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Ronald Reagan Presidential Library
Digital Library Collections
This is a PDF of a folder from our textual collections.
Collection: Roberts, John G.: Files
Folder Title: JGR/Resale Price Maintenance
Box: 47
To see more digitized collections visit:
https://reaganlibrary.gov/archives/digital-library
To see all Ronald Reagan Presidential Library inventories visit:
https://reaganlibrary.gov/document-collection
Contact a reference archivist at: [email protected]
Citation Guidelines: https://reaganlibrary.gov/citing
National Archives Catalogue: https://catalog.archives.gov/
J6R Sata
antitoricst
MEMORANDUM
THE WHITE HOUSE
WASHINGTON
July 19, 1983
FOR:
FRED F. FIELDING
FROM:
JOHN G. ROBERTS
SUBJECT:
Resale Price Maintenance Letters
Some time ago we requested the Justice Department to prepare
a response to a letter to the President from Congressman
Goodling expressing concern about the Antitrust Division's
stance on resale price maintenance. Justice has now provided
a draft, for your signature. Justice provided the same
draft to Legislative Affairs, in response to a request for a
draft reply to a similar incoming letter from Congressman
Annunzio. Legislative Affairs would like our approval of
that draft reply.
I think both replies should be over Ken Duberstein's signature,
since they are in response to legislative mail and not par-
ticularly within the expertise of our office. I have edited
Justice's proposals, and have also prepared a transmittal
memorandum to Duberstein.
I have changed Justice's proposed draft in two major ways:
First, Justice proposed to send with its letter a copy of
its brief filed before the Supreme Court in Monsanto V.
Spray-Rite. I think it inadvisable for a reply from the
White House to contain such material, or as a general matter
to link our response on a general question to a specific,
pending lawsuit. I have instead added a sentence on the
pro-competitive aspects of resale price maintenance, taken
from the brief, to the letter.
I have also deleted a reference to the Antitrust Division's
bid-rigging prosecutions. This bit of touting is completely
unrelated to the subject at hand.
Attachment
THE WHITE HOUSE
WASHINGTON
July 19, 1983
MEMORANDUM FOR KEN DUBERSTEIN
ASSISTANT TO THE PRESIDENT
FOR LEGISLATIVE AFFAIRS
FROM:
FRED F. FIELDING Orig. signed by FFF
COUNSEL TO THE PRESIDENT
SUBJECT:
Resale Price Maintenance Letters
Some time ago Congressman Goodling and Congressman Annunzio
wrote separate letters, to the President and to you, respec-
tively, expressing concern over the Antitrust Division's
views on resale price maintenance. The Department of
Justice has now provided a draft reply to Goodling, for my
signature, and has provided a draft reply to Annunzio to
your office. Charlie Ponticelli of your office has asked
for our views on the Annunzio reply. Since this is Congres-
sional mail and not particularly within the area of expertise
of the Counsel's Office, I think it would be appropriate for
both replies to go out over your signature. Our office has,
however, edited Justice's proposed replies as indicated on
the attached drafts, and we have no objection to them as
edited.
FFF: JGR:ph 7/19/83
CC: FFFielding
JGRoberts
Subject
Chron.
DRAFT
Honorable Bill Goodling
House of Representatives
Washington, D.C. 20515
Dear Congressman Goodling:
This is in response to your letter of April 28, 1983 to the
President expressing your concerns about the Department of
Justice's views regarding resale price maintenance.
I understand that William F. Baxter, Assistant Attorney
General in charge of the Antitrust Division, wrote to you on
this subject on October 27, 1982, in response to a letter you
forwarded to the Department of Justice from Mr. Donald W.
Harvey, Director of Governmental Affairs, McCrory Stores, York,
Pennsylvania. explaining the Division's 8 basic enforcement
approach. This letter briefly supplements that response.
The position taken by the Department of Justice with regard
to resale price maintenance rests on two key considerations:
its evaluation of whether or not (and, if so, under what
circumstances) resale price maintenance has harmful economic
consequences inconsistent with the aims and purposes of the
antitrust laws, and the proper allocation of the Department's
own enforcement resources.
Based on its analyses and studies, the Department's
Antitrust Division has concluded that resale price maintenance
agreements differ fundamentally in their economic consequences
from price fixing agreements between competitors and other
types of cartel arrangements, which in most instances serve no
useful economic function whatever and are almost invariably
harmful to the public interest. For this reason the courts
properly hold price fixing between competitors and other cartel
In some
arrangements to be "per se" unlawful under the antitrust laws.
contexts,
resale
By contrast, resale price maintenance agreements can in a
price
maintenance
number of situations serve desirable economic ends consistent
may be
procompetitive
with the aims and purposes of the antitrust laws. The
and enhance
consumer
Department believes that resale price maintenance should not be
welfare
by
treated as a "per se" violation of the antitrust laws but
stimulating
interbadad
should be judged under the "rule of reason" standard applicable
rivalry.
to most restrictive business arrangements, including other
types of vertical restraints. The present court-developed rule
that resale price maintenance is "per se" unlawful has the
undesirable consequence that the courts cannot draw a
distinction between those arrangements that serve an
economically desirable purpose and those that do not: all are
condemned alike.
Another undesirable consequence of the "per se" rule as
currently applied in resale price maintenance cases is that in
many instances dealers whose distributorships have been
terminated by a manufacturer, on grounds wholly unrelated to
- 2 -
resale price maintenance, have
in court
challenged the
termination on the asserted ground that the true reason for the
termination was the dealer's supposed failure to adhere to the
manufacturer's suggested resale prices. In some instances,
relying on this argument, dealers have challenged various
conventional distribution arrangements, such as drop shipment
programs, that by their terms did not deal with resale prices
at all. Thus, the "per se" rule has been invoked to jeopardize
the legality of business arrangements that in fact do not
involve resale price maintenance. Adoption of the "rule of
reason" standard would greatly limit such spurious challenges
since the challenging party would be required to prove
specifically the anticompetitive effects of the alleged
restraints.
These points are spelled out in greater detail in a brief
submitted by the Department of Justice a few weeks ago to the
Supreme Court of the United States, in the case of Monsanto V
Spray Rite, in which the Department urged the Court to adopt
the "rule of reason" approach in adjudicating resale price
maintenance cases. I enclose herewith a copy of the brief.
The second key consideration underlying the Department of
Justice's position in this matter is the belief that the
Department should concentrate its enforcement resources on
challenging activities that have an unequivocally harmful
effect on consumers and on the economy, and where enforcement
- 3 -
of the law by private action is often handicapped because the
conspiring parties effectively conceal their wrongful conduct.
Horizontal price fixing, bid rigging, and other cartel
activities fall into this category. t For the reasons stated
in this letter and in the enclosed brief, the Antitrust
Division believes that resale price maintenance does not have
an unequivocally harmful effect, but to the contrary can in
many instances serve a desirable economic objective. Further,
resale price maintenance agreements in general cannot be
effectively concealed by the parties, so that in most cases
persons adversely affected by such an agreement will be aware
of its existence and can seek relief by bringing a private
lawsuit, thereby diminishing the need for action by the
Department of Justice.
We wish to make clear that the Antitrust Division rejects
the view that resale price maintenance should always be deemed
lawful. Its position is that the legality of resale price
maintenance ought to be determined on the basis of whether or
not that practice has, or threatens to have, significant
* / The role that the Antitrust Division's enforcément
activities have played in directly benefitting the public
through the elimination of unlawful bid rigging in the road
construction industry. a sector of the economy in which the
Antitrust Division has been quite active in recent years is
discussed in a recent article appearing in the Wall Street
Journal, a copy of which is enclosed herewith.
- 4 -
anticompetitive effects in the context of the particular
factual situation in which it is employed. The same legal
principle is currently applied by the courts in adjudicating
the lawfulness under the antitrust laws of other types of
vertical restraints.
In his public statements Mr. Baxter has repeatedly
confirmed the Division's policy on this subject. In line with
that policy, the Antitrust Division has not declined to
investigate alleged incidents of resale price maintenance where
it appears that significant competitive harm may result. When
such instances are brought to the attention of the Antitrust
Division, it is prepared to review them for possible
enforcement action.
We hope that this information, and the materials enclosed
herewith. will help to clarify the Administration's position on
this matter and to dispell any misconceptions that may still
exist. Please be assured that we are deeply committed to
vigorous enforcement of the antitrust laws against all
practices that are truly harmful to consumers.
with best wishes,
On behalf of the President, I thank you for writing.
Sincerely, yours,
Fred F. Fielding
Counsel to the President
Kenneth M. Duberstein
Enclosures
Assistant to the President
3.25.83
THE WALL DIRECTI a
25
Page
Date
A "Way of Life'
Building Costs
The Transportation Department's inspec-
tor general, who bas aided the investign-
tions, recently reported "a strong correls-
On Highways
tion" to contractor bidding patterns be
tween the success of our activity and the re-
duction in bld prices."
Are Declining
Richard Braun, a Justice Department at-
torney who prosecuted cases in five states,
By ALBERT R. KARR
says bid-rigging was "pervasive" in each of
And ROBERT K. TAYLOR
them. The rigging involved "setting up"
contracts, or conspiring to offer higher bids,
majj Reporters of The WALL STREET JOURNAL
The low bid for an interstate highway in-
so that an agreed-upon contractor would win
terchange in the Atlanta area was $63.2 mll-
the award with the lowest bid. Rigging type
Bon recently. more than $10 million below
cally inflated contracts 10%, but Mr. Brain
the state engineer's estimate. In Utah,
says some contractors raked off much
where contractor bids are coming in as low
more.
as 25% under estimates, the state has been
The practice was a "way of life" for
able to undertake four projects for the price
years in Tennessee and other states, offi-
that three used to cost.
cials say. "The asphalt people just took #
One big reason for the lower prices: Jus-
for granted. Most of them didn't even think
tice Department prosecutions of widespread
It was breaking the law-II was more or less
bid-rigging by highway contractors. In addi-
helping each other out," says Samuel State
tion. state budget problems have produced a
of Virginia's Highways and Transportation
prolonged slump in highway construction,
Department.
and raw-material costs are down. Road-
But the federal crackdown. called one of
building expenses are expected to rise again
the biggest Justice Department enforcement
soon. but they haven't turned up yet and at
campaigns ever. seems to have stopped
the moment costs are actually declining.
much of the bid-fixing. As prosecutors used
"Contractors are super-sensitive" to the
evidence against one contractor to force les-
prosecution threat. says Harvey Haack, a
timony against another. contractors fell like
deputy transportation secretary in Pennsyl-
dominoes in one state after another. Convic-
tion rates have topped 90%.
Construction Costs 8 Highways
Construction Costs Decline
Ballt With Federal AM
in Virginia. Mr. State says, contractors
didn't want to 80 through this anymore.
Index 1977-180
Adds the Justice Department's Mr. Braun:
In states where judges have handed down
substantial jail sentences, road-building
firms "will be leery" of further rigging.
The big test will come as construction
60
picks up. Price conspiring is more likely
when a surplus of business reduces competi-
Tion for contracts.
That won't happen immediately. Nation-
wide, construction prices for federally aided
highways climbed 3% between 1977 and
1980, according to the Federal Highway Ad-
ministration. By the 1982 fourth quarter,
though, they had fallen nearly 13% from a
high in spring 1980.
In Texas, fiscal 1979 contract awards for
road-and-bridge projects were an average of
30
$4.8 million, or 3%. above state engineering
estimates. But in fiscal 1981. awards were
1388
1981
$45.3 million, or 14%. below state estimates.
Secure Federal Mighway Administration
John Kramer, the transportation secretary
for Illinois. says that the state has had "the
vania He says the winning bid B a recent
first sustained decline" in highway bids
$14 million earth-moving contract in Alle-
since the 1930s and that construction costs
gheny County. which includes Pittsburgh,
was 30% below the no million engineering
are continuing to decline. He says costs
estimate.
have dropped about 20% in the past 2%
Since 1979, criminal grand juries in 21-
years.
states have investigated highway bid-fixing.
