Sunshine Biscuits, Inc.

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IN ')'lie :MATTER OF SUNSHINE BISCUITS, INC., STATLER MANUFACTURERS LAW- CORP., STATLER DISTHIBUTORS, INC., AND RENCE S. REISS PARTIAL CQXSEXT SETTLEMENT IN REGARD TO THE ALLEGED VIOLATION SEC. 2 (A) OF THE CLAYTON ACT AS A::JENDED , AXD OF THE FEDEPLi\L TRADE C01\l\IISSlON ACT 1 Docket 6191. Complaint, Mar. 195J,-Decision, July 20 , 1954- Partial consent settlement order requiring Sunshine Biscuits, Inc. , the second largest producer of b8kery paclwged food products in the United States with gross sales for 1952 of about 8120 000 000, to cease sellng or contracting to sell its protluds on the condition t.hat purchasers not use or deal in the mercl1andise of any of its competitors, and entering into or carrying out agreements with flDY seller of automatic vending machines that the hitter s vendees, operators, etc" would dispense through saill machines exdusiyely Sunshine bakery products; and requiring Statler Manufacturers Can). a seller of SOIIJe 7,000 automatic vending machines located throughout the country, \with gross annual sales of about $500 000, to cease sellng, or mal ing or enforcing any contract for the sale of, vending machines on the condition that purchasers dispense through the machines exclusively Sunshine bakery products, among other things. Before Afr. John Lwwi8 hearing examiner. '1r. TVilliam II. Smith and illf'. Brock1r/,an H 0?' 1te for the Com. mlgw10T1.

M,' . A. TV. DeBirny, of Long Island City, N. Y. , andl1h. Rovert E. FreeT of "Washington, D. C. , for Sunshine Biscuits, Inc. Mr. Avel B. Silverman of New York City, for Statler Manufacturers Corp., Statler Distributors, Inc. and Lawrence S. Reiss. COIUPLAINT The Federal Trade Commission, having reason to believe that Sunshine Biscuits, Inc., hereinafter more partienlarly designated and described, has violated and is now violating the provisions of subsection (a) of Section 2 of the Clayton Act (U. S. C. Title 15, Sec. 13)1 as amended by the Robinson-Patman Act, approved .Tune 19 1936, and pursuant also to the provisions of the Federal Trade Commission Act, and by virtue of the authority vested in it by said Act the Commission, having reason to believe that. said Sunshine Biscuits 1 Count I of the complaint, charging- price discrimination in violation of Sec. 2 (a) of the Clayton Act as amended by Sumhine in tbe sale of its prodllcts, was settled 11 year later by n consent order to cease and desist, efiective July 30 , 1955\ 52 F. T. C. - Complaint 51 F. T. C. Inc., Statler Manufacturers Corp. , a corporation, Statler Distributors, Inc., a corporation, and hereinafter more particularly designated and described, and Lawrence S. Heiss, individually and as an offcer of . Statler Manufacturers Corp. and Statler Distributors, Inc., have violated the provisions of Section 5 of the said Act, and it appeal;ing to the Commission that a proceeding by it in respect thereof would be in the public inte.rest, hereby issues its c01nplaint, stating its charges as follows:

COUXT I P ATIAGRi\PU 1. Respondent Sunshine Biscuits, Inc. (formerly Loose-,Viles Biscuit Company), hereinafter referred to as Sunshine is a New York corporation with its offce and principal place of business Ioc:atecl at 29-10 Thomson Avenue, Long Island City, New York. PAR. 2. Hesponclent SUllshine is now and for many years last past has been engaged in the manufacture, sale and distribution of bakery packaged food products, commonly referred to as cookies, crackers biscuits and cakes. In certain avenues of distribution these products arc sold under the trade na,me "Nicks. " Said respondent is the second largest producer and distributor of bakery packaged food products in the United States. Its gross sales of said products for the year 1952 was in excess of S130 OOO OQO.

