Fred Meyer, Inc., et al.

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

IN THE MATTER OF

FRED MEYER, INC., ET AL.

ORDER, OPINION, ETC., IN REGARD TO THE ALLEGED VIOLATION OF SEC. 2(f) OF THE CLAYTON ACT

Docket 7492. Complaint, May 15, 1959—Decision, July 9, 1963

Order requiring Portland, Oreg., distributors of retail merchandise including food, drug and variety and a limited line of clothing, to cease violating Sec. 2(f) of the Clayton Act by knowingly inducing or receiving from sellers a net price below the net price at which like products were sold to competitors of such distributors; and to cease violating the Federal Trade Commission Act by receiving from suppliers any compensation for services or facilities furnished in connection with the handling of the suppliers' products when they knew that such compensation was not made available to their competitors.

COMPLAINT

The Federal Trade Commission, having reason to believe that the respondents named above have violated and are now violating the provisions of Section 2(f) of the amended Clayton Act (15 U.S.C. Sec. 13) and Section 5 of the Federal Trade Commission Act (15 U.S.C. Sec. 45), and it appearing to the Commission that a proceeding by it in respect thereto would be in the public interest, hereby issues its complaint, stating its charges as follows:

COUNT I

PARAGRAPH 1. Fred Meyer, Inc., is a corporation organized, existing and doing business under the laws of the State of Oregon, with its principal office and place of business located at 721 Southwest Fourth Avenue, Portland, Oregon.

Respondents Fred G. Meyer and Earl A. Chiles are individuals and officers of the corporate respondent. These individual respondents maintain their offices and place of business at the same address as that of the corporate respondent. As officers of the corporate respondent, the individual respondents direct, manage and control the business activities of the corporate respondent, including the purchasing policies referred to in this complaint.

Complaint PAR. 2. Respondents are principally engaged in the purchasing, distribution and sale of retail merchandise, including food, drug and variety and a limited line of clothing. Fred Meyer, Inc., owns and operates 13 retail stores all located within Portland, Oregon, and the vicinity. Gross sales of corporate respondent for the year ending December 31, 1957, were in excess of $40 million. PAR. 3. The respondents are now, and for many years have been, purchasing in commerce from sellers engaged in commerce, as "commerce" is defined in the Federal Trade Commission Act and the amended Clayton Act, numerous products and supplies for use, consumption and resale within the United States. In connection with such transactions, respondents are now, and have been, in active competition with other corporations, partnerships, firms and individuals also engaged in the purchase for use, consumption and resale of products and supplies of like grade and quality from the same or competitive sellers. These sellers are located in the several States of the United States, and the respondents and such sellers cause the products and supplies so purchased in manner and method and for purposes as stated, to be shipped and transported among and between the several States of the United States, from the respective State or States of location of said sellers to the respective State of location of respondents. PAR. 4. In the course and conduct of their business in commerce, respondents have adopted, followed and pursued purchasing policies and practices which were knowingly designed and intended to and did induce from such of the aforesaid commodity sellers as acceded, discriminatory prices, discounts, allowances, rebates and terms and conditions of sale, favorable to respondents in the commodity purchase transactions described. For example, for a 4-week period in September and October of each year, respondents sell to consumers, at the nominal price of 10 cents each, books containing 72 coupons, each of which features an article of merchandise sold by respondents. By redeeming the coupon in conjunction with the purchase of a featured article of merchandise, the consumer is able to buy at a specially reduced price or to obtain the merchandise free. As an example of the magnitude of such promotions, there were approximately 138,700 coupon books sold by respondents in 1956 and a total of 898,573 coupons, more or less, redeemed by customers. Suppliers of respondents are aggressively solicited by respondents' buyers to participate in this coupon book program by selling to respondents at specially reduced prices quantities of merchandise

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necessary to cover total expected redemption or by giving free merchandise, or otherwise. Further, some participating suppliers redeem the coupons featuring the respective merchandise at face or other value, resulting in a lowered net price to respondents. PAR. 5. The favorable discriminatory prices, discounts, rebates and terms and conditions of sale were not granted by said sellers to respondents' competitors nor received by respondents' competitors in connection with the like or similar purchase transactions of commodities of like grade and quality so purchased for consumption, use or resale. Each and all of the aforesaid discriminatory purchase transactions so negotiated and made tend to and do establish the acceding suppliers therein as preferred sources of supply over competitive sellers not so acceding, for the purchase for consumption, use or resale by said respondents of the commodities concerned and give the respondents price advantages over non-favored buyers as described in the purchase for consumption, use or resale of the same or similar commodities of like grade and quality. PAR. 6. When they knowingly induced or received the discriminatory net prices from their suppliers, as alleged, respondents knew or should have known that such discriminatory net prices were not being granted to competitors of respondents on goods of like grade and quality; that such net prices were not cost justified by savings to the suppliers in the cost of manufacture, distribution and sale; and that the net prices were not being granted by the suppliers in good faith to meet a competitive net price. PAR. 7. The effect of each and all of the described discriminations in prices induced by respondents in each and all of the purchase transactions described made in the manner and method and for the purpose stated, and received in each and all of such transactions by respondents, has been, and may be, to substantially lessen competition in the lines of commerce in which the acceding sellers, said sellers' competitors, respondents, and respondents' competitors, as described, are engaged, or to injure, destroy or prevent competition with the acceding sellers and their competitors and respondents and their competitors. PAR. 8. The aforegoing alleged acts and practices of respondents are in violation of Section 2(f) of said amended Clayton Act.

COUNT II

PAR. 9. Each of the allegations contained in paragraphs 1 through 3 hereof, are hereby realleged and made part of this Count as fully and with the same effect as though herein again set forth in full.

Complaint 63 F.T.C.

PAR. 10. In the course and conduct of their business in commerce, and particularly since 1955, respondents have knowingly induced and received from many of their suppliers payments, allowances, services and facilities granted to them or for their benefit, including money, goods or other things of value. These payments, allowances, services and facilities have been made, or contracted to be made, as compensation or in consideration for promotional activities furnished by or through respondents in connection with the sale or offering for sale of products sold to them by these suppliers. Such payments, allowances, services and facilities were not made available by these suppliers on proportionally equal terms to all other customers of such suppliers competing with respondents in the sale and distribution of such products.

For example, respondents publish annually a book of 72 coupons as hereinbefore described. Each coupon features a product of one of respondents' suppliers. Merchandise buyers of respondents are instructed to and do solicit suppliers' participation in such coupon book promotion. The cost of participation to the buyer is a sum such as $350 cash for a page or coupon to be included in the book, plus reimbursement to respondents for redemption of such coupons, or the allowances to respondents of a specially reduced price to offset the cost of the promotional activities involved in the use of such coupons, or free goods, services or facilities to respondents.

Further, respondents at times during the year feature other special promotions such as "gift days" or "thrift days" during which merchandise buyers of respondents solicit suppliers for cash payments, allowances, services and facilities, in return for which respondents agree to render special promotional services to each supplier.

Among and typical of the suppliers who participated in the promotional activities of respondents and made payments and supplied benefits to respondents during the promotional periods were:

| Supplier | Address | Product | | Tri-Valley Packing Association.................... Burlington Industries, Inc........................... | San Francisco, Calif........................... Greensboro, N.C........................... | Canned fruits. Hosiery. |

PAR. 11. Many of respondents' suppliers, including particularly those listed in the above paragraph, did not offer or otherwise make available to all their customers competing with respondents in the sale and distribution of their products, any similar payments as

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compensation or consideration for advertising or other services and facilities, on terms proportionally equal to those granted respondents.

When such benefits, payments, goods, services and facilities were induced or received from the suppliers, as alleged, respondents knew or should have known that such payments, allowances, goods, services and facilities were not offered or otherwise made available on proportionally equal terms to other customers competing with respondents in the sale and distribution of products of like grade and quality of such suppliers.

PAR. 12. In knowingly inducing or receiving such special payments, benefits, goods, services and facilities from suppliers which were not made available on proportionally equal terms to respondents' competitors, respondents have engaged in acts and practices which are to the prejudice and injury of the competitors of the respondents and the public. Such acts and practices have the tendency and effect of obstructing, hindering, lessening and restraining competition in the purchasing, distribution and sale of food, drug, variety and clothing products. Such acts have the tendency to obstruct and restrain and have obstructed and restrained commerce in such products and accordingly, constitute unfair methods of competition and unfair acts and practices in commerce in violation of Section 5 of the Federal Trade Commission Act (15 U.S.C. Sec. 45).

Mr. Jerome Garfinkel for the Commission.

Mr. George W. Mead, Portland, Oreg., for respondent.

INITIAL DECISION BY EDGAR A. BUTTLE, HEARING EXAMINER JANUARY 23, 1962

On May 15, 1959, the Federal Trade Commission issued its complaint ¹ in this proceeding (Docket No. 7492) against the respondents charging them with violation of Section 2(f) of the amended Clayton Act (15 U.S.C., Sec. 13), and Section 5 of the Federal Trade Commission Act (15 U.S.C., Sec. 45).

THEORY OF COMMISSION'S CASE

The crux of the 2(f) charges is that respondents unlawfully engaged in commerce by knowingly inducing or receiving a discrimination in price prohibited by Section 2(a) of the Clayton Act, as amended. The crux of the charges under Section 5 of the Federal Trade Commission Act is that similarly and otherwise respondents

¹ Earle A. Chiles erroneously referred to in the complaint as Earl A. Chiles. 780-018—69—2

Initial Decision 63 F.T.C.

have knowingly induced and received from many of their suppliers payments, allowances, services and facilities granted to them for their benefit, including money, goods, or other things of value, which practices of the respondents constitute unfair methods of competition. In connection with the 2(f) charges, paragraph 4, Count I of the complaint, states as follows: In the course and conduct of their business in commerce, respondents have adopted, followed and pursued purchasing policies and practices which were knowingly designed and intended to and did induce from such of the aforesaid commodity sellers as acceded, discriminatory prices, discounts, allowances, rebates and terms and conditions of sale, favorable to respondents in the commodity purchase transactions described. and paragraph 10, Count II thereof in charging respondents under Section 5 of the Federal Trade Commission Act with inducing a violation of Section 2(d) of the Clayton Act, states as follows: In the course and conduct of their business in commerce, and particularly since 1955, respondents have knowingly induced and received from many of their suppliers payments, allowances, services and facilities granted to them or for their benefit, including money, goods or other things of value. These payments, allowances, services and facilities have been made, or contracted to be made, as compensation or in consideration for promotional activities furnished by or through respondents in connection with the sale or offering for sale of products sold to them by these suppliers. Such payments, allowances, services and facilities were not made available by these suppliers on proportionally equal terms to all other customers of such suppliers competing with respondents in the sale and distribution of such products. The concept enunciated by the Section 5 charges of the complaint appears to be sustained by the United States Supreme Court in Federal Trade Commission v. Motion Picture Advertising Service Co., Inc., 344 U.S. 392 (1953) [5 S. & D. 498]. The court in a Section 5 proceeding involving exclusive dealing arrangements concludes that the "unfair methods of competition," which are condemned by Section 5(a) of the Act, are not confined to those that were illegal at common law or that were condemned by the Sherman Act, Federal Trade Commission v. Keppel & Bro., Inc., 291 U.S. 304 [2 S. & D. 259], and that Congress advisedly left the concept flexible to be defined with particularity by the myriad of cases from the field of business. It has also been indicated by the Supreme Court that the Federal Trade Commission Act was designed to supplement and bolster the Clayton Act and similar acts (see Federal Trade Commission v. Beech-Nut Packing Co., 257 U.S. 441, 453) [1 S. & D. 170, 177]. This also includes stopping in their incipiency acts and practices which, when full blown, would violate

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those Acts (see Fashion Guild v. Federal Trade Commission, 312 U.S. 457, 463, 466) [3 S. & D. 345, 349, 350], as well as to condemn as "unfair methods of competition" existing violations of them (see Federal Trade Commission v. Cement Institute, et al., 333 U.S. 683, 691) [4 S. & D. 676, 684 (1948)].

Since Section 2(d) of the Clayton Act is a seller liability section, inducement of a seller to violate Section 2(d) emanating from a purchaser would, if any violation exists, come within the purview of Section 5 of the Federal Trade Commission Act since this encompasses violations otherwise not provided for, as suggested by the cases heretofore cited. Thus, under this complaint, counsel in support of the complaint must first establish that the payments received by the respondents were in violation of Section 2(d), of the Clayton Act, namely:

(1) That the suppliers were engaged in commerce; (2) That payments for promotional services or facilities were made by the suppliers to respondents;

(3) That the services or facilities furnished by respondents were in connection with the resale of the supplier's products; and (4) That these payments were not made available (5) to all other customers of the suppliers competing with respondents (6) on proportionally equal terms.

If it is established that such payments were in violation of Section 2(d), then counsel in support of the complaint must further prove that "respondents knew or should have known" of the illegality charged.² In a related case, i.e., Tri-Valley Packing Association, FTC Docket Nos. 7225 and 7496, the undersigned hearing examiner, referring to Tri-Valley, held that it had granted discriminatory price allowances to and had participated in the periodical promotional plans of Fred Meyer, Inc., of Portland, Oregon. Although counsel for respondents argued that the tracing of respondents' products to particular retail outlets is required in order to prove the requisite competition under Section 2(a) of the amended Clayton Act, the

² Section 2(f) of the Clayton Act, also under consideration, specifically provides: "It shall be unlawful for any person engaged in commerce, in the course of such commerce, knowingly to induce or receive a discrimination in price which is prohibited by this section." It would appear, therefore, that in order to establish a 2(f) charge under the Clayton Act there must be prerequisite proof of a 2(a) violation by the respondents' suppliers, and that respondents knew or should have known of the illegality charged. Thus, if a respondent is being charged with inducing a supplier to violate Section 2(a) or Section 2(d) of the Clayton Act, obviously, it must be established that the supplier has violated either of these Acts as a prerequisite to establishing inducement to do so by a customer.

Initial Decision 63 F.T.C.

hearing examiner held otherwise. At page 19 [60 F.T.C. 1134, 1152] of the initial decision, it is stated as follows:

Respondent further contends that there is no evidence in the record showing respondent sold its products to some of its wholesale customers at higher prices than it sold its products of like grade and quality to other wholesale customers who were competitively engaged in the resale of said products. To the contrary, the evidence establishes that this position is without merit. As expressed by counsel supporting the complaint, the case in chief proceeded on the theory that if A, B, and C owned, operated or serviced retail grocery stores located in the same trade area of distribution, such as a metropolitan area, and goods of like grade and quality were purchased by A, B, and C and distributed to those retail grocery stores to be purchased simultaneously by consumers in the same trade area, then A, B, and C are in competition in the distribution and sale of products. (See F.T.C. v. Fruitvale, Docket No. 5989, 1956.)

The foregoing conclusion was premised upon the hearing examin-er's view that there was a reasonable probability, unrefuted by the respondents, that the retail outlets located in the various trade areas owned and/or operated by favored and unfavored purchasers as well as by customers of unfavored wholesaler purchasers, con-temporaneously received respondents' (i.e., Tri-Valley) canned food products of like grade and quality on which price concessions were granted to the favored purchasers, including Fred Meyer, Inc. In deciding the within case, Docket No. 7492, the hearing examiner takes cognizance of his findings of fact and conclusions in the Tri-Valley case, Docket Nos. 7225 and 7496, to the extent that the facts and issues are identical to those established by the evidence in the within case, Docket 7492,³ since respondent herein was a customer of Tri-Valley.

³ See Lifetime Cutlery Corp. et al., Docket No. 7292, in which the hearing examiner in an order pursuant to which official notice is taken states as follows: "Official notice * * * allows many facts to be recognized and adopted as true which are beyond the realm of common knowledge, and may well be disputed. Moreover, official notice comes to us not from the common law, but by sanction of the Administrative Procedure Act, and is specifically intended to meet the complex and widely-varying needs of the administrative agencies. Official notice is the act of a Governmental agency, or its hearing official, in recognizing facts which have been proved to be true in precedent proceedings, as presumptively true in a pending proceeding. The use of official notice is desirable because it avoids the necessity of re-proving that which had already been shown to be true and brings to bear upon the issue all the accumulated knowledge and expertise, relating thereto. No undue abrogation of traditional rights results from the taking of official notice, because opportunity is given for the affected party to show the contrary of the facts officially noticed." In the Fred Meyer case there can be no prejudice in taking official notice since the evidentiary facts relating to the trade areas within which respondent and its competitors received similar products of like grade and quality from Tri-Valley have been thoroughly developed herein. The evidence established in the Tri-Valley case, however, is corroborative of the evidence in the within case (i.e., Fred Meyer case) and the legal concept applied in tracing distribution, the same.

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RESPONDENTS' POSITION

The theory of respondents' defense is summarized in their brief as follows:

The pleadings raise the important question as to whether or not section 5 of the Federal Trade Commission Act can be invoked in conjunction with the application of section 2(f) of the Clayton Act to activities which are described in section 2(d) of the Act but which Congress has intentionally excluded from the scope of section 2(f) as applicable to buyers.

While we are aware of the decision of the Federal Trade Commission in Grand Union, Docket No. 6973, and Giant Food, Inc., Docket No. 6459, it would appear that no appellate court has reviewed this problem and that the most recent pronouncement on the subject is still the old case of Automatic Canteen Co.

1. In order to prove a violation under section 2(f) of the amended Clayton Act, counsel supporting the complaint must first prove that the suppliers of the alleged favored buyer violated section 2(a) of the amended Clayton Act, and that none of the affirmative defenses available under said section 2(a) or section 2(b) of the Clayton Act are available to the suppliers. This, counsel supporting the complaint has failed to do.

2. Even assuming arguendo, counsel supporting the complaint has proved violation of section 2(a) of the amended Clayton Act by respondents' suppliers, counsel has failed to prove respondents' alleged violation of section 2(f) of the amended Clayton Act since he has failed to prove that respondents knew or should have known of such violation.

3. Section 5 of the Federal Trade Commission Act cannot be used to extend the prohibition of section 2(f) of the amended Clayton Act to conduct specifically exempt by Congress from section 2(f).

4. Counsel supporting the complaint has failed to establish from the evidence that respondents Fred Meyer, Inc., suppliers have in fact violated section 2(d) of the amended Clayton Act.

5. Even assuming arguendo that respondents Fred Meyer, Inc. suppliers had in fact violated section 2(d) of the amended Clayton Act, there is no substantial evidence that respondents or any of them knew or should have known that respondents Fred Meyer, Inc. was receiving promotional allowances or benefits not offered or made available by its suppliers on proportionally equal terms to its competitors in the same trade area.

Initial Decision 63 F.T.C.

6. Counsel supporting the complaint has failed to prove a prima facie case of violation of section 5 of the Federal Trade Commission Act because he has failed to show that there is a reasonable possibility that the effect of the discounts and promotional allowances "may be" substantially to lessen competition or to injure, destroy, or prevent competition.

Proposed findings of fact and conclusions of law were filed by counsel for both sides. The hearing examiner has carefully reviewed and considered same. Proposed findings and conclusions which are not herein adopted, either in the form proposed or in substance, are rejected as not supported by the record or as involving immaterial matters.

Upon the entire record in the case, the hearing examiner makes the following:

FINDINGS OF FACT

1. Fred Meyer, Inc., is a corporation organized, existing and doing business under the laws of the State of Oregon, with its principal office and place of business located at 721 Southwest Fourth Avenue, Portland, Oregon.

2. Respondents Fred G. Meyer and Earle A. Chiles are individuals and officers of the corporate respondent. These individual respondents maintain an office and place of business at the same address as that of the corporate respondent. 3. As officers of the corporate respondent, the individual respondents direct, manage and control the business activities of the corporate respondent, including the purchasing policies referred to in the instant complaint.

4. Respondents are principally engaged in the purchasing, distribution and sale of retail merchandise, including food, drugs and variety items, and a limited line of clothing. 5. Fred Meyer, Inc., owns and operates thirteen retail stores, all located within Portland, Oregon, and the immediate vicinity. 6. Gross sales of corporate respondent for the year ending December 31, 1957, were in excess of $40 million. 7. The respondents are now and for many years have been purchasing in commerce from sellers engaged in commerce, as "commerce" is defined in the Federal Trade Commission Act, and the amended Clayton Act, numerous products and supplies for use, consumption and resale within the United States. 8. In the course and conduct of their business in commerce, respondents have adopted and made use of coupon book programs as a means of reducing the prices and/or costs of goods purchased

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by respondents from suppliers, as well as a means of promoting products purchased from said suppliers. 9. In the course and conduct of its business in commerce, respondents induced and/or received discriminatory price concessions, discounts and rebates from various suppliers in connection with the purchase of products from said suppliers. 10. The price concessions, discounts and rebates which Tri-Valley Packing, Idaho Canning, Cannon Mills and Burlington Industries granted to respondents as a result of the latter's inducements and solicitations were neither granted, nor offered to other purchasers of said suppliers who competed with, or whose customers competed with, respondents in the sale and distribution of products of like grade and quality. 11. The evidence sustains a finding that the probable effect of the discriminatory price concessions granted respondents by Tri-Valley Packing, Idaho Canning, Cannon Mills and Burlington Industries may be substantially to lessen competition or tend to create a monopoly in the lines of commerce in which respondents and unfavored purchasers were engaged, or tend to injure, destroy or prevent competition with respondents. 12. When respondents induced or received the discriminatory net prices from Tri-Valley Packing, Idaho Canning, Cannon Mills, and Burlington Industries, they knew or should have known that such discriminatory net prices were not granted to competitors of respondents on goods of like grade and quality, and that such net prices could not be justified by savings to the aforesaid suppliers in cost of manufacture, distribution and sale. 13. Respondents have induced and received from various suppliers discriminatory payments or allowances in connection with the furnishing of services and facilities. 14. Respondents knew, or should have known, that the promotional or advertising payments or allowances they received from the aforesaid suppliers were not offered to all other customers competing with respondents in the distribution of the aforesaid suppliers' products.

EVIDENCE AND APPLICABLE LAW UPON WHICH FINDINGS AND CONCLUSIONS ARE PREMISED

1. Respondents' Coupon Program

Since the mid 1930's, Fred Meyer, Inc., has been conducting an annual coupon book promotion. For a 4-week period in September and October of each year, Fred Meyer, Inc., publishes and sells to

Initial Decision 63 F.T.C.

consumers at the nominal price of 10 cents each, books containing approximately 72 coupons, each one of which features an article of merchandise sold by Fred Meyer, Inc. By redeeming the coupon in conjunction with the purchase of a featured article of merchandise, the consumer is able to buy at a specially reduced price. There were 138,700 coupon books sold by Fred Meyer, Inc., in 1956, and a total of 898,573 coupons were redeemed by customers that same year.

Annually, suppliers of Fred Meyer, Inc., have agreed to participate in corporate respondent's book programs by selling said respondent at specially reduced prices a quantity of merchandise necessary to cover expected redemption, or by giving free merchandise, and/or by paying respondent a fee of $350. As part of the consideration for the suppliers' participation in the coupon book programs, Fred Meyer, Inc., agreed to promote and feature the merchandise of such participating suppliers during the coupon book programs.

2. Respondents' Inducement of Their Suppliers to Participate in Coupon Program

Respondents, it appears, solicited suppliers to participate in respondents' coupon programs. On this point, Mr. Earle A. Chiles, president of the corporate respondent, testified as follows: * * * * * * * Q. Now, when was it initiated in 1957? A. Initiated? I presume you mean, when were the first contracts made or perhaps talk about it? Q. Yes.

A. We start it the first of the year.

Q. Who starts it the first of the year? A. The different buyers start contacting suppliers for participation in the coupon book promotion.

Q. Is this part of their duty as a buyer? A. Yes.

Q. And how are the suppliers notified? A. Suppliers are notified verbally when their representatives come into our office. We may have buyers go on buying trips and/or trips for the purpose of buying merchandise. As a part of their duty, they may contact any supplier on participation in the coupon book.

Q. Do you send out any form letters to the suppliers? A. There are form letters sent out at different times. * * * * * * * The evidence also discloses that respondents' coupon programs were adopted to serve two separate and distinct functions. One function of such programs was to provide respondents with a

FRED MEYER, INC., ET AL. 13 1 Initial Decision method wherein they could receive merchandise from suppliers at reduced prices, thereby enabling them to resell such merchandise to the public at reduced prices as a means of obtaining a greater share of the consumers "pocketbook". The second function of the coupon programs was to enable respondents, by providing services and facilities to suppliers, to obtain payments or allowances from suppliers as a means of defraying the cost of respondents' advertising campaigns in connection with goods purchased from said suppliers. The evidence discloses that the costs to respondents for publishing and distributing the coupon books in 1956 amounted to $23,318. In 1957, the costs amounted to $23,406. Included in these costs were newspaper advertising, art work, printing books, radio spots, printed signs, handmade signs, and other costs. Under respondents' coupon programs, a supplier whose product was illustrated on a particular coupon page agreed to compensate respondents, whether it be in cash, price reductions, price rebates, price discounts, or free goods, in an amount not less than $350. Since there were 72 coupon pages in each coupon book, respondents received from the suppliers a minimum of $25,200 for publication and distribution of the coupon books. In addition, respondents received in revenue from the sale of such books to the public $13,870 in 1956, and $12,127 in 1957. Thus, by compensating respondents in benefits worth not less than $350 a page as consideration for illustrating their products in the coupon books, the various suppliers not only paid for the entire cost of the publication and distribution of coupon books, but enabled respondents to make profits on the sale of such books in amounts exceeding $12,000 for each of the years 1956 and 1957. The evidence further indicates that in addition to granting respondents $350 worth of benefits, thereby contributing to the entire cost of the coupon book programs, some suppliers granted respondents price reductions, price discounts, price rebates, or free goods substantially in excess of the $350 figure. Furthermore, the evidence discloses that no additional services or facilities were furnished by respondents for the additional benefits received. The price discounts, price reductions, price rebates or free goods in excess of $350 received by respondents varied in direct proportion to the volume or dollar amount of goods purchased and sold by respondents during the coupon book programs. These concessions were tantamount to subsidizing respondents' business of selling goods to the consumer at reduced prices.

Initial Decision 63 F.T.C.

As exemplified by the following transactions, the proof establishes respondents, through their coupon programs, were able to purchase and receive goods at reduced prices and that the success or failure of said programs depended on this ability to obtain such concessions from suppliers.

a. Tri-Valley Packing Association Transaction

A coupon page in the 1957 Fred Meyer, Inc., coupon book featured three number 2-1/2 size cans of My-T-Fine choice, heavy syrup, yellow cling sliced or halved peaches for the regular price of two cans. The supplier, Tri-Valley Packing Association, agreed to participate in the 1957 coupon program to the extent of paying said corporate respondent $350 toward the printing and distribution of the coupon book and, further, agreeing to reimburse corporate respondent for each coupon redeemed at the September, 1957 price of such a can of yellow cling peaches. Twenty thousand seven hundred and fifty (20,750) coupons were redeemed by Tri-Valley Packing for a total participation amounting to $5,164, (of which $4,814 were price concessions), and which amount was paid to corporate respondent in free merchandise.

The price differential granted to Fred Meyer, Inc., during the coupon program amounted to about 33%, since a free can of peaches was given by Tri-Valley Packing for every two sold by said respondent during the 1957 coupon book program.

b. Idaho Canning Company Transaction

A coupon page in the 1957 Fred Meyer, Inc., coupon book featured three cans of My-T-Fine whole kernel or cream style corn, number 303 can, for the price of two. The supplier, Idaho Canning Company of Payette, Idaho, participated by paying $350 toward the printing and distributing of coupon books, and 12.1 cents per each coupon redeemed. The total participation by Idaho Canning amounted to $2,935.41.

This transaction, as in the Tri-Valley Association transaction, amounts to a price differential of approximately 33% in favor of Fred Meyer, Inc., in that one can of corn was given by Idaho Canning Company for every two sold by Fred Meyer, Inc., during the 1957 coupon book program.

c. Cannon Mills Transaction

A coupon page in the 1956 Fred Meyer, Inc., coupon book featured seven Cannon fingertip towels for $1. The supplier, Cannon Mills Company, agreed to participate in this coupon book program

FRED MEYER, INC., ET AL. 15 1 Initial Decision by selling such towels to respondents at $1.55 per dozen, although the regular price at the time was $1.65 per dozen. The total price concessions Cannon Mills granted to respondents in connection with the 1956 program amounted to $750, thereby exceeding the cost of a coupon page by $400. d. Burlington Industries, Inc. Transaction A coupon page in the 1957 coupon book featured Rose Dawn Nylons at reduced prices (98 cents a pair down to 79 cents, or 3 pair for $2.25). The supplier, Burlington Industries, Inc., agreed to participate in this coupon book program by granting to respondents price concessions amounting to 50 cents or 94 cents per dozen on respondents' purchases of hosiery illustrated in the coupon book. The total amount of these price concessions exceeded $1,700. It also appears the price concessions granted to respondents exceeded the cost of the coupon page by approximately $1,350. Under a 1958 coupon program, Burlington Industries granted respondents price concessions amounting to 75 cents per dozen, with the total amount of the concessions, dollar-wise, exceeding $1,800. In 1958, respondents' receipt of price concessions exceeded the cost of the coupon page by approximately $1,450. 3. Failure of Respondents' Suppliers to Grant Price Advantages to Its Customers Other Than Respondents The evidence discloses that upon a supplier's agreement to participate in a coupon program of respondents, the supplier could not, while respondents' program was in effect, submit similar offers of coupon participation to respondents' competitors. At about the same time that Fred Meyer, Inc., purchased such canned peaches from Tri-Valley Packing Association for use in the 1957 coupon book program, Tri-Valley Packing Association also sold canned peaches of like grade and quality to Hudson House, Inc., a wholesaler and retailer of grocery products. The evidence discloses that Hudson House redistributed these canned peaches of like grade and quality to various retailers located in the Portland trading area who competed with respondents. During the 1957 period, respondents received $4,814 in price concessions from Tri-Valley Packing which were not granted to Hudson House. In 1957, Fred Meyer, Inc., purchased from Idaho Canning substantial quantities of whole kernel or cream style corn to meet the terms of its coupon programs. At about the same time, Idaho Canning sold corn of like grade and quality to Hudson House, Inc.

Initial Decision 63 F.T.C.

(previously discussed), and to Wadhams & Company, a wholesale grocery firm of Portland, Oregon. Hudson House and Wadhams resold and redistributed these canned corn products to retailers who were in competition with Fred Meyer, Inc. Idaho Canning granted Fred Meyer, Inc., $2,935 in price concessions in connection with the Fred Meyer coupon program, and such concessions were not granted to Hudson House or Wadhams.

