Eastman Kodak Company

Text (OCR of the scan at left; may contain errors)

IN THE MATTER OF EASTMAN KODAK COMPANY Docket ,6040. Order and opinion, Sept. 25 1953 fore Mr. J. Earl Oox hearing examiner.

Aft. Fletcher G. Oohn and Mr. Lewis F. Depro for the Commission. Nixon, IJargmve, Devans Dey, of Rochester, N. Y. , and Donovan, Lei8ur-e, Newton d'; vine of New York City, for respondent. ORDER DISPOSING OF MOTION TO STRIRE AND RESPONDENT S :MOTION TO DISMISS This matter came before the Federal Trade Commission upon respondent' s motion to dismiss thc complaint herein and upon the motion of counsel supporting the complaint to strike respondent' motion to dismiss. Briefs in support of and in opposition to said motions have been fied and oral argument of counsel has been heard by the Commission.

Promptly after thc issuance of the complaint herein respondent filed with the hearing examiner a motion to dismiss the complaint. This motion was denied by the hearing examiner on the ground that he did not have jurisdiction to hear the motion. Respondent th n filed with the Commission a motion to dismiss the complaint. Counsel supporting the complaint thereupon filed a motion to strike said motion to dismiss as being improperly filed with tbe Commission. Under the Commission s Rules of Practice, respondent properly filed its original motion to dismiss with the hearing examiner, who did have jurisdiction over t.he motion and who should have considered it.. Respondent' s remedy from the hearing examiner s ruling t.hat he lacked jurisdiction over t.he motion was to seek an appeal therefrom under Rule XX of thc Commission s Rules of Pra.cice. Respondent.' s procedure of filing a new motion to dismiss directly with thc Commission was improper and t.he motion of counsel supporting the complaint to strike this motion was procedurally correct. However, the Commission is of t.he opinion that, inasmuch as respondent' s motion t.o dismiss has been briefed and argued before on the merits, it would be in furtherance of a prompt dccision in this matter for the Commission to rule on t.he issues present.ed therein. Thc Commission, therefore, has considered the motion on its merits as if the motion were properly before it rather than remanding the matter to the hearing examiner for consideration of thc motion. 318 FEDERAL TRADE COlVlMISSION DECISIONS Interlocutory Order 50 F.

Under these circumstances the motion to strike respondent's motion to dismiss is denied.

Respondent' s motion to dismiss is based on two separate and distinct grounds, namcly :

It is ordered That respondent's motion to dismiss the complaint be and it hereby is, denied.

It is further ordered That this proceeding be, and it hereby is, remanded to the hearing examiner herein for proceedings in rcguar course.

Commissioner Howrey dissenting insofar as this order holds that the complaint herein states a cause of action; Commissioner Mead not participating due to absence.

Chairman HOWREY, dissenting:

I feel compelled to dissent from that part of the order which holds that the complaint states a cause of action. The complaint alleges that respondent, a manufacturer of photographic and optical products sold under the name of Kodak, enters into resale price maintenance contracts with independent retail stores which are, in some cases, in competition with respondent' s own retail outlets, and that this course of conduct is unlawful under Section 5 of the Federal Trade Commission Act.

The charging paragraph, Paragraph Nine, reads as follows: The contracts and agreements entered into by respondent with its retail. "store customers, whereby it fixes and maintains the resale prices of many of its amateur photographic products, are illegal in that some of the said retail store customers are in competition with respondent' s wholly owned and controlled retail stores in the sale of such products to the consuming public.

