PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
VALUEPEST.COM OF CHARLOTTE,
INCORPORATED, formerly known as
Budget Pest Prevention,
Incorporated; NATIONAL PEST
CONTROL, INCORPORATED; PEST
PROS, INCORPORATED, individually
and on behalf of persons similarly
situated,
Plaintiffs-Appellants,
v.
BAYER CORPORATION; BAYER
No. 07-1760
CROPSCIENCE LP; BASF
CORPORATION,
Defendants-Appellees,
and
ORKIN, INCORPORATED; THE
TERMINIX INTERNATIONAL COMPANY
LIMITED PARTNERSHIP,
Defendants.
Appeal from the United States District Court
for the Western District of North Carolina, at Asheville.
Lacy H. Thornburg, District Judge.
(1:05-cv-00090-LHT)
Argued: January 29, 2009
Decided: March 24, 2009
2 VALUEPEST.COM v. BAYER
Before WILKINSON, TRAXLER, and SHEDD, Circuit
Judges.
Affirmed by published opinion. Judge Wilkinson wrote the
opinion, in which Judge Traxler and Judge Shedd joined.
COUNSEL
ARGUED: David Barry, BARRY & ASSOCIATES, San
Francisco, California, for Appellants. Glen David Nager,
JONES DAY, Washington, D.C., for Appellees. ON BRIEF:
Michael D. Bland, Benjamin L. Worley, WEAVER, BEN-
NETT & BLAND, P.A., Matthews, North Carolina; Forrest
A. Ferrell, Warren A. Hutton, SIGMON, CLARK, MACKIE,
HUTTON, HANVEY & FERRELL, P.A., Hickory, North
Carolina, for Appellants. Larry S. McDevitt, VAN WINKLE,
BUCK, WALL, STARNES AND DAVIS, P.A., Asheville,
North Carolina; Lawrence D. Rosenberg, JONES DAY,
Washington, D.C.; George T. Manning, JONES DAY,
Atlanta, Georgia, for Appellees Bayer Corporation and Bayer
CropScience LP. Douglas W. Ey, Jr., Catherine E. Thompson,
William C. Mayberry, Jason D. Evans, HELMS, MULLIS &
WICKER, P.L.L.C., Charlotte, North Carolina, for Appellee
BASF Corporation.
OPINION
WILKINSON, Circuit Judge:
In this Sherman Act suit, plaintiffs, who provide pest con-
trol services to individual customers, allege that defendants,
who manufacture pesticides, illegally conspired with their dis-
tributors to set minimum resale prices of certain termiticide
VALUEPEST.COM v. BAYER 3
products. Specifically, plaintiffs claim that defendant manu-
facturers Bayer CropScience LP and Bayer Corp. (hereinafter
collectively referred to as "Bayer") and BASF Corp. each
engaged in the practice known as "resale price maintenance"
or "vertical price fixing"—Bayer with its product Premise and
BASF with its product Termidor. Defendants counter that
United States v. General Electric Co., 272 U.S. 476 (1926),
held that a manufacturer may lawfully set minimum prices for
its products when there is a genuine principal-agent relation-
ship between the manufacturer and its distributors, and that
such relationships existed here. Plaintiffs rejoin that Leegin
Creative Leather Products, Inc. v. PSKS, Inc., 127 S. Ct. 2705
(2007), implicitly overruled General Electric, and in the alter-
native argue that the agency relationships between defendants
and their distributors were a sham. Because Leegin did not
eliminate the agency defense to a claim of resale price mainte-
nance and the agency relationships between defendants and
their distributors were genuine, we find no basis for antitrust
liability and thus affirm the district court’s grant of summary
judgment to defendants.
I.
In 1996, Bayer introduced Premise, a termiticide that uses
the active ingredient imidacloprid. Premise is a liquid "non-
repellent" termiticide. Prior to Premise’s arrival to the market,
the only liquid termiticides were repellents, which create a
chemical barrier around a house or other structure that pre-
vents termites from entering. Non-repellent termiticides are
similarly used to create a barrier around a structure, but do not
repel termites; instead, the barrier they create is poisonous to
termites that pass through it. The poison does not kill the ter-
mites immediately. Termites carry it back to their nests and
likely spread it to the entire colony. Non-repellents are highly
efficacious and have steadily grown in market share since
their introduction.
