Druggists' Supply Corporation

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IN THE ~L'\TTER OF DRUGGISTS' SUPPLY CORPORATION ET AL.

CONSENT ORDER, ETC., IN REGARD TO THE ALLEGED VIOLATION OF SEC. 2 (c) OF THE CLAYTON ~~CT Docket 6420. Complaint, Sept. 1955-D ecis ion, Jan. , 1956 Consent order requiring over 100 wholesale druggists to cease violating Sec. 2 (c) of the Clayton Act, as amended, through receiving brokerage from sellers (1) based upon percentage of sales, (2) in lump sums, and (3) as "functional discounts" on purchases made for them by their own corpora te agent.

Before MT. Abner E. Lipsco1nb hearing examiner. Mr. Rice E. Schrimsher for the Commission. Appel, Austin Gay, of New York City, for respondents, generally.

Weaver ill Glassie of vVashington, D. C. , and Ballard, Spahr Andrews Ingersoll of Philadelphia, Pa. for Smith, Ieline & French Laboratories and Smith, Ieline & French, Inc. COl\:I:PLAINT The Federal Trade Commission, having reason to believe that the parties respondent named and referred to in the caption hereof, and more specifically described hereinafter, have been and are now violating the provisions of subsection (c) of Section 2 of the Clayton Act (U. C. Title 15, Section 13) as amended by the Robinson-Patman Act, approved J urie 19, 1936, hereby issues its complaint stating its charges with respect thereto as follows:

PARAGRAPH 1. Respondent Druggists' Supply Corporation, hereinafter referred to as respondent D. , is a corporation organized existing and doing business under the laws of the State of New York with its principal office and place of business located at 26 "'\Vest 40th Street, New York, N. Y.

PAR. 2. Respondent Brunswig Drug Company is a corporation organized, existing and doing business under the laws of the State of California, with its principal office and place of business located at 4701 South Santa Fe Avenue, Los Angeles, California. It maintains branch offices in San Francisco, San Jose, San Diego, Sacramento and San Bernardino, California, Phoenix and Tucson, Arizona, and Salt Lake City, Utah.

Respondent Durr Drug Company is a corporation organized, existing and doing business under the laws of the State of Alabama, with 700 FEDERAL TRADE COlVIl\lission DECISIONS 52 F. T. c. Complaint its principal office and place of business located at 207-11 Commerce- Street, Montgomery, Alabama. It maintains a branch office in Birmingham, Alabama.

Respondent Gilman Brothers, Inc. , is a corporation organized existing and doing business under the laws of the State of l\lassachusetts, with its principal office and place of business located at 108-12 Shawmut Avenue, Boston, :Massachusetts. Respondent I\::auffman-Lattimer Company is a corporation organized, existing and doing business under the laws of the State of Ohio with its principal office and place of business located at 263-83 North Front Street, Columbus, Ohio. It also does business through a wholly-owned subsidiary, I\:auffman-Lattimar Company, Inc., Parkersburg, ,Vest Virginia.

Respondent IGefer-Stewart Co. is a corporation organized, existing and doing business under the laws of the State of Indiana, with its principal office and place of business located at 141-55 ,Vest Georgia Street, Indianapolis, Indiana. It controls another corporation engaged in the same business, ,Valding, IGninan & :Marvin Company, Respondent corporation organized, existing andToledo, Ohio.:McPike, Inc. is a doing business under the laws of the State of l\lissouri, with its principal office and place of business located at 618 Central Street Kansas City, l\lissouri.

Respondent Ohio Valley Drug Co. is a corporation organized, existing and doing business under the laws of the State of ,'Test Virginia with its principal office ,and place of business located at 1305-07 West :Main Street, vVheeling, ,Vest Virginia.

Respondent Owens, :Minor & Bodeker, Inc., is a corporation organized, existing and doing business under the laws of the State of Virginia, with its principal office and place of business located at 1000- East Cary Street, Richmond, Virginia.

