Beltone Hearing Aid Com1P Any

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IN THE MATTER OF BELTONE HEARING AID CO~1P ANY ORDER, ETC., IN REGARD TO THE ALLEGED nOLATION OF SEC. 3 OF THE CLAYTON ACT Docket 58~5. Complaint, Nov. 1950-Deoision, Feb. , 1956 Order requiring one of the largest manufacturers of hearing aid instruments in the United States-in 1953 having written exclusive-dealing franchise agreements with 167 of its 187 independent distributors and exclusivedealing understandings with the remainder-to cease selling its hearing aids to dealer distributors on condition that they not handle similar products of its competitors.

Mr. Andrew O. Goodhope for the Coffilllission. Crowell Lelbrnan, of Chicago, Ill., for respondent. INITIAL DECISION By EARL J. KOLB, HEARING EXAMINER This proceeding is before the undersigned Hearing Examiner for final consideration upon the complaint, amended and supplemental answer thereto, testimony and other evidence, proposed findings as to the facts and conclusion presented by counsel and oral argument thereon.

1950 The complaint in this proceeding was issued November 2, charging respondent Beltone Hearing Aid Company, a corporation, with having violated the provisions of Section 3 of the Clayton Act by reason of respondent's practice of selling its hearing aids to certain of its customers on condition agreement or understanding that such customers shall not use or deal in hearing aids sold and distributed by competitors of respondent.

The respondent filed its answer to the complaint on November 30 1950, but later on January 11, 1951, the respondent withdrew said answer by filing an answer admitting all the material allegations of fact set forth in said complaint and waiving all intervening procedure and further hearing as to said facts. Subsequent thereto Webster Ballinger, a duly designated Hearing Examiner of the Commission, issued his initial decision in this proceeding. Thereafter, on motion of the respondent, the Commission on February 18 1954, issued its order setting aside the initial decision of the Hearing Examiner, granting leave to respondent to file an amended and supplemental answer, and remalldiJJ~t this proceeding to the Hearing BELTONE HEARING AID CO. 831 830 Findings Examiner for further proceeding in due course. On March 3, 1954 prior to the taking of any testimony in thisprbceeding, the Commission issued its orde;r appointing the undersigned, Earl J. Kolb as Hearing Examiner in the place and stead of Hearing Examiner \Vebster Ballinger. Thereafter, testimony and other evidence in support of, and in opposition to, the allegations of the complaint were introduced before the undersigned Hearing Examiner and said testimony and other evidence were duly recorded and filed in the ()ffice of the Commission.

FINDINGS AS TO THE FACTS P AHAGllAPH 1. Respondent Beltone Hearing Aid Company is a c.orporation organized under the laws of the. State of Illinois with its principal office and place of business located at 2900 West 36th Street, Chicago, Illinois.

PAH. 2. Since 1941, the respondent has been engaged in the manufacture and in the sale and distribution of hearing aid instruments under the trade name "Beltone " and parts and accessories therefor in interstate commerce in competition with other concerns who were also engaged in the sale and distribution of similar products in interstate commerce.

PAll. 3. In 1D44 respondent introduced an innovation into the hearing aid industry in the form of a hearing aid which combined the batteries and transmitter into one unit, reducing the bulk and weight of the unit. This hearing aid was sold under the descriptive name of " Beltone :JIonopac" and was primarily responsible for respondent becoming one of the leading manufacturers of hearing aids in the United States.

P AH. 4. The method of distribution used by respondent is to sell its hearing aids and parts and accessories therefor to independently owned tmcl operated distributors located throughout the United States who are not agents, servants or employees of respondent, but independent contractors in the purchase of respondent's products. This method of distribution is generally followed by nlanufacturers and distributors of hearing aids and parts and accessories therefor, except for a few who sell to dealers for over-the-counter sales and one substantial manufacturer who sells through dealers acting as agents of the company.. ~AR. 5. In the course and conduct of its bu~iness, respondeJllt has consistently followed a policy of making sales and contracts of sale Findings :12 F. T. of its hearing aid instruments on the condition, agreement or understanding that the purchaser thereof shall not use or deal in hearing aid instruments sold and distributed by competitors of respondent. PAR. 6. In January 1948, respondent put into use its first formal franchise agreement in contracting to sell hearing aids to its distributors, which provided among other things as follows: hearing- Article 8. DISTRIBUTOR agrees to represent and sell only those aids manufactured and sold by BELTONE, and not to sell any other new hearing aids. (CX 1) In ~:farch 1952, this form or contract was revised Tor use thereafter in contracting with distributors. The new form of contract provides among other things, as follows:

Article 4. DISTRIBUTOR agrees to represent and sed only those new hear-ing aids manufactured and sold by BELTONE, and not to sell any othet' new hearing aids. (CX 2) These contracts further provide that each Beltone instrument sold shall be registered by the distributor with Beltone on registration forms supplied by Beltone, giving name and address of purchaser date of purchase, and serial number of instrument. It was also provided that said contract may be cancelled at any time by either party upon thirty days written notice by registered mail. PAR. 7. In 1953, the respondent sold its Beltone hearing aids and accessories to 187 independent distributors located in the United States, who in turn maintained approximately 50 subdealer outlets. franchise agree-Of this number, 167 had executed formal written ments, as hereinabove described. The remaining 20 distributors were not operating under a formal franchise agreement, but had exclusive dealing understandings with respondent, in fact, 8 of these distributors had typed contracts with- respondent, one of which, dated April 25, 1947, provided, among other things, as follows: 01' dis- A,"ticl.e 4. Elbaum (Distributor) agrees to terminate his franchise tribution rights with any and all other hearing aid companies within thirt~r days of this agreement, and thereafter will purchase only service ~upplie~ and accessories from said firm or firms, but thereafter will not pul'I'hn:o;p tl' anhmitters for resale.

Article 5. Elbaum agrees thereafter to represent and sell only tho~e hearing aids manufactured and sold b~' BELTONE and not to sell any other hearing aids.

PAR. 8. In the gener~l course and conduct of respondent's business relationships with its distributors, respondent has required strict BELTONE HEARING AID CO. 833 ~~30 Findings 'compliance with, and its distributors have strictly adhered to, the exclusive dealing requirements of its contracts. While there is some vague testimony by competitors of respondent that they were able to sell some of respondent' s dealers, closer inspection of this testimony shows that for the most part sales were made to former Beltone dealers or dealers who were in the process of giving up Beltone. While various manufacturers solicited all dealers, including those having exclusive dealing contracts with Beltone, they were not successful in inducing such dealers to handle their hearing aids in conjunction with Beltone. Not one Beltone dealer called as a witness admitted to selling any competitive hearing aid, and, in fact the record shows that in those instances where a competitive aid had been handled by a dealer it was for the purpose of having the customer switch to Beltone. For example, in a letter dated April 1 1948, to Mrs. Elsie S. Floren of Northwest Hearing Aid Company, David H. Bm'now, General :Manager of Sales Department of respondent stated:

You stated that somebody was in J~our office who covered the entire country and states that many Beltone distributors are carrying more than one line. this is so, they have certainly been su(;cessful in keeping it under cover because not only have we been assured by practically everyone in the company that they are handling Beltone exclusively (there are only about 5% who are not), out Pete gets around the country and certainly could smell out any situation that wasn 100% Beltone. There are a few cases, of ('Ol1rse, who were formerly Western or Acousticon 01' Telex, etc., who are not ;,;;'lling those products but are still servicing the users in order to continue the traffic with a view towards ultimately selling tl1em a Beltone. (CX ll- PAR. 9. The provisions of the contract permitting cancellation on thirty day notice and the requirement that names and addresses of :1,11 purchasers be forwarded to respondent further enhanced respondent' s ability to enforce the exclusive dealing features of its contract. distributor knew full well that if the cancellation clause were exercised he would be immediately out of business, and that respondent would immediately notify all his customers of his discontinuance nd advise such customers that they should contact the new dealer for service and genuine parts. That the respondent did, in fact require strict compliance with the exclusive dealing features of its ,contracts is shown by the following:

1. On January 7, 1947 David H. Barnow, Vice President, of respondent wrote A. G. Hoffman, Houston, Texas, in part as follows: You will recall on my visit to Houston early last year, we made quite a point of the fact that we were interested in eXCl'll8'i' ve representation. At that Findings 52 F.

time it was our understanding that you were going to devote your full time to BELTONE distribution. I find, however, that in the December, 1946 Houston telephone directory that you are still listing 'Vestern Electric, DeForest, and. almost any Other hearing aid the prospect may desire. We are now laying our plans for 1947 and would like to have an expression from you as to your intentions regarding BELTONE distribution. (CX 24) 2. On March 7, 1947, David H. Barnow wrote Roy Carpenter Beaumont, Texas, in part as :follows:

I think we ve reached the point, Roy, where you should be able to ~ive us a clear cut decision on whether or not you want to continue with BELTONE on the following terms:

1. Handle BELTONE exclusively to the exclusion of all other hearin:; aid:::. (CX M::. 3. 28-A-B)On November 2, 1948, David H. Barnow wrote ~1:rs. Ida Penn, Chattanooga, Tennessee, in part as follows: Ida, I've always been personally fond of you. You know I've always gone. I'veout of my way to do little extras for my "Mammy . More than that always been proud of our association, and of having you in om' organization. , 110""-During that association I've never waivered in my loyalty to you. I call ever, remember one period when you came close to waivering when you were linf:'. I re-flirting with the idea of adding Western Electric to the Beltone sisted it then. I think you re now in a mental frame of mind to waiver again. I think that would be a serious mistake for you. Not only would it 11ain me personally, but I would consider it an expression that you re no longei' interested in ~Tour Beltone franchise. (CX 12- 4. On February 9, 1949, David H. Barnow again wrote 1.1rs. Ida. 1t1. Penn of C11 attanooga, Tennessee, in part as follows: You ask for a two month trial with l\ficrotone. I'm sorry but we just cannot grant any exception to our basic policy of exclusive representation. \Ve think we ve earned it and we know that it can t work out satisfactorily for the If at the end of this weel\:, you call distributor or the company any other way. me and tell me that you have decided to take on l\licrotone, we ll have alternative but to assume that ~Ton have in effect decided to cancel Beltone and we shall forthwith issue our cancellation of your existing franchise. (eX 19-A- 5. On Septe.mber 30, 1948, David H. Barnow wrote ~Irs. Elsie Floren of :Minneapolis, :Minnesota, in part as follows: * * * rve are committed to a program of exclusive representation wherever we can get it. We re not kidding ourselves into thinking that we have 100% exclusive representation everywhere, but we have reached about the 95% mark now. intend to continue until we get it 100% if at all possible. .Wherever we don t have exclusive representation we ll keep seeking until we find the individual or firm who is willing to give it to us. ex S- PAR. 10. The best market for the manufacturers of hearing aids is the independently established retail distributor whose business is devoted entirely to the fitting and sale of hearing aids to the hard-ofhearing public. Such distributors also serve as the best markets for . .. .. .... BELTONE HEARING AID CO. 835 830 Findings parts and accessories for hearing aid instruments since the purchaser thereof generally returns to the distributor from whom he purchased the hearing aid for any other parts or batteries or for any repairs or r~lacement parts in the hearing aid instrument. The hard -of - hearing person generally tries to hide his deafness and does not want to buy a hearing aid; consequently, the dealer, in order to make a sale, has to overcome this reluctance and by continued effort create a personal relationship between himself and the prospect. The value of the independent hearing aid dealer, as compared with the drug store type of outlet, is shown by the testimony of Robert Lubin that at the time that he had 15 dealers and 500 drug store and similar outlets that the sales of the 15 dealers accounted for 50 percent of the. gross sales of Cleartone hearing aids.

PAR. 11. The total volume of business done by respondent with its distributors has been substantial. During the years 1948 through 1953, inclusive, sales of hearing aids and parts and accessories therefor by respondent to its distributors were as follows:... Gros3 S:1.!rs to Total sales Fiscal period franchise.dr,alcJ's aidsnewtobearjn!!dcah~i' 11/1/47 to 10/31/48- ------------------------------------------------------- 3, Old, 262. 54 082 715. 11/1/48 to 1O/3I/19_--_ ------u_----------- -------------------- 3, 850 145. , 403, fl97. 00 11/1/40 to 10/31/50- - - - --. u -- --- ---_u-- ---_u- - - 3. 621. 23ft 90 2. 000, 983. on 11/1/50 to 10/31/5L_-----_--_-------_.._----------------------------------- 3, 635, OJ6. 67 2; 178 822. 11/1/51 to 10/31/52__--_---_-----------------------------------------------, 3 491 !iO2. 07 I 177, 250. 11/1/52 to 10/31/53-- -- -- ---- - _u-- ---- -- -- U--h - ----.. 433, 252. SO I , 1 G4, 58l. 00 I 3 The total industry figures are. shown by the report of the Bureau of Census for sales of hearing aid instruments are as follows: $16, 868, 000 1950 - - - - - - -...... -.. - -.... - -.. -.. - - -.. - - -.. - -.. - -.. - - , 073, 000 1951- - - - .. - - - - - - - - - - - 316, 000 , 103, 000 PAR. 12. There are approximately a total of 35 manufacturers of wearable hearing aids in the United States. Respondent is one of the largest of such manufacturers, its total volume of sales of hearing aids ranking fourth in total dollar volume. of hearing aids sold in 1951, with its total sales remaining substantially the same in subsequent years. The five largest of these manufacturers are Sonotone, Zenith, Dictograph, Beltone, and :J\1aico. Sonotone sells through employees direct to the user and does not sell to independent distributors. Zenith sells to drug stores, optical stores and similar outlets as distinguished from the independent distributor. Dictograph, :J\1aico, and respondent employ exclusive dealing arrangements "ith their distributors and together control approximately 600 independent dealers. The total11 ::::::::::::.. :::::::::::::::::.. ::::: :::::: Findings 52 F. T. C.