Bayer initially sold its Premise products to the distributors
of its other pesticide products. One of those distributors is a
4 VALUEPEST.COM v. BAYER
company now known as Univar USA, Inc., which is one of
the nation’s largest distributors of termiticides to pest man-
agement professionals ("PMPs"), who provide pest control
services to homeowners and other individual customers. Uni-
var and other distributors then resold the products to PMPs
such as plaintiffs Valuepest.com of Charlotte, Inc. (formerly
Budget Pest Prevention, Inc. and hereinafter "Valuepest"),
National Pest Control, Inc., and Pest Pros, Inc. This arrange-
ment continued for several years.
Then, in 2000, Aventis CropScience, L.P. began selling
Termidor, a new non-repellent termiticide using the active
ingredient fipronil. In early 2000, Aventis began selling Ter-
midor directly to a select group of 200 PMPs, which was
expanded to a group of 400 in July. In September of 2000,
however, Aventis began distributing Termidor through Univar
and other distributors pursuant to non-exclusive agency agree-
ments. The agency agreements provided that Aventis was the
seller of Termidor to PMPs, while the distributor-agent
merely facilitated that transaction. Further, the agreements
specified that Aventis retained title to the Termidor until it
was sold to a PMP. The agents received commissions for the
sales they facilitated. The agency arrangement allowed Aven-
tis to set the price at which Termidor was sold to PMPs.
According to Bayer, after experiencing the benefits of the
Termidor agency arrangement, some distributors became
unhappy with the distribution arrangement for Premise. The
agency contracts were more profitable to distributors than the
previous distribution arrangement, in which the distributors
purchased Premise from Bayer and resold it to PMPs. Bayer,
dependent on its distributors for marketing, became concerned
about losing sales if distributors chose to encourage PMPs to
purchase Termidor instead of Premise—which the distributors
had every incentive to do, given that they made more money
selling Termidor.
Thus, in January of 2001 Bayer began selling Premise
through an agency program similar to that used by Aventis.
VALUEPEST.COM v. BAYER 5
Bayer continued to use its old distributors, but whereas before
the distributors had purchased the product from Bayer, the
new agency agreements stated that Bayer would retain title to
the Premise until it was sold to a PMP. The agreements fur-
ther specified that Bayer would set the retail prices and that
the distributors would receive a fixed commission for each
sale.
In October of 2001, Bayer’s and Aventis’s respective
boards of directors announced a plan in which Bayer would
purchase all shares of Aventis. An investigation by the Fed-
eral Trade Commission ("FTC") ensued. The FTC approved
the acquisition, which was completed in June of 2002, but
required that Bayer divest assets relating to fipronil, Termi-
dor’s active ingredient. BASF acquired the fipronil assets
from Bayer on March 21, 2003, and since that date has manu-
factured and sold Termidor in the United States. BASF
became the assignee of the earlier agency contracts for Termi-
dor, and continues to sell Termidor using agency agreements.
Bayer ceased selling Premise via agency contracts in 2005.
On April 25, 2005, Valuepest filed a class action lawsuit in
the United States District Court for the Western District of
North Carolina, alleging vertical price fixing by Bayer,
BASF, and other defendants in violation of § 1 of the Sher-
man Act, 15 U.S.C. § 1. The complaint was amended three
times, adding and then dropping a claim, dismissing defen-
dants other than Bayer and BASF, and adding National Pest
Control and Pest Pros as plaintiffs and proposed class repre-
sentatives.
On November 21, 2006, plaintiffs and defendants each filed
motions for summary judgment; plaintiffs also filed a petition
for class certification.1 While the district court was consider-
1
The parties agreed that the district court would resolve first the vertical
price fixing claims with respect to only one of Bayer’s and BASF’s dis-
tributors, Univar, and that the court’s resolution of the claims regarding
6 VALUEPEST.COM v. BAYER
ing these motions, the Supreme Court held argument in
Leegin Creative Leather Products, Inc. v. PSKS, Inc., 127 S.
Ct. 2705 (2007). The district court issued an order stating it
would wait to rule on plaintiffs’ summary judgment motion
until after Leegin was decided, but would continue consider-
ation of defendants’ motions. Two weeks after the Supreme
Court handed down its decision in Leegin, the district court
granted summary judgment for defendants on the ground that
defendants’ contracts with their distributors represented genu-
ine agency relationships that did not support liability under
§ 1. The court also denied plaintiffs’ motion for class certifi-
cation as moot. Plaintiffs now appeal.
II.
Plaintiffs insist in their briefs and at oral argument that after
Leegin the agency defense under General Electric to a claim
of resale price maintenance is no longer viable. This argument
fails because the two cases dealt with two separate elements
of antitrust liability: General Electric addressed what types of
relationships constitute agreements to set prices for purposes
of the Sherman Act, while Leegin concerned whether such
agreements, once proven, should be considered per se unlaw-
ful or evaluated for their reasonableness. The structure of § 1
of the Sherman Act makes the different focus of the two deci-
sions clear.