Respondent Sunshine operates bakeries and maintains 115 warehouses for the temporary storage and to facilitate the delivery of said products; and also maintains numerous branch sales offces ill various localities throughout the Uniteel States. Salesmen arc employed to solicit orders and sell said products and subsequently said products are delivered by trucks owned by said respondent Sunshine to some 240 000 customers located in every city, town and village of the Unit.ed States. The customers of respondent inc.ude chain retail stores (whether corporate or independently owned), voluntary and cooperatiY8 chain retail stores, independent store owners and customers who sell said products through automatic vending machines. Responde,nt Sunshine causes said products, when sold, to be transported from its various bakeries and ware,house,s to purchasers lo cated in the District of Columbia and in States other than the States where respondents products are manufactured or sold. There is a.nd has been at all times mentioned herein! a continuous current of trade in commerce in sa-id products across state lines from respondent Sunshine s bakeries and wfirehouses to the purchasers thereof. Said products are sold and distributed for use, consumption and resale in the various States of the 1;united States and the District of Columbia.

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SUXSHIXE BISCUITS, INC., ET AL.

Complaint PAR. 3. In the course and conduct of its business, as aforesaid respondent Sunshine is nmv, and during the times herein mentioned has been, in substantial competition "\with others engaged in the manufacture, sale and distribution of bakery packaged food products in commerce between and alIong the various States of the United1 States and in the District of Columbia.

I\.fany of respondent Sunshine s customers are competitively engaged with each other and with customers of respondent Sunshine competitors in the resale of bake,ry pnekagec1 food products within the trading areas in which silid customers arc engaged in business. PAR. 4. Respondent Sunshine, in the course and conduct of its business, as aforesaid bas been and is now discriminating in price bebveen different purchasers of their products of like grade and quality by scning said products to some of its customers at higher prices than to others of its customers.

PAIL 5. The discriminabons in price referred to in Paragraph Four hereof have been anclnow are eil'ected pUl'snnnt to the method by which respondent bases the price on which it sens such products to its purchasers. The basic method involves a. volume discount pl:ll whereby respondent sells its products at prices based upon the monthly purchases of said products of a particular customer. Thj volume discount plan is as follows:

Disc(mnl AloniMyPurc!ilIses (Percent) $0 to ,20.00--_ Xonc $20. 00 to $140.00-- 8150. 00 to $000.00-- 000. 00 to 52 490.09------------ 500.00 to $. 909. 00--- - - - - - - - - - ;'000. 00 to $7 409.00_-- -- -- $7. 500.00 and up- - - - PAR. 6. The effects of such discriminations in price as set forth in Paragraph 4 and Paragraph 5 l1ereof may tend to create a monopoly in the lines of commerce in which respondent Sunshine and its customers are respectively engaged; or to injure, destroy or prevent competition with respondent Sunshine, or with customers thereof who receive the benefits of such discrimination. PAR. 7. The foregoing alleged acts and prac6ccs of said respondent Sunshine, as set fort.h herein, cons6tute violation of subsection (a) of Section 2 of the Clayton Act (D. S. C. Title 15, Sec. 13), as amended by the Hobinson-Patman Act, approved June 19 , 193(i. FEDERAL TRADE COM:lSSIOX DECISIONS Complaint 51 F.

COUNT II PARAGRAPH 1. For its charges under this paragraph of this count said Commission relies upon the matters and things set ont in Paragraph 1 of Count I of this complaint to the same extent as though the allegations of said Paragraph 1 of said Count I were set out in full herein, and said Paragraph One of said Count I is incorporated herein by reference and made a part of the allegations of this count. PAR. 2. For its charges under this paragraph of this count, said Commission relies upon the matters and things set out in Paragraph 2 of Count I of this complaint to the same extent and as though the allegations of said Paragraph 2 of said Count I were set out in full herein, and said Paragraph 2 of said Count I is incorporated herein by reference and made a part of the allegations of this count. PAR. 3. For its charges under this paragraph of this count, said Commission relies upon the matters and things set out in Paragraph 3 of Count I of this complaint to the same extent and as though the allegations of said Paragraph 3 of said Count I were set out in full herein and said Paragraph 3 of said Count I is incorporated herein by reference and made a part of the allegations of this count. PAR. 4. Hespondents Statler Manufacturers Corp., and Statler Distributors, Inc., atc Now Yark corporations with their offce and principal place of business located at 2112 Broadway, ew York, New York.

