The Supreme Court is considering whether to review a major antitrust ruling that set aside a jury award of $2.250 million against Whirlpool Corp. and Sears, Roebuck & Co. for conspiring to exclude Oreck Corp. from the American and Canadian vaccuum cleaner market.
Sears, the world's largest retailer, and Whirlpool, a leading appliance maker, have been allied closely for a half century. Sears buys two thirds of Whirlpool's output and owns about 4 percent of its stock. Several Sears officials have been Whirlpool executives or directors.
The verdict that Whirlpool and Sears had violated the Sherman anti-trust law was returned in 1976 by a jury in Federal Court in New York City and reversed last May by a divided 2d U.S. Circuit Court of Appeals.
The case is rooted in efforts by Whirlpool to sell vacuums under its own label while selling more than 90 percent of its production of the machines to Sears for sale under the Kenmore label.
For the 6-to-2 appeals court majority, Circuit Judge Robert P. Anderson wrote that reversal was necessitated by the "plain error" of the trial judge in instructing the jury that the alleged Whirlpool/Sears combination, on its face, was an antitrust violation.
The arrangement was "an exclusive distributorship," so that the prohibition of a so-called "group boycott" doesn't apply, Anderson said.
"Had Sears joined with other retailers of Whirlpool vacuum cleaners to drive Oreck out of the . . . market, this court would have been presented with a totally different situation," he said.
For the dissenters, Circuit Judge Walter R. Mansfield wrote that the majority had disregarded "well-settled antitrust law principles governing combinations and conspiracies designed to restrain competition on the part of a specific competitor - in this case, Oreck."
It is "elementary that a combination betwee a manufacturer and one or more of its customers which has as its sole object the restraint of another customer's competition through purchase and resale of the manufacturer's product is per se illegal," Mansfield said.
He wrote that the conspiracy deprived the public of "the benefit of Oreck's competition . . . Thereafter, if customers wanted Whirlpool machines, they would have to buy them from Sears and pay Sears' higher prices."
An initial three-year Whirlpool-label marketing effort failed in 1961. Another effort, was made in 1933, This time, instead of using its normal distribution system, Whirlpool signed a five-year contract with Oreck Corp. to be the exclusive national distributor.
President David Oreck had directed sales operations for Bruno, New York, the most successful distributor of Whirlpool vacuums in the period 1958-1961. In 1967, Oreck Corp. began to sell the brand with direct-mail solicitations. Sales increased from 8,384 in that year to 15,610 in 1968 and to 78,203 in 1971 - one percent of the total market. Despite this, Whirlpool terminated the relationship Dec. 31. 1971. Oreck, which sued nine months later, then found another supplier.
In finding a conspiracy, the jury relied on evidence that Sears had tried to suppress competition from Oreck.
In 1967, for example, Whirlpool's John Payne, the salesman in most frequent direct contact with Oreck, told David Oreck not to "rock the boat" and to stop selling by mail order because the "other customer" didn't like it. Two othe Whirlpool officials told him that mail-order sales were a "mistake."
In 1968, Whirlpool told the distributor that it was terminating the contract. Payne told David Oreck, "Dave, I hesitate to tell you this because it could cost me my job, but I think our other customer got to the head of the company." After Oreck threatened to sue, Whirlpool entered into a new contract running from Aug. 1, 1968, to the end of 1971.
Whirlpool and Sears did not call Payne to the stand although he was in the trial ourtroom.
Oreck's petition from Supreme Court review of the 3d Circuit ruling also cited the following incidengs:
A refusal by Whirlpool to help the distributor compete in the mail-order sector by slightly changing Oreck's mailing package to avoid monetary penalties by the Postal Service and the United Parcel Service. Top Whirlpool officials, Payne wrote to Oreck, "are not interested in providing you with a carton." although they had provided one to Sears. It's sensitive with Corporate and do not make any changes . . . leave this matter alone." Payne said.
After encouraging Oreck to consider selling vacuums in Canada, where Simpson-Sears Ltd. also was selling Whirlpool - made machines, Payne admitted that his superior had told him not to make the model changes necessary to comply with the Canadian equipment of Underwriters' Laboratories. "I am unable to obtain a waiver to the current franchise to permit Canadian marketing.