During the time that Cannon Mills sold Cannon fingertip towels to Fred Meyer, Inc., at $1.55 per dozen, in accordance with the terms of the 1956 coupon program, said supplier sold this same towel (of like grade and quality) to Roberts Brothers, a department store located three blocks from the closest Fred Meyer store, at $1.65 per dozen. In this connection, Mr. Clarence E. Miller, divisional manager of Roberts Brothers, testified that his department store competed with Fred Meyer, Inc., in the resale of the aforesaid towels. As a result of being able to purchase fingertip towels at $1.55 per dozen, respondents obtained a competitive price advantage of 10 cents per dozen, with the total amount of the concessions approximating $750, of which $400 were outright price discounts, and $350 were advertising payments in connection with the cost of a coupon page.

At the same time that Fred Meyer, Inc., purchased "Rose Dawn" nylons from Burlington, Industries, for the 1957 and 1958 coupon programs, Lipman, Wolfe & Company, a department store, also purchased from the same supplier stockings of like grade and quality under its private brand for resale to consumers in the Portland trade area in competition with Fred Meyer, Inc. Furthermore, the evidence discloses that Lipman, Wolfe & Company did not receive from Burlington Industries, the discounts that were granted to Fred Meyer, Inc. As a result of inducements, respondents have been able to obtain preferential price treatment over its competitor, Lipman, Wolfe & Company, in amounts exceeding $1,350 in 1957, and $1,450 in 1958.

Impressive evidence that respondents compete with every other retailer located in the Portland, Oregon, trading area, in the resale of similar products may be found in a brochure respondents use when contacting suppliers. Some of the statements included therein are as follows:

Fred Meyer Town's Trading Area Sells 75% of Oregon's Population. Shopping Centers on All the Main Crossroads. There's one in every neighborhood.

In Fred Meyer Town Portland, Oregon We've Got 52,000,000 Sales Annually.

FRED MEYER, INC., ET AL. 17 1 Initial Decision 4. Reasonably Probable Effect of Price Advantages Received by Respondents From Their Suppliers Concerning the question of competitive effect, the hearing examiner takes cognizance of the fact that in the grocery field profit margins are small, competition keen and small price differentials divert business.⁴ In this connection, Mr. Philip Jones, a retailer who purchases corn and peaches from Hudson House of the same grade and quality as that purchased by respondents testified as follows concerning the question of competitive effects: * * * * * * * Q. Now, Mr. Jones, I refer you to Commission Exhibit 4, Page 60, of that booklet, and ask you if a competitor is selling three cans of peaches of this type and variety for the cost of two, for the price of two, does that have an effect on your peach business? A. Certainly.

Q. Can you tell me how, how it would affect your volume of peaches? A. Well, at that rate, three cans would be—the consumer is paying 20 cents a can. I certainly couldn't meet that. It would be below my wholesale cost.

Q. With particular reference to Commission Exhibit 4 on page 61, can you tell me if a competitor of yours is selling corn, this type and variety, three cans for the price of two, what effect would that have on your business? * * * * * * * A. It certainly would cut the sale of canned corn at that price. Q. Can you afford to meet that competition, Mr. Jones? A. No, sir. I can't even buy it at that.

* * * * * * * Mr. Louis L. Girod, a retailer who purchased canned peaches and corn from Hudson House and who is in competition with Fred Meyer, Inc., testified that he couldn't break even if he sold his canned peaches at three cans for the price of two. Mr. George A. Denfeld, another retailer who purchased canned corn and peaches from Hudson House had the following to say concerning the competitive effects of respondents' pricing practices because of the small profit margin:

* * * * * * * Q. What kind of competition did you encounter from Fred Meyer when you were located in the second store? A. Very severe competition.

Q. In what form was this competition? A. Price competition — coupon.

Q. What kind of coupons? A. Well, they had the coupon book and that was very severe competition, and daily price competition.

* * * * * * * ⁴ See Tri-Valley Packing initial decision, Docket Nos. 7225 and 7496, page 19 [60 F.T.C. 1134, 1152] ; also footnote 7 hereof.

Initial Decision 63 F.T.C.

Q. During the time you operated the second store, will you tell us the factors that caused your sales to decline and decrease? A. The greatest factor, I think, was the fact of direct competition with Fred Meyer. The customers would come in, and if your prices weren't the same as the Fred Meyer prices, you just didn't get the business. * * * * * * *

Mr. Earl S. Johnson, a retailer who purchased canned corn from Wadhams & Company in 1957 testified as follows concerning the competitive effects of respondents' policy of inducing preferential price concessions:

* * * * * * * Q. I see. Now, Mr. Johnson, I direct your attention to Commission Exhibit 4, page 61, and ask you if a competitor across the street is selling canned corn of that style and nature at three cans for the price of two, would that have an effect on your corn business? * * * * * * * A. It definitely would.

Q. In what manner? How seriously would that affect your corn business? A. Well, let me explain my experience as to my customers coming into the store. I'd say there is 75 percent of them come in the store and have a coupon book in their purse or one sticking in their pocket. * * * * * * * Q. You may continue, sir. What is the net result then of the customers coming into your store with these coupon books during the time you're trying to sell corn at the regular price? * * * * * * * A. Well, I'd say we would be cut down.

* * * * * * * Respondents' practice of inducing discriminatory price concessions spilled over into the hosiery field, and as a result, a probable substantial lessening of competition occurred in that field. Mr. Roger S. Meier of Lipman, Wolfe & Company, a department store purchasing Burlington Industries hosiery of like grade and quality as those purchased by Fred Meyer, Inc., stated that his company takes advantage of any 2% ten day cash discount, and that such discounts are very important to Lipman, Wolfe & Company. He further testified that he could sell stockings at three pairs for $2, but would not make any money doing so.

The reasonable probability of a substantial lessening of competition occurred as a result of respondents' ability to induce discriminatory price concessions in connection with the purchase of Cannon Mills fingertip towels. Mr. Clarence E. Miller of Roberts Brothers, a department store purchasing Cannon fingertip towels of the grade

FRED MEYER, INC., ET AL. 19 1 Initial Decision and quality as those purchased by respondents, testified in this connection as follows:

* * * * * * * Q. Mr. Miller, did Roberts Brothers in 1956 take advantage of any 2 per cent 10 day discount? * * * * * * * THE WITNESS: It was our policy to take advantage of all discounts. At that particular time, we were taking advantage of Cannon on 3 percent 20 days. Q. Why is that, Mr. Miller? A. Well, we were very much interested in discounts because it added to the net returns of merchandise that we were selling. Q. How important was 3 per cent as to your net returns? A. Well, I'd say that 3 per cent in a division such as towels and linens, it would be an important factor.

* * * * * * * With regard to the price differential required to divert sales, Mr. Miller also testified as follows:

* * * * * * * Q. Well, how much differential in price would it take to lose a sale of a Cannon product, such as this hand towel, to a competitor? A. Well, that's something that there could probably be a lot of pro and con on, but my assumption would be that it wouldn't take a differential of very many cents to entice a customer from one store to another, depending on the convenience of location, and one thing or another. I think the easiest way to answer that would be that with regard to purchasing that towel from a resource, a few cents on equal quality of merchandise would probably be sufficient to get it from a competitive resource. Q. That is, from other company besides Cannon? A. Yes.

* * * * * * * It is apparent that competition between respondents and other retail outlets was keen, margins of profit low, and that price differences of a few cents would therefore divert sales. The discriminatory price concessions granted to respondents had the reasonably probable effect of substantially lessening competition or of tending to create a monopoly in the lines of commerce in which respondents and unfavored purchasers were engaged, or tending to injure, destroy or prevent competition with respondents.⁵ ⁵ See Corn Products Refining Co. et al. v. Federal Trade Commission, 324 U.S. 726, 738 (1945) [4 S. & D., 331, 340] in which the Supreme Court stated as follows: “It is to be observed that [Sec.] 2(a) does not require a finding that the discriminations in price have in fact had an adverse effect on competition. The statute is designed to reach such discriminations ‘in their incipiency’, before the harm to competition is effected. It is enough that they ‘may’ have the prescribed effect * * *” (emphasis added). See also, Moog Industries, Inc. v. F.T.C., 238 F. 2d 43, 355 U.S. 411 (1958) [6 S.&D. 382]; Federal Trade Commission v. Morton Salt Co., 334 U.S. 37 (1948) [4 S.&D. 716]; P. Sorenson Mfg. Co., Inc. v. Federal Trade Commission, 246 F. 2d 687 (C.A., D.C., 1957) [6 S.&D. 332]; P. & D. Mfg. Co. v. Federal Trade Commission, 245 F. 2d 281 (C.A. 7, 1957) [6 S.&D. 329]; E. Edelmann & Company v. Federal Trade Commission, 239 F. 2d 152 (C.A. 7, 1956) [6 S.&D. 113]; In the Matter of Fruitvale Canning Co., D. 5989, 52 F.T.C. 1504 (1956).

Initial Decision 63 F.T.C.

5. Respondents' Knowledge That Price Advantage Emanating From Their Coupon Program Was Discriminatory

Mr. Earle A. Chiles, president of corporate respondent, and also one of the two individual respondents, testified that in the preliminary negotiations for participation in the coupon programs, form letters are sent out to suppliers of the corporate respondent. He identified one of the forms used in contacting suppliers for the 1957 program. A similar form letter was sent out for the 1956 program. In connection with these two form letters, both contain the following statement which clearly indicated that respondents knew they were inducing discriminatory price concessions:

Offer Must be Exclusive at Fred Meyer During the Four Week Period.

Thus, by respondents' own terms, their competitors could not participate in any similar program during the same period. Furthermore, according to the evidence, respondents initiated these coupon book programs. They were not initiated by suppliers. Under the circumstances and terms of such buyer initiation programs, respondents either knew or should have known that other competing buyers were not being offered these programs. Another basis for finding that respondents knew, or should have known, that they were inducing unlawful price concessions is the fact they were aware that they were receiving price concessions which did not require any changes in the method of distribution by suppliers, or any changes in the manner in which respondents made purchases. In this connection, Mr. Henry A. Vanover of corporate respondent testified as follows:

* * * * * * * Q. During the 1957 coupon book promotion, did you stop buying through the broker through the coupon book promotion period? A. No, sir.

Q. With respect to Tri-Valley? A. No, sir.

* * * * * * * Q. During the 1957 coupon book promotion, did you change the nature of your shipments with Idaho Canning Company on their products? A. No, sir.

Q. Was that still handled through a broker during the coupon book promotion? A. Yes.

Q. Did you do anything during 1957 coupon book promotion that might result in a cost savings to Tri-Valley? A. Did we do anything that would result in a cost savings to Tri-Valley? Q. Yes. You say you didn't change the nature of your shipment. Did you change the nature of their distribution? A. No.

FRED MEYER, INC., ET AL. 21

1 Initial Decision

Q. Would you also say that you did not change the nature of their selling transaction, that is, through a broker? A. Right.

Q. Did you do anything in the 1957 coupon book promotion that might result in a cost savings to Idaho Canning? A. No.

* * * * * * * Relative to the Cannon Mills fingertip towels, an official of corporate respondent testified that on minimum purchases of 500 dozen of such towels the price was $1.65 per dozen. However, it should be noted during the 1956 coupon program, the price was $1.55 per dozen. Furthermore, the invoices of Cannon Mills to Roberts Brothers reveal that the regular price per dozen was $1.65, regardless of the quantity purchased. The invoices of both Fred Meyer, Inc., and Roberts Brothers indicate no savings in connection with methods of transportation and this was readily admitted by a representative of respondents. With regard to the Burlington Industries' price concessions, an official of respondent corporation testified that he believed the regular price terms were net, sixty days. The invoices of Burlington sustain his statement. Although knowing what the regular prices were, nevertheless, respondents sought and received special price concessions. Thus, they were put on notice that they might be receiving discriminatory price concessions not offered to competitors. There is no evidence that Fred Meyer, Inc., made inquiry to ascertain whether or not the concessions they induced placed them in a favored position as a customer. To the contrary, it would appear that they sought a favored position.

6. Respondents' Inducement of Allowances, Services and Facilities

As previously suggested, the coupon book programs had a dual purpose. One purpose for the program was to enable respondents to obtain payments and allowances for advertising activities. The other was to permit respondents to receive price concessions. The payment of $350, either in cash or in price concessions, by Tri-Valley Packing, Idaho Canning, Cannon Mills and Burlington Industries to respondents for the printing of a coupon page illustrating products sold by the aforesaid sellers is payment for services or facilities furnished, since the objective of the coupon books is to create consumer demand. As the consumers increase their purchases of the products illustrated, the sellers can reasonably expect respondents to augment their purchases from said sellers to meet this new demand. Thus, the illustrations in the coupon books clearly served the sellers' purpose of increasing sales of its products.

780-018-69-3

Initial Decision 63 F.T.C.

In addition, for the payment of $350, the sellers also obtained newspaper and radio advertising, as well as store displays. Thus, it is clear that sellers do receive valuable services and facilities when making payments of $350 for illustrations of their products in the coupon books.

As the evidence reveals, when the payments to respondents exceeded $350, it was at this point that respondents were receiving price concessions, since no services were required for this additional amount.

Previous discussion of the coupon programs, in connection with price concessions, made reference to the fact that suppliers, including Tri-Valley Packing, Idaho Canning, Cannon Mills and Burlington Industries, were actively solicited by respondents to participate in the latter's programs. In this connection, it has been pointed out that the terms including the $350 required payment were established by respondents, and that participation in a coupon program had to be exclusively with respondents during a specified period. The terms and conditions of participation were determined by respondents.

Corroboratively, the evidence further discloses that Hudson House, Inc., Roberts Brothers, and Lipman, Wolfe & Company, retail customers of Tri-Valley Packing, Idaho Canning, Cannon Mills and Burlington Industries, and in competition with respondents, did not receive from the aforenamed suppliers payments or allowances, or offers of payments or allowances, on proportionally equal terms to those granted respondents.

In addition to the coupon programs, the evidence discloses that Philip Morris, Inc., paid $500 to Fred Meyer, Inc., to participate in the Fred Meyer 1956 "Gift Days" promotional program. On February 15, 1956, Philip Morris, Inc., also agreed to pay Fred Meyer, Inc., $150 per month to promote its tobacco products and such payments were made through December 31, 1956. On October 24, 1956, this tobacco company paid $800 to Fred Meyer, Inc., as consideration for the Fred Meyer promotion of Parliament cigarettes during the month of September 1956. Further, Philip Morris, Inc., paid $400 to corporate respondent, on April 26, 1957, for services rendered said supplier in connection with the Fred Meyer, Inc., 1957 "Thrift Days" promotion. Unlike typical supplier-initiated advertising transactions, each of the aforementioned transactions were buyer-initiated.

During the same periods, at least two competitors of Fred Meyer, Inc., Oregon Piggly Wiggly Company and United Grocers, Inc., both of Portland, Oregon, made purchases of Philip Morris, Inc.'s

FRED MEYER, INC., ET AL. 23

1 Initial Decision

cigarettes of like grade and quality as those sold to respondents on which advertising payments were granted. The proofs further disclose that these two competitors did not receive from Philip Morris, Inc., similar payments or allowances on proportionally equal terms. That such payments or allowances were not offered on proportionally equal terms to respondents' competitors is pointed out in the testimony of Mr. Robert E. Eberling, division manager of Philip Morris, Inc.:

* * * * * * * Q. Now, to the best of your knowledge and recollection, Mr. Eberling, do you recall making this offer of the same nature as indicated by Commission Exhibit 84-A available to competing customers, to all competing customers, on a proportionally equal basis? A. I can't recall.

* * * * * * Q. Do they have to come to you and ask for it, Mr. Eberling? A. On a special deal, yes.

Q. Now, isn't Commission Exhibit 88-A and B the same type of a deal with regard to Thrift Days promotion? A. Yes.

Q. Whereas if a competing customer of Fred Meyer wanted that type of an allowance, he would have to come to you and ask for it? A. It's available to them.

Q. But do you make the offer, Mr. Eberling? A. No.

Q. And if it were available to them and if they wanted that, they would have to come to you and ask for it? A. I would say so.

* * * * * * 7. Respondents' Knowledge That Allowances for Services and Facilities Were Discriminatory

Under circumstances where respondents received advertising payments pursuant to the coupon book programs, the previous conclusions pertaining to knowledge of receipt of discriminatory price concessions are applicable. Obviously, a customer who causes a seller to grant him discriminatory advertising payments under programs which are not seller initiated with terms that are individually negotiated must, by the exercise of reasonable diligence, determine whether or not such programs are being offered on proportionally equal terms to respondents' competitors. The failure of such customer to make reasonable inquiries concerning whether or not such programs, which might result in favored price treatment, are being offered to all competing customers, precludes any defense of a lack of scienter.

Initial Decision 63 F.T.C.

8. Merits of Respondents' Position Otherwise

Respondents indicate that as a prerequisite to proving a 2(f) violation of the amended Clayton Act, it is necessary for the Commission to establish that the suppliers of the alleged favored buyer violated Section 2(a) of that Act. Although this is a correct contention, it has been established by proof that Section 2(a) of the amended Clayton Act has been violated by the suppliers of the respondents herein.

Counsel for respondents also suggests that it has not been established that the suppliers of Fred Meyer, Inc., et al., have violated Section 2(d) of the Clayton Act. This contention is also without merit since it has been established that the suppliers of the respondents herein have violated Section 2(d) of the Clayton Act.⁶

Also without merit is respondents' contention that there has been a failure to show there is a reasonable possibility that the effect of the discounts and promotional allowances may be substantially to lessen competition or to injure, destroy or prevent competition. As heretofore pointed out, suppliers of the respondents granted discriminatory prices and allowances to and participated in the periodical promotional plans of Fred Meyer, Inc., which had the effect of giving said respondent a competitive advantage in a highly competitive market where profit margins were small.⁷

Since respondents herein have participated in and induced established violations of Sections 2(a) and 2(d) of the Clayton Act on the part of their suppliers in such highly competitive and low profit markets, they are also culpable under Section 2(f) of the Clayton Act and Section 5 of the Federal Trade Commission Act, because there is a reasonable probability that the suppliers' acts may be "substantially to lessen competition or injure, destroy, or prevent competition."

⁶ See Tri-Valley Packing Association, Docket Nos. 7496 and 7225 of which the hearing examiner takes cognizance and official notice. See also Lifetime Cutlery Corp. et al., Docket No. 7292, hereinbefore referred to in footnote 3, hereof. ⁷ See also page 19 [60 F.T.C. 1152] of the Initial Decision, Tri-Valley Association, Docket No. 7225 and Docket No. 7496, to the following effect: "The concept with regard to competition among respondent's wholesale customers and injury thereto as enunciated in the Fruitvale case, is equally applicable in the within case. The discrimination in price herein shown must be considered in the light of the fact that the * * * business which furnishes the outlet for respondent's products is highly competitive. The evidence discloses that competition in such business is so keen that the mark-up on so-called fast moving items, such as canned fruits or vegetables, is very small, * * *. A very small difference in price therefore, is sufficient to divert business from one seller to another, resulting in injury to competition."

FRED MEYER, INC., ET AL. 25 1 Initial Decision CONCLUSIONS 1. The Federal Trade Commission has jurisdiction of the acts and practices of respondents in this proceeding. 2. Respondents have violated Section 2(f) of the amended Clayton Act as hereinbefore set forth.⁸ 3. Respondents have violated Section 5 of the Federal Trade Commission Act as hereinbefore set forth.⁹ It is concluded that this proceeding is in the public interest and the following order shall issue:

ORDER It is ordered, That respondent Fred Meyer, Inc., a corporation, and its officers, and Fred G. Meyer and Earle A. Chiles, individually and as officers of corporate respondent, and respondents' agents, representatives and employees in connection with the offering to purchase or purchase in commerce, as "commerce" is defined in the amended Clayton Act, of products for resale in outlets operated by respondents, do forthwith cease and desist from: Knowingly inducing, or knowingly receiving or accepting any discrimination in the price of such products and supplies, by directly or indirectly inducing, receiving or accepting from any seller a net price known, or that should have been known, by respondents to be below the net price at which said products and supplies of like grade and quality are being sold by such seller to other purchasers where: (a) the seller is competing with any other seller for respondents' business; (b) the respondents are competing with other purchasers of the seller; (c) the respondents are competing with customers of other purchasers of the seller. For the purpose of determining "net price" under the terms of this order, there shall be taken into account discounts, rebates, al- ⁸ Section 2(f) of the Clayton Act provides it shall be unlawful for any person engaged in commerce, or in the course of such commerce, knowingly to induce or receive a discrimination in price which is prohibited by this Act. ⁹ Respondents have violated Section 5 of the Federal Trade Commission Act by inducing from suppliers discriminatory advertising or promotional payments which they knew, or should have known, were not being offered on proportionally equal terms to all other customers competing with the respondents in the distribution of such suppliers' products. See American News Company et al., Docket No. 7396, Commission Opinion dated January 10, 1961 [58 F.T.C. 10, 21] and Grand Union Company, Docket No. 6973, Commission Opinion dated August 12, 1960 [57 F.T.C. 382, 417].

Opinion 63 F.T.C.

lowances, deductions or other terms and conditions of sale by which net prices are effected.

It is further ordered, That respondent Fred Meyer, Inc., a corporation, and its officers, and Fred G. Meyer and Earle A. Chiles, individually and as officers of corporate respondent, and respondents' agents, representatives and employees, directly or through any corporate or other device in or in connection with any purchase in commerce, as "commerce" is defined in the Federal Trade Commission Act, of products for resale in outlets operated by respondents, do forthwith cease and desist from:

Inducing, receiving or contracting for the receipt of anything of value as payment for or in consideration for advertising or any other services or facilities furnished by or through respondents in connection with the processing, handling, sale, or offering for sale of any such products manufactured, sold or offered for sale by the supplier, when the respective respondents know or should know that such payment or consideration is not made available by such supplier on proportionally equal terms to all its other customers competing with the respective respondents in the distribution of such products.

OPINION OF THE COMMISSION MARCH 29, 1963

By DIXON, Commissioner:

Respondents appeal from the hearing examiner's initial decision holding that they have (1) engaged in an "unfair" method of competition in violation of Section 5 of the Federal Trade Commission Act ¹ by "knowingly inducing" certain of their suppliers to grant them promotional allowances those suppliers were forbidden to give by Section 2(d) of the amended Clayton Act,² and (2) violated Section 2(f) of the latter statute ³ by "knowingly inducing" certain

¹ Section 5 of the Federal Trade Commission Act, 15 U.S.C. 45, provides in pertinent part that: "Unfair methods of competition in commerce, and unfair or deceptive acts or practices in commerce, are hereby declared unlawful." ² Section 2(d) of the amended Clayton Act, 15 U.S.C. 13(d), provides: "That it shall be unlawful for any person engaged in commerce to pay or contract for the payment of anything of value to or for the benefit of a customer of such person in the course of such commerce as compensation or in consideration for any services or facilities furnished by or through such customer in connection with the processing, handling, sale, or offering for sale of any products or commodities manufactured, sold, or offered for sale by such person, unless such payment or consideration is available on proportionally equal terms to all other customers competing in the distribution of such products or commodities."

³ Section 2(f), 15 U.S.C. 13(f), provides: "That it shall be unlawful for any person engaged in commerce, in the course of such commerce, knowingly to induce or receive a discrimination in price which is prohibited by this section."

FRED MEYER, INC., ET AL. 27

1 Opinion

of those same suppliers to grant them discriminatory prices prohibited by Section 2(a) of that Act.⁴

Respondent Fred Meyer, Inc., an Oregon corporation, operates thirteen retail supermarkets in Portland, Oregon, and immediate vicinity. In addition to the usual grocery products, it sells drugs, variety items, and a limited line of clothing. In 1957, its sales exceeded $40 million. According to its 1960 prospectus, it sells onefourth of all food sold at retail in the Portland area and is the second largest seller of all goods in that area.⁵ Its promotional literature states that it “sells 75% of Oregon’s population” and that, in Portland, it has “one [supermarket] in every neighborhood.” ⁶

The individual respondents—Fred G. Meyer and Earle A. Chiles —are Chairman of the Board, and President, respectively, of the corporate respondent, and the principal owners of its voting common stock.

On this appeal, respondents’ principal contentions are that the examiner erred (1) in finding that the suppliers in question had in fact granted them promotional allowances and price concessions prohibited by the applicable seller-liability provisions of the amended Clayton Act, Sections 2(d) and 2(a); (2) in finding that respondents “knew” or should have known that the concessions thus received were unlawful under those statutory provisions; and (3) in making the order to cease and desist unduly broad.

Within the general framework of the first of these contentions, respondents challenge the sufficiency of the record in regard to virtually all of the principal elements of seller-liability under Sections 2(d) and 2(a). They claim that the evidence is insufficient to show that they in fact received promotional allowances not made available to competing buyers on proportionally equal terms; that they received lower prices than those charged to competing buyers; that they resold goods of “like grade and quality” in “competition” with non-favored buyers; and that the price discriminations found by the examiner might have the effect of substantially injuring competition.

⁴ Section 2(a), 15 U.S.C. 13(a), provides: “That it shall be unlawful for any person engaged in commerce, in the course of such commerce, either directly or indirectly, to discriminate in price between different purchasers of commodities of like grade and quality, where either or any of the purchases involved in such discrimination are in commerce, where such commodities are sold for use, consumption, or resale within the United States or any Territory thereof or the District of Columbia or any insular possession or other place under the jurisdiction of the United States, and where the effect of such discrimination may be substantially to lessen competition or tend to create a monopoly in any line of commerce, or to injure, destroy, or prevent competition with any person who either grants or knowingly receives the benefit of such discrimination, or with customers of either of them * * *.” ⁵ CX 363, p. 7.

⁶ CX 20.

Opinion 63 F.T.C.

I The facts on which the examiner based his findings that respondents had received preferential treatment from certain of their suppliers are relatively uncomplicated. Thus, the Section 5 charge (inducement of unlawful promotional allowances) involves (1) a number of unrelated promotional payments made to respondents by a single supplier, Philip Morris, Inc., and (2) payments made to respondents by a number of their suppliers under a promotional plan called the "coupon book" promotion. The Section 2(f) charge (inducement of unlawful price discriminations) is based solely on that same "coupon book" promotion.

In the latter connection, it should be noted that one of respondents' principal contentions is that the sums of money they received from their suppliers under that "coupon book" promotion (in cash, free goods, etc.) are all promotional allowances cognizable only, if at all, under the Section 2(d)-5 charge, and that there is no basis for characterizing any part of those sums as "price" concessions within the meaning of Sections 2(a) or 2(f).

Respondents began their "coupon book" promotion in approximately 1936. Each year since then, beginning always in the month of September and ending in October—and lasting always for a period of exactly four weeks—they sell certain items in their stores under the coupon book plan. The crux of that plan is that a consumercustomer owning one of respondents' coupon books can avail himself of the specially reduced retail prices quoted in the book on the products illustrated therein. Each book contains 72 "pages" and each page features a single product. On that page, there is usually a graphic representation of the item in question; a statement as to its "regular" price (which is, in fact, the price at which respondents have been selling it in the regular course of their business); the specially reduced "coupon" price; the amount, in dollars and cents, that the coupon is thus "worth" in savings to the consumer; and various other statements common in advertising material. Thus, in respondents' 1957 "coupon book," ⁷ one page ⁸ pictures three cans of peaches and declares that their "regular" price is 31¢; that one such can will be given "free" "with purchase of two cans at our regular low price"; that the "coupon" is thus "worth" 31¢; that the peaches "are the finest money can buy"; and that they can be purchased in the "Grocery Sections" at "Fred Meyer, Inc., Locally Owned-Locally Operated." The reverse side of the page, after describing how further ⁷ CX 4. Respondents' 1956 and 1958 coupon books are included in the record as CX 1 and 24, respectively.

⁸ CX 4, p. 60.

FRED MEYER, INC., ET AL. 29

1 Opinion

savings can be effected at Fred Meyer (complete with Meyer's telephone number and the extension on which to reach "our headquarters grocery desk"), instructs the consumer to: "Please Tear Out Coupons Before Reaching Checkstand." In short, page 60 of respondents' 1957 coupon book is a certificate entitling the bearer thereof, upon presentation at the cash register of any of Fred Meyer's thirteen retail supermarkets, to buy peaches at 1/3 less than the regular retail price. The remaining 71 pages in that book offered similar bargains on other products.⁹ Because of the obvious attractiveness of these prices (the cover of the 1957 book states that the use of all 72 coupons can result in total savings of "over $54.00"), consumers are willing to pay respondents the nominal price of 10¢ that is charged for the book. In 1957, consumers paid a total of $13,870 for the books (138,000 books at 10¢ each). In 1958, respondents received $12,127 from the sale of the books at that price.

While these amounts were not enough to cover the actual costs of publishing, distributing, and promoting the coupon books, they were not needed for that purpose. That tab was picked up by "participating" suppliers, each of whom had, in effect, bought a single page in respondents' coupon book. That page cost each of them $350, payment being made in cash, free goods, or in some other mutually acceptable manner. Since 72 suppliers "participated" in each coupon book, respondents received approximately $25,200 (72 times $350) from their suppliers for the publication of the coupon book each year. This was not an arbitrary figure. The actual costs incurred by respondents in publishing, distributing, and publicizing the books— including art work, typesetting, printing, distribution, sale, and advertising (including newspaper, radio, and point-of-purchase)— amounted to $23,318 in 1956 and $23,406 in 1957. It is plain, therefore, that the $350 respondents charged each of the participating suppliers for their "page" in the coupon books was calculated to, and did in fact, merely reimburse respondents for the expense of promoting the 72 products illustrated in the books. We agree with the examiner, therefore, that the $350 paid by each participating supplier was a payment "as compensation or in consideration for * * * services or facilities furnished by * * * such customer in connection with the * * * sale, or offering for sale" of that supplier's product and was, therefore, cognizable under Section 2(d) of the amended Clayton Act.

⁹ E.g., page 34 offered nylon hose, regularly priced at 98c per pair, for 79c per pair (or 3 for $2.25); page 39 offered 69c hand towels for 39c each (or 4 for $1.50); and page 61 offered three 15c cans of corn for the regular price of two.

Opinion 63 F.T.C.