The price declines won't continue to
Prosecutions in 15 of those states have pro-
ever. Utah Gov. Scott Matheson expects to
duced indictments of more than 180 compa.
creased road work to drive up bids by 5% to
also and 200 executives. Convictions have
10%. Other state officials also predict Mds
led to fines totaling $41 million and numer-
will rise as road and bridge building to
ous jall sentences.
creases because of new money from federal
and state gasoline-tax revenues. A five-cent
federal tax rise takes effect April 1. and
Please Turn to Page 30, Cobona s
Page
Date
Slump, Bid-Rigging Prosecutions
Are Reducing Road-Building Costs
Continued From Page 5
cautions to prevent a recurrence α bid rig-
many states are increasing their own levies.
ging. Tennessee, for example, makes more
The new law means federal highway financ-
precise estimates, has stopped publishing
ing will climb from $7.66 billion in fiscal 1982
the estimates and shields the identity of po-
to $11 billion in fiscal 1983 and $13.87 billion
tential bidders on specific projects. The
by fiscal 1986.
state also uses a "trigger" to alert the trans-
Michigan plans to Increase Its road-con-
portation department to unusually high bids,
tract awards to $315 million in fiscal 1983
says Robert Farris. Tennessee's transporta-
from $146 million in fiscal 1982. For six
tion commissioner.
months, Texas will triple its contract
Furthermore, Mr. Farris says, contrac-
awards to $120 million a month.
tors are saying to each other that now that
Francis Francols, executive director of
they're getting another chance because of
the America Association of State Highway
increased federal money. "for God's sake,
and Transportation Officials, says be ex.
let's do It right."
pects substantially higher construction costs
this year. And Mr. Kramer of Illinois says,
"We're predicating our future programs on
construction prices beginning to turn up by
midsummer." with a five-year annual infla-
tion figure of 8% to 10%.
still. even though states have begun to to-
crease contracting. prices haven't re
bounded yet. "With construction activity the
way It has been. I don't think you're going to
have rising prices for quite 2 while." says
Arnold Kupferman of New York's Transpor-
tation Department. He says his agency is
still getting eight to 10 bids for every proj-
ect In Illinois, seven firms bid on an aver-
age project. up from two to 1980.
In most states, a Federal Highway Ad-
ministration official says, contractors are
still "more interested in survival than prof-
its." But Louie Pittman, president of Pitt-
man Highway Contracting Co. of Conyers,
Ca., says bids must rise before long or
"there are going to be a be of failures." He
says last year was his company's worst in 15
years.
Meanwhile, some states have taken pre-
DRAFT
Honorable Frank Annunzio
House of Representatives
Washington, D.C. 20515
Frank:
Dear Congresoman Ammunisos
further
This is in response to your letter
April
20,
1903
Konneth
M.
Duberatein,
Assistant
to
Descriptions
for
relating the concerns expressed to you by
Robert J. Cole, Assistant Corporate Counsel for Sportsmart,
Inc., about the Department of Justice's views regarding resale
price maintenance.
I understand that Thaddeus Garrett, Jr., a former Assistant
to Vice President Bush. wrote to Mr. L.J. Hochberg, President
of Sportsmart, Inc. on December 7. 1982, explaining the
Division's basic enforcement approach. This letter briefly
supplements that response.
The position taken by the Department of Justice with regard
to resale price maintenance rests on two key considerations:
its evaluation of whether oz-not (and. if so, under what
circumstances) resale price maintenance has harmful economic
consequences inconsistent with the aims and purposes of the
antitrust laws, and the proper allocation of the Department's
own enforcement resources.
Based on its analyses and studies, the Department's
Antitrust Division has concluded that resale price maintenance
agreements differ fundamentally in their economic consequences
from price fixing agreements between competitors and other
types of cartel arrangements, which in most instances serve no
useful economic function whatever and are almost invariably
harmful to the public interest. For this reason the courts
properly hold price fixing between competitors and other cartel
arrangements to be "per se" unlawful under the antitrust laws.
In some
contexts,
By contrast, resale price maintenance agreements can in a
resale
price
maintenance
number of situations serve desirable economic ends consistent
may be
with the aims and purposes of the antitrust laws. N The
procompetitive
and enhance
Department believes that resale price maintenance should not be
consumer
welfare
treated as a "per se" violation of the antitrust laws but
by
timulating
should be judged under the "rule of reason" standard applicable
interbrand
rivalny.
to most restrictive business arrangements, including other
types of vertical restraints. The present court-developed rule
that resale price maintenance is "per se" unlawful has the
undesirable consequence that the courts cannot draw a
distinction between those arrangements that serve an
economically desirable purpose and those that do not: all are
condemned alike.
Another undesirable consequence of the "per se" rule as
currently applied in resale price maintenance cases is that in
many instances dealers whose distributorships have been
terminated by a manufacturer, on grounds wholly unrelated to
- 2 -
resale price maintenance, have
in court
challenged the
terminationlom the asserted ground that the true reason for the
termination was the dealer's supposed failure to adhere to the
manufacturer's suggested resale prices. In some instances,
relying on this argument, dealers have challenged various
conventional distribution arrangements, such as drop shipment
programs, that by their terms did not deal with resale prices
at all. Thus, the "per se" rule has been invoked to jeopardize
the legality of business arrangements that in fact do not
involve resale price maintenance. Adoption of the "rule of
reason" standard would greatly limit such spurious challenges
since the challenging party would be required to prove
specifically the anticompetitive effects of the alleged
restraints.
These points are spelled out in greater detail in a brief
submitted by the Department of Justice a few weeks ago to the
Supreme Court of the United States, in the case of Monsanto V.
Spray Rite, in which the Department urged the Court to adopt
the "rule of reason" approach in adjudicating resale price
maintenance cases.
C
enclose herewith a copy of the brief
The second key consideration underlying the Department of
Justice's position in this matter is the belief that the
Department should concentrate its enforcement resources on
challenging activities that have an unequivocally harmful
effect on consumers and on the economy. and where enforcement
- 3 -
of the law by private action is often handicapped because the
conspiring parties effectively conceal their wrongful conduct.
Horizontal price fixing, bid rigging, and other cartel
activities fall into this category
For the reasons stated
in this letter and th the enclosed brief the Antitrust
Division believes that resale price maintenance does not have
an unequivocally harmful effect but, to, the contrary, can in
meny instances.
many instances serve a desirable economic objectiven Further,
resale price maintenance agreements in general cannot be
effectively concealed by the parties, so that in most cases
persons adversely affected by such an agreement will be aware
of its existence and can seek relief by bringing a private
lawsuit, thereby diminishing the need for action by the
Department of Justice.
We wish to make clear that the Antitrust Division rejects
the view that resale price maintenance should always be deemed
lawful. Its position is that the legality of resale price
maintenance ought to be determined on the basis of whether or
not that practice has, or threatens to have, significant
/ The role that the Antitrust Division's enforcement
activities have played in directly benefitting the public
through the elimination of unlawful bid rigging in the road
construction industry, a sector of the economy in which the
Antitrust Division has been quite active in recent years, is
discussed in a recent article appearing in the Wall Street
Journal, a copy of which is enclosed herewith.
- 4 -
anticompetitive effects in the context of the particular
factual situation in which it is employed. The same legal
principle is currently applied by the courts in adjudicating
the lawfulness under the antitrust laws of other types of
vertical restraints.
In his public statements, William F. Baxter, the Assistant
Attorney General in charge of the Antitrust Division, has
repeatedly confirmed the Division's policy on this subject. In
line with that policy. the Antitrust Division has not declined
to investigate alleged incidents of resale price maintenance
where it appears that significant competitive harm may result.
When such instances are brought to the attention of the
Antitrust Division. it is prepared to review them for possible
enforcement action.
We hope that this information and the materials enclosed
herewith will help to clarify the Administration's position on
this matter and to dispell any misconceptions that may still
exist. Please be assured that we are deeply committed to
vigorous enforcement of the antitrust laws against all
practices that are truly harmful to consumers.
with best wishes,
On behalf of the President, I thank you for writing.
Sincerely, yours
Fred F. Fielding
Counsel to the President
Kenneth m. Duberstein
Enclosures
assistant to the President
DISTRICT OFFICE
ANNUNZIO
SUITE 201
DISTRICT, ILLINOIS
4747 WEST PETERSON AVENU
CHICAGO. ILLINOIS 60646
(312) 736-0700
COMMITTEES:
BANKING, FINANCE AND
Congress of the United States
LOOP OFFICE
SUITE 3816
URBAN AFFAIRS
KLUCZYNSKI BUILDING
SUBCOMMITTEES:
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CHICAGO, ILLINOIS 60604
CHAIRMAN, CONSUMER AFFAIRS
(312) 353-2525
AND COINAGE
FINANCIAL INSTITUTIONS SUPERVISION,
Washington, D.C. 20515
WASHINGTON OFFICE
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SUITE 2303
RAYBURN OFFICE BUILDING
HOUSE ADMINISTRATION
WASHINGTON, D.C. 20515
(202) 225-6661
SUBCOMMITTEES:
CHAIRMAN, ACCOUNTS
April 20, 1983
37876
Mr. Kenneth M. Duberstein
Assistant to the President
for Legislative Affairs
The White House
Washington, D.C. 20500
Dear Ken:
Mr. Robert J. Cole, Assistant Corporate Counsel for Sportmart Inc.,
a business located in the 11th Congressional District of Illinois which
I represent, recently contacted me to express his company's concern
about the "developing trend on the part of manufacturers of a variety
of mass merchandised products to keep products from 'price cutting'
retailers," and to outline his company's "strong opposition to any
retreat from the well settled principle that re-sale price maintenance
constitutes a per se violation of Federal antitrust law."
Mr. Cole stated that his company had contacted the Department of
Justice concerning these violations, and the Department has taken the
position that there has been no infraction of the law, and therefore
has not taken any action to stop this practice.
I would be most appreciative if you would give Mr. Cole's views
your most thorough consideration, and also let me know on his behalf,
what steps are being taken by the President to make sure that the Federal
antitrust laws regarding resale price maintenance are being enforced
by the Department of Justice.
Thank you for your cooperation and assistance in this matter.
Sincerely,
Faul
FRANK ANNUNZIO
Member of Congress
FA/dah
ID # 141461
WHITE HOUSE
CORRESPONDENCE TRACKING WORKSHEET
O . OUTGOING
John
John
H - INTERNAL
I . INCOMING
Date Correspondence
Received (YY/MM/DD)
/
/
Name of Correspondent: Ed Schmults / Bill Goodling
MI Mail Report
User Codes: (A)
(B)
(C)
Subject: Draft response prepared by antitrust Division /DOJ
to letter to #Fielding from Rep. goodling re: DOJ'S
position on resale price maintenance.
ROUTE TO:
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DISPOSITION
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Date
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Date
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(Staff Name)
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YY/MM/DD
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CNH011
ORIGINATOR 83/06/29
/
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Referral Note:
cont. correy
CUAT 18
D 83/06/29
583107109
Referral Note:
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Referral Note:
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Referral Note:
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ACTION CODES:
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C Completed
C - Comment/Recommendation
R - Direct Reply w/Copy
B . Non-Special Referral
S Suspended
D Draft Response
S For Signature
F - Furnish Fact Sheet
X Interim Reply
to be used as Enclosure
FOR OUTGOING CORRESPONDENCE:
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Code
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Comments:
Keep this worksheet attached to the original incoming letter.
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5/81
U.S. Department of Justice
Office of the Deputy Attorney General
The Deputy Attorney General
Washington, D.C. 20530
June 27, 1983
MEMORANDUM
TO:
Fred F. Fielding
Counsel to the President
FROM:
Edward C. Schmults
Deputy Attorney General
Pursuant to your request, I am attaching a draft
response prepared by the Antitrust Division to the letter you
received from Rep. Goodling concerning the Department of
Justice position on resale price maintenance.
Attachment
THE WHITE HOUSE
WASHINGTON
May 19, 1983
copy back-up 141461
case **
MEMORANDUM FOR EDWARD C. SCHMULTS
DEPUTY ATTORNEY GENERAL
DEPARTMENT OF JUSTICE
Orig. signed by FFF
FROM:
FRED F. FIELDING
COUNSEL TO THE PRESIDENT
SUBJECT:
Letter from Congressman Goodling on
Department of Justice Antitrust Enforcement
I would appreciate it if the Antitrust Division could
prepare a draft response to the above-referenced letter, for
my signature. Since this issue has surfaced before, I
assume that division has the substance of a response readily
available.
Many thanks.
FFF: JGR:aw 5/19/83
CC: FFFielding
JGRoberts
Subj.
Chron
DRAFT
Honorable Bill Goodling
House of Representatives
Washington, D.C. 20515
Dear Congressman Goodling:
This is in response to your letter of April 28, 1983 to the
President expressing your concerns about the Department of
Justice's views regarding resale price maintenance.
