Sun Oil Company

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IN THE L\'l"rer OF Sun OIL CmIPA ORDER, OPINIOKS, ETC., I REGARD TO THE ALLEGED VIOLATION OF THE FEDERAL TRADE CO Il\IISSION ACT Docket 6934. Amended Complaint, B_april 7, 1959-DeclsLon, Nov. 22, 1963 Order requiring one of the Xation s major integrated producers of oil and other petroleum products, to cease entt,ring into such arrangements for fixing and maintaining resale prices as that under which it imposed upon its independent retail dealers in the Portsmouth-Norfolk-Virginia Beach Virginia, area an alleged agency consignment agreement ,,,which ",-as not a bona fide agency but was a fiction and a subterfuge, the primary purpose of which was 1:0 enable it 1:0 fix the retail price for its ';Blue Sunoco gasoline in the area concerned.

Al\lESDED AKD SUl'PLEl\ENTAL COMPLAINT The Federal Trade Commission, ha,ving reason to believe that Sun Oil Company, a corporation, hereinafter referred to as respondent and more particularly designated and described, has violated and is nmy violating the prm-isions of Section :5 of the Federal Trade Commission Act (15 U. , Sec. 45), and it appearing to the Commission that a proceeding by it in respect thereof would be in t.he public inte.rest, hereby issues its amended and supplementa.l complaint stating its charges with respect thereto as follows: COUXT I HAGRAPH 1. Respondent, Sun Oil Company, is a corporation organized, existing and doing business under and by virtue of the J",yS of the State of New Jersey, with its principal offce and place of business located at 1608 'Walnut Street, Philadelphia, Pennsylya.nia. Respondent is now, and for several years last past, has been :Ul1ong other t.things, engaged in the offering for sale, sale and distribution of gasoline and other pet.roleum products throughout some 22 st.ates in y,which the respondent markets its products. Said gasoline. is ext.ensively advertised anel solel under the brand name "Blue Snnoco\\ and enjoys wide public acceptance in such states. Respondent, one of the nation s leading producers and marketers of gasoline and other petroleum products, comprises an integrated unit in the pet.rolemnindustry. It is engaged in the acquisition, development and exploitation of oil and other petroleum products as well as the purchase, sale and transportat.ion of crude oil, and the refining of crude oil and its derivatives, and the subsequent transportation and 1372 FEDERAL TRADE COM.VJrSSION DECISIONS Complaint u3 F.

marketing at wholesale and retail of the products of its refieries in the united States, Canada and foreign countries. Respondent has refineries at lIarcus Hook, Pennsylvania, and Toledo, Ohio. It also owns and operates a number of steel tank steamers in addition to leasing and operating approximately 1 400 tank cars and approximately 2 700 motor vehicles. Respondent also owns and operates various distributing plants as well as approximately 1 800 service stations in some 22 States of the United States and Canada. Sun Oil Company has approximately 8 900 outlets selling Sunoco products. In 1956 its gross sales of petroleum products totalled $731 412 219.

PAR. 2. Respondent markets its gasoline and petroleum products through its own company-owned and operated stations as well as under contract with independent dealer stations. Respondent in the sale of its gasoline to independent. Sunoeo dealers laeated in the Portsmouth-Noriolk-Virginia Beach, Virginia area, as well as in other areas in different States of the "Gnited States has entered into certain contracts or leases, now in force whereby respondent sells and delivers to such independent retail dealers all of their respective requirements of responden(s brand of gasoline during the terms of such contracts. For the purpose of supplying said customers and making deliveries pursuant to said contracts, respondent ships or otherwise transports its gasoline from its refineries across state lines to bulk stations and other distributing or terminal points in or near the specified area or areas from '\,which it is delivered to said retail dealers. There is now and has been at all times mentioned herein, a continuous stremn of trade in commerce as "commerce" is defined in the Federal Trade Commission Act, or said gasoline between respondent's refineries, terminals a,nd bulk stlltions and said independent retail dealers purchasing said gasoline in the areas mentioned herein. All of said purchases from respondent by the said independent 811noco de,alel's ate and have been in the course and furtherance of such commerce. Said gasoline is transported into Virginia and sold by respondent for resale in the Portsmouth-Norfolk- Virginia Beach, Virginia, area and other areas. PAR. 3. Except to the extent that competition has been hindered frustrated, lessened and eliminated as set forth in this amended and supplemental complaint, respondent has been and is now in substantial competition with other corporations, individuals and partnerships engaged in the sale and distribution of gasoline in commerce as that term is defined in the Federal Trade Commission Act. PAR. 4. It is now and has been for the past few years the policy of Sun Oil Company to enter into certain agreements, understand- Sen OIL CO. 1373 1371 Complaint ings and arrangements with various of its independent Sunoco dealers located in certain areas throughout the United States whereby respondent is able to dictate or fix the retail price at which Blue Sunoco gasoline is sold to the purchasing public through such One of the means and methods employed by respondent to enabledealers. it to dietate or fix and maintain the price or Blue Sunoco gasoline is through what is termed or designated as an Amendment to the Dealer s Agreement existing between said respondent and what has heretofore been its independent Sunoco retail dealers. This Amendment takes the form of an alleged consignment whereby respondent nndertakesto place certain or these heretorore independent Sunoco retail dealers in the position or a consignee or respondent. This has the enect or terminating the said dealer s status as an independent Sunoco service station dealer for the duration of the alleged consignment agreement. Respondent's plan is rererred to in some areas as the C" plan. Under the terms of this alleged consignment plan respondent and dealer agree, among other things, that title to all gasoline delivered to said dealer will be retained in respondent; that respondent may fix the price at which said gasoline is to be sold by the said dealer to the purchasing public; and that said dea.ler, in return ror his services, shall receive a certain designated commission on each gallon or ga.soline sold. In no instance does the e0111mission received approximate the margin or profit rormerly enjoyed by such dealer and in most, if not all, instances the said dealer was an un-willing party to the arrangement, having been coerced, pressured or otherwise persuaded, through various means and methods employed by respondent, to enter into such agreement. This alleged consignment is, in effect, a fiction and a subterruge the primary purpose of which is to enable respondent, through such agreement to fix a.nd maintain the price at which its ga.soline will be sold at retail, through the stations of these dealers to purchasing members of the public.

Beginning on or about November 1956, and at different times thereafter, certain Sunoeo dealers located in the Portsmouth-Norfolk- Virginia Beach, Virginia, area, as well as in other areas, upon being urged, threatened, coerced or otherwise persuaded by. respondent, in a.rious ways and by different means, entered into a combination planned com11on course or action, agreement and understanding with respondent under the terms and conditions or which the aforesaid c.onsignment policy or respondent was placed into effect, maintained and carried out by said respondent and each of the said independent dealers concerned.

1374 FEDERAL TRADE CO:\l;\,fSSIOK DECISIONS Complaint 63 F.

PAR. 5. Pursua,nt to and in furtherance of the aforesa.id unlavdul combination, planned common course of action, understanding and agreement, respondent, acting together and in eombinat1011 a.s aforesaid with such SUllaco dealers, a,greed to fix and maintain, and did fix and maintain, the retail price at ,which .gasoline was to be sold or was sold at retail stations of the said Snnoco dealers to the pur- ('hasing public.

P .\JL 6. This alleged nul a ,,,ful planned connnon course of action is singularly unfair, oppressive and to the prejudice of the public and respondent's competitors and retailers of gasoline in the Portsmouth-Norfolk-Virginia Beach, Virginia, area and other a.areas, and has a dangerous tendency to unduly restrain, hinder, suppress, and eliminate competit.ion bet"een and among respondent's retail dealers. and others, in the sale and distribution of gasoline in commerce \within the meaning of the Federal Trade Commission Act, destroys the freedom of action that is customa.rily enjoyed by independent businessmen and constitutes an unfair ll1ethod of competition and an unfair act and practice in commerce within tile intent anc1meaning of Section :5 of the Federal Trade Commission .Act. COUXT II P",'R. 7. The allegations of paragra.phs O E through sub-paragraph Two of paragraph FO'CR of this amended and supplemental complaint are hereby adopted a,nd ma(le a part of this COUNT as fully as if set out herein verbat.im.

PAR. 8. In t.he Portsmouth-Norfolk-Virginia Beach, Virginia area, and other areas, there exists a number of so-cftlleel privatebrand or unbranded serdce stations ,,-which sell gasoline at retail to the public in direct competition \with respondent's sunoco dealers find the independent dealers of ot.her major oil companies. These unbranded or private-brand stations have been in existence for a number of years and have uniformly and consistently posted a pump price of two cents, or more, below t.he. posted pump price of finjol' oil c.company stations. This historical t\yO cent or more differential is neces mry to the unbrandecl or private-brand stations in order that they may compete in n, market with major oil company stat.ions having such competitive adyantRges as national advertising, wiele public a.(:ceptance, national credit cards, and better facilities and locations. Beginning on or about ovember 19fJG, and at differe.nt times thereafter, respondent, fully aware of the aforement.ioned conditions through and together with its aforesaid 8unoeo dealers, adoptec1 placed in effect and follo\yec1 a pricing policy in the Portsmollthorfolk- Virginia Beach area" and other areas, whereby sunoco SUN OIL CO. 1375 1371 Initial Decision stations posted a pump price which was uniformly and consistently within one cent of the posted pump price of the aforementioned unbranded or private-brand stations. This aggressive move. was in fact a predatory pricing policy entered into by respondent with the avowed purpose and intent of shrinking the historical two cent differential to the point where unbranded or private-brand competitors Fere unable to compete, and survive, in the market. This aggressive and predatory pricing policy of respondent had the tendency or effect of diverting substantial gallona,ge from the private-brand or unbranded stat.ions to SUllaco stations and stations of other major oil companies, thus increasing respondent's share of the market, to the detriment of competition in the area, and other areas. PAR. D. This a.lleged unlawful predatory pricing practice is singu- Jarly unfair, oppressi\ce and to the prejudice of the public and 1'C- 'Pondent's competitors and retailers of gasoline in the Portsmouth- Xorfo1k-Virginia Beach marketing area and has a dangerous tend- PIley t.o unduly restrain, hinder, suppress and eliminat.e competition between and among respondent's retail dealers and the independent retail dealers located in the area, or others, and has unduly restrained, hindered, suppre.ssed and elimimtted competition therein jn the sale and distribu60n of gasoline in commerce within the lneaning of the Federal Trade Commission Act and constitutes an unfair met,hod of c.competi6on and an unfair act and prac6ce in C0l111nerce within the .intent and meaning of Section 5 of the Federal Tra.c1e Commission .Act.

Jh' Rufus E. TV"iS01L lift. R08s D. Younq, J1'. : 111'1. Daniel Bawn and 1111'. A. ill. 31inotti for the Commission. 1111'. Leonard J. ETJ11wrgZ7:ck of \Vashington, D. , and 111'i'. He1ity A. F,' and Mr. Richard L. Yl'eeman of Philadelphia, Pa. , for respondent.

IXITIAL DECISION BY HOBERT L. PIPER l-IEAJnNG EXAl\IIXETI MAY 17 , 1962 PRELBDNARY STATE ren' On November 8, 1957, the Federal Trade Comn1i3sion issued its complaint against Sun Oil Company, a corporation (hereinafter called respondent or Sun), charging it "ith unfair methods of competition and unfair acts and practices in violation of 5 of the Federal Trade Commission Act (hcreinaftel' called the Act), 15 C. 41 et 8eg. by entering into an agreement or eombination with 1376 FEDERAL TRADE C01YLY.rSSIOK DECISIONS Initial Decision 63 F. '1' its retail dealers to fix resale prices. Copies of said complaint to. gether with a notice of hearing were duly served upon respondent. On April 7, 1959, after the conclusion of the case-in-chief, the Commission granted the motion, certified to its by the undersigned of counsel supporting the complaint to amend the complaint by adding a second count charging respondent with engaging in a predatory pricing practice in violation of of the 'lct. Respondent appeared by counsel and filed answer denying all the substantive allegations of the complaint, including the allegation that the alleged practices "ere engaged in in commerce "jthin the meaning of the Act.

Pursuant to notice hearings were held before the undersigned hearing examiner, duly designated by the COlnn1ission to hear this proceeding, at various times and places. Both prior to the COID- Hlenc.emcmt of hearings and after the conclusion of the case-in-chief l'e ponclenUs motions to dismiss the complaint for want of jurisdiction and want of proof ,were denied.

Both parties were represented by counsel, participated in the hearings and were afforded full opportunity to be heard, to examine and cross-examine the witnesses, to introduce evidence pertinent to the issues to n,rgne orally upon the record, and to file proposed findings of fact, conclusions of law, and orders, together with reasong in support thereof. Both parties filed Proposed findings of fact conc.1usions of la, , and orders, together with reasons in support thereof. All such findings of fact and conclusions of law proposed by the parties respectively, not hereinafter specifically found or concluded are here,\ith specifically rejected. rpon the entire record in the case and from his observation of the witnesses, t.he undersigned makes the following: FINDINGS OF FACT I. The Business of Respondent The respondent. is a. New Jersey corporation ,,'ith its principal offce and place of business at 1608 ,Valnut Street, Philadelphia Pennsylvania.

II. Interstate Commerce and Competition Responcle,nt is an integrated 011 company engaged in the production, purchase and sale of crude oil, the refining of crude oil and its deri,' at.ives, the transportation of crude oil and refined petroleum 1:' C. 1007(b).

SUN 011. CO. 1377 1371 Initial Decision products, and the sale and distribution of gasoline and other petroleum products in various states of the United States, Canada and foreign countries, including the Norfolk, Portsmouth and Virginia Beach area, in the State of Virginia. Respondent has refieries at Marcus Hook, Pennsylvania, and Toledo, Ohio, and distributes gasoline under the brand name " Blue Sunoco" through approximately 900 outlets in 22 states of the United States and in Cauada. In 1956 respondent's gross sales of petroleum products exceeded $731 milion. Respondent markets its gasoline and petroleum products through wholesale distributors, company-owned and operated stations, and sales to independent dealer stations. In the course and conduct of such business, respondent ships or otherwise transports its gasoline in tank cars, tankers, and true-ks from its different refineries, terminals, and distribution points, located in various states of the United States, to retail dealers located in the Norfolk, Portsmouth and Virginia Beach area and in various other states of the United States. Respondent itself is, of course, engaged in interstate commerce and so concedes. In addition, it is well-established that such sales of gasoline and petroleum products to retail dealers are in interstate commerce. However, Sun contends that the practices alleged in the complaint are not in interstate commerce within the meaning of the Act. Count I of the complaint alleges that an agency consignment agTcenLent entered into between Sun and its dealers was a fiction or subterfuge, and was in fact an agreement or combination to fix the resale price of gasoline. Respondent contends that because such resales are local and intrastate an agreement or combination fixing such prices is not in commerce. Count II of the complaint alleges that, assuming the consignment agreement was valid. and title to the gasoline remained in Sun, Sun engaged in a predatory pricing practice with the purpose and effect of destroying or substantially lessening competition. ,With respect to this count, Sun contends that its sales at retail were not in interstate commerce because they 'were local and intrastate. ,With respect to the first Count, for the reasons adverted to in the orders denying t.he motions to dismiss the complaint, it seems wellestablished that an agreement or combination between Sun and its dealers fixing the re.tail resale prices is in interstate commerce, as that term has been interpreted by the courts. While it may be that the sales of such dealers are not in interstate commerce (although there a.re some rulings to the contrary), the agreement or combination concerning the resale prices was made prior to the sale by 1'8- Standard Oil Co. '1. FTC, 340 'C. s. 231 (1951). , 1378 FEDERAL TRADE COIvIMISSION DECISIONS Initial Decisioll 03 F.

spondent to the dealers. As noted above, such sales are definitely in interstate C0111ne1'C8. ,Yhile the alleged price-fixing concerns retail sales made by the independent elealers, respondent is a party to the transaction a,nd indeed the principal proponent and beneficiary thereof, and the agreement or combination concerns gasoline which moves in interstate commerce fl'0111 respondent to the dealers. It is apparent that the price-fixing conspiracy or combination concerns a product which, without respondent, who admittedly moves it in interstate C011merce, would not be available to the dealers who sell it locally. The resale prices are fixed by agreement or combination in advance of the movemcnt of the product in interstate commerce even though at the time of resale the product may have come to rest and no longer be in interstate commerce.

Upon substantially similar facts, a federal court has decided that such price-fixing, in advance of a sale in intrastate commerce, concerning products T\which move in interstate COlnmerce prior to such sale, constitutes an unla,\ful interference with then, commerce. The Supreme Comt has decided that it is Ulllawful to fix local prices through the US2 of interstate conllnercial transactions," In addition the Supreme Court in the Cement Institute case held that the Commission has authority under 9 5 to restI'ain a price-iixing conspiracy involving some parties in interstate commerce and other parties not engaged in interstate com11erce.