sales of hearing aids of these five companies in 1951 amounted to $16 248 764. , which is 72.81 percent of the total industry sale of hearing aids in that year. The sales volume for these five hearing aid companies as shown by the record are as follows: Beltone - Dictograph :\1 aka Zenith 1 1950-- -- - - _.. - - - -- -- - - -- - -- - - -- - - - - - -- - - u $2, 090, \138 $3. .S!)l. ~~:H 139 3r.::! 980, 297 2. 17S, 822 2. \174, 3~" 1, 162 94.1 2: 786, 273 , 177,250 3, 126. 282 165 4():! , 535, 426 m!=::: 164 581 035, (j7D 275 152 708, 098 Sonotone sales of hearing aids for the year 1951 were $7 146 343.00. PAR. 13. On a percentage basis, the percentage of sales of hearing aids by the various leading companies, as reflected by eomparisol1 of the individual company sales to the Bureau of Census figures, are as follows:

Sonotone Zenith Dit:tOgrllPh! B1'ltol1l' :!\IaicfJ 1950 - - - - - - - u - - - - -- u - -- 15. 4. 93 1951- - - - -- -- - - -- -.. - - - - - 16. 12. 13. lD52- u- -- - u u - - - -- _h- u -- - -- - u -- - u -- ---_u_----- 15. 14. 10. I Sonotonl' figures rl'prescnt sales by mE-tins of its employres dirprt to the us1'r. 'flw fig'lI'e8 for the othpr comp:mies are tot"l s:1ks to distributors for resal!:' to '1S1'1.'8. For purpose's of comparison, the) f;onot0J1!:' figun's should be l'\'.dUCRciby ,~!) p('rc~nt to make them comparable with th.-. slle pric,' to distributors shown fol' the other companies. Zenith fLgl1res arc tllkc'TI from Respondent' s Exhihits 17 and 18. The companies listed above, "ho make use of exclusive dealing contracts with their distributors; namely, Dictograph, BeHone and :Maico represent approximately 30 percent of the entire sales of the whole industry.

PAR. 14. The exact number of independent hearing aid dealers in the United States is rather confused in this record. witness Grover Cleveland Coil, estimated that there would be 2 000 to 000 qualified dealers. As this witness testified that a drug store with a hearing aid department would be a qualified dealer, it is impossible from his testimony to determine the number of independent hearing aid dealers as distinguished from drug stores optical shops and department stores. ",Vitness David 1-1. Barnow General Sales Th1:manager and Vice President of respondent, testified that there were approximately 3 000 hearing aid dealers, exclusive of outlets such as drug stores, optical shops, etc. Although the record shows that Sonotone, Beltone Dictograph and l\Iaico sold to approximately 1 000 dealers Barnow testified that these four companies would account for approximately 1 150 of the estimated dealers, leaving a balance of approximately 1 900 dealers distributed .

BELTONE HEARING AID CO. 837 830 Findings he.among the remaining 30 manufacturers of hearing aids. As number of dealersarrived at this latter figure by estimating the sold by these 30 hearing aid companies~ which for the most part were multiple line dealers, this would result in a consic1erahle amount of duplication, and would prohibit an exact estimate being made because of such duplication. If consideration is given to the fact that Beltone, Dictograph, :Maico. Sonotone and Zenith do 72. 81 percent of total industry sales and that the remaining manuopticalfacturers of hearing aids sell principally to drug stores, shops and similar outlets, it readily becomes apparent that the estimate of 900 dealers is greatly exaggerated and would serve number of dealers.no basis for a finding as to the PAR. 15. Considering the record as a whole, including the percentage of industry sales made by respondent and its three comtogether, com-petitors-Sonotone Dictograph and :Maico--which, prised 60 percent of the total industry sales in 1951, the Hearing Examiner is of the opinion, and so finds, that respondent's dissegment of the outlets for thetributors constitute a substantial sale of hearing aids and supply coverage for the more important trade areas of the United States. In such segment, the respondent has effectively established a monopoly. Competing manufacturers the formof hearing aids have suffered substantial injury in of their competing prod-loss of sales and inadequate distribution ucts as the result of respondent's requirements that its distributors and dealers handle only the products manufactured and sold by the respondent, and such competing manufacturers have been forced to sell less desirable outlets for their products such as drug stores. tendency andoptical stores ancl similar outlets. Furthermore, the capacity of these practices to create a, monopoly in the respondent of its competitors is demonstrated by theand a limited number following chart showing the hearing aid outlets in 74 cities through-, located aout the United States, in each one of which there is Beltone distributor.