Having thus successfully passed on to their suppliers the entire cost of the publication and distribution of the coupon books, the money respondents received from the sale of the books to consumercustomers ($13,870 in 1957) represented clear profit¹⁰ to them on that phase of the program. That was not the end of it, however, since they still had to "redeem" the coupons in the hands of the consumers —and someone had to absorb the cut in profits that sales at those bargain prices necessarily involved. This, too, was passed on to respondents' "participating" suppliers, either in whole or in part, by having each supplier agree that, in addition to paying $350 for a "page" in the coupon book, it would "redeem" the coupons or, at least, make some contribution to respondents' costs in making good on them. Thus, a form letter used in soliciting supplier-participation stated that: "Other than the coupon redemption, the only additional cost to you is $350.00 for a full page coupon. This includes all art work, type setting, printing, distribution, sale and handling costs." ¹¹ This instrument suggested a number of ways by which the participating supplier could "redeem" his coupons, including the giving of "free items" to replace those given away by respondents, "reduced price on single items * * * or any other method you may devise that will be of real value to the consumer to make her want to use your product." Thus, one supplier, Tri-Valley Packing Association, in consideration for having its canned peaches illustrated in respondents' 1957 coupon book and resold to consumers at the 3-for-the-priceof-2 discussed above, contracted to "participate" on the following terms:

We will participate in Fred Meyer Coupon Book Promotion * * * to extend from Sept. 25, 1957 to Oct. 23, 1957 for which we agree to pay $350.00 for page * * * plus redeeming each coupon at current price (Sept) of a 30 oz can of My Te Fine Yellow Cling Peaches * * *. Tri-Valley reserves right to compensate Fred Meyer Co with merchandise * * * in lieu of cash.¹²

During the 4-week period of this 1957 coupon book promotion, Portland consumers presented 20,750 of these "peaches" coupons at

¹⁰ Respondents' own figures for their receipts and expenditures in connection with the coupon books show a small net loss to them even after including the receipts from consumers (see CX 13). But this is apparently based on their conclusion that only cash payments (not those made in free goods) should be included under "sale of coupon pages." The testimony is plain that at least $350 was received (in cash, free goods, or otherwise) from each of the 72 participating suppliers: "* * * [W]ithin the bounds, so much per page, that part was standard; and then from then on, why, just whatever happened, whatever deal he [the buyer] could work out." Tr. 694. In their brief respondents state that: "Participating vendors [those whose products are featured in the coupon books] pay $350 per coupon page." Respondents' brief, p. 28. Since 72 times $350 is $25,200, respondents' figure of $9,250 as the amount realized from the "sale of coupon book pages" (CX 13) is necessarily inaccurate. ¹¹ CX 7 (emphasis added).

¹² CX 21.

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respondents' stores. In accordance with the terms stated on the face of the coupons, respondents "redeemed" those coupons by permitting each of the 20,750 consumer-bearers to purchase three cans of peaches (regularly priced at 31¢ per can) for the regular retail price of two, i.e., the retail price of three cans of peaches was reduced by 33⅓% (from 93¢ to 62¢).

Stated another way, each of the 20,750 "redeemed" coupons represented a transaction in which a Portland consumer, in consideration for her purchase of two cans of peaches at the regular retail price of 31¢ per can, was given a third can free. Hence the sum total of the "peaches" promotion was that respondents, in conjunction with the sale of 41,500 cans of peaches at the full retail price of 31¢ per can, gave away an additional 20,750 cans free of charge.

These 20,750 cans given away during the 4-week promotional period cost respondents nothing. They were simply replaced by the supplier. In accordance with the agreement quoted above between respondents and their supplier, Tri-Valley, they invoiced the latter as follows:

Fred Meyer 1957 coupon book:

1 full page in book------------------------------------------------ $350.00 20,750 coupons redeemed at 0.232-------------------------------- 4,814.00 Total ------------------------------------------------------- ¹³ 5,164.00

Tri-Valley paid this invoice by shipping to respondents, similarly free of charge, $5,164 worth of peaches.¹⁴ The net result of the entire transaction, of course, is that respondents, without spending a cent of their own money, received (1) $350 worth of advertising for their stores and a product sold by them, plus (2) a 33⅓% reduction in price (worth $4,814), which they used to reduce the resale price of the peaches and thus to take business from their competitors.

Idaho Canning, another supplier, "participated" in precisely the same manner. It paid $350 for "1 Full Page in Book," plus $2,585.41 for "21367 Coupons Redeemed @ .121," or a total of $2,935.41, all of which was paid to respondents in the form of free goods (canned corn).¹⁵ This similarly compensated respondents fully for the cost of the "page" in the coupon book, in addition to giving them a 33⅓% price reduction (which they passed on to the consumer by selling, in accordance with the offer appearing on the face of the coupon, three cans of corn for the regular retail price of two).

Two of the other transactions cited by the examiner illustrate another form of supplier "participation" in respondents' coupon book

¹³ CX 26.

¹⁴ CX 27.

¹⁵ The terms of the Idaho deal are set forth on CX 16. See also CX 39 (invoice) and CX 205-207, 209, 210.

Opinion 63 F.T.C.

promotion. Thus, Cannon Mills participated in the 1956 coupon book by reducing its price (to respondents) on fingertip towels from $1.65 per dozen to $1.55.¹⁶ While this did not fully compensate respondents for the total amount by which they in turn reduced the resale price of the goods,¹⁷ the aggregate of this concession amounted to $750, or $400 more than the cost of the "page" in the coupon book, and thus contributed substantially to "respondents' business of selling goods to the consumer at reduced prices."¹⁸ The same is true of the 1957 and 1958 participation of Burlington Industries, Inc.; that supplier merely reduced the price of its nylon hose, to respondents, by amounts ranging from 50¢ to 94¢ per dozen. The aggregate of these concessions amounted to $1,700 in 1957 and $1,800 in 1958. As in the Cannon Mills transaction, these were not as great as those respondents themselves made to the consumer,¹⁹ but they similarly exceeded the cost of the coupon "pages" (by $1,350 and $1,450, respectively) and thus contributed to respondents' ability to undersell their competitors. Respondents' contention that these entire amounts, e.g., the $5,164 received from Tri-Valley in 1957, the $2,935.41 received from Idaho Canning in 1957, the $750 received from Cannon Mills in 1956, and the $1,700 and $1,800 received from Burlington Industries in 1957 and 1958, respectively, are "promotional allowances" only, and thus not cognizable under Sections 2(a) and 2(f), is rejected. The first $350 of each supplier's payment was a true promotional allowance inasmuch as that amount was intended by the parties to, and did in fact, constitute "compensation" or "consideration" for promotional services actually rendered by respondents for the benefit of the paying supplier. It would appear that each supplier, by having his product featured on a page in 138,000 coupon books placed in the hands of Portland consumers, received full value for his $350. (As noted, this was the approximate cost to the respondents of publishing, distributing, and advertising the coupon books, and the value the parties themselves, in the contracts and billings, placed on that service.) But the remaining amounts paid by each participating supplier were of an entirely different character. Taking the $5,164 payment from Tri-Valley to respondents as an example, it is obvious enough that $4,814 of this (the excess over the $350 promotional payment)

¹⁶ CX 114.

¹⁷ The "coupon" in the 1956 book offered the towels at 7 for the price of $1.00 (CX 1, p. 37), whereas they regularly sold for 23c each. ¹⁸ Initial decision, p. 13.

¹⁹ The 1957 coupon (CX 4, p. 34) featured the hose, which regularly sold for 98c per pair, at the special price of 79c per pair, or 3 pairs for $2.25. The 1958 coupon (CX 24, p. 34) featured the same 98c hose for 69c per pair, or 3 for $2.00. The 1957 and 1958 "deals" are described by CX 140 and 156.

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was an outright price concession. Where money or something of value is given by a seller to a buyer without even the contemplation of promotional services by the purchaser, there has been no payment "as compensation or in consideration" for such services, and Section 2(d) is therefore not applicable. Yakima Fruit & Cold Storage Co., Dkt. 7718, opinion of the Commission 1, September 28, 1961 [59 F. T. C. 693].

Had the $4,814 been an arbitrary sum bearing no relation to the volume of respondents' purchases, its inducement could have been treated as an unfair method of competition under Section 5. R. H. Macy & Co., Inc., Dkt. 7869, opinion of the Commission, May 15, 1962 [60 F. T. C. 1249]. But where, as here, the aggregate amount of the concession is directly related to the number of units purchased, its true character as a price concession is so clear that we are persuaded it should be treated in the manner prescribed by Congress in Section 2(a) and Section 2(f) of the amended Clayton Act.²⁰

The only possible "service" that respondents' performed in return for the $4,814 is that they resold the goods at the same ⅓ price reduction that they had received from the supplier. (They actually agreed to do so.²¹) But this "passing on" of the discriminatory lower price is the very worst of the vices involved in price discrimination. Indeed, the injury that occurs to competition when a favored buyer uses the concessions he has received to undercut the prices of his competitors and thereby take their customers from them is so obvious that the Commission and the courts have been required to hold expressly that this "passing on" of the discriminatory concession in the form of lower resale prices is not necessary to a finding of secondary line injury.²² Thus it would be a strange result indeed if we were to hold that a buyer, by passing on to his own customers a price discrimination he has received from his supplier, has merely performed a "promotional service" for that supplier!

The true character of these coupon "redemption" payments as outright price discriminations is well illustrated by our decision in National Tea Co., 46 F.T.C. 829 (1950), order modified, 47 F.T.C.

²⁰ "Allowances paid without something so furnished in return would be subject to attack under the general discrimination provisions of paragraph (a)." Remarks of Mr. Teegarden, Hearings before the House Committee on the Judiciary on Bills to Amend the Clayton Act, 74th Cong., 1st Sess. 38 (1935). ²¹ Respondents' resale price, "buy two cans and get one free," was a part of the agreement signed by Tri-Valley. CX 21. ²² Corn Products Refining Co. v. Federal Trade Commission, 324 U.S. 726 (1945) [4 S.&D. 331] ; Moog Industries, Inc. v. Federal Trade Commission, 238 F. 2d 43 (8th Cir. 1956) [6 S.&D. 91] E. Edelmann & Co. v. Federal Trade Commission, 239 F. 2d 152 (7th Cir. 1956) [6 S.&D. 113] ; Tri-Valley Packing Assoc., Dkts. 7225, 7496, opinion of the Commission, May 10, 1962 [60 F.T.C. 1134, 1171-1172].

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1314 (1951), where we condemned an almost identical "coupon book" program as a violation of Section 2(f). There National Tea had advertised various "offers" to the public, one of which was called the "Multi-Million Dollar Profit-Sharing Plan." Under this "plan," National Tea offered to give away approximately 500,000 "coupon books" containing approximately 25 million "coupons." Each of the "coupons" (1) depicted on its face a specific item of merchandise sold by National Tea in its various retail stores, and (2) "was of a designated cash value when used and applied to the purchase of the merchandise depicted thereon." 46 F.T.C. at 834. The aggregate "cash value" of the coupons was $2,700,000. Pursuant to agreements solicited from and made with its "participating" suppliers, National Tea was "reimbursed" in the following manner: Upon the redemption of said coupons by the respondent, they were in turn delivered to the respective sellers in connection with the resale of whose merchandise said coupons were issued, and each of such sellers participating in the plan thereupon reimbursed and paid to the respondent the designated cash value appearing on such coupons. Ibid.

The Commission found that, through this "coupon book" plan, National Tea (1) "was enabled to and did purchase the food and grocery items involved therein at prices below the sellers' customary and normal prices to the respondent and its competitors," and (2) "was enabled to and did resell said merchandise below the customary and normal retail prices usually obtained by it and by its competitors for such merchandise," thereby violating Section 2(f). The only noteworthy distinction between that case and the instant one is that, whereas National Tea had merely induced its "participating" suppliers to give it a price concession to "reimburse" it for the lower retail price it had accorded to the consumer, without having those suppliers also bear the cost of getting the "coupons" into the consumers' hands, these respondents induced their suppliers to do both. We do not think the National Tea coupon book plan would have lost its character as a price discrimination and become merely a "promotional allowance" if, in addition to reimbursing National Tea for the difference between its "coupon" price and its regular retail price, that respondent had also been paid, by those same suppliers, the cost of publishing, distributing, and advertising that plan. Respondents themselves have clearly recognized, in their agreements with their "participating" suppliers, the distinction between the promotional aspects of the program and the pricing part. First they wanted to get back the $350 that it cost them to inform the Portland consumer that they were selling peaches at 1/3 less than the regular retail price. Then, they wanted

FRED MEYER, INC., ET AL. 35 1 Opinion to get back that 1/3 price concession itself. This the $4,814 accomplished.

Either of these two aspects of the case could be eliminated and the other would still stand. Thus, the $350 promotional payments offend Section 2(d) because, and only because, they were not made available to respondents' competitors on proportionally equal terms. Therefore, this aspect of the case would remain even if respondents, while receiving the $350 promotional payments, had themselves absorbed, out of their own pockets, the full cost of selling at the reduced "coupon" prices ($4,814). Similarly, under the National Tea case, supra, the $4,814 payment, in giving respondents a 1/3 lower price which permitted them to resell at 1/3 less than their regular retail price without sacrificing any part of their per unit profit margin, would be cognizable under Sections 2(a) and 2(f) even if respondents had themselves borne the $350 cost of publishing, distributing, and advertising the "coupon books." Indeed, suppliers often pay for retailer-advertisements that feature reduced prices without paying for the reduced prices themselves; and suppliers often give discriminatory price concessions that make such reduced retail prices possible without paying for the advertisement that communicates those prices to the public. When the supplier pays for his customer's advertisements, it is a promotional allowance within the meaning of Section 2(d). But when the supplier gives the customer a lower price—whether in the form of an outright reduction from the unit price being charged other purchasers (as in Cannon Mill's "participation" whereby it sold towels to respondents for $1.55 per dozen while charging other buyers $1.65), or in the form of "reimbursement" or replacement of "free" goods given away by the customer—it is a price discrimination within the meaning of Sections 2(a) and 2(f). We are not persuaded that a supplier and its favored customer can convert a 33 1/3% price concession into a promotional allowance by merely combining it with a further payment by the supplier for an advertisement that communicates, to the public, the use that the favored customer proposes to make of the discriminatory price. In addition to the "coupon book" program, there are, as noted above, the unrelated promotional payments received by respondents from one of their suppliers, Philip Morris, Inc. These include: (1) $500 for that supplier's participation in respondents' 1956 "Gift Days" promotion; (2) $150 per month during most of the year 1956 as consideration for their promotion of Philip Morris tobacco products; (3) $800 paid on October 24, 1956, as consideration for their promotion of Parliament cigarettes during the single

Opinion 63 F.T.C.

month of September 1956; and (4) $400 paid to respondents in connection with their promotion of its products during their "Thrift Days" promotion in 1957.²³ Since valuable services were actually performed by respondents for these moneys (shelf display, etc.), no question of price discrimination is involved here. Like the first $350 paid by each of the participants in the "coupon book" promotion, these sums are promotional allowances within the meaning of Section 2(d) of the amended Clayton Act.

II

Respondents do not deny, of course, that they have in fact received the promotional payments described above. They contend, however, that the record fails to show that any other buyers who compete with them in the resale of the goods were not paid or offered such payments on proportionally equal terms. Thus, they point to the fact that two of their competitors—Oregon Piggly Wiggly Company and United Grocers, Inc.—in fact received a number of promotional payments from Philip Morris during the years 1956-1958 and that, because the record is silent as to the comparative volume of purchases by respondents on the one hand and those two non-favored buyers on the other, it is impossible to determine whether or not Philip Morris fairly apportioned its promotional money among them. But there is no need for any such determination here. While those other buyers received Philip Morris' "regular" promotional allowances,²⁴ respondents received, in addition to those regular allowances, "special deals" ²⁵ that (1) were not offered to those nonfavored buyers, and hence were not "available" to them, and (2) even if they had been made "available", were virtually incapable of being offered on "proportionally equal" terms.

On the first point, the evidence is direct and clear. A representative of Philip Morris testified flatly that those "special deals"

²³ Initial decision, p. 22.

²⁴ One of the payments pointed to by respondents is a $357.75 payment received by Piggly Wiggly from Philip Morris. There Piggly Wiggly had given consumers a six-pack of Pepsi Cola with each carton of Philip Morris cigarettes purchased, and Philip Morris reimbursed Piggly Wiggly for the cost of the Pepsi thus given away. Tr. 256-257. Thus the payment was not an arbitrary, flat sum, but an allowance of so-much-per-carton, the type of formula used by Philip Morris in dispensing its "regular" promotional payments. ²⁵ Philip Morris' Divisional Manager testified as follows: "Q. Now, then, Mr. Eberling, I hand you a document marked Commission Exhibit 84-A and B and ask you if the $800 allowance as indicated on that document with reference to Parliament cigarettes is of the same nature, to your own knowledge, of the same nature as this ten cents per carton and three dollars per case type? "A. I don't think it is." Tr. 605, 607.

See also notes 26 and 28, supra.

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were not offered to the non-favored customers.²⁶ And even the mechanics of the initiation and handling of respondents' "deals" with that supplier show that these were wholly outside its general, openly-announced promotional plan and that there was never any intention of offering them to respondents' competitors. Whereas the "regular" promotional allowances originated at Philip Morris' New York office, were publicized by a Philip Morris "letter to all direct accounts," and were paid after the customer submitted his bill to Philip Morris' New York office, the "special deals" accorded to respondents were (1) initiated by respondents themselves, (2) were negotiated with Philip Morris' local Divisional Manager, and (3) were paid upon respondents' submission of their bill to that Divisional Manager.²⁷ We think a supplier's failure to inform a favored customer's competitors of the "availability" of such promotional allowances is tantamount to concealment, and effectively precludes those competitors from participating in them.²⁸

Further, we believe the "special deals" received by respondents from Philip Morris were, by their very nature, incapable of being offered to all competing buyers on "proportionally equal" terms. Whereas the "regular" Philip Morris allowances originated by its New York office were directly related to the volume of the recipient's purchases, e.g., 10¢ per carton, $3 per case, etc., the payments involved here were flat sums ($500, $800, $400, $150 per month) based on nothing more than the parties' mutual evaluation of the specially tailored services respondents had offered to perform and Philip Morris had agreed to pay for. Thus, one of the "services" performed by respondents and paid for by Philip Morris was the

²⁶ "Q. Now, to the best of your knowledge and recollection, Mr. Eberling, do you recall making this offer of the same nature as indicated by Commission Exhibit 84-A available to competing customers, to all competing customers, on a proportionately equal basis? "A. I can't recall.

* * * * * * * "Q. Do they have to come to you and ask you for it, Mr. Eberling? "A. On a special deal, yes.

* * * * * * * "Q. Whereas if a competing customer of Fred Meyer wanted that type of an allowance, he would have to come to you and ask for it? "A. It's available to them.

"Q. But do you make the offer, Mr. Eberling? "A. No." Tr. 606-607 (emphasis added).

²⁷ Tr. 604-606.

²⁸ "A course of conduct under which a seller fails to inform respecting such compensation or make known his terms or otherwise to offer them to one customer while granting payment for services to his rival reseller essentially represents concealment. In such case, the credit or allowance is not 'available' to the unfavored competitor, for all practical purposes a withholding and denial of opportunity to share occur, and the law is violated." Kay Windsor Frocks, Inc., 51 F.T.C. 89, 95 (1954). See also Chestnut Farms Chevy Chase Dairy, 53 F.T.C. 1050, 1060 (1957).

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display of Philip Morris products, for an agreed period of time, on particularly desirable shelf space in respondents' stores. The amount of the promotional payment, e.g., $800, $150 per month, etc., was fixed in advance of performance and would have remained the same regardless of the volume of respondents' purchases during that period of time. (Respondents' own tobacco buyer admitted these distinctions between the "special" and regular promotional allowances received from Philip Morris, testifying that respondents participated in both; that she initiated the one and the supplier the other; and that she could tell whether a particular allowance was buyer or supplier initiated from the nature of the payment itself.) 29

It can be assumed, of course, that the amount of these payments bore a reasonable relationship to the value of those services to Philip Morris. But the concern of Section 2(d) is not so much with whether or not the supplier gets his money's worth from the customer who performs, but whether other customers who compete with the receiving buyer have an opportunity to perform those same services and be paid on proportionally equal terms. Thus, in Vanity Fair Paper Mills, Inc. v. Federal Trade Commission, CCH 1962 Trade Cases Par. 70,569 (2d Cir. 1962) [7 S.&D. 583, 590], Vanity Fair had a "policy" whereby it would "take under consideration any request made by any customer for respondent's participation" in certain promotions, provided the "payment requested for services rendered therein was in an amount reasonably related to the cost of the services to the customer." One customer, in requesting Vanity Fair to participate in that customer's Anniversary Sale, submitted a schedule giving the supplier "a choice of various possible commitments." These ranged from $56.05 (which would have provided a newspaper ad in a local newspaper covering 1/16 of a page, plus other services) to $3,995.90 (for a full page newspaper ad in a number of areas, in

29 "Q. Now, would that transaction [$3 per case allowance] have been initiated by yourself, or by the manufacturer's representative? "A. No. That would be the manufacturer.

"Q. How can you tell? "A. Well, because of the type of — this isn't uncommon. "Q. The three dollar per case allowance? "A. No — to allow a certain amount on purchases, and on that we're generally notified by circular.

* * * * * * * "Q. As a matter of fact, isn't it more or less dependent on the type of transaction whether the manufacturer's representative had offered that to you, or you had solicited that? For example, I hand you Commission's Exhibit 86. Isn't ten cents per carton the type of a transaction that would be offered to you? "A. Yes." Tr. 396-397 (emphasis added).

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addition to various other services). Vanity Fair elected to “participate” for an in-between deal that cost it $215. The Court said: Altogether consistently with its policy, respondent could have paid Weingarten as much as $3995.90 and an identically situated competitor, offering it [respondent] the same choices as Weingarten, as little as $56.05. It is true that since Weingarten would have had to furnish more newspaper advertising than its competitor, respondent would have derived a greater benefit from the larger payment * * *. But Weingarten would have received an enormously greater benefit from respondent than the equally entitled competitor. * * * Neither did the policy make any attempt to relate the amount of support accorded different customers to their respective volumes of purchases. * * * Whatever the statute does or does not require with respect to proportionality, it is not satisfied by a policy as loose as respondent’s * * *; this affords the very opportunity for disparate treatment which the Robinson-Patman Act aimed to end.

The “special deals” received by the instant respondents are subject to the same objection. Thus, even if Philip Morris had advised the non-favored buyers that it would consider paying for any promotional services they might offer to perform, there would have been no basis for measuring proportional equality. Two customers sitting side by side and purchasing in precisely the same volume, even if they fortuitously happened to propose the same type and quantum of services, and happened to ask the supplier to pay the same amount therefor, would not necessarily receive proportionally equal treatment. The supplier could discriminate between them by electing to buy all of Customer A’s proffered services for, say, $1,000, while electing to buy only one-half of Customer B’s proposed services for $500. So “loose” a plan, if it can be called a plan at all, surely falls short of compliance with Section 2(d).

Similarly, we think the record is plain that the “coupon book” allowances were not made available on proportionally equal terms to four other Portland buyers who bought the same products and resold them in that area: (1) Hudson House, a Portland wholesaler and retailer, who bought canned peaches from Tri-Valley Packing; (2) Wadhams & Co., another Portland wholesaler, who, along with Hudson House, bought canned corn from Idaho Canning; (3) Lipman, Wolfe & Co., a Portland department store, who bought nylon hose from Burlington Industries and; (4) Roberts Brothers, another Portland department store, who bought fingertip towels from Cannon Mills. Representatives of each of these buyers testified that they had bought the goods in question during the periods of time in which respondents had carried on these particular coupon book promotions (September and October of 1956-1958). but that

Opinion 63 F.T.C.

no offer of any promotional allowances or payments had been received during those periods of time.³⁰ We are further of the opinion that all six of the non-favored buyers mentioned above—including the four that purchased from the suppliers who participated in respondents' 1956-1958 "coupon book" program and the two that bought from Philip Morris but failed to receive the "special" promotional allowances accorded to respondents—"competed" with respondents in the "distribution" of the products in question and were therefore entitled, under Section 2(d) of the amended Clayton Act, to share in those allowances on a proportionally equal basis.

In the case of the two department stores, Roberts Brothers and Lipman, Wolfe & Co., and the two retail grocery groups, Piggly Wiggly and United, the proof on this point is clear. A representative of Roberts Brothers testified that his company bought Cannon towels during the period of respondents' coupon book promotion and resold them in competition with respondents.³¹ A representative of Lipman, Wolfe & Co. testified to the same effect in regard to nylon hose purchased from Burlington Industries.³² And there can be no question but that the retail stores of Piggly Wiggly and United Grocers resold Philip Morris' tobacco products in direct competition with respondents' retail stores.³³ Respondents contend, however, that two of these, United Grocers and Hudson House, were not entitled to a proportionally equal share of the promotional allowances in question because they are "wholesalers," rather than retailers like respondents themselves, and thus do not "compete" with respondents in the resale of the goods. First, this argument is factually incorrect. United Grocers ________________ ³⁰ It should be noted that the members of this industry use a terminology here that is somewhat at variance with the legal meaning of these various phrases. To them, a "promotional allowance" is synonymous with a price reduction, i.e., the supplier pays without expecting any kind of performance in return. To designate a genuine promotional allowance within the meaning of Section 2(d)—one that actually requires the performance of promotional services by the buyer—they speak of an "advertising" allowance. Tr. 173-185, 642. The witnesses were quite clear that they had been offered no allowances of the latter character. Tr. 173-185, 370, 446. Indeed, two of the suppliers in question. Tri-Valley and Idaho Canning, testified that they had no such programs. Tr. 505, 642, 675.

One of the non-favored buyers named above. Hudson House. did receive a "promotional allowance" (as that term is used in the industry) during one of the coupon book periods from a participating supplier, Tri-Valley. This was a flat "allowance" of $100 given on the occasion of Hudson House's 50th Anniversary Sale. Tr. 644-649. The record suggests that no performance was expected, or given, in return for the money. Hence it cannot be considered a promotional allowance within the meaning of Section 2(d), and, accordingly, there is no necessity for us to determine whether or not this $100 represents Hudson House's "proportionally equal" share of Tri-Valley's promotional funds. ³¹ Tr. 364, 380.

³² Tr. 461.

³³ Tr. 240, CX 96 ; tr. 626, CX 214-A through 214-I.

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is plainly a retailer, and Hudson House, although it is primarily a wholesaler, also carries on a substantial retailing business.³⁴ In the latter phase of its business, Hudson House is a retailer and thus “competes” with respondents in the resale of the goods. In addition, however, we think respondents’ contention here is erroneous as a matter of law. It rests on the premise that Section 2(d), in prohibiting promotional payments unless they are made available on proportionally equal terms to “all customers competing in the distribution of such products or commodities” (emphasis added), protects only those who buy directly from the seller in question (“customers”), and who “compete” with the favored buyer by reselling the goods at the same functional level at which that favored customer resells. Under this argument, Hudson House (in its wholesaling operation) and Wadhams & Co. (which is engaged exclusively in wholesaling), although they buy directly from Tri-Valley and/or Idaho Canning, and are thus “customers” of those suppliers within the meaning of Section 2(d), are not entitled to a proportionally equal share of the promotional allowances accorded by those suppliers to respondents because those wholesalers, in reselling the goods to retailers instead of consumers, are not “competing [with respondents] in the distribution of such products” as required by Section 2(d). Similarly, it is argued that the hundreds of retailer-customers who purchase from those two wholesalers, and resell to consumers in direct competition with respondents’ Portland stores, are not entitled to a proportionally equal share of the promotional allowances in question because those retailers, having bought Tri-Valley peaches and Idaho Canning corn from the two wholesalers, rather than from Tri-Valley and Idaho Canning themselves, are not “customers” of those two suppliers within the meaning of Section 2(d). The net result of this argument is that the entire structure of “independent” food merchants—including the traditional wholesaler and his numerous, small retailer-customers —are placed completely outside the pale of Section 2(d) of the amended Clayton Act insofar as their competition with the directbuying “chains” is concerned.

The startling nature of this conclusion is even more evident, however, when it is considered that those who would be entitled to

³⁴ United Grocers “is a cooperative or * * * non-profit buying organization, which is owned by at the present time by some 300 odd members,” tr. 626, all of whom are retail grocers. Such an organization is plainly not a “wholesaler.” See, e.g., American Motor Specialties Co. v. Federal Trade Commission, 278 F. 2d 225 (2d Cir. 1960) [6 S.&D. 791], and the other “buying group’ cases there cited. Hudson House owns three Portland retail grocery stores outright and its controlling stockholder, Mr. Hudson, also owns a controlling share of the stock of Oregon Piggly Wiggly, a retail grocery “chain.” Tr. 238, 264-265.

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claim the protection of Section 2(d) in this situation are the other "chains" located in the area. Thus, in a geographical market served by, say, two direct-buying "chains," and one wholesaler with 100 retailer-customers, a supplier who gave a promotional allowance to Chain A would not be required by Section 2(d) to give it to either the wholesaler or the 100 independent retailers who buy from it, but would have to give it to Chain B. This would mean, of course, that the protection of Section 2(d) is accorded to those who presumably have the market power to take care of themselves (competing "chains"), but denied to those who, as the instant record clearly shows, need its protection very badly indeed. We are not persuaded that Congress either intended or effected any such result when it passed Section 2(d). In the first place, such a construction goes squarely against the well-known purposes of the Act itself, namely, to give the "independent" food sellers an even break in their competition with the "chains." To hold that suppliers are free to give direct-buying retailers promotional allowances of unlimited quantity while denying all such payments to wholesalers whose retailer-customers compete with the favored "chains" is to provide the latter with a competitive advantage that could very well cause the ultimate destruction of the independents. Here, for example, these respondents, in receiving price concessions amounting to as much as 33⅓%, have thereby demonstrated their power to exact concessions of that magnitude. They should have no difficulty in persuading those cooperative suppliers to grant them the same concessions in the form of a genuine promotional allowance. (A seller should be far more eager to buy promotional services than to give lower prices.) And in an industry where net profit margins at both the wholesale and the retail levels are frequently as low as 2%, little argument should be required to demonstrate that a 33⅓% advertising or promotional allowance granted to one customer but denied to another could be a decisive factor in the competitive struggle between the favored and non-favored distribution systems. We think this is precisely the kind of unfairness that Section 2(d) was designed to prevent.

