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CATALANO, INC., ET AL. v. TARGET SALES, INC., ET AL.
ON PETITION FOR WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT.
Decided May 27, 1980.
An alleged agreement among respondent wholesalers to eliminate short-term trade credit formerly granted to beer retailers and to require the retailers to make payment in cash, either in advance or upon delivery, is plainly anticompetitive as being tantamount to an agreement to eliminate discounts, and thus falls squarely within the traditional antitrust rule of per se illegality of price fixing, without further examination under the rule of reason.
Certiorari granted; 605 F.2d 1097, reversed and remanded.
Petitioners, a conditionally certified class of beer retailers in the Fresno, Cal., area, brought suit against respondent wholesalers alleging that they had conspired to eliminate short-term trade credit formerly granted on beer purchases in violation of 1. of the Sherman Act, ch. 647, 26 Stat. 209, as amended, 15 U.S.C. 1. The District Court entered an interlocutory order, which among other things, denied petitioners' "motion to declare this a case of per se illegality," and then certified to the United States Court of Appeals for the Ninth Circuit, pursuant to 28 U.S.C. 1292 (b), 1 the [446 U.S. 643, 644] question whether the alleged agreement among competitors fixing credit terms, if proved, was unlawful on its face. 2 The Court of Appeals granted permission to appeal, and, with one judge dissenting, agreed with the District Court that a horizontal agreement among competitors to fix credit terms does not necessarily contravene the antitrust laws. 605 F.2d 1097 (1979). 3 We grant the petition for certiorari and reverse the judgment of the Court of Appeals.
For purposes of decision we assume the following facts alleged in the amended complaint 4 to be true. Petitioners allege that, beginning in early 1967, respondent wholesalers secretly agreed, in order to eliminate competition among themselves, that as of December 1967 they would sell to retailers only if payment were made in advance or upon delivery. Prior to the agreement, the wholesalers had extended credit without interest up to the 30- and 42-day limits permitted by state law. 5 According to the petition, prior to the agreement wholesalers had competed with each other with respect [446 U.S. 643, 645] to trade credit, and the credit terms for individual retailers had varied substantially. 6 After entering into the agreement, respondents uniformly refused to extend any credit at all.
The Court of Appeals decided that the credit-fixing agreement should not be characterized as a form of price fixing. The court suggested that such an agreement might actually enhance competition in two ways: (1) "by removing a barrier perceived by some sellers to market entry," and (2) "by the increased visibility of price made possible by the agreement to eliminate credit." Id., at 1099.
In dissent, Judge Blumenfeld 7 expressed the opinion that an agreement to eliminate credit was a form of price fixing. Id., at 1104. He reasoned that the extension of interest-free credit is an indirect price reduction and that the elimination of such credit is therefore a method of raising prices:
Our cases fully support Judge Blumenfeld's analysis and foreclose both of the possible justifications on which the majority relied. 8 In Broadcast Music, Inc. v. Columbia Broadcasting System, Inc., 441 U.S. 1, 7 -8 (1979), we said:
It is virtually self-evident that extending interest-free credit for a period of time is equivalent to giving a discount equal to the value of the use of the purchase price for that period of time. Thus, credit terms must be characterized as an inseparable part of the price. 11 An agreement to terminate the practice of giving credit is thus tantamount to an agreement to eliminate discounts, and thus falls squarely within the traditional per se rule against price fixing. 12 While it [446 U.S. 643, 649] may be that the elimination of a practice of giving variable discounts will ultimately lead in a competitive market to corresponding decreases in the invoice price, that is surely not necessarily to be anticipated. It is more realistic to view an agreement to eliminate credit sales as extinguishing one form of competition among the sellers. In any event, when a particular concerted activity entails an obvious risk of anti-competitive impact with no apparent potentially redeeming value, the fact that a practice may turn out to be harmless in a particular set of circumstances will not prevent its being declared unlawful per se.
The majority of the panel of the Court of Appeals suggested, however, that a horizontal agreement to eliminate credit sales may remove a barrier to other sellers who may wish to enter the market. But in any case in which competitors are able to increase the price level or to curtail production by agreement, it could be argued that the agreement has the effect of making the market more attractive to potential new entrants. If that potential justifies horizontal agreements among competitors imposing one kind of voluntary restraint or another on their competitive freedom, it would seem to follow that the more successful an agreement is in raising the price level, the safer it is from antitrust attack. Nothing could be more inconsistent with our cases.