Respondent Lawrence S. Heiss is vice-president of both respondents Statler Manufacturers Corp. and Statler Distributors, Inc. Hespondent Lawrence S. Reiss formulates, directs and cant-rolls the business, acts, practices and policies of said respective corporate r()pondents.

All three respondents named in this paragraph will hereinafter be referred to, unless specifically mentioned, as respondents "Statler. PAR. 5. Respondents Statler are now and for many years last past have been engaged in the sale and distribution of automatic vending machines under franchise agreements. These machines nre used in dispensing biscuits, crackers, and cookies to the consnIner. The spondents StatIm' ' vending machines arc located in industrial plants hospitals, subways and other strategic locations. There are presently approximately 7 000 of these vending machines located throughout the country. Gross saJos of respondent Sunshine s products sold through these machines approximate $500 000 annually. In the course and conduct of their business, as aforesaid, respondents Statler a.re now, and during the time herein mentioned have been, in substantial competition v, jtlt others engaged in the manufacture, sale SUNSHINE- BISCUITS INC. ET AL.

Complaint and distribution of automatic vending machines used in dispensing biscuits, crackers and cookies.

PAR. 6. In the course and conduct of their businesses, respondents Statler cause the said vending machines, when sold, to be transported from their place of business in New York to the purchasers located in other States than the State of New York and in the District of Co- Iumhia. Respondents Statler maintain, and at all times mentioned herein have maintained, a course of trade in said products in commerce among and between the various States of the United States and in the District of Columhia.

P AU. 7. In the course and conduct of t.their businesses, as aforesaid on or about July 27, 1940, respondent Snnshine and respondents Statler entered into an agreement wherein respondents Statler, for themselves, their vendees, operators, brokers and licensees, agreed to dispense through the vending machines, either operated by or sold by them, solely and exclusively, products manufactured and distributed by the said respondent Snnshine.

The aforementioned agreement by the said respondent Sunshine and respondents Statler, since the date of its original execution, which was for a period of five years, has been renewed from time to time more particularly on November 17, 1944, and again on April 20, 1950. Respondent Sunshine agreed with respondents Statler not to enter into any similar agreement \with any other person, firm or corporation for the advertisement, promotion or sale of its products through the means of vending machines.

For the purpose of carrying out the agreement between respondent Snnshine and respondents Statler, respondents Statler opcrate as follows :

Respondent Statler Manufacturers Corp. enters into a sales agreement with the buyer for the sale of a vending machine to be used by the buyer solely and exclnsiveJy in the sale of the products manufactured by respondent Sunshine "as provided in an agreement between Statler Distributors, Inc., with said buyer; and as part of the Barne transaction, Statler Distributors, Inc. enters into a licensing agreement with t.he buyer of the vending machine ,,,which was purchased under the aforementioned sales agreement, under which agreement the buyer agrees to dispense through said vending machinc solely and exclusive)y, products manufactured and distributed by the respondent Sunshine. The buyer is also granted and limited to the sale of said products in a definite territory. The agreement extends not only to the vending machjnes purchased at the time the agreement is executed, but to a11 future machines purchased by the vendee. The terms of the agreement are allegedly for a period of five years; how- FEDERAL TRADE CO:\:\ISSION DECISIONS Decision 51 F. '1'. C. ever, respondents Statler seek cOlnp1iance there","ith beyoncl said period.

PAR. 8. In the course and conduct of the business of the respective respondents hereinbefore described, and in pursuance of the practices and acts alleged in Paragraph 7 hereof, all of the respondents have cooperated in carrying out the agreement restricting the use of the vending machines sold by respondents Statler, solely and exclusively, to the sale of respondent Sunshine s products. Respondent Sunshine pays a commission to respondents Statler on products sold by it to respondents Statlers' vendees. Respondent Sunshine keeps respondents Statler advised when sales of its products to respondents Statlers' vendees decline, thus indicating that said respondents Statlers' vendees are dispensing, through the vending machine, products other than those mnnufaciurecl and distributed by respondent Sunshine.