City Popula- I Total Exclusive Other Other outlets tion dealers dealers I outlets Abilene, Tel - - _u- -- _u- - --- _un- _un -- -- 45, 570 2 ---_u---- Albany, N. Y_____u_n_u-_u-_uu-__nu_uu-- 134, 9115 2 -_u------ 96, 815 N. Mex--_u-----u_uu---_nnuu 4 u_--n_-- 106, 756 ----Albuquerque,Allentown, Pam_-n _n- --uu_-_u_- -- _u__u 3 __n__-__- 177 77, - u u - ---u n -_u - - u- - n - - _u ---_u--Altoona, Pa- Amarillo, Tel - -- - n Un- u -- __on -_u ----u- -- --- 74, 246Anderson, lnd --_--_--__nu-_-----_u--uu__un 46. 820 1 -----_u_-Annapolis, Md- -- _nn - _u_- uu- - u --- n - - 10, 047 I 1 n_- .----- _u_------ 53,Asbevi11e, N. C--m_nn___n___-----_uuuu_--- 000 4 ---------- 314 - -- ---- -- - n ___n_n u--- - --_on un_- 331Atlanta, Ga- 71, 508Augusta, Ga" ---- u- u u- ___n-__u_n_- -- -- n 459 31 ---_uu--___u_nu 132 n_--U - ____n---- -- _n ---u- - ---Austin, Tex- - --Beaumont, Tex__u - _u - ___--n-- -- ---_u-_u 014 1 :Billings, Mont. - - - un- - . --.- --- - -_u - u- - n_- u 834 1 lunn_--- _ : j ) , 83g FEDERAL TRADE COMMISSION DECISIONS Findings 52 F. T. C.