Respondent Scott Drug Co., Inc., is a corporation organized, existing and doing business under the la ,vs of the State of North Carolina, with its principal office and place of business located at 2923 South Tryon Street, Charlotte, North Carolina. Respondent Smith, Kline &, French Laboratories is a corporation organized, existing and doing business under the laws of the State of Pennsylvania, ,with its principal office and place of business located at 1530 Spring Garden Street, Philadelphia, Pennsylvania. Respondent Smith, EJine 8: French, Inc., is a corporation organ~ ized, existing and doing business under the laws of the State of Pennsylvania, with its principal office and place of business located at 1011 ,Yest Butler Street, Philadelphia, Pennsylvania. It is a whollyowned subsidiary of respondent Smith, IGine & French Laboratories. DRUGGISTS' SUPPLY CORP~ ET At,. 701 699 Complaint It also has a wholly-owned subsidiary, ~1ercer 1Vholesale Drug Co. 1880 Princeton Ayenue, Trenton, New Jersey. Respondent Southwestern Drug Corporation is a corporation organized, existing and doing business under the laws of the State of Texas, with its principal office and place of business located at 1108- 10 Jackson Street, Dallas, Texas. It maintains branch offices in Dallas, Fort worth, "'\Vaco, Corpus Christi, ~1idland, Amarillo, Houston, 1Vichita Falls, and San Antonio, Texas. Respondent vValsh-Lumpkin Drug Company is a corporation organized, existing and doing business under the laws of the State of Arkansas, with its principal office and place of business located at 217 Hazel Street, Texarkana, Arkansas.

The respondents named in this paragraph are engaged in the wholesale drug business selling primarily to drug retailers numerous products, including drugs, proprietaries and sundries. Each of said respondents is a stockholder member of respondent D. C. An official of each of said respondents is also a member of the board of directors of respondent D.

Respondent D. C. has a total of approximately 104 stockholder members engaged in the wholesale drug business. During the period covered by the complaint, the number of such stockholder members has varied from year to year. The stockholder members of respondent D. C. constitute a class so numerous as to make it impracticable to specifically name them all as parties respondent herein, and those stockholder members named and designated herein are fairly representative of the whole. The various stockholder members of respondent D. , hereinbefore specifically named in PARAGRAPH Two here- , are herewith and hereby made respondents individually, as stockholder members of respondent D. C. and as representative of all of the stockholder members of respondent D. , whose principal places of business are located in the continental United States. The stockholder members of respondent D. , as represented by the respondent Stockholder members of D. , hereinbefore specifically named in PARAGRAPH Two hereof, are hereby made parties respondent as though specifically named herein. All the stockholder members included in this paragraph are sometimes hereinafter referred to as buyer respondents.

PAR. 3. Respondent. D. C. was first organized in 1913. Its stock was and is owned by full-line service wholesale druggists who sell primarily to retail druggists such products as drugs, proprietaries and sundries. Currently in 1955 respondent has approximately 104 stockholder members who actually operate approximately 166 wholesale drug concerns, the latter figure including affiliates and subsidiaries in ,which the members own more than 51 % of the stock. Each 451524--59----46 702 FEDERAL TRADE COMMISSION DECISfONS Complaint 52 F. T. C. member, together with all its affiliates or subsidiaries, owns only shares of stock. The policies and management of respondent D. are controlled by the board of directors, composed of 15 members elected by stockholders. Thus, respondent D. C. is a corporation organized, controlled and directed by wholesale druggists who are named as buyer respondents in this proceeding. PAR. 4. Respondent D. C. is now and for more than ten years last past, has been engaged in the business of providing purchasing and. other services to the buyer respondents. In its certificate of incorporation, respondent D. C. is empowered, among other things to carryon the business of a broker and commission merchant aiid to act as a purchasing agent. Purchases n1ade by respondents have resulted in the shipment of products such as drugs, proprietaries and sundries from the State in which the seller is located into and through the various other States of the United States direct to each of said buyer respondents.

PAR. 5. Respondent D. C. urges its stockholder members to buy from certain sellers and otherwise promotes the sale of their products to said members. In consideration of the services of respondent C. in promoting the sale of their products to its members said sellers pay or grant to respondents herein and respondents receive or accept commissions, brokerage, or other compensation, or allowances or discounts in lieu thereof.