I understand that William F. Baxter, Assistant Attorney
General in charge of the Antitrust Division, wrote to you on
this subject on October 27, 1982, in response to a letter you
forwarded to the Department of Justice from Mr. Donald W.
Harvey. Director of Governmental Affairs, McCrory Stores, York,
Pennsylvania, explaining the Division's basic enforcement
approach. This letter briefly supplements that response.
The position taken by the Department of Justice with regard
to resale price maintenance rests on two key considerations:
its evaluation of whether or not (and, if so, under what
circumstances) resale price maintenance has harmful economic
consequences inconsistent with the aims and purposes of the
antitrust laws, and the proper allocation of the Department's
own enforcement resources.
Based on its analyses and studies, the Department's
Antitrust Division has concluded that resale price maintenance
agreements differ fundamentally in their economic consequences
from price fixing agreements between competitors and other
types of cartel arrangements, which in most instances serve no
useful economic function whatever and are almost invariably
harmful to the public interest. For this reason the courts
properly hold price fixing between competitors and other cartel
arrangements to be "per se" unlawful under the antitrust laws.
By contrast, resale price maintenance agreements can in a
number of situations serve desirable economic ends consistent
with the aims and purposes of the antitrust laws. The
Department believes that resale price maintenance should not be
treated as a "per se" violation of the antitrust laws but
should be judged under the "rule of reason" standard applicable
to most restrictive business arrangements, including other
types of vertical restraints. The present court-developed rule
that resale price maintenance is "per se" unlawful has the
undesirable consequence that the courts cannot draw a
distinction between those arrangements that serve an
economically desirable purpose and those that do not: all are
condemned alike.
Another undesirable consequence of the "per se" rule as
currently applied in resale price maintenance cases is that in
many instances dealers whose distributorships have been
terminated by a manufacturer, on grounds wholly unrelated to
- 2 -
resale price maintenance, have in court challenged the
termination on the asserted ground that the true reason for the
termination was the dealer's supposed failure to adhere to the
manufacturer's suggested resale prices. In some instances,
relying on this argument, dealers have challenged various
conventional distribution arrangements, such as drop shipment
programs, that by their terms did not deal with resale prices
at all. Thus, the "per se" rule has been invoked to jeopardize
the legality of business arrangements that in fact do not
involve resale price maintenance. Adoption of the "rule of
reason" standard would greatly limit such spurious challenges
since the challenging party would be required to prove
specifically the anticompetitive effects of the alleged
restraints.
These points are spelled out in greater detail in a brief
submitted by the Department of Justice a few weeks ago to the
Supreme Court of the United States, in the case of Monsanto V.
Spray-Rite, in which the Department urged the Court to adopt
the "rule of reason" approach in adjudicating resale price
maintenance cases. I enclose herewith a copy of the brief.
The second key consideration underlying the Department of
Justice's position in this matter is the belief that the
Department should concentrate its enforcement resources on
challenging activities that have an unequivocally harmful
effect on consumers and on the economy, and where enforcement
- 3 -
of the law by private action is often handicapped because the
conspiring parties effectively conceal their wrongful conduct.
Horizontal price fixing, bid rigging, and other cartel
activities fall into this category. For the reasons stated
in this letter and in the enclosed brief, the Antitrust
Division believes that resale price maintenance does not have
an unequivocally harmful effect, but to the contrary can in
many instances serve a desirable economic objective. Further,
resale price maintenance agreements in general cannot be
effectively concealed by the parties, so that in most cases
persons adversely affected by such an agreement will be aware
of its existence and can seek relief by bringing a private
lawsuit, thereby diminishing the need for action by the
Department of Justice.
We wish to make clear that the Antitrust Division rejects
the view that resale price maintenance should always be deemed
lawful. Its position is that the legality of resale price
maintenance ought to be determined on the basis of whether or
not that practice has, or threatens to have, significant
*1 The role that the Antitrust Division's enforcement
activities have played in directly benefitting the public
through the elimination of unlawful bid rigging in the road
construction industry. a sector of the economy in which the
Antitrust Division has been quite active in recent years. is
discussed in a recent article appearing in the Wall Street
Journal, a copy of which is enclosed herewith.
- 4 -
anticompetitive effects in the context of the particular
factual situation in which it is employed. The same legal
principle is currently applied by the courts in adjudicating
the lawfulness under the antitrust laws of other types of
vertical restraints.
In his public statements Mr. Baxter has repeatedly
confirmed the Division's policy on this subject. In line with
that policy, the Antitrust Division has not declined to
investigate alleged incidents of resale price maintenance where
it appears that significant competitive harm may result. When
such instances are brought to the attention of the Antitrust
Division, it is prepared to review them for possible
enforcement action.
We hope that this information, and the materials enclosed
herewith, will help to clarify the Administration's position on
this matter and to dispell any misconceptions that may still
exist. Please be assured that we are deeply committed to
vigorous enforcement of the antitrust laws against all
practices that are truly harmful to consumers.
On behalf of the President, I thank you for writing.
Sincerely yours,
Fred F. Fielding
Counsel to the President
Enclosures
3.25.83
THE WALL STREET JOURNAL.
25
Date
Page
A Way of Life'
Building Costs
The Transportation Department's Inspec-
tor general, who bas alded the investige.
tions, recently reported "a strong correla-
On Highways
tion" to contractor bidding patterns "be
tween the success of our activity and the re
duction in bid prices."
Are Declining
Richard Braun, a Justice Department at-
torney who prosecuted cases in five states,
By ALBERT R. KARE
says bid-rigging was "pervasive" in each of
And ROBERT E. TAYLOR
them. The rigging involved "setting up"
Beaji Reporters of The WALL STREET JOURMAL
contracts, or conspiring to offer higher bids,
The low bid for an interstate highway in-
so that an agreed-upon contractor would win
terchange in the Atlanta area was $53.2 mil-
the award with the lowest bid. Rigging type
Non recently. more than $10 million below
cally inflated contracts 10%. but Mr. Brain
the state engineer's estimate. In Utah.
says some contractors raked off much
where contractor bids are coming in as low
more.
as 25% under estimates, the state has been
The practice was a "way of life" for
able to undertake four projects for the price
years in Tennessee and other states, offi-
that three used to cost.
cials say. The asphalt people just took It
One big reason for the lower prices: Jus-
for granted. Most of them didn't even think
tice Department prosecutions of widespread
It was breaking the law-II was more or less
bid-rigging by highway contractors. In addi-
helping each other out," says Samuel Slate
tion. state budget problems have produced 1
of Virginia's Highways and Transportation
prolonged slump in highway construction.
Department.
and raw-material costs are down. Road-
But the federal crackdown. called one of
building expenses are expected to rise again
the biggest Justice Department enforcement
soon, but they haven't turned up yet and at
campaigns ever. seems to have stopped
the moment costs are actually declining.
much of the bid-fixing. As prosecutors used
"Contractors are super-sensitive" to the
evidence against one contractor to force les-
prosecution threat. says Harvey Heack, a
timony against another. contractors fell like
deputy transportation secretary in Pennsyl-
dominoes in one state after another. Convic-
tion rates have topped 90%.
Construction Costs on Highways
Construction Costs Decline
Ballt With Federal AM
in Virginia. Mr. State says, contractors
didn't want to 80 through this anymore.
index 1977-100
Adds the Justice Department's Mr. Braun:
In states where judges have handed down
substantial jail sentences, road-building
firms "will be leery" of further rigging.
The big test will come as construction
picks up. Price conspiring is more likely
when 2 surplus of business reduces competi-
tion for contracts.
That won't happen immediately. Nation-
wide, construction prices for federally aided
highways climbed 63% between 1977 and
1980, according to the Federal Highway Ad-
ministration. By the 1982 fourth quarter,
though. they had fallen nearly 13% from a
high in spring 1980.
In Texas, fiscal 1979 contract awards for
road-and-bridge projects were an average of
30
$4.8 million. or 3%, above state engineering
estimates. But in fiscal 1981, awards were
1979
1988
2781
$45.3 million, or 14%. below state estimates.
Searce. Federal Highway Administration
John Kramer, the transportation secretary
for Illinois. says that the state has had "the
vania He says the winning bid - a recent
first sustained decline" to highway bids
$14 million earth-moving contract in Alle-
since the 1930s and that construction costs
gbeny County. which includes Pittsburgh,
are continuing to decline. He says costs
was 30% below the - million engineering
have dropped about 20% to the past 2%
estimate.
Since 1975. criminal grand juries to 21-
years.
states have investigated highway bid-fixing
The price declines won't continue for
Prosecutions in 15 of those states have pro-
ever. Utah Gov. Scott Matheson expects to
duced indictments of more than 180 compa.
creased road work to drive up bids by 5% to
nies and 200 executives. Convictions have
10%. Other state officials also predict bids
led to fines totaling $41 million and numer-
will rise as road and bridge building to
ous jall sentences.
creases because of new money from federal
and state gasoline-tax revenues. A five-cent
federal tax rise takes effect April 1. and
Please Turn to Page 30, Cohona $
THE WALL STREET JOURNAL.
25
3.25.83
Page
Date
Slump, Bid-Rigging Prosecutions
Are Reducing Road-Building Costs
Continued From Page 25
cautions to prevent a recurrence of bid rig-
many states are increasing their own levies.
ging. Tennessee, for example, makes more
The new law means federal highway financ-
precise estimates, has stopped publishing
ing will climb from $7.66 billion in fiscal 1982
the estimates and shields the Identity of po-
to $11 billion in fiscal 1983 and $13.87 billion
tential bidders on specific projects. The
by fiscal 1986.
state also uses a "trigger" to ajert the trans-
Michigan plans to increase Its road-con-
portation department to unusually high bids.
tract awards to $315 million in fiscal 1983
says Robert Farris, Tennessee's transporta-
from $146 million in fiscal 1982. For six
tion commissioner.
months, Texas will triple its contract
Furthermore, Mr. Farris says, contrac-
awards to $120 million a month.
tors are saying to each other that now that
Francis Francols, executive director of
they're getting another chance because of
the America Association of State Highway
Increased federal money, "for God's sake,
and Transportation Officials, says be ex-
let's do It right."
pects substantially higher construction costs
this year. And Mr. Kramer of Illinois says,
"We're predicating our future programs on
construction prices beginning to turn up by
midsummer." with a five-year annual infla.
tion figure of 8% to 10%.
still, even though states have begun to in-
crease contracting. prices haven't re-
bounded yet. "With construction activity the
way It has been, I don't think you're going to
have rising prices for quite a while." says
Arnold Kupferman of New York's Transpor-
tation Department. He says his agency is
still getting eight to 10 bids for every proj-
ect In Illinois, seven firms bid on as aver-
age project. up from two tn 1980.
In most states, a Federal Highway Ad-
ministration official says, contractors are
still "more interested in survival than prof-
its." But Louie Pittman, president of Pitt-
man Highway Contracting Co. of Conyers,
Ga., says bids must rise before long or
"there are going to be a lot of failures." He
says last year was his company's worst in 15
years.
Meanwhile, some states have taken pre-
ID # 150869 CU
BEDDI
WHITE HOUSE
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Name Received Date of Correspondence Correspondent: (YY/MM/DD) / Charlie / Ponticelti /FrANK ANNUNZIO
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5/81
DRAFT
Honorable Frank Annunzio
House of Representatives
Washington, D.C. 20515
Frank:
Dear Congresoman Annuntries
further
This is in response to your letter
April
20,
1903
to
Konneth M. Duberstein, Assistant to the Decemblent for
relating the concerns expressed to you by
Robert J. Cole, Assistant Corporate Counsel for Sportsmart,
Inc., about the Department of Justice's views regarding resale
price maintenance.
I understand that Thaddeus Garrett, Jr., a former Assistant
to Vice President Bush, wrote to Mr. L.J. Hochberg, President
of Sportsmart, Inc., on December 7. 1982, explaining the
Division's basic enforcement approach. This letter briefly
supplements that response.
The position taken by the Department of Justice with regard
to resale price maintenance rests on two key considerations:
its evaluation of whether or not (and, if so, under what
circumstances) resale price maintenance has harmful economic
consequences inconsistent with the aims and purposes of the
antitrust laws, and the proper allocation of the Department's
own enforcement resources.
Based on its analyses and studies, the Department's
Antitrust Division has concluded that resale price maintenance
agreements differ fundamentally in their economic consequences
from price fixing agreements between competitors and other
types of cartel arrangements, which in most instances serve no
useful economic function whatever and are almost invariably
harmful to the public interest. For this reason the courts
properly hold price fixing between competitors and other cartel
arrangements to be "per se" unlawful under the antitrust laws.
