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Law School Case Brief

Miles Med. Co. v. John D. Park & Sons Co. - 220 U.S. 373, 31 S. Ct. 376 (1911)

Rule:

To sustain a contract in restraint of trade, it must be found to be reasonable both with respect to the public and to the parties and that it is limited to what is fairly necessary, in the circumstances of the particular case, for the protection of the convenantee. Otherwise restraints of trade are void as against public policy. Public welfare is first considered, and if it be not involved, and the restraint upon one party is not greater than protection to the other party requires, the contract may be sustained. The question is, whether, under the particular circumstances of the case and the nature of the particular contract involved in it, the contract is, or is not, unreasonable.

Facts:

Dr. Miles Medical Company (Miles), a manufacturer of proprietary medicines that are prepared in accordance with secret formulas, devised a plan to govern directly the entire trade in the medicines it manufactured. Miles adopted restrictive agreements limiting trade in the articles to those who became parties to one or the other. John D. Park & Sons Co. (Park), a wholesale drug concern, refused to enter into Miles’ required contract, and was charged with procuring medicines as "cut prices" by inducing those who had made the contracts to violate the restrictions. 

Issue:

Was Miles’ required restrictive agreements limiting trade valid?

Answer:

No

Conclusion:

The court stated that agreements or combinations between dealers, which had for their sole purpose the destruction of competition and the fixing of prices, were injurious to the public interest and void. They were not saved by the advantages which the participants expected to derive from the enhanced price to the consumer. The court held that Miles’ plan, in effect, created a combination for the prohibited purposes. Miles’ commodity was not entitled to a special privilege or immunity; it was an article of commerce and subject to the rules concerning the freedom of trade.

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