Dart Drug Corp. v. Eli Lilly and Co.

Henderson, J., delivered the opinion of the Court. This appeal is from a decree passed on July 3, 1957, permanently enjoining Dart Drug Corporation of Maryland, operating a drugstore in Silver Spring, Montgomery County, Maryland, (Dart), from selling products manufactured by Eli Lilly and Company, an Indiana corporation, (Lilly), at less than the minimum resale prices established under con ²³ tracts entered into with other retail druggists in accordance with the Maryland Fair Trade Act, Code (1951), Art. 83, sec. 102, et seq. In its answer to the bill of complaint Dart did not deny that it had consistently sold such products at far less than the minimum prices since it began business in 1956, in what might be fairly described as aggressive price cutting. It defended on the ground that Lilly had failed to make reasonably diligent efforts to enforce its Fair Trade contracts in Maryland, had acquiesced in the notorious, open and continued disregard of its price lists by other retailers in Maryland, through the use of trading stamps, and had thus virtually abandoned its pricing program.

This, of course, raised an issue of fact, or at least a mixed question of law and fact. It is conceded that a failure to use reasonable diligence to enforce compliance by others may call for or require a denial of injunctive relief by a court of equity. Sometimes it is said to be an application of the maxim of clean hands, or that one who seeks equity must do equity, or that equality is equity. It is sometimes said that the Act requires by implication that the prices fixed shall be uniform in any competitive area, and that unjust discrimination is the antithesis of fair trade.

Whatever its true source, the general rule is well established, and is clearly set forth in the cases of Hutzler Bros. v. Remington Putnam, 186 Md. 210, 215 , and General Electric Company v. Home Utilities Company, 131 F. Supp. 838 , aff. 227 F. 2d 384 (C. A. 4th). The difficulty lies in determining what is reasonable diligence under the circumstances of a particular case. Lilly is a large manufacturer of patented drugs which are sold nationwide. Generally speaking, it sells to distributors who in turn sell to retail outlets of which there are more than 1,000 located throughout the State of Maryland, although it has direct contracts with only about 15, executed in 1952.

Under the Act, non-signers are bound by these contracts, and recurrent doubts as to the constitutionality of the provision, raised by the decision of Schwegmann Bros. v. Calvert Corp., 341 U. S. 384 , have been allayed. Home Utilities Co. v. Revere, 209 Md. 610 (1956). Cf. Schweg ²⁴ mann Bros.

Giant Super Mkts. v. Eli Lilly & Co., 205 F. 2d 788 , cert. den. 346 U. S. 856 . It was shown that Lilly relies largely, in its enforcement program, upon complaints received from local druggists in active competition with an alleged violator, and complaints received from several active druggists’ associations. It also instructs its salesmen, of whom there are 18 in the State, to report violations observed. Upon receiving a complaint, it was shown that the practice was to have the district manager or a salesman investigate and talk to the offender.

If this is not successful, the manager of the legal department sends a registered letter of warning. If necessary, this is followed by the institution of suit. Without reviewing the testimony in detail, it is sufficient to say that it supports the Chancellor’s findings that a considerable number of complaints were received and investigated, and a number of violators did in fact desist, either as a result of persuasion, the threat of suit, or as a result of the institution of suit, and that the enforcement program was reasonably designed to effectuate its purpose. The appellant places its chief reliance upon the testimony of a detective, Mr. McLellan, who, at its request, visited certain stores in the State of Maryland selected from a list, supplied by a representative of the S. & H. Trading Stamp Company, of 56 drugstores which were said to have contracts with that company in regard to trading stamps.

Mr. Mc-Lellan testified that in June, 1957, a few days prior to the trial of the case below, he and his assistant shopped 36 of these stores.