By contrast, resale price maintenance agreements can in a
number of situations serve desirable economic ends consistent
with the aims and purposes of the antitrust laws. The
Department believes that resale price maintenance should not be
treated as a "per se" violation of the antitrust laws but
should be judged under the "rule of reason" standard applicable
to most restrictive business arrangements, including other
types of vertical restraints. The present court-developed rule
that resale price maintenance is "per se" unlawful has the
undesirable consequence that the courts cannot draw a
distinction between those arrangements that serve an
economically desirable purpose and those that do not: all are
condemned alike.
Another undesirable consequence of the "per se" rule as
currently applied in resale price maintenance cases is that in
many instances dealers whose distributorships have been
terminated by a manufacturer, on grounds wholly unrelated to
- 2 -
resale price maintenance, have in court challenged the
termination on the asserted ground that the true reason for the
termination was the dealer's supposed failure to adhere to the
manufacturer's suggested resale prices. In some instances,
relying on this argument, dealers have challenged various
conventional distribution arrangements, such as drop shipment
programs, that by their terms did not deal with resale prices
at all. Thus, the "per se" rule has been invoked to jeopardize
the legality of business arrangements that in fact do not
involve resale price maintenance. Adoption of the "rule of
reason" standard would greatly limit such spurious challenges
since the challenging party would be required to prove
specifically the anticompetitive effects of the alleged
restraints.
These points are spelled out in greater detail in a brief
submitted by the Department of Justice a few weeks ago to the
Supreme Court of the United States, in the case of Monsanto V.
Spray-Rite, in which the Department urged the Court to adopt
the "rule of reason" approach in adjudicating resale price
maintenance cases. [I enclose herewith a copy of the brief
Ll
The second key consideration underlying the Department of
Justice's position in this matter is the belief that the
Department should concentrate its enforcement resources on
challenging activities that have an unequivocally harmful
effect on consumers and on the economy, and where enforcement
- 3 -
of the law by private action is often handicapped because the
conspiring parties effectively conceal their wrongful conduct.
Horizontal price fixing, bid rigging, and other cartel
activities fall into this category.
For the reasons stated
in this letter and in the enclosed brief. The Antitrust
Division believes that resale price maintenance does not have
an unequivocally harmful effect but, to, on the contrary, can in
meny instances.
many instances serve a desirable economic objective Further,
resale price maintenance agreements in general cannot be
effectively concealed by the parties, so that in most cases
persons adversely affected by such an agreement will be aware
of its existence and can seek relief by bringing a private
lawsuit, thereby diminishing the need for action by the
Department of Justice.
We wish to make clear that the Antitrust Division rejects
the view that resale price maintenance should always be deemed
lawful. Its position is that the legality of resale price
maintenance ought to be determined on the basis of whether or
not that practice has, or threatens to have, significant
/ The role that the Antitrust Division's enforcement
activities have played in directly benefitting the public
through the elimination of unlawful bid rigging in the road
construction industry, a sector of the economy in which the
Antitrust Division has been quite active in recent years. is
discussed in a recent article appearing in the Wall Street
Journal, a copy of which is enclosed herewith.
- 4 -
anticompetitive effects in the context of the particular
factual situation in which it is employed. The same legal
principle is currently applied by the courts in adjudicating
the lawfulness under the antitrust laws of other types of
vertical restraints.
In his public statements William F. Baxter, the Assistant
Attorney General in charge of the Antitrust Division, has
repeatedly confirmed the Division's policy on this subject. In
line with that policy, the Antitrust Division has not declined
to investigate alleged incidents of resale price maintenance
where it appears that significant competitive harm may result.
When such instances are brought to the attention of the
Antitrust Division, it is prepared to review them for possible
enforcement action.
We hope that this information and the materials enclosed
herewith will help to clarify the Administration's position on
this matter and to dispell any misconceptions that may still
exist. Please be assured that we are deeply committed to
vigorous enforcement of the antitrust laws against all
practices that are truly harmful to consumers.
with best mishes,
On behalf of the President, I thank you for writing.
Sincerely, yours
Fred F. Fielding
Counsel to the President
Kenneth m. Duberotein
Enclosures
assistant to the President
MEMORANDUM
THE WHITE HOUSE
WASHINGTON
August 9, 1983
MEMORANDUM FOR FRED F. FIELDING
FROM:
JOHN G. ROBERTS
SUBJECT:
Resale Price Maintenance Correspondence
B.M. Fauber, Chairman of the Board of K Mart Corporation,
wrote the President on April 4 to complain about the Anti-
trust Division's position that resale price maintenance
should not be considered a per se violation of the antitrust
laws. On April 19 the letter was referred to Commerce; on
April 28 it was referred to Justice, with a cover note
requesting a direct reply within nine days. Instead of
replying, Justice waited until June 21 to send back to the
White House a copy of the boilerplate resale price
maintenance letter, for your signature. This letter was
prepared some time ago in response to Congressional mail on
the same subject. (You will recall that we revised those
letters and forwarded them to Ken Duberstein for sending
over his signature.) Over one month later, on July 25, the
package was sent to our office.
I see no reason for our office to be sending out letters on
substantive antitrust policy. As indicated in the original
April 28 referral to Justice, a direct reply to Mr. Fauber
should come from the responsible agency, in this instance
Mr. Baxter's Antitrust Division or, if Justice considers it
appropriate, higher officials at Justice. Of course, by now
Mr. Fauber surely expects no reply at all to his letter of
April 4. Presumably Justice (which held the letter for two
months) and White House Correspondence (which held Justice's
draft for another month) thought Mr. Fauber would change his
mind as he matured. The proposed memorandum to Schmults
(with copy to Sally Kelly) notes suggested revisions to the
substance of the draft reply. You approved these changes in
the draft of this form letter we forwarded to Ken Duberstein.
Attachment
THE WHITE HOUSE
WASHINGTON
August 9, 1983
MEMORANDUM FOR EDWARD C. SCHMULTS
DEPUTY ATTORNEY GENERAL
DEPARTMENT OF JUSTICE
FROM:
FRED F. FIELDING
Crig. Eigned by FFF
COUNSEL TO THE PRESIDENT
SUBJECT:
Correspondence from B.M. Fauber,
Chairman of K Mart Corporation,
Concerning Resale Price Maintenance
On April 4, 1983, B.M. Fauber, Chairman of the Board of K
Mart Corporation, wrote the President to complain about the
Administration's policy with respect to resale price mainte-
nance. On April 28 this letter was referred to the Justice
Department, the action requested being a direct reply within
nine days. Two months later the Justice Department submitted
a draft reply for my signature, and that draft has now found
its way to my office.
Since the proposed reply discusses substantive issues of
antitrust policy, it would seem appropriate for it to be
sent over the signature of the officials responsible for
that policy, as contemplated by the April 28 referral. (On
previous occasions when we have used this draft, it was sent
over Ken Duberstein's signature since Congressional correspon-
dence was involved.) In reviewing the proposed reply, I
question whether it is desirable to introduce pending
Supreme Court litigation (the Monsanto V. Spray-Rite case)
into a general discussion, and also whether discussion of
the bid-rigging cases is at all relevant to Mr. Fauber's
inquiry. Assuming Mr. Fauber has not lost his interest in
this subject over the past several months, I am returning
his letter to you for direct reply.
CC: Sally Kelley
FFF: JGR:aw 8/9/83
CC: FFFielding/JGRoberts/Subj./Chror
ID #. 135587
BE001
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Subject: Writer states that Federal a titust officials
will dogreat Larm to the economy, Consumers their
industry if manufa ctures have efic ctive Control Quer
price at which they sell me Rhandise to the public
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FIELDINGS
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5/81
U.S. Department of Justice
Office of the Deputy Attorney General
Executive Secretariat
Sally: RON
since me Baster
has written to
K. mart previously,
this letter from
the Chairmon of
the Brand rood
breen droftfarm
Mary Lawise
after
6/21/83
of
DRAFT
Mr. B. M. Fauber
Chairman of the Board
K mart Corporation
International Headquarters
Troy, Michigan 48084
Dear Mr. Fauber:
This is in response to your letter of April 4, 1983 to the
President expressing your concerns about the Department of
Justice's views regarding resale price maintenance.
I understand that William F. Baxter, Assistant Attorney
General in charge of the Antitrust Division, wrote to
Mr. A. Robert Stevenson, Vice President, Government & Public
Relations of K mart Corporation, on May 27, 1982, explaining
the Division's basic enforcement approach. This letter briefly
supplements that response.
The position taken by the Department of Justice with regard
to resale price maintenance rests on two key considerations:
its evaluation of whether or not (and, if so, under what
circumstances) resale price maintenance has harmful economic
consequences inconsistent with the aims and purposes of the
antitrust laws, and the proper allocation of the Department's
own enforcement resources.
Based on its analyses and studies, the Department's
Antitrust Division has concluded that resale price maintenance
agreements differ fundamentally in their economic consequences
from price fixing agreements between competitors and other
types of cartel arrangements, which in most instances serve no
useful economic function whatever and are almost invariably
harmful to the public interest. For this reason the courts
properly hold price fixing between competitors and other cartel
arrangements to be "per se" unlawful under the antitrust laws.
By contrast, resale price maintenance agreements can in a
number of situations serve desirable economic ends consistent
with the aims and purposes of the antitrust laws. The
Department believes that resale price maintenance should not be
treated as a "per se" violation of the antitrust laws but
should be judged under the "rule of reason" standard applicable
to most restrictive business arrangements, including other
types of vertical restraints. The present court-developed rule
that resale price maintenance is "per se" unlawful has the
undesirable consequence that the courts cannot draw a
distinction between those arrangements that serve an
economically desirable purpose and those that do not: all are
condemned alike.
Another undesirable consequence of the "per se" rule as
currently applied in resale price maintenance cases is that in
many instances dealers whose distributorships have been
terminated by a manufacturer, on grounds wholly unrelated to
- 2 -
resale price maintenance, have in court challenged the
termination on the asserted ground that the true reason for the
termination was the dealer's supposed failure to adhere to the
manufacturer's suggested resale prices. In some instances,
relying on this argument, dealers have challenged various
conventional distribution arrangements, such as drop shipment
programs, that by their terms did not deal with resale prices
at all. Thus, the "per se" rule has been invoked to jeopardize
the legality of business arrangements that in fact do not
involve resale price maintenance. Adoption of the "rule of
reason" standard would greatly limit such spurious challenges
since the challenging party would be required to prove
specifically the anticompetitive effects of the alleged
restraints.
These points are spelled out in greater detail in a brief
submitted by the Department of Justice a few weeks ago to the
Supreme Court of the United States, in the case of Monsanto V.
Spray-Rite, in which the Department urged the Court to adopt
the "rule of reason" approach in adjudicating resale price
maintenance cases. I enclose herewith a copy of the brief.
The second key consideration underlying the Department of
Justice's position in this matter is the belief that the
Department should concentrate its enforcement resources on
challenging activities that have an unequivocally harmful
effect on consumers and on the economy, and where enforcement
- 3 -
of the law by private action is often handicapped because the
conspiring parties effectively conceal their wrongful conduct.
Horizontal price fixing, bid rigging. and other cartel
activities fall into this category.* For the reasons stated
in this letter and in the enclosed brief, the Antitrust
Division believes that resale price maintenance does not have
an unequivocally harmful effect, but to the contrary can in
many instances serve a desirable economic objective. Further,
resale price maintenance agreements in general cannot be
effectively concealed by the parties, so that in most cases
persons adversely affected by such an agreement will be aware
of its existence and can seek relief by bringing a private
lawsuit, thereby diminishing the need for action by the
Department of Justice.
We wish to make clear that the Antitrust Division rejects
the view that resale price maintenance should always be deemed
lawful. Its position is that the legality of resale price
maintenance ought to be determined on the basis of whether or
not that practice has, or threatens to have, significant
*1 The role that the Antitrust Division's enforcement
activities have played in directly benefitting the public
through the elimination of unlawful bid rigging in the road
construction industry. a sector of the economy in which the
Antitrust Division has been quite active in recent years, is
discussed in a recent article appearing in the Wall Street
Journal, a copy of which is enclosed herewith.
- 4 -
of the law by private action is often handicapped because the
conspiring parties effectively conceal their wrongful conduct.