Respondents Statler, upon learning, either from its own policing, or from infornmtion furnished by respondent. Sunshine, that its vendees arc dispensing through their vending machines products other than those manufactured by respondent Sunshine, they, among other things coerce or intimidate said vendees to cnrry out the terms of their agreement by threatening to cancel said agreement unless t.he vendee confines his sale through the said vending machine solely and exclusively to products manufactured and distributed by respondent Sunshine. As a result of threats and intimidations made by respondents St.atlei' , many of respondents Statlers' vendees have been induced to stop selling, through said vending machines, products of respondent Sunshine s competitors.

PAR. 9. The acts and practices of the respondents, as herein alleged are all to the injury and prejudice of competitors of respondents of customers and purchflsers of respondents and of the public; ha vo a tendency and effect of obstructing: hindering and preventing competi- 60n in the sale of vending machines and bakery packaged food products in commerce within the intent and meaning of the Federal Trade. Commission Act; have a tendency to, and have, obstructed and restrained such commerce in such merchandise, and constitute unfair methods of competition in C011merce and unfair and deceptive acts and practices in commerce within the intent anclmeaning and in violation of Section 5 of the Federal Trade Commission Act. DECISION OF THE CO IJnSSION Pursuant to Hllle XXII of the Commission s H,ules of Practice, a,nel as set forth in the Commission s "Decision of the Commission and SUNSHINE BISCUITS, INC., ET AL.

Decision Order to File Heport of Compliance, dated July 20, 1954, the initial decision in the instant matter of hearing examiner John Lewis, as set out as follows, became on that date the decision of the Commission. INITIAL DECISION BASED ox STIPDLATIOX FOR CONSENT OP.DER AS TO COUNT II OF C03IPLAIXT BY JOHN LEWIS, HEARING EXA::\IINER Pursuant to the provisions of the Federal Trade Commission Act the Federal Trade Commission, on March 11, 1954, issued and subsequently served its complaint in this proceeding upon the corporations and the individual named in the caption hereof, hereinafter caned respondents, charging the respondent Sunshine Biscuits, Inc., in Count I of said complaint, with having violated the provisions of subsection (a) of Section 2 of the Clayton Act (D. S. C. Title 15, Sec. 13), as amended by the Hobinson-Patman Act, approved Jnne 19, 1936, and charging an of saiel respondents, in Count II of the complaint, with the use of unfair methods of competition and unfair and deceptive acts and practices in commerce in violation of Section 5 of the Federal Trade Commission Act. Following the issuance of sa,id complaint, the respondents appeared by counsel and entered into a stipulation consenting to the entry of a cease-and-desist order in disposition of Count II of said complaint. Sajd stipulation provides that respondents admit all the jurisdicti01ml allegations of the complaint and, with respect to Count II of the complaint, provides that respondents waive the filing of answer, a hearing before a hea.ring examiner of the Commission, the making of findings of fact or conclusions of law by the hearing examiner or the Commission, the filing of exceptions and oral argument before the Commission, and all further and other procedure before the hearing examiner and the Commission to which respondents may be entitled under the Federal Trade Commission Act 01' the Hules of Practice of t.he Commission, and further, that the aforesaid consent cease and-desist order shan have the same lorce and effect as if made after a full hearing, presentation of evidence, and findings a.nd conclusions thereon, and that respondents specifically waive any and an right, power, or privilege to chaHenge or contest the validity of the order entered in a.accordance with said stipulation. The said stipulation having been filed with the above-named hearing examiner, theretofore duly designated by the Commission for consideration by said examiner in accord1nnce with Rule V of the Commission s R.ules of Practice, is hereby accepted and made a part of the record herein by the hearing examiner who, after considering tho complaint and said stipulation, finds that this proceeding is in the 423783-58- Findings 51 F. T. C.