Section 1 forbids "[e]very contract, combination in the
form of trust or otherwise, or conspiracy, in restraint of trade."
15 U.S.C. § 1. "Although the Sherman Act, by its terms, pro-
hibits every agreement ‘in restraint of trade,’" the Supreme
Court has repeatedly made clear that "Congress intended to
Univar would "set the framework for resolution of Plaintiffs’ claims
against Defendants with regard to all of their individual distributors." J.A.
430. Accordingly, in our subsequent analysis of the claims we discuss
only the facts related to the agreements with Univar.
VALUEPEST.COM v. BAYER 7
outlaw only unreasonable restraints." State Oil Co. v. Khan,
522 U.S. 3, 10 (1997). Showing a violation of § 1 thus
requires proof of two elements: "(1) a contract, combination,
or conspiracy; (2) that imposed an unreasonable restraint of
trade." Dickson v. Microsoft Corp., 309 F.3d 193, 202 (4th
Cir. 2002).
The first element requires proof of some kind of agreement,
for "[i]ndependent action is not proscribed." Monsanto Co. v.
Spray-Rite Serv. Corp., 465 U.S. 752, 761 (1984). Plaintiffs
must provide "evidence of a relationship between at least two
legally distinct persons or entities." Oksanen v. Page Mem’l
Hosp., 945 F.2d 696, 702 (4th Cir. 1991) (en banc). Thus only
alleged resale price maintenance that actually involves an
agreement between two parties comes within the scope of § 1.
Prohibited resale price maintenance is the practice by which
a manufacturer and a distributor agree on a minimum price
below which the distributor will not sell the manufacturer’s
products. See 8 Phillip E. Areeda & Herbert Hovenkamp,
Antitrust Law: An Analysis of Antitrust Principles and Their
Application 206-07 (2d ed. 2004). Unilateral action by a man-
ufacturer does not suffice to implicate § 1; a manufacturer
can, for example, refuse to sell to retailers who resell its prod-
ucts for less than the manufacturer’s preferred price. See
United States v. Colgate & Co., 250 U.S. 300 (1919).
In General Electric, the Court addressed an allegation of
resale price maintenance by a lamp manufacturer and its net-
work of distributors. The defendant claimed "that its distribu-
tors were bona fide agents," while the government contended
that "the system of distribution adopted was merely a device
to enable the [defendant] to fix the resale prices of lamps in
the hands of purchasers," and "that the so-called agents were
in fact wholesale and retail merchants." Gen. Elec., 272 U.S.
at 479. After examining the terms of the contracts between the
defendant and its distributors, the Court determined that the
distributors were genuinely the manufacturer’s agents, and
8 VALUEPEST.COM v. BAYER
that therefore the scheme did not violate the Sherman Act. See
id. at 484-88.
The Court reasoned that a manufacturer has the right to sell
its products on whatever terms it wishes; it is only when the
manufacturer "adopts a combination with others" that the
Sherman Act is implicated. Id. at 485. Because the Court
found that General Electric was indeed selling its lamps
directly to consumers via its agents, rather than selling them
to the retailers and requiring the retailers to resell them at a
fixed price, the defendant was not guilty of unlawful vertical
price fixing. General Electric thus concerned what facts suf-
ficed in resale price maintenance claims to prove the first ele-
ment of § 1 liability—whether a "contract, combination," or
"conspiracy" existed. 15 U.S.C. § 1.
As a general matter, to support liability an agreement must
also satisfy the second element of § 1: it must be an unreason-
able restraint on trade. See Dickson, 309 F.3d at 202. Under
the longstanding precedent of Dr. Miles Medical Co. v. John
D. Park & Sons Co., 220 U.S. 373 (1911), resale price main-
tenance agreements were considered per se unlawful, and
plaintiffs who could prove that such an agreement existed did
not need to adduce further proof that the agreement unreason-
ably restrained trade. Dr. Miles remained the law for nearly
a century until 2007, when it was overruled by the Supreme
Court in Leegin. In that case, the Court abolished the per se
rule against resale price maintenance and held that "[v]ertical
price restraints are to be judged according to the rule of rea-
son." Leegin, 127 S. Ct. at 2725.
Under the rule of reason, a factfinder examines all of the
circumstances to determine whether a practice unreasonably
restrains competition. Id. at 2712. Factors that should be con-
sidered "include ‘specific information about the relevant busi-
ness’ and ‘the restraint’s history, nature, and effect,’" id.