PAR. 6. The following methods are illustrative, but not all inclusive, of the manner in which respondents receive or accept commissions, brokerage, or other compensation, or allowances or discounts in lieu thereof:

(1) Respondent D. C. receives from various sellers payments of money based upon a percentage of net sales made by the seller to the buyer respondents. Respondent D. C. promotes the sale of said seller s products to said buyer respondents. During the 6-year period from 1949 to 1954 respondent D. C. received such payments at one time or another from 323 sellers. For anyone year the number of sellers ranged from a minimum of 155 in 1951 to a maximum of 199 in 1949, and the payments were based upon percentage of sales ranging from 1% to 10%. During said period, respondent D. C. received total payments from said sellers in the following amounts: 1949 ----------------------------------------------------- $ 449,149. 1950 --- - -- -- 447,585. 1951 - - ------ - 472 182. 1952 ----------------------------------------------------- 488,874. 1953 -------------- 547 651. 1954 -- 505,597. Total ----- ------ -------- - -- - - 2 911 038. DRUGGISTS' SUPPLY CORP. ET AL. 703 699 Complaint (2) During the same period respondent D. C. also received similar payments of money from some seven sellers who sold their products to the buyer respondents, such payments being a lump sum each year agreed upon between respondent D. C. and each seller. The total of said payments received by respondent D. C. during the period is as follows:

1949 -------------------------------------------------------- $ 7,400. 1950 -------------------- - - - - -- - - - - - 7 400. 1951 ---------- --- -- - --- - 8,056. 1952 --------- - 8,120. 1953 --- - - - - - - - - - - 9 220. 1954 ---- - - --- - ---------------------------------------- 11 920. Total ------------------------------------------------- 52 116. (3) Respondent D. C. has placed orders for goods with certain sellers on behalf of the buyer respondents. For example, in the case of one seller of drug proprietaries, the buyer respondents would submit orders for the seller s goods to respondent D. , which, in turn, forwarded each order upon receipt to the seller. The seller billed respondent D. C. at the regular price less "a functional discount" of 20% and at the same time would drop ship the order to the individual buyer respondent. Respondent D. , after paying the seller, billed the buyer respondent direct, allowing a discount of 15%, retaining the differential of 5% for its own work. The regular cash discount was also passed along by respondent D. C. to the buyer respondent. Purchases from this seller in this manner amounted to $316 000.00 in 1952 and $249 832.00 in 1953. Respondent D. C. receives most of its income from the sellers with which it has the arrangements described above in subparagraphs (1) through (3). Each stockholder member (buyer respondent) is also charged $150.00 each year as its share of the operating expenses of respondent D. C. Once each year, after deducting the expenses of its operations, respondent D. C. distributes to its stockholder members a sum of money determined by its directors and the amount paid to each member is in proportion to the member s annual purchases from said sellers. In 1954 for example, said members received individual payments ranging from a minimum of approximately $100. to a maximum of approximately $8500.00 The total of such payments made during the period 1950 through 1954 is as follows: 1950 --- -- $150 000. 1951 - 16Q, 000. 1952 ----------------------------- ------ -- 125,000. 1953 --------------------------- -- -- - - - - - 150 000. 1954 --- --- --- 125 000. Total ------------------------------------------------ 710,000. 704 FEDERAL TRADE COMMISSION DECIS!IONS Decision 52 F. T. C..

PAR. 1. The acts and practices of the respondents, as above alleged, violate subsection (C) of Section 2 of the Clayton Aet amended by the Robinson-Patman Act (D. C. Title 15, Section 13). INITIAL DECISION BY ABNER E. LIPSCOMB, HEARING EXAl\IINER On Septemhel' 22, 1955, the Federal Trade Commission issued its complaint in this proceeding, alleging that the Druggists' Supply Corporation is now and for more than ten years last past has been engaged in the business of providing purchasing and other services to approximately 104 stockholder members engaged in the wholesale drug business, of whom the other respondents named in the caption hereof are representative. The stockholder members of Respondent Druggists' Supply Corporation are alleged to constitute a class so numerous as to make it impractical specifically to name them all parties respondent herein, and those stockholder members named and designated herein are alleged to be representative of the entire stockholding membership. All stockholder members are, however, made parties respondent as though specifically named herein, and all such stockholder members are hereinafter referred to as Buyer Respondents.

Each of the Buyer Respondents is described as being in the wholesale drug business, selling numerous drug products, including drugs proprietaries and sundries, primarily to drug retailers. All of the respondents are charged with engaging in acts and practices violative of the brokerage provisions of subsection (c) of Section 2 of the Clayton Act as amended by the Robinson-Patman Act. On November 9, 1955; all respondents except Respondent Smith IGine & French Laboratories entered, through their counsel, into an agreement with counsel supporting the complaint, and, pursuant thereto, submitted to the Hearing Examiner an Agree.ment Containing Consent Order To Cease And Desist, disposing of all the issues involved in this proceeding as to them.

