The opinion of the court was delivered by: HART
The plaintiff in this action is the United States of America.
The defendant, the O. M. Scott & Sons Company, is an Ohio corporation with its principal offices at Marysville, Ohio.
Defendant is one of the largest manufacturers and distributors of lawn care products in the United States.
Plaintiff contends that during the period January 1, 1959, to March 30, 1964, the defendant acted unlawfully to maintain prices in so-called non-fair trade states and in the District of Columbia.
This action was filed March 30, 1964, and complains of alleged illegal acts by defendant, beginning in or about the year 1959. Consideration of alleged illegal actions by the defendant is limited to the period January 1, 1959, to March 30, 1964. However, these findings will not be limited to that period since evidence was adduced covering defendant's operations over a period of 100 years and it is necessary to consider this entire period to understand the philosophy of and the reasons for defendant's operations in selling during the relative brief period complained of.
1. A young farmer, O. M. Scott, returned to his farm in Union County, Ohio, near Marysville, Ohio, after service in the Union Army during the War Between the States. About 1869, this young War Veteran had determined that, due to the unavailability of clean farm or pasture grass seed, particularly seed that was free from weeds, that there was an opportunity to raise, process and sell such seed. Mr. Scott began, on a small scale, to sell this clean and relatively weed-free farm seed to his farm neighbors in Union County, Ohio. Mr. Scott also pioneered in the practice of testing his seed to insure that the seed he sold to his neighbors was viable and thus would grow when planted.
2. Mr. Scott's grass seed business grew slowly, but steadily, after 1869, with one farmer telling another farmer of the merits of Scott seed, until in the latter part of the nineteenth century, the Scotts were selling seed directly to farmers not only in Ohio but also in Michigan, Pennsylvania and other nearby States.
4. In the early 1920s Mr. Charles P. Mills, who had been hired by the Scotts as an office boy in 1912, toured Germany for Scotts and found a particular type of seed suitable for golf courses, called "Bent Grass." This seed proved to be a most desirable species for use on golf putting greens. A substantial amount of the Bent Grass seed was obtained and Scott promoted the sale of this seed, by mail, to golf courses and other large users. Scott also undertook to expand the lawn seed business by a more aggressive direct-mail selling effort.
5. In the beginning of 1925, Scott's sales consisted entirely of direct sale by mail to consumers or users. In 1925, a shipment of Scotts products was made to the J. L. Hudson Co. of Detroit, Michigan, a department store, for resale by it. This came about as a result of grass seed shipped by mail to one of the officers of the Hudson Co. for use on his own estate and, this officer, being pleased with the results he obtained, asked that his store be allowed to offer the seed for sale in their Houseware Department.
6. In August, 1928, the first edition of "Lawn Care" was published by Scott. At that time Scott was handling a large volume of correspondence and telephone calls from consumers seeking advice on their lawns. Scott felt that, in view of this volume of correspondence and calls, the matter could better be handled by a regular publication giving information and advice on proper lawn care. The first issue of "Lawn Care" was sent to approximately 5,000 users who had purchased Scott seed.
In the first edition of Lawn Care the purpose for its publication was stated as follows:
"To pass along to those who are trying to maintain satisfactory lawns the experience of experts and amateurs."
Included in this edition was a short article recommending the sowing of grass seed in the Fall rather than in the Spring, as was the habit of the times, and articles relating to seed mixtures, weeds and English lawns. While the first edition of Lawn Care contained no pricing information, it was accompanied by a sales letter soliciting orders and stating prices when it was mailed to the users.
7. In the year 1928, Scott entered the lawn fertilizer field. Up to that time home owners had available to them only different versions of farm-type fertilizers, primarily designed to produce a one-season crop. Scott, after conferring with representatives of the United States Department of Agriculture, decided to produce a fertilizer designed for the need of grass for continued feeding. "Turf Builder" was the resulting product. Scott advertised and discussed its new product in the August, 1928, issue of Lawn Care.
8. From 1925 to 1932 Scott's merchandising methods underwent a slow but steady change. At the beginning of 1925 Scott's only method of selling was directly to users by the so-called mail-order method. The product was packaged in muslin or burlap bags in quantities from 5 lbs. to 100 lbs. While the bags contained instructions as to use printed thereon, there was no price information on the bags.