Horizontal price fixing, bid rigging. and other cartel
activities fall into this category. For the reasons stated
in this letter and in the enclosed brief, the Antitrust
Division believes that resale price maintenance does not have
an unequivocally harmful effect, but to the contrary can in
many instances serve a desirable economic objective. Further,
resale price maintenance agreements in general cannot be
effectively concealed by the parties, so that in most cases
persons adversely affected by such an agreement will be aware
of its existence and can seek relief by bringing a private
lawsuit, thereby diminishing the need for action by the
Department of Justice.
We wish to make clear that the Antitrust Division rejects
the view that resale price maintenance should always be deemed
lawful. Its position is that the legality of resale price
maintenance ought to be determined on the basis of whether or
not that practice has, or threatens to have, significant
The role that the Antitrust Division's enforcement
activities have played in directly benefitting the public
through the elimination of unlawful bid rigging in the road
construction industry. a sector of the economy in which the
Antitrust Division has been quite active in recent years, is
discussed in a recent article appearing in the Wall Street
Journal, a copy of which is enclosed herewith.
anticompetitive effects in the context of the particular
factual situation in which it is employed. The same legal
principle is currently applied by the courts in adjudicating
the lawfulness under the antitrust laws of other types of
vertical restraints.
In his public statements Mr. Baxter has repeatedly
confirmed the Division's policy on this subject. In line with
that policy, the Antitrust Division has not declined to
investigate alleged incidents of resale price maintenance where
it appears that significant competitive harm may result. When
such instances are brought to the attention of the Antitrust
Division, it is prepared to review them for possible
enforcement action.
We hope that this information, and the materials enclosed
herewith, will help to clarify the Administration's position on
this matter and to dispell any misconceptions that may still
exist. Please be assured that we are deeply committed to
vigorous enforcement of the antitrust laws against all
practices that are truly harmful to consumers.
On behalf of the President, I thank you for writing.
Sincerely yours,
Fred F. Fielding
Counsel to the President
Enclosures
3039
THE WHITE HOUSE OFFICE
REFERRAL
APRIL 28, 1983
TO: DEPARTMENT OF JUSTICE
ACTION REQUESTED:
DIRECT REPLY, FURNISH INFO COPY
DESCRIPTION OF INCOMING:
ID:
135587
MEDIA: LETTER, DATED APRIL 4, 1983
like
39
TO:
PRESIDENT REAGAN
;
FROM:
MR. B. M. FAUBER
CHAIRMAN OF THE BOARD
KMART CORPORATION
INTERNATIONAL HEADQUARTERS
TROY MI 48084
SUBJECT: WRITER STATES THAT FEDERAL ANTITRUST
OFFICIALS WILL DO GREAT HARM TO THE ECONOMY,
CONSUMERS AND THEIR INDUSTRY IF MANUFACTURERS
HAVE EFFECTIVE CONTROL OVER THE PRICE AT
WHICH THEY SELL MERCHANDISE TO THE PUBLIC
PROMPT ACTION IS ESSENTIAL -- IF REQUIRED ACTION HAS NOT BEEN
TAKEN WITHIN 9 WORKING DAYS OF RECEIPT, PLEASE TELEPHONE THE
UNDERSIGNED AT 456-7486.
RETURN CORRESPONDENCE, WORKSHEET AND COPY OF RESPONSE
(OR DRAFT) TO:
AGENCY LIAISON, ROOM 91, THE WHITE HOUSE
SALLY KELLEY
DIRECTOR OF AGENCY LIAISON
PRESIDENTIAL CORRESPONDENCE
334094
THE WHITE HOUSE OFFICE
REFERRAL
APRIL 19, 1983
TO: DEPARTMENT OF COMMERCE
ACTION REQUESTED:
APPROPRIATE ACTION
DESCRIPTION OF INCOMING:
ID:
135587
MEDIA: LETTER, DATED APRIL 4, 1983
TO:
PRESIDENT REAGAN
FROM:
MR. B. M. FAUBER
CHAIRMAN OF THE BOARD
KMART CORPORATION
INTERNATIONAL HEADQUARTERS
TROY MI 48084
SUBJECT: WRITER STATES THAT FEDERAL ANTITRUST
OFFICIALS WILL DO GREAT HARM TO THE ECONOMY,
CONSUMERS AND THEIR INDUSTRY IF MANUFACTURERS
HAVE EFFECTIVE CONTROL OVER THE PRICE AT
WHICH THEY SELL MERCHANDISE TO THE PUBLIC
PROMPT ACTION IS ESSENTIAL -- IF REQUIRED ACTION HAS NOT BEEN
TAKEN WITHIN 9 WORKING DAYS OF RECEIPT, PLEASE TELEPHONE THE
UNDERSIGNED AT 456-7486.
RETURN CORRESPONDENCE, WORKSHEET AND COPY OF RESPONSE
(OR DRAFT) TO:
AGENCY LIAISON, ROOM 91, THE WHITE HOUSE
SALLY KELLEY
DIRECTOR OF AGENCY LIAISON
PRESIDENTIAL CORRESPONDENCE
Kmart Corporation
International Headquarters
Troy, Michigan 48084
Office of
The Chairman of the Board
April 4, 1983
135587
President Ronald Reagan
The White House
1600 Pennsylvania Avenue, NW
Washington, D.C. 20500
Dear Mr. President:
Federal antitrust officials will do great harm to the economy,
consumers and our industry if manufacturers have effective control over the
price at which we sell merchandise to the public.
Your Administration in the past has been committed to free markets
and against judicial activism. In 1975, you spoke (a copy of which is
attached) against fair trade laws which were subsequently discredited by the
Congress under the Ford Administration. Current actions by federal
antitrust officials amount to a revisitation of this same old issue.
On February 12, 1982, I wrote you about my concern on Resale Price
Maintenance (see attached). To date the Administration has not told federal
antitrust officials that it supports keeping Resale Price Maintenance
illegal per se.
As a retailer, we need to have the continued freedom to compete in
bringing consumers the products they want at the prices they can afford.
Very truly yours,
BMAN B. M. Fauber
Encls.
CC: Mr. R. E. Dewar
Kmart Corporation
International Headquarters
Troy. Michigan 48084
Office 01
The Chairman 01 the Board
February 12, 1982
President Ronald Reagan
The White House
1600 Pennsylvania Avenue, NW
Washington, D. C. 20500
Dear President Reagan:
Having been a retailer for more than 40 years, there
are two fundamental conclusions that I have reached. The first
is that the American consumer is infinitely capable of deter-
mining where they can receive the best value for their money
for any product they wish to purchase. They equate best value
as a combination of what they perceive to be the basic quality
of the product, the reputation of the retail store providing
the product and the price of the product. It has also been my
observation that all other things being equal, the lower the
price of the product the higher the number of purchases consumers
will make.
The second conclusion is that, generally, manufacturers
tend to believe that their products can be sold at higher retail
prices than the consumer usually will find acceptable.
That is the real world. And in the real world, resale
price maintenance is almost without exception an attempt by
manufacturers to improve their profit margins; not by expanding
output, but by charging the consumer higher prices and thereby
enabling a trend to exact ever higher cost prices from retailers.
For your administration to suggest that there is a
role for resale price maintenance in today's marketplace and to
have your own Assistant Attorney General for Antitrust,
Mr. William Baxter, refer to the $85 billion a year general
- merchandise discount retailing industry as "free riders" causes
me the utmost concern.
Today, the American consumer more than ever is
extremely price-sensitive, particularly when it comes to making
purchase decisions for apparel, housewares, leisure-related
items and the other kinds of products that make up the merchan-
dise assortments of the U.S. discount department store industry.
President Ronald Reagan
Page 2
They have necessarily had to make significant adjustments in the
way they allocate their personal income dollars in the last
several years. We estimate that between 1975 and 1985 the
proportion of personal income that will be spent on shelter,
energy and transportation will rise from 25% to 32% of the
total, while expenditures for food, clothing and general house-
hold operations will by necessity be reduced from 40% to 35%.
It is now estimated that after paying for food, housing, medical
care, state and local taxes and other essentials, the average
U.S. consumer has just $1.42 a day left for discretionary.
purchases.
Fourtunately for these American consumers, general
merchandise retailers have been able to substantially moderate
our need to increase prices as compared to the prices consumers
pay for all items. The Consumer Price Index for all urban
consumers went up more than 52% between 1975 and 1980, while
general merchandise prices, as measured by the Department Store
Inventory Price Index, increased only 25%. If retail price
maintenance agreements had been allowed to flourish during this
1975 to 1980 period as they did in the 1930's, 1940's and 1950's,
you can rest assured that there would have been very little
differential between the price increases for general merchandise
and the increase in price for all items and services measured by
the CPI.
Potential Justice Department intervention through the
Private Action Program that has been proposed to assist
suppliers charged with vertical antitrust law violations is
not a trifling matter. To the American consumer, it would be a
matter of unparalleled injury.
Yours very truly,
B. M. FAUBER
bcc: Mr. R. E. Dewar
Mr. A. R. Stevenson
Mr. J. C. Tuttle
3.25.83
THE WALL STREET JOURNAL.
25
Date
Page
A Way of Life'
Building Costs
The Transportation Department's Inspec-
for general, who has alded the investign-
tions, recently reported "a strong correla-
On Highways
tion" to contractor bidding patterns "be
tween the success of our activity and the re
duction in bid prices."
Are Declining
Richard Braun, a Justice Department at-
torney who prosecuted cases in five states,
By ALBIRT R KARR
says bid-rigging was "pervasive" in each of
And ROBERT E. TAYLOR
them. The rigging Involved "setting wp"
Deaff Reporters of The WALL STREET I gurnal
contracts, or conspiring to offer higher bids,
The low bid for an interstate highway in-
so that an agreed-upon contractor would win
terchange in the Atlanta area was $53.2 mil-
the award with the lowest bid. Rigging type
Bon recently. more than $10 million below
cally inflated contracts 10%. but Mr. Braun
the state engineer's estimate. In Utah,
says some contractors raked off much
where contractor bids are coming in as low
more.
as 25% under estimates, the state has been
The practice was a "way of life" for
able to undertake four projects for the price
years in Tennessee and other states, offi-
that three used to cost.
cials say. The asphalt people just took It
One big reason for the lower prices: Jus-
for granted. Most of them didn't even think
tice Department prosecutions of widespread
It was breaking the law-H was more or less
bid-rigging by highway contractors. In addi-
helping each other out," says Samuel State
tion. state budget problems have produced a
of Virginia's Highways and Transportation
prolonged slump in highway construction,
Department.
and raw-material costs are down. Road-
But the federal crackdown. called one of
building expenses are expected to rise again
the biggest Justice Department enforcement
soon. but they haven't turned up yet and at
campaigns ever, seems to have stopped
the moment costs are actually declining.
much of the bid-fixing. As prosecutors used
"Contractors are super-sensitive" to the
evidence against one contractor to force tes-
prosecution threat, says Harvey Haack, a
timony against another. contractors fell like
deputy transportation secretary in Pennsyl-
dominoes in one state after another. Convic-
tion rates have topped 90%.
Construction Costs 8 Highways
Construction Costs Decline
Fallt With FederNA
in Virginia, Mr. State says. contractors
didn't want to 80 through this anymore.
Index 1977-180
Adds the Justice Department's Mr. Braim:
In states where judges have handed down
substantial fall sentences, road-building
firms "will be leery" of further rigging.
The big test will come as construction
picks up. Price conspiring is more likely
when a surplus of business reduces competi-
Tion for contracts.
That won't happen immediately. Nation-
wide, construction prices for federally aided
highways climbed 63% between 1977 and
1980, according to the Federal Highway Ad-
ministration. By the 1982 fourth quarter.
though. they had fallen nearly 13% from a
high in spring 1980.
in Texas, fiscal 1979 contract awards for
road-and-bridge projects were an average of
30
$4.8 million. or 15. above state engineering
estimates. But in fiscal 1981, awards were
1981
845.3 million, or 11%, below state estimates.
Seese Federal Highway Administration
John Kramer. the transportation secretary
vania He says the winning bid on a recent
for Illinois, says that the state has had "the
first sustained decline" in highway bids
814 million earth-moving contract tn Alle-
since the 1930s and that construction costs
gbeny County. which includes Pittsburgh,
was 20% below the 500 million engineering
are continuing to decline. He says costs
estimate.
have dropped about 20% to the past 2½
Since 1979, criminal grand juries to 21-
years.
states have investigated highway bid-fixing.