Aside from the question of Congress' intent in the matter, we see nothing in the words of that provision to support the proposition that wholesalers whose retailer-customers compete with directbuying "chains" are not entitled to a fair share of the promotional allowances received by the latter. As noted, Section 2(d) declares that such allowances are unlawful unless they are made available, on proportionally equal terms, to "all other customers competing

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1 Opinion in the distribution of such products." These wholesalers, like respondents themselves, buy directly from the discriminating suppliers and are, therefore, unquestionably "customers" of those discriminators. And we think that, insofar as those wholesalers resell to retailers who, in turn, resell to consumers in competition with respondents, the wholesalers are competing with respondents in the "distribution" of the goods in question. It is true, of course, that only the retailer-customers of these two wholesalers compete with respondents in the direct resale of the goods to consumers. But the statute speaks of competition in the "distribution" of the products, not merely of competition in their "resale." These wholesalers, through their numerous retailer-customers, are seeking exactly the same consumer dollars that respondents are after. Every time an independent retailer loses a sale to respondents, the wholesaler who supplied that independent retailer suffers a loss of volume by just that much. And if all of the independent retailers in Portland should close their doors, these wholesalers would necessarily be finished in that market. By the same token, these 100-plus independent Portland retailers depend entirely on those two wholesalers for such competitive equality, vis-a-vis the direct-buying chains, as the independent retailers are able to secure. Any competitive disadvantage experienced by the wholesaler himself in buying goods in competition with the chains is necessarily passed on to its retailer-customers. If it pays more for a given product than respondents pay, the price it charges the independent retailers will naturally reflect that higher price. (One of these wholesalers, Wadhams & Co., actually sells on a "cost-plus" basis, i.e., it charges its retailer-customers the price it pays for the goods, plus a fixed percentage of that amount to cover its other costs and its profit margin.) And if the wholesaler is denied promotional allowances received by respondents, it obviously cannot pass them on to its retailer-customers or use them for the benefit of those customers. In such a market context as this, we think it ignores economic reality to say that these two wholesalers are not "competing" with respondents in the "distribution" of these products. In this connection, it should be noted that, while "competition" in one form or another is the concern of each of the several subsections of the Act, there is no universal definition of that term that can be applied mechanically to all of its provisions. For example, "competition," as used in Section 2(b)'s "meeting competition" proviso, refers solely to competition with the discriminat-

Opinion 63 F.T.C.

ing seller, i.e., to "primary-line" competition. Federal Trade Commission v. Sun Oil Co., 9 L. Ed. 2d 466 (January 14, 1963) [7 S. & D. 621]. None of the other subsections are so limited. Hence the scope of "competition" embraced by one of the Act's provisions is not necessarily controlling in the context of another section. Analysis of those other sections can, however, provide most helpful analogies. Thus, in the area of price discrimination under Section 2(a), it has long been settled that suppliers are guilty of discrimination when they charge a retailer a lower price than they charge "wholesalers whose customers compete with such retailers." Federal Trade Commission v. Morton Salt Co., 334 U. S. 37, 55 (1948) [4 S. & D. 716, 729]. While this section, unlike Section 2(d), specifically describes the several levels of "competition" to be protected (competition with the giver and the receiver of the lower price, "or with customers of either of them"), that description sets forth not the elements of a price discrimination— which "is merely a price difference," Federal Trade Commission v. Anheuser-Busch, Inc., 363 U. S. 536, 549 (1960) [6 S. & D. 817, 826]—but the "effects" that must appear before the "discrimination" will be deemed harmful enough to warrant the laying on of the law's restraining hand. Hence that language, although it supported the Court's conclusion in Morton Salt, supra, that the "difference" between the price charged the favored retailer and the non-favored wholesalers amounted to a price "discrimination," was not essential to it. The same result would doubtless have been reached if the draftsmen of Section 2(a), while retaining its present description of the offense of "discrimination," i.e., "discriminate in price between different purchasers," had made it a per se provision like Section 2(d) and thus omitted completely all reference to the three levels of competition at which injury can occur. Thus, the omission of such "effects" language from Section 2(d) has no significance in determining whether or not its terms are violated by favoring a retailer over a wholesaler. That qualifying phraseology was left out of that provision because, and only because, Congress had determined that the offense described therein, as one of the "'secret' discriminations," Federal Trade Commission v. Simplicity Pattern Co., Inc., 360 U. S. 55, 68 at note 12 (1959) [6 S. & D. 587, 596], was an appropriate subject for outright prohibition without regard to whether or not it might result in discernible competitive ill-effects. Whereas the "price discrimination provision is hedged with qualifications," the "proscriptions of these three subsections [Sections 2(c), 2(d), and 2(e)] are ab-

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solute.” Id., 64, 65. As to Congress’ purpose in giving less considerate treatment to those “secret” discriminations, including the withholding of the affirmative defense of “cost justification” and, presumably, the omission of the requirement of a showing of adverse competitive effects, it was apparently believed that discriminationprone sellers would thereby be “forced to confine their discriminatory practices to price differentials, where they could be more readily detected ***.” Id., 68 (emphasis added).

This Congressional objective would be frustrated, of course, if it should be held that promotional allowances accorded to directbuying retailers need not be given to wholesalers whose retailercustomers compete with these favored retailers. Such an interpretation of Section 2(d) would be a definite encouragement to the “chains” to seek their discriminatory advantages in this “secret” form, rather than in the more “readily detected” form of a price discrimination. Indeed, the instant record illustrates that proposition. These respondents, as discussed above, vigorously contend that the 33⅓% price concessions involved herein were not discriminatory price concessions cognizable under Sections 2(a) and 2(f), but merely “promotional allowances” actionable only under Section 2(d). If that argument should be accepted, and if their further contention that promotional allowances accorded to them need not be made available to the wholesalers in question should prevail, the suppliers involved herein would be left free to give respondents promotional allowances of unlimited amounts (e.g., 33⅓% of their purchases from the “participating” suppliers), while giving these wholesalers nothing.

We cannot accept an interpretation that flies so squarely in the face of not only the plain purposes of the statute, but of the very terms of the provision in question. It seem to us that these two wholesalers, insofar as they resell to independent retailers sitting alongside respondents’ thirteen Portland supermarkets, are “competing” with respondents in the “distribution” of the goods in question in every meaningful sense of those two terms. Accordingly we feel constrained to reject the contrary conclusions reached by this commission in Liggett & Myers Tobacco Co., Inc., 56 F.T.C. 221, 250-252, and to accept, instead, the views expressed in the dissenting opinion of Commissioner Kern in that case, 56 F.T.C. at 253, et seq., and of the court in Krug v. International Telephone & Telegraph Corp., 142 F. Supp. 230, 236 (D.N.J. 1956). In that case it was held squarely that a “violation of Section 2(d) may occur when a manufacturer gives a retailer an allowance not given to a wholesaler whose customers compete with such retailer.”

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Respondents contend further, however, that the retailer-customers of the two wholesalers in question do not, as a matter of fact, compete with respondents in the resale of Tri-Valley peaches and Idaho corn. The argument here is the one we rejected in Tri-Valley Packing Association, Dkts. 7225 and 7496, opinion of the Commission, May 10, 1962 [60 F.T.C. 1134, 1168], namely, the contention that a violation of Section 2(a) or Section 2(d) cannot occur unless a specific quantity of a discriminating seller's goods, e.g., particular cans of peaches and corn, can be "traced" all the way from the discriminating seller to the shelves of specific retailers who compete with the favored buyer, and that such tracing is here rendered impossible by the fact that these non-favored wholesalers have "commingled," under their own private labels ("Hudson House" and "Wadhams"), cans of Tri-Valley peaches and Idaho corn, with peaches and corn bought from other suppliers. The net result, of course, is that cans of peaches and corn labeled "Hudson House" and cans of corn labeled "Wadhams" can be physically found sitting on the shelves of retailers who compete with respondents, but it cannot be said with absolute certainty that any particular one of those cans was actually packed by Tri-Valley, Idaho Canning, or any other specific supplier. We do not think, however, that any such mathematical precision is required. True, these wholesalers did not resell the entire amount of their purchases from Tri-Valley and Idaho Canning in the Portland trading area, and some of the peaches and corn which they did resell to retailers in that area had been acquired from other suppliers. But the possibility that all of the peaches and corn purchased by those two wholesalers from those two suppliers just happened to find their way into other areas, by the operation of sheer chance, is too remote to be worthy of consideration. The fact remains that Hudson House's purchases from Idaho, for example, amounted to roughly the same as respondents' own purchases from that supplier,³⁵ and that a substantial part of Hudson House's total volume of sales were made to Portland retailers, all of whom compete with one of respondents' thirteen stores. Thus, a list of Hudson House's retailer-customers admitted into evidence ³⁶ shows that it has more than 100 such customers located in the Portland area. Four of these testified that they resold "Hudson House" peaches and corn in direct competition with respondents' stores.³⁷ Further, Hudson House supplies the Oregon Piggly Wiggly chain,

³⁵ Tr. 534.

³⁶ CX 67-A through 67-Z-5.

³⁷ Tr. 548, 560, 613, 792, and 821.

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which sells through some twenty Portland retailers,³⁸ and United Grocers, which has more than 100 retailer-members in Portland.³⁹ The other wholesaler in question, Wadhams & Co., resells to about forty retail grocers in the Portland area.⁴⁰ In view of the fact that respondents claim to have “one [supermarket] in every neighborhood” and admit that “we’re competing with any food store” in the area,⁴¹ we think the existence of competition between respondents on the one hand and the retailercustomers of the non-favored wholesalers on the other, in the resale of Tri-Valley peaches and Idaho corn, has been established. Those two wholesalers, therefore, were entitled to a proportionally equal share of the promotional allowances given to respondents. Nor is there any merit in respondents’ argument on the issue of “like grade and quality.” Here they point to the fact that three of the non-favored customers named by the examiner bought from the suppliers in question under private brand labels and that it is therefore impossible to determine whether or not the products were actually the same. They concede that the invoices received by themselves on the one hand and by these non-favored buyers on the other show precisely the same manufacturer style numbers or other identifying data,⁴² but insist that this is not proof of like grade and quality. We do not agree. A supplier’s use of identical descriptive data on invoices to favored and non-favored customers constitutes probative evidence and establishes, prima facie, the fact of like grade and quality. Respondents had every opportunity to show, if they could, that this evidence was inaccurate. The mere fact that the goods bear the private brands of the respective buyers is clearly insufficient to rebut the inference of identity that is raised by the similarity of supplier-descriptions.

III

As noted above, the payments received by respondents from the suppliers who participated in the “coupon book” promotion, insofar

³⁸ Tr. 240 ; CX 96.

³⁹ Tr. 626 ; CX 214-A through 214-I.

⁴⁰ Tr. 170 ; CX 68-A and 68-B. One testified that his store was located “directly across the street from Fred Meyer.” Tr. 567.

⁴¹ Tr. 14.

⁴² Thus, Tri-Valley’s invoices to both respondents and Hudson House described the canned peaches being sold as “cho hvy hvs yc peaches” (choice heavy syrup sliced or halved yellow cling) packed in cans “24/2-1/2” in size. Idaho Canning’s invoices to respondents, Hudson House, and Wadhams described the canned corn in question as “Fcy cs” (fancy cream style), in “24/303” can size. Burlington Industries’ invoices to respondents and to Lipman, Wolfe & Co. designated the nylon hosiery as “style” numbers “603,” “660M,” “515,” etc. See CX 42, et seq.; CX 48, et seq.; CX 115, et seq.; and CX 141, et seq.

In addition, the independent retailers who competed with respondents had no doubts on the like grade and quality issue. See, e.g., tr. 796, 816.

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as they exceeded the $350 intended for and actually used in the promotion of those suppliers' goods, constitute price concessions cognizable under Sections 2(a) and 2(f). The record thus shows the following price "discriminations": (1) Hudson House did not receive the 33⅓% reduction in price on canned peaches that respondents received from Tri-Valley during the one-month period of their 1957 coupon book promotion (which amounted to aggregate concessions of $4,814); (2) neither Hudson House nor Wadhams & Co. received the 33⅓% price concessions that respondents received from Idaho Canning on their purchases of canned corn during the one-month period of their 1957 coupon book promotion ($2,585.41 in amount); (3) Roberts Brothers, a Portland department store, paid the regular price of $1.65 per dozen for Cannon Mills' fingertip towels while respondents were buying them at the special low price of $1.55 per dozen during the one-month period of their 1956 coupon book promotion (total price concession of $400); and (4) Lipman, Wolfe & Co., another Portland department store, did not receive the 50¢ to 94¢ per dozen reduction in price on nylon hose that respondents received during the one-month periods of their 1957 and 1958 coupon book promotions (total price concessions amounting to $1,350 in 1957 and $1,450 in 1958). The fact that these non-favored buyers paid the regular price, sans any concessions, is voluminously documented by invoices in the record showing that these buyers paid, during the various one-month periods in question, the same price that respondents themselves paid during the remaining eleven months of each year. Respondents' argument that the prices appearing on invoices are not "evidence" of the price actually paid is rejected for the same reason discussed above in connection with their argument that "style numbers" on invoices are not evidence of the grade and quality of the goods, namely that these documents are records kept in the ordinary course of business and are thus prima facie evidence of the business facts they purport to show. Respondents had every opportunity to submit evidence that the prices shown on the invoices had been subsequently varied by some of the methods they suggested ("rebates," etc.). In the absence of such rebuttal evidence, it must be held that respondents have conceded the accuracy of those figures. Further, the fact that the prices appearing on the invoices to these non-favored customers in September and October are the same as those paid by respondents themselves during other months in the year is itself a persuasive indication that those prices are accurate. In addition, however, the instant record includes (1) the

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testimony of the broker who handles Tri-Valley peaches and Idaho corn in the Portland area to the effect that, at any given time, all purchasers are charged the same price; 43 (2) the testimony of the non-favored buyers that they paid the "regular," or higher, price during the pertinent one-month periods of respondents' coupon book promotions; 44 and (3) the testimony of respondents that, after the end of each of the one-month periods of the coupon book promotions, they once again paid the respective suppliers' regular prices.45 Only one of the four non-favored buyers named by the examiner received a price concession during the periods in question. This was Hudson House, who received the sum of $100 on October 11, 1957, from Tri-Valley, in connection with Hudson's 50th Anniversary Sale. Although this sum was designated as a "promotional allowance," the record is plain that no "services" were expected of or given by Hudson in return therefor,46 and that it was, in effect, an arbitrary sum that can be treated as a price concession. As such, there is no question of "proportional" treatment. Instead, the question is whether or not that $100 gift had the effect of reducing the price paid by Hudson, during the one-month period of respondents' 1957 coupon book promotion (September 25 through October 23), by 33 1/3%, that is, to the same discriminatory low price that respondents were themselves paying at that time. While the record is not clear as to the volume of Hudson House's purchases during that period as compared to respondents' own purchases, there is nothing to suggest a disparity so great that a $100 concession to Hudson would yield the same low price as a $4,814 concession to respondents.

IV

Respondents' contention that these discriminations in their favor pose no threat of injury to competition is patently without merit. The testimony showed that competition in the food industry is keen; that the average retail grocery store carries approximately

43 "Q. Now, Mr. Larsen, to your knowledge, has there always been the same price charged Fred Meyer, Hudson House or Wadham's for any particular item by Idaho Canning? "A. You mean the same item? "Q. Of the same item, same grade and quality? "A. Yes.

"Q. Same can size? "A. Yes, at the same time." Tr. 124.

44 See, e.g., tr. 177-180 (Wadhams); tr. 370-374 (Roberts Brothers); tr. 445-451 (Lipman, Wolfe & Co.).

45 Tr. 428.

46 Tr. 644-649.

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2,500 to 6,000 separate items; that a price differential of 1/2 of 1% will swing a retailer from one supplier to another; that the net profit of some retailers is as low as 2%; 47 that the profit margin at the wholesale level is about 2%; 48 that the 33 1/3% price concession respondents received from Tri-Valley and Idaho Canning and passed on to consumers during their coupon book sales resulted in a retail sales price that was below the price at which other retailers bought those items (from the non-favored wholesalers); 49 and that a price differential of 1¢ will switch some consumers from one grocery retailer to another.50 In such a market context, the probable effects of a price discrimination of 33 1/3% seems obvious enough. As the Supreme Court said in the Morton Salt case in response to the argument that competitive injury could not result from discrimination in such an insignificant item as salt: There are many articles in a grocery store that, considered separately, are comparatively small parts of a merchant's stock. Congress intended to protect a merchant from competitive injury attributable to discriminatory prices on any or all goods sold in interstate commerce, whether the particular goods constituted a major or minor portion of his stock. Since a grocery store consists of many comparatively small articles, there is no possible way effectively to protect a grocer from discriminatory prices except by applying the prohibitions of the Act to each individual article in the store.51 In the instant case, the two grocery articles involved—canned peaches and corn—were shown to have been the "fastest moving" 47 "Q. * * * How important is 2 per cent on the retailing level? * * * * * * * "A. Sometimes it represents the man's profit. "Q. For the entire year? "A. Yes." Tr. 140. See also tr. 242.

48 A representative of Hudson House, a wholesaler, testified: "Q. As a matter of fact, isn't that [2% cash discount] the difference between profit and loss at the end of the year? * * * * * * * "A. It could be." Tr. 141.

Another wholesaler, Wadhams, testified as follows: "Q. Mr. Durkheimer, does Wadhams take advantage of the 2 per cent discount for prompt payment offered by Idaho Canning? "A. Yes.

"Q. Why? "A. I believe the 2 per cent represents more than the net profit structure of any wholesale grocery operator that I'm familiar with . . ." Tr. 172. 49 "Q. Can you afford to meet that competition, Mr. Jones? "A. No, sir. I can't even buy it at that." Tr. 555. Another retailer testified:

"A. We couldn't sell them at the same price. "Q. Would you explain that? "A. As they were costing as much if not more than they — the peaches were being sold for [by respondents]." Tr. 707. 50 "A. Many customers are price conscious and one penny difference in the price causes them to go blocks to pick up the item." Tr. 800. 51 Federal Trade Commission v. Morton Salt Co., 334 U.S. 37, 49 (1948) [4 S.&D. 710, 725].

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items in their respective lines (canned fruits and vegetables, respectively),⁵² and that price differential on those items were thus particularly significant, i.e., consumers who go to a competitor's store to take advantage of a bargain price on a staple like peaches or corn will buy other products there, also, thus magnifying the losses of non-favored buyers.⁵³

The evidence was equally clear as to the effect of respondents' coupon book program on their competitors' sales of the other products involved herein. Thus, a representative of one of the nonfavored department stores testified that, whereas respondents' "coupon" selling price for Burlington Industries' nylon hose was roughly 66¢ per pair (3 pairs for $2), his store was paying about 64¢ per pair f.o.b. the factory for the same hose at the same time. He stated that he could meet respondents' "coupon" price, of course, but that "I wouldn't make any money at it." ⁵⁴

V

There remains the question of whether respondents "knowingly induced" those suppliers to violate Sections 2(d) and 2(a) of the amended Clayton Act, or whether respondents were merely "unsuspecting recipients" of the illegal promotional allowances and price discriminations described above. Automatic Canteen Co. v. Federal Trade Commission, 346 U.S. 61 (1953) [5 S.&D. 531].

Because much of the evidence bearing on respondents' "knowledge" of the illegal nature of these concessions is relevant to both the Section 5 and the Section 2(f) charges, the two will be discussed together. However, it should be noted at the outset that there is a difference in the "knowledge" requirements of the two. Under Section 2(f) the buyer is exonerated unless it is shown that he either knew or should have known not only that he has received a discriminatory price, but also that the discrimination cannot be justified under any of the available defenses. Automatic Canteen Co. v. Federal Trade Commission, supra. A section 5 case charging a buyer with knowingly inducing unlawful promotional allowances, because it derives its essential character from Section 2(d), a so-called "per se" provision, requires no showing of competitive injury and

⁵² Tr. 552, 569, 617, 822.

⁵³ "Q. * * * (W)ill you tell us whether or not that effects your sale of other grocery products in your store? "A. Yes, it does.

"Q. Would you explain? "A. A customer would be interested in some of the coupon items so they would do their other shopping at the same time. So you would lose their business for that time that the coupon book was on." Tr. 797.

⁵⁴ Tr. 449-451.

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does not permit a defense based on the cost justification provision of Section 2(a). While the "meeting competition" defense is available in such a case, Exquisite Form Brassiere, Inc. v. Federal Trade Commission, 301 F. 2d 499 (D. C. Cir. 1961) [7 S. & D. 259], cert denied, 369 U. S. 888 (1962), it has not been asserted here. Hence the only "knowledge" that is specifically at issue in the Section 5 aspect of the instant case is these respondents' knowledge, or their possession of facts sufficient to lead reasonably prudent businessmen to believe, that the promotional allowances they received have "not been made proportionally available" to their competitors. Grand Union Co. v. Federal Trade Commission, 300 F. 2d 92, 100 (2d Cir. 1962) [7 S. & D. 329, 339]. See also American News Co. v. Federal Trade Commission, 300 F. 2d 104 (2d Cir. 1962) [7 S. & D. 346], and Giant Foods, Inc. v. Federal Trade Commission, 307 F. 2d 184 (D. C. Cir. 1962) [7 S. & D. 483].

Since respondents' "coupon book" program gave rise to not only promotional allowances cognizable under the Section 5-2(d) charge, but to the price concessions challenged under Section 2(f), their knowledge of the discriminatory nature of this program is of course pertinent to both phases of the case. On the latter charge, respondents plead, first, a complete want of knowledge of the several elements that go to make up a prima facie case of seller-liability under Section 2(a). Secondly, they contend that they had no reason to believe any price concessions received by them under their "coupon book" program could not be "cost justified" by the "participating" suppliers.

On the first point, respondents profess, as the following captions from their brief show, a most extraordinary ignorance of the market in which they operate:

A. Respondents Did Not Know That Competitors Purchased Products from the Same Supplier B. Respondents Did Not Know That Their Suppliers Sold Goods of Like Grade and Quality to Other Customers Who Competed with Them in the Portland Area.

C. Respondents Did Not Know That the Prices at Which They Purchased Were Lower Than Prices Paid by Their Competitors D. Assuming Respondents Received Lower Prices, They Did Not Know That Such Prices Were Not Cost Justified.⁵⁵ The record, however, suggests that respondents have a somewhat more lively interest in the activities of their competitors than these denials would lead us to believe. Indeed, the testimony of their own officials demonstrates that they took the most vigorous ________________ ⁵⁵ Respondents' brief, pp. 6, 7, 9, and 13.

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steps to gather trade information. They "monitor" all newspaper advertisements by all grocery retailers not only in the Portland area, but throughout the entire United States;⁵⁶ they "shop" competitive stores, checking to see if the price at which the goods are actually being sold "corresponds with the advertised price"; ⁵⁷ they actually purchase items in competitive stores and "bring it back to the office for further checking and testing"; ⁵⁸ and each and every one of their various buyers is personally charged with the duty of making these "checks" on the prices of competitors who sell goods competitive with those he buys.⁵⁹ Respondents concede that they "study market conditions" to see that the price they pay their suppliers is "right." ⁶⁰ This is accomplished by reviewing price "bulletins" distributed by the various suppliers themselves and by the brokers who serve those suppliers in the area,⁶¹ and by personal contact with the broker. It appears that they had a "pretty close contact" with the Portland broker who handles Tri-Valley peaches and Idaho corn.⁶² In one instance (which will be discussed in greater detail hereafter) this broker assumed the responsibility of entering Idaho Canning in respondents' 1957 coupon book promotion without bothering to inform Idaho. The latter initially repudiated respondents' invoice for

⁵⁶ "Q. Do you monitor these newspapers daily? "A. We monitor the food ads whenever they appear in the paper." Tr. 95, et seq. The monitoring of food ads on a national scale is accomplished by subscription to a "newspaper clipping service" that provides them with advertisements run by retailers in each metropolitan area throughout the country. Tr. 896. ⁵⁷ Tr. 894. This is done "regularly, two, three, four times a week * * *." Tr. 895. ⁵⁸ Tr. 894.

⁵⁹ "Q. And do your twenty-five buyers under your supervision do that with respect to their particular items? "A. As a regular practice, this is a part of their duty. "Q. I see. They check the local prices then on these various promotional efforts, is that right? "A. That's correct, and they also check the prices outside the area by advertising." Tr.. 894. ⁶⁰ Tr. 94.

⁶¹ "Q. * * * How do you go about getting the best sort of a price for Fred Meyer? "A. Oh, through a review of the bulletins that are put out by the companies, a comparison of what their prices are. "Q. Do you keep posted with these bulletins? "A. Yes.

"Q. How frequently do the bulletins come from Tri-Valley? "A. Generally whenever they have a change in their list price." Tr. 92. ⁶² "Q. Now, how do you go about it, about insuring that Fred Meyer gets the best price? "A. Through personal contact with your broker or representative of the company who might be in the area. * * * * * * * "A Well, strictly through contact with the brokers and representatives of the companies. "Q. Well, do you have a pretty close contact with this broker, Mr. Larsen? "A. Yes, sir." Tr. 93-94.

780-018—69—5

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$2,935.41 (for the "page" in the book, and "redemption" of the coupons) on the ground that his broker had no such authority,63 but was later persuaded to pay it (in free goods) "in order to placate the thing."64 This broker, of course, as the conduit through which all transactions between the two suppliers (Tri-Valley and Idaho) and their Portland customers (including respondents and the two non-favored customers, Hudson House and Wadhams) moved, was thoroughly familiar not only with the prices being charged to each but with the "allowances" given. (The broker receives a copy of all invoices sent by those suppliers to respondents and the non-favored buyers, and his commission is computed on the basis of the invoice price.) And his thorough familiarity with the "coupon book" promotion is demonstrated by the fact that he was sometimes physically present when respondents made the initial proposal to the supplier. Indeed, a representative of Tri-Valley testified that, if his company had offered promotional allowances such as the $350 for a "page" in respondents' coupon book promotion to respondents' competitors, the offer would have been made through the broker.65 Further, respondents admittedly relied upon the broker to see that they always got the "best" price from their suppliers: Q. Now, if a competitor is advertising at a lower price than Fred Meyer's advertised price, what steps do you take, if any? A. If it's a drastic reduction, we may call the broker at the time to find out if there's something going on that we haven't been informed of. Q. And if you find something that you haven't been informed of? A. Well, we have a few words. We feel that it's the broker's and the company representative's responsibility to keep us up to date on prices and price structures. If they don't do it, then they are certainly falling down on their job * * *. Tr. 96. The broker himself testified as to his thorough familiarity with the prices charged by his principals to their customers;66 to the 63 Tr. 508.

64 Tr. 523.

65 "Q. Do you recall who would make the offer to these competing customers, if any? "A. Our representative.

"Q. Who? "A. Kelly-Clark Company * * *." Tr. 639.

66 "Q. Mr. Larsen, are you familiar with the prices charged Fred Meyer by Tri-Valley on particular items? "A. Yes.

"Q. That's your business, isn't it? "A. That's right.

"Q. Are you also familiar with the prices charged Hudson House by Tri-Valley for any particular item? "A. Yes, that is, if I make the sale, and I undoubtedly do." Tr. 110.

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fact that he personally notifies them of supplier-prices; 67 and to the fact that prices are a matter of "general trade knowledge." 68 In view of these many sources of trade information available to, and obviously utilized by, these respondents, we think it strains credulity to suppose that they were unaware of the fact that they had competitors in Portland who resold products acquired from the suppliers in question. Thus, respondents' own "shopping" of competitive stores could not have failed to inform them that their competitors, including Piggly Wiggly and United Grocers, were selling Philip Morris tobacco products. The same is true of the Cannon Mills fingertip towels sold by Roberts Brothers, a department store located only two or three blocks from respondents' nearest store. In regard to the items sold by them and their competitors under private brand labels, the curtain of secrecy is not so impenetrable as respondents would have us believe. Thus, respondents bought Burlington Industries' nylon hose under respondents' own private label, "Rose Dawn," while Lipman, Wolfe & Co., a department store, bought the same hose from Burlington Industries under Lipman's own private label, "Waverly." From this fact, respondents would have us believe that their professional shoppers and highly skilled buyers would be completely in the dark as to where Lipman was buying its nylon hose. Lipman's representative, however, testified that he regarded it as "generally common knowledge" that most retailers handle Burlington hose.69 As to the other two private brand products involved (Tri-Valley peaches and Idaho corn, which are sold to respondents and the two

67 "Q. Do you personally keep your buyers notified? "A. Oh, yes.

"Q. Do you call them? "A. Usually telephone them too, along with a bulletin." Tr. 116. 68 "Q. Is there a general trade knowledge regarding prices of certain commodities? "A. Oh, yes.

"Q. Do you discuss market conditions with your buyers? "A. Yes, definitely." Tr. 116.

69 "Q. Do you know who else sells Burlington hosiery products in this immediate area, the metropolitan area of Portland? "A. Well, I'm quite clear now that Fred Meyer does; Meier & Frank, I think, on occasion have, but I would presume that most retailers, including many specialty stores and supermarkets, very often would have sold merchandise that would have been purchased from Burlington Hosiery Company. * * * * * * * "Q. But you know that they handle Burlington products anyway? "A. I would think that would be generally common knowledge. "Q. And that would also be common knowledge with respect to Olds & King and the other department stores? "A. I would think that most of them use an important resource such as Burlington Mills." Tr. 461-462.

Opinion 63 F.T.C.

non-favored buyers under their respective private labels, "My-Te- Fine," "Hudson House," and "Wadhams"), we think it most unlikely that respondents, with their admitted interest in making sure that they received the "best price," would have been content to operate on the blind assumption that they were the only purchasers of Tri-Valley peaches and Idaho corn in the Portland area. In order to be sure that they were getting the "best" price, they must necessarily have known who else was buying and what they were paying. Respondents' vigorous intelligence network eloquently attests to their quite natural desire to know these things; if they did not succeed in learning them, it was because they lacked the power, not the inclination.

On this point, we have already commented on respondents' "close contact" with the Portland broker who handles the products of both Tri-Valley and Idaho, and the fact that he participated in the initial negotiations between respondents and his principals (Tri- Valley and Idaho) for the 1957 "coupon book" promotion.⁷⁰ There is also the fact that his brokerage earnings depend upon the volume of his sales, and that respondents' coupon book program obviously increased the volume of their purchases through him. (Tri-Valley's annual sales to respondents are about $150,000.) ⁷¹ We think we would be ignoring the commercial facts of life if we assumed that these respondents, notwithstanding their possession of this kind of buying power and their "close contact" with a broker having a pecuniary interest in seeing that it was directed to him and his principals, were nevertheless unable to learn the names of their competitors, the prices they were paying, or the promotional allowances they were or were not receiving. We think it quite significant here that respondents, in annual sales volume, are much larger than either of these suppliers. (In 1957, respondents' sales exceeded $40 million, as compared to $22 million for Tri-Valley and only $1,200,000 for Idaho Canning.) The real extent of respondents' purchasing power and the closeness of their dealings with the broker in question is nowhere so well illustrated as in the incident of Idaho Canning's involuntary "participation" in the 1957 coupon book promotion. In accordance with their usual practice of soliciting supplier-participation early in the year so as to have all 72 "coupon" agreements firmed-up well in advance of the September-October sales period, respondents first approached Idaho Canning during the January 1957 convention

⁷⁰ Tr. 60, 81. Respondents received Tri-Valley's "actual okay to go ahead" from the broker (tr. 62); Idaho's alleged "agreement" to participate in that 1957 coupon book was communicated to respondents by the broker (tr. 82); and Tri-Valley's participation in the 1958 coupon book program was initiated by "verbal contact" with the broker (tr. 70). ⁷¹ Tr. 525.