On November 14, 1955, counsel for Respondent Smith, ICline & French Laboratories submitted a motion to dismiss the complaint as to that respondent. This motion \vas supported by the affidavit of Orlando J. l\lay, Executive Vice President of Smith, Kline &: French Inc., a subsidiary corporation of Respondent Smith, Kline & French Laboratories, both of which are named as Buyer Respondents herein. The affidavit states that the two corporations are independently operated, and that Respondent Smith, Kline & French Laboratories is exclusively engaged in the manufacture of pharmaceuticals and unlike Respondent Smith, Kline & French, Ine., is not engaged in the wholesale drug business and is not a stockholder-member of DRUGGISTS' SUPPLY CORP. ET AL. 705 699 Decisien Respondent Druggists' Supply Corporation. Counsel's motion to dismiss is unopposed by counsel supporting the complaint, and it appears, therefore, that the motion should be granted as to Respondent Smith, Ieline & French Laboratories. Accordingly, as used hereinafter, the term "Buyer Respondents" will refer only to those respondents who signed the Agreement Containing Consent Order To Cease And Desist. The respondents are identified therein as follows: Respondent Druggists' Supply Corporation is a corporation existing and doing business under and by virtue of the laws of the State of- New Yor1\:, with its office and principal place of business located at 24 'Vest 40th Street, New York, New York. Respondent Brunswig Drug Company is a corporation existing and doing business under and by virtue of the laws of the State of California with its office and principal place of business located at 4701 Santa Fe Avenue, Los Angeles, California. Respondent Durr Drug Company is a corporation existing and doing business under and by virtue of the laws of the State of Alabama, with its office and principal place of business located at 207 - Commerce Street, ~10ntgomery, Alabama.

Respondent Gilman Brothers, Inc. is a corporation existing and doing business under and by virtue of the laws of the State of Massachusetts, with its office and principal place of business located at 100-12 Shawl11ut Avenue, Boston, :Massachusetts. Respondent The ICauffman-Lattimer Company is a corporation existing and doing business under and by virtue of the laws of the State of Ohio, with its office and principal place of business located at. 263-283 North Front Street, Columbus, Ohio. Respondent ICiefer-Stewart Company is a corporation existing and doing business under and by virtue of the laws of the State of Indiana, with its office and principal place of business located at 141west Georgia Street, Indiana polis, Indiana. Respondent j)lcPike, Inc. is a corporation existing and doing busi- ' ness under and by virtue of the laws of the State of JHissouri, with its office and principal place of business located at 618 Central Street ICansas City, j)1missouri.

Respondent Ohio Valley Drug Company is a corporation existing and doing business under and by virtue of the laws of the State of ,Vest Virginia, with its office and principal place of business located at 1305-07 'Vest j)lain Street, 'Vl1eeling, 'Vest Virginia. Respondent Owens, :Minor & Bodeker, Inc. is a corporation existing and doing business uncle-i' and by virtue of the laws of the State of Virginia, with its office and principal place of business Jocated at 1000-08 East Cary Street, Richmond, Virginia. 706 FEDERAL TRADE COMMISSION DECISIO?-TS Decision 52 F. T. C. Respondent Scott Drug Company is a corporation existing and doing business under and by virtue of the laws of the Sta:te of North Carolina, with its office and principal place of business located at 2923 South Tryon Street, Charlotte, North Carolina. Respondent Smith, Kline &, French, Inc. is a corporation existing and doing business under and by virtue of the laws of the State of Pennsylvania, with its office and principal place of business located at 1011 ,Vest Butler Street, Philadelphia, Pennsylvania. Respondent Southwestern Drug Corporation is a corpcl'ation existing and doing business under and by virtue, or the laws of the SUtte of Texas, with its office and principal place of bu:;:inp~~ located 1108-10 Jackson Street, Dallas, Texas.