City Popula- Total Exclusive Other Other tion outlets dealers dealers outlets Birmingham, Alan__- -- n -- - -- _nn - -- - nn - -- 326, 037 Boise, Idaho- - - - n n - -- -------- _nn -- n 393 Cedar Rapids, Iowa___n_oo__nn_--------_n--_n, 296 2 --_nn__- Champaign-Urbana, Ill_-__n____n______- J39 5631 122 834J 3 n-n____- Charleston, S. Cnn___n_n____un--_--__ ~oo__n- 70, 174 2 _n__n__- Charleston, W. Va_--_--_n-----n--------------n, 501 Charlotte, N. C-- -- -- ------ -- - --- -- -- -u- 134, 042 ~ I Chattanooga, Tenn___n-- -- -_-_-0000 - -n_- --- - -- -- 131, on ~ 1 -1 Columbus, Oa______----- -- - -- - - --- - -- --- --- -- - - --- , 611 2 I n_hm_ Corpus Christi, Tex.-u u ___n_n- --- ------ -- ----- los, 287 i _mm_ Davenport, Iowa- - - - - --_n- -- - - -- 549 ~ I 4 1---------- Duluth, l\linnn-- -n__-- - ---- - - n --- -- - -- - n___- 104 511 I Easton, Pa- - - n_-- - -- - - -- -- -- - - -- -- _n- --- - -- -- --- 35; 632 -1 Eau Claire, Wis-- --- -- - -- --- n__n- --- n -- - -- ----- , 058 11 El Paso, Tex-_-_--_---------_n_--------- 485 130, ! I ~ I__m____ Erie, Pah 803 - - nU_--n -- -- __n- - - -- -- - -- - ---- ---n 130 Everett, Wash- - - n_-- - - 849 Flint, lvLich - - - n-_n_- n - -- -- __n --- 0000 - - - - 163, 143 ~ I Fresno, Calif - - -n ---- - - , 669 Orand Rapids, Mich--___--_---------------------- 176 515 ' 3 I OreensboTo, N. C_-------------------------------- 389 I -12 ------__-- JackSOllYIlle, Fla- - - n - - 204, 517 Johnstown, Pa- - - - -- nn - - ----- n - -- -- _n -- 232 ~ i__n___n Joplin, 1\10- - --- -- _n - - - n - -- --- - --- n - - 711 1 I Knoxville, Tenn_n- -- - - n --- - n -- - - - 124, 709 -1 L~nsillg, Mich- - - 129 -12 ' I LIttle Rock, Ark--__--__-_n_---- ----_n_ 102, 213 ~ I -1 _h___---- 747 i 252 i I G i ~1 I == = I 129, 009 Muskegon, :Mich--- --- - ---- - _n_--_-- ---- - - 48 429 2 I Nashville, Tenn___ 174: 307 I 5 1----- un- New London, Conn______--------n---------n---- , 551 l\ orfolk, Va- - - - n - n- - -- -- - - - n - --n 213, 513 :1 - Orlando, Fla- - - _n__n __- -_n, 367 3 __--_mn Portland, Maine- - --- -nn - -- n -- -- -- -- -- - -- - _n_- , G34 2 --n_m_ Raleigh, N. C_--__n____--_-n--------------__nn, 679 4 ---------- Rapid City, S. Dak--__u_nn--_n___n_--__--_ 310 1 ___mm- Reading, Pa__- n_-- -- -- -- -- - - n- - - - -- - -- - - n -- 109, 320 3 ---------- Reno, Nev - ----- _--__on_on ----- _n- ------- 32 497 -11 - -__no Richmond, Calif - - --_n - -- n - -- - n _n- -- -- - - -- --- 99; 545 2 1---------- Richmond, V 230 310 Rochester, Minn- - -- -- -- , 885 3 ---------- Rockford, ill - --- - _n --- ---- - -- - 927 4 _h_- _n-- Saginaw, Mich- - - n- - - ---- -- -00- - -- , 918 2 --_--nn- Schenectady, N. Y_--n_n--_--n_____------------ 785 Scranton, Pa- - - -- - --- -- -- -- -- - n_- - - ---- - - -- - n - -- 12. 536 Shreveport, La- - -- - -- -- - 00-- - - -- - - -_--n- ---- ----- 127, :!O6 Sioux City, Iowa-- --- --00 -- _00 --- n_- -- - 00-- nn_- , 991 Springfield, Ill_- -- - - -- - - - - - - -- -- - -- - - -- - - - - -- 00 -- , 628 -1 ---------- Springfield, Mass___- - - - -- - - -- -- -- -- - - -- -- --- - -_00- 5 -- -------- Syracusc, N. Yn_------ -----------------__--nn_- ~~6; I Tampa, Fla- --- - - -- -- -- _n- n-- - - 124, 681 -1 Tulsa, Okla- - - - --n- --- - - - ---- _n_- --00 - - 00 - --- 182 740 2 ___-nun 101 531 ~l : ~e;:_ = i, 706 Watertown, N. Y_------n____n--n---___--_--n, 350 2 __n__n_- Wichita, Kans-m_- -- - - n -- -- _n - - -- - - ----- i 168, 279 2 _--_-n__- Wilkes-Barre, Pann - 00 -- - -n - - - -- _n-- i, 826 "\Vinston-Salem, N. C_--_n__--_______n_--------- 811 The Acousticon dealer in Wichita, Kans., carries one additional make. The Beltone dealer in Portland, Maine, carries one additional make. The Nlaico dealer in Birmingham and Charleston each carries two additional makes, and the Maico dealer 1n Nashville carrics one additional make.

Corpus Christi, Tex., has one exclusive Maico dealer, and one other dealer who carries Maico as one of two makes.

exampleReferenceandtotietheup abovetwo additionaltable wouldjobbersindicateill eachthatofshouldthese citiestwo otherby exclusivemanufacturersdealingfollowcontractsrespondent'it would create a monopoly and result ill the exclusion of all other hearing aid manufacturers from approximately two-thirds of the cities listed.

PAR. 16. The respondent has based its defense on a number of economic factors and public interest as a justification of the continued use of its exclusive dealing contract-1 . :.! BELTONE HE.'\.RING AID CO. 839 :830 Findings ( 1) It was contended that respondent's written franchise agreements had no effect upon respondent' s sales. In 1949 unit sales of respondent ware the highest in its history, when only 50 percent respondent' s distributors had entered into written franchise agreements. The record shows, however, that respondent claimed as early as 1948 that 95 percent of its dealers were required to deal exclusively in Beltone hearing aids. In view of this, unit sales have no relationship to franchise agreements. Furthermore, while respondent has shown some decrease in unit sales, it has not shown corresponding decrease in dollar volume, and respondent has continued to maintain its position in the industry and, in fact, during the years 1950 to 1952 has increased its percentage of total industry sales.