The price declines won't continue for
Prosecutions in 15 of those states have pro-
ever. Utah Gov. Scoll Matheson expects to
duced indictments d more than 180 compa-
creased road work to drive up bids by 5% to
nies and 200 executives. Convictions have
10%. Other state officials also predict bids
led to fines totaling $41 million and numer-
will rise as road and bridge building to
ous jall sentences.
creases because of new money from federal
and state gasoline-tax revenues. A five-cent
federal tax rise likes effect April 1. and
Please Turn to Page 30, Column)
THE WALL STREET JOURNAL.
3.25.83
25
Date
Page
Slump, Bid-Rigging Prosecutions
Are Reducing Road-Building Costs
Continued From Page 25
cautions to prevent a recurrence of bid rig-
many states are increasing their own levies.
ging. Tennessee, for example, makes more
The new law means federal highway financ-
precise estimates, has stopped publishing
ing will climb from $7.66 billion in fiscal 1982
the estimates and shields the identity of po-
to $11 billion to fiscal 1983 and $13.87 billion
tential bidders on specific projects. The
by fiscal 1986.
state also uses a "trigger" to alert the trans-
Michigan plans to increase Its road-con-
portation department to unusually high bids,
tract awards to $315 million to fiscal 1983
says Robert Farris, Tennessee's transporta.
from 8148 million in fiscal 1982. For six
tion commissioner.
months, Texas will triple its contract
Furthermore, Mr. Farris says, contrac-
awards to $120 million a month.
tors are saying to each other that now that
Francis Francols, executive director of
they're getting another chance because of
the America Association of State Highway
increased federal money. "for God's sake,
and Transportation Officials, says be ex-
let's do It right."
pects substantially higher construction costs
this year. And Mr. Kramer of Illinois says,
"We're predicating our future programs on
construction prices beginning to turn up by
midsummer." with a five-year annual infla-
tion figure of 8% to 10%.
Still, even though states have begun to in-
crease contracting. prices haven't re-
bounded yet. "With construction activity the
way It has been, I don't think you're going to
have rising prices for quite a while." says
Arnold Kupferman of New York's Transpor-
tation Department. He says his agency is
still getting eight to 10 bids for every proj.
ect In Illinois, seven firms bid on an aver-
age project. up from two in 1980.
In most states, a Federal Highway Ad-
ministration official says, contractors are
still "more Interested in survival than prof-
its." But Louie Pittman, president of Pitt-
man Highway Contracting Co. of Conyers,
Ga., says bids must rise before long or
"there are going to be a lot of failures." He
says last year was his company's worst to 15
years.
Meanwhile, some states have taken pre-
15
1268
EXTENSIONS OF REMARKS
January 23, 1975
has moved; evidently she must be finding
ing a column that is syndicated by the
tion in order to weed out those regulations
things & little difficult in the new place,
Copley News Service. I am very pleased
which stifie competition Good. Let's include
what with her two children and elderly
the fair trade laws in that review.
to see Governor Reagan continuing to
mother. I ask that they should give her their
Once you invite government to regulate
care; please RSK some one of them to tell me
express his view that the answers to
you, in order to protect your economic in-
of how abe is settling down there.
today's problems will be found by reduc-
terests, you're asking for a lot more regula-
Next day: am going on. What shall I tell
ing government rather than by increas-
tion down the line.
you about myself? As I have already writ-
ing it.
We live in a time when the barnacles of
ten you. my way of life is somewhat different
Ronald Reagon is one of the few
government regulation have added meas-
now. Which has its disadvantages-or else
leaders in the country that still cham-
urably to the cost of goods we buy. Let's re-
they would not put people here. But there
pions individual freedom and the free
think the fair trade laws altogether. Elimi-
are some positive aspects. The chief one 18
nate them and some prices should begin go-
a possibility to read much, and I am fully
market economy-something that once
ing down as a result. That may not "lick"
using it. Of late I have incidentally received
was the cornerstone of the Republican
inflation, but it would help.
a number of books through the "Book by
Party.
Mail" service, so I have enough reading mat-
Following is one of his latest com-
ter, I am also studying the language, though
mentaries that points out how govern-
my progress is as modest as it used to be.
ment regulations hurt not help the con-
STATEMENT OF PURPOSE OF THE
But my word stock 18 nevertheless growing.
sumer in America. I am pleased to com-
NATIONAL YOUTH PRO-LIFE COA-
It may be a good idea to learn with grester
mend the following article to my
LITION
intensity now-all of a sudden we may be
released. and I am still unable to talk prop-
colleagues in Congress:
erly. But that is something we can survive
So-CALLED "FAIR TRADE" LAWS OVERDUE FOR
HON. HAMILTON FISH, JR.
all right. I don't mind
HARD LOOK
OF NEW YORK
At the same time I ain ready (as I was be-
(By Ronald Reagan)
fore) to be kept here to the end But let
IN THE HOUSE OF REPRESENTATIVES
One of the cld-time ventriloquist tricks
us trust the better thing will come, and then
in vaudeville was done by the fellow who
Thursday, January 23, 1975
whatever will be, will be.
would sing a chorus of "Yankee Doodle
As for my health, it 18 generally fine. Suf-
Dandy" while drinking a glass of water.
Mr. FISH. Mr. Speaker, the National
fice it to say I have never been laid with
Another version is even trickler: B business
Youth Pro-Life Coalition is an organiza-
bigh fever all these years. Some trifing
or industry argues for free enterprise on the
tion of students and other young Ameri-
things may sometimes happen-but then
one hand-free, that is, from government
cans who are deeply troubled by what
they can bappen to anyone and under very
regulation-st the same time it asks govern-
they perceive as the willingness of our
different conditions, too, there is no insur-
ment to make laws setting minimum prices
ance against that. Otherwise all in quite nor-
society to adopt "expedient rather than
on the product it sells. This trick is called
mal, when I come you will see with your
just solutions to complex human prob-
"fair trade."
own eyes.
Though such laws date back to the turn
lenis." The following statement is an
I have several times asked Pinya about
of the century, federal courts knocked them
adapted version of an article about the
how ho feels, but he writes nothing about
out in 1911.
coalition by Dr. Thomas Hilgers, a co-
that. Mama, please let me know about 1t.
They came back 20 years later when Call-
founder and member of the Advisory
In my June letter to Sara I assed her a
fornia retail druggists were worried about
Board, from the November 1974 issue of
lot of questions, but no answers have come
price wars and sought minimum-price legis-
Linacre Quarterly:
back to any one of them. She may not
lation to prevent them. Soon after, 43 other
deserve the reprosch, and in her letter (No.
STATEMENT
states enacted so-called "fair trade" laws.
26, confiscated) she may have answered the
More recently there have been indications
A little more than two years ago, 60 young
questions. However that may be, I have not
that this trick may be going the way of the
people from nearly 23 states met in Chicago,
heard her answers to a number of questions
vaudaville act. It is estimated that only
Illinois, with a common interest in human
that interest me. Let me repeat scme. How
about 20 large companies use the laws ex-
life. The abortion issue was the main item of
many settlements are there in the Golans,
tansively today. Several states have done
concern at the first conference, but it didn't
and how many have sprung up after Octo-
away with them entirely.
take long to recognize that those in attend-
дег? What is the population of the area?
Just the same, 14 states, representing
ance had a great concern for human life at
How is the construction of the new town
nearly half the nation's retall sales, still have
all stages of development and in all strata of
going on? And where is it situated? The
tough, enforcesble fair trade laws. This
social existence. From the first meeting. the
same about the Ranakh area? But it must be
means that a retailer who wants to sell a fair
first national youth pro-life organization was
easler for her to look into my earlier letter,
trade item below the minimum price may
conceived. At that time, this organization, the
after all.
risk heavy fines or even a jail sentence for
National Youth Pro-Life Coalition (NYPLC).
I have re-read the letter and noticed I
cutting his price to the consumer.
adopted three fundamental tenets to its
am repeating myself towards the end. It
Big discount chains usually won't sign
existence; it would be non-violent in its activ-
means I'd better wind up. It has suddenly
fair trade agreements, but small retailers
ities; it would espouse that human life was
become very late these latest days. winter has
may fear being cut off from supplies of popu-
a continuum from conception to natural
net in: it has been overdue from the local
la- brands if they don't observe the fair
death: it would promote the concept that
viewpoint: 15 18 the second part of Octo-
trade agreements they are asked to sign
"thers is DO human life not worth living"
ber
Once again, Mams, please send me
It used to be argued that fair trade laws
(taken from the writings of Dr. Viktor Frankl,
stereo-and picture postcards too. How is
helped small retailers, such as the corner
an Austrian psychiatrist who spent three
Dad's health? Is he happy about the change
grocer, from being severely undercut by big
years in the Auschwitz death camp).
of the residence?
chains with superior buying power. It's more
The concern of the NYPLC, which now has
My best wishes to our friends, and in the
likely that independent neighborhood retail-
chartered groups and affiliate members
first place to those who keep writing. who
ers are surviving today because they are con-
throughout the United States, lies in the
still remember me, too. Mummy dear, don't
venient than because of a few cents difference
issue of life itself. Dismayed by the incon-
worry for me. I am being in a "chamber"
in a price on a brand of liquor or lipstick or
sistent way human life is valued in our soci-
("cell"?) room right now, and that scens
water glasses.
ety. the Coalition speaks out for consistency.
to be the reason why the letter is what it is
Pro-fair trade forces argue that the higher
The membership is aware of the prevailing
But, generally speaking. everything is OK
margins provided the retailer by fair trade
attitude among young people, especially on
and even better. I am eager to believe this
laws result in more retailers carrying the line,
college campuses, that ties anti-wer pro-civil
will be all over soon. Mummy dear. have the
and with a broader selection at that
rights, and pro-abortion feelings all into
best of treatment, get well and keep writing.
That may be true, but in an age when
a tightly knit supposedly "liberal" bag.
Au revoir-Klss-Yours,
advertising has effectively presold so many
Equally discouraging has been the anti-
ARIE.
brand names, is the retailer really providing
abortion, pro-war, pro-capital punishment
any extra useful service to the consumer in
attitudes of yet another segment of the
exchange for that higher margin? It's nice to
population.
PAIR TRADE LAWS DUE FOR HARD
know that he carries B broad selection. but
In the "respect for life" movement, the
LOOK
without fair trade, wouldn't an enterprising
Coalition believes that only a real revolu-
merchant carry as broad a line of, any COB-
tion in the vaue and dignity of every hu-
metics as his customers demand?
man life will produce constructive social and
HON. STEVEN D. SYMMS
Former Atty. Gen William Saxbe said in
human reform. If human life is to be re-
a recent speech to a grocery manufacturing
spected, then all human life is to be re-
OF IDAHO
group, "Whatever feeble justification may
spected and arbitrarily eliminating anyone
IN THE HOUSE OF REPRESENTATIVES
have once existed for fair trade, there is to-
from this respect produces inconsistencies
Thursday, January 23, 1975
day no reason to place such heavy burdens
which undermine the basic ground-structure
on the consuming public."
from which true reform emanates.
Mr. SYMMS. Mr. Speaker, former Gov.
Lately, there has been a lot of talk about
Recognizing that humanity encounters
Ronald Reagan of California is now writ-
taking a "hard look" at government regula-
enormous problems, many of which do not
fate: resule
THE WHITE HOUSE
price maintinance
WASHINGTON
will
Date
11.28.83
Suspense Date
MEMORANDUM FOR:
Phn
FROM:
DIANNA G. HOLLAND
ACTION
Approved
Please handle/review
For your information
For your recommendation
For the files
Please see me
Please prepare response for
signature
As we discussed
Return to me for filing
COMMENT
THE WHITE HOUSE
Office of the Press Secretary
EMBARGOED FOR RELEASE AT 11:30 AM EST
November 28, 1983
STATEMENT BY THE PRESIDENT
I am today signing H.R. 3222. I am doing so, however,
with strong reservations about the constitutional implications
of section 510 of this bill. Section 510 purports to prohibit
the expenditure of appropriated funds on "any activity, the
purpose of which is to overturn or alter the per se prohibi-
tion on resale price maintenance in effect under Federal
antitrust laws " I do not understand Congress to have
intended by this provision to limit or direct prosecutorial
discretion, or otherwise to restrict the government's ability
to enforce the antitrust laws within the framework of existing
case law. Thus, despite the breadth of its language, pursuant
to the advice of the Attorney General, I interpret section 510
narrowly to apply only to attempts to seek a reversal of the
holdings of a certain line of previously decided cases. Even
as narrowly construed, however, the provision potentially
imposes an unconstitutional burden on Executive officials
charged with enforcing the Federal antitrust laws. Therefore,
I believe it is my constitutional responsibility to apply
section 510 in any particular situation consistently with the
President's power and duty to take care that the laws be faith-
fully executed.