In Moon Y. Mead' s Fine Bread," the Snpreme Court held that local intrastate price-cutting and discrimination designed to injure or destroy a local competitor, even though purely intrastate in character, was a violation of the Clayton Act ,yhen engaged in cne also engaged in int.crstate commerce, because the effect was to tend to monopoly and substantially to lessen competition 10ea11y through the use of the pmyer of the organization engaged in inter state commerce. In DJ" )/iles, lJeech-i\' and Pc('pke, Da-vi8,' the lower courts and the Supreme Court had no diffculty in concluding thet an agreeme.nt or combination to maintain retail resale prices ,yas in comme:::ce, e.n'n though such ret.ail resales were, as here intrastate.

,With respect to the second count, which assumes that the sales at retail \were by Sun itself, such s des would be part of the flow or nitcrl St(1te. 1',O(?- & Grocery BUI"enl- of S01/then Cal1jornin 43 F. Supp. 966 (D. C. S. . Cal. 194 1 r. nitcrl States Frnnl,'jort 1Jstillerie. 324. 1'S. 293 (104,) I. FTC v. Cement Institute 3;1g l:. S. C53 (J 945). See also Sfailtlaj-d Container Mfg. Ass)). v. FTC, 119 F. '2ci 262 (5th Cir. 19.f). HS r. S. 11: (1934).

. Jlile. Jlerlical CO. Y. Parke & SOJIS Co.. 220 es. 373 (1911); FTC v. Beech-Nut 2;171.8. 441 (HJ22); ,11 ll IIi!cd States Y. j' ul' l,f Dari. Co. 802 U. S. 29 (19GO). OIL CO. 1379 1371 Initial Decision stream of commerce.e from the refinery to the customer, and as such clearly would be in interstate commerce for the reasons enunciated by the Supreme Court in the Standard Oil case." It is concluded ami found that the activities and practices alleged in both counts of the complaint ,were in c.commerce within the meaning of the Ac.t. In t.he course and conduct.t of its business, including its sales to l'e tnil dealers and direct sales to the consuming public, respondent is in (Erect and substantial competition in commerce .with other corporations, individuals and pa.rt.nerships likewise engaged in the sale and distribution of gasoline.

III. The unlawful Practices A. The Issues The amended complaint contains two counts. Count I alleges t11fl.t an agency consignment agreement between Sun and its dealers ,,,as a fiction and subterfuge, and in fact was an agreement or C01nbina.tion to fix the resale prices of gasoline. Count II alleges that assuming such consignrnent agreement created a valid agency, Sun eugrtgecl in a datory pricing practice for the purpose of destroy- Ing competition or competitors, with the effect of unduly restraining ana lessening competition.

B. Background Facts 1. The market urea involved in this proceeding is comprised of the metropolitan areas and contiguous territory of the cities of :K 01'folk, Portsmouth and Virginia Beach, Virginia, hereinafter referred to as the Norfolk area. The period of time encompassed by the complaint is from:N ovember 1956 through April 1959. 2. The nature of competition in the ma.rket area was somewhat unuslml because of the presence of more than 12 military exchanges selllng major-brand gasoline at prices substantially below those preyai1ing in the Norfolk area. In 1956 there were 12 such :Navy e:sdw.nge stations plus several other PX stations. They normally posted prices which were from four to five cents belmv the prevailing prices of major brands for regula.r gasoline. I-Iowever, only authorized military personnel and their dependents could purchase at such exchange stations. During the relevant time period, with a universe of approximately 100 million g Lllons of gasoline a year :in the N 01'folk area" the K avy exchanges accounted for approximately S minion gallons thereof.

"Footnote 2 SII)JI"O.

1380 FEDERAL TRADE CO:NIMISSIOK DECISIONS Initial Df'ision 63 F.

In a.addition to the :Nand exchanges, in 1956 there were 21 privatebrand stations in the area. They normally and customarily posted a price for regular gasoline two cents below the prevailing price at the sta60ns of the major oil companies. The private-brand stations accounted for about 9 milion gallons of the same universe. At the time of the hearings he1'ein\ Sun accounted for approximately 7 million gallons of the total sales in the area. The large share of the market accounted for by the military exchange stations was a ci1'curnstance not usual in other areas.

In purchasing gasoline \vhalesaIc, the 1nilitary exchanges received a discount from the tankwagon price (the posted price to dealers and commercial users) of approximately 3.69 cents per gallon, and the pri.vate-brand operators received a discount of approximately 3 cents net from the ta.nkwagon price. The area was an unstable market in ,,'which depressed prices occurred spasmodicalJy. There were oeca.sional price wars, and a price disturbance in one section in time, usually ",ould spread throughout the entire area. 3. Sun entered the gasoline market in the Norfolk area in 1946. SUll marketed its gasoline exclusively through a wholesale distributor, Taylor. Taylor sold Sun gasoline at prices equal to the lowest posted by the private-brand operators. As a result, the purchasing public did not thi.nk of Sun s gasoline as a n1major brand, and was aCCl!stomed to purchasing it at the same pdce level as the private brands. In 1951, Taylor s share of the overall market was approximately 7.4 percent; in 1952, approximately 6.5 percent; and in 1953, ttpproximately 7 percent.

4. In July 1954, Taylor was operating 34 stations with an overall gallonage of approxi.mately 723 000 gallons per month, or an average of 21 272 gallons per station. In September 1954, Sun took over the operation from Taylor. Sun began to open its own stations )cased to independent dealers, and operated as a major, with its dealers a.nel company-operated stations generally posting the prices prevailing at the stations of the other major oil companies. At the ti11e Sun took over from Taylor he had about 6 percent of the overt" n market.. Sun commenced operations with substantially fewer stations and its sh:-:1'e of t.he market declined substantially from that enjoyerl under Taylor. In addition, Sun was handicapped by the doresaid public concept., and the public being accustomed to a price imilar to that posted by the private brands, i. , two cents or 11101' below the prcvai11ng major prices.

During early 1955, with from twelve to fourteen stations, Snll ave.raged about 20 000 gallons per station. Sun gradually increased its number of stat.ions. Near the encl of 1955 it hac120 stations selling Ben OIL CO. 1381 1371 Initial Decision approximately 300 000 gallons a month, or an average of 15 000. Sun accounted for about 2.65 percent of the market in 1955. By October 1956, Sun had 29 stations selling approximately 391 000 gallons, or an average of 13 488 gallons per station. Sun accounted for approximately 3.85 percent of the overall market in 1956. Although never reaching the gallonage sold under Taylor, Sun s share of the market gradually increased from its time of entry in 1954 to K ovember 1956. l-Iowever, its gallonage per station was declining as the number of stations increased.

5. After taking over from Taylor and prior to Xovember 5 , 1956 Sun sold its gasoline to retail dealers, who were independent contractors operating filing stations. Sun and such independent dealers entered into contracts providing for the sale of gasoline and other petroleum products by Sun to the dealers, and also entered into leases of the stations from Sun to the dealers. The agreements quired the purchase of specified minimum amounts of gasoline. The leases contained a specified base monthly rental plus an additional rent of one-half cent per gallon sold. The computation of the specified base rental was based upon Sun s estimate of the potential gallonage the station might be expected to sell. Such estimates (and hence such base rental figures) were in all instances substantially in excess of the actual gallonage achieved. At nearly every station the actual gallonage sold was approximately one-half of the estimated potential. As a result, the stated base rental in each lease was substantially in excess of what it would have been, computed on the basis of the actual gallonage, and substantially in excess of what a dealer could afford to pay.

The Jeases were for year-to-year periods. At the time of the execution of the original lease, and every three months thereafter, an amendment to the lease was executed, reducing the base rent to a figure in most cases slightly less than half of the base rent set forth in the lease. In the event that such a quarterly amendment to the lease was not entered into, the rent set forth in the original lease immediately became effective. Tllis situation .gave Sun a potential power of coercion over its dealers because, if a quarterly anlcndment Ivas not executed, the rental immediately more than doubled, which would probably force the dealer out of business. This could occur if the dealer declined to execute such a quarterly amendment to the lea. , or if Sun chose not to execute such an amendment for any reason, including lack of cooperation.

6. Sun originally conceived fmcl adopted its c011111ission consignment p1nn in 1953 in other areas of the United States. As set forth in Sun s policy directives, the plan originally was designed to assist 780-018--69-- 1382 FEDERAL TRADE CQ:\L\IISSIOK DECISIO Initial Decision 53 F.

individual dealers in isolated cases of depressed prices. SlUl used it in the X orfolk area for a two-week period in April of 1956 without agreement of the dealers.

C. The Price-Fixing Agreement or Combination a, localized 1. During late October and early N m member 1956, price disturbance oc.curre.d in orfolk on upper I-Iampton Boulev 1rd in a, few blocks stretch near the seven rnili tary exchange stations clustered in that area at the Naval Base. Several major stations namely, Cities Senrice, Esso, Pure, Shell and Texaco, posted prices three cents under the major price generally prevailing in the Nor- Iolk a.rea. There ,,,as one Sun station loc-flied in the smne general neighborhood.

2. On ovember 5 1D56 as a result of this price disturbance 11:1'. Sonthard, :I orfolk District Ianager of Sun, calleel all of the SUll dealers to a meeting at his offce. Southard explained the details of Sun s commission consignment plan to the dealers, pointing out to them the situation on I-TfUnpton Boulevard, the declining gallon- 8ge per stati.on, the fa,ct that SUll had not a,chievec1 a share of the market comparable to that enjoyed under Taylor, the need to be more co:npctitive in price with the nlilitary e,xchange stations and the private-brand st ltions, and indicating the probable necessity in the ECal' future of Sun s posting a price within one cent of the prevailing private-brand price and an intention of maintaining such a differential no matter hol, Imy the private brands might reduce their p1'ces.

Southard explained to the dealers that under the consignment plan they ,,:oulcl be company agents for the sale of gasoline only, the company would retain title to the gaso1inc, establish the prices to be posted, and pay the dealers a minimum1l1 commission of four and one-half cents per ga,llon. This \yas 1. 6 ce,nts less than the 6.1-cent margin the dealers \\"ere then receiving. Primarily for this reason most of the dealers were opposed to the consignment plan. HOTIever, economically they had no other choice. "\Vhile Sun gave t.hem the alternative of accept.ing commission consignment or continuing to purchase gasoline at the established tankwagon price and posting whatever retail price they saw fit as independent dealers, because SUll intended to reduce the posted price at its mnJ. stations and those "hieh \\ent on cOllsigl1JlCnt to 27. cents and the lank\\agon price ,xas 2;1.8 cents and -was to remain unchanged, the dealers Iyho re iectec1 consignment and continued t,o post a price of 30.D cents \yould be unable to achieve suffc.ent gallonage to survive, -whiJe those who met SUN OIL CO. 1383 1371 Initial Decision the price of 27.9 cents would realize a margin of only 3.1 cents per era-non less than the 4. cent lninirnuln commission offered by Sun. n. In view of the above economic realities, as well as the power inherent in Sun through the qmtrterly amendments to the basic lease rentals and the contractual requirement to purchase a specified minimum amount of gasoline referred to above, the bargaining between Sun and the dealers concerning cOlnmission consignment was hardly as equals.

.f. Except for the price disturbance on upper Hampton Boulevard the prevailing major price ill the Norfolk area was 30. 9 cents, the prices at the military exchanges were 25.9 cents in K orfolk and 26. cents in Portsmouth, and the prevailing private-brand price was 28.9 cents. Although the price disturbance was limited to upper Hampton Boulevard, and therefore had little if any effect on any of t.he Sun stations other than the one in that neighborhood, the nearest being approximately three miles away while the Sun stations in Virginia Beach were over 20 111i1es a,vay, and such other dealers did not need or want assistance, Southard advised the dealers that Sun intended to adopt the consignment plan throughout the entire :'orfoIk area and reduce the price to 27. 9 cents, that posted by the other majors on upper :Hampton Boulevard.

5. The proposed consignment agreement constituted a written amendment to the sales agreement. By its terms it purported to retain title to the gasoline in Sun, provided for deliveries of gasoline to the dealer upon consignment as an agent, Sun fixed the prices at which the gasoline was to be sold, and until August of 1957 the amendment contained a specified minimum commission. ..At that tinle Sun dropped the stated minimum commission fee from the consignment contracts, which were amended to provide that it was to be in the discretion of the company. Sun purchased the gasoline edready in the dealers' tanks. The gasoline in the tanks was measured each time the posted price was changed by Sun, and the dealers were required to account for that sold at the previous price. Under this arrangement, the dealer purportedly acted as a commission agent in the sale of gasoline although he remained an independent dealer in the sale of all other products and services. The dealers IVere required to segregate the funds from the sale of gasoline, but in fact never did. so. All risk of loss or shortage was on the dealer. Collateral deposit agreements which the dealers prev-iously had entered into as independent contractors to secure the payment of certainindebtedlless were amended also to secure Sun for the pa.:ment of the consigned gasoline. The consignment agreements \\ 1384 FEDERAL TRADE CQ:'DHSSIOK DECISIOXS Initial Decision 63 F.

e1'e terminable on five days' notice except for defaults which made them terminable upon 24 hours' notice.

6. All of the dealers except Ir. 'Willams in Portsmouth, who owned his own station, accepted commission c.onsignment on Novembcr 5, 11)56. On =" ovember 6 , although the price disturbance was Jimited to upper II amp ton BOlllcvarrl, Sun posted a price of 27. cents throughout the entire area. The nearest private-brand station to the area of disturbance was a Sta.llings station 1j2 miles south on Hampton Boulevard. At that time the generally prevailing price of the private brands ,yas 28.9 cents. Sun s area-wide reduction necessarily had the effect of sprcading the price war throughout the entire area.. 'Within a few days the other major dealers met Sun price and the private-brand operators reduced their prevailing price to 25.1) cents, attempting to restore the 2-cent differential Prices continued to decline for several months. Each time that Sun and the other majors reduced their prices, the private brands in general posted a. price two cents lower. However, in the latter part of March 1957, the private brands apparently gave np the ftght and posted one cent below Sun s prevailing prices, which then were 20. in :Norfolk and 24.1) in Portsmouth. Shortly thereafter, in April, the prices at most Sun stations returned to the prc- price-,var level of 30. , and the private brands posted at a price of 21). 7. After the adoption of commission consignment, Sun s gallonage increa,sed overall and at neatly all of its stations. During 1957 Sun share of the market ",as 4.15 percent and during 11)58 it was 4. percent. By .Tune of 1951) Sun had increased the number of its stations to 32 and its gallonage to approximately 567 000 gallons per month, or an average of 17 715 gallons pex station. S. Although their gallonage increased, most of the dealers ,were financially hurt rather than helped, because the increased gallonage was more than offset by the decreased amount received per gallon plus the increase in cost neeessitatec1 by pumping the additional gal- Jona.ge. Prior to )I ovember 6 their margin hfLc1 been 0.1 cents per gallon. SVith a commission of 4.5 cents, they were receiving 1.6 cents less per gallon. Under a commission of 4.5 cents per gallon, the dmtler bore more than half of the cost of the reduction to 27.1) cents the price posted by Sun at the inception of the plan. At this price and commission, the dealers lost 1.6 cents per gallon while Sun realized 1.4 cents less per gallon, of the 3 cents reduction in price from 30. 9 to 27.9 cents. Increased gallonage but decreased income did not help the dealers but it did increase Sun s share of the market. The avera.ge increase in gallonage per station was less than 4 000 SUN OIL CO. 1385 1371 Initial Decision gallons. Even if the gallonage increased as much as 4 000 gallons month, any dealer with a prior average gallonage of 11 250 gallons or more lost money under the commission consignment plan. ,'With an increase of 4 000 gallons a dealer previously sellng 11 250 gallons gained $180 , 4.5 cents pel' gallon 011 the extra 4 000 gallons, bnt lost 180, 1.6 cents difference on the 11 250 gallons. ,'With the added labor cost of increased pumping, he suffered a loss. As noted above the average dealer gallonage in 1956 prior to consignment was approximately 13 500 gallons. At 13 500 gallons a dealer netted $823. , yet with a 4 OOO-galloll increase after commission consignment he would net only 8787. 50.