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of the National Canners Association, in Chicago. At that time, Idaho was unable to make up its mind as to whether or not it wanted to "participate." No contract was signed, no agreement was reached, and nothing was done or said by Idaho to lead respondents to believe that it was agreeing to participate. That was the last Idaho heard of the matter until the Fall of 1957 when it learned that a "page" in respondents' 1957 coupon book had featured three of Idaho's cans of corn for the regular retail price of two and Idaho itself received, from respondents, an invoice stating that it owed them a total of $2,935.41 ($350 for "1 Full Page in Book" and $2,585.41 for "21367 Coupons Redeemed @ .121").72 Idaho promptly "denied the invoice and returned it to Fred Meyer Company." 73

Respondents apparently made no protest to this, and continued to buy from Idaho. But they subsequently deducted, from one of Idaho's invoices to them for goods sold and delivered, the exact amount of $2,935.41. Idaho, in turn, protested this high-handed treatment, and respondents returned the money to them.74 But a few months later—on January 29, 1958—Idaho yielded and shipped respondents $2,935.41 worth of "free" goods.75 Idaho's representative characterized this payment in various ways: as "an adjustment or a compromise donation to the amount of $2,935 of merchandise to replace their claim of goods given in this promotion"; 76 as a payment made "in order to placate the thing"; 77 as an "adjustment in view of the fact of the promotion"; 78 and as "the justification of satisfying a customer in the amount that they had been out for advertising situation." The latter was explained as follows:

Q. What advertising situation, Mr. Moss? A. The one we're talking about.

Q. Which one, sir? You state.

A. His fall promotion.79

When Idaho finally capitulated, it did this through its broker, too.80

72 Tr. 506-508 ; CX 39.

73 Tr. 508.

74 "Then I immediately informed them that they had no right to do it, or through the broker, they had no right to do it, and we wouldn't accept it that way, and they in turn sent us the balance of the money. They sent it — returned this to us, $2,935." Tr. 511. 75 CX 206-210.

76 Tr. 512.

77 Tr. 523.

78 Tr. 537.

79 Tr. 524.

80 "* * * (W)e told him [the broker] to go ahead and figure the amount of cases in the transaction and we'd ship it to him, and that's exactly what happened." Tr. 538.

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However, any inclination to regard respondents as unknowing beneficiaries of the broker's unauthorized act of entering his principal in the coupon book is discouraged by respondents' less than candid attempt to persuade the hearing examiner that there was no connection between the $2,935.41 invoice they sent Idaho for its "participation" in the coupon book promotion in the Fall of 1957 and Idaho Canning's ultimate payment of $2,935.41 on January 29, 1958. Respondents' counsel argued that it was "not in connection with this coupon book promotion"; that it did "not involve merchandise sold during the year 1957"; that it was "a separate transaction"; that "the witness has testified that this was a voluntary payment that he made"; that "it was not solicited at all," that it "was during the following year"; that "it has nothing to do with the [coupon] book"; that, although both transactions involved the precise sum of $2,935.41, "one is merchandise and one is money, and one is in one year and the other was in the following year"; that "the witness has testified that he made a voluntary contribution in merchandise to Fred Meyer, and this is this transaction which was not solicited on the part of Meyer or any employee"; that "Fred Meyer paid the full purchase price, the full invoice price, and that that transaction was settled and terminated"; and that evidence of the payment was objected to "as being immaterial, irrelevant and having no bearing on our coupon book sales * * *" 81 In the face of the witness' clear testimony that the January 1958 payment was made to "satisfy" Fred Meyer's claims for the costs they had incurred in promoting Idaho corn in their "fall promotion," 82 the foregoing objections were frivolous in the extreme. Counsel ultimately withdrew them.83 On "cross-examination," however, he continued substantially the same argument by eliciting from the obviously friendly supplier-witness testimony that was patently unworthy of belief.84 _________________________________________________________________ 81 Tr. 509-531 (emphasis added).

82 Tr. 524.

83 Tr. 531.

84 "By Mr. Mead: All right. Now, taking into account these adjustments that you made in the following year by the free merchandise to Fred Meyer, were the prices and promotional allowances charged and allowed to the Fred Meyer Company substantially in line with those prices and those allowances charged and given to Hudson House in the Portland area, considering all of the elements? "A. Yes, that's correct, sir. I so testified. * * * * * * * "Hearing Examiner Kolb: Did you give the Hudson House $2,935.41? "The Witness: No, that wasn't the question he asked me. He asked me on promotional allowances on the invoice price.

* * * * * * * "Hearing Examiner Kolb: Well, Mr. Moss, you did not give Hudson House $2,400 (sic) allowance at the same time you did Meyer? "The Witness: No, sir." Tr. 538-540.

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Respondents' sole answer to all of these circumstances is that, since none of the suppliers in question came right out and told them that the price concessions and promotional payments were not being given or offered 85 to other buyers, they had no reason to suspect that they were inducing or receiving anything illegal. The trouble with this argument is that a buyer cannot—

plead want of knowledge as a successful defense to charges in a complaint such as the instant one, in circumstances where it appears that such want of knowledge on the buyer's part was culpable. * * * This being so, the question becomes whether or not, upon the record as a whole, the Commission introduced enough evidence to show that [respondent], at the time it induced and received the payments from its suppliers, possessed information sufficient to put upon it the duty of making inquiry to ascertain whether the suppliers were making such payments available on proportionally equal terms to [respondent's] competitors. Giant Foods, Inc. v. Federal Trade Commission, supra, 307 F.2d at 187 (emphasis added). [7 S. & D. 483, 486, 487]

We think the respondents in the instant case possessed more than enough "information to put upon [them] the duty of making inquiry" as to whether or not their participating suppliers were taking steps to make those promotional payments available to other buyers. First, it was the respondents, not the suppliers, who originated or initiated the programs under which the concessions were granted. When they conceived these plans and presented them to their suppliers, respondents thereby began to receive payments other buyers necessarily could not have been enjoying at that moment. Thus, in order to make the same concessions available to all other buyers, the suppliers in question would have therefore had to initiate, subsequent to respondents' solicitation, a program based on, or including as one of its alternative features, the arrangement with respondents. We think the law is plain that a buyer who initiates a promotional service and induces his supplier to pay him for performing it has possessed himself of "information sufficient to put upon it the duty of making inquiry to ascertain whether the suppliers were making such payments available on proportionally equal terms to [his] competitors." This is so because the natural reaction of a supplier who has yielded to the demands of one of his larger customers is not to further lighten his purse by making the same payments to hundreds of others but to minimize his outlay by concealing the fact that he has made any such payment at all. A powerful buyer does not go to a seller with hat in hand asking to be given something that

85 "Q. Were you advised by Burlington or their representative, either directly or indirectly, that this promotional allowance was not available to other customers on a proportionately equal basis? "A. I was not." Tr. 435.

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is "proportionally equal" to what the smaller buyers are getting; he wants something in addition to what the others are receiving. The result is almost invariably a situation in which the initiating buyer continues to receive the same promotional allowances all other buyers are receiving, plus the new one he has conceived himself. Thus, in the Giant Foods case, supra, that respondent had solicited its suppliers' participation in a promotional plan that expressly provided: "This contract does not alter or replace currently existing advertising or merchandising agreements between Giant Food Department Stores and participating manufacturers." The court, relying on this as one of the factors that showed "Giant knew that it was the beneficiary of disproportionate payments," commented that:

In this connection it is to be noted that the program drafted by Giant was explicit in its insistence that it was not intended to supplant or be fitted into any of the promotional programs then maintained by Giant's suppliers. In other words, Giant's program was designed to exist independently of and/or coextensively with any of its suppliers' regularly available cooperative advertising programs. 307 F. 2d at 187 [7 S. & D. at 487].

That principle is applicable here. The "special" payments respondents received from Philip Morris were in addition to those they had received in the past, and continued to receive, under that supplier's "regular" promotional program.86 And the payments they received from the other four suppliers (i.e., those who participated in the "coupon book" promotions), including both the promotional payments and the outright price concessions, were granted to them under an agreement containing the following provision:

OFFER MUST BE EXCLUSIVE AT FRED MEYER DURING THE 4 WEEK PERIOD.87

Thus, each supplier who participated in respondents' "coupon book" promotion agreed with respondents that it would not, during that particular four-week period of time, "participate" in a similar program sponsored by any other buyer. Therefore, if any participating supplier had a promotional program already in operation, respondents' coupon book plan would necessarily be something "in addition to" the existing plan. By the very terms of their contracts with their suppliers, respondents precluded any possibility that they could be "fitted into" the promotional plans they were then making available to their other customers. The

86 See note 29, supra, and accompanying text. 87 CX 7. See also CX 21.

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conclusion is inescapable that these respondents not only "knew" their suppliers were violating Section 2(d) of the amended Clayton Act when they granted these payments, but affirmatively required them to do so.

Respondents argue, of course, that the participating suppliers could have (1) offered their other buyers some other promotional program during those particular four-week periods of time, or (2) offered those buyers this very same "coupon book" promotion during some other period of time, i.e., during one of the other eleven months in the year. Accordingly, respondents contend that they had no reason to suspect that the participating suppliers had not made the promotional payments in question available to their other buyers on proportionally equal terms. We cannot agree. It is our view of the law that neither of these suggested courses of action could have brought the participating suppliers into compliance with Section 2(d). That provision requires not only that competing purchasers be offered an opportunity to receive proportionally equal payment for performing the same services, but that they must be offered that opportunity at the same time.

In regard to the first argument, it is true of course that a seller may have a promotional "plan" with several alternative features, only one of which may be suitable for, or usable by, a particular customer. State Wholesale Grocers v. The Great Atlantic & Pacific Tea Co., 258 F. 2d 831 (7th Cir. 1958); Lever Brothers Co., 50 F.T.C. 494, 503 (1953). However, such a seller may not take it upon himself to decide which of the several features of his promotional plan is to be offered to a particular customer; that choice is to be made by the customer himself, after the seller has presented him with the terms of all of the "available" alternatives. Chestnut Farms Chevy Chase Dairy, 53 F.T.C. 1050, 1059-1060 (1957); Liggett & Myers Tobacco Co., Inc., 56 F.T.C. 221, 249 (1959); Exquisite Form Brassiere, Inc., Dkt. 6966, opinion of the Commission October 31, 1960 [57 F.T.C. 1036-1048], remanded on other grounds, Exquisite Form Brassiere, Inc. v. Federal Trade Commission, 301 F. 2d 499 (D.C. Cir. 1961) [7 S. & D. 259], cert. denied, 369 U.S. 888 (1962). As we said in the latter case, "the customer and not the seller should decide what is or is not usable or suitable for him and should have the opportunity to select that feature of a plan which suits him best." Opinion of the Commission, p. 3 [57 F.T.C. 1050].

Respondents contend for a construction that would permit a seller with a promotional plan having, say, ten different features,

Opinion 63 F.T.C.

to select Feature 1 for Buyer A, Feature 2 for Buyer B, and so on, concealing from each the nature of the activity for which the others were being paid. The test of proportionality, in such a situation, would be wholly quantitative. So long as a buyer who purchased $100 worth of goods from a seller was given a promotional allowance that was no less than one tenth as much as that given to a buyer who bought $1,000 worth of goods, the statute would be satisfied, regardless of what restrictions the seller might place on the respective buyer's use of the money. This ignores, of course, the qualitative factor. Suppose, for example, it is established that a particular product can be promoted twice as effectively through one medium as another, e.g., $1 spent on newspaper advertising will produce twice as much in additional sales as $1 spent in radio advertising of the product in question. Could it then be said that a seller was distributing his money among his competing buyers on "proportionally equal terms" if he proportioned the money itself fairly but contracted with Buyer A to let him spend his share on the superior medium (newspaper) while insisting that Buyer B spend his on the inferior medium (radio)? We think not. Although they received the same number of dollars (or proportionally the same) one would still be getting an advantage over the other. The seller must not give the dollar and then dilute its value by forbidding the recipient to use it in a manner that is permitted to a competing buyer. Here, therefore, the suppliers in question would not have been in compliance with Section 2(d) if they had given to respondents' competitors a sum of money proportionally equal to that received by respondents, but conditioned it upon a promise by those other buyers that they would not use the money in sponsoring a "coupon book" promotion.

We think the soundness of this is illustrated by the facts in this very case. In the literature used by respondents to induce their suppliers to participate in the coupon book promotions, they characterize the plan as "unlike any other advertising medium"; as "a unique and effective medium"; and as a method that assures the supplier of "mass distribution of your product at the lowest possible cost." They state further: "The customer buys the book for 10¢ — Eagerly reads the coupons, tears them out and brings them to Fred Meyer Stores for redemption." In addition, respondents refer to "the natural impulse to buy that goes with coupons." 88 Thus the very essence of respondents' pitch to the suppliers whom __________ 88 CX 6.

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they solicit is that the coupon book is an advertising medium that, dollar-for-dollar, is superior in pulling power to all other media. By their own admission, therefore, a competing buyer given the same amount of promotional money, if prohibited by the seller from using it to sponsor a "coupon book" promotion, would be unable to get the same results from its use. The same principle applies to the time factor. It is true, as argued by respondents, that their "exclusive" option on the coupon book plan extends for only a one-month period out of each year, leaving the participating suppliers free to offer respondents' competitors the very same program during any of the remaining eleven months. But we must assume that respondents have not acted arbitrarily or capriciously in selecting, for the past 25 years or more, a four-week period that begins in September and ends in October. The inference is plain that respondents themselves regard this as the most propitious season of the year for staging this particular type of promotion. Accordingly, we must conclude that a competitor, even if permitted to use the coupon book program in, say, July, would not get the same results per dollar of expenditure that respondents get in September and October. Again, there can be quantitative similarity, but vast differences of a qualitative character.

We think this conclusion is compelled by the reasoning of the court in Atalanta Trading Corp. v. Federal Trade Commission, 258 F. 2d 365 (2d Cir. 1958) [6 S. & D. 439]. There a supplier had granted, in the month of July, a $500 promotional allowance as consideration for the promotion of its product during the buyer's Fourth of July promotional event. It was some six months later—in December—before the supplier sold that product to a competitor of the favored buyer. The court held that the seller, when it made the December sale, owed no duty under Section 2(d) to offer the allowance it had extended to the July customer, i.e., that a seller, merely because he has once made a sale accompanied by a promotional allowance, is not forever bound to keep that offer open. "The purpose of Section 2(d) is to give equal opportunities to competing merchants * * *. Certainly by December 1954 Atalanta could market pork shoulder picnics free from any restraint placed upon it by the July 1954 promotional allowance." 258 F. 2d at 372 [6 S. & D., at 447] (emphasis added). Respondents' theory boils down to this: A promotional allowance given exclusively to them for a one-month period in September-October, no matter how successfully they use it to ravage

Opinion 63 F.T.C.

the business of their competitors, does not violate Section 2(d) if, at some later period of time (e.g., the following month), those allowances are taken from respondents and given to the injured competitors. The rationale of respondents' theory, apparently, is that whatever gains they might make during the period of their advantage will be offset when they subsequently become the anvil and their competitors take up the hammer. We cannot accept any such "turnabout" construction of the statute. Its very purpose, as noted by the court in the Atalanta case, supra, is to give "equal opportunities" to those who compete. We think that when one buyer starts a supplier-financed promotional campaign, competing buyers should not have to suffer through the period of that buyer's dominance and rely upon the hope of getting revenge in later months; instead, they should be given the same concessions, on proportionally equal terms, so that they can defend themselves then. It is our conclusion, therefore, that the "exclusivity" feature in respondents' coupon book contracts compelled the participating suppliers to violate Section 2(d). Accordingly, respondents necessarily "knew" of that illegality and thus knowingly induced these allowances in violation of Section 5 of the Federal Trade Commission Act.

It follows from the foregoing that there is no merit in respondents' complaint that the examiner wrongfully limited the inquiry to the periods of time in which respondents received the payments found unlawful herein. In this connection, it should be noted that the examiner did not, as charged by respondents, confine "the evidence" to those specific periods of time.⁸⁹ He merely held that counsel supporting the complaint was within his rights in limiting his own case to those periods of time and that respondents, in cross-examining Commission witnesses, could not go beyond the scope of the direct examination.⁹⁰ They were quite free, however, to bring in, in the presentation of their own case, all the evidence they pleased as to concessions received by those non-favored buyers during other periods of time. Interestingly enough, respondents' own case consisted of two witnesses, one of whom, as Sale Director of a Portland newspaper, testified in substance that there was a lot of promotional activity going on in the City of Portland. Respondents' only other witness, their own Director of Marketing,

⁸⁹ E.g., respondents' brief, p. 10.

⁹⁰ "Now, your defense is not that the discount was given at the same time, but maybe a month or so later, a similar discount to equalize was given. Now, that, I think, is a matter of defense. It's not a case that he [counsel supporting the complaint] has to prove in the first instance." Tr. 163.

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corroborated the newspaperman's testimony as to the vigor of Portland advertising; denied that he had any knowledge "as to what prices or what discounts were allowed" by the suppliers in question to their other customers; ⁹¹ insisted that he had never been told by those suppliers that the concessions granted to respondents were illegal; ⁹² and pointed out that "coupon book" promotions have been used by others, i.e., by drug stores in various cities, including one in Portland.⁹³ (In the latter connection, it should be noted that respondents have no "inventor's rights" to the coupon book promotional plan. They did not originate it. Their Chairman of the Board testified that it was adopted back in the 1930's "because it was operated by other operators around the United States.") ⁹⁴

The meaninglessness of the negative fact that respondents' suppliers failed to protest the illegality of these promotional allowances and price concessions is illustrated by the Idaho Canning incident discussed above. Having capitulated to respondents' demand for $2,935.41 ($350 to pay for a "page" in their coupon book, and the remaining $2,585.41 as a rebate or retroactive price concession of 33⅓%) after several months of vigorous resistance, it can be reasonably inferred that a further protest based on the non-availability of such concessions to Idaho's other customers would have been equally futile. After all, the very fact of that resistance should have informed respondents that they were demanding something that supplier did not ordinarily give. Being among Idaho's larger customers, respondents could hardly have supposed that this relatively weak supplier ($1 million in annual sales as compared to respondents' $40 million), in protesting their demands, was perversely and unjustly trying to withhold from them a promotional allowance it had already accorded to their smaller competitors, or attempting to charge them a price that was 33⅓% higher than the price it was charging those smaller customers!

Turning to the matter of affirmative defenses, respondents have made no attempt to prove that either the price concessions or the promotional allowances were the result of their suppliers' efforts to "meet competition" under Section 2(b). Nor do they raise that issue on this appeal. But they make a broad challenge to the sufficiency of the proof on the question of "knowledge," and

⁹¹ Tr. 887.

⁹² Tr. 890.

⁹³ See RX 10-13.

⁹⁴ Tr. 494.

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there exists some doubt as to whether or not the absence of "equally low" competitive offers is a necessary part of the affirmative case of counsel supporting the complaint. We do not think that it is. Under the "balance of convenience" rule announced in Automatic Canteen Co. v. Federal Trade Commission, supra, 346 U.S. 61 (1953) [5 S. & D. 531], a buyer charged with a violation of Section 2(f) must be exonerated unless it is affirmatively shown that he had no reason to believe his supplier could not cost justify the concession in question. But the Court did not say that the Commission had this burden on the issue of "meeting competition." Indeed, the Court expressly recognized that, whereas the Commission's investigative powers give it readier access to the sellerrecords essential to a cost study than a receiving buyer could or should have, a different rule might be appropriate if the issue was "meeting competition" instead of cost justification. Automatic Canteen Co. v. Federal Trade Commission, supra, 346 U.S. at 79, note 23 [5 S. & D. 544, 545]. If a discriminating seller gives a lower price or a more favorable promotional allowance to a particular buyer in response to a similar offer to that buyer from other sellers, the buyer himself, from the nature of the case, would be expected to know more about it than the discriminating seller. After all, a buyer who receives a discriminatory concession should know what offers it has itself received from other sellers. In the instant case, for example, respondents doubtless know whether or not other sellers of peaches offered them an equally attractive promotional allowance or a 33⅓% reduction in price prior to Tri-Valley's concessions. If so, we think it is their burden to come forward with such evidence. Counsel supporting the complaint would be wandering far afield if he undertook to call to the stand all known packers of peaches in order to ask them whether or not they had offered to sell to respondents at the same low price, or to accord them the same promotional allowances, as those received by respondents from Tri-Valley. But even if it should be supposed that the affirmative case must include proof of respondents' "knowledge" that their suppliers were not granting these concessions as a good faith effort to "meet competition," we think that burden has also been met. These respondents, as noted above, are close students indeed of seller-prices and allowances. They wanted, and satisfied themselves that they had gotten, the "best" deals available. We think it a fair inference that these were not only the best deals being offered by those particular suppliers, but that they were also better than those being offered by any other suppliers.

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We also think these respondents had "knowledge" of the fact that the discriminatory prices they induced could not be exonerated under the "changing conditions" proviso of Section 2(a). They have not raised that issue here, but, for the reasons discussed above in connection with the "meeting competition" defense, we think it appropriate to note that the "coupon book" discriminations involved herein have been induced and received in September and October of every year for at least the past 25 years. It seems most unlikely that 72 suppliers selling products ranging from deodorants to bottled beverages could all simultaneously experience "changing conditions affecting the market for or the marketability of the goods concerned." The instant record, in showing the year-after-year nature of these inducements, and the broad spectrum of the products involved, is more than adequate to satisfy any requirement on this point. There is, however, one affirmative defense that respondents do assert in regard to the Section 2(f) charge. They contend that, because they buy in very large quantities, they had no reason to believe that their suppliers could not "cost justify" these concessions under Section 2(a), and that, therefore, they cannot be held to have "knowingly" induced them in violation of Section 2(f). Automatic Canteen Co. v. Federal Trade Commission, supra, 346 U.S. 61 (1953) [5 S. & D. 531). It is true, of course, that respondents would be exonerated if these concessions were in fact cost justified, or, if respondents had no reason to believe they were not cost justified. As to the first, that is, the fact of cost justification, it should be noted that this is a one-way street. A valid cost study showing that the concessions were cost justified would defeat complaint counsel's case, but the converse is not true: such a study, if it showed that the concessions were not cost justified, would not prove that respondents "knew" that fact. Accordingly the Supreme Court's Automatic Canteen opinion did not say that actual cost determinations were necessary in every Section 2(f) case.⁹⁵ Here, therefore, neither complaint counsel nor respondents introduced evidence on that issue. Instead, the evidence was devoted to the precise question of whether or not respondents had "reason to believe" the concessions they induced could not be cost justified, i.e., respondents' "state of mind." None of the suppliers in question grant quantity discounts. All buyers, regardless of the quantity in which they purchase from the four sellers in question, pay the same invoice price, (except

⁹⁵ "Proof of cost justification being what it is, too often no one can ascertain whether a price is cost-justified." 346 U.S. at 79.

Opinion 63 F.T.C.

for the concessions found unlawful here). For example, it is said that Cannon Mills' one-price policy is common knowledge throughout the country. Therefore, respondents pay, during eleven months out of the year, the same price that every other buyer pays.⁹⁶ And after the one-month period of the coupon book promotion ends, they go back to paying that higher price. Since respondents are unable to get any price concessions from these suppliers during eleven months out of each year, we think it a fair inference that respondents' purchasing in larger quantities than their competitors, to the extent that they do so, does not give rise to any measurable cost savings for those sellers. If such cost savings existed, why are respondents unable to induce their suppliers to pass them on to them during eleven months of each year? Surely it is not because respondents are too weak in buying power to persuade these suppliers to grant them something that can be justified. As noted, respondents are twice as large, as measured in sales volume, as Tri-Valley Packing and many times larger than Idaho Canning. (Respondents sold more than $40 million in 1957, as compared with $22 million for Tri-Valley, and slightly over $1 million for Idaho Canning.) It is true, of course, that respondents' annual coupon book promotions have the effect of increasing their volume of sales (and hence their volume of purchases) during those one-month periods, as compared with other one-month periods during the year. But we think this is without significance for two reasons: first, the fact that respondents get no concessions from these suppliers for buying in vastly larger quantities than some of their competitors during eleven months of the year strongly suggests, as noted, that quantity buying, regardless of the size of the orders, is wholly incapable of producing any significant savings for these sellers; and, second, it would seem somewhat anomalous and unfair to suggest that a favored buyer who receives a drastic price reduction (e.g., the 33⅓% involved herein), and uses it to increase his sales volume, can then claim this increased volume of purchases as "justification" for the initial price reduction. If these non-favored buyers had received a 33⅓% price cut, they, too, would have doubtless increased the volume of their sales and, in turn, of their purchases from the suppliers.

⁹⁶ Respondents' memorandum of their coupon book "agreements" with participating suppliers contains an entry entitled "Regular Cost" and another entitled "Coupon Cost." Thus CX 114, the memorandum of agreement with Cannon Mills for the latter's participation in the 1956 coupon book promotion shows the "regular" price as $1.65 per doz., and the "coupon" price as $1.55 per doz. Other buyers paid the $1.65 "regular" price during the period of respondents' promotion, and respondents themselves went back to paying that price at the end of the one-month promotion period.

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On the first point, the evidence fully supports the inference that volume purchasing results in no savings to these suppliers. Respondents' own officials testified that every feature of their purchasing from the suppliers in question remained precisely the same during the various one-month periods of the coupon book promotions as during the remaining eleven months of the year (methods and terms of shipment remained the same, purchasing through the broker continued, and so forth). Illustrative of this testimony is the following:

Q. Did you do anything in the 1957 coupon book promotion that might result in a cost savings to Idaho Canning? A. No.⁹⁷ * * * * * * * Q. Now, who pays the freight? A. Fred Meyer, Incorporated, pays the freight. Q. Is that freight in addition to the cost of the item? A. Well, it's over and above the cost of the merchandise as billed to us by Cannon Mills, yes. Q. Now, is that freight in addition to the item as billed to you, no matter what quantity? A. To the best of my knowledge, it always has been. * * * * * * * Q. Well, did you do anything to change your shipping transactions, anything that would save them freight? * * * * * * * THE WITNESS: We pay the freight. We can't save Cannon Mills anything.⁹⁸

Respondents elicited from one of the suppliers, on cross-examination, testimony to the effect that savings were realized on the labeling of canned corn in the quantities purchased by respondents, as compared with the smaller quantities purchased by a smaller purchaser, Wadhams & Company.⁹⁹ That same witness testified, however, that another non-favored customer, Hudson House, was "pretty much on a par with Fred Meyer. They're kind of an equal sort of a customer in a way volume-wise, not all of the same grade or the amounts * * *. I would think that Fred Meyer used a greater amount of fancy."¹⁰⁰ In any event, however, we think it unreasonable to suppose that the mere labeling of canned goods could account for one third of the price charged for both the can and the goods themselves. And we think it even more improbable that, if labeling for small purchasers cost that much extra, the supplier would continue doing business during

⁹⁷ Tr. 98.

⁹⁸ Tr. 336-337.

⁹⁹ Tr. 544-547.

¹⁰⁰ Tr. 534.

780-018—68—6

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eleven months out of the year on a one-price basis, charging the same to all customers both large and small. The Automatic Canteen case, supra, suggested a number of ways in which the Commission might attempt to show "knowl-edge" on the part of inducing buyers, but it did not say that those were the only routes to that end. Indeed, the Court left us free to base such a finding on other proofs, requiring only that we "explain why other proof may be sufficient to justify shifting the burden of introducing evidence that the buyer is or is not an unsuspecting recipient of prohibited discriminations." 346 U.S. at 81 [5 S. & D. at 546]. We have no doubt that a buyer who gets a 33⅓% price concession during only one month out of each year, paying the same price as his competitors during the other eleven months, has every reason to believe that there is not the remotest possibility of "cost justification" for that temporary concession. Respondents have offered no explanation whatsoever as to why, if such a price discount could be cost justified for four weeks in the Fall of each year, it could not be similarly cost justified at other times. In the absence of such an explanation, we think the inference is inescapable that respondents "knew" there could be no such cost justification. Accordingly, we see no necessity for a prolonged inquiry as to whether or not respondents' volume of purchases (vis-a-vis those of the non-favored buyers named by the examiner) did in fact effect cost savings. VI Respondents complain also about the scope of the cease-and-desist order issued by the examiner. They contend that it (1) goes beyond the actual practices found to have been unlawful; (2) embraces all of the products sold by respondents, rather than just those involved in the violations found by the examiner; (3) is couched in the terms of the various statutory provisions involved, without "defining" those terms and the acts respondents are prohibited from committing; and (4) erroneously runs not only against the corporate respondent, but against the two individual respondents as well. The latter argument ignores the fact that, as stated by counsel supporting the complaint, the corporate respondent is nothing but the "alter ego" of those two individual respondents. They and their immediate families own virtually all of its voting common stock (i.e., it is a "family" corporation). This fact alone is sufficient basis for subjecting them to the order. Otherwise, it could

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easily be circumvented. As the Supreme Court said in Federal Trade Commission v. Standard Education Society, 302 U.S. 112 (1937) [2 S. & D. 429]:

The record in this case discloses closely held corporations owned, dominated and managed by these three individual respondents. In this management these three respondents acted with practically the same freedom as though no corporation had existed. So far as corporate action was concerned, these three were the actors. Under the circumstances of this proceeding, the Commission was justified in reaching the conclusion that it was necessary to include respondents Stanford, Ward and Greener in each part of its order if it was to be fully effective in preventing the unfair competitive practices which the Commission had found to exist. The court below was in error in excluding these respondents from the operation of the Commission's order. At 120, [2 S. & D. 434].

Here, in addition to controlling the voting stock of the corporation, these two individual respondents clearly knew about, and authorized, the practices found unlawful. Respondent Chiles testified that, in regard to the advertising activities of the company, “we set the policies and review the practices.” 101 This witness stated that the duties of the other individual respondent, Fred G. Meyer, Chairman of the Board, was to “give general direction to the firm * * *.” 102 When called as a witness by counsel supporting the complaint, Meyer stated that he had been in the industry 50 years; that he had been President until 4 or 5 years ago; that his “duties are vague”; that he has “no specific duties”; that he now has nothing to do with advertising or sale policies (he was active in them until about 10 years ago); that he doesn’t know how many buyers the company has; that he doesn’t know whether suppliers give the company free goods that he didn’t know his company staged a “Thrift Days” promotion in 1958 that he had “no idea” as to size of the company’s annual advertising bill; that he had started the coupon book promotion “because it was operated by other operators around the United States;” that he doesn’t know how a particular coupon book promotion is to be judged a success or a failure; that he doesn’t know whether or not the coupon book promotion had any effect on his business in 1956; that he doesn’t know whether or not the volume of the company’s business increased from 1956 to 1957; and that he doesn’t know whether or not the grocery business is “keenly competitive.”

Ignorance, whether real or professed, is insufficient basis for dismissing a complaint as to a respondent who certainly should

101 Tr. 7.

102 Tr. 11.

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have known of the existence of the illegal practices. We see no reason to believe that these two respondents, with their admitted responsibility for running the company, would have permitted this annual promotional event to continue unabated for 25 years unless they had personally approved it. This is not a question of something that could have been concealed by subordinates; if "a majority of Portland's 120,000 families" were apprised of the details of these programs,¹⁰³ we think it a fair inference that the Chairman of the Board also knew about them. High corporate officials who pass upon and approve illegal practices are no less liable than the subordinates who actually do the work. Since these two men are the ones with the actual power to see that our order is obeyed, we think they should be given every incentive to exercise it.

