN
Perhaps because of the potential embarrassment of having the chief advocate for good government forced to testify about a conspiracy of businessmen agreeing to block Park’s attempts to do business, thereafter, the historical record concerning that 1897 New York state damage litigation ends. Usually, such silence means that the parties had reached a voluntary accommodation of their differences. However, drug industry trade magazines reported in January 1916, that Park filed yet another Sherman Act case against the individual wholesalers and manufacturers in the New York federal court. This complaint seems to have been a single lucid restatement of all the damage claims Park had already filed in its earlier federal court action. Once set forth in a single manageable statement, the parties could address these claims seriously, and the same publication shortly thereafter reported that the case finally was settled when defendants paid Park $125,000 in the spring of 1916. Perhaps this amount was not a large monetary return for claims once alleged to be as much as $3,500,000, but Park had stayed the course and vindicated its position.
From beginning to end, John D. Park & Sons, acting through Ambro Park, was clear about its willingness to keep fighting against retail price-fixing and its goal to prohibit such practices. Park also was forced to fight in the legislative arena as well. In 1914, when Representative Raymond B. Stevens of New Hampshire introduced a bill to legalize retail price maintenance agreements, Park sent his attorneys to testify against the bill at Congressional hearings. They re-confirmed Park’s business model in testimony which led to the passage of the Clayton Act that refined and sharpened the Sherman Act. Thereafter, Representative Dan V. Stephens of Nebraska re-introduced the bill several times, ultimately to no avail, but Park was still railing against the Stephens bill and the legalization of price-fixing it permitted in 1916 even as he was discussing the favorable conclusion of his twenty year litigation.
Perhaps it was the 1919 ruling by the Supreme Court in U.S. v. Colgate & Co., which finally confirmed a manufacturer’s “freedom of contract” right simply not to deal at all with any wholesaler or retailer it chose to decline to do business with, that allowed the Miles v. Park ruling to endure for so long and put an end to the need for the Stephens bill which Park had decried. In Colgate, the government charged Colgate & Co. (which, like Fowle and Hartman, we will meet again at some future time in this column for a greater examination) with maintaining the same kind of contract scheme that Miles had outlawed. This Supreme Court skated around the holding in Miles by finding that Colgate executed no pieces of paper with its wholesalers or retailers actually binding them to charge a set retail price. The Court found that Colgate simply made widely known its policy that it would conclude no subsequent sales with any party who did not sell its goods to the public at the prices it wanted them retailed. The Court endorsed the finding of the lower court that: “The retailer, after buying, could, if he chose, give away his purchase at any price he saw fit, or not sell it at all, his course in these respects being affected only by the fact that he might by his action incur the displeasure of the manufacturer, who could refuse to make further sales to him, as he had the undoubted right to do.” So long as it exercised no legal hold on a subsequent seller’s price, a manufacturer could do as it pleased. If wholesalers and retailers felt the need to offer that particular manufacturer’s products, like the very popular Colgate brands, then they would have to bend to the manufacturer’s policy. If not, the manufacturer lost the sales. As long as the market itself governed the parties’ choices, the Court believed no party could be injured by its own voluntary choices.
Having created a loophole in the Miles rule against vertical price-fixing, the Court was content to let all parties – manufacturers, wholesalers and retailers – conduct business as they saw fit. Over the years, as parties bounced between the extremes of the Miles rule and the Colgate exception, as well as some federal and state legislation which, for a while, allowed some “retail price maintenance” under defined limited circumstances, a certain degree of confusion ensued in the state of the law, particularly as the Supreme Court gradually began to use a “rule of reason” test to determine whether other kinds of monopolistic practices violated the Sherman Act. Rather than simply declaring a particular class of practices per se illegal, the Court came to determine that most business practices ought better be judged in terms of whether they were “unreasonably” restrictive. Making such judgments often required a great deal of expert testimony as to what was the appropriate market a product was competing within and how much of a restraint the challenged rule placed on the parties’ ability to transact business within that market, but the Court came to believe that such evaluations yielded a more realistic economic picture of the circumstances the parties were really facing, and a keener judgment of whether parties were competing fairly with one another.
Finally, in 2007, the Supreme Court decided to take another look at the entire question of how vertical price controls should be evaluated in a case called Leegin v. PSKS. PSKS, a retailer, sued Leegin, a manufacturer of leather goods for women who refused to sell to it because it would not resell Leegin’s goods at the prices Leegin was insisting its other retailers maintain. At trial, Leegin tried to introduce expert economic evidence that its policy actually made its goods more valuable and competitive by creating an upscale retail environment that differentiated Leegin’s goods from those sold by discounters. The trial court refused to hear the expert evidence on the grounds that, applying Miles, it found Leegin’s policy concrete enough to constitute a per se violation of the Sherman Act. On appeal, the Circuit court agreed with the District Court, and Leegin appealed to the Supreme Court. While agonizing over a number arguments that supported retention of the per se rule (not least of which was its general rule about adhering to its own prior decisions known as stare decisis), the Supreme Court nevertheless determined that the Miles per se rule no longer served the business community well, that it was grounded in a rote application of old-fashioned, out-of-date economic assumptions, and that modern economic theory required the “rule of reason” approach to apply to vertical price-fixing situations just as it had come to apply to other Sherman Act violations. The lower court decisions were reversed, the case was sent back for further proceedings. The Miles per se rule was overruled and consigned to its place in history.
The Park company did not last as long as the law it made. It was a family business, and while Ambro Park, its strong voice, stood at the helm, it persevered. He died in 1925 at age 76, and by the close of 1934 all five of John D. Park’s children who had been involved in the business were dead. While there were Park children in the subsequent generations, none had the first-hand experience of the first two generations in running the company, and, moreover, the will of the last second generation survivor, John D.’s daughter, Susan R. Park, who had initially acted as company secretary and after 1930 had led the company, required that the company be disposed of within two years after her death in August, 1934. While early in 1935 there were preliminary negotiations for the company to be continued under the Park name after purchase by some unspecified eastern wholesalers, John D. Park & Sons was liquidated in September, 1935. By early 1937, its former company headquarters had been leveled and the materials sold as used building material. The Park name was gone from the pharmaceutical business, but lives on so long as “vertical price control” remains a subject of anti-trust law.
© Malcolm A. Goldstein 2017