A tabulation in the record reveals specifically what happened to most of the dealers. For example, although dealer Bates sold 1 800 l1101'e gallons of gasoline in November than in October, his net commission \vas $172 less than his margin in October. Although he sold about 300 g JJons more in December than in October, his commissions netted him ;::236 less. Dea.1r Hudgins pumped about 4 400 more gallons in Kovember, yet netted $163 less. He pumped only 300 gallons less in December than in October, yet his gross income declined $378. Dealer Stone pumped the same gallonage in December as he had in October, yet under the plan his commissions amounted to $490 less than his margin of profit in October. 9. 'iVilliams, the only dealer who refused commission consignment held out for a few months. He was required to pay the tankwagon price of 24.8 cents. Sun and the other majors in his neighborhood reduced the posted prices to 24.9 cents, at which price he would have netted one-tenth of a cent per gallon. ,Viliams posted 29. 9 cents and necessarily sold very little gasoline. On February 1 , 1957 , he gave up and accepted commission consignment. 10. To some extent a tankwagon reduction in price only would have reduced the prevailing retail price without benefit to the marketer, because the military exchanges and some of the private-brand operators purchased their gasoline at a fixed discount below the tankwagon price.

11. A survey by Sun prior to its decision to adopt the consignme,nt plan indicated that Sun was not getting a "normal" share of the market at posted prices of 30.9 or 31.9, but that it could do so at 29. 9. This would have been within one cent of the price posted by the private brands.

12. The adoption of the plan 011 November 5 was contrary to the stated purpose set forth in Slln swritten policy directives concerning 1386 FEDERAL 'trade C01nnSSION DECISIONS lllitial Dedsion 63 F.

its nse. Those directives in effect on November 5 , 1956, provided late1' aIia:

\Vhere a dealer i:: confronted with depressed price conditions that affect his net profit to surl1 an extent it becomes impossible for him to continue operations Oll a normal basi, the plan ., '" * may be offered to him. In thef'f' case", if we should offer this plan to anyone dealer, we must make it available to a1l dealers in the ";;ame competitive marketing area (i.e. an area ill ",-hicb all Bun oed dealers arc faced with the same competitive pricing conditim)..).

Dealers should not be offered tile plan in antieil1lltion of a depressed price conditioll ,..which later might require assistallce OIl the part of the Company. he plan Bhould be offered only ,,,here the dealer wil immediately benefit (i.e. wil enloy a hig-her cOlllmission than the margin he could realize on a tan1;:wagon ba :i,,).

It is cJcar that the plan did not conform to this policy. Instead of benefiting the dealers financially it cost them money. The directive provides that it should be olTered only "here the dealer "will immediately benefit by enjoying a highcT commission than the margin he could rea1izc. On the ('(mtrar)") the dealers received 1.6 cents less than the margin they were receiving'. Also contrary to the policy)directive, the plan was inaugurated in anticipation of a price COllClition "\"hi('h later might require assistance. As iound above, most of the dealers neither wanted nor needed assista,ncl:. 13. As found above, one part of the lease rental consisted of the payment of onc-half cent a gallon on all gasoline sold in a month. The, leases eonrllinc(l a provision that this part of the rent "represented the value of those portions of sa.id (lemised premises suitable for the storage and dispensing of gasoline fmet motor fuel". Although purportedly title to the gasoline "' as retained by SUI1 and the dealers '\Were acting only as agents, nevertheless this provision of the lease \fas never amended. The dealers continued to pay onehalf cent. a gallon rent to store and dispen e gasoline. 14. The original sales contrflct contained a provision t.hat the dealer \fas required to operate the stat.ion under his own name, post. a sign "\dth his name and the word "Proprjetor ' thereon, and not represent the bu,'3iness as an agency of Sun or himself as an agent of Sun. This pnn'ision was not amended by the consignment amendments.

). 1Jnc1er 10eal1aw the dealers 'were required to pay a retail merchants' license to sell gasoline. After the adoption of commission consignment, t.hey continued t.o pay thi license or tax until 1958 when Sun began 10 pa.y it after the tax offcials called it to Slln SUN OIL. CO. 1387 1371 Initial Decision attention. SUll did not refund the license payments theretofore made by the dealers.

D. The Alleged Predatory Pricing Practice The record contains no substantial evidence that the private brands lost gallonage or share of the market after the adoption of the consignment plan. On the contrary, it contains affrmative evidence that the private brands did not suffer c.ompetitively from the one-cent differential. The record establishes that many private brands had better locations, facili.ties and services than many of the major stat.ions, sold either identical gasoline or gasoline of equal quality, gave coupons and other discount premiums, enjoyed .greater gallonage per station, possessed a largcI' share of the overan market than Sun, and from the time of the adoption of the consignment plan to 1960 increased in number frolll 21 t.o 26 stations. The record eOJ1taius no proof of predatory pric.e-cutting, i. , selling at unreasonably low prices (such as sening below cost or below a competitor\; east), for the purpose of destroying competition or eliminating a competitor.

CONCL1:SIOXS I. The Pric.e- Fixing Agreement 01' Combination As hereinabove found, the a,l1egations of Count I of the complaint embrace both an agreement or conspinl.cy to fix resale prices through the fiction or subt.erfuge of cOlnmission consignment agl'eCl1Cllts and sans agreement, a plan or eombinatian to fix such resale prices by means of commission consignment. It is respondent's position that the commission consignments ,were genuine agency contracts entered into for the bona fide purpose of assisting its dealers in a depressed price or price ,,,ar situation. Of course it is well settled that pricefixing agreements are illegal ' se regardless of their purpose and nence in this respect considera60n of purpose or intent is immaterial. Ilowever ,,,)lile on its face the commission consignment agre. rnent. constituted the creation of an agency relationship bebveen Sun and its dealers the complaint alleges it was a fiction a,nel subteriuge md in fact an agreement to fix resale prices or a plan or combination for the smne purpose. In evaluating whetller or not. the eOllsignment n,1'rangement was a fiction or subterfuge, it bec.ames pertinent to eonsjder its purpose and intent.

The record reveals dearlv and it has been found that. contrarv to respondent' s conhmtion ancl its stated policy requiremCllts, the 1;1'0- FEDERAL 'TRADE COl\'IISSION DECISIOKSJ388 Initial Decision 63 F.

gram was not a. bona fide attempt to assist the dealers financially. Instead it was adopted to enable Sun to post uniform lower retail prices throughout the area, increase its share of the market, and attempt to reduce the differential between Sun and the private-brand operators to one cent a gallon. It hurt the dealers financially instead of assisting them. Almost all of the dealers neither \vanted nor needed assistance, and were oppo cc1 to the plan, but the economics of the situation as well as the contractual power possessed by Sun left them no alternative except to go out of business. If the plan had been adopted in good faith \0 assist the dealers fmancialJy in meeting depressed prices in individual situations, instead of to enable Suit to post a uniform area-wide price reduc60n and attempt to increase its market share, it would not have been necessary for Sun to adopt it throughout the entire area. In ad(1ition, Sun could lmve offered the dealers a choice between nccep6ng consignment with a guaranteed minimum comlnission, or bi.lying n-t an equivalent tankwagon price. Under the program, adopt.ed, Sun originally posted a price of 27.9 cents and gave a commission of four and one-half cents. Thus Sun s net was 23.4 cents per gallon: which in effect bec lmc its tankwagon or wholesale price. SUll could have given the dealers the a1ternath e of a ta,nkwa.gon price of 23.4 instead of 24. , and permitted them to elect what price to post as needed competitively. It seems apparent that this alterllative, 1,which \'would have assisted each clcaler and pern1itted him to select an appropriate price and margin, was not adopted because it would not have enabled Sun to fix a uniform price throughout the are t and post a price one cent above the private brands, and beronee the dealers unaffected by the price disturbance would in an probability continue to post a price of 30.9 cents, and in any event not within one cent of competitive private brands. The election offered was only in theory and not in reality. Clearly 1'11(re "was no real choice bet"een accepting commission consignment and economic failure. Instead of assisting the dealers as claimed the program forred them to bear part of the costs of the plan to increase Sun s gallonage. Because of the power inherent in Sun a.s a result of its sales contracts andlcases with its dealers, as weJ! as their inability to compete with Sun at its lower prices if they purchased gasoline at t.he prevailing tankwagon price, the dealers were economically coerced into accepting commission consignment. lender 9 thesomewhat similar circumstances in the General Motors case conrt found a conspiracy among General Motors and its independent UnUed States v. GtILe, al Motors Corp., 121 F. 2d 376 (7th Cir. 1941). S"CN OIL CO. 1389 Initial Decision1371 becausedealers to use G:\IAC fimmcing to the cxcJusion of all others, the economic po"er of General :lIotors over its dealers left them no other choice. It is concluded and found that the agency plan was not adopted in good faith to assist the dealers. In the liiZht of the decisions of the Supreme Court, it makes little difference ' whether this arrangement be construed as a contract agreement or conspiracy to fix resale prices, or as a plan or combination without agreement to fix prices achieving the same result. The Court has held both to be violations of the Sherman Act and unfair methods of competition in violation of S 5, because or their dangerous tendency unduly to lessen competition. If the agency col1eignment agreement be regarde,d as a fiction or subterfuge and in fact an per se. As theagreement to fix prices, such agreements are il1legal Supreme Court stated in Sooony- Yac'n1lm: * ,. '" AnJ' combination which tampers ' with price structures is engaged in an unlawful activity. Even though the members of the price-fixing group werr in no position to control the market, to the extent that they raised, lowered, or stabilzed prices they would be directly interfering with the free Vlay of market forces. The Act places all such schemes beyond the pale and protects that vital part of our economy against any degree of interference. XOI' is it important that the prices paid by the combination were not fixed in the sense that they \Were uniform and inflexible. Price-fixing as used in the 'l1 enton Potte1'es case has no such limited meaning. An agreement to payor charge rigid, uniform prices would be an ilegal agreement under the Shennan Act. But so would agreements to raise or lower prices \yhatever machinery for price-fixing was used. '" * ,; Hence, prices are fixed within the meaning of the Trenton Potteries case if the range within which purcbases or sales wil be made is agreed upon, if the prices paid or charged are to be at a cprtain level or on ascending' or descending scales, if they are to be uniform or if by various formulae they are related to the market prices. They are fixed because they are agreed upon As far back as 1911, before the Supreme Court's decisions in the ll the precnrsors of modernStandard Oil and A17wrican Tobacco cases antitrust law, the Conrt in Dr. Alile8 1- found a similar agency can. :ignl1cnt arrangement between a manuracturer and its dealers an agreement to fix resale prices. In that case a manufacturer of patent medicines enter.recl into contracts with its wholesalers and retailers purporting to make them agents, consigning the goods to them and fixing minimum resale prices. The manufacturer required each agenf1 to resen at fixed prices whether the products were secured 10 United States v. Socony-Vac1Jtm Oil Co. 310 U. S. 150 (1940). 1. Standu,rd Oil Company v. United States 221 L. S. 1 (1911), anrl United Stutes Am.erican To/mrr() rfJ. 1 n. . lofi (1$1111. 1JDr. .Hiles .lier/ie-al L a. Y. Park Sul/S Co. 220 -eS. 37.3 (1911). 1390 FEDERAL TRADE CQ:\L\IISSIOK DECISIONS Initial Dedsion 63 F.

from the manufacturer or obtained from other wholesalers or retailers. The Court found the arrangement to be a sale and not an agency, and hence a restraint of trade in violation of the Sherman Act.

If the agency consig11ment agreement be regarded as a plan or combination designed to fix resale priecs, without any agreement, express or implied, to do so, such a plan or combination has been held to be an unfair method of competition and indeed a violation of the Sherman i"-ct. Probably the most pertinent and controlling refer- 13 ence is the Supremo Court' s decision in Beech-lfu, "here the Court Immel a plan or policy to control resale prices of dealers, without any agreement, express or implied, an unfair method of competition in violation of the Act. In that case the manufacturer adopted a program or policy designed to control the resale prices of its dealers at minimum lc,-els fixed by the manufacturer. The parties expressly stipulated that there was no contract or agreement. The Court helel tlmt sllch a plan or policy had the same effect a.s an a.agreement to fix resale prices, and was against public policy as expressed in the Sherman Act. The Court stated:

If the "Beech- ut System of Merchandising " is against public policy be- C::1nse of its ';dangerous tendency unduly to hinder competition or create monopoly, it was "within the power of the commission to make an order for. bidding- its continnation. 'Ve have already seen to what extent the declaration of public flo1icy, contained in the Sherman Act, permits a trader t.o go, The facts fuuml show that the Beech Xut system goes far beyond the simple refusal to sell goods to persons "ho 'wil not sell at stated prices, which in the Colf/ate Case was lleld to be "within the legal right of the producer. The system here (1i close(l necessarily constitutes a scheme which restrains the natural flow of commerce and the freedom of competition in the channels of interstate trade which it has been the JJUrpose of all the antitrust acts to maintain. In jts practical operations it necessarily constrains the trader, if he ,,,auld ha"e 1he products of the Beech-Xut Co. , to maintain the prices suggested" by it. * * * From this course of conduct a court may infer, indeed cannot escape the ('(melusioIl, that competition among rf'tail distributors is practically sup pressed, for all who would deal in the company s products are constrained to sell fit the sllgg"ested I)rices. '" * * .Kat is the inference overcome by the conclusion stated in the commission s findings that the merchandising conduct of the company does not constitute a contract or contracts whereby resale prices fire fixed, HlAintained, or enforced. The specific facts found show suppression of the freedom of competition by methods in which the company se- Cllres the cooperation of its distributors and customers, which are fIuite as effectual as agrf'ement express or implied intendf'd to a('('ollp1ish the salle purpose.

FTC v. Beech-Nu.t, 2i'7 U.S. 441 (1922). \\ . . , N OIL CO. 1391 1371 Initial Deci iotl s commission consignment It seems deal' and is found that Sun plan heroin constituted a. scheme or device, by which respondent was cnabled to control and fix the resale price of its products quite as effectual a.s agree,ments express or implied intended to accomplish the E:HD1e purpose 8 in Beech-N'ld that competition among retailer distributors ",as practically suppressed is an inescapable conclusion. Several subseqnent decisions of the Supreme Court have noted that. the plan or policy in the Beech iV'ld case was there found to be n combination in violation of the Sherman Act as 1\en as an unfair method of competition. In the recent Parlee, Da1.n case 14 the Court found a similar plan of maintaining or fixing the resale prices of t.he company's products ,1, combina60n in violation of the Sherman Act, absent any flgreement express or implied to do so. The Court state' d :

The Court Un Bcec7i- YlltJ hew fHrtlw!' that the nonexistence of contracts coyel'ing tbe plll:i:ice:' \, as irrelevant since "the specific facts found show suppre, .,ion of the freedom of competition by methorls in which the company seC'lll'eS the cooperation of its distributors and customers which are quite as f'ffectual as agreements express or implied intended to accomplish the same purpose.

The Court further st"teel:

That Beech-XII/' llarrowly limited Colgate and announced principles which f:uhject to Sl1erman Act liabilty the producer who secures his customers r\cll1lrence to his resale price." by methods which go beyond the simple refusal to "ell to cust.omers 'V11O will not. resell at stated prices, was made clear in hdtnt States v. Bausch de Loma Optical Co. 321 U. S. '107, 722 ,;, " * In other "\ords, an 1l1hlWfnl combinatioll is not just such as arises from a Jwic(' maintenance agreement. express or implied; such a cumbination is also organized if the producer see-ures adherencc to his suggested prices by means which go beyond 11is mere declination to sell to a customer who will not obsen-e his announced policy. * '" Thus, \..bether an unlawful combination 01' eonsViracy is \)1'o'\e(1 is to be judged by \That the varties actually did rather lllHn by the words they 1l f'1.