interest of the public and, in disposition of Count II of the complaint makes the following:

JURISDICTION AI.1 FINDINGS PARAGRAPH 1. Respondent Sunshine Biscuits, Inc. (formerly Loose-1Viles Biscuit Company) , hereiuafter referred to as Sunshine, is a New York corporation with its offce and principal place of business located at 29-10 Thomson Avenue, Long Island City, Kew York. PAR. 2. Respondent Sunshine is now and for many years last past has been engaged in the manufacture, sale and distribution of bakery packaged food products, commonly referred to as cookies crackers, biscuits and cakes. In certain avenues of distribution these products are sold under the trade name "Nick." Said respondent the second largest producer and distributor of bakery packaged food products in the United States. Its gross sales of said products for the year 1052 was approximately $120 000 000. Respondent Sunshine operates bakeries and maintains approximately 110 warehouses for the temporary storage and to facilitate the delivery of said products; and also ma,intains numerous branch sales oiIees in various localities throughout the 1Jnited States. Salesmen arc employed to solicit orders and sell said products and subsequently said products are delivered by true-ks owned by said respondent Sunshine to some 240 000 customers located in numerous cities, towns and villages of the United States. The customers of respondent include chain retail stores (whether corporate or independently owned), voluntary nnd cooperative chain retail stores, independent store owners and customers who sell said products through automatic vending machines.

Respondent Sunshine causes said products, when sold, to be transported from its various bakeries and warehouses to purchasers located in the District of Columbia and in states other than the states where respondent)s products are manufactured or sold. There is, and has been at aJl times mentioned herein, a cont.inuous current of trade in commerce in said products across state lines from respondent Sunshine s bakeries and warehouses to the purchasers thereof. Said products are sold and distributed for nse, consumption and resale in tho various states of the United States and the District of Columbia. PAIL 3. In the course and conduct of its busines as aforesaid, respondent Sunshine is now, and during the times herein mentioned has been, in substantial competition with others engaged jn the manufacture, sale and distribution of bakery packaged food products in commeree between and among the various states of the Lnite.d States and in the District of Columbia.

SUNSHINE BISCUITS, INC., ET AL.

Order :Many of respondent Sunshine s customers are competitively engaged with each other and with customers of respondent Sunshine competitors in the resale of bakery packaged food products within the trading areas in which said customers are engaged in business. PAR. 4. Respondents Statler .:lanufacturers Corp., and Statler Distributors, Inc., are Now Yark corporations with their offce and principal place of business located at 2112 Broadway, New York New York.

Respondent Lawl'cnee S. Heiss is vice-president of both respondents Statler Manufacturers Corp. and Statler Distributors, Inc. Hespondent Lawrence S. Reiss formulates, directs and controls the business, acts, practices and policies of said respective corporate respondents.

All three respondents named in this paragraph will hereinafter be referred to, unless specifically mentioned, as respondents "Statler. PAR. 5. Respondents Statler are now and for many years last past have been engaged in the sale and distribuhon of autOlnatic vending machines under' franchise agreements. These machines are used in dispensing biscuits, crackers, and cookies to the consumer. The respondents Statler s vending machines are located in industrial plants, hospitals, subways and other strategic locations. There are presently approximately 7 000 of these vending machines located throughout the country. Gross sales of respondent Sunshine s prodnets sold through these machines approximate $500 000 annually. In the course and conduct of their business, as aforesaid, respondents Statler are now, and during the time herein mentioned have been, in substantial competition with others engaged in the manufacture, sale and distribution of automatic vending n1Rchincs used in dispcnding biscuits, crackers and cookies. PAR. 6. In the course and conduct of their businesses, respondents Statler cause the said vending machines, when sold, to be trans ported from their place of business in N cw York to the purchasers located in other states than the State of New York and in the District of Columbia. Hespondents Statler maintain, and at all times mentioned herein have maintained, a course of trade in said products in commerce among and between the various states or the United States and in the District of Columbia.