At this time Scott had progressed in the long, slow process that would eventually lead to a complete change in its method of merchandising. Scott's experience with J. L. Hudson Co. in 1925 has led Scott, almost against its will, into marketing through a slowly expanding network of retail outlets, primarily department stores but with a few hardware and florist outlets. In 1932 the bulk of Scott's sales was still directly to users on mail orders.
9. In 1932 Scott first made a determined effort to solicit dealers for its products. From the days of its founder, Scott had felt that service and instruction were essential ingredients in the sales and growth of its business, due to the nature of its products. The products sold by Scott were sold essentially on a seasonal basis, at that time in the Spring, and its primary product, seed, was viable for only one season.
In view of the foregoing, Scott, in choosing dealers, took into consideration the following:
1. Dealers who had veteran clerks, willing and able to instruct potential users of Scott's products;
2. Dealers patronized by lower to middle-class home-owners;
3. Dealers who would deliver;
4. Dealers who would charge accounts to their customers;
5. Dealers who would advertise Scott's products in connection with their own general advertising.
10. It was in 1933 that Scott first began to "pre-ticket" its products, that is, to put a retail price physically on each of its products, either by printing the price on the package containing the product, as in seed or fertilizer, or by printing the price on a ticket attached to the product, as in a spreader. The price so stated has never been modified by the words "suggested price" or similar words.
11. From 1933 to 1950 Scott continued its slow but steady growth. During this period the emphasis on distribution was being shifted little by little, but steadily, from mail-order distribution to dealer distribution.
12. In the early 1940s Scott undertook, formalized and developed a research program that has since become an important aspect of its operations. Scott obtained the services of a "Neisi" who had been "relocated" from the West Coast. This man was a Ph.D. whose specialty was entomology. The Doctor set in motion a program of research which resulted in important discoveries in Scott's field, as follows:
1. 1947 - a product combining a fertilizer with weed-control, so that the user with one application could feed his grass and kill dandelions, plantain and other weeds.
2. 1949 - a product, "SCUTL," which killed crabgrass, the bane of all lawn tenders.
The foregoing discoveries gave considerable impetus to Scotts sales following the War and in the early 1950s.
13. By the middle 1950s Scott had almost completely terminated its mail-order business and its sales were being made to users through retail outlets. Scott has at no time during its long life sold through wholesalers.
Scott's original retail outlet in 1925 was a department store. Over the years, to the middle 1950s, Scotts retail outlets had expanded to include the following principal types of outlets:
5. Garden Centers (largely a post-World War II development)
6. Miscellaneous (e.g., S.S. Pierce-Boston, Macy's-New York)
14. In 1938, Scott entered into its first Fair Trade contract. It was with Macy's in New York. By the middle of the 1950s, it was Scott's policy to enter into Fair Trade agreements with all of its dealers in Fair Trade states. Scott did not and does not enter into Fair Trade agreements with its dealers in non-fair trade states (District of Columbia, Missouri, Texas, Vermont, Utah (since 1956), Nebraska (since 1959), Montana (since 1961), Wyoming (since 1962), Kansas (since 1963).
The above practice as to Fair Trade agreements has continued from the middle 1950s to date.
15. Prior to 1955, Scott had no formal selling organization. Its dealers had been selected on a service-oriented basis from persons or companies writing to Scott with requests for dealerships, and as a result of corporate executives of Scott calling on retail stores in various locations while on occasional trips.
In approximately 1955 Scott decided to set up a field organization. Originally, 8 or 10 people were employed in this organization and, by 1958, it had grown to more than 100.
In 1958 Scott executives became aware that very serious difficulties had developed in their field organization. These difficulties had no specific relation to price or to fair-trade or non-fair trade states. Some of these problems were as follows:
1. Retail outlets had been obtained which did not conform to Scott's previously established policies for retail outlets. These included linoleum stores, appliance stores and gas stations which could not be expected to offer service and information to users.
2. Sales force members had attempted to compel dealers to carry Scott's full line of products or to deal exclusively in Scott's products against the dealer's will and, in some instances, threatened to terminate dealerships if the dealers did not comply.
3. Some sales representatives had employed high-pressure methods to force dealers to take more of Scott's products than they wished and had threatened termination of the dealerships if orders were not increased.
Upon being made aware of the above, the President of the Company, Mr. Williams, took over direct control of the field organization and the marketing functions. Certain of the persons responsible for pressing improper sales methods were discharged and steps were instituted to educate and direct Scott's sales force into ...