In fuldiLion to the principles already discussed, the Supreme Court has made it dear that. a.greel1ents conspira(:ies, or combinations :11ich give a party or the pa.rties the po"\,er to fix: maintain or sta- )J1lize prices, as distinguished from agreements to fix, maintain or stabilize prices, Hrc also in yio1ntion of the Sherman Act and illegal 15 thepel' se. In the Ethyl GOfJolinB case defendant patent holder licensed the various oil companies to make and sell et.hyl gasoline at fixed prices, a right of a p"tent holder. However, the defendant a150 entered into a system or ljcenses "ith all jobbers as well, without 11 ich they could not purchase, so that the defendant was enabled to 11 United State. V. I'M. lie.. fl(l1'8 dO Co. ,j(j2 U. S. 29 (1960). 1:; Ethyl GGso/hie CO. Y. r.;ilUn/ Statcb' 308 r. s. 43G (1840). 1392 FEDERAL 1'TRADE CO nSSIOK DECISIONS Initial Decision 63 F, control their purchases and resale prices of ethyl gasoline by refusing or cancelling liccnses. The jobber licenses fixed no prices but gave the defendant the power to do so, which power was used to stabilize resale prices. The Court held that such agreements giving one the power to fix or control resale prices were ilegal per 8e just as were agreements actually fixing such prices. In the Socony- Vacuurn case " the Court held that any agreement which affects prices in any way, such as raising, lowering, stabilizing or tampering with them, is Dlegal per 8e whether or not it fixes any prices specifically or at set levels. There the defendant oil companies entered into an agreement to buy spot market distress gasoline in order to stabillze spot market prices, "ith a consequent firming up of jobber aud retail prices. The agreement did not fix any specific jobber or retail prices, but had the effect of stabilizing them or preventing their decline. Even t hong-It it \yas found t.hat there 'YRS still price compe6tion in jobber and retail sales, the agreement was held illegal pe1' se. In the present case it is clear that the agency consignment agreements, in addition to constituting both agreements to fix resale prices and a combination designed to itChievc the same purpose, also gave Sun the power to fix resale prices. Respondent contends that its commission consignme,nt agreements constitute bona fide agency contracts and hence are not unf tii' methods of competition, in reliance upon the C'IJ/ttis P1l,blishing and General Electric decisions " of the Supreme Court, principally the hier. If the agTeenwnts constituted bona fide agencies the gasoline would of course, be Sun s. Admittedly, a trader has a right to select or fix: the prices at which he sells his own product absent other considerat.ions not here pertinent. The C1l1'tis erse involved contracts between Curtjs and its distributors, formerly wholesalers and retailers, under which they were made agents for the sale of the respondent' s publications. The charge involved was exclusive dealing in viohtion of 3 of the Clayton Act. The Supreme Court found that the arrangement was a bona fide agency and hence could not be in violation of In the Genel'al Electric case, the company, holding patents on its Jight bulbs, entered into agreements with its Tormer dealers, making them del C1'edeTe agents a.nd consigning its products to them to sell as agents. The Court held that there was no evidence that the agency was not created in good fn.ith and ac.mtlly maintained. In both the Geneml Electric and OUTti8 cases, as distinguished from the :lGFootnote 10, supra 17 FTC Y. Cw' tir PubURhing Co., 260 D. 568 (1923); anll United Btate, 'V. Genual Electric, 272 U.S. 476 (1926).

SUN OIL CO. 1393 1371 Initial Deision situation here, the former dealers had handled many products other than those of the respondent and clearly had a bona fide economic choice whether to remain independent dealers in such other products or become agents for the respondent. Here, as in the General If motors case, the dealers had no economic alternative except to go out of business.

In a more recent decision, the Supreme Court found an agency system designed to fix prices, similar to that established in General Electric and herein, an agreement or conspiracy to fix prices in violation of the Sherman Act." Masonite, the holder of a patent on hardboard, entered into agency agreements with competitors under which they were made del cTedere agents, the product was shipped on consignment, title remained in Masonite, and Masonite established the prices at which the product was to be sold. The Court disregarded the agency and found an agreement to fix prices in violation of the Sherman Act. The Court stated inter alia: So far as the Sherman Act is concerned, the result must turn not on the skil with which counsel bas manipulated the concepts of "sale" and "agency but on the significance of the business practices in terms of restraint of trade. "'while !f asonite involved competitors rather than vertical customers, unlike General Electric and the present case, the Supreme Court has stated clearly that the elimination of competition among retail distributor purchasers by price-fixing is ilegal per se just as is such price-fixing among competitors.

In the Richfield Oil case " involving exclusive dealing agreements and a contention by the defendant that its dealers were agents, Judge Yankwich cited and relied upon the decision in !fasonite finding that the dealers were not in fact agents. He stated: In interpreting this and other statutes, we must eschew the tyranny of words or labels. .Wemust, in each case, get behind the facade which the organization has created-as did the Supreme Court in the Masonite case, when it went behind a del credere agency which, at first blush, seemed to be a .fduciary relationship established by the concern for its own purposes, and found, instead, a means for monopolization. The Court did Dot then hesitate to declare ihe agency a mere doal;: for restraints. Granted that a business may create its own outlets, it can do so only by making them its agents in truth and fact. It cannot do so by creating a wellrecognized legal estate, superimpose on it oral limitations, the object of which is to restrain trade, and then claim legitmacy for this very restraint. It is concluded and found that the agency consignment agreement was a fiction or subterfuge, not a bona fide agency, and in fact con- )8 United States v. JlIa8Dnitc 316 U.S. 265 (1941), la Uniterl States v. ldchtield Oil Co. 99 F. Supp. 280 (S.D, Cat 1951); aff' d. per Cln-iam, 343 U. S. 922 i1952).

1394 FEDERAL TRADE CQ),I:IlSSIOK DECISIONS Initial Decision G3 F.

stitnteel an agreement or conspiracy among Sun and its dealers to fix resale prices, and to give Sun the power to do so, in violation of the Act. It is further concluded and found that sllch an agency consignment agreement, absent a.ny agreement express or implied to fix resale price, constituted an unlawful plan or combination to do so and an unfair method of cOlnpetition in violation of the Act. II. The Alleged Prexlatory Pricing Practice As noted above, Count II of t.he comp1a111t alleged that Sun, assuming that title to the gftsoline remained in it as a result of the agency contracts, engaged in predatory price-elltting by reclnejug its retail prices to one cent above the prevailing retail prices of the private-brand operators, \with the tendency or effect of increasing Sun s sales and unduly lessening competition. There is no allegation in the complaint or proof in this record that this pricing 'was discriminatory or in violation of S 2 (a) of the Chtyton Act, and accordingly there is no issue of price discrimination. Appa.rently this count is based upon the policy enunciated in S 3 of the Robinson- Patman Act, which probihits intel' a7ia selling goods at unrenson clbly low prices for the purpose of destroying competition or eliminating a competitor.

Absent discrimination or predatory price-cutting prohibited by 3 of the R.obinson-Patman Act, it is not unlawful for a seller to reduce his price and thereby increase his sales or share of the market. This is ordinary price competition which the antitrust laws are rlesigned to protect. Obviously a seller who reduces his prices normally will enjoy increased sales unless and until his price is met by his competitors. Such action, the very essence of competition, might well have the effect of reducing the sale of his eompetilors, although. as found above, this record does not establish that the private.e-brnnrl operators Jost any sales and in fact there is substantial evidence that the price reduction of Sun did not a.ffect the private-brand operators competitively. Counsel supporting the complaint cite no cases, and it is believed there are none, which prohibit a. trader from making nondiscriminatory, unilateral.L non-predatory price lcr\nction. the Supreme Court observed in Line lliatei"ial,"o a. case involving 11, price-fixing conspiracy:

.. .. "' Y\'whatever may be the evil social effect of cutthroat competition on producers and consumers through the Imvering of labor standards and the quality of the product and the obliteration of the marginal to the benefit of the sun-iving and low-cost producers. the ad,. antages of competition in opening rewards to management, in encouraging initiative, in giving labor in each 20 United States v. Une Material Go. 333 U. S. 287 (1948). , , \ Be)! OIL CO. 1395 1371 lni,tial Decision industry an opportunity to choose employment conditions, and consumers a selection of product and price, have been considered to overbalance the disadvantages.

An anfLlysis of the court decisions dealing with predatory price. cutting, including the primary line or area price discrimination cases which involve area. price reductions which adversely affect the priceentter s local competitors, reveals that in such cases the courts uniformly have fOlmc1 the presence of price-cutting in a local area, below one s m"Vn or one s competitor s costs with the object or effect driving such competitor out of business, and the financing of such local losses by means of profits derived from other areas. No case holds that unilateral, nondiscriminatory and non-predatory price reductions are illegal. Predatory pricing refers to sening at un reasonably low prices :for the purpose of destroying competition or eliminating a competitor, as prohibited in 3 of the Robinson- Patman A.ct. The court.s in such cases have construed "unreasonably" low prices to mean selling below one s own costs or a competitor s costs, which necessarily if continued would drive the competitor out of business.

Counsel for respondent argue that 3 of the Robinson-Patman Act is a crim.inal, not an antitrust, statute, and hence a violation thereof would not be an unfair met.hod of competition. It. seems clear that if violations of the Clayton and Sherman Acts ate unfair methods of competition, which 1uts been held several times by the Supreme Court, beca,use such Acts reflect the public policy of the Congress, certainly a rnethod 01' competition -yrJllch has been declared by Congress to be crimlna1 is against public policy and C& foriio1'i un-fair met1loc1 of competition. In fact, the courts have held such predatory price-cutting to be in violation of the Sherman Art ancl "unfair methods of competition . Even before the passage of the Federal Trade Commission Act and the use of the term "'unfair method of competition, the Supreme Court in 1911 in the Standa1'd Oil case 81l-JN' at page 43 , specifically held local price-cutting to suppress competition an "' unfair method of competition . During the same term tile Court, in the Also1'ican Tooacco decision 2' at page 160 descrjbecllo\\ering the price of tobacco below cost as "ruinous competition . At page 182, the C01wt stated:

, .. the conclusion of wrongful purpose an!! illegal combination is overwhelmingly established ijy ihe following com;ideratioJ1s: 2J fl. , Porto Rirlll A1Iel' CIlI1 l'o);nrCf) Co. hnen"r;rrn Tr,!)acro Co i)O F. 2c1 234 (2nr1 Cir. 1928): 1IiIUe. CO)))Jall!! Y FTC. HZ F. 2\\ 511 (6tJ1 Cir . 1944); J!oore Jlerul. \' lhead Co., ;41' 1.:-, lU (19541: nlHl JlfI, ,;I(lii(/ Bakillf/ Of). v. FTC 213 F. 20'jig (4th Cir. If)57j. "Footnote 11 Slipra Footnotf' 11. Sllpr(J.

1396 FEDERAL TRADE CO 1:YnSSIOK DECISIONS Initial Decision 63 (b) " * '" the acts ,vbieb ensued justify the inference that the intention existed to use the power of the combination as a vantage ground to further designed to injuremonopolize the trade in tobacco by means of trade conflicts others, either by driving competitors Qut of the business or compellng them to become parties to a combination-a purpose whose execution was illustrated by the plug (price) war which ensued and its results. . .. li In the Porto Rican American Tobacco case a classic illustration of a primary line price discrimination designed to drive a local competitor out of business, the Court observed: Hl1inous competition by lowering prices has been recognized as an ilegal Standa1.a Oil andmedium of eliminating weaker competitors (citing both American Tobacco.

It is eonc1uded and found that predatory price-cutting (sellng s costsat unreasonably low prices, such as selling below either one or a competitor s costs) for the purpose of destroying competition or eljminahng a competitor, is an unfair ll1ethod of competition in vio- Jation of the Act. I-Io,yever, as found hereinabove, there is no reliable, probative and substantial evidence in this record that respondent engaged in such predatory price-cutting. COXCLDSIONS OF LAW 1. Respondent is engaged in commerce, and engaged in the above found acts and practices in the course and conduct of its business in commerce, as ':c01l1nerce" is defined in the .. ct. 2. The acts and practices of respondent hereinabove found in Section III C are all to the prejudice and injury of the public and competition, and constitute unfair methods of competition and unfair acts and practices in commerce within the intent and meaning of the )Let.

3. As a result thereof, substantial injury has been done to competition in commerce.

4. nespondent has not, as alleged in the complaint, engaged in predatory pricing practices.

5. This proceeding is in the public interest and an order to cease and desist from the above-found acts and practices should issue against respondent.

ORDER It i8 ordered That respondent Sun Oil Compl1Y, a corporation lls offcers, directors, agents, representatives or employees, directly or through any corporate or other device, in connection with the offering for sale, sale or distribution of its products in commerce.e, as J Footnote 21, supra Se:\ OIL, CO. 1397 1371 Opinion commerce" is defined in the Federal Trade Commission Act, do forthwith cease and desist from:

A. Entering into, contiulling, cooperating in, or carrying out, or nttempting so to do, any planned common course of action, understa.nding, agreement, contrad, or conspiracy with any persoll or persons not parties hereto, including without limitation its independent lessee dealers, cither to attempt to, or create the power to, or to esj- blish, fix, adopt, mainta.in, adhere to, stabilize, or affect, by any meallS or method, prices at which said products are to be resold; B. Est.ablishing, maintaining, continuing, cooperating in, or carrying out, or attempting so to do, any pia. , policy, program, or com. bination, or any other equivalent means, for the purpose or with the effect of enabling respondent to establish or fix the prices at which its products a.re to be resold.

I t is fnrthe?' orde?'ed That the allegations of the complaint that respondent engaged in predatory pricing practices be, and hereby are, dismissed.

()PJXlO OF T11E CO)DtlSSlOX ::I.\Y 1. , Ion:;

By 1AclxTYHE CO'n1ni88ioJw?' This matter is before the Commission upon respondent's appeal from the hearing examiner s initial decision holding that respondent violated Section 5 of the Federal Trade Commission Act as charged in Count I by entering into an agreement or combination with its retail dealers to fix resale prices. The examiner entered an order to cease and desist such practices. He further ordered the charges under Count II of the complaint dismissed, from which action no a appeal has been taken.

Respondent appeals from the initial decision contending (1) that it was not unlawful to market its gasoline directly to the consuming public under commission consigmnent a.rl'Ulgements with dealers (2) that the retail sales through dealers operating under consignment arrangements did not constitute sa,les in commerce " under' Section 5 of the Federal Trade Commission Act, and (3) that, if a violation is found by the Commission; the order in the initial decision is too broad.

The facts in the case are not in substa.ntial dispute. Respondent Sun Oil Company, is a corporation organized and doing business under the laws of the State of New Jersey. Its principal offce and place of business is located at 1608 'Walnut Street, Philadelphia Pennsylvania. Respondent operates an integrated petroleum com- 7SQ-Q1S--69-- 1398 FEDERAL TRADE CO:\C\lISSIOX DECISIONS Opinion 63 F.

pany engaged in the produc6on, purchase and sale of crude oil, the refining of crude oil R,llc1 its derivatives, and the sale and distribution of gasoline and other petroleum products in various states of the united States and foreign eountrics. It has refineries at :Marcus Hook, Pennsylvania, and Toledo, Ohio. Respondent distributes gasoline under the brand name " Blue SUllOCO" through approximately 8 900 outlets in various states of the United States and in Canada. In J 05G, respondent's gross sales or petroleum products exceeded $731 000 000. Respondent markets its products through 'wholesale distributors, company-owned and operated stations and inl1epenclent dealer stations.

The market area involved in this proeccc1ing is comprised or the metropolitan areas and surrounding contiguous territory of the Cities or Korfolk, Port.smouth Uld Virginia Beach, Virginia (sometinlBs referred to herearter as the N orrolk area). The period covered by the complaint is November 1956 through April 1959. In the Norfolk area there were a number of nlilitary exchanges selling major-brand gasoline at prices substantially below the preva.filing prices in the market. This gasoline was available only to authorized milibTY personnel and dependents. In addition, in this market there were 21 private-brand stations (sometimes also referred to as independents) in 1956 which normally posted prices below the major-brand prices. The Norfolk area wa,s an Ullstable market in IThich depressed prices occurred spasmodically. Respondent entered t.he Norfolk area market in 1946, selling its gasoline exclusively through a wholesale distributor, Taylor Oil Company. In July 1054, Taylor was operating 34 retail stations and selling respondenes gasoline nt prices equal to the lowest post.ed by private. brand operators. Taylor, in July 1054, sold a volume or 723 275 gallons per month, or an average of 21 272 gallons per station. Sun took over from Taylor in 1954, opening its own stations and leasing stations to independent dealers. Respondent operated as rt major-brand seller "with its dea,lers and company-operated stations generally posting the prices prevailing at the stations of other majors. Respondent hy October 1956, through 29 stations, was selling 391 177 gallons per month or an average of 13 488 gallons per station.

,Vhen respondent took over c1istribut1on -in the Norfolk area from the Taylor Oil Company, it endeavored to have its product accepted as a major brand at the prices posted by the major brands. R.eponclent, however, was handicapped, as the examiner found, by the public conecpt t.hat. its accustomed prjcc was that of the unbranded ::tatlons and below\yprevailing major-brand prices. During the period Sun OIL CO, 1399 Opinion1371covered by the record, respondent never did attain the percentage of the market it enjoyed formerly when sellng through the Taylor Oil Company.

In Octoher of 1956, a price ,yar broke out in the upper Hampton Boulevard area near milHary exchange stations. A number of major-brand stations posted prices three cents below the generally prevailing major price. On or around November 5 , 1956, respondent's district manager, Samuel O. Southard, called respondent's dealers into meetings to discuss the price 'Val' situation and t.he methods to be used to enable the dealers to COlllpete price- ise in the ma.rket. 1r. Southard testified concerning such meetings as follows: Q. Did you hold any meetings, 711', Southard, prior to the inauguration of the consignment plan in No,member of 1950 with your dealers? A. 'Ve had three meetings at the time. I explained the commission consignment plan to them, yes.