(2) It was contended that respondent's exclusive dealing contracts had no effect on competition for the reason that the number of hearing aid manufacturers has increased from approximately 15 in 1943 to approximately 35 in 1953; that competitors were free to train their own distributors; and that respondent's distributors were free to cancel their contracts and take on other hearing aids. Such increase as has taken place has not affected either respondent, position in the market or its share of total industry sales nor has there been any appreciable exodus of respondent's dealers and competitors have been forced to sell their hearing aids in less desirable markets, such as drug stores, optical shops, etc. As stated by the Supreme Court in Standard Oil v. United States/ :337 U.S. 293, pp. 311, 314- Weare dealing here with a particular form of agreement specified by ~ 3 and not with different arrangements, by way of integration or otherwise, that may tend to lessen competition. To interpret that section as requiring proof that competition has actually diminished would make its very explicitness a means of conferring immunity upon the practices which it singles out. Congress has authoritatively determined that those practices are detrimental wheretheir effect may be to lessen competition. :II It cannot be gainsaid that observance by a dealer of his requirements contract with Standard does effectively foreclose whatever opportunity there might be for competing suppliers to attract his patronage, and it is clear that the affected proportion of retail sales of petroleum products is substantial. view of the widespread adoption of such contracts by Standard's competitors and the availability of alternative ways of obtaining an assured market, evidence that competitive activity has not actually declined is inconclusive. Standard' s use of the contracts creates just such a potential clog on competition as it was the purpose of ~ 3 to remove wherever, were it to become actual, it would impede a substantial amount of competitive activity. 1 Commission s Exhibits ll-F and 8- 840 FEDERAL TRADE CmdMISSION DECISIONS Findings 52 F. T. C.

(3) It was further contended that respondent's hearing aids are. highly complex .electronic devices and that respondent has contributed to new advances and inventions in the electronic field together with many technological improvements and has spent large sums of money in advertising its hearing aids and has built up a considerable amount of good will, which constitutes a strong business justification for a hearing aid manufacturer to restrict his dealers to handle only its line OT hearing aids, Vlhile the hearing aids manufactured and sold by respondent cover a variety of responses and are adaptable to various degrees of hearing loss there are also other competing manufacturers whose hearing aids cover a variety of responses and which are adaptable to various degrees of hearing loss. This identical defense was discussed by the United States Circuit Court of Appeals for the Second Circuit in Diotograph PToducts, Inc. v. Federal T1'ade Coin.lnission decided December 15, 1954, 217 F. 2d 821.

Preliminarily, it should be noted that potential 01' even probable adverse effects upon petitioner s business alone is not a sufficient basis foi' withholding injunctive relief, Were we to hold otherwise, we would quite effectually draw the teeth of Section 3 and of the anti-trust laws generally. It appears self evident that any prohibition upon behavior which stifles competition will necessarily inure to the immediate economic disadvantage of the individuai or. business organization engaging in that behavior. (4) It was further contende.d by the respondent that there was a justified1tion in the use of the exclusive dealing contract as it permitted tlw rendering of better service to the dealer and a supplying to him of advertising assistanee and leads without the necessity. of dealer carrying a large inventory. By so' doing, respondent further contended that this enabled the dealer to give better service to the hard-of-hearing public. The relative merits. of respondent's hearing aids or its fitting techniques does not constitute a defense to this proceeding. No matter how compelling the advantage of handling the respondent's products might be either to the distributor or his customer this does not justify the evasion or violation of the statutory provisions dealing with exclusive dealing contracts. While the distributor is engaged in an entirely private business and has a right to .freely exercise his own independent discretion as to parties with whom he will deal or stop dealing for reasons sufficient unto himself, this right should left to the dealer free of any contractual requirement to deal only in respondent's products.

BELTONE HEARING AID CO. 841 :830 Conclusions CONCLUSIONS 1. The distributors' and dealers' contracts and agreements and methods of sale as hereinb~fore described constitute sales or contracts for sale of respondent's hearing aids on the condition :agreement or understanding that the purchasers thereof shall not deal in similar products sold and distributed by competitors of respondent.