(quoting Khan, 522 U.S. at 10), as well as "[w]hether the
businesses involved have market power," id. (citing Copper-
VALUEPEST.COM v. BAYER 9
weld Corp. v. Independence Tube Corp., 467 U.S. 752, 768
(1984)). The Court rejected the per se rule of Dr. Miles as
excessively formalistic and not sufficiently grounded in the
actual economic impact of vertical price restraints. Id. at
2714. The Court looked to a growing consensus in economic
theory that vertical pricing agreements, while sometimes anti-
competitive, can often have procompetitive effects. Id. at
2714-16 (detailing how resale price maintenance can promote
interbrand competition by encouraging retailers to invest in
promotional efforts, giving customers a range of options
including "low-price, low-service brands" and "high-price,
high-service brands," and by facilitating market entry for new
products).
Plaintiffs contend that Leegin overruled General Electric
and replaced it with a generalized inquiry into market power
and procompetitive benefits even where a genuine agency
relationship exists. The foregoing analysis of § 1’s structure
should make clear why this assertion must be rejected. Plain-
tiffs’ argument conflates the distinction between the two ele-
ments required to prove liability under § 1. General Electric
concerned the first necessary element of § 1 liability—the
existence of an agreement. Where a manufacturer sells its
products through its genuine agents, there is no "contract,
combination" or "conspiracy," and thus no basis for antitrust
liability. 15 U.S.C. § 1. At issue in Leegin was an entirely dif-
ferent question regarding the second element of § 1 liability
that applies when an agreement has been proven: should that
agreement be considered per se unlawful or should it be ana-
lyzed under the rule of reason? The two cases dealt with sepa-
rate and distinct issues, and thus no part of Leegin’s reasoning
casts the slightest bit of doubt on the underpinnings of the rule
of General Electric.
Furthermore, Leegin never once mentioned or cited Gen-
eral Electric. The Court has made clear that it "does not nor-
mally overturn . . . earlier authority sub silentio." Shalala v.
Ill. Council on Long Term Care, Inc., 529 U.S. 1, 18 (2000).
10 VALUEPEST.COM v. BAYER
It would be especially odd for the Court to have overruled
General Electric by implication given that the Court spent
several pages of its decision in Leegin explicitly analyzing
whether stare decisis required adherence to Dr. Miles. See
Leegin, 127 S. Ct. at 2720-25. If the Court had thought that
overruling Dr. Miles would simultaneously overrule another
venerable antitrust precedent, it surely would have said so.
Quite simply, Leegin has no bearing on the continued vital-
ity of General Electric, and plaintiffs’ argument to the con-
trary cannot stand. The two holdings stand independently of
each other. General Electric holds that a principal-agent rela-
tionship is not an agreement for antitrust purposes, while
Leegin only addressed the circumstances under which an
agreement proven to exist is reasonable under § 1. Leegin thus
is only relevant if plaintiffs can prove the agency relationships
claimed by defendants were a sham. We must thus determine
whether the agreements between defendants and Univar were
genuine agency relationships under General Electric.
III.
It is important at the outset to note why principal-agency
agreements are important. The owner of a good may generally
set the price at which the good is sold. If one of the benefits
of manufacturing a good is to set the price by which it is sold,
then it is only sensible not to deprive the manufacturer of its
right if, for reasons of efficiency, it chooses to use agents that
are loyal to it rather than employees. "Employment relations
do not violate the antitrust laws." Ill. Corporate Travel, Inc.
v. Am. Airlines, Inc., 806 F.2d 722, 724-25 (7th Cir. 1986).
The cases refusing to extend § 1 liability to genuine agency
relationships are premised on the idea that such relationships
"should be treated like employment relations." Id. at 725; see
also Day v. Taylor, 400 F.3d 1272, 1276 (11th Cir. 2005).
Several factors are important in our evaluation of the rela-
tionships at issue here. Once again, General Electric is
VALUEPEST.COM v. BAYER 11
instructive. General Electric sold its lamps to consumers via
a consignment arrangement with retail and wholesale mer-
chants. Gen. Elec., 272 U.S. at 481-83. Prices were set by GE,
and the dealers received fixed commissions. Id. GE retained
title to the lamps in the possession of the agents until they
were sold to actual consumers. Id. at 482. The manufacturer
also assumed the risk of loss from fire, flood, obsolescence,
and price decline, paid the taxes on the lamps, and carried
insurance on the stock. Id. at 483. The agents were required
to pay for all expenses related to storage, transportation, sale,
and distribution of the lamps, and were responsible for lamps
lost or damaged while in the agent’s care. Id. at 482-83. The
agents collected payments from customers and remitted the
proceeds to the manufacturer, less their commission. Id. at
482.