Q. Anu ut the same titne weren t they asked to sign up? A. ?'TO. It was offered to them. Their signature was entirely their own lwivilege.

Q. Yes. But I wil ask you this: Did any of them sign up at those meetings? A. Yes.

Q. And did yon have eight or ten or twel,e at eacb meeting, would you say? A. The first two meetings I would thinl\: there would be eight or ten at each meeting.

Q. .Where were these meetings held? A. In my offce.

Q. That was at the Sun Oil Company Offces here in orfolk? A. Tes.

Q. .Were they held at night? A. In the day time.

Q. What did you tell th m at that time about the consignment plan? .A. I explained the consignment plm:! to them ami how it opel' 'cte(1. Q. Well, now, you explain to us just like yon explained it to them, wil you? "\Yhat die you say to them at that time? A. You want as best I (:ell recall what I said to them during the meeting? Q. Yes.

A. As I recall I mentioned that the gasoline gallonage at 01.1' stations in Xorfolk had not lwen as bigh or had not. reached the potential, and that in analyzing the situation that it was evident that considerable gallonage was being sold by the Government PX Serdce Station at a much lower price, and that also the independent stations IJOsting a price of two cents generally under the posted price of what is termed "house brand gasoline, together with giving premiums, and with the tremendous gallonage that they were doing, indicated tllat onr vrice was wrong so far as the consumer was concerned bceause he ,':asn t bl1ying our products.

And that a price situation had denlopec1 on HamlJton BouleTarcl. And in order not to penalize any of ani' dealers ",-e were going to be forced tn meet that price with a dealer on Hampton Boulcl"ard which would effect. perhaps our dealers in the ,Yards Corner area. 1400 FEDERAL TRADE CO:\C\IISSJON DECISIONS Opinion 63 I!\T.

And that the Ollilission consignment plan was the only method whereby we could assist thl' In in a situatioll of this kind. And that if they felt assistance was necessary or would be necessary, that they could ha,-e the commissioll consignment plan, and make their own decision. I believe also at that meeting I had mentioned that our price being two cents higher than independents, and with the independents doing tremendous gallonage, indicating our IJrice \vas '\"ong, and maybe some time we may have to attempt to sell gasoline at perhaps a one-cent differential rather than a two-lent differential.

J belieyc that is about all I can recall at the moment. Impressions of vaTiol1s clear.lers a.about these meetings are disclosed in part by items of testimony such as the following: Witness Jamcs J. Ilelth Q. Xmy, :\11' Helel. y-ou ,were on consignment in April of 1956. Did there come fl time when y-ou again began operating your station on a consignment basis? A. Yes. In XOl"enlbel' of 1956.

Q. :\o''i' , IJriol' Uwreto, did you attend any meeting or meetings \vhere this plan was discussed? A. The mecting that 1r. Southard held in his offce around I guess it \Vas around the fourth of Xo,member, or the fifth of November. Q. \Vho, if any-one, spoke at this meeting? A. ::11'. Soutl1ard, and I belie,e ::11'. Lilianthal ,,' as there. the salcsman. Q. "- hat- c1ic1 ":Jr. Sonthar(l say at this meeting? Do you recall? A. \Year l;e explained this mllsignment plan to 11S. And he told us what \ye would be guaranteed in order to meet the competitiye prices on the honse side ,,' ith the unbranded people. I believe to stay within aile I1cnny of that.

Q. Did he say that ,yas the reason for asking that you go on consignment? ).,. Well, that I guess there were I guess eight or ten dealers there. And the business I think in general was bad all over as far as the dealers were (,oJlcel'nea.

Witness David Sawyer Q. Xow, did there come a time, 1\1'. Sawyer when you went on what is known as a consignment plan of operation? A. Yes, sir.

Q. Kow, immediately prior thereto on or about that time did you attend a meeting at the oHlces of the Sun Oil Company at which time this plan of operation was discussed and explained A. Yes, sir.

Q. Did anyone from the Sun Oil Company address that meeting? A. Yes, sir. Mr. Southard.

Q. :Mr. Southard? A. Yes.

Q. And at that time what did ::11'. Southard ha,e to say about this plan of operation? A. 'Veil, as wen as I remember it, the main thing that we were interested ill. WE're tbe nnln' uIHIpd'!. Also 1 llrself nt the time had ueen stn;ving within a SCN OIL CO. 1401 1371 Opinion penny of the unbrandeds. And I don t thinl;: I made myself very popular by doing so.

But Mr. Southard said at the time that when we went on this consignment that we would stay within a penny of the nnbrandeds no matter how low got. And if my recollection is correct, I think he said no matter if it went to a nickel we would stay within one penny of the unbrandeds. Of course he said if we got that low; that we would get the 4%-we wouldn get the four and a half cent that they said we would get on consignment. That was my big argument. I have always thought we should stay within a penny of the nnbrandeds.

Witness Wiliam J. Mountjoy Q. "That was said by anyone at that meeting? A. 'Veil Mr. Southard explained to us that we were going to get competi. tive with unbranded stations and we were going to stay one cent above them and he told us that :::1r. Lilianthal had papers for us to sign to go back on consignment, and just more or less explained to us and it came down to that. Accordingly, it is clear that on or about November 5 , 1956 , respondent and various or all of its dealers met and discussed arrangements for fixing and maintaining retail gasoline prices in the N 01'folk area, and that a combination or conspiracy was organized to take Retion with respect to maintaining such prices. As a result of the meetings all dealers of the respondent Rccepted its commission consignment plan except ;\Ir. ' Wiliams, a dealer in Portsmouth Virginia. The plan was later also accepted by Mr. Wiliams. Thus respondent's consignment contra,cts were not separately and individually negotiated with each of its dealers. Rather' the dealers were called together in groups. Sun then acteel as a necessary conduit and clearing house through which the dealers among themselves and in each other s physical presence could and did pledge to fix prices horizontally; Sun, in the presence of the dealers, pledged to fix prices ve,.tioally.

The dealers attending and participating in the meetings, at least tacitly, agreed Rmong themselves and with respondent to the taking of specific action on the maintaining of retail prices in the market. Indeed one dealer reported that the Sun representative stated that when we went on this consignment. * * if it (the retail price) went to a nickel we -n'ould st.ay within a penny of the unbrandeds. 1 The commission (,oll ig-nment ngTE'ement was an fllJenrlment to tlJe (lealefs' purchase agreement whereby 1111 111'Oyjsions of the lattc)' agreement relating to the I)'urcllf. !;(! and sale of motor fuel wen: suspended. By thj terms of the consignment agreement, respondent agreed to (leliHr g'nsoJine to the dealers, to which It WRS to retain title. Bules were to be made by the dealer, for wJlich he recei,el1 it comJJj sion. The dealer ,,'ns req1Jired to ell the gftSOliDP.' at tlJepricel' design:ned hy respondent. All 1'1;1, of loss, damage or shortage was upon tlJe dealer. The consignmeut agreement was terminable 011 fiye days notice except for default. which made it terminable upen t'\ent;r- four hours Dotice. It pro,j(Jed that upon termination tbe dealer was to dej1yer to l'e ponrlent any gasoline le-ft in bh; tanks.

1402 FEDERAL TRADE CO DnSSI01- DECISIONS Opinion 63 Thus LherG is no doubt that SUll and its dealers wished and u'grced to hold steadfastly to a uniform price line. In order to achieve this v. Genel' al Electric Co. 272 u.S. 476end, Sun, lmlike United States (lg26), did not content itself with unilateral vertical arrangements but instead joined with its dealers in horizontal arrangements which wiped out any slight opportunity for independent market action through price variances of any of its retail dealers. The purpose of the action to be taken, at least in important part, was to capture sales volume from independent dealers. It is conceded by the respondent that part of the purpose of the comnlission consignment ,vas to rebuild volume and to regain a share of the business which respondent had previously held. (See page 13 of the respondent' brief on appeal.) The meetings organized by the respondent provided the focal point for the dealers to gather and enter into at Jcast a tacit or implied agreement with other participants as to the fixing of retail gasoline prices. There 'Ivas an interdependence in the dealers' decisions to participate in responclent:s consignment plan. For instance, to the extent that a uniform reduction to within one cent of the independents was to be maintainec1 cooperation and participation by all was necessary.

A combination or conspiracy was instituted even though dealers vmre not uniformly desirous of entering into the arrangement proposed by the Tespom1ent. This is true even though they may not have intended concerted action. "Acceptance by conspirators, without previous agreement, of an invitation to participate in a plan, the necessary consequence of ,which, if earried out, is restra-int of interstate commerce, is suffcient to establish an unlawful conspiracy uncleI' the Sherman Act." Interstate Oirc!tit, Inc. v. United States v. Masonite306 1:;.S. 208, 227 (1g3g). The Court, in United States Corp. 316 U.S. 265 (lg42) held that a price fixing combination was formed although in negotiating and entering into the first agreements, each participant, other than Masonite, acted independently of the others, negotiated only with l\fasonite, desired agreement regardless of the action that might be taken by any of the others, did not require as a condition of its acceptance that l\fasonite make such an agreement with any of the others, and had no discussion with any of the others. As the Supreme Court stated in the 31 asonite Case the result (of this easeJ must turn not on the skil with which counsel has manipulated the concepts of 'sale' and ' agency' but on the signific.ance of the business pra.ctices in terms or restraint of trade. SU)I OIL CO. 1403 1371 Opinion Here too, the stigma of price fixing cannot be removed by merely waving the verbal wand of "consignment."

Thus we hold that in the eireumst,mces shown in this proceeding respondent and its dealers, at the meetings held on or about N 0vember 5, 1956, entered into a combination or conspiracy to fix and maintain the retatl prices at which respondent's gasoline was to be sold by dealers to the purchasing public. A means or a method for ft'ec.ing the price fixing scheme so formed was the consignn1ent method of operation. The consignment arrangement was a fiction and a subterfuge in that it veas simply a clevice by which the unlawful price fixing arrangement ' as to be implemented. This price fixing, horizontal as well as vertical, makes the case dist.nguishablc from the decision in the General Electric 00. case. Respondent also cites in its defense FecleJ'tl T1'ade OO1rwnission v. Curtis P1tblishing OO?nlany, 260 U.S. 568 (1923), but we find nothing in that CRSO which would be in conflict with onr holding of a violation in this proceeding.

Under these circumstances we hold that respondent's consignment plan was unlawful not because it did not constitute a .genuine consignment under the law of a.gency, but becrmse the proof showed it to be ft vertical and h0T1 piontu2 price fb:ing device in violation of the Federal Trade Commission Act.

\V 0 conclude that the practice 8ho\\l1 constitutes an unfair method of competition and unfair practice in violation of the Federal Trade Conlmission Act.

Respondent next argues that the retail sales through dealers operating under consignment arrangements did not constitute sales " commerce" ,,;within the meaning of the tenn in the Federal Trade Commission Act.

The examiner found that in the course and conduct of its interstate business, respondent. transports it.s gasoline in tank cars, tankers and trucks from its different refuleries, terminals, and distribution points, located in various states of the United States, to retail dealers in the Norfolk area and in other states of the United States. He held, in effect, that the agreement or combination between respondent nd its dealers fixing the retail prices 'vas engaged in the course of such business and, the.refore, in interstate commerce. We agree. Respondent's principal place of business was at the time of this he.aring and is in Philadelphia., Pennsylvania, and t.he dealers with which it. entered into an agreement 01' combination as to prices were in Virginia. Respondent shipped ga.,soline to such dealers from :

1404 FEDERAL TRADE COl\:TIISSION DECISIONS Opinion 63 F.

points outside the State of Virginia. This clearly was the sale of gasoline in interstate commerce. Standard Oil 00. v. Federal Tmde Oommi"ion 340 U.S. 231 (1951). It was in cOlllection with and in the course of such C011merce that respondent engaged in the practices found to be unla wfu!.

The fact that the retail sales made pursuant to the price fixing scheme were local sales is not the controlling factor. In this case it is the price fixing scheme which was charged and found to be unJawfu1. This scheme concerning parties in different states and a product transported across state lines was in our view an intertate scheme or course of conduct a,nd subject to the regulatory powers of the Commission under the Federal Trade Commission Act. Of. Hol/and F'l1wce Oompany v. Federal Trade Oommission 269 F. 2d 203 (7th Cir. 1959), cert. denied 361 U.S. 932; General 2l1otm.s em'pomtion et al. v. Federal Trade Oommission 114 F. 2d 33 (2nd Cir. 1940); Ford NotOT Oompany v. Fedeml Trade 00mmi8- ,ioll. 120 F. 2d175 (6th Cir. 1941), cert. denied 314 U. S. 668; United States v. Food and GJ'OCCl'Y BUTeau of Southern Oalifomia 43 F. Snpp. 9fJ6, 972 (V. C. S.D. Ca!. 1942). We hold that respondent engaged in an unfair method of competition and practice in commerce..

Respondent lastly challenges the scope of the order. Specifically, it contends (a) that the order should relate only to the sale of gasoline rather than all products respondent sells, and (b) that the order should specifically state that respondent may "Fair Trade its gasoline under state laws.

Since there has been no showing that the practices herein challenged were used as to products other than gasoline and there being no further showing of a likelihood that they might be used with respect to other products we will limit the order to gasoline. Respondent s further request, that a provision be included in the order, as in the matter of Sun Oil Oompany, Docket 6641 (55 F. 055), excepting from the order contracts entered into in conformity \with Section 5 of the Federal Trade Commission Act as amended by the :\IcGuire Act, is granted, and the initial decision will be so mor1ified.

The respondent's appeal js granted to the extent indicated in this opinion and it is other'\"ise denied. It is ordered that the initial decision be modified in conformity with the views expressed herein and, as so moc1jficd, adopted as the decision of the Commission. An appropriate order wil be entered.

Commjssioner Anc1er::on concurs in the result. 3D'" OIL CO. 1405 1371 Order QrenON, CONCURRIXG lil\Y 13 , IDG3 By .. DERSON OOli7/lnis8ione1' I concur in the result. I am not sure that the majority opinion spclls out in positive fashion the assurance that the time-honored business practice of consignment selling is not interdicted. It should be clearly understood that the general practice of consignment sellng is not attacked by the Commission because of the practices of respondent in this case. This ca.se should stand for this case only.

Consignment selling is a lawful business method. I don t think it is necessary for the Commission to take business enterprisers on its lap and explain how honest "consignment sellng" should be carried on, but it should at least say that the practice is not generally condemned.

ORDER MODIFYI:\G A m ADOPTING INITIAL DECISION AND PROVIDING FOR THE FILING OF OBJECTIONS '10 PROPOSED FINAL ORDER AND REPLY JL\Y 13 , IDG.' The Commission having rendered its decision in this matter granting in part and denying in part the respondent's appeal, and having ordered that the initial decision be modified in accordance with the Commission s views expressed in the accompanying opinion and, as so modified, adopted as the decision of the Commission; and The Commission having further determined that the proposed order to cea.se and desist contained in the initial decision, as modified, is subject to 94.22 (c) of the Commission s Rules of Practice: J t is ordered That the initial decision including the order, as modified in the manner shown by the proposed order set forth here- , be, and it hereby is, adopted as the decision of the Commission. J t is further ordered That the order to cease and desist contained in the initial decision be modified as shown by the following proposed order of the Commission and that respondent may, within t\wnty (20) days after service upon it of this order, file with the Commission its objections to the changes so made in the order cease and desist contained in tl1c initial decision, together with a statement of the reasons in support of their objections and a pro- .. ProjJosed Final Onlrr is omitted in printjng since it wns Issued as the Finnl Order of rue Commission.

1406 FEDERAL TRADE COl\D\nssIO DECISIOSS Final Order 63 F.

posed alternative form of order appropriate to the Commission decision.

FINAL ORDER xon:)IBER , 19G3 Pursuant to S 4.22(c) of the Commission s Rules of Practice, pub lished May 16, 1062 27 Fed. Reg. 4600, 4621 (superseded August 1 19(3), respondent was duly served with the Commission s decision upon responclenes appeal from the hearing examiner s initial decision and ,with an ordcr affording it the opportunity to file within twenty (20) days any exceptions it may have to the terms of the Commission s Proposed Order; and Respondent having filed no exceptions to said Proposed Order "within the t"entry (20) dllY time allotted therefor, the Proposed Order hecomes, and is hereby issued as, the Final Order of the Commission:

It i8 o1'dered That the respondent Sun Oil Company, a corporation, its offcers, directors, agents, representatives or employees, directly or through any corporate or other device, in cOllnection with the offering for sale, sale or distribution of its gasoline in commerce as "commerce:' is defined in the Federal Trade Commission Act, do forthwith cease and desist from:

1. Entering into, continuing, cooperating in, or carrying out any pla,nned common course of action, understanding, arrangement agreement, contract or conspiracy with any person or persons not parties hereto, to establish, fix, adopt, ma,intain, adhere , 01' stabilize by any means or method, prices, terms or conditions of sale at which its gasoline is to be sold. 2. E,stabiishing, maintaining, continuing, cooperating in, or carrying out, or attempting so to do, any plan, policy, program or any consignment policy in combination with any other per. son or persons not parties hereto, for the purpose or with the eiIect of cnabling respondent to establish or fix the prices, terms or conditions of sale at "which its gasoline is to be resold by a dealer after purchase from respondent.