In regard to the product coverage of the order, respondents have offered no persuasive reason as to why only those products involved in the specific violations of law cited by the examiner should be included. It is well settled that a violation involving even a single product is sufficient basis for an order covering all of the offender's products. See, e.g., Niresk Industries, Inc. v. Federal Trade Commission, 278 F. 2d 337, 343 (7th Cir. 1960) [6 S. & D. 727, 735], cert. denied, 364 U.S. 883. Further the violations of these respondents involved vastly more products than the five that happened to have been involved in the transactions specifically found unlawful by the examiner. The latter were merely illustrative of the practices condemned. Thus, respondents' coupon book promotion involved no less than 72 products each year, and the same suppliers do not invariably participate year after year. In soliciting supplier participation, respondents do not confine themselves to particular products or even to particular classes of products. Thus, any one of the many thousands of products sold in their stores could be featured in respondents' coupon book if respondents themselves decided its appeal was wide enough to warrant such promotion. There being nothing in the nature of the practices involved to suggest that other products could not be used therein, the public interest requires that the order reach all products handled by respondents.

Nor is there any merit in respondents' contention that the examiner's order is defective for following the language of the statutes involved, with no attempt to "define" those statutory terms. The various words and phrases used in the order (e.g., "like grade

¹⁰³ CX 19.

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and quality," "available," etc.) are words of art in the law whose meanings are to be found in the many volumes of decisions of this Commission and of the courts. In order to define them, we would have to make the order a veritable restatement of the law of price discrimination. Nothing of the sort is necessary. If these respondents are honestly resolved to obey the law, they will have no difficulty in understanding what is prohibited by this order. Should they need assistance, our Compliance Division, in the course of its duty to see that respondents file a satisfactory report as to the steps they have taken to comply with the order, will point out any shortcomings in their plan for compliance. In certain minor respects the order does go beyond the scope of the practices found unlawful. Thus, subsection (a) of the first paragraph prohibits respondents from knowingly inducing a discriminatory price where "the seller is competing with any other seller for respondents' business." This is a primary line prohibition, whereas the only probability of injury found in the instant case is of the secondary and tertiary varieties, i.e., between the favored buyer and its competitors, and between the favored buyer and customers of the non-favored buyers. Also, the second paragraph of the order prohibits the "inducing, receiving or contracting for the receipt" of unlawful promotional allowances, whereas in Giant Foods, Inc. v. Federal Trade Commission, 307 F. 2d 184 (D.C. Cir. 1962) [7 S.&D. 483]; Grand Union Co. v. Federal Trade Commission, 300 F. 2d 92 (2d Cir. 1962) [7 S. & D. 329]; and American News Co. v. Federal Trade Commission, 300 F. 2d 104 (2d Cir. 1962) [7 S.&D. 346], it was held that such orders under Section 5 should be limited to "inducing and receiving" such allowances. The order will be modified in these particulars. In addition, however, we believe that the order should be broadened in one respect. The second paragraph prohibits the knowing inducement of unlawful promotional allowances only where those allowances are not made available to all other customers "competing with the respective respondents in the distribution of such products." While we believe a proper interpretation of this language would include the situation where "a manufacturer gives a retailer an allowance not given to a wholesaler whose customers compete with such retailer," Krug v. International Telephone & Telegraph Corp., 142 F. Supp. 230, 236 (D.N.J. 1956), the order will be amended to spell this out clearly. Here two of the non-favored buyers were primarily wholesalers whose retailer-customers competed with respondents in the ultimate resale of the goods

Dissenting Opinion 63 F.T.C.

to the consumer. To fail to prohibit respondents from continuing their inducement of promotional allowances they know or should know are not being made available to those two wholesalers on proportionally equal terms would permit one of the very things found unlawful herein.

Respondents' exceptions are denied. The initial decision and order as supplemented and modified to conform to the views expressed in this opinion will be adopted as the decision of the Commission.

Commissioner Anderson is in agreement with those portions of the opinion and order dealing with inducing price discrimination, but concurs in the result only on the question of inducing 2(d) violations.

Commissioner Elman concurred in part and dissented in part for the reasons set out in his opinion.

Commissioner Higginbotham did not participate by reason of the fact that this matter was argued before the Commission prior to the time he was sworn into office.

OPINION, CONCURRING IN PART AND DISSENTING IN PART

MARCH 29, 1963

By ELMAN, Commissioner:

In respect of the charge that respondents induced illegal price discriminations, I concur in the order. The opinion, however, paints with a needlessly broad brush and contains much with which I do not agree.

In respect of the charge that respondents induced illegal promotional allowances, I concur in the conclusion of violation. The order, however, seems to me inadequate and not designed to give much help to those most directly injured by Meyer's unlawful conduct, namely, its retail competitors. The reason why the order is so inadequate is that it is based upon an unduly literal and restrictive interpretation of the Robinson-Patman Act. Because of its large volume of business, Meyer—a retail grocery chain—buys directly from producers many products which its smaller competitors must buy through wholesalers. Meyer induced certain of these producers to give it substantial advertising and promotional allowances. What made this practice illegal, as I see it, is that the allowances were not also made available on proportionally equal terms to Meyer's retail competitors. But that

FRED MEYER, INC., ET AL. 75 1 Dissenting Opinion is not the Commission's view of the law. The Commission holds that the allowances to Meyer were unlawful because of the producers' failure to give them to the wholesalers from whom Meyer's retail competitors bought. Reflecting this interpretation of the statute, the order requires, in effect, only that promotional allowances to Meyer also be made available to such wholesalers. Nothing in the order would require the wholesalers to pass these allowances on, directly or indirectly, to the retailers who compete with Meyer and who are the victims of the discriminations. Suppose a producer, from whom Meyer buys directly, furnished it with large display material and "demonstrators" who hand out free samples. Under Section 2(e) the Commission would enter an order designed to assure that similar services would be afforded Meyer's retail competitors. The order would require the producer to make these services available "to competing retailers on proportionally equal terms." These were the express terms of the Commission's order in the well-known Elizabeth Arden case, 39 F.T.C. 288, 305; 156 F. 2d 132 (2d Cir. 1946) [4 S. & D. 490], cert. denied 331 U.S. 806 (1947). I think an order in similar terms should be entered here. The reason why the Commission refuses to do so is that the instant case involves promotional allowances, not services or facilities, and therefore the violation is of Section 2(d) rather than 2(e). But, as has frequently been observed, Sections 2(d) and (e) are in pari materia, both being directed at essentially the same kind of discrimination. Exquisite Form Brassiere, Inc. v. FTC, 301 F. 2d 499, 502 (D.C. Cir. 1961) [7 S. & D. 259, 263]; Elizabeth Arden Sales Corporation v. Gus Blass Co., 150 F. 2d 988 (8th Cir. 1945), cert. denied 326 U.S. 773 (1945). In the Exquisite Form case, the Court of Appeals emphasized the substantial identity and inter-relationship of Sections 2(d) and (e) of the Act (p. 502) [7 S. & D. 263]: The economic evil sought to be outlawed by it is the same whether the services and facilities are furnished to the customer or by the customer with reimbursement, so long as discrimination is practiced. Congress was here dealing with a fundamental economic concept; it was not shadow-boxing or indulging in fine semantic shadings. It is impossible to believe it meant to treat one process of discrimination one way and to treat in another way another process equally effective as discrimination. The Commission, while doubtless aware of the inadequacy of its 2(d) order here as compared with the type of 2(e) order entered in Elizabeth Arden, apparently considers itself precluded by a difference in language between Sections 2(d) and (e). Both

Dissenting Opinion 63 F.T.C.

sections make it unlawful for a supplier to grant promotional allowances or services on discriminatory terms. Section 2(d), dealing with allowances, requires that they be "available on proportionally equal terms to all other customers competing in the distribution of such products or commodities." Section 2(e), dealing with services, requires that they be furnished "to all purchasers on proportionally equal terms." If a retailer who buys through a wholesaler is a "purchaser", and therefore protected by Section 2(e) against discriminatory services furnished his competitors by a producer, why is he not also a "customer" of the producer and therefore protected by Section 2(d) against discriminatory allowances?

The difference in language between Sections 2(d) and (e) seems to me without significance here. Nothing in the nature and purpose of the provisions or the legislative history justifies a difference in their practical application. Non-favored retailers are hurt just as much, and in the same way, by discriminatory allowances granted their competitors in violation of Section 2(d) as discriminatory services furnished in violation of 2(e). I find no evidence that Congress considered that its use of the word "customers", rather than "purchasers", in Section 2(d) would deprive them of the benefit of that provision. As the Second Circuit held in American News Co. v. FTC, 300 F. 2d 104, 109 (1962) [7 S.&D. 346, 351-352], "The term 'customer' in §2(d) should be given the same meaning as 'purchaser' in § 2(a) and (e) in order to harmonize parallel sections of a statute aimed at a common purpose." To quote again from Judge Prettyman's opinion in the Exquisite Form case (p. 505) [7 S. & D. 267]:

Misfits in words or phrases are not infrequently encountered when bills have been amended in the midst of debate on the floor of one or the other of the Houses of Congress. This statute was amended on the floors of both Houses. It is not surprising that the final product is not perfectly meshed, as it might have been had it come undisturbed from the drafting board of a skilled draftsman.

Like Section 2(e), "The purpose of Section 2(d) is to give equal opportunities to competing merchants, who acquire products for re-sale", Atalanta Trading Corporation v. FTC, 258 F. 2d 365, 372 (2d Cir. 1958) [6 S.&D. 439, 447-448]: the "fundamental aim" of the one section, like the other, is "to protect buyers' competitors from the evil effects of direct or indirect price discrimination", American News Co. v. FTC, 300 F. 2d 104, 109 (2d Cir. 1962) [7 S.&D. 346, 351].

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The Commission's order here reflects the kind of rigid literalism in statutory interpretation from which the courts of this country long ago liberated themselves. An administrative agency, whose primary function is to effectuate basic legislative policy in the context of the economic realities in which it presumably has expertise, should not feel bound by "fine semantic shadings" of no real significance, when the courts, as the Exquisite Form case illustrates, feel free to effectuate the "fundamental economic concept" and "basic purposes" of the law.

OPINION ON RESPONDENTS' EXCEPTIONS TO THE PROPOSED ORDER

JULY 9, 1963

By DIXON, Commissioner:

On March 29, 1963, the Commission issued its opinion in [p. 26 herein] in this matter and a proposed order that would prohibit respondents from knowingly inducing their suppliers to grant them unlawful price concessions and unlawful promotional allowances. Pursuant to Rule 4.22(c) of the Commission's Rules of Practice, respondents have filed their exceptions to that proposed order, and counsel supporting the complaint has filed his reply thereto.

Respondents' principal contention, and the only one that presents a question not disposed of in our prior opinion, is the argument that respondents were "surprised" by our conclusion that wholesalers, in their competition with direct-buying retailers, are entitled to a proportionally equal share of the promotional allowances induced and received by such retailers, and that our injection of this "novel" interpretation of the law into the case at this late date deprived respondents of an opportunity to present factual evidence on the point.

This argument confuses questions of fact with issues of law. Each and every one of the facts on which we based the conclusion in question was put in issue by the pleadings, thoroughly and vigorously litigated at the hearings, and presented to the Commission in the briefs and oral argument.

Thus, Count I of the complaint charged respondents with knowingly inducing, in violation of Section 2(f) of the Clayton Act, as amended by the Robinson-Patman Act, price concessions not accorded to respondents' competitors. Count II of the complaint charged respondents with knowingly inducing, in violation of Section 5 of the Federal Trade Commission Act, promotional

Opinion 63 F.T.C.

allowances not offered or made available by the discriminating suppliers "to all other customers of such suppliers competing with respondents in the sale and distribution of such products," that is, with inducing allowances those suppliers were prohibited by Section 2(d) of the amended Clayton Act from giving.¹ At the hearings, counsel supporting the complaint fully established that respondents, under what they called their "coupon book" program, had each year, for a period of about 25 years, knowingly induced some 72 of their suppliers² to give them sums of money that were in part discriminatory price concessions (Count I of the complaint) and in part promotional allowances (Count II of the complaint). It was also established that respondents had knowingly induced certain other payments ("special" payments that were unrelated to the "coupon book" program) that also fell within the ambit of Count II. In establishing that these price concessions and promotional allowances had not been received by respondents' Portland competitors, complaint counsel introduced detailed evidence concerning sales by five (5) of respondents' suppliers to six (6) of those suppliers' other Portland customers.³ Two of these non-favored customers—Hudson House and Wadhams & Company—were Portland wholesalers.⁴ And both of these wholesalers were denied not only the promotional allowances ¹ As the court noted in Giant Food, Inc. v. Federal Trade Commission, 307 F. 2d 184, 186 (D.C. Cir. 1962 [7 S.&D. 483, 485], cert. denied, February 18, 1963, this language in the complaint has been properly "borrowed" from Section 2(d). ² While some suppliers have participated in more than one of the yearly "coupon books," the 72 participating in any given year are not necessarily the same as those that participated the year before. ³ Those five suppliers, and the six non-favored customers, are as follows: | Supplier | Product sold | Non-favored customer(s) | | Tri-Valley Packing................ | Canned peaches....... | Hudson House (grocery wholesaler and retailer). | | Idaho Canning...................... | Canned corn............. | Hudson House. Wadhams & Co. (grocery wholesaler). | | Burlington Industries........... | Nylon hose................ | Roberts Bros. (retail department store). | | Cannon Mills....................... | Towels...................... | Lipman, Wolfe & Co. (retail department store). | | Philip Morris....................... | Tobacco products...... | Oregon Piggly Wiggly (retail grocer). United Grocers (retail grocer). | The first four of these non-favored customers, Hudson House and Wadhams (the two wholesalers) and Roberts Bros. and Lipman, Wolfe & Co. (the two retail department stores), were denied both the promotional allowances and the price concessions that had been given to respondents under their "coupon book" program. Philip Morris' sales to the two named retail grocers (Oregon Piggly Wiggly and United Grocers) were involved in the promotional allowance charge only. (Its payments to respondents were for such "special" services as favored shelf space, etc. See Opinion, pp. 35, 36-39.) ⁴ One of them, Hudson House, engages in some retailing (Opinion, p. 41, n. 34), but is primarily a wholesaler.

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their suppliers had given to respondents, but the price concessions as well. Hence, their status as "competitors" of respondents, even if not recognized by respondents as an issue under the Count II charge of the complaint (promotional allowances), was certainly a major question of fact under the Count I charge (price concessions). Respondents surely had no doubt that it is a "discrimination" in price for a supplier to charge its retailer-customers a lower price than it charges "wholesalers whose customers compete with such retailers." (Emphasis added.) Federal Trade Commission v. Morton Salt Co., 334 U.S. 37, 55 [4 S. & D. 716, 729] (1948). Therefore, when complaint counsel began putting in evidence that those two wholesalers had been denied the price concessions and promotional allowances in question, respondents were forcefully put on notice that these were two of the "competitors" referred to in the complaint. Respondents also knew that, under Morton Salt, supra, a wholesaler is entitled to equal price treatment, vis-a-vis direct-buying retailers such as respondents, only if he, the wholesaler, resells the goods in question to retailers who, in turn, resell in direct competition with the favored retailers. The crucial question of fact, therefore, was this: did those two wholesalers sell the merchandise to Portland retailers who, in reselling it, had to compete with respondents? Under the view we take of the law, this is also the crucial question of fact in determining whether those wholesalers were entitled to share the promotional allowances in question. As the court said in Krug v. International Telephone & Telegraph Corp., 142 F. Supp. 230, 236 (D.N.J. 1956), a "violation of Section 2(d) may occur when a manufacturer gives a retailer an allowance not given to a wholesaler whose customers compete with such retailer." (Emphasis added.) Hence, complaint counsel's showing that these two wholesalers were entitled to equal price treatment (Morton Salt, supra) necessarily established the factual basis for their right, under Krug, supra, to fair treatment in the matter of promotional allowances.

And there can be no doubt that this narrow question of fact was thoroughly litigated under the pricing count of the complaint. At the close of complaint counsel's affirmative case (and before respondents had commenced putting in their defense), respondents moved to dismiss the case, alleging failure to prove a prima facie case. In resisting this motion, complaint counsel relied heavily upon his proof that these two wholesalers competed with respondents. Characterizing both Hudson House and Wadhams

Opinion 63 F.T.C.

& Co. as "wholesale grocery [firms] of Portland, Oregon," he argued that the goods they bought were "distributed to various retailers in the Portland area, which retailers compete with the retail operation of Fred Meyer, Inc., and that competitive injury on the wholesale level would occur by virtue of such price differential * * *. Witnesses from Hudson House, Wadhams & Company, and a number of retail grocers who purchased through these two wholesale companies, and who competed with Fred Meyer, Inc., in the resale of such goods of like grade and quality, testified to the substantial nature of the injurious effect that such a price differential would have on the respective businesses," 5 i.e., on the businesses of the retailers and the wholesalers. Respondents were thus put on notice, prior to presenting their defense at the hearings, that the status of these two wholesalers as injured "competitors" was a major issue in the case.

Respondents' arguments in their brief on appeal to the Commission from the examiner's initial decision, 6 and their oral argument before us, fully attest to their understanding on this point. In their brief, respondents repeatedly argued that Hudson House and Wadhams & Co., while "customers" of the discriminating suppliers, were only "wholesalers" (not retailers like respondents themselves) and were thus not "competitors" of respondents. 7 On oral argument, respondents' counsel named the four nonfavored customers involved in the pricing issue ("Hudson House, Wadham's, Roberts Brothers, and Lipman Wolfe"), and asserted: "Now, we can narrow this a lot further for purposes of analysis, because Hudson House and Wadham's are wholesale grocers not in competition with respondent." 8 The ultimate question of fact on this issue was, as noted whether those two wholesalers, Hudson House and Wadhams & Co., actually sold to retailer-customers in the Portland area who, in turn, resold to Portland consumers in competition with respondents' stores. This fact was fully established. Respondents had stated in their 5 Answer to Motion to Dismiss (filed September 19, 1960), pp. 12, 13 (emphasis added). In regard to injury at the wholesale level, see the wholesaler testimony quoted in Opinion, p. 50, n. 48.

6 The examiner specifically found that the price concessions had been unlawfully withheld from the two wholesalers, basing this on the proof that "Hudson House and Wadhams resold and redistributed these * * * products to retailers who were in competition with Fred Meyer, Inc." Initial Decision, p. 16 (emphasis added). In accordance with this finding, his order properly prohibited respondents from continuing to induce prices they know or should know are lower than those being charged "other purchasers," including "other purchasers" whose "customers" compete with respondents. Initial Decision and Order, Par. 1(c), p. 25 (emphasis added). 7 Respondents' brief, pp. 38, 39, 40, 43. 8 Transcript of Oral Argument, p. 5 (emphasis added). See also pp. 25. 31.

FRED MEYER, INC., ET AL. 81

1 Opinion promotional literature that they had "one [supermarket] in every neighborhood" in Portland, and one of their officials testified that "we're competing with any food store" in the Portland area. The record fully corroborates this. One of these wholesalers, Hudson House, resells to more than 100 independent Portland retailers, and the other, Wadhams & Co., sells to about 40 such local retail grocers. Five of these retailers, including four that bought from Hudson House, and one that bought from Wadhams & Co., testified to the vigor of their direct competition with respondents' supermarkets. For example, the retailer that bought from Wadhams & Co. testified that his store was located directly "across the street" from one of respondents' retail supermarkets. The lower prices induced by respondents (33⅓% lower than these two wholesalers were paying) was so great an advantage that one of Hudson House's retailer-customers, asked if he could afford to meet the price at which respondents were selling peaches to Portland consumers, replied: "No, sir. I can't even buy it at that."

Thus, the fact that respondents' stores compete with the retailer-customers of these two wholesalers has been at issue from the very beginning of this proceeding and has been exhaustively litigated. The fact of the matter is that these two wholesalers do resell to Portland retailers who do, in turn, resell those products, in direct competition with respondents' stores, to Portland consumers. Respondents have had every opportunity to rebut, if they could, the factual evidence on this point. The mere fact that the bulk of that evidence was received by the examiner, or considered by him, under the issues raised by the first count in the complaint does not mean that we are required to return the case to him and have him receive the very same evidence on the identical factual issue posed by the complaint's second count.⁹

All that remains is respondents' contention that our view of the law is novel and unfounded. As noted above, they insisted, both in their initial brief and in oral argument before us, that these two wholesalers were "not entitled under Section 2(d) [of the Clayton Act, as amended by the Robinson-Patman Act] to proportionately equal treatment." ¹⁰ We rejected that argument in our prior opinion, ¹¹ concluding that "it ignores economic reality to say that these

⁹ It is the Commission, not the hearing examiner, that is ultimately responsible for finding the facts. Section 5(b) of the Federal Trade Commission Act, 15 U.S.C. 45(b). While the initial performance of this duty is delegated to the examiner, the Commission, on an appeal from the initial decision of the examiner, exercises "all the powers which it could have exercised if it had made the initial decision." Rule 4.22(a), Rules of Practice, Procedures and Organization (1961). ¹⁰ Respondents' brief, p. 29. See n. 1, supra. ¹¹ Opinion, pp. 40-47, 73.

Final Order 63 F.T.C.

two wholesalers are not 'competing' with respondents in the 'distribution' of these products" when those wholesalers, "through their numerous retailer-customers, are seeking exactly the same consumer dollars that respondents are after." Accordingly, we amended the examiner's order to spell out clearly that it covers not only the situation where respondents induce promotional allowances they know or should know are not being given to their direct-buying retail competitors,¹² but also the situation where respondents induce a promotional allowance they know or should know is not being "given to a wholesaler whose customers compete with [respondents]." Krug v. International Telephone & Telegraph Corp., supra, 142 F. Supp. at 236. Now, in their instant exceptions to that change we made in the order, respondents have supplemented their earlier arguments on the point with an exhaustive discussion of the reasons why they think that change was "contrary to law." Thus, the facts have been tried and the law argued.

Respondents' exceptions to the proposed order issued with the decision of the Commission in this proceeding on March 29, 1963, are rejected. That order will be adopted as the final order of the Commission.

Commissioner Elman dissented for the reasons stated in his opinion of March 29, 1963, and Mr. Higginbotham did not participate by reason of the fact that this matter was argued before the Commission prior to the time he was sworn into office.

FINAL ORDER

JULY 9, 1963

Pursuant to the Commission's order of March 29, 1963,* respondents having filed objections to the proposed order to cease and desist in this proceeding, a proposed alternative order, and reasons in support thereof; and counsel in support of the complaint having filed a reply thereto; and

The Commission, for the reasons stated in the accompanying opinion, having rejected respondents' objections and having further determined that its proposed order to cease and desist should be issued as the final order of the Commission:

It is ordered, That respondent Fred Meyer, Inc., a corporation,

¹² As is indicated in n. 3, supra, the six competitors shown to have been denied the promotional allowances knowingly induced by respondents included four that are exclusively retailers (the two retail department stores, Roberts Bros. and Lipman, Wolfe & Co., and the two direct-buying retail grocers, Oregon Piggly Wiggly and United Grocers).

*Proposed Order issued on March 29, 1963, not published since that order was adopted as the Final Order of the Commission.

FRED MEYER, INC., ET AL. 83

1 Final Order

and its officers, and Fred G. Meyer and Earle A. Chiles, individually and as officers of corporate respondent, and respondents' agents, representatives and employees in connection with the offering to purchase or purchase in commerce, as "commerce" is defined in the amended Clayton Act, of products for resale in outlets operated by respondents, do forthwith cease and desist from:

Knowingly inducing, or knowingly receiving or accepting, any discrimination in the price of such products by directly or indirectly inducing, receiving or accepting from any seller a net price respondents know or should know is below the net price at which said products of like grade and quality are being sold by such seller to other customers where respondents are competing with the purchaser paying the higher price or with a customer of the purchaser paying the higher price.

For the purpose of determining the "net price" under the terms of this order, there shall be taken into account all discounts, rebates, allowances, deductions or other terms and conditions of sale by which net prices are effected.

It is further ordered, That respondent Fred Meyer, Inc., a corporation, and its officers, and Fred G. Meyer and Earle A. Chiles, individually and as officers of corporate respondent, and respondents' agents, representatives and employees, directly or through any corporate or other device in or in connection with any purchase in commerce, as "commerce" is defined in the Federal Trade Commission Act, of products for resale in outlets operated by respondents, do forthwith cease and desist from:

Inducing and receiving anything of any value from any supplier as compensation or in consideration for services or facilities furnished by or through respondents in connection with the processing, handling, sale or offering for sale of products purchased from such supplier, when respondents know or should know that such compensation or consideration is not being affirmatively offered or otherwise made available by such supplier on proportionally equal terms to all of its other customers competing with respondents in the sale and distribution of such supplier's products, including other customers who resell to purchasers who compete with respondents in the resale of such supplier's products.

It is further ordered, That respondent Fred Meyer, Inc., a corporation, and its officers, and Fred G. Meyer and Earle A. Chiles, individually and as officers of corporate respondent, shall, within sixty (60) days after service upon them of this order, file

Complaint 63 F.T.C.

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 set forth herein.

By the Commission, Commissioner Elman dissenting and Commissioner Higginbotham not participating.

IN THE MATTER OF

D. L. CLARK COMPANY

ORDER, ETC., IN REGARD TO THE ALLEGED VIOLATION OF SEC. 2(d) OF THE CLAYTON ACT

Docket 8154. Complaint, Oct. 24, 1960—Decision, July 9, 1963

Order dismissing complaint charging a Pittsburgh, Pa., candy manufacturer with violating Sec. 2(d) of the Clayton Act by such practices as paying favored vending machine customers, under its "VenKard" promotional programs, 68 cents for each machine displaying an 8¾ x 5 inch card advertising its products — in 1959 granting to Automatic Canteen Company of America in excess of $100,000 under this program — while not offering or granting comparable payments to competitors of the favored customers.

COMPLAINT

The Federal Trade Commission, having reason to believe that the party respondent named in the caption hereof, and hereinafter more particularly designated and described, has violated and is now violating the provisions of subsection (d) of Section 2 of the Clayton Act (U.S.C. Title 15, Sec. 13), as amended by the Robinson-Patman Act, hereby issues this complaint stating its charges with respect thereto as follows:

PARAGRAPH 1. Respondent D. L. Clark Company is a corporation organized and doing business under the laws of the State of Pennsylvania, with its principal office and place of business located at 503 Martindale Street, Pittsburgh 12, Pennsylvania.

PAR. 2. Respondent has been engaged, and is presently engaged, in the business of manufacturing and distributing various types of candy, the best known of which is the "Clark Bar". These products are sold and distributed by respondent to wholesalers and retailers located in various parts of the nation. Respondent's sales for the fiscal year ending February 28, 1959, approximated $10,700,000.

PAR. 3. Respondent has sold and distributed, and now sells and distributes, its products in substantial quantities in commerce, as "commerce" is defined in the amended Clayton Act, to competing

D. L. CLARK CO. 85 84 Complaint customers located throughout various States of the United States, and in the District of Columbia.

PAR. 4. In the course and conduct of its business in commerce, respondent paid or contracted for the payment of something of value to or for the benefit of some of its customers as compensation or in consideration for services or facilities furnished, or contracted to be furnished, by or through such customers in connection with the handling, sale or offering for sale of products sold to them by respondent. Such payments or allowances were not offered or made available on proportionally equal terms to all other customers of respondent competing with said favored customers in the distribution of respondent's products. PAR. 5. As an example of the practices alleged herein, respondent granted, and is presently granting, promotional payments or allowances to certain candy vending machine operators as compensation for such operators promoting and advertising certain of respondent's candy products on their machines. Said promotional payments or allowances were paid by Richard A. Burleigh & Associates, Inc., Evanston, Illinois, acting on behalf of respondent. The payments or allowances are being granted to candy vending machine operators under "VenKard" promotional programs in which cards, approximately 8¾ inches by 5 inches, advertising certain of respondent's products are affixed on the front or side of the dispensing candy machines. The back of these cards contains a mastic for the purpose of effecting this adhesion to the candy vending machines. Each VenKard program usually lasts between 4 or 5 weeks.

Respondent, through Richard A. Burleigh & Associates, Inc., pays the favored customers approximately 68 cents for each machine containing the aforesaid cards advertising respondent's candy products. These promotional payments or allowances were not offered or granted on proportionally equal terms to all other retailer customers of respondent who compete with said favored customers in the distribution of respondent's candy products. Among the unfavored competing customers of respondent to whom the VenKard promotional programs were not offered or made available on proportionally equal terms are other candy vending machine operators. Included among the favored customers is Automatic Canteen Company of America, Chicago, Illinois. In 1959, promotional payments or allowances granted to Automatic Canteen Company of America by respondent exceeded $100,000. PAR. 6. The acts and practices of respondent, as alleged above, are in violation of the provisions of subsection (d) of Section 2 of the amended Clayton Act.

780-018-69-7

Initial Decision 63 F.T.C.

Mr. Jerome Garfinkel and Mr. Benjamin H. Vogler for the Commission.

Winston, Strawn, Smith & Patterson, by Mr. Thomas A. Reynolds, Mr. John P. Fox, Jr., and Mr. Edward L. Foote, of Chicago, Ill., for respondent.

INITIAL DECISION BY LEON R. GROSS, HEARING EXAMINER

This complaint, issued October 24, 1960, charges respondent with violating subsection 2(d) of the Clayton Act (15 U.S.C. 13) as amended, providing, in part, inter alia:

That it shall be unlawful for any person engaged in commerce to pay * * * anything of value to * * * a customer * * * in consideration for any services or facilities furnished by or through such customer in connection with the * * * sale of any products * * * unless such payment * * * is available on proportionally equal terms to all other customers competing in the distribution of such products or commodities.

Specifically it is charged that respondent's "VenKard" advertising on automatic vending machines in the interstate sale of its candy bars results in respondent's making advertising payments to vending machine operators which are not made available on proportionally equal terms to respondent's other customers who sell identical candy bars at retail, and with whom the automatic vending machines allegedly compete.

In this decision the "vending industry" generally refers to the retail selling of goods and services (specifically candy bars) by means of automatic vending machines. These machines usually have a glass or plastic front which enables a customer to select from among usually 8 to 20 or more different items of candy or other consumables being displayed and offered for sale. The customer obtains the selected item by depositing a coin or coins in the machine and operating levers or buttons in a manner prescribed on the face of the machine. Employees of the vending companies fill the machines with the items being sold, remove the coins, stack the candy, apply advertising, if any, to the face of the machine, and generally maintain the equipment in good operating condition and filled with the items being offered. The term "machines" hereinafter means vending machine operators, owners, lessees, franchise holders, and all persons, firms, or corporations who or which sell respondent's candy bars at retail through automatic vending machines.

Present counsel supporting the complaint (hereinafter complaint counsel) is not the same attorney who filed the complaint, tried the case, and evolved the legal theory upon which it proceeded.