Another provision of concern is the section which pur-
ports to mandate continued funding for current grantees of the
Legal Services Corporation at essentially the same level of
funding as in fiscal year 1983, unless action is taken prior
to January 1, 1984, by directors of the Corporation who have
been confirmed by the Senate. To the extent that this pro-
vision may be intended to disable persons appointed under the
Constitution's provision governing presidential appointments
during congressional recesses from performing functions that
directors who have been confirmed by the Senate are authorized
to perform, it raises troubling constitutional issues with
respect to my recess appointments power. The Attorney General
has been looking into this matter at my request and will
advise me on how to interpret this potentially restrictive
condition.
#######
THE WHITE HOUSE
Office of the Press Secretary
EMBARGOED FOR RELEASE AT 11:30 AM EST
November 28, 1983
STATEMENT BY THE PRESIDENT
I am today signing H.R. 3222. I am doing so, however,
with strong reservations about the constitutional implications
of section 510 of this bill. Section 510 purports to prohibit
the expenditure of appropriated funds on "any activity, the
purpose of which is to overturn or alter the per se prohibi-
tion on resale price maintenance in effect under Federal
antitrust laws
I do not understand Congress to have
intended by this provision to limit or direct prosecutorial
discretion, or otherwise to restrict the government's ability
to enforce the antitrust laws within the framework of existing
case law. Thus, despite the breadth of its language, pursuant
to the advice of the Attorney General, I interpret section 510
narrowly to apply only to attempts to seek a reversal of the
holdings of a certain line of previously decided cases. Even
as narrowly construed, however, the provision potentially
imposes an unconstitutional burden on Executive officials
charged with enforcing the Federal antitrust laws. Therefore,
I believe it is my constitutional responsibility to apply
section 510 in any particular situation consistently with the
President's power and duty to take care that the laws be faith-
fully executed.
Another provision of concern is the section which pur-
ports to mandate continued funding for current grantees of the
Legal Services Corporation at essentially the same level of
funding as in fiscal year 1983, unless action is taken prior
to January 1, 1984, by directors of the Corporation who have
been confirmed by the Senate. To the extent that this pro-
vision may be intended to disable persons appointed under the
Constitution's provision governing presidential appointments
during congressional recesses from performing functions that
directors who have been confirmed by the Senate are authorized
to perform, it raises troubling constitutional issues with
respect to my recess appointments power. The Attorney General
has been looking into this matter at my request and will
advise me on how to interpret this potentially restrictive
condition.
#######
THE WALL STREET JOURNAL.
111
DATE: 11.29.83
PAGE:
60
:
White House Indicates
Baxter, who heads the Justice Department's
72-year-old case law holding resale price fix-
Antitrust Division, intends to offer argu-
ing flatly illegal. It isn't clear whether Mr.
It Won't Challenge
ments on two narrow aspects- of the case,
Baxter will respond to questions from the
but that he won't raise his opposition to the
justices on this point.
Price-Fixing Rulings
By u W V.I. STREET JOURNAL Staff Reporter
WASHINGTON- President Reagan. sign-
ing a spending bill, indicated his administra-
tion will obey a provision barring attempts
to overturn rulings that make it illegal un-
der any circumstances for a company to fix
resale prices of its products.
The prohibition against challenging the
judicial precedents was attached to a bill
funding the departments of State, Justice
and Commerce. Before yesterday, adminis-
tration officials had avoided saying whether
they would be bound by the restriction.
The Justice Department already has filed
a brief with the Supreme Court arguing that
fixing resale prices sometimes helps, rather
than hinders. competition. It argues that
price fixing should be held legal or illegal
depending on the circumstances. This is an
argument even the defendant, Monsanto Co.,
hasn't made in the case before the high
court.
Oral arguments in the case are scheduled
for Monday. It is understood that William
Y
reale
The Washington Post
price
DATE: 12/1/83
maintance
PAGE:
F-1
Won't Argue Antitrust Law Change
White House Backs Off Price Case
By Fred Barbash
part because it priced Monsanto
Lee's letter indicated that the gov-
Washington Post Staff Writer
products too low. The termination
ernment would not provoke a con-
The Reagan administration, bow-
followed complaints to Monsanto
frontation over it in the Monsanto
ing to a congressional mandate it
from competing distributors.
case.
believes may be unconstitutional,
The legislative rider was the result
The decision will not deprive the
has decided not to argue before the
of continuing objections from many
justices of Baxter's views on resale
Supreme Court next week for far-
members of Congress to the admin-
price maintenance, however, because
reaching changes in the nation's an-
istration's antitrust enforcement pol-
the government has already sub-
titrust law.
icies. Sponsored by Sen. Warren
mitted a brief outlining them. The
William F. Baxter, chief of the
Rudman (R-N.H.), it provided that
rider, to the Justice Department's
Justice Department's antitrust divi-
no funds may be used for activities
appropriations act, came too late to
sion, was scheduled to argue before
designed "to overturn or alter the
prevent that.
the court Monday that it should re-
per se prohibition on resale price
The rider reflected strong concern
evaluate its 72-year-old landmark
maintenance in effect under the na-
in Congress over the administration's
decision that resale price mainte-
tion's antitrust laws."
policies on vertical price fixing-
nance-restraints by manufacturers
Court observers could not recall a
which can prevent distributors from
on prices charged by distributors-is
similar situation or a similar rider so
giving price discounts to consumers
per se illegal.
broadly restricting the power of the
on products. A committee report ac-
But a recent rider to an appropri-
Justice Department to litigate issues,
companying the rider said "the Su-
ations bill passed by Congress effec-
though attempts have been made in
preme Court has ruled this type of
tively barred the administration
the past to use this technique to
price fixing is illegal, yet the antitrust
from pressing the issue. A Justice
keep the government out of school
division has adopted a policy of refus-
Department spokesman said yester-
busing cases.
ing to prosecute violations."
day Baxter will still participate in
Solicitor General Rex E. Lee in-
In addition, the division, in its
oral arguments in the case, Mon-
formed the Supreme Court in a let-
brief in the Monsanto case, pushed
santo Co. vs. Spray-Rite Service
ter Monday that Baxter would not
for a wholesale change in the law.
Corp., as a "friend of the court," but
argue the issue. But he noted that
Under the "per se" approach, coerced
will only touch on other issues in the
President Reagan, when he signed
price restrictions or restrictive agree-
case, avoiding the more controversial
the appropriations measure, said
ments between a manufacturer and
contention he wanted to make.
that it "potentially imposes an un-
distributors are considered inherent-
The case stems from a $10.5 mil-
constitutional burden on executive
ly anticompetitive and automatically
lion treble-damage award to Spray-
officials charged with enforcing the
illegal. The administration believes
Rite Service Corp., which claimed
federal antitrust laws." The presi-
that such situations may be legally
that Monsanto terminated it as an
dent reserved the right to contest
justifiable if they are found not to
authorized distributor in 1968 in
the rider.
have anticompetitive impact.
23
DOJ-1983-04
CHRISTIAN SCIENCE MONITOR
DATE: 11-30-83
PAGE: 6
Justice Department, Congress spar over
future of no-frills pricing
By Peter Grier
Staff writer of The Christian Science Monitor
So Baxter wants the Supreme Court to relax the pro-
Washington
hibition against retail price maintenance. Specifically, he
The stores are often located in old warehouses on the
says judges should study the economic effect of such ar-
edge of town. They specialize in cameras, or carpets, or
rangements, to see if they are pro-competitive, instead of
clothing. Their ads are blunt (WAREHOUSE SALE!
automatically ruling them illegal.
PRICES SLASHED! MIDNIGHT MADNESS!) and
A case dealing with the subject, Monsanto vs.
they sell products for less, less, less than traditional re-
Sprayrite, will be argued before the court on Dec. 5. Bax-
tail outlets.
ter had planned to take the stand then, and present his
Over the last decade, these discount stores have been
position.
among the fastest-growing sectors of American business.
Justice Department officials argue that they're push-
But now, in a little-noticed move, the Justice Department
ing for a relatively technical change in the law.
is pushing a change in law that could end the price ad-
"We're not talking about as radical a departure as
vantage of many discounters.
some people believe," says Mark Sheehan, a Justice De-
William F. Baxter, assistant attorney general for
partment spokesman.
antitrust, says he believes that manufacturers should
But critics (who include many members of Congress)
sometimes be able to dictate a minimum retail price for
say the move would make a big difference to the average
their product. Currently, such price-fixing is automati-
consumer, by curbing competition at the retail level and
cally an antitrust violation.
raising the price of many popular products.
Congress doesn't agree with Mr. Baxter, and has
"Justice really is taking quite an unrealistic position,"
voted to prohibit the Justice Department from trying to
says Lawrence Sullivan, a law professor at the Univer-
relax retail-price laws.
sity of California at Berkeley who has studied the subject
Discount stores, which thrive on low overhead and
for a business coalition opposed to the move.
high turnover, have existed since at least the early years
The Justice Department, Mr. Sullivan says, believes
of this century. They began to flourish after 1975, when
discount-house price-slashing can keep the marketplace
Congress completely outlawed the ability of manufactur-
from operating at full economic efficiency. But the pur-
ers to dictate the price customers could be charged for
pose of the antitrust laws, he argues, is not just to pro-
products.
mote efficiency, but to encourage competition at all lev-
Not everyone, however, thinks it's a great thing that
els, from manufacturer to retail outlet, and to ensure that
American consumers can save by shopping at stores that
the consumer is treated fairly.
offer few frills. Many economists and regulators com-
If Baxter's views prevail, companies with many com-
plain about the "free-rider" phenomenon, in which cus-
petitors and products that are relatively sophisticated -
tomers shop an expensive outlet for advice, then buy
cameras, personal computers, stereos - would probably
from a discounter.
be allowed to set retail prices, says Sullivan and congres-
For example, an expensive downtown tennis store
sional aides who study the subject.
here has a back room with a ball machine where custom-
Some manufacturers would set high prices. Some
ers can try out rackets. During a recent afternoon a con-
would stay low, to catch the discount crowd. The practi-
gressional aide spent an hour there with a salesman, hit-
cal effect to consumers would be a much smaller variety
ting balls, before deciding on a racket called "The Bronze
at your local discount store, these critics say.
Ace."
But Congress, in any case, is trying to keep all this
Then she thanked the salesman, walked out the door,
from happening. The bill authorizing Justice funds for
and saved $20 by actually buying her "Ace" at a dis-
1984 contained a provision that said no money could be
spent to change retail price law. Justice officials say they
count store in the suburbs.
Such actions hurt specialized retailers and disrupt
aren't sure if this provision will prevent Baxter from ar-
manufacturers' marketing plans, say proponents of the
guing his beliefs before the Supreme Court in December.
"Lots of members [of Congress] feel discounting is
mandatory retail price.
Assistant Attorney General Baxter, a former Stanford
very important," says one congressional staff member. If
there is any relaxation in price law, predicts this aide.
professor with a scholastic approach to law enforcement,
feels this way. He takes the view that set retail prices
Congress would simply vote to undo the change.
could actually stimulate competition between companies,
since they would increase manufacturers' control over
product distribution.
zy
The New York Times
PAGE:
D-15
Baxter Presents Views
In Key Antitrust Case
In his appearance today, his first
By ROBERT D. HERSHEY Jr.
before the Court, Mr. Baxter passed
up an opportunity to expound on his
Special to The New York Times
view that the prohibition of such
WASHINGTON, Dec. 5 - The Su-
price-fixing should be subject to ex-
preme Court heard arguments today
ceptions.
in what could prove to be the most im-
In doing so, be appeared to comply
portant antitrust case in recent years
with a Congressional directive, in the
- a routine private price-fixing dis-
1984 Justice Department appropria-
pute that has beer. elevated by Justice
tion, that no public money be spent
Department intervantion into a possi-
trying to persuade the Court to over-
ble judicial landmark.
turn its 1911 Dr. Miles Medical Com-
The Court, in a decision expected
pany decision establishing inherent
next spring, could decide to overturn
illegality for vertical price-fixing.