Provided, how eve,. That nothing herein contained shall be construed to limit or otherwise affect any resale price mainte,nance contracts ,\'hieh respondent may enter into in conformity with Section 5 of the Federal Trade Commission Act as amended by the McGuire Act (Public La" 542, 82nd Cong. 2nd Session, approved July 14, 1952).

THE ATLANTIC RE:FI),IXG CO. 1407 1371 Complaint It i8 furthe?' ordered That the allegations of the compJamt tilt respondent engaged in predatory pricing practices be, and they hereby are, dismissed.

within sixty (60) It is further ordered That responelent shall, days after service upon it of this order, file with the Commission a report, in writing, setting forth in detail the manner and form in which it has complied with the order set forth herein. By the Commission, Commisisoner Anderson concurring in the result.

Ix THE fatter OF THE ATLANTIC REFIi\IKG CmIPAKY ORDER, OPINION , ETC. , IN REGARD TO THE ALLEGED YIOLATIOX OF THE FEDERAL TR.:I.DE COJDIISSION ACT Doekct 7f'/1. Camp/a' int, Apr. 1.'. 1959-Declslon, Nov. , 1963 Order reCJl1irillg- a maioI' integrated petroleum products marketing company to CCfI!"C r-nrl'Cillg' itl:independent lessee-dealers ill the "Delmal'ya Peninsula area of Del:nHll€, ::Iar:vlA.nc1 and Yirgillia, during a local price war, to sell its ga.'wline at ulliform ,met lWJl-competitive prices by means of a so-called temporary consignment cOlltrr.ct" ; conspiring with such retail dealers to fix find maintain the uniform prices tl1rough the medium of the "consignment contracts; and cOllspirin with its independent wholesale distributors to maintain t.be uniform consumer resale prices by granting the coconspiring distributors certain rebates to be passed on to their denier customers maintaining the uniform prices.

COJIPLc\l XT The Federal Trade Commission, luvdng re,ason to believe that 1'110 Atlantic Hefining Company, Inc., a corporation: hereinafter l'e ferred to as respondent, has violated and is nmv violating the provisions of Section 5 of the Fcc1eml Trade Commission Act (15 "G. , Sec. 45), and it appearing to the. Commission that a proceeding by it in respect thereof ,,"auld be in the public interest hereby issues its compJaii1t, stating its charges with respect thereof as follows:

COTj:NT I PARAGR.\PH 1. R,esponclent, 1;he Atlantic Refining Company, Jne, is a corporation organized existing Gnd doing business under and by virtue of the laws of the Common"health of Pennsylvnnin., "ith . Respondent' s correct Dilme is The Atlantic Refining Company. THE ATLANTIC RE:FI),IXG CO. 1407 1371 Complaint It i8 furthe?' ordered That the allegations of the compJamt tilt respondent engaged in predatory pricing practices be, and they hereby are, dismissed.

within sixty (60) It is further ordered That responelent shall, days after service upon it of this order, file with the Commission a report, in writing, setting forth in detail the manner and form in which it has complied with the order set forth herein. By the Commission, Commisisoner Anderson concurring in the result.

Ix THE fatter OF THE ATLANTIC REFIi\IKG CmIPAKY ORDER, OPINION , ETC. , IN REGARD TO THE ALLEGED YIOLATIOX OF THE FEDERAL TR.:I.DE COJDIISSION ACT Doekct 7f'/1. Camp/a' int, Apr. 1.'. 1959-Declslon, Nov. , 1963 Order reCJl1irillg- a maioI' integrated petroleum products marketing company to CCfI!"C r-nrl'Cillg' itl:independent lessee-dealers ill the "Delmal'ya Peninsula area of Del:nHll€, ::Iar:vlA.nc1 and Yirgillia, during a local price war, to sell its ga.'wline at ulliform ,met lWJl-competitive prices by means of a so-called temporary consignment cOlltrr.ct" ; conspiring with such retail dealers to fix find maintain the uniform prices tl1rough the medium of the "consignment contracts; and cOllspirin with its independent wholesale distributors to maintain t.be uniform consumer resale prices by granting the coconspiring distributors certain rebates to be passed on to their denier customers maintaining the uniform prices.

COJIPLc\l XT The Federal Trade Commission, luvdng re,ason to believe that 1'110 Atlantic Hefining Company, Inc., a corporation: hereinafter l'e ferred to as respondent, has violated and is nmv violating the provisions of Section 5 of the Fcc1eml Trade Commission Act (15 "G. , Sec. 45), and it appearing to the. Commission that a proceeding by it in respect thereof ,,"auld be in the public interest hereby issues its compJaii1t, stating its charges with respect thereof as follows:

COTj:NT I PARAGR.\PH 1. R,esponclent, 1;he Atlantic Refining Company, Jne, is a corporation organized existing Gnd doing business under and by virtue of the laws of the Common"health of Pennsylvnnin., "ith . Respondent' s correct Dilme is The Atlantic Refining Company. , ,, 1408 FEDERAL 'In.:D : CO DnSSIOX DECISIO:-n:; Complaint 63 F.

its principal offce and place of business located at 260 South Broad Street, Philadelphia 1, PCllusylyal1ia. Respondent is a major oil company and is now and for several years last past has been, among other endeavors, primarily engaged ill the offering for sale, sale and distribution of gasoline and other petroleum products throughout a seVt nteell state marketing area. Said gasoline is advertised and sold under the brand names of ;' Atlantic Gasoline:' and "Imperial Gasoline\ (" \tlantic" being the TegubI' brand and "1m. perinI" being the hi-test or ethyl). Said gasoline en oys wiele public acceptance wherever it is marketed and is considered a mftjor brand product. Respondent, one of the nation s leadi.ng producers and marketers of gasoline and other petrolemn products, comprises an integrated unit in the petrolum indllstr ' in that it is engaged in the acquisition and exploitation of oil producing properties located in the United States as well as in foreign lands; the refining of crude oil and the subsequent manufacture therefrom of various pet.roleum products including gasoline; and the subsequent distribution and marketing at ,whole3alo and retail of the products of its refineries in the United States and foreign lands. Respondent owns and operates refineries at Philac1elphia, Pennsylvllnia, and AtrBco, Texas. It owns or controls approximately t'Ycnty-lin ocean-going tankers, as "ell as various pipe-line systems used for the transportation of crude oil and refined petroleum products. Furthermore, it owns and operates water terminals and bulk plants in different marketing areas from "which its petroleum products arc deliyerec1 to the various marketing outlets for subsequent sale to the consumer. In 1956 the gross sales including petrolemn products, of the. respondent and its consolidated subsidiaries Rlnountec1 to S544 558.

PATI. 2. Hesponclent markets its gasoline and petroleum products through its myned and operated serl'ice stations; through independent lessee, dealer service stations: and through independent distributors ,yho in addition to supplying gasoline to servic.e stations operated by them also sell to independent lessee-dealer service sta. hons.

Respondent, in the deli, ery and sale of its gasoline to its various marketing outlets located in a seventeen state area, and in particular in eastern Pennsylvania nlH1 that. area, termed the ':Delmarva" peninsula- njd peninsula being comprised of portions of the three states Dehnyare" )Iarylanc1 and Virginia-has entered into agreements eol1tracts and/or leases, now in force hereby respondent delivers and sells to independent distributors and independent Jessee-dealers all of their respective requirements of respondent's brands of gasoline during the terms of such contracts. In the course of supplying said .

THE ATLANTIC REFIXIKG Co.. 1409 1407 Gomplaint customers ancl making deliveries pursuant to the terms of said agreements, contracts and/or leases, respondent ships its gasoline from its refineries across state lines to bulk stations and other terminal or distributing' facilities located in or near the various ma-rketing areas. From these points it IS delivered to independent distributors and/or independent Jessee-elealers, for subsequent sale to members of the purchasing public. There is now, and has been at all times mentioned herein, a continuous stream of trade in commerce, as "com- 111e1'ce " is defined in the Feclera.l Trade Commission Act, of said gasoline bet"\veen respondent' s refineries, tennina.I a,ncl bulk stations and said independent distributors and/or independent lessee-dealers in the a-areas set forth herein. All of said deliveries from respondent and the receiving, as ,yen as the purchflses and resale by the said independent distributors and/or independent lessee-dealers have been in the course and furtherance of such C011merce. PAR. 3. Except to the extent that competit.ion has been hindered frustrated, lessened, manipulated and eliminated as set forth in this c.complaint, respondent has been and is now in substantial competition with other corporations, individuals and partnerships engaged in the distribution and sale of gasoline in commerce a.s that term defined in the Federal Trade Commission Act. PAR. 4. Certain conditions ,which create or contribute to temporary c1jsturbances of the retail price structure of gnsoJine at the service station level, occur Uld have occurred.d on various occasions and at various times in the areas in which respondent maTke.ts its gasoline. These arc sometimes referred to as " price disturbances, or a,s :'depressed prices" but more commonly they are referred to fllc1 known as " price wars Price ,,-ais " may originate from anyone of a number of casual factors. During such occasions, respondent has under' the guise and pretext of giving a2sistance to its lessee-dealers conceived, adopted and put into operation certain plans or methods for the purpose, and with the effect, of controlling the prices at which gasoline is sold at respondent' s lessee dealer service stations. In the "Delmarva Peninsula ' area, as wen as elsewhere, respondent has a number of retail outlets through which its refined petroleum products, including gasoline, are sold to the consuming public. A substantilll nnmbcr of such outlets are operated by indel1endent businessmen, or who "would be in the absence of the power and control exercised over them by respondent, who lea,se or snb-lease their service station properties from respondent and -who have oncered into supply contracts for gasoline and certain other requirements wjth respondent.

1410 FEDERAL TRADE co nIISSIOX DECISIOl\S COllplftint 63,' By means of various provisions in the leases, sub-leases and supply contracts and through a system of policing the business operations of the said independent lessee-dealers by constant inspection and surveillance, the respondent is able to and does, to a substantial ext.ent and degree, dominate and control the manner in which said lessee-cleaners operate the service stations leased or sub-leased from respondent. The pOIYCI' resident in respondent through such domination and control is exercised, exerted and used by respondent to per:made, influence, coerce and induce said independent lesseedealers to abide by, flgree to, adhere to, follo,v or acquiesce in various plans, poEcics or methods of doing business which may be snggestecl oy respondent or -.which respondent may desire or elect to place in effect null opel'ntion. At all times the independent lessee- (lealer is conscious und a ware of the powe,l' of respondent and is inflncllced by such power in the everyday decisions made by hi111 in the conduct. of his business.

Beginning" in or about ilIay 1967, respondent conceived, adopted and put into operation in the "Delmarva Peninsula" area a device plan or scheme to enable it to fix the retail prices of the gasoline solel by its lessee-(lealers to the consuming public. To eft'ectuate and entry out the plan, respondent, relying on the power and control it possesses and exert.s over its independent lessee- (lerdcrs in the conduct of their business, influenced, persuaded or otherwise inclllCed or caused its independent lessee-dealers to enter into agreements with it which are designated or cOllllnonly referred 1:0 and knoTIn as "temporary consignment contracts . By the use of such temporary contracts uniformity of price is achieved as bet"oen lessee-dealers of respondent and said Ul1iformity of price contributes to a manipulation and/or stabilization of price competition in the market during a period of price disturbance as described above. In most, if not a.ll, instances the said dealer "ms an unwilling party to the arne1gement having been coerced, pressured or otherwise persuaded or induced by various means and methods employed by respondent, to enter into such consignment contracts. Said contracts have been, and are noti being, entered into and carried out ith complete indifference as to an individual dealer s competitive situation, or need. During the period the agreement remains in effect, respondent is ceded the right by the lessee-dealer to establish the rcsa1c price of the gasoline io ihe purchasing public. Said dealer Tecei, es a certain designated commission on each gallon of gasoline sold at his service station but forfeits his customary margin of profit.. In most instances, if not in all, the commission received THE A'lLAXTIC rmFIXIXG CO. 1411 1407 Complaint customary mar-by a dealer is not equal in amOlln t to said usual and gin of profit. The amount of said commission to be paiel is computed by a specific formula" operating ill relation to the retn-il price or prices posted and the amount of the temporarily established con- ",vholesale price).eignment tank wagon cost. (i. , temporary those dealers who do not participate in the consignment plan operation, the tank wagon price to them is more than is the cost to a participating dealer.

Respondent through and by virtue of said plan is able to, and does, control the prices at ",\'which gasoline is sold at. retail by its lesseedealers and thus tends to, and does, during the period the plan is in operation, manipulate, eliminate, frustrate and prevent pdce competition between its lessee-dealers and with others. Such pOlver l1d control removes any probability or possibility of price competition, thus, tending to insure uniformity of prices despite the IJr8,sence of factors in the market whi.eh would, in the absence 01 thi.s altificia 1 restraint fl.Tld control, encourage competition. TIespcndenL in addition to its lessee-dealers, also sens its gasoline tc ,'\wholesale di tl'ibutol's in this area" as well as in others. Said distributors in some insIlllces operate sen ic.e stations of their own tlnd also eJl to and have as cusromers other sen' icc statlons selling resllonc1enfs bl'lnd of gflsoline. Said distri.butors conduct their businesses and sell irithin established exclusive territories, said exclusive territories having been previously estftblishcd by contnwt between the parties. In order to assure that the consignment plan of operations would achieve the aims and purposes intended, 1'e. :pondent, by various 111cans and methods, caused the distributors to maintain the retail prices at their OiYn stations as well as those posted at their dealer-customer stations in conformity with the lessee-dealers operating lU1der thelwiccs posted by respondent's aforesaid consignment plan. Furthermore, at times and on various occasions, respondent, acting on its own initiative through various means and methods, attempted to and did cause the dealer customers of said distributors to post and maintain their retail price or prices in conformity with the price being posted by respondent's lesseedealers operating under the aroresnid consignme,nt plan. PAIL 5. The acts and practices of respondent as herein alleged have, a dangerous tendency to and ha vo hindercd, suppressed and restrained the sale anel distribution or gasoline, in commerce, among and between the Yflrious States of the U11itec1 States and the District of Columbia, a,nc1 hin(lered and preyencu1 normal, free and unrestrained cmnpetition in the de of gasohne in commerce; have a 1412 FEDERAL TRADE COl\DIISSIO DECISIQ:\S COlllllaint G3 r. dangerous tendency and capacity to repose, and do repose, in respondent the pmycr ancl control suffcient to stabilize or contribute to the stabilization of prices in the area 01' areas where it markets its gasoline; created fUlc1 continue to create an artificial price structure in "hieh the free play of market forces is suppressed hindered and prevented; make for price uniformity at the wholesale and retail levels 01 sale and distribution to the detriment of the purc.hasing public; and deprive the public and its lessee-dealers and others of the advantage of competition in price and otherwise which they \Tould enjoy under a condition of normal, free and unrestrainecl competition.

PAR. 6. The acts and practices of the respondent as herein alleged are all to the prejudice of the public, and its lessee-dealers a,nd the competitors of its lessee-dealers and its distributors and constitute unfair acts and practices and unfair methmls of comeptition within the intent and meaning of Section;) of the Federal Trade Commission Act.

COLX'! II PAR. 7. ..\.1 of the allegations or Paragraphs 1 through 6 of Count I of this complaint are hereby adopted and incorporated herein by reference and made a part of this Count II the same as if they '"\ere repeated herein verbatim.

PAR. 8. Except to the extent that competition has been hindered frustrated, lessened, manipulated and eliminated as set forth in this complaint, respondent, its lessee-dealers and independent distributors have been and are nm\' in substantial competition with other corporations, individuals and partnerships engaged in the distribution and sale of gasoline in commerce as that term is defined in the Fec1end Trade Commission Act.