D. L. CLARK CO. 87 84 Initial Decision After this record had been closed at the conclusion of respondent's evidence, original complaint counsel entered the private practice of law and present complaint counsel was substituted. "Complaint counsel" referred to herein usually means the original complaint counsel unless otherwise indicated. Complaint counsel represented to the examiner during the hearings that he was relying heavily upon the Commission's decision of September 9, 1959, in (Docket 6642) Liggett & Myers Tobacco Co., 56 F.T.C. 221, to support his position in the instant proceeding. However, on June 7, 1961, almost two years after the Commission's original decision and after he started to introduce evidence in this case, complaint counsel moved the Commission to reopen the proceedings in Docket 6642 to reconsider its previous decision * * * whether under Section 2(d) of the amended Clayton Act, vending machine operator [s] and wholesaler customers of respondent compete in the distribution of its cigarettes within the intent and meaning of said section of the statute. On August 4, 1961, the Commission ordered the proceedings reopened. On January 22, 1962 [60 F.T.C. 1881], the Commission, having heard the matter on briefs and oral argument, entered an order reciting, inter alia: The Commission having determined that there has been no showing of any change in conditions of law or fact or showing of any other circumstance requiring the action sought in the public interest and, therefore, that modification of the Commission's opinion in the manner requested has not been justified: IT IS ORDERED that the order of August 4, 1961, reopening this proceeding be, and it hereby is, vacated, without implying any views as to the merits of its prior opinion dated September 9, 1959, and without prejudice to the statutory right and duty of the Commission to take such further action, if any, as may be appropriate, whenever in the opinion of the Commission conditions of facts or of law have so changed as to require such action or if the public interest shall so require. Original complaint counsel never apprised this examiner of his efforts to relitigate the above-stated issue in the Commission's original Liggett & Myers decision, supra. Complaint counsel does not assert that respondent's VenKard advertising payments discriminate between different vending machine companies. The thrust of his case is that such payments were and are not "made available on proportionally equal terms" to respondent's other customers competing with the machines in the retail sale of respondent's candy bars. The hearing examiner, from time to time during this proceeding, pointed out to complaint counsel the insufficiency of his evidence

Initial Decision 63 F.T.C.

of competition between retail machine vendors vis-a-vis other retailers of respondent's candy. Counsel promised more substantial evidence but did not produce any. The examiner must, therefore, follow the legal presumption articulated on pages 8 and 9 of the initial decision in Kenton Leather Products, Docket 7812 (Dismissed by the Commission without opinion on November 13, 1962) [61 F.T.C. 1150, 1159], that a party will offer evidence which is favorable to him if such evidence exists and is available. It must be presumed that complaint counsel did not offer better evidence of competition between the machine vendors of respondent's candy and other retailers of the same products because he had no better evidence.

The automatic vending industry now accounts for a substantial share of the retail business of this country. Its share is estimated by some observers to be somewhere between 2½ and 3 billion dollars.¹ Its present size, observed in relation to its frequently

¹A partial list of articles in public print relating to automatic vending machines and related subjects is as follows:

In an article in ADVERTISING AGE, Nov. 13, 1961, p. 6, entitled "Vended Sales of Hot Foods, Non-Foods Soar," it is stated that "estimates are that about $2.75 billion worth of goods is slipping, sliding and sloshing out of some 4,000,000 vending machines throughout the country this year." In the same article, Thomas B. Donohue, president of [National Automatic Merchandising Assn.] and executive vice president of Universal Match Corp. is quoted as predicting "that the number of automatic vending cafeterias will increase by possibly 30% next year. An estimated 3,000 vending cafeterias are now in operation, compared with none five years ago." In an article entitled "New Developments in Automatic Vending" by Alan R. Andreasen (Graduate Student, Columbia U.) in JOURNAL OF RETAILING, Vol. 37, No. 4 Winter 1961-1962, p. 17, N.Y. Univ. School of Retailing, it is stated: "Automatic vending machines will cause the greatest revolution in modern merchandising methods since the invention of the cash register—if one accepts the opinions of a great many important retailing executives." (Emphasis in original.) The same article discusses Filene's [Boston] 1950 venture in machine vending and also refers to Rich's [Atlanta] 1960-1961 test. The article also quotes Frederick L. Schuster, Board Chairman of Automatic Canteen Company of America as stating: "This new marketing concept can automate up to 90 percent of supermarket operations * * * the machine makes possible the automatic vending of staples, canned goods, meats, drugs, sundries, textile products, housewares, or ready-to-eat hot foods * * *."

In BARRONS WEEKLY of April 11, 1960, p. 5, Earl Hassebrock, vice president, National Rejectors, Inc., is quoted:

"Completely automatic supermarkets are not far away. You'll deposit some bills in a machine as you enter, push buttons for the items you want as you go through, and collect your packages and change from a machine at the exit." VEND, semi-monthly magazine of the vending machine industry published by the Billboard Publishing Company, 2160 Patterson St., Cincinnati, Ohio; BUSINESS WEEK, Dec. 8, 1962, p. 134, "Automatic Vending Fattens Up With Food"; PROGRESSIVE GROCER, June, 1961, p. 58, an article entitled "Vending Machine Drive-In Forecasts New Food Retailing Technique"; EMPLOYEE FOOD SERVICES IN MANUFACTURING PLANTS (U.S. Dept. of Agriculture, Marketing Research Report No. 325, Supt. of Documents, U.S. Government Printing Office, 1959);

SALES MANAGEMENT (magazine for June 3, 1960), an article on p. 38 states, inter alia, "Machines are selling everything from peanuts to panties"; QUICK FROZEN FOODS (magazine for Nov. 1960), an article on p. 95 entitled "Frozen Food Vending Machines Used for In-Plant Feeding" emphasizes the vending of frozen meals through coin-operated machines.

D. L. CLARK CO. 89 84 Initial Decision publicized growth potential, cautions against any holding from which it might be inferred that automatic retail vending is not a potent competitive influence in the business life of this nation. The U.S. Department of Commerce has just released (December 1962, 22 pp., U.S. Govt. Printing Office) a study entitled "The Automatic Vending Machine Industry, Its Growth and Development" which states in the Foreword: "Automatic vending machines, providing large segments of the public with goods and services at all hours of the day, play an important role in the American distribution system. They have become a necessity rather than a convenience, and in recent years their industrial and commercial uses have broadened." (Emphasis supplied.) Even though the fact of competition between machine and nonmachine vending may not be proven by reliable, probative and substantial evidence in this particular record, the footnoted material (footnote 1) compels one to conclude that the retail vending by machines of merchandise and services is substantially competitive to other retail sellers of the same merchandise and services. The very nature of automatic machine retail vending may be such as to require the question of "competition" to be adjudicated on a case by case basis. See, inter alia, Simplicity Pattern Co. v. FTC, 258 F. 2d 673 (1958) [6 S. & D. 409]; Lever Brothers Co., 50 F.T.C. 494 (1953); State Wholesale Grocers v. The Great Atlantic & Pacific Tea Co., 258 F. 2d 831 (1958), cert. den. 358 U.S. 947 (1959); Kay Windsor Frocks, Inc., et al., 51 F.T.C. 89 (1954); Henry Rosenfeld, et al., 52 F.T.C. 1535 (1956); Atalanta Trading Corporation, 53 F.T.C. 565 (1957); Chestnut Farms Chevy Chase Dairy, 53 F.T.C. 1050 (1957); General Foods Corporation, 52 F.T.C. 798 (1956); Curtiss Candy Company, 44 F.T.C. 237 (1947); the 1959 "tobacco" cases: Philip Morris, Inc., 56 F.T.C. 258; American Tobacco Co., 56 F.T.C. 263; R. J. Reynolds Tobacco Co., 56 F.T.C. 269; Brown & Williamson Tobacco Corp., 56 F.T.C. 275; and Automatic Canteen Co. v. FTC, 346 U.S. 61; 73 S.Ct. 1017 (1953) [5 S. & D. 531].

This decision, of course, decides nothing more than the issues presented on this specific record, in the pleadings and the proof. Several sets of hearings were conducted in Pittsburgh, Chicago and Detroit, and respondent completed its evidence on July 21, 1962. On July 27, 1962, the examiner closed the record subject to complaint counsel's reopening for good cause shown. Original complaint counsel was then about to enter the private practice of law, and present complaint counsel moved to reopen the record to present evidence which original complaint counsel had rep-

Initial Decision 63 F.T.C.

resented to the hearing examiner would rebut prior evidence in the record. Such evidence was received in Chicago on October 22, 1962, and in Detroit on October 24, 1962. The threshold question is whether the reliable, probative and substantial evidence in this record proves that automatic vending machines selling respondent's candy bars, upon which machines respondent's VenKard advertisements are posted, did and do, in fact, compete with any, some, or all other retail vendors of respondent's identical candy bars.

Webster's New International Dictionary, 2nd Edition, defines "competition" as an "act of competing, esp. of seeking, or endeavoring to gain, what another is endeavoring to gain at the same time * * * ." To compete is to be in competition. Competition has been defined as "struggle between rivals," Lipson v. Socony Vacuum Corp., 87 F. 2d 265, 270, or a "contest" for sales, United States v. Standard Oil, 47 F. 2d 288 at 297, or a "vying" for trade, Brown Shoe, 179 F. Supp. 721, affirmed 370 U.S. 294. In Liggett & Myers, supra, the examiner found (No. 46), "there will be competition between a vending machine and any nearby over-the-counter operation where the two are reasonably equal in accessibility to a cigarette-smoker whose supply is exhausted." (Emphasis supplied.) Although complaint counsel sought to bring this proceeding within the rationale of Liggett & Myers, supra, he did not appreciate the full significance of the Commission's finding there that competition between the automatic vending machine retailers of cigarettes and other cigarette retailers had been proven by evidence in that record. In its opinion (p. 248), the Commission, inter alia, stated:

* * * The hearing examiner found and the record shows specific examples of over-the-counter retailer customers, who were not favored, doing business in the same locality as the favored vending machine operator customer locations. In some instances, the outlets were within a block of or next door to each other. We believe that competition between the groups has been sufficiently demonstrated. (Emphasis supplied.) Competition between respondent's VenKard machines and other retail sellers of respondent's candy bars has not been "sufficiently demonstrated" in this record.

Respondent's grounds for seeking dismissal of this proceeding on this record, inter alia, are: (1) the evidence fails to establish that VenKard machine retailers of respondent's candy bars do in fact compete with the non-machine retailers; (2) even though such

D. L. CLARK CO. 91 84 Initial Decision competition had been proven, which it has not, it was not necessary to offer VenKard to non-machine retailers because such offer would be a "useless or futile" gesture under Liggett & Myers, supra, because the non-machine retailers as a matter of business policy or practice will reject a VenKard program; (3) respondent's 6-pak program affords non-machine retailers a legally valid alternative to VenKard; and (4) respondent must use VenKard to meet competition and meeting competition is a good § 2(d) defense under Exquisite Form Brassiere, Inc. v. FTC, 301 F. 2d 499 (1961) [7 S. & D. 259], and Shulton, Inc. v. FTC, 305 F. 2d 36 (1962) [7 S. & D. 472]. Proposed findings and conclusions have been filed and argued. All motions heretofore made and presently undisposed, which are not otherwise specifically ruled upon in this decision, are hereby denied. All proposed findings and conclusions not herein adopted, either substantially or in the form in which proposed, are hereby rejected. Based upon the entire record in this proceeding, the examiner makes the following: FINDINGS OF FACT A. The Corporate Respondent and Its Business 1. Respondent D. L. Clark Company, a Pennsylvania corporation, with its principal office and place of business located at 503 Martindale Street, Pittsburgh, Pennsylvania, a wholly owned subsidiary of Beatrice Foods, Inc., manufactures and sells candy products in interstate commerce. It does approximately $11,000,000 annual business. This proceeding involves the years 1958, 1959, 1960, and the early part of 1961. Although complaint counsel's evidence was principally confined to the Chicago and Detroit metropolitan areas, any violation of § 2(d) of the Clayton Act proven in this record in any part of the United States will support a cease and desist order encompassing all of respondent's operations. 2. Respondent has a manufacturing plant in Illinois and markets its products in every state of the United States. It is admitted in this record that respondent is engaged in commerce as "commerce" is defined in the Clayton Act as amended. 3. The Federal Trade Commission has jurisdiction over the parties and the subject-matter of this proceeding, and this proceeding is in the public interest. 4. In the manufacture and interstate sale of its candy bars, respondent is in competition with other manufacturers of candy

Initial Decision 63 F.T.C.

bars. Curtiss' "Butterfinger" and Luden's "Fifth Avenue" are examples of candy bars which compete with the "Clark" and "Zag Nut" bars.

5. Clark is known in the industry as a "bar goods" house, as distinguished from candy manufacturers which sell boxed, variety, or specialty candy. In addition to its "Clark" and "Zag Nut" bars, it manufactures a mint, a coconut, and a fudge bar, "Clark Peanut Blossom Kisses," and boxed confections marketed under the name of "Miniature Clark" bar and "Miniature Zag Nut" bar, the Clark French Rose, and the Clark Honeycomb Chips, some or all of which are resold at retail through vending machines and over the candy counters of grocery, drug and cigar stores, and supermarkets. However, complaint counsel has generally confined his evidence to § 2(d) violations, if any, resulting from respondent's participation in the VenKard advertising program of Richard A. Burleigh & Associates, Inc., of Evanston, Illinois. Although respondent does manufacture and sell other candy bars, an analysis of its participation in the VenKard program by the sale of the 10¢ "Clark" and "Zag Nut" bars through vending machines and non-vending retailers will suffice to dispose of the issues presented. Although these bars are retailed at 5¢, 10¢, and 15¢, it is stipulated in this record, and the examiner finds, that all of the candy sold by respondent, regardless of retail price, are goods of like grade and quality. 6. The Clark bar is composed of a peanut or peanut butter center with a chocolate covering and is sold more in the cold weather months. The Zag Nut bar does not have a chocolate coating and is sold chiefly during the warm weather months. 7. Respondent sells its candy in some instances directly to retailers; in some instances through brokers; and in other instances through jobbers. The broker sells the candy as a representative of the manufacturer and receives a commission for his services. He does not take title to the candy. The jobber takes title to the merchandise and resells at a price which he fixes to compensate him for his services. The Potter McCune Company is a jobber in McKeesport, Pennsylvania. A jobber ordinarily sells lines in addition to respondent's candy. The Hoosier Brokerage Co. in Indianapolis, Indiana, is also a broker. It sells a customer, provides Clark with the order and shipping address, and Clark ships directly to the destination indicated in the order. The broker receives a commission for his services. A "house account" is one that is sold directly by the company rather than through the agencies above described. Examples of such accounts are Letty Lane Candy Co.,

D. L. CLARK CO.

Initial Decision Westville, New Jersey, and Fresh-Pack Candy Company, Moline, Illinois.

8. Ralph McKee, Jr., executive vice president of respondent, testified that outside of the so-called "house accounts" most of its accounts are sold through brokers. The Al Fowler Company has been respondent's broker for about four years for the Chicago metropolitan area, which includes Evanston. In prior years respondent sold directly through its own salesmen who were employed and paid by it. Many of its present brokers are general food and confectionery brokers and known as such. Frequently respondent's candy bars are only a small part of the line of merchandise which the broker sells.

B. The Vending Machine Retailers of Respondent's Candy Bars

9. Automatic Canteen Company of America (hereinafter ACA) with its principal office at 1430 Merchandise Mart, Chicago, Illinois, is one of the country's largest operators of automatic vending machines. It leases machines to its wholly owned subsidiary, Canteen Company of America, which has sales autonomy in each locality and carries on the day-by-day vending operations, by area. Canteen keeps an inventory of the machines on cards which follow the machine and show where the machines are at a given time. Maurice Glockner, vice president of ACA in charge of merchandising and a witness for both complaint counsel and respondent, testified that title to the machines remains in ACA. ACA files reports with the New York Stock Exchange, the Securities & Exchange Commission, and other regulatory bodies. It files its income tax returns on a consolidated basis, and the rent paid by Canteen is part of the revenue reported in ACA's return. ACA leases some vending equipment to independent franchise holders as well as to its subsidiary. All franchise holders of ACA place their own orders for merchandise with the ACA office which, in turn, transmits them to the individual suppliers. ACA acts merely as a transmitting agent. Either Canteen or ACA places orders directly with Clark. 10. In addition to Glockner, the following representatives of other vending machine companies testified: Vernon Fox, president of Fox Cigarette Service, a wholly owned subsidiary of Automatic Retailers of America; Edward Israel, manager of Kandy Korner, Inc.; Joseph A. Kaden of the Kandy Kit Company; Walter Lange, manager of the Chicagoland Canteen Co.; William Fishman, vice president of Automatic Retailers of America, Inc., formerly head of Automatic Mechandising Company which was dissolved into

Initial Decision 63 F.T.C.

Automatic Retailers; Marty Pollaner, president of Robot Services, Inc.; Venny Koss, a buyer for Cigarette Service Company; and Floyd L. Joyce, the owner of Joyce Vending Machine Co.

C. Richard A. Burleigh & Associates and the VenKard Program

11. Richard A. Burleigh & Associates, Inc., of Evanston, Illinois, is an advertising firm whose principal stockholder and chief executive is Richard A. Burleigh. He manages, directs, and controls the policies and practices of the corporation. In 1954, Burleigh instituted the VenKard advertising program. The copyrighted trademark is owned by him. A VenKard is an 8½" x 5" advertisement card for a product sold through a vending machine; the card is adhered by mastic tape to the surface of the machine. Specimens of the VenKards are in evidence as Commission's Exhibits 312 and 313. The advertising copy is prepared and furnished by the manufacturer, respondent, who pays four cents per card to the printer, who is usually one designated by Burleigh and who, at Burleigh's direction, delivers the card to the machine operator. The manufacturers pay Burleigh 80 cents per card for posting the advertisement for a period varying from four to six weeks. Burleigh fixed the 80-cent fee for the 10-cent bar, and the fee is slightly less for the 5-cent bar. Responsibility for posting and removing the cards is with the machine operator who also covenants to keep the machine filled with the candy advertised on the VenKard during the entire period. Burleigh testified he remits 68 of the 80 cents to the machine operator, retaining 15% which he maintains is the usual commission charged by advertising agencies for placing advertisements for clients. After a manufacturer has agreed to participate, Burleigh ascertains from his list of machine operators (which list may be augmented by the manufacturer) which of them desire to participate in the VenKard program, in a designated geographical area, for the specified period, and inquires how many machines will be available.

12. Insofar as respondent's participation in VenKard is concerned, the program is offered in a specified geographic area first to Automatic Canteen Company, and then to the "independent" vending machine operators. There is no discrimination between vending machine companies, but the program is not offered to all operators in the same geographical area at the same time because respondent's production schedules could not accommodate the demand if all machines in an area were posted at the same time. Therefore, respondent offers it first to ACA and then to the inde-

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pendent operators, in a particular locality. Then respondent moves the program to a different locality. The VenKard program has to be handled through the individual operator because the VenKard is posted in exclusive locations and in most cases in factories and plants where a stranger is not permitted (Tr. 904). 13. Clark used the VenKard program from its inception in the early 1950's up until February, 1956. Respondent was owned by the Clark family, but after it was acquired by Beatrice Foods and after Edward L. Muldoon became respondent's executive officer responsible for its operations, he continued VenKards for approximately one year. From February, 1956 until the summer of 1957 Clark did not participate in any VenKard program. During the period in which it discontinued the use of VenKards, the programs previously utilized by Clark were utilized by a competitor, the Luden's "Fifth Avenue" bar. From the summer of 1957 when it resumed the VenKard program, respondent has continuously participated in the program up to the present time. In administering VenKard, Mr. Burleigh uses four regions of the United States so that a manufacturer can select any one of them or all of them for VenKard advertising (Tr. 256). The evidence offered by complaint counsel was limited to Chicago and Detroit; both of these cities are located in Burleigh's north central region. Mr. Muldoon testified (1011, 1012) that respondent offers VenKard * * * to everybody in the vending business and we aggressively offer and we notify our brokers that it is being offered on scheduled dates, the amount involved and so on. Q. Is it your policy, sir, to offer the VenKard Program to, let us say, Automatic Canteen Company, at the same time that you offer it to the other vending companies? A. Well, we have to offer the VenKard Program really by areas in order to keep up with the production with sales that you get from these programs. Q. But you do offer it to the independent companies and to Automatic Canteen, as I understand it? A. Absolutely.

14. Respondent's policy of offering the VenKard program to both independents and Automatic without favoritism was reaffirmed by Mr. Burleigh, who testified (Tr. 911): A. Yes. * * * I should say they post the VenKard at the Automatic Canteen in one area one time and the following month on the facilities of other vending machine operators and go to another area and repeat process. Q. Why don't they offer the program to the independent and to the Canteen Company at the same time? A. Because the VenKard Program is so successful they increase sales and distribution * * * two or three times (the volume) usually generated (in the)

Initial Decision 63 F.T.C.

same machines and with all of this additional volume coming in at one time their production would be over taxed.

15. The VenKard program is so organized by Mr. Burleigh that to participate in it at all is to participate on a "proportional" basis. An offer is mailed by Mr. Burleigh to his "entire mailing list plus additional names supplied to me each program by new customers obtained by the D. L. Clark Co."

16. The Clark brokers also advise the vendors of the availability of a pending program (Tr. 912). William R. Poliskie, one of respondent's north central area brokers, explained his duties in representing respondent concerning a VenKard promotion (Tr. 1031-1032) :

Q. During this period '58, '59 and '60, did you have anything to do with the VenKard Program on behalf of the D. L. Clark Company? A. Yes, I did in the State of Michigan.

Q. Were you advised of the availability of a VenKard Program for the so-called independent vending companies? A. Yes.

Q. And with respect to the programs involving these independents, what duties, if any, did you have? A. My duties were — the D. L. Clark Company would advise me, oh, anywhere from 60 to 75 days in advance, when the program is going to be — and my duties were to try to get the orders as early as possible so they would know what they would have to produce. If some new vendor would come in I would sign him up for Mr. Burleigh and send him the merchandise to promote the merchandise.

Q. Did you have occasion to advise the vending companies of the availability of such a program? A. Yes, sir.

17. After the VenKards have been posted for the prescribed period, the machine operators certify to Burleigh that a designated number were posted on a stated number of machines in a general area for a given period of time. These certifications do not designate the precise street address of each machine. On the basis of these certifications, Burleigh invoices the manufacturer at the rate of 80 cents per card per machine and the manufacturer remits the invoiced sum to Burleigh who deducts his 15% commission and transmits the remaining funds to the machine operator.

18. Burleigh testified that approximately 25 manufacturers (including respondent) participate in his VenKard program but the record does not indicate the names of all the other participants.

19. While promulgating the VenKard program, Burleigh also edited ACA's house organ and performed other functions for ACA. He testified (Tr. 201 et seq.) :

I edit the Automatic Canteen publications * * * it means interviewing people * * * who are customers of theirs, clients of theirs, any one that is

D. L. CLARK CO. 97

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newsworthy to the readers of the publication. The purpose of interviewing suppliers is to write an article about them that would be of interest to the readers of the publication. These suppliers don't pay at all. Outside of the VenKard program I also prepare all sorts of sales aids for the sales department of the Automatic Canteen. By sales aids I mean sales literature, promotional literature, literature promoting the vending services that they render, and several other things. I do not supply such literature to suppliers of Automatic Canteen.

D. Respondent's Participation in the VenKard Program

20. The VenKard operation is a very substantial one. The record shows (CX-292A—309A) that commencing May 5, 1958 and ending September 26, 1960, Clark paid $191,904.60. Assuming that Burleigh retained 15% of this amount, the machine operators were paid by Clark, through the VenKard device, approximately $163,119, which sum was not available nor made available on proportionally equal terms to other retail vendors of Clark bars of like grade and quality.

21. A resume of Commission's Exhibits 274 to 284, inclusive, respondent's orders for VenKard advertising, indicates that by agreements commencing with one dated May 19, 1958 and concluding with one dated May 19, 1961, covering a period from July 19, 1959 and ending August 6, 1962, respondent contracted for VenKard posting involving approximately 306,000 machines and approximately $244,800.

22. Respondent made the following VenKard advertising payments to the named vending machine companies in the Chicago metropolitan area for the period January 1, 1958 to approximately August 15, 1961:

Automatic Canteen Co------------------------------------------------ $14, 285. 04 Automatic Merchandising Co------------------------------------------- 2, 659. 58 Vernon Fox Company--------------------------------------------------- 1, 564. 00 The Kandy Kit Company------------------------------------------------ 1, 020. 00 Kandy Korner, Inc---------------------------------------------------- 3, 414. 28 Coca-Cola Bottling Co., Inc------------------------------------------ 149. 60 Hahn Automatic Vending Co-------------------------------------------- 123. 08 The Illinois Vending Co---------------------------------------------- 212. 50 The Interstate Vending Co-------------------------------------------- 1, 567. 40 Meldon Products------------------------------------------------------ 448. 12 Midwest Vendors------------------------------------------------------ 565. 25 Tri-R Vending Service------------------------------------------------ 374. 00 Vendway Merchandising------------------------------------------------ 285. 60 Vendall Service Corporation------------------------------------------ 280. 84 Venderama, Inc------------------------------------------------------- 513. 40 ___________ Total---------------------------------------------------------- 27, 462. 69

Initial Decision 63 F.T.C.

23. During the same period, respondent did not pay nor offer to pay similar advertising allowances to the following-named drug and grocery chains or individual members of the cooperatives, which companies also sell respondent's candy at retail in the Chicago metropolitan area:

Walgreen Drug Company, 4300 Peterson Avenue; Ford Hopkins Company, 400 W. Erie Street; Certified Grocers of Illinois, Inc., 4800 South Central Avenue; Grocerland Cooperative, Inc., 3636 W. 51st Street.

The individual members of the cooperatives sell and distribute respondent's products through their members' retail outlets, i.e., Hi-Low Foods, Inc., 30 W. 87th Street.

24. The following advertising payments by respondent under the VenKard program were made to the vending machine companies indicated from the period January 1, 1958, to approximately August 15, 1961, in the Detroit metropolitan area:

Automatic Canteen Co................................................ $9, 771. 96 Automatic Merchandising Co............................................ 1, 772. 76 Howes-Shoemaker Company............................................... 995. 52 Robot Services, Inc..................................................... 397. 80 Bruce Enterprises....................................................... 924. 80 Collins Vending......................................................... 401. 20 Fontana Brothers........................................................ 321. 64 Hill Vending Company.................................................... 91. 80 Hopkins Vending......................................................... 378. 76 Union Vending Company................................................... 308. 04 Veitch Factory Catering Co.............................................. 316. 20 Variety Vendors, Inc.................................................... 125. 80 _______________ Total........................................................... 15, 806. 28

During the same period respondent did not pay nor offer to pay anything to the following named drug and grocery chains or to individual members of the cooperatives which companies also sell respondent's candy at retail in the Detroit metropolitan area: Cunningham Drug Stores, Inc., Abner A. Wolf Company, and Allied Supermarkets, Inc.

E. Competition Between Vending Machine Retailers of Respondent's Candy and Other Retailers

25. This record will not support a finding that the machines upon which respondent's VenKard advertisements were posted did, in fact, compete with other retail sellers of its candy. And there is affirmative, unrebutted evidence to the contrary. There is no evidence of the precise location of any machine upon which respondent's

D. L. CLARK CO. 99 84 Initial Decision VenKards were posted, and the examiner cannot, therefore, find that any specific VenKard machine competed with any other retail seller. Walter Lange, manager of the Chicago branch of Canteen Co., ACA's wholly owned subsidiary, did not know which of his company's machines posted VenKards and had no knowledge of the specific location of the machines. In light of this testimony, complaint counsel was advised by the hearing examiner (Tr. 720) that such testimony would not support a finding concerning the exact locations of machines posted with Clark VenKards. Nevertheless, complaint counsel did not thereafter offer any evidence as to (a) exact machine locations, (b) sales of Clark bars being made from any specific VenKard machines, or (c) VenKards being posted at any specific machine locations by any other vending machine operator. 26. Robert Kozlowski, branch manager of the Detroit Division of Canteen Co., testified as to the VenKard certifications from a period commencing March 16, 1958, through September 10, 1960. Of an average of approximately 1,959 machines on location in the Detroit area in that period, 1,931 were certified under the VenKard programs. The witness testified that the machines were located where there were no other candy machines; that no machines were located in any public places; that he did not know whether any of the machines certified were located in a gasoline station or in a bowling alley, and that he did not know whether there were any grocery stores or drug stores located near a bowling alley in Detroit where there might be one of Canteen's machines. Mr. Kozlowski further testified that most of the machines in Detroit are in "captive" locations. He defined "captive" as a location where those who would use the machines are not allowed to leave the premises in which the machines are located, and are restricted to the premises during their working hours. He did not know how far from any of his machines any Walgreen or Cunningham drug store might be. 27. Vernon Fox, president of Fox Cigarette Service Co., a subsidiary of Automatic Retailers of America, testified that the purchase of Clark bars from vending machines (of which he had approximately 600) would be considered an impulse purchase: * * * In other words, I might get up in the morning and decide to buy a package of cigarettes, and I might go out intentionally to buy such a package of cigarettes, * * * and this is, as I understand it, different from what the trade calls an impulse item, which you would perhaps buy on an impulse, and not with a pre-determined plan * * *. In the case of a candy bar, availability has a tremendous relationship to volume of sales. Mr. Fox did not have with him any records of the location of his machines and could not state how many of his machines were located

Initial Decision 63 F.T.C.

within any specified distance of any Walgreen drug store. His testimony negates a finding that VenKard posted machines compete with non-machine retailers of respondent's candy. Mr. Fox testified that cigarette machines are customarily placed in "public" locations to be available to "the transient public," whereas candy machines are not necessarily in public locations. Machine-vended candy is purchased as an impulse item and is customarily promptly consumed in the vicinity of the machine where it is purchased; whereas cigarettes are not an "impulse" item and are not, necessarily, consumed promptly in the vicinity of the machine. 28. Edward Israel, office manager of Kandy Korner, Inc., a company engaged in servicing candy and cigarette vending machines of which his company had approximately 850 on location, testified that his company located its candy machines where there were no other candy machines, and that his machines are not in competition with food stores, variety chains, or general merchandise stores. 29. Mr. William F. Maute of the Monroe Cigar Company testified that his "candies" were placed in buildings which had no other candy counters or source for candy purchases (Tr. 628): Q. Well, in the buildings that you are in in Chicago, as I understand Mr. Garfinkel's questions to you, you sell candy in all your counters; is that right? A. Yes.

Q. It would be generally true, would it not, that they would be the only candy counters in these buildings? A. That is right.

Q. It would also be generally true that they would be the only places to buy candy in the entire building, would it not? A. That is true.

30. Mr. Richard A. Burleigh testified that the vast majority of the machines certified as using Clark candy bars in a VenKard program were "completely inaccessible to the public" (Tr. 673): Q. Mr. Burleigh, Mr. Garfinkel asked you several questions regarding certifications of machines in Chicago? A. Yes.