After reviewing the details of the arrangement, the Court
found "nothing in the form of the contracts and the practice
under them" that made the distributors "anything more than
genuine agents of the company." Id. at 484. The Court
stressed several facts, including that the agents were not
required to pay for the lamps until they had been sold to cus-
tomers and that the title of the lamps passed directly from the
manufacturer to the consumer at the time of sale. Id. The
Court did not find the agents’ obligations to pay for lost or
damaged lamps or to pay for storage, transportation, sale, and
distribution expenses inconsistent with a genuine agency rela-
tionship. Id. Nor did the "circumstance that the agents were
in their regular business wholesale or retail merchants, and
under a prior arrangement had bought the lamps, and sold
them as their owners" preclude GE from changing the rela-
tionship to one of genuine agency. Id. at 484-85.
The Court’s other major case on the agency defense to a
claim of resale price maintenance is Simpson v. Union Oil Co.
of California, 377 U.S. 13 (1963). At issue in that case was
an oil company’s scheme to set the retail price of its gasoline
sold to customers by gas stations. Under the purported con-
12 VALUEPEST.COM v. BAYER
signment agreement, retailers received commissions on gaso-
line sold, and the title to the consigned gasoline passed
directly from the oil company to the consumer at the time of
sale. Id. at 15. The oil company paid property taxes on the
gasoline held by the retailers, but the retailers were required
to carry personal liability and property damage insurance and
were responsible for virtually all losses of the gasoline in their
possession. Id.
The Court held that the arrangement constituted unlawful
resale price maintenance. Id. at 24. It observed that the dealers
were "independent businessmen" possessing "all or most of
the indicia of entrepreneurs, except for price fixing." Id. at 20.
The Court acknowledged that consignment is a legitimate
method for an owner to sell his property. Id. at 21. But it
looked beyond the agreements’ form to consider their sub-
stance, and concluded they were precisely the kind of price-
fixing arrangement that § 1 was meant to prevent. Id. at 24.
"To allow Union Oil to achieve price fixing in this vast distri-
bution system through this ‘consignment’ device would be to
make legality for antitrust purposes turn on clever draftsman-
ship," the Court reasoned. Id.
The Court conceded that the agreement upheld in General
Electric "somewhat parallels the one in the instant case." Id.
at 22-23. The Court distinguished General Electric on the
ground that that case concerned patented articles, and found
its holding "not apposite to the special facts here." Id. at 23.
In dissent, Justice Stewart called the Court’s ground for dis-
tinguishing General Electric "specious," for the General Elec-
tric Court "gave no intimation whatsoever that its conclusion
would have differed in any respect if the consigned article had
been unpatented." Id. at 27-28 (Stewart, J., dissenting).
Some subsequent commentators have agreed with Justice
Stewart that the holdings in General Electric and Simpson are
irreconcilable. See, e.g., Terry Calvani & Andrew G. Berg,
Resale Price Maintenance after Monsanto: A Doctrine Still at
VALUEPEST.COM v. BAYER 13
War with Itself, 1984 Duke L.J. 1163, 1178. However, "courts
generally have not interpreted Simpson as a blanket condem-
nation of all consignment agreements in which the manufac-
turer/supplier sets retail prices." Hardwick v. Nu-Way Oil Co.,
589 F.2d 806, 809 (5th Cir. 1979). Nor should they have. It
cannot "seriously be argued that the ancient and ubiquitous
practice of principals’ telling their agents what price to charge
the consumer is just some massive evasion of the rule against
price fixing." Morrison v. Murray Biscuit Co., 797 F.2d 1430,
1437 (7th Cir. 1986). Otherwise, perverse results would
obtain—such as a homeowner being guilty of violating § 1
"when he tells his broker at what price to sell his home." Id.
at 1436.