-\R. 9. Beginning in or about l\fay 1957, respondent, acting through its agents, offcers, employees and its independent lesseedealers (sflid lessee-dea.lers are to be considered.d as and are herewith alleged as unnamed co-conspirators) 1 engaged in selling respondent's gasoline and other pet.roleum products in the "Delmarva Peninsnh:' area, and other areas, for the purpose of manipulating, suppressing, preyenting, hindering or stabilizing price competition in the dis tribmion and sale in COlmncrce of gasoline during a price disturbance period, conspired to and have entered into, maintained and carrie, out a combination, planned common course of action, understanding or ag:reement, through which the price of gasoline sold in the service stations of said independent. le,ssce-c1ealers could be fixed a,nd maintallle.c1, and was fixed and maintained, and through which the price TEE ATLA:;TTlC REFI IXG CO. 1413 1407 Complaint of gasoline being sold by others in the market could be and was manipulated. stabilized, controlled and affected. PAR. 10. Pursuant to the conspiracy and in furtherance of the aforesaid unla1vful combination, planned common course of action understanding and agreement, respondent and the aforesaid independent lessee-dealers executed a written agreement purporting to be cast in the fornl of a legal consignment contntct. Said contracts arc cast in such form for the purpose and with the attempt to immunize and insulate a mere price nlanipulation scheme from the antitrust laws. Said agreements are nothing more than shams and subterfuges having as their primary purpose and function of a temporary illegal price fixing vehicle, which affects, manipuJates, restrains and/or stabilizes price competition or contributes to artificial uniformity of gasoline prices in the market. The said consignment contracts as alleged herein bear no bona fide relationship to the business needs and requirements of either the respondent or its independent lessee-dealers, a,nd in substance the status of gasoline purchaser and vendor did and does exist as between respondent and its independent lessee-dealers notwithstanding the representation by form to the contrary. Futhermore, in most, if not all, instances each dealer was an un willing party to the arrangement, having been coerced, pressured or otherwise persuaded and induced, through various means and methods employed by respondent, to enter into lllll agreements.

PAR. 11. The unlawful planned common course of action as herein alleged is singularly unfair, oppressive and to the prejudice of the public and respondenes competitors, distributors and retailers of gasoline, as well as to the competitors of respondent's lessee dealers in the "Delmarva Peninsula" area, as well as other areas where so employed, and has a dangerous t.tendency to and does unreasonably restrain, manipulate, hinder, suppress, and/or stabilize competition in the "Delmarva Peninsula area, and other areas, between and among respondents lessee-dealers; respondent's lessee-dealers and rcsponc1enes owned and operated service stations; respondent's lesseedealers including its own service stations and the respective retail dealers of respondent's independent distributors; respondent's lessecdealers including its own service stations and those distributors which.h market at retail; respondent' s lessee-dealers including its own ervice stations and the retail dealers of other gasoline marketers; and between and among respondent and its independent distributors. It has unreasonably restrained, manipulated, hindered, suppressed and/ or stabiliz.ed competition therein in the distribution and sale of gasoline in commerce within the meaning of the Federal Tra, iso-01S- 'ID- 1414 FEDERAL TRADE cO:vnnSSION DECISIONS Complaint 63 F.

Commission Act and constitutes an unfair n1ethod of competition and an unfair act and practice in commerce within the intent and mea-ning of Section 5 of the Federal Trade Commission Act. COUXT III PAR. 12. All of the allegations of Paragraphs One through Six of Count I and Paragraphs Nine through Elevcn of Count II of this complaint are hereby adopted and incorporated herein by reference and made a part of this Count III the same as if they '.were repeated herein verbatim.

'R. 13. Except (0 the extent that competition has been hindered frustrated, lessened, manipulated and eEminated as set forth in this complaint, respondent, its independent distributors and lesseedefLlers have been and are now in substantial competition 'With other corporations, individuals and partnerships engaged in the (1ist1:ibution and sale of gasoline in commerce as that term is defined in the Federal Trade Commission Act.

\n. 14. Beginning in or about :Tiay 1957, respondent acting through its agents, offcers, employees, and its independent distributors (said independent distributors are to be considered n,s and are herein alleged as unnamed co-conspirators) engaged in selling respondent' s gasoline and other petroleum products to independent service st.ations as ,yell as through their own service stations in the Delmarvf1 Peninsula" area, and other areas, for the purpose of manipulating, suppressing, preventing, hindering or stabilizing price competition in the distribution and sale in commerce of ga,so1ine and for the further purpose of aiding, abetting and in furtherance of the consignment plan of distribu60n as alleged in Count I herein as ,yell as the price manipulation, fixing and/or stabilization scheme as alleged in Connt II Paragraph 9 hereof, conspired to and have entered into, maintained and carried out a combination, planned common course of action, understanding and agreement, through ,,,which they would maintain and fix, and did maintain and fix, the price at which gasoline ,vas sold or would be sold at the wholesale level, as well as at retail in the gasoline service stations owned and operated or sold to by said distributors.

PAn. 15. Pursuant to the conspiracy and in furtherance of the aforesaid unlawful combination, planned common course of action understanding and agreement respondent in conspiracy and combination with the aforesaid independent distributors, adhered to performed and did the following acts and things: (1) Agreed to and did grant certain allowances, discounts or rebates from tlw tank wagon price to the distributors' customers THE ATLAXTIC REFIXL' CO. 1415 HOT Complaint on the condition that the dealer customer would conform his retail price to a price dictated by respondent.

(2) Agreed to and did provide to its distributors certain allowances, discounts or rebates fr01n the distributors' cost upon the condition, understanding and agrcelnent that said distributors provide their customers with certain alowances, discounts or rebates and further provided, that said cust0111e1'8 of the distributors would adhere to and post the retail price or prices dictated by respondent. (3) Pressured, threatened, coerced and otherwise persuaded and induced said dealer customers of said distributors to post and adhere to retail prices dictated by respondent from time to time. PAR. 16. The unlawful planned COlnmon course of action a8 herein alleged is singularly unfair, oppressive and to the prejudice of the public and respondent's competitors, distributors and retailers of gasoline, as well as to the competitors of said distributors, in the Delmarva Peninsula" area, as well as other areas where so employed and has a dangerous tende,ncy to and does unreasonably restrain, manipulate, hinder, suppress and/or stabilize competition in the Delmarva Peninsula" area, and other areas; between and among the independent retail customers of a distributor and the retail out- Jets owned and/or operated by a distributor; the retail customers of the distributors; the retail customers of the distributors and the independent lessee-dealers of respondent as well as those retail outlets owned and/or operated by respondent; the retail customers of the dist.ributors including distributor owned and/or operated outlets and the retail dca.lel's of other gasoline marketers; respondent's independent distributors; respondent' s independent distributors and tlle distributors of other gasoline marketers; and between and among respondent and its independent distributors. It has nnreasonably restrained, manipulated, hindered, suppressed and/or stabilized competition therein in the distribution and sale of gasoline in commerce within the meaning of the Federal Trade Commission Act and constitutes an unfair method of competition and an unfair act and practice in commerce within the intent and meaning of Section 5 of the Federal Trade Commission Act. Mr. Rufus E. Wilson and Mr. Alan Weber for the Commission. lift. Ed1uard F. H01Drey and MO'. Ilarold F. Balcer of H01urey, Simon, Baker Llh .rchison \Vashjngton, and Mr. Roy W. Johns and Mr. Joel L. CaTI' of the Atlantic Refining Company, Philadelphia, Pa. for the respondent. ).

1416 FEDERAL TRADE COIvnIISSIO:\ DECISIONS Initial Decision 63 F.

ITIAL DECISIOS BY EVERETT F. HAYCRAFTj HEARI G EXA:.IIXER :\Jarch 7 , 1962 1'( D E X Page 1416PRELDHNAH Y STATEMEKT ------ ------ _n FINDDIGS AS TO THE FACTS_ --___--n_ 1424 I. DESCRIPTION OF RESPO'(DENL- 1424 1424 II. METHODS OF DISTRIBUTlON_--_--_ _------n_ (a) Wholesale Distribution_ 1424 (b) Retail Distribut.ion- - - - - - - - -- - - - - - - - - - - u 1425 (c) Interstate Commerce_ 1425 III. CO'lIPETITION IN THE INDUSTRY_ 1425 IY. PRICE WARS___ -- -- -- n 142, Y. RESPONDENT' S CONSIGN:client AGREEMENT POI ICY- 1427 YI. THE CONSIGNMENT AGREEMENT IN Operation 1-19 YII. THE WHOLESALER COOPERATION---- 1433 VIII. THE VOL UMB OF ATLANTIC GASOLINE SOLD AT RETAIL AND WHOLESALE I;. EASTERN PE"I;'S YIXA'(L- REGION AND WIL'III'(GTON , DELAWARE, DISTHICT-- 1.135 1. Retail Sales------ _u_--- 1435 Ca) In E:tstern Pt'lllls \"h-ania Hcgioll- 143;) (b) In \Vilmingwn District-- - - 1436 2. Deliveries to ConsigTIHlent Dealers__-- 1436 lc1:3G 3. Sales to Distl'ibutol"s-- _u_- IX. THE YOLL'IIE OF HEBATES OR ALLOWA"ICES TO DIS- TRIBFfOHS__ 1436 COKCLUSJOK_ t:;; ORDER- - leUl PHELUIIXARY STATE:MEXT The Commission on April 13, 1959, issued a complaint a.against the respondent The Atla.ntic Refining Company (erroneously de- Company, Inc. The complaint scribed as The Athl1tic Refining ha.s three counts.

Count I charges the respondent, ,,,which is described as a ma,jor oil company, with violating Section 5 of the Federal Trade Commission Act in the marketing of its gasoline and petroleum products throug-h its owned and operated service stations; through indclJendent lessee-dealer service stations; and through independent di5service ta- tributors, \'d1O, in addition to supplying gasoline to tions operated by them, also sell to inde,pendcnt lessee-dealer sencjee station3. It -is alleged that respondent in the delivery and sale of its gasoline to its vnriolls marketing olltlets, particu1rrly in the territory knmY!l as "Delmarva Peninsnla \ comprised of portions of the Stfttes of Dela"-are, ;):farylanc1, and Virginia, has entered into agreements whereby respondent delivers and sells respondent's brands 'I' HE ATLANTIC REFLT\ING CO. 1417 1407 Initial DecisiQp. of gasoline to independent distributors and lessee,.c1ealers in interstate commerce.

It is alleged under . Count I that during disturbed market conclitions in the retail sale of gasoline known as "price wars, under the guise and pretext of giving assistance to its lessee-dealers, respondent has put into operation certain plans or methods for the purpose and with the effect of controllng the prices at which gasoline is sold at respondent's lessee-dealer service stations. In this connection, it is alleged that by IneaDS of various provisions in the dealer leases, and through a system of policing the business operations of said independent lessee-dealers, the respondent, to a substantial extent, dominates and controls the operation of the service stations leased or subleased from respondent. It is specifically alleged that, beginning in or about May 1957 respondent put into effect in the "Delmarva Peninsula" area such a device or plan to enable it to fix the retail prices of the gasoline sold by its Jessee-dealers to the consuming public, and to effectuate and carry out said plan, respondent influenced, persuaded or otherwise induced or caused its independent lessee-dealers to enter into agreements with it designated and known as "temporary consignment ('on racts, by the use of which uniformity of price was achieved as between the Jessee-dealers of respondent: and that said uniformity of price contributed to a stabilization of price competition in the mn rket during a period of price disturbance hereinbefore mentioned. It is further alleged that in most insLanees the said dealers were unwilling parties to the arrangement, having been coerced by various means a.nd met.hods employed to enter into such consignment cont.racts; that, under said contracts, the lessee-dealers received' a certain designated commission on each gallon of gftsoline sold at his service station, but forfeited his customary margin of profit; and that, in most instances, the commission received is not equal in amount to the dealer s usual and customary margin of profit. It is also alleged that those dealers who do not participate in the said consignment contract operation are charged the tanh: ,yagon price ,which to them is more than is the cost to a participating dealer. It is further alleged in Count I that respondent, through and by virtue of said consignment contra,ct plan, controls the prices at wl1ich gasoline is sold at rettlil by itssairllessee-dealers and prevents price competit.ion bet,, een said lessee-dealers and with others, thus tending io insul'euniformit.y of prices despite the presence of factors in the market which ,,'ould, in t.he absence of such artificial restraint flTlrl control, eneourage . competition.

, 1418 FEDERAL TRADE COMMISSIOK DECISIOKS Initial Decision 63 F.

It is further alleged under this Count that, in addition to said lessee-dealers, respondent also sells its gasoline to wholesale distributors in the "Delmarva. Peninsula" area, which said distributors in some instances operate service stations at retail and also sell retail customers selling respondent' s brand of gasoline; and that in order to insure the success of the consignment agreement plan of operation and to achieve the aims and purposes hereinbefore mentioneel, respondent, by various means and methods, caused the said distributors to maintain the retail prices of their own retail stations as 1\cll as the dealer-customer stations, in conformity with the prices posted by respondent's lessee- dealers operating under the aforesaid consignment agreement plan.

Finan)', it is pleaded under Count I that the said acts and practices of re,sponclent hayc a dangerous tendency and have hindered suppressed, and restrained the sale and distribution of gasoline in interstate commerce and hindered and prevented free competition in the sale of gasobne, in such commerce, and reposes in the responde, the power and control mffcient to stabilize prices in the saiel areas here it markets gasoline at wholesale and retail levels of distribution and depri\ es the public and the Jessee-dealers and others of the adnlltage of competition in price which they otherwise would enjoy UJlder the condition of normal, free and unrestrained competition.

Linder Count II, all the allegations of Count I are adopted and ineorporated b y reference. In addition, it is specifically alleged that beginning in ur about :.Jay 1057, respondent, acting through its agents and independent lessee-dealers a.s unnamed co-conspirators engaged in selling rcspondenfs gasoline and other petroleum products in the "Delmarva Peninsula ' area a.nd other a.areas, conspired and carried out a combination or planned common course of action through which the price of gasoline sold in the service stations of said independent lessee-(lealers was fixed and maintained as well as the price at which gasoline was sold by others in that market. It is further alleged under Count II that, pursuant to such conspiracy and planned common course of action, the respondent and the aforesaid independent lessee-dealers executed written a.greements purporting to be consjgnment contracts which were nothing more than shams a11cl subterfugl' having as their primary purpose and function a temporal'v. iJJe all)lic.e-fixing yehic.le: that the said consignment contracts beRr no bOlla, fide relationship to the business needs and requirements of either the respondent or its independent Jessee-dealers and that in most instances each dealer was an un. willing party to the arrangement, having been coerced through THE ATLANTIC REFINLXG CO. 1419 1407 Initial Decision va.rious means and methods employed by respoll(lent to enter int.o such agreements.

Finally, it is alleged that said planned common course of action has a dangerous tendency to, and does unreasonably restrain and suppress or stabilize, COlllpetition in the "Delmarva Peninsula:' area and other areas between a,nd among respondent's lessee- dealers and betw.een such dealers and respondent's mYllcc1 and operated service statjons and the respective ret.ail dealers of respondent's independent distributors.

Under Count III, all the allegations of Counts I and II are incorporated by reference. In addition, it is specifically allcgecl that beginning in or about l\Iay 1957, respondent, acting through its agents, offcers, employees, and its independent distributors, and in furtherance of said consignment agreement plan of distribution, and the price-fixing agreement as hereinbefore alleged, conspired and entered into and carried out a combination and planned common course of action to maintain and fix the price at which gasoline was sold at the wholesale level, as well as at retail, in the gasoline service stations owned and operated by respondent's said distributors. It is further alleged that, pursuant to said conspiracy and planned common course of action, respondent performed certain specific acts and things as follows:

(1) Agreed to and did grant certain allowances, discounts or rebates from the tank wagon price to the distributor'3' customers on the condition that the dealer customer would conform his retail price to a price dictated by pondent.

(2) Agreed to and did provide to its distributors certain allowances. dis. counts or rebates from the distributors' cost UpOll the condition, understanding Bnd agreement that said distributors prrrvide their customer:: with certain alowances, discounts or rebates and further provided, that said customers of the distributors would adhere to and post the retail price or pdces dictated by respondent.

(3) Pressured, threatened. coerced and otherwise persuaded and induced said dealer customers of said distributors to post and adhere to retail prices dictated by respondent from time to time.

Finally, it is alleged under Count. III that the said unlawful planned comn.1n course of action has a tendencv to and dOBs unreasonably restrain, suppress, and stabjJize competit.ion in the "Delmarva. Peninsula." area and other areas, between and among: the independent retail custOll1ers of respondent's distributors and the. retail outlet.s uwned and operated by suell distributors between the retail customers of the said distributors nncl between the retail customers of the distributors and the independent Jessee-dealers of respondent: as yre,n as those retail ontJets owned or operated by respondent.