ORDER It i8 ordered that respondent Sunshine Biscuit, Inc., a corporation and its offcers, agents, re.presentat1ves and employees, directly or through any corporate or other device, in connection with the offering FEDERAL TRADE COM:LVITSSION DECISIOKS Order 51 F. T. C.. for sale, sale and distribution of bakery packaged food products, in commerce, as "commerce" is defined in the Federal Trade Commission Act, do forthwith cease and desist from: 1. Selling or making any contract for sale of any such products on the condition, agreement or understanding g that the purchasers thereof shall not use, or deal in or sell the goods, wares or merchandise of a competitor or competitors of respondent Sunshine Biscuits Inc.

2. Enforcing or continuing in operation or effect any condition agreement or understanding in, or in connection with any existing sales contract, which condition, agreement or understanding is to the effect that the purchaser of said products will not use or deal in the goods, wares or merchandise of a competitor or competitors of the respondent Sunshine Biscuits, Inc.

3. Entering into any agreement or understanding with a seller of automatic vending machines, that its vendees, operators, brokers or licensees would dispense through said vending machines, solely and exclusively, products manufactured and sold by said respondent Sunshine Biscuits, Inc.

4. Cooperating with respondents Statler Manufacturers Corp. Statler Distributors, Inc. , and Lawrence S. Reiss, or any of them, to carry out any conditions, agreements or understandings made by them jointly or severally, with their vendees, operators, brokers and licensees to dispense through the vending machines, sold by them, solely and exclusively, products manufactured and sold by respondent Sunshine Biscuits, Inc.

It is !wther ordered that respondents Statler Manufacturers Corp. a. corporation, Statler Distrihutors, Inc., a corporation, their respective offcers, agents, representatives and employees, and respondent Lawrence S. Reiss, individually and as an offcer of said corporations directly or through any corporate or other device, jointly or several1ly, in connection with the offering for sale, sale and distribution of automatic vending machines in commerce, as "commerce" is defined in the Federal Trade Commission Act, do forthwith cease and desist from:

1. Selling or making any contract for sale of such vending machines on the condition, agreement or understanding that the purchasers operators, brokers or licensees thereof, dispense, through said vending machines, solely and exclusively products manufactured and sold by respondent Sunshine Biscuits, Inc.

2. Enforcing or continuing in operation or effect any condition agreement or understanding, in or in connection with any existing SUNSHINE BISCUITS, INC., ET AL.

Order sales contract or franchise agreement, which condition, agreement or understanding is to the effect that the purchasers, operators, brokers or licensees of said vending machines will dispense through said vending machines, solely and exclusively, products manufactured and sold by respondent Sunshine Biscuits, Inc. 3. Cancelling, or directly or by implication threatening the cancellation of any contract or franchise or selling agreement with the vendees, operators, brokers or licensees of said products because of the failure or refusal of said vendees, operators, brokers or licensees to dispense, through said vending machines, solely and exclusively products manufactured and sold by respondent Sunshine Biscuits, Inc. 4. The performance of any act of intimidation or coercion, either through statements, oral or written, or during the course of calls made upon the vendees, operators, brokers or licensees of said vcnding 111achines, at their place of business or at any other place, or the llse of any other plan, practice, system or method of doing business for tho purpose or having the effect of intimidating or coercing respondents' vendees, operators, brokers or licensees, or other purchasers to dispense, through vending machines sold by them, solely and exclusively, products manufactured and sold by respondent Sunshine Biscuits, Inc.

ORDER TO FILE REPORT OF COl\PLIANCE It is ordered that respondents Sunshine Biscuits, Inc., a corporation, Statler ::lanufacturers Corp., a corporation, Statler Distributors Inc., a corporation, and Lawrence S. Reiss, inclividuaIly and as an offcer of Statler Manufaeturers Corp. and Statler Distributors, Inc. shall, within sixty (60) days after service upon them of this order fie with the Commission a report in writing, setting forth in detail the manner and form in which they have complied with the order to cease and desist (as required by said declaratory decision and order of July 20 , 1954J.

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Decision 51 F. T. C.