Instead, courts have read Simpson to require a careful
inquiry into a purported agency agreement, in order to deter-
mine whether it is genuine or a sham. Courts must look "to
the substance of the parties’ dealings rather than merely to
form." Marty’s Floor Covering Co. v. GAF Corp., 604 F.2d
266, 269 (4th Cir. 1979). In this inquiry, courts have consid-
ered most important how business risks were allocated
between the parties. "If a distributor deals with his supplier as
an ‘independent businessman’ who bears most or all of the
risks on transactions with purchasers, then an agency or con-
signment agreement is ineffective to insulate the manufacturer
from antitrust liability for fixing resale prices. However,
where the manufacturer bears the financial risks of transac-
tions with the customers . . . it is likely that the distributor is
merely an agent for the manufacturer." Ryko Mfg. Co. v. Eden
Servs., 823 F.2d 1215, 1223 (8th Cir. 1987) (citations omit-
ted); see also Farm Stores, Inc. v. Texaco, 763 F.2d 1335,
1344 (11th Cir. 1985); Mesirow v. Pepperidge Farm, Inc.,
703 F.2d 339, 342-43 (9th Cir. 1983).
Looking to the distribution of business risks is sensible. If
a manufacturer designates a distributor its agent yet insists
that the distributor bear most or all of the traditional burdens
of ownership, it is likely that the claimed agency relationship
14 VALUEPEST.COM v. BAYER
is merely a "clever manipulation of words," Simpson, 377
U.S. at 22, and not a legitimate business arrangement that
should be protected by law. On the other hand, when a manu-
facturer is willing to assume the burdens associated with own-
ership, it should be entitled to the benefits as well—including
the right to sell its property through an agent. See id. at 21
("[A]n owner of an article may send it to a dealer who may
in turn undertake to sell it only at a price determined by the
owner. There is nothing illegal about that arrangement.").
Courts also consider the economic justification offered for
the agency agreement. The Seventh Circuit, noting the Simp-
son Court’s concern that the oil company had merely evaded
the rule against resale price maintenance by labeling its
arrangement an agency relationship, held that in such cases
courts should ask "whether the agency relationship has a func-
tion other than to circumvent the rule against price fixing."
Morrison, 797 F.2d at 1436. As with the inquiry into the dis-
tribution of risks, considering economic justification helps
distinguish between those arrangements that further the goal
of antitrust law and those that subvert it. "The purpose of anti-
trust law, at least as articulated in the modern cases, is to pro-
tect the competitive process as a means of promoting
economic efficiency." Id. at 1437. Agency relationships that
have strong business justifications are the ones most likely to
promote efficiency; those created merely to avoid antitrust
scrutiny are the most likely to be inefficient and harmful to
consumers.
Finally, courts look to whether the agency agreement is a
product of coercion. See, e.g., Day, 400 F.3d at 1278. The
Court in Simpson was concerned that the defendant oil com-
pany exercised coercive power over the gasoline retailers, for
the retailers depended entirely on the contracts with the oil
company for their business. See Simpson, 377 U.S. at 21.
With these factors in mind, we now turn to an examination of
the "substance" of the relationships between defendants and
Univar. Marty’s Floor Covering Co., 604 F.2d at 269.
VALUEPEST.COM v. BAYER 15
IV.
A.
In examining Bayer’s and BASF’s contracts with Univar,
the threshold question is which party bore the risk of loss. We
find that this factor weighs in favor of a genuine agency rela-
tionship. First, as a formal matter, both Bayer and BASF
retained title on their respective products while in Univar’s
possession, and the agreements specified that defendants, not
Univar, bore the risk of loss on the termiticides until they
were delivered into the hands of PMPs. While plaintiffs not
surprisingly seek to dismiss the retention of title as a mere
formality, such traditional incidents of property law,
embodied here in the agency agreements, have real signifi-
cance. And beyond the formal labels in the agreements,
defendants also satisfied the standard in substance. They
retained many of the burdens of ownership, indicating the
agency relationships were authentic. The evidence strongly
supports the conclusion that the risk of loss was borne by
defendants.
A number of facts support the conclusion that defendants
bore the risk of loss. The agreements required that Univar
store defendants’ termiticides separate from Univar’s own
property, and label the products as belonging to defendants.
The agreements squarely placed the risk of economic loss due
to nonpaying PMPs on defendants’ shoulders. Both defen-
dants’ agreements set limits on the amounts of credit Univar
could extend to purchasers, and required defendants, not Uni-
var, to pursue delinquent purchasers. Under the contracts,
defendants retained the right to audit Univar for compliance
with the agency agreements; BASF, at least, audited Univar
annually. Bayer’s contract with Univar explicitly stated that
Bayer would pay all property taxes on the Premise owned by
Bayer.