Nor can the informing function of the agreement, the increased price visibility, justify its restraint on the individual wholesaler's freedom to select his own prices and terms of sale. For, again, it is obvious that any industry wide agreement on prices will result in a more accurate understanding of the terms offered by all parties to the agreement. As the Sugar Institute case demonstrates, however, there is a plain distinction between the lawful right to publish prices and terms of sale, on the one hand, and an agreement among competitors [446 U.S. 643, 650] limiting action with respect to the published prices, on the other.
Thus, under the reasoning of our cases, an agreement among competing wholesalers to refuse to sell unless the retailer makes payment in cash either in advance or upon delivery is "plainly anticompetitive." Since it is merely one form of price fixing, and since price-fixing agreements have been adjudged to lack any "redeeming virtue," it is conclusively presumed illegal without further examination under the rule of reason.
Accordingly, the judgment of the Court of Appeals is reversed, and the case is remanded for further proceedings consistent with this opinion.
[ Footnote 2 ] In pertinent part, the District Judge's order read as follows:
[ Footnote 3 ] The District Court had also granted summary judgment against two plaintiffs for failure to establish injury in fact. Those plaintiffs appealed separately. The Court of Appeals consolidated their appeal with the appeal taken pursuant to 1292 (b) and unanimously reversed that portion of the District Court's order. No review is sought in this Court of that ruling.
[ Footnote 4 ] See Record 152.
[ Footnote 5 ] Cal. Bus. & Prof. Code Ann. 25509 (West Supp. 1980).
[ Footnote 6 ] Pet. for Cert. 4.
[ Footnote 7 ] Senior District Judge for the District of Connecticut, sitting by designation.
[ Footnote 8 ] Respondents nowhere suggest a procompetitive justification for a horizontal agreement to fix credit. Their argument is confined to disputing that settled case law establishes that such an agreement is unlawful on its face.
[ Footnote 9 ] The quotation from Northern Pacific R. Co. v. United States, 356 U.S. 1, 5 (1958), is drawn from the following passage: "[T]here are certain agreements or practices which because of their pernicious effect on competition and lack of any redeeming virtue are conclusively presumed to be unreasonable and therefore illegal without elaborate inquiry as to the precise harm they have caused or the business excuse for their use. This principle of per se unreasonableness not only makes the type of restraints which are proscribed by the Sherman Act more certain to the benefit of everyone concerned, but it also avoids the necessity for an incredibly complicated and prolonged economic investigation . . . - an inquiry so often wholly fruitless when undertaken. Among the practices which the courts have heretofore deemed to be unlawful in and of themselves are price fixing. . . ."
[ Footnote 10 ] The Court there held that an agreement to use a multiple basing point pricing system was an unfair method of competition prohibited by 5 of the Federal Trade Commission Act, 15 U.S.C. 45, even though the same conduct would also violate 1 of the Sherman Act.
[ Footnote 11 ] See Fortner Enterprises, Inc. v. United States Steel Corp., 394 U.S. 495, 507 (1969): "In the usual sale on credit the seller, a single individual or corporation, simply makes an agreement determining when and how much he will be paid for his product. In such a sale the credit may constitute such an inseparable part of the purchase price for the item that the entire transaction could be considered to involve only a single product."
See also G. Lamb & C. Shields, Trade Association Law and Practice 129 (rev. ed. 1971) ("Credit terms are increasingly viewed as elements of price, and any interference with the elements of price is regarded as illegal per se under the Sherman Act"). Cf. P. Areeda, Antitrust Analysis 878 (2d ed. 1974) ("To charge cash and credit customers the same price is, economically speaking, to discriminate against the former"); Hogg v. Ruffner, 1 Black 115, 118-119 (1861).
[ Footnote 12 ] Cf. Cement Mfrs. Protective Assn. v. United States, 268 U.S. 588, 600 (1925), in which the Court upheld an exchange of information concerning credit in order to prevent fraud on the members of the association, but also noted that "[t]he evidence falls far short of establishing any understanding on the basis of which credit was to be extended to customers or that any co-operation resulted from the distribution of this information, or that there were any consequences from it other than such as would naturally ensue from the exercise of the individual judgment of manufacturers in determining, on the basis of available information, whether to extend credit or to require cash or security from any given customer."
See also Swift & Co. v. United States, 196 U.S. 375, 392 , 394 (1905); [446 U.S. 643, 649] Wall Products Co. v. National Gypsum Co., 326 F. Supp. 295 (ND Cal. 1971). [446 U.S. 643, 651]