Nowhere in the complaint is it alleged, or even suggested, that respondent has entered into resale contracts for the purpose or with the effect of establishing an unlawful horizontal price-fixing arrangement, or, as a retailer, has combined or conspired with independent retailers to fi or maintain prices. Nothing is set forth with respect to the nature or degree of competition which is alleged to exist between respondent and independent retail stores. In brief, no elements of the charge are particularized except those stated above. The McGuire Act (66 Stat. 631, 15 U. S. C. 45) established no new antitrust prohibitions. It served only to validate interstate sales of articles under vcrtical resale price contracts where such contracts are authorized by State law. Like the Miller-Tydings Amendment which is similar for purposes of this case, thc McGuire Act was merely an enabling measure. See 97 Congo Rec. 13405. Congressman McGuire, the sponsor of the legislation which ultimately was passed EASTMAN KODAK CO. 319 317 Interlocutory Order as the Federal Fair Trade Act, stated on the floor in support of H. R. 5767 that: "The McGuire bill adds no new powers to the Federal Trade Commission Act. It merely cxempts from the Federal Trade Commission Act and the Antitrust Acts, so far as interstate commerce is concerned, that type of resale price maintenance contract which is " 1permitted by the fair trade acts of 45 States. Section 5 (a) (5) provides that horizontal arrangements are exemptcd from the immunizing effects of the Act. Such arrangements were and are prohibited by existing law and the processes of thc Commission should be directed against them with vigor. But facts suffcient to show a violation of existing law are not alleged in the complaint before us. Compare U. S. v. Frankfort Distillers, Inc., supra; U. S. v. Univis Lens 00., Inc., et al. 316 U. S. 241, 252. The fact that respondent functions in a dual capacity-as a manufacturcr and as a retailer-has not in the past been considered a violation of law? The practice of manufacturers to market their products through their own outlets, while at the same time selling to independent retail stores, is a widespread marketing practice. Mere competition between some of these outlets and independent retail stores having resale price contracts with thc manufacturer is ccrtainly not determinative of illegality. If the contracts are truly vertical, no violation of the Federal Trade Commission Act is present. Neither the Miller-Tydings .Amendment nor the McGuire Act were intended by thc Congress to discriminate between integrated and nonintcgrated manufacturing concerns in securing the benefils of resale price maintenance for themselves or their customers.' Thcrc is no indication in the Miller-Tydings Act itself (or the McGuire Acts or ill its legislative history that Congress intended to 198 Congo Rec. 4900-4901. To this same effect, see U. S. v. Frankfort Distillers Inc. 324 U. S. 293, 296.

2 See my opinion on Count III in Docket No. 5897 , In the Matter of Doubleday and Gu. Inc. decided September 25 , 1953.

3 See Phillips, Marketing by Manufacturers (1946),. p. 144 et seq. 4 Senator Humphrey, a leading proponent of the McGuire Act, explained on the floor of the Senate that the test of:

whether a resale price maintenance contract is vertical is if the contract is between a seller and buyers who resell the original seller s product; whereas, the test of whether a resale price maintenance contract is horizontal is if it is between competing sellers between whom the relation of bu;yer and seller or reseller does not exist as to the product involved.

It is important to keev this distinction in mind, because many producers of trade-marked items sell them to customers, retailers, and wholesalers alike. Under the bil, such firms may make resale price-maintenance contracts with both wholesalers and retailers because such contracts are vertical, that is, lwtween sellers and buyers. 'While in one sense firms in this position function not only as producers but also as wholesalers and retailers, they Inay still lawfully make contracts with other wholesalers and retailers, wh.en in making such contracts they act as producers of a tl'adem llked or branded comIDoditj-', ra tiler than as whole- ..

320 FJeDERAL TRADE COMMISSJON DECISIONS Interlocutory Order 50 F. T. C. * * * alter established systems of distribution in order (for a manuact." 5facturer) to avail himself of the benefits of the The complaint in this ease does violence to the fundamental principle that legislation should be construed in the light of its basic purpose. The Congress has validated vertical resale price contracts and it is not the Commission s function to invalidate the use of such contracts by a large segment of the economy.

If it were alleged, for example, with suffcient particularity, that a bona fide relationship of buyer and seller did not exist between respondent and its retail store customers, or that the transactions between them involved something more than cust.omary marketing transactions afl'ccting successive stages of the marketing process, or that the contracts were not between parties at diffcrcnt lcvels of the distribution system, or that there was a purpose to suppress and rcstrain competition t.through an unlawful horizontal arrangement, then a cause of action might bc stated.

As it st.ands, however, the complaint represents another onc of those peripheral "test" cases of strained statutory interpretation, doubtful validity and unfortunate economic consequence. salers and retailers entering into forbidden horizontal resale price-maintenance V8 Congo Rec. 8870. contracts with other wholesalers or other retailers. See colloquy between Congressman Patman and Hale, Hearings on :.linimum Resale Pricps before a Subcommittee on the House Committee on Interstate Commerce, 82d Cong. 2d Sess., p. 13. A commentator huh said: "All of the kgi::lation is expressly made inapplicable to hori7.ontal price-fixing contracts, but this provision bas not been deemed to prohibit contracts between a retailer and a manufacturer with a retail outlet, or between a manufacturer and a manufacturing retailer. Williams, Resale Pr-ice Maintenance and Minimum Price Legislation (1950), Institute on Antitrust Laws and Price Regulations. p. 141. See also Callman Unfair CompetiUon and Trademarks, Vol. 1 , p. 377. Cf. Statement of Thurmond Arnold in Final Report and Recommendations of the 'l'NJiC (1941). p. 238.

6 Sunbeam Corp, v. Pay less Drug Stores 113 F. Supp. 31 (N. D. Calif. HJ53). SCIENTIFIC LIVING, INC., ET AL. 321 Syllabus