Beyond the formal terms of the agreements, Bayer and
BASF bore the risk of loss in practice as well. As the district
16 VALUEPEST.COM v. BAYER
court concluded, "testimony from representatives of Bayer,
BASF, and Univar . . . confirm that Bayer and BASF actually
retain both title and the risk of loss on Premise or Termidor,
respectively" until sold to PMPs. J.A. 449. When Termidor in
Univar’s possession was stolen on two occasions, BASF, not
Univar, wrote off the losses. When Univar suffered a credit
loss on a sale of Premise, Bayer reimbursed Univar. Invoices
sent to PMPs buying Premise or Termidor stated that the
products were owned by Bayer or BASF, not by Univar.
Plaintiffs’ arguments that defendants did not actually bear
the risk of loss are unavailing. They contend that the fact Uni-
var was required to carry insurance against its own negligence
is evidence that Univar bore the risk of physical loss, but it
makes perfect sense for a principal to require a genuine agent
to be responsible for the agent’s own carelessness in order to
discourage it. See Day, 400 F.3d at 1277. Plaintiffs point out
that until recently both defendants failed to pay property taxes
on their products held by Univar in a number of states. But
Univar never paid property taxes on the termiticides either,
and Bayer’s agreement, at least, assigned this responsibility to
Bayer, not Univar. Furthermore, BASF paid inventory taxes
on its Termidor.
Plaintiffs claim that the fact that defendants’ insurance
deductibles for their termiticides are greater than the amount
of product stored at any one Univar location means that Uni-
var bore the risk of loss. This conclusion does not follow;
simply because defendants have made the business decision
not to insure against the loss of their products from Univar’s
locations does not mean that they do not bear the risk of that
loss. Plaintiffs point out that Univar designed its accounting
system so that Univar took title to the pesticides at the
moment of sale. However, this bookkeeping method, utilized
by Univar in order to minimize Univar’s tax liability, was
clearly inconsistent with the clear terms of the agency agree-
ments, and, so far as the record shows, was not even known
to defendants.
VALUEPEST.COM v. BAYER 17
Plaintiffs argue that Univar bore the risks associated with
PMPs paying Univar by credit card. To alight on such an
accepted method of payment as material is grasping at straws.
Moreover, according to the agreements Univar was not
required to accept credit cards in the first place. That Univar
chose to attract customers in this manner and increase its
commission income under the agency arrangement does not
prove that the relationship was anything other than genuine.
See Ill. Corporate Travel, Inc. v. Am. Airlines, Inc., 889 F.2d
751, 753 (7th Cir. 1989). Plaintiffs are apparently under the
misapprehension that an agency relationship must be devoid
of any indication of entrepreneurship on the part of the agents
involved. This view simply overlooks the point that every
business relationship, however characterized, will have some
elements of enterprise. Simpson directed that courts should be
wary of arrangements where the purported agent possesses
"all or most of the indicia of entrepreneur[ship]," 377 U.S. at
20, but that is a far cry from saying that agents cannot have
any of those attributes. The agent in a principal-agency rela-
tionship need be loyal, but not robotic.
Thus, we find that defendants, not Univar, bore the risk of
loss of the termiticides—a factor which strongly supports a
determination that Univar was a genuine agent of defendants.
See Ryko Mfg. Co., 823 F.2d at 1223. The other two signifi-
cant factors also weigh in favor of a genuine agency relation-
ship. We review each in turn.
First, the record indicates that defendants used the agency
sales method for legitimate business reasons. When Aventis
first launched Termidor, it chose to use the agency method in
order to retain more control over how Termidor was sold to
PMPs than would have been possible under a more traditional
distribution arrangement. The company wanted Termidor to
be seen as a premium product of high efficacy, and thus
wanted to retain control over how the product was presented
to PMPs. Further, because Termidor was an entirely new ter-
miticide, the company wanted through its agents to restrict
18 VALUEPEST.COM v. BAYER
sales to PMPs who had been trained how to use the product
appropriately. Releasing a new product in a highly competi-
tive marketplace is a difficult endeavor. In such a venture, the
agency method can be useful because it enables a manufac-
turer to retain more control over how its product is marketed
than it would if it merely sold the products to distributors.
True resale price maintenance can usefully promote interb-
rand competition. See Leegin, 127 S. Ct. at 2714-16. Agency
arrangements may likewise be suited to do so, given the
greater control they give manufacturers over product presen-
tation. The decision by Aventis, and later BASF, to use the
agency method seems justified by sound business reasons.
Bayer, for its part, elected to switch to the agency sales
method not out of a desire to fix prices, but because distribu-
tors preferred the agency method and the commissions they
received from it to the traditional distribution method Bayer
had been using. Bayer was forced to switch to the agency
method in order to stay competitive. Certainly a desire to
emulate a successful business model cannot be said to be an
illegitimate business motive. Both defendants had legitimate
business reasons for using the agency method.
