'Nervine' and Knavery: The Life and Times of Dr. Miles Medical Company
Rudolph J.R. Peritz
New York Law School
NYLS Legal Studies Research Paper No. 06/07-21
ANTITRUST STORIES, Eleanor Fox & Dan Crane, eds., Foundation Press, Forthcoming
American Antitrust Institute Working Paper No. 07-07
In the spring of 1911, the Supreme Court issued four opinions involving the Sherman Anti-Trust Act, all of them landmark decisions and each in its own way reflective of the era. One of them was Dr. Miles Medical Company v. John D. Park & Sons. Justice Charles Evans Hughes, writing for the Court, not only pronounced the doctrine that resale price maintenance was prohibited but set in motion the analytical dynamics of modern doctrine. Moreover, the underlying controversy offers a striking sight line into the era's swirling cultural and economic currents. Dr. Miles arose at the confluence of three federal statutes emblematic of Progressive Era responses to entrepreneurial excess. As every student of antitrust knows, the Sherman Act grounded Park's successful defense that the resale price provisions in Miles' form contracts were unenforceable. The context was also framed by the Trademark Act of 1905 and the Pure Food & Drug Act of 1906, both of which collided with the dominant marketing strategies of patent medicine firms. Because the costs of market entry and product imitation were low, supply tended to exceed demand, spurring intense brand competition. But the trademark statute's stronger protection of nationwide brands in the patent medicine industry, one of the first product markets driven by mass advertising, enabled large manufacturers to distance themselves from smaller firms and discourage upstarts. Moreover, the food and drug act's ingredient disclosure requirements and its ban on ill-founded therapeutic claims tended to benefit well-established firms as much as consumers.
The chapter's first section describes the era's patent medicine markets and pays close attention to the commercial importance of trademarks and advertising. In this light, the second section analyzes Dr. Miles through the prism of prior litigation in the industry, an analysis that uncovers the centrality of property rights to the Court's competition policy as well as the industry-wide use of standard form contracts, use that was organized by national trade associations. In the patent medicine industry and perhaps in other emerging mass markets, standard form contracts were no less effective in restraining competition and maintaining price levels than the more visible business strategies of merger and cartelization. The focus on branded competition and standard form contracts illuminates the era's competition policy. The policy is misunderstood today, particularly its underlying classical economics, which informed the twin common law competition doctrines of contracts in restraint of trade and restraints on alienation of property. The chapter concludes with an afterword about modern doctrine, its modern economic rhetoric and its common law underpinnings.
Number of Pages in PDF File: 26
Date posted: February 1, 2007