Respondent \Valsh-Lumpkin Drug Company is a corporation existing and doing business under and by virtue of the laws of the State of Arkansas, with its office and principal place of business located f'~ 217 I-Iazel E:,trees Texarkana, Arkansas. Hespondents admit all the jurisdictional facts alleged in the complaint and agree that the record herein may be taken as if findings of jurisdictional facts had been duly made in accordance with such allegations. Each of said respondents waives any further procedural steps before the hearing examiner and the Commission; the making of findings of fact or conclusions or law; and all of the rights it may have to challenge or contest the validity of the order to cease and desist entered in accordance with this agreement. The agreement further proYic1es that respondents' answer to the complaint shall be considered a~ having been withdrawn and the record on which the initial decision and the decision or the Commission shall be based shall consist solely of the complaint and the agreement. The agreement also provides that it is for settlement purposes only and does not constitute an admission by respondents that they or any of them have violated the law as alleged in the complaint; that the order entered in accordance with this agreement shall have the same force and effect as if entered arter a full hearing, and may be altered modified or set aside in the manner provided ror other orders; and that the complaint, except as to subparagraph (3) of Paragraph Six thereor, may be used in construing the terms of the order. Counsel supporting the complaint, in his memorandum transmitting to the hearing examiner the Agreement Containing Order To Cease And Desist, explains that the reason ror agreeing to the exclusion of subparagraph (3) or Paragraph Six of the complaint from further consideration is that the discounts received on purchases made for Buyer Respondents by Respondent Druggists' Supply Corporation, described in that paragraph, do not constitute illegal brokerage as therein alleged.

DRUGGISTS' SUPPLY CORP. ET AL. 707 699 Order After consideration of the charges set forth in the complaint the facts above agreed to, and the provisions of the proposed order contained in the agreement, it appears that such order will safeguard the public interest to the same extent as could be accomplished by the issuance of an order after full hearing and all other adjudicative proceedings waived by said agreement. Accordingly, in consonance with the terms of the aforesaid agreement, the hearing examiner accepts the Agreement Containing Consent Order To Cease And Desist, and finds that the Commission has jurisdiction over the respondents and all their acts and practices as alleged in the complaint, and that this proceeding is in the public interest. Accord-ingly, I t is ordered That Respondent Druggists' Supply Corporation its officers, directors, agents, representatives and employees, directly or through any corporate or other device, in connection with the purchase of drugs, proprietaries, and sundries, in commerce as "commerce is defined in the Clayton Act, do forthwith cease and desist from:

Receiving or accepting, directly or indirectly, from any seller, anything of value as a commission, brokerage or other compensation, or any allowance or discount in lieu thereof, upon any purchase micde by Respondent Druggists' Supply Corporation for resale to its stockholder members, or upon any purchases made by any of said membel' I t is f1l1'thel' o1'dered That Buyer Respondents Brunswig Drug Company, Durr Drug Company, Gilman Brothers, Inc., The KauiIman-Lattimer Company, IGefer-Stewart Company, l\icPike, Inc. Ohio Valley Drug Company, Owens, :Minor & Bodeker, Inc., Scott Drug Company, Smith IGine & French, Inc. Southwestern Drug Corporation and \Valsh-Lumpkin Drug Company, individually and as representative of all stockholder members of Respondent Drug,gists' Supply Corporation, their respective officers, directors, agents, representatives, and employees, directly or through any corporate or other device, in connection with the purchase. or drugs, proprietaries, and sundries, in commerce, as "commerce" is defined in the Clayton Act, do forthwith cease and desist from:

Receiving or accepting, directly or indirectly, from any seller or from Respondents Druggists' Supply Corporation, or from any other agent, representative, or other intermediary, acting for or in behalf or subject to the direct or indirect control of said Buyer Respondents anything of value as a commission, brokerage, or other compensation or any allowance or discount in lieu thereof, upon any purchase made by said Buyer Respondents or for them by Respondent Druggists' Supply Corporation or by any other such intermediary. 708 FEDERAL TRADE COMl\IISSION DECISIONS Decision 52 F. T. C.

I t is further o-rdered That the complaint herein, insofar as it relates to Buyer Respondent Smith, Kline & French Laboratories , and the same hereby is, dismissed.

DECISION OF THE COMMISSION AND ORDER TO FILE REPORT OF COMPLIANCE Pursuant to Section 3.21 of the Commission s Rules of Practice the initial decision of the hearing examiner shall, on the 17th day of January, 1956, become the decision of the Commission; and, accordingly I t is ordel' That R,respondent Druggists' Supply Corporation, a corporation, and Buyer Respondents Brunswig Drug Company, Durr Drug Company, Gilman Brothers, Inc., Kauffman-Lattimer Company, IGefer-Stewart Co. , J\1:cPike, Inc. , Ohio Valley Drug Co. Owens, J\1:1nor & Bodeker, Inc., Scott Drug Co., Inc., Smith, IGine & French, Inc., Southwestern Drug Corporation and \Valsh-Lumpkin Drug Company, corporations, shall, within sixty (60) days after service upon them of this order, file 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. , .

THE ORLOFF CO., INC., ET AL. 709 Decision