Second, there is no evidence whatsoever that the agency
agreements were the product of coercion. Unlike the gasoline
retailers in Simpson, Univar was not dependent on the agency
contracts for its livelihood; indeed, they constituted no more
than a small fraction of its business. The record indicates that
far from being compelled to adopt the agency sales method,
distributors like Univar actually preferred it.
Thus, the factors courts consider when evaluating whether
an agreement creates a genuine agency relationship militate in
favor of finding that such a relationship existed here.
B.
Notwithstanding the several factors that weigh in favor of
a genuine agency relationship, plaintiffs make several addi-
VALUEPEST.COM v. BAYER 19
tional arguments against that conclusion. First, plaintiffs
argue that distributors like Univar could not be agents while
serving Bayer and BASF simultaneously. This argument is
premised on a misunderstanding of the agency method, in
which nonexclusive relationships are common. In Illinois
Corporate Travel, Inc. v. American Airlines, Inc., 889 F.2d
751 (7th Cir. 1989), the Seventh Circuit held that a travel ser-
vice operator was an airline’s genuine agent notwithstanding
the fact that the relationship was nonexclusive, for "this is a
common form of organization. Real estate agents work for
many clients, and multiple-listing services allow many agents
access to the same properties; auction houses sell works of art
furnished by hundreds of owners at a single sitting." Id. at
752-53. Plaintiffs cite no case for the proposition that only
exclusive agency relationships are genuine for antitrust pur-
poses.
Second, plaintiffs make a number of related arguments
about actions taken by Univar that plaintiffs suggest should
instead have been taken by defendants. For example, plaintiffs
state that Univar, not defendants, took out pesticide licenses.
They point out that Univar hired and fired employees and paid
for workers’ compensation insurance. Plaintiffs emphasize
that Univar, not defendants, sent bills to PMPs. Plaintiffs also
note that Univar remitted payment to defendants less its com-
mission rather than being paid by defendants for services ren-
dered. They draw attention to the fact that Univar, not
defendants, dealt with expenses relating to its warehouses and
paid for warehouse insurance.
These arguments ignore the reasons why a manufacturer
would use sales agents in the first place. It is hardly surprising
that many effective agents have experienced employees and
tested business techniques of their own. Univar, as a distribu-
tor that already sold many companies’ pesticides, had low
overhead costs and was in a better position to make staffing
decisions, deal with licensing requirements, bill customers,
and maintain its warehouses than were defendants. It was rea-
20 VALUEPEST.COM v. BAYER
sonable for defendants to leave those matters to the party best
positioned to deal with them. Defendants chose to use Univar
as an agent precisely because, with its robust pesticide distri-
bution business, it was well-equipped to handle retail transac-
tions more efficiently than could Bayer or BASF themselves.
If the rule were otherwise—that is, if a manufacturer could
not leave to an agent the responsibility for dealing with hiring
employees and so on—there would be little reason for a man-
ufacturer to use agents rather than employees. But
"[e]fficiency would not be promoted by a rule that forbade
principals to tell their agents at what price to sell the princi-
pal’s product unless the agent was an employee." Morrison,
797 F.3d at 1437.
In sum, we find unconvincing plaintiffs’ various arguments
that the agency agreements at issue in this case were shams.
Because the agency relationships between defendants and
Univar were genuine, neither defendant violated § 1.2
V.
Section 1 of the Sherman Act and the Supreme Court’s
cases interpreting it attempt to strike a balance. The law must
prevent agreements that undermine the principle of competi-
tion necessary to make a free market function. Yet if law
sweepingly declares off-limits business methods that compa-
nies might opt to use for legitimate commercial reasons,
consumers—the intended beneficiaries of antitrust law—are
worse off. The Court’s cases on resale price maintenance have
walked this sensible path. Under General Electric, manufac-
turers can use the agency method to distribute their products.
Yet under Simpson, a distribution method labeled "agency"
but that in substance is simply an agreement between manu-
facturers and retailers to fix prices can create liability under
2
Because we conclude that there was no substantive § 1 violation, we
need not reach defendants’ argument that plaintiffs failed to prove injury
as required by § 4 of the Clayton Act, 15 U.S.C. § 15.
VALUEPEST.COM v. BAYER 21
§ 1. Here we are persuaded that the relationships at issue
stand comfortably on the General Electric side of the line.
Because the agency contracts are legitimate business arrange-
ments, and not unreasonable restraints on trade creating
potential § 1 liability, the judgment is affirmed.
AFFIRMED