72 years of legal history under which
it is automatically illegal for manu-
-President Reagan signed this ap-
facturers so specify the prica at
propriations bill into law while ex-
which distributors must sell their
pressing doubts about the provision's
coustitutionality.
products.
The Justice Department's antitrust
Mr. Baxter's presentation, which
chief, Assistant Attorney General
aroused intense interest, consisted es-
William. F. Baxter, and other Justice
sentially of a declaration of conflict
Department officials have submitted
between the Dr. Miles case and the
2 friend of the court brief arguing that
Court's 1977 G.T.E. Sylvania Inc.
such vertical price-fixing otherwise
decision holding that vertical restric-
known as resale price maintenance,
tiens that do not involve price, such as
should be permitted when the facts of
territorial agreements, were not to be
2 particular case show that to P.O.
automatically illegal.
IDES competition.
He recommended that the Court
Consumer groups and discount
"build a fence" between the two deci-
stores have strenhously opposed any
sions so that both could remain in
relaxation of the Di chibition.
force.
-20-
DOJ-193-04
MEMORANDUM
THE WHITE HOUSE
WASHINGTON
December 22, 1983
FOR:
FRED F. FIELDING
FROM:
SHERRIE M. COOKSEY 8mc
SUBJECT:
OLC Opinion on the Scope of the Limitation
Imposed on the Justice Department by the
Appropriation Act Provision relating
to R
Ted Olson sent you an informational copy of his opinion to
William Baxter setting forth OLC's interpretation of the
provision of the 1984 DOJ appropriations bill which attempted
to limit the Department's discretion on vertical price fixing
agreements (resale price maintenance). The purpose of Olson's
memorandum was to provide Baxter guidance on the effect of the
appropriations provision on the Department's oral arguments
before the Supreme Court in Monsanto Co. V. Spray Rite Service
Corporation. Those arguments were held on December 5, 1983.
Recommendation: No action is necessary at this time, as the
legality of resale price maintenance agreements will now be
decided by the Supreme Court.
cc: John G. Roberts, Jr.
ID #.
191449 CU
WHITE HOUSE
FIDD4
CORRESPONDENCE TRACKING WORKSHEET
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Subject: memorandum for William F. Baxter r Scope
of limitation Imposed by appropriations Oct
Provision Relating to Resale Price Maintenance
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5/81
U.S. Department of Justice
Office of Legal Counsel
Office of the
Assistant Attorney General
DEC 9 1983
MEMORANDUM TO FRED F. FIELDING
COUNSEL TO THE PRESIDENT
For your information, I am enclosing
a copy of our interpretation of the
provision in the DOJ fiscal year 1984
appropriation purporting to restrict the
Department's discretion with respect to
vertical price fixing agreements.
TeD
Theodore B. Olson
Assistant Attorney General
Office of Legal Counsel
Enclosure
BE
U.S. Department of Justice
Office of Legal Counsel
Office of the
Washington, D.C. 20530
Assistant Attorney General
2 DEC 1983
MEMORANDUM FOR WILLIAM F. BAXTER
Assistant Attorney General
Antitrust Division
RE:
Scope of Limitation Imposed by" Appropria-
tions Act Provision Relating to Resale Price
Maintenance
You have asked our guidance on how you should interpret
a provision in the Department's recently enacted appropriation
act for fiscal 1984 1/ which affects the Antitrust Division's
programs. The provision in question appears in § 510 of
the act, and prohibits the expenditure of appropriated funds
on "any activity, the purpose of which is to overturn or
alter the per se prohibition on resale price maintenance in
effect under Federal antitrust laws
"
2/ You are
particularly interested in advice concerning the effect of
this provision on the Department's scheduled participation on
December 5, 1983 in oral argument before the United States
1/ The Departments of Commerce, Justice, and State, the
Judiciary and Related Agencies Appropriations Act, 1984, Pub.
L. No. 98-166, 97 Stat. 1071, was signed into law by the
President on November 28, 1983.
2/ Section 510 reads in full as follows:
None of the funds appropriated in title
I and title II of this Act [for the
Department of Justice and the Federal
Trade Commission] may be used for
any activity, the purpose of which
is to overturn or alter the per se
prohibition on resale price maintenance
in effect under Federal antitrust laws:
Provided, That nothing in this
provision shall pronibit any employee
of [the Department of Justice or the
Federal Trade Commission] from presenting
testimony on this matter before appropriate
committees of the House and Senate.
Supreme Court in Monsanto Co. V. Spray-Rite Service Corp.,
No. 82-914, in which the Department has filed an amicus
curiae brief arguing, inter alia, that resale price mainte-
nance should not be deemed per se unlawful.
The precise scope ot the limitation sought to be imposed
by § 510 is difficult to ascertain from its text. It would
appear, however, to be directed only at activities of certain
Executive agencies, the "purpose" of which is to "overturn or
alter" the court-fashioned rule against resale price mainte-
nance. 3/ Furthermore, it appears to impose no atfirmative
obligations on the Executive, but rather simply to prohibit a
certain type of activity which the Executive presumably would
otherwise be authorized to undertake.
The legislative history of § 510 indicates that its
purpose was a narrow one: according to the Conference Report,
it was not intended to limit the authority of the federal
courts in any way, but was intendea only to pronibit activities
by certain agencies within the Executive Branch which were
"designed to weaken the existing pronibition on resale price
maintenance." It was not, however, intended to "restrict
[the Executive's authority to argue before the Federal
courts," within the framework of "existing case law." H.R.
Rep. No. 98-478, 98th Cong. 1st Sess. 46 (1983). This language
in the Conference Report indicates that the provision was
intended to require no more than that the Executive not seek
3/ The "per se prohibition on resale price maintenance in
effect under Federal antitrust laws" is a reference
to the Supreme Court's holding in Dr. Miles Medical Co. V.
John D. Park & Sons Co., 220 U.S. 373, 404-09 (1911),
that unlawrul concerted action must be presumed from any
and all agreements establishing vertical price restrictions.
The Court has also determined, however, that this per se rule
should not be extended to non-price vertical restrictions.
See Continental T.V., Inc. V. GTE Sylvania, Inc., 433 U.S. 36
(1977) (non-price restraints subject to analysis under rule
of reason), overruling United States V. Arnold, Schwinn & Co.,
388 U.S. 365 (1967).
-2-
a reversal of a specific line of previously decided cases. 4/
Therefore, it would clearly not preclude attempts by the
Executive to confine the applicability of that existing case
law, or limit its extension.
Our narrow construction of the limitation imposed by
§ 510 is supported not only by the language in the Conference
Report, but also by the rule that a statute should if possible
be construed so as to avoid constitutional infirmity. A law
which purported to direct the exercise of prosecutorial
discretion, to intertere in the day-to-day management of an
Executive agency, or otherwise to burden Executive officials
in fulfilling their constitutional obligation faithfully to
execute the law, would raise serious separation of powers
questions.
Even as narrowly interpreted in the foregoing paragraphs,
$ 510 might in certain circumstances impose a constitutionally
questionable limit or burden on Executive officials. And,
indeed, we believe there may be circumstances in which even a
spirit of. comity with the legislature would not allow respon-
sible Executive officials to retrain from taking actions
which would arguably come within the prohibition of the
provision, if, in their considered view, such actions were
necessary to fulfill their constitutional obligation to
execute the law. In these circumstances, where Congress has
attempted to hamper execution of the law but has declined or
failed to enact substantive legislation changing the law, we
believe that the constitutional obligation to execute the law
can and should be placed above the admittedly ambiguous
4/ Seemingly consistent with our reading of the legislative
history is a letter Senator Rudman sent to the President on
November 29, 1983 commenting upon the President's signing
statement accompanying H.R. 3222 (see n.6, infra):
As the author of that section, I can
confirm your interpretation. Section
510 simply bars any attempt by Department
of Justice or Federal Trade Commission
officials to overturn the longstanding
per se rule against resale price mainte-
nance.
-3-
limitations imposed by § 510. 5/ The Executive should not
and, in our opinion, cannot be bound by S 510 in situations
in which it would unconstitutionally restrict the Executive's
power and responsibility to execute the law. 6/ You should
5/ We note that Congress has available to it a more direct
and presumably effective way of giving its blessing to the
Supreme Court's holding in Dr. Miles Medical Co. V. John D.
Park & Sons Co., supra: incorporation into. the antitrust
statutes themselves. As it is, the anomolous result of the
provision in question is that only the enforcement agencies
and not the courts nor private litigants are inhibited by §
510. The latter can proceed freely to debate the continued
vitality or wisdom of the per se rule under the existing
antitrust laws while law enforcement officials must restrict
the expression of their views.
6/ In signing the act into law on November 28, 1983, the
President. expressed his concerns about the scope of this
provision in the follow terms:
I am today signing H.R. 3222. I am
doing so, however, with strong reserva-
tions about the constitutional implications
of section 510 of this bill. Section 510
purports to prohibit the expenditure of
appropriated funds on "any activity, the
purpose of which is to overturn or
alter the per se prohibition on resale
price maintenance in effect under Federal
antitrust laws
I do not understand
Congress to have intended by this provision
to limit or direct prosecutorial discretion,
or otherwise to restrict the government's
ability to enforce the antitrust laws
within the framework of existing case law.
Thus, despite the breadth of its language,
pursuant to the advice of the Attorney General,
I interpret section 510 narrowly to apply only
to attempts to seek a reversal of the holdings
of previously decided cases. Even as narrowly
construed, however, the provision potentially
(Continued)
-4-
approach any situation in which $ 510 may be applicable with
these general standards in mind and, when necessary, seek our
assistance in dealing with specific cases.
We turn now to your more specific question concerning
the applicability of 6 510 to the Department's participation
in oral argument in Monsanto V. Spray-Rite. Because the
Department's discretion to appear before the Federal courts
and to make arguments based upon existing case law is not
affected by the provision, we do not believe that § 510 would
bar the Department from participating in oral argument before
the Supreme Court. It would, however, appear to require the
Department to confine its presentation to the arguments, set
forth in parts I. and II.A of its brief, against holding the
per se rule applicable on the facts of that particular case.
In deference to the Legislature, and in order to avoid
having to resolve the difficult constitutional issues raised
by the effect of the restriction at this time, you may decide
that you can comfortably confine the government's presentation
at oral argument in the manner suggested in the preceding
paragraph. You might conclude, for example, that you need not
present the argument against the validity of the per se rule
itself, as set forth in part II. B of the Department's brief,
in order to fulfill the Executive's constitutional responsibi-
lities, on the basis that your views are fully articulated in
the brief. Under these circumstances, planning your argument
to include only parts I. and II.A of the brief would be an
appropriate strategy. Despite your pursuing the foregoing
strategy, the Court may seek to question you regarding part
II.B of your brief. You will have to decide whether to
respond to such questions based upon the guidance provided
in this memorandum and in light of the factual circumstances,
including but not limited to the precise wording and thrust
of each such question, as well as the specific context in
which it is asked during the argument.
6/ (Continued from p. 4)
imposes an unconstitutional burden on Executive
officials charged with enforcing the Federal
antitrust laws. Therefore, I believe it is
my constitutional responsibility to apply
section 510 in any particular situation consis-
tently with the President's power and duty to
take care that the laws be faithfully executed.
-5-
We do not have enough specific intormation about other
programs and activities of the Antitrust Division to be
able to advise you fully whether and how the provision might
be applicable to them. We would, however, be pleased to
consult with you further in this regard.
Ralph W. Tarr
Acting Assistant Attorney General
Office of Legal Counsel
- -6-
MEMORANDUM
THE WHITE HOUSE
WASHINGTON
December 22, 1983
FOR:
FRED F. FIELDING
Smc
FROM:
SHERRIE M. COOKSEY
SUBJECT:
OLC Opinion on the Scope of the Limitation
Imposed on the Justice Department by the
Appropriation Act Provision relating
to Resale Price Maintenance
Ted Olson sent you an informational copy of his opinion to
William Baxter setting forth OLC's interpretation of the
provision of the 1984 DOJ appropriations bill which attempted
to limit the Department's discretion on vertical price fixing
agreements (resale price maintenance). The purpose of Olson's
memorandum was to provide Baxter guidance on the effect of the
appropriations provision on the Department's oral arguments
before the Supreme Court in Monsanto Co. V. Spray Rite Service
Corporation. Those arguments were held on December 5, 1983.
Recommendation: No action is necessary at this time, as the
legality of resale price maintenance agreements will now be
decided by the Supreme Court.
CC: John G. Roberts, Jr.
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