Q. Did all those exhibits relate to the Canteen Company? A. All that he showed me did, yes.

Q. How many of those machines would be located in places completely inaccessible to the public? A. The vast majority of them, practically all. Q. In the vending machine business that is known as a captive, is it not? A. Yes.

31. Another Commission witness, Mr. William S. Fishman of the Automatic Retailers of America, testified that his machines would be

D. L. CLARK CO. 101 84 Initial Decision placed so as not to be near other outlets such as Monroe Cigar Store retail counters (Tr. 745):

Q. With regard to the placement of machines in certain locations, Mr. Fishman, isn't it a fact that you will place a machine in a location so that there are no other vending machines near there? A. Yes; for the most part, yes.

Q. And isn't it a fact that you will place machines in locations so that places such as a Monroe Cigar Store or other outlets would also be removed from the location of the vending machine? A. Yes.

Q. And this is a custom and practice in the industry, isn't it? A. Yes.

F. Offering VenKard to Non-Machine Retailers would be Useless and Futile 32. Respondent excuses its failure to offer VenKard advertising to other than machine retailers because, it contends, such offer would be a "useless gesture." Even had the evidence established that the VenKard machines compete with the other retailers, the record proves and the examiner finds that the offer of VenKard advertising to such other retailers would be "useless and futile," because the merchandising policies of such other retailers prohibit the use of this type of advertising. Drug stores, such as Walgreens, and grocery stores, such as Certified Grocers, have a policy against the use of in-store display advertising similar to the VenKard program. Each of the eight companies subpoenaed by complaint counsel testified to such policy:

1. Walgreen: The candy broker representing Clark has called on the Walgreen Company for many years. He testified: (p. 1135) Q. And what if any policy does Walgreen have with respect to the placement of advertising like a VenKard on their candy counter? A. They would object to me placing a card like that on any part of their premises.

Q. Would they permit you to do it? A. No, sir.

and at pages 1160-1161:

Mr. GARFINKEL: All I am asking the witness is did he offer a VenKard Program to say Certified in 1958 or 1959. HEARING EXAMINER GROSS: Did you, Mr. Witness? The WITNESS: It would be ridiculous to offer it to them. Mr. GARFINKEL: All right.

The WITNESS: The answer is no, you wouldn't offer that to them, it is ridiculous. He wouldn't take it anyway.

HEARING EXAMINER GROSS: What do you mean by saying "it is ridiculous"? 780-018-69-8

Initial Decision 63 F.T.C.

The Witness: Well, obviously that VenKard it is established that it is a little sign that goes on the mirror of a vending machine. You take that into like a Certified or High-Low, Grocerland or Walgreens they would have no use for it. You would be wasting his time by asking him for something that you know he doesn't want, that he can't use. You would look ridiculous if you did it. So the answer is no, and I have a little bit better consideration of my buyer's time and my own. The candy buyer for Walgreen, recalled by complaint counsel to rebut the broker's testimony, confirmed the broker's statement: "Basically when it comes to using indoor display material, we don't accept it." (Tr. 1203) If a program such as VenKard were offered they would "not accept it." 2. Ford-Hopkins: The candy broker for Clark testified that Ford-Hopkins would not permit a VenKard to be placed on the candy counter (Tr. 1135-6). On rebuttal the Ford-Hopkins buyer (Tr. 1197) repeated his direct examination testimony that he does accept advertising allowances and a committee determines which to accept (Tr. 1198) and, further, that the records of the company would identify which they had accepted and which they had refused (Tr. 1200). The evidence in the record on the use by Ford-Hopkins of the VenKard program affirmatively establishes that the company has a policy against its use. 3. Certified Grocers: A Chicago cooperative which includes 750 supermarkets also has a policy against the use of a VenKard program. On pages 1135-1136, the broker testified: Q. Directing your attention to Certified Grocers, have you been calling on them in the years that you have been a broker in Chicago? A. Yes, sir.

Q. What if any policy do they have with respect to the placement of advertising like a VenKard in their candy departments? A. They wouldn't permit it.

Q. Do they have a policy to that effect? A. They have a policy to that effect.

The witness further testified (Tr. 1160) that to take a VenKard offer to Certified would be "ridiculous. They would have no use for it." No rebuttal witness was called to contradict this testimony. 4. Grocerland Cooperative: Another large food chain in the Chicago area buys for 400 supermarkets. The cooperative is a wholesaler which re-sells to each member store. The witnesses testifying as to this cooperative's practices did not know whether each of the members purchased Clark bars (Tr. 592). The broker who called on the Grocerland account testified that Grocerland would not permit or use a VenKard program (Tr. 1136) and, further, that it would be "ridiculous" to offer Grocerland such a progam: "they would have no use for it" (Tr. 1160).

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Anthony Karlos, the general manager, and Harry G. Lemperis, the candy buyer, of Grocerland were subpoenaed as witnesses by complaint counsel, and Mr. Karlos was recalled as a rebuttal witness, whereupon he testified that his organization exercises no control over the advertising practices of the individual stores. He could not testify positively as to whether Grocerland's individual retail stores would accept VenKard, or reject it.

No evidence was offered to rebut the uncontradicted testimony by the candy broker that Grocerland stores would not use a VenKard program and had a policy against it.

5. High-Low Foods: This supermarket corporate chain operates 32 stores in Chicago. (Tr. 605). The Clark candy broker who represented many other candy companies testified (Tr. 1136) that High-Low will not permit VenKard type advertising in their candy departments. Walter J. Roney, the President of High-Low, called as a rebuttal witness testified (Tr. 1189) :

Q. What policy, if any, does High-Low Foods have, sir, concerning in-store advertising? Do you have a policy as to in-store advertising? A. No in-store advertising.

Q. — permitted? A. Well, no, it isn't permitted.

6. Cunningham Drug Company of Detroit: It operates hundreds of retail drug stores throughout Detroit and Cleveland and purchases Clark bars directly from respondent. Whether any particular store has the "product is strictly a local situation" (Tr. 805). Mr. W. R. Poliskie, respondent's broker in Detroit for many years, has called on its customers including Cunningham. He testified that retail food stores cannot use VenKard: "it doesn't fit in their picture." Among other reasons, this is true because the self-service supermarket or drug store could not furnish an appropriate certification (Tr. 1035). The store would be reluctant to supervise the candy counter or candy spot for a period of four weeks to guarantee that Clark bars were continuously available; it would "be an awful expensive operation" for the self-service store.

The witness testified further (Tr. 1039) :

Q. That is right. It would not be completely against the business operations of a grocery store to place the sign; would it? A. Yes, it would.

Q. Which grocery store do you know doesn't have a sign? A. Your A & P will not allow — Q. Do you know whether Cunningham Drugs doesn't have it? A. Cunningham will not allow it also.

Q. Are you sure about that? A. Yes, sir.

Initial Decision 63 F.T.C.

George A. Semack, candy buyer for Cunningham, called as a rebuttal witness by complaint counsel, testified that their stores had never used a program similar to VenKard; that he had never recommended that such type of program be used; that he had never heard of a program similar to VenKard being used in supermarkets or drug stores; and that in the ten years he had been with this chain the stores had never had any cards on their candy counters advertising candy (Tr. 1226-1228).

7. A. C. F. Wrigley: The Abner A. Wolf company purchases Clark bars and resells them to the Wrigley Stores—who are not therefore customers of respondent. However, assuming that the Wrigley Stores are “customers” of respondent they, too, have a policy against the use of VenKard style programs. The broker for Clark testified (Tr. 1044) :

Q. Do you know whether the ACF-Wrigley Stores, Inc. has a policy with respect to the placement of these advertising signs on their candy counters or other counters? A. I do.

Q. What is that policy? A. The policy is against them.

Q. What do you mean by ‘against them’? A. They do not let national people in their stores on the basis of their own prescribed advertising, but they do it on their own, so they keep it uniform of all advertising material within their outlets. Harold Burt Phelps, candy buyer for the Wrigley supermarket chain and called as a rebuttal witness by complaint counsel, testified that he had never seen such a program in the Wrigley Stores (Tr. 1235). 33. Marsh H. Blackburn of the Hoosier Brokerage Company, Indianapolis, and a broker for Clark candy and 18 other companies and about 500 products, who had been in the food distribution business for 16 years, testified (Tr. 1120) : Q. Have you ever offered a vending card as such to A & P in Indianapolis? A. I would say that years ago—back in the ’58 period probably when we first came out we discussed if it would be feasible. It has been offered in essence.

Q. What policy, if any, does A & P have with respect to advertising in their candy counter area? A. That is the reason that none of the grocery chains in essence, the A & P in this particular discussion, they cannot use it. It is not feasible at all within their operation. They have no place to use a VenKard or any type of advertising of that nature.

Q. What policy, if any, does A & P have with respect to the placement of advertising cards, let us say similar to VenKard, in the candy counter? A. It is prohibited.

Q. What do you mean by that? A. It is a national policy of A & P, I believe, not to allow any manufacturer’s advertising material to be placed in the candy department in their retail stores.

D. L. CLARK CO. 105 84 Initial Decision Q. As I understand it they do buy the 6-Pak? A. They certainly do.

Q. Is there any reason why they would buy the 6-Pak and not permit any other kind of advertising? A. Well, in addition to their over-all company policy, it is not necessary in reality because the 6-pak serves as a form of advertising. Q. What do you mean by that? A. Well, the basic problem is how do you draw attention to the housewife to actually six candy — five-cent candy bars which are of the small size, so by displaying them in 6-Pak type of package, it allows the consumer who normally buys and makes her own impulse selection, so to speak, it allows her to see these bars more readily and thus be able to purchase them. The 6-Pak in essence is a form of advertising as well as packaging. Q. Do I understand then that A & P does permit this type of advertising? A. I would say yes, they do. But to understand it, this advertising is affixed to the package. 34. Mr. Burleigh has never offered the VenKard program to the non-vending retailers even though it would be in his interest to obtain additional commissions by so doing (Tr. 914). He stated that the VenKard program would be unacceptable to the non-vending retailers because: In the candy field the bulk of the bar goods outside of that sold in vending machines and to jobbers is sold in self-service stores, drug stores and food markets which are the primary markets for this and therefore found it necessary to go to self-service to keep cost under control. The displays in these stores are very, very large, many, many bars on sale and the food stores and drug stores could not afford to have one of their employees constantly at their stand to make sure the Clark bar, for example, was on sale every minute of every day in connection with the VenKard. In addition to this the nature of the business of the food stores and drug stores is such that they prefer and insist on having advertising message on the product so the customer does not have to look for it. There is another factor in this and that is on the vending machine the advertiser is guaranteed that his advertisement would be the only one placed on that machine. There is no food store or drug store who could do this. 35. On the basis of the evidence in this record, the examiner finds that non-machine retailers of respondent's candy bars do not, will not, and could not use the VenKard advertising on their candy counters or in their stores, because, inter alia, (1) they cannot afford the cost and trouble of ensuring that a VenKard product is always stocked; (2) in-store displays of all candy bars on an item-by-item basis is impractical; (3) VenKard's certification procedure is too costly, and impractical to comply with; (4) care must be taken not to prefer one candy item over another in their overall advertising programs; (5) advertising to be useful to a supermarket, grocery or drug store operator must be on the product itself and draw attention to the product in that way; (6) other time, cost and operational factors make VenKard unacceptable for the non-machine retailers

Initial Decision 63 F.T.C.

of respondent's candy bars; and (7) most chains have a national policy of advertising which would make VenKard-style advertising nonusable by them. In many instances VenKard has been offered to non-machine retailers and the offer has been refused for the reasons enumerated above, among others. In those instances where VenKard has not been offered to non-machine retailers such omission is legally excused because the offer would, as a matter of fact, "be a useless or futile gesture." In Liggett & Myers, supra, the Commission held (p. 253): We do not believe, however, that it is necessary to make known a promotional plan where such would be a useless or futile gesture. The question of whether the gesture would be futile is one of fact. 36. The facts in this record support a finding, and the examiner finds, that respondent's offer of VenKard to the non-machine retailers as to whom evidence was proffered would have been a "useless or futile gesture." The rebuttal hearings which were conducted at the request of complaint counsel served only to shore up the conclusion stated above. The record is silent as to whether respondent may not have non-machine retailers, other than those who testified, who would use VenKard. 37. Witnesses testified and the examiner finds that respondent has offered an identical VenKard program to all vending machine companies and has not favored any vending machine company over any other when offering its VenKard program. The reliable, probative and substantial evidence in this record does not prove that respondent, when it participates in the VenKard program, discriminates in favor of any particular vending machine company. The only witness that had not been advised of the VenKard program, Fred L. Joyce, of the Joyce Vending Machine Company of Detroit, testified: * * * I don't allow any advertising of any kind on my machines, cigarettes, candy or otherwise. I don't allow them to stick any signs on my machines. If I was approached by any VenKard people I would turn them down regardless * * *.

G. 6-Pak as an Alternative to VenKard

38. Respondent contends that its "6-Pak" program which the evidence shows was offered to all non-machine retailers of its candy bars, constitutes for those retailers a legally valid alternative to VenKard. The 6-Pak contains six five-cent candy bars aligned side by side on a card "substantially the size of a VenKard" with advertising on the exposed surface and transparent paper enclosing the entire package. No specimen of a 6-pak was offered. Respondent alleges that these 6-paks are priced to the retailer so that the retailer

D. L. CLARK CO. 107

84 Initial Decision

may offer them to his customers at a price cheaper than the customers would pay for six 5-cent candy bars purchased separately. Respondent further contends that these 6-paks, when stacked on the candy counters of supermarkets or drugstores, advertise respondent's candy in substantially the same way that the VenKards on machines advertise the bars. The 6-pak allegedly promotes increased sales of respondent's bars, and advertises them at the same time, without VenKard's costly certification procedure. This packaging does not require some representative of the retailer to be in constant attendance to ensure that the candy bar is always available, as is required under VenKard. 39. A large number of the non-machine retailers of respondent's candy, particularly the grocery stores and supermarkets, did and do retail the 6-paks in substantial quantities. Respondent asserts its reduction in the wholesale cost of the 6-pak to such non-machine retailers as grocery and drug stores, is about 7.7065% of sales, and the VenKard payments to machine retailers is 7.5076% of sales. Respondent's Exhibit 11 in evidence states that in 1959 and 1960, on $368,968.48 sales to all vending companies in Chicago, Detroit and Indianapolis of Clark and Zag Nut bars, it made VenKard payments of $27,700.50, and the cost of the program to Clark was 7.5076% of total sales. The same exhibit states that on $344,160 worth of 6-pak sales (other than jobbers) in the same area and for the same time "by broker territories" the cost to Clark was $26,522.69, or 7.7065% of sales. This record will not support a finding that the 6-pak in fact proportionalizes the VenKard payments to non-machine retailers or offers a legally valid alternative advertising allowance, because (1) the 6-pak applies only to 5-cent bars, whereas VenKard applies extensively to 10-cent bars; (2) 6-pak does not appeal to the "impulse buyer" as respondent claims is true for the machine buyer; (3) 6-pak is a take-home item rather than a "consumed-on-premises" item; (4) the cash payments to machine operators for VenKards is totally different from an alleged discount from the wholesale price on the 6-pak; (5) 6-pak does not single out Clark bars from all other bars available on the candy counter as VenKard singles out the Zag Nut or Clark bar from all other bars being vended by a machine; (6) respondent has not elected who is the advertiser under the 6-pak—the retailer or respondent; and (7) 6-pak requires the retailer to do nothing. The proof does not conclusively demonstrate that the discount on the 6-pak sale gives the retailer more profit from a 6-pak than from six bars sold separately. All it really does is to permit the retailer to promote respondent's bars by selling six 5-cent bars as a package cheaper than the individual

Initial Decision 63 F.T.C.

bars purchased separately. The evidence does not disclose whether the 6-pak is ever broken up so that a customer buys individual 5-cent bars for a nickel out of the 6-pak. The inference is clear that just the contrary is true and that the customer is required to buy all six bars in one package. A merchandising device designed to sell six 5-cent bars in one package for home consumption is not in any way comparable to the VenKard system designed to sell individual 10-cent bars which are usually consumed in the vicinity of the premises where purchased. The test of compliance with § 2(d) is whether an alternative plan such as 6-pak results in the same net money benefit to the user of the alternative. 40. Since respondent is the proponent of the proposition that 6-pak is a legally valid alternative advertising allowance, the burden was on it to show that a retail grocer selling the same dollar volume of bar goods under the 6-pak plan would receive in cash, or its equivalent, as an advertising allowance, substantially the same amount of money that a VenKard machine retailer selling the same dollar amount of candy would receive. Such proof is not in this record. The hearing examiner finds, therefore, that the 6-pak is not a legally valid alternative to VenKard nor does it result in proportionalizing VenKard payments to non-machine retailers. 41. There is substantial failure of respondent's proof concerning the 6-pak. The net wholesale price of six 5-cent bars, purchased separately, as contrasted with a 6-pak cost is inferred but not proven in Commission's Exhibit 11. Respondent's Exhibit 10, its general price list effective September 15, 1961, does not furnish sufficient information from which the examiner might compute wholesale costs for the same weight of respondent's candy sold through the 6-pak as compared with machine vended bars. Respondent has not demonstrated by evidence how the 6-pak, which essentially promotes the sale of six 5-cent bars at one time, for later consumption, equates with VenKard which promotes the impulse purchase of one 10-cent bar usually consumed at or about the time of its purchase, in the vicinity of the machine where purchased. As found in paragraphs 22 and 24, respondent paid $27,462.69 under VenKard to 15 vending machine companies in the Chicago metropolitan area for the period January 1, 1958 to approximately August 15, 1961; and $15,806.28 to 12 vending companies in the Detroit metropolitan area during the same period. Respondent has not proven in this record that its non-vending retailer customers selling an identical dollar amount of identical goods, or even an identical dollar amount of 6-paks, received, or were offered, in money, or money equivalent, a $27,462.69

D. L. CLARK CO. 109 84 Initial Decision advertising allowance in the Chicago area, and a $15,806.28 advertising allowance in the Detroit area from January 1, 1958 to approximately August 15, 1961.

42. State Wholesaler Grocers v. A & P, 258 F. 2d 831 (1958), was a Clayton Act treble damage action grounded, among other statutes, upon § 2(d) violations allegedly based upon advertising in the A & P magazine, WOMAN'S DAY. The District Judge rendered judgment for defendants, 154 F. Supp. 471, and plaintiffs appealed. The Circuit Court affirmed in part and reversed in part. Although respondent relies upon this case in support of its 6-pak position, such reliance is misplaced, for the Court of Appeals held that the trial court erred in concluding that plaintiffs failed to prove a violation of § 2(d) by the defendant suppliers. See also the so-called Toy cases recently decided, involving the catalog advertising by toy manufacturers, Transogram, Inc., Docket No. 7978, decided September 19, 1962 [61 F.T.C. 628], and the other dockets referred to in the Commission's opinion.

43. With all due respect, this examiner finds nothing in Wholesaler Grocers v. A & P, which transforms respondent's 6-pak into absolution for VenKard under § 2(d).

44. In Lever Brothers Co., 50 F.T.C. 494, a § 2(d) complaint was dismissed and the Commission clearly recognized in that decision that some advertising programs may be of such a nature that they cannot, as a practical matter, be uniformly used by all of a seller's customers. The fact that offering a promotional allowance to all of a seller's customers may, under a proven set of circumstances, be a useless and futile gesture does not necessarily exculpate an advertising payment which is otherwise discriminatory under § 2(d). In the Lever Brothers opinion at page 510, the Commission held: Each of the respondents offers alternative promotional allowances for those who do not for any reason use the advertising allowances. These offers are also made to all customers. For example, in the case of Lever Brothers, a retail customer who holds a feature sale supported by handbill or radio advertising is paid 8¢ or 9¢ per case of products purchased. There is also a second option — to wit, for a sale supported only by a store display, 6¢ per case is allowed.

In other words, the newspaper advertising allowance is a part of the comprehensive plan of payment for promotional services offered by respondents to their several hundred thousand customers throughout the country. The conditions under which these customers operate, of course, vary. Although it appears that the use of advertising by means of newspaper, handbills, or store displays is general throughout the country, we will assume that among these many customers will be found some who do not find newspaper advertising practical. There is no proof, however, that either handbills or store displays are not reasonably practical for all. (Emphasis supplied.)

Initial Decision 63 F.T.C.

45. In Elizabeth Arden, Inc. v. FTC, 156 F. 2d 132 (1946) [4 S.&D. 490], the court cautioned against promotional plans tailored to fit the special needs of customers whom a seller wishes to favor. If proof of such "special tailoring" in the case of either VenKard or 6-pak were present in this record, and the requisite competitive injury were established, instead of 6-pak being an alternative to VenKard, it might well be subject to the same attack as VenKard. 46. In the treble damage case of Elizabeth Arden Sales Corp. v. Gus Blass Co., 150 F. 2d 988, at 994, the court stated: [9] We think it must be held that a seller engaged in commerce who furnishes clerk's services or pays clerk's salaries in unequal amounts to customers competing in the distribution of its products, which amounts have no other basis or standard than the seller's discretion or favor, and as to which there is no competitive way for such customers to qualify for proportional or equal levels, is, to the extent of any differences in such amounts, guilty of a discrimination in the furnishing of services or facilities under subsection (e) or in the payment for services or facilities under subsection (d) of section 2 of the Clayton Act as amended by the Robinson-Patman Act, 15 U.S.C.A. § 13(e) and (d) * * *. The Federal Trade Commission has aptly expressed the situation in relation to subsection (e), in the cease and desist order which it issued against appellant, as referred to above: "* * * the statute affords the seller a free election in the first instance as to what services or facilities, if any, he will provide to purchasers of his products; but having elected to furnish a particular service or facility to a particular purchaser or purchasers, he thereby assumes the obligation of according similar services to all competing purchasers to the extent required by the statute. The furnishing of a service or facility which cannot be proportionalized for the benefit of competing purchasers or, in the alternative, the failure or refusal to proportionalize the terms upon which services or facilities are granted, so as to make it reasonably possible for competing purchasers to avail themselves of such services or facilities if they desire to do so, constitutes a failure to accord such services or facilities upon proportionally equal terms." H. Meeting Competition 47. As previously found in paragraph 13, supra, respondent has used VenKard advertising continuously from its inception up to the present with the exception of a period from February, 1956 until the summer of 1957, when Mr. Muldoon temporarily suspended the use of VenKards. During the period of time when respondent did not participate in the VenKard program its machine sales decreased substantially. According to Respondent's Exhibit 3, from May 1, 1956 to May 1, 1957, its sales decreased from $789,526 to $629,242, or 19.895% less than the previous period. After the program was reinstated from March 1, 1959 to March 1, 1960, sales increased from $629,242 to $1,200,533, or 90.79% over the 1956-to-1957 period.

D. L. CLARK CO. 111

84 Initial Decision

48. Respondent argues that if all other issues should be decided against it, its use of VenKard, even though discriminatory under § 2(d), is legally excused under § 2(b) because it must participate in VenKard to "meet an equally low price of a competitor, or the services or facilities furnished by a competitor." Respondent asserts, correctly, that the decisions in Exquisite Form Brassiere and Shulton, supra, have established respondent's right to prove a § 2(b) defense of a § 2(d) discrimination. However,

* * * The seller has the burden of bringing himself within the exculpating provision of § 2(b) * * *.

See page 9 of slip opinion in Federal Trade Commission v. Sun Oil Company, decided January 14, 1963 [7 S.&D. 633], by the Supreme Court of the United States, citing Standard Oil Co. v. FTC, 340 U.S. 231. Sun Oil involved a § 2(a) discrimination. In that case, Justice Goldberg, in discussing the Robinson-Patman amendments to the Clayton Act, inter alia, stated:

* * * In short, Congress intended to assure, to the extent reasonably practicable, that businessmen at the same functional level would start on equal competitive footing * * *. (Emphasis supplied.)

49. Inasmuch as it is undisputed that respondent used the VenKard program from its inception, at that point in time respondent was not "meeting" the VenKard practices of its competitors. It was in fact setting the competitive pace insofar as the use of VenKard was concerned. After having temporarily abandoned the VenKard advertising medium and suffering a substantial loss in sales, respondent re-entered the VenKard program. It seeks to justify here such § 2(d) discrimination as may be in the VenKard payments by asserting that it is "meeting competition." WHOSE COMPETITION? Other candy manufacturers such as Luden's and Curtiss? If so, that is not the "functional level" where injury to competition has been asserted here to have occurred. Competitive injury has been asserted between machine retailers vis-a-vis non-machine retailers of respondent's candy; i.e., Automatic Canteen Company vis-a-vis A & P supermarkets. If VenKard had been proven to be injuring A & P competitively vis-a-vis Automatic Canteen Company, the "functional level" at which respondent seeks to "meet competition" by using VenKard is hazy and unproven. The theory of respondent's evidence does not establish that respondent's initial use of VenKard was to "meet" competition. Respondent's temporary suspension of VenKard and reemployement of it do not confer a § 2(b) exculpation upon VenKard which it did not initially possess. See also FTC v. A. E. Staley Mfg. Co., 324 U.S. 746 (a § 2(a) case) [4 S.&D. 346].

Initial Decision 63 F.T.C.

50. Had respondent established in this record that it was using VenKard to meet the competition of its competitors, Luden's and Curtiss, such proof might excuse it under Exquisite Form Brassiere, supra. Respondent's theory is that the protection which the § 2(b) exculpation might afford respondent competing vis-a-vis Curtiss and Luden's also protects Automatic Retailers of America competing vis-a-vis Walgreen Drug Stores and Cunningham Drug Stores. This theory is not supported by any legal precedents which have come to this examiner's attention and appears to be contrary to the rationale of the U.S. Supreme Court's Sun Oil decision, supra. 51. Respondent's § 2(b) defense is rejected as having not been proven by facts in the record nor justified by legal precedents. 52. Testimony in this record, which is not as precise as it might be, is to the effect that during the period when respondent had suspended its use of VenKard its competitors, Luden's and Curtiss, took over the VenKard time that respondent released. The record does not show the extent of VenKard participation by respondent's competitors at any time; precisely what other products, other than Clark bars, actually used VenKards; and the extent to which such other products participated. The fact of other companies' participation in VenKard, insofar as the record is concerned, is chiefly by innuendo.

CONCLUSIONS

1. Respondent D. L. Clark Company, a Pennsylvania corporation, manufacturers and sells candy products, particularly candy bars, and is engaged in commerce as "commerce" is defined in the Clayton Act, as amended. 2. The Federal Trade Commission has jurisdiction over the parties and over the subject-matter of this proceeding, and this proceeding is in the public interest. 3. In the manufacture and interstate sale of its candy bars, respondent competes with other manufacturers of similar candy bars. 4. By participating in Richard A. Burleigh's VenKard advertising program for candy vending machines, respondent pays substantial sums to vending machine retailers of its candy, in consideration for services and facilities furnished by the said vending machine retailers, without making such payments available on proportionally equal terms to respondent's other non-machine customers. 5. The reliable, probative and substantial evidence in this record will not support a finding that any, specific, VenKard posted machine does, in fact, compete with any other non-machine retailer in the sale of respondent's candy. Some evidence in this record is to the contrary.

D. L. CLARK CO. 113 84 Order 6. Respondent, under the rationale of Liggett & Myers Tobacco Co., 56 F.T.C. 221, is excused from offering the VenKard program to its non-machine vendors because the evidence supports a conclusion that such offer to non-machine vendors would be useless and futile. 7. When it uses the VenKard program, respondent does not discriminate between various vending machine companies, i.e., it makes its VenKard program available to all vending companies on proportionally equal terms. 8. Respondent's "6-pak program" has not been proven in this record to be a legally valid alternative to VenKard for respondent's non-machine customers. 9. During the period that respondent did not participate in the VenKard program its machine sales decreased substantially and when it resumed VenKard its machine sales increased substantially. Proof that a particular form of advertising such as VenKard substantially increases retail sales does not support a conclusion that respondent must engage in VenKard to meet competition. Several elements of the "meeting competition" defense required under the law are not proven by reliable, probative and substantial evidence in this record. However, because of the failure of proof, in this record, of competition between specific VenKard posted machines and non-machine retailers, and the preponderance of evidence that the VenKard program would not be acceptable to non-machine retailers and that, therefore, a VenKard offer to them would be useless and futile, It is ordered, That this proceeding be and hereby is dismissed. ORDER DISMISSING COMPLAINT This matter is before the Commission upon the appeal of complaint counsel from the hearing examiner's initial decision dismissing the complaint. The Commission has determined that the present record does not constitute an appropriate basis for issuance of an order to cease and desist. Without resolving any of the issues argued upon this appeal, the Commission believes that the public interest will be sufficiently safeguarded by maintaining close scrutiny of respondent's operations to assure that they are in compliance with law. If it should appear that any future Commission action is required, the disposition now made of the instant proceeding will not stand in the way. Accordingly, It is ordered, That the complaint be, and it hereby is, dismissed. By the Commission, Commissioner McIntyre not concurring.

Complaint 63 F.T.C.

IN THE MATTER OF

BUSINESS & PROFESSIONAL, INC., ET AL.

CONSENT ORDER, ETC., IN REGARD TO THE ALLEGED VIOLATION OF THE FEDERAL TRADE COMMISSION ACT

Docket C-524. Complaint, July 16, 1963—Decision, July 16, 1963

Consent order requiring Roselle, N. J., collectors of debts on a commission basis in which connection they used a variety of forms to obtain information regarding delinquent debtors, to cease using on post cards such misleading terms as "REGIONAL REGISTRY BOARD" signed "——— Director", printing at the end of demand letters the titles "Legal Department", "Claims Department", and "Credit Manager", and mailing to delinquents printed forms resembling legal summons headed "Final Notice Prior to Suit".

COMPLAINT

Pursuant to the provisions of the Federal Trade Commission Act, and by virtue of the authority vested in it by said Act, the Federal Trade Commission, having reason to believe that Business & Professional, Inc., a corporation, and Thomas Campagna, Sallianne Campagna, and Richard N. Heale, individually and as officers of said corporation, hereinafter referred to as respondents, have violated the provisions of said Act, and it appearing to the Commission that a proceeding by it in respect thereof would be in the public interest, hereby issues its complaint stating its charges in that respect as follows:

PARAGRAPH 1. Respondent Business & Professional, Inc., is a corporation organized, existing and doing business under and by virtue of the laws of the State of New Jersey with its principal office and place of business located at 613 St. Georges Avenue in the City of Roselle, State of New Jersey.

Respondents Thomas Campagna, Sallianne Campagna and Richard N. Heale are officers of the corporate respondent. They formulate, direct and control the acts and practices of the corporate respondent, including the acts and practices hereinafter set forth. Their address is the same as that of the corporate respondent.

PAR. 2. Respondents are now, and for some time last past have been, engaged in the collection of debts alleged to be due and owing by others, upon a commission basis, contingent upon collection.

PAR. 3. In the course and conduct of their business, respondents now cause, and for some time last past have caused, printed forms to be mailed from their place of business in the State of New Jersey