2. Distributors who have -executed written contracts with respondent suffer substantial injury to their respective businesses because of the fact that they are foreclosed from making any independent judgment or decision as to what products they shall handle and sell in their business enterprises and lose substantial sales because they are unable to carry and sen competitive hearing aids.

3. Distributors who refuse to abide by respondent' exclusive dealing policy and insist on carrying competitive hearing aids and who- are, therefore, discontinued by respondent as such distributors for no other reason, are injured in their businesses because of the fttct that they are unable to make the normal sales which they would ordinarily make of respondent' s products, solely because they refuse to handle respondent's products exclusively. 4. The acts and practices and policy of the respondent, relative to exclusive dealing, adversely affects the ability of competitive manufacturers and suppliers to sell hearing aids to independent. dlstributors under contract with respondent and deprives such manufacturers and suppliers of an equal opportunity to obtabl the business of such distributors and such practices restrain, restrict . and lessen the market for the sale of such products of such competing manufacturers and suppliers.

5. The dollar volume of such products annually sold by respondent to its distributors under restrictive conditions understandings and agreements is substantial and has materially lessened competitive sales in each of the trade areas covered by respondent's distributors, and respondent~ during all the times mentioned herein would have been, and would now be, in free and open competition In the sale of similar merchandise in commerce in said trade areas were it not for the suppression of such competition by such restrictive policy and practices and conditions~ understandings and agreements imposed upon its distributors as hereinbefore. found. 6. The acts and practices of respondent as hereinbefore found are nJI to the injury and prejudice of the respondent's eompetitors . , , 842 FEDERAL TRADE COMJ\HSSION DECISIONS Opinion 52 F. T.

and of the public, and have the tendency to, and have, hindered and prevented competition in the sale of the products sold by the' respondent, and has a tendency to, and has, obstructed ~nd restrained such competition in commerce. , 7. The effect of the sale and contracts for sale of hearing aids on the condition, agreement or uncleTstanding that the purchasers thereof shall not sell or deal in similar products of competitors may be, and has been, to substantially Jessen competition a~ld to tend to create a monopoly in respondent in the sale of such hearing aids.

8. The acts and practices of the respondent, as herein found, in selling and making contracts for the sale of hearing aids . OIl' the condition, agreement 01' understanding that the purchasers tli~r~of shall not sell or deal in similar products of a competitor or competitors constitute a violation of Section 3 of the Clayton Act: ORDER It i8 ordm' That respondent Beltone Hearing Aid Company, a corporation, and its officers, agents: representatives find employees directly or through any corporate or other device, in connection with the offering for sale, sale or distribution of hearing, aids or other similar or related products in commerce, as "commerce defined in the Clayton Act, do forthwith cease and desist from: 1. Selling or making any contract or agreement for the sale o any such products on the condition, agreement or understanding that the purchaser thereof shall not use, or deal in, or sell hearing aids or other similar or related products supplied by any competitor or competitors of respondent. 2. Enforcing or continuing in operation or effect any condition agreement or understanding in, or in connection with, any existing contract of sale which condition, agreement or understanding is to the effect that the purchaser of said products shall not use or deal in hearing aids or other similar or related products supplied by any competitor or competitors of respondent. ON APPEAL FRO~:( INITIAL DECISION Per Curiam:

The Commission is of the opinion that the issues raised by this appeal are substantially the same as those decided in Dictograph P1' ochwts, Inc. v. Federal TTade Oon11n,ission~ 217 F. 2d 821 (C. , 1954), certiorari denied, 349 U. S. 940 , and in AnchO1' Se1"U1n Oo7J'~pany v. Federal Trade Oom,mission" 217 F. 2d 867 (C. A. 1954) .

BELTONE HEARING AID CO. 843 Order I Accordingly,830upon the basis of our review of the whole record herein, respondent's appeal is denied and the initial decision adopted as the decision of the Commission.

Commissioner Kern did not participate in the decision of this matter.

FIN AL ORDER Respondent Beltone Hearing Aid Company filed on May 23 1955, its appeal from the initial decision of the hearing examiner in this proceeding; and the matter having been heard by the Commission on briefs and oral argument; and the Commission having rendered its decision denying the appeal and adopting the initial decision as the decision of the Commission: It is ordered That respondent Beltone Hearing Aid Company shall, within sixty (60) days after service upon it of this order file with the Commission a report in writing, setting forth in detail the manner and form in which it has complied with the order contained in said initial decision.

Commissioner Kern not participating.

Decision :-)2 F. T. C.