1420 FEDERAL TRADE CmvDllSSION DECISIQXS Initial Decision 03 li.

Before respondent answprpcl said compla.int, an interlocutory plea in abatement ",vas filed by respondent' s counsel on ,June 16 , 1959. This plea alleged that The Atlantic Refining Company was incorporated in 1870 in the State of Pe,nnsylvania and has never been cal1eel or kno"T1l as The Atlantic. Refining Company, Inc., as alleged in t.he Commission s complaint: that flt OIle time there was a company kllOlvn as Atlantic Refining Compt1uy, Ine. a s1l1EidiaTY of The Atlantic R,efining Company, but that Chis comjJ tly had not been in existence for many years.

Counsel, in support of the complaint filed an answer to l' sponclent' s plea in abatement on .June 19 , 1959, accepting the designation of The Atlantic Refining Company as the correct name of respondent. The Hearing Examiner, on .June 24, 1959, entered an order denying the plea in abatement Rnc1 fixing the cbte and place of the first hearing to be held July 20, 1959 in Georgetown Delaware.

On June 30 , 1959, coun l for respondent H1ecl with the Commission an appeal from the order of the Hearing Bxaminer denying respondent' s pleas in abatement. On the same date, counsel for respondent filed "ith the Commission a motion to dismiss Counts I and II of the complaint for lack of ,jurisc11ction and brief in support thereof, and at the srune time filed with the TIearing Examiner a motion for an extension of time within wl1ich to rtlswer or otherwise plead until fifteen chtys after determination by the Commission of respondent's motion to cl1smiss Counts I and II of the complaint or respondent' s appeal from the order of the Hearing Examiner denying respondent's plea in abatement, whichever elate is later: also to postpone the date of July 20 , 1959, now set, for the initial hearing, to a date not less than twenty clays after answer. On June 30 , 1959, the ITeaTing Examiner extended the time for , 1959,respondent to file ans"'er from July 1, 1959 to .J uly 15 On July 6 , 1950, counsel in support of the complaint filed with the Commission his fins,yer to respondent s a.appeal from the I-Iearing E,xamincr s order (lenying re,spondents plea. in abatement. On .Tuly 8 , 1959, counsel in support of the complaint filed \with the TIearing Examiner all answer to J'e, spoJ1clenes motion for extension of Ume \within which to ans,yer or otherwise plead and postponement of the heflring (hte.

On July 10 , 195D: counsel in support or the eomphint filed ,,,ith the Commission an ans,yer t.o respondents sald motion to dismiss Counts I and II of the complaint for want of jnrisclict.on. On July 13 , 1959, the Hearing Examiner entered an order denying the motion for further extension of time ,within which to answer ,, ,, THE ATLANTIC HEFINIXG CO. 1421 JelOj Initial Decision or otherwise plead and denying request for postponement of initial hearing.

On July 15 , 1959, the Commission entered an order denying the interlocutory appeal of respondent from the I-Iearing EXRlniner order denying respondent:s plea in abatement. On the same date, the Commission denied respondent' s motion to dismiss Counts I and II of the complaint.

On .Tuly 14, 1959, counsel for respondent filed a motion for a Bil of Part.iculars a.nd memorandum in support thereof w"ith the Hearing Examiner. No formal action was taken on said motion but, at the first hearing on July 20, 1959, the flearing Examiner questioned counsel in support of the complaint ,,-ith respect to the subject matter of the motion for a Bill of Particulars (Tr. 3-18), and the issues we-re somewhat clarified as a result. For instance, it was ma.de respondent' s lessee-dealers and "others, the word others, referred dear that in the allegation with respect to price competit.ion between to dealers of major competitors of respondent. Also, as to the allegation of maintenance of prices a.ncl price competition, reference was made to the "Delmarva Peninsula" area, and that all price competition in that area would include both the retail and wholesale levels between the dealers of respondent ftnd dealers of its major competitors. \Vhere reference is made to the ,yord distributors, in the complaint, reference is made to wholesalers who, however operate some service stations of their own. It was also indicated by counsel in support of the complaint at the hearing that proof \\ould be offered for the period of time subseqnent to about April or May 1957. It was also staterl by complaint counsel that all evidence with respect to the consignment. a.agreement plan of operf\tion would be restricted to the "De.1marva, Peninsula " unless other1'ise indicated in the course of the trial with suffcient notice in advance for respondent to be prepared.

Respondent finally fied its answer to the complaint. on July 29 1D5D, denying the material allegations thereof. It admitted, however, that price wars originftted from time to time in various localities, including the "Delmftrva Peninsula, and that it had from time to time sold its products to a number of independent service station dealers in the "Delmarva Peninsula", and had from time to time entered into consignment agreements for gasoline for certain of these (lealel's, whereby the sa,icl dealers sold respondent' s gasoline t.o consuming motorists, receiving thereon a commission on each ga.llon of gasoline sold; and that, when it marketeel its .gasoline through dealer agents it set the price at ,,-which its gasoline is so sold. It also admitted that it sold gasoline to wholesale distributors in 1422 FEDERAL TRADE cO:\nnSSION DECISIONS Initial Decision 63 F, the "Delmarva Peninsula, but denied all the allegations with respect to such sales. It admitted generally tlult it is in competition with other gasoline ma.rketers and that its dealers competed with the cleale.rs of competitors of the respondent in the distribution and sale of gasoline to the consuming public.

Respondent, in its answer, affrmatively alleged that it does many things to assist its dealers to compete with the dealers of other market.ing oil campaines nuc1 encourages it: tier-del's to provide effcient service to motorist consumers; that the activities of respondent all result from competition from competing oil companies many of -which arc much larger and better known than respondent; that price is one of the llHny elements bearing upon competition for consumer motorists patronage; that, because of intense competition ,which exists in the marketing of gasoEne, price wars are common occnrrences; that during such price \,ars retail ga,soline prices often fllc driven so Io,y that respondent: s dealers cannot stay in business and are faced ,"'ith business failure un less they receive assistance from respondent.; that, in such circumstances, respondent is faced '\ith the decision "whether to let its independent dealers fail, which , orcould eliminate both respondent and its clenJers as competitors rn buyout its in(lepenc1ent c1e,llers and market its products directly at retail through company-owned and operated service stations or to assist its dealers so that they may be competitive price-wise with other brands of gasoline.

Respondent also a,alleged i.n its ansl,er that, as a result of the fore going situation, it has entered into a policy of oflcring and providing assistance to its dealers-one, by means of jts local representatives esponclent keeps itself jnformcd of competitive conditions in each of its trading areas; two) ","hen information is obtained in t.his \Vay nd market surveys shall that the level of competitive prices is re-threatening to drain a substantial volmne from jts dealers, spondent offers to enter into con igllment agreements with its dealers under which respondent agrees to assume the risks inherent in price' \\8-1' sitlwtion in the retail mnxketing of gasoline. The purpose of tllis consignment method aT marketing gasoEne is to keep se.rvice r:tation dealers in business and prevent business failures of dealers and at the same time allow respondent to remain as a competitive fn(' or in the marketing of gnso1ine in competition "\with other and larger competi.ng oil companies.

Respondent also affrmatively alleged that it has adopted the policy and practice of oi!'ering to alj dealers in an affected area the option of becoming consignees of respondent when competitive THE ATLANTIC REFllIiG CO. 1423 1407 Initial Decision conditions, based upon price surveys by respondent, require action by it to keep its dealers solvent and competitive. Further testimony was taken in support of the allegations of the complaint during July and October 1959 and May 1960. On Iay , 1960, complaint counsel closed his case-in-chief. At that time an adjournment was taken to reconvene in Philadelphia on Febru. ary 1, 1961 , for the purpose of taking testimony in opposition to the allegations of the complaint. On October H, 1960, motion was fied by counsel for respondent requesting this hearing be cancelled because he was engaged in the trial of another Federal Trade Commission case with another Hearing Examiner at that time and would be tied up until after May 16, 1961, with the trial of the other proceeding. On October 19, 1960, the Hearing Examiner entered an order granting the motion for the cancellation of the hearing date.

The Hearing Examiner retired, effective December 24, 1960, and returned to the employ of the Commission on "'lay 2 , 1961. The respondent, on August 18 , 1961, requested an opportunity to avail itself of the privilege of disposing of the case by consent. However uothing was accomplished and the case was set down for hearing by thc Hearing Examiner on September 22, 1961, for October 24, 1961. In the meantime, on October 18 , 1961, counsel for respondent filed a motion to strike the testimony of Howard T. Morris, beginning at line 9, page 764, and ending at line 18, page 765, of the transcript. This testimony related to the matter of exclusive dealing which was not involved in the complaint. Accordingly, the Jlearing EXfLminer on October 23 , 1961 , granted the motion and struck the testimony over the opposition of counsel in support of the complaint. October 25 , 1961 , counsel for respondent rested his case, and, there being no further testimony offered in rebuttal, the Hearing Examiner closed the record for the taking of testimony and both counsel were allowed until January 15, 1962 within which to file their proposed findings. On the request of counsel for respondent for good cause shown, this time was extended to January 30 , 1961. On February 12, 1962, oral argument was held before the Hearing Examiner on the proposed findings.

Consideration has been given to the proposed findings submitted by counsel and the said oral argument and all the reliable probative and substantial evidence in the record upon all the material issues of fact, law, or discretion. Each of those proposed findings, which had been accepted, has been in substance incorporated into this initial decision. All proposed findings not so incorporated are herein rejected.

1424 FEDERAL TRADE C01ilnSSIO!\ DECISIO Initial Decision 63 F.

The Hearing Examiner, being of the opinion that some of the allegations of the complaint have been proven by substantial and reliable evidence, and that the Commission should take remedial action with respect thereto, appropriate Findings as to the Facts and Conclusions are hereinafter set forth.

FIXDIN"GS AS TO THE TACTS 1. DESCRIPTION OF RESPONDENT Respondent, The Atlantic Refining Company, is a corporation organized, existing, and doing business under and by virtue of the Jw\Ys of the Commonwealth of Pennsylvania, with its principal offce and place of business located at 260 South Broad Street, Phil a- (lelphia, Pennsylvania. For a number of years last past respondent has been primarily engaged in the production, sale, and distribution of gasoline and other petroleum products throughout a 17 State marketing area, including eastern Pennsylvania, Delaware, and the e.eastern shore of Jlary lanel and Virginia, known as the "Delmarva Peninsula" region. Said respondent advertises and sells its regular g"nsolinc under the brand name of "J..tlant-ic, and Hs high jest mlCler the brand name of "Imperial"

Said respondent owns and operates refineries at Philadelphia Pennsylvania, and in At-reeo, Texas. It also owns or controls vali- (ms transportation facilities for the transportation of crude oil and refined petrolemll products, including tankers and pipeline systems. It also owns and operates certain water terminals and bulk plants in different marketing areas from which it delivers gasoline and ot.her petroleum products to various marketing outlets for subsequent sales to consmnel's.

In 1956, respondent's gross domestic sales of petroleum and chemical products, including its consolidated subsidiaries, amounted to approximately $3'79 000 000.

II. METHODS OF DISTRIBUTION (a) Wholesale Distribution In a portion of the area known as the "Delmarva Peninsula " particularly in Sussex County, it sells its gasoline and other patroleum products to independent wholesale distributors, who, in turn sell said products to large consumers and to smaH retail dealers located in yilages off the main highways who, in turn, sell to the consuming public through dispensing equipment which sometimes is owned by the distributor and sometimes by the respondent or both.

THE ATLA TIC REFl IXG CO'. 1425 1407 111itial Decisioll l b) Retail Distribution Respondent markets most of its gasoline and petroleum products through (1) independent dealers who own and operate their own ,tations and (2) lessee-dealers who operate stations leased to them by the owners. In some instances, respondent owns the station or land and building on which it is located and is under lease contract with the dealer.

(c) Interstate Commerce Respondent, in the delivery and sale of its gasoline and other petroleum products to the aforesaid marketing outlets located in the ' Delmarva Peninsula, usually enters into an agreement and contracts for the delivery of specific requirements of respondent' brands of gasoline. During the term of such contracts, it ships or transports gasoline and other petroleum products from its refill cries by tankers and tank trucks through terminal centers in Korfolk, Virginia, Newark, New Jersey, and through its bulk distribution centers in Salisbury, Maryland, and Wilmington, Delaware, to the storage tanks maintained by said distributors, independent dealers and lessee-dealers located in the "Delmarva Peninsu1a so that there is now, and has been at all times mentioned herein, a continuous stream of gasoline and other petroleum products in commerce as "commerce" as defined in the Federal Trade Commission Act" between respondent' s refineries, terminals, bulk stations and other distribution centers hereinbefore mentioned and said independent distributors, lessee-dealers, and other Atlantic dealers located in the aDelmarva Peninsula, and through saiel distributors dealers and lessee-dealers to the consuming public. III. COMPETITION IN THE INDUSTRY The principal competitors of the respondent in the "Delmarva Peninsula" area during the time involved herein, 1956 and subsequently, were Standard Esso, Tydol Oil Company, Gulf Refining Company, Sun Oil Company. American Oil Company, Sinclair Oil Company, Socony Vacuum Oil Company, and The Texaco Company, who operate directly or indirectly through retail outlets loe-at.ed principally along the main highways running north and sOllth in the States of Delaware, :Maryland. and Virginia. and in resort cities in those States along the Atlanti coast. '- IV. PRICE WARS It is alleged in the complaint and the evidence in the record indicates that, during the year 1957, temporary disturbances of the 1426 FEDERAL TRADE CO:Yn.lISSIO DECISIO Initial Decision 63 r.

ret.ail price structure or gasoline at the service station level have occurred at various times in the "Delmarva Peninsula" market area served by respondent. Such price disturbances are usually referred to in the trade as "price wars Respondent. l'rOlll time to time during the year 1957, made surveys of competitive conditions in the "Delmarva Peninsula, including Xew Castle County, Kent County, and Sussex County in Delaware and 'Wicomico County in Maryland. On June 3, 1957, such a survey showed that in Area 1, which is in New Castle County in the northo.rn part of the State of Delaware, in which Atlantic had 49 stations out of a total of 262, 166 stations reporting, 2 independent stations, Spur and Saveway, were sellng regular gasoline at 24. per gallon; 15 other stations, including Esso, Gulf, Sun, Amoco Calso, Sinclair, Spur, Texaco, and Tydol, were sellng at 25. per gallon; 29 stations, including Esso, Gulf, Mobil Gas, Sun, Calso Cities Scnice, Shell, Sinclair, Texaco, and Tydol, were sellng at 26.99 per gallon; 119 stations, including 33 Atlan1ic stations. 26 Esso, 15 Gulf, 4 Mobil Gas, 17 Sun, 4 Amoco, 4 Calso, 1 Cities Service, 2 Sinclair, 9 Te:saco, ancl4 Tydo1. were, selling at 2, 91 per gallon. This same survey also showe.d that in Area 2, also in New Castle County, which had 21 retail gasoline stations, 4 stations were selling at 26. and 8 stations at 27.9(;. Only 2 of these stations in that area ""were Atlantic stations.

In Area 3 (Kent County) with a total of 71 stations of which D ,ycre Atlantic, the survey showed that out of a total of 44 stations reported, 2 ,, cre selling at 25. 24 at 2G. , 17 at 27.99, and 2 al 2S, . All of the Atlantic stations were on consignment and they posted a price of 27. on regular gasoline. In Area 4 (Sussex County) which had 41 stations, 6 of ,, which ,,,ere Atlantic; out of a total of 15 competitive stations reported 1 station was selling at 26.91, and 14 at 27.91. Of the 14 stations E!:so, Gulf, :l\obil Gas, Sun, Calso, Pure Oil, Sinclair, Texaco, and Tyc101 were included. At that time, Atlantic Refining Company had put into effect its contract sales plan or consignment contract (which ",Till hereinafter be further discussed) in Areas 1 , 2, and 3 or the "Delmarva Peninsula, but had taken no a,ction with respect to Area 4 (Sussex County; CX 230 A-E).

On June 25 , 1957, the Atlantic Refining Company made another survey of the "Delmarvft Peninsula" area, and it ",yas found that the majority of the well known brand competitors in the northern part of the area in Areas 1, 2" and 3 were still posting retail prices at 26. on regular gasoline, and the recommenc1ationwas made by the offcial making the investigation that Atlantic reduce its poet.- THE ATLA TIC REFINING CO. 1427 1407 Initial Decision ings on contract sales consignment operation from 27.91 to 26. per gallon, which was made effective on June 26, 1957 (CX 274). According to a survey made by respondent of Area 4 (Sussex County) on or about July 1, 1957, 52 out of 55 competing retail gasoline stations reported ,,,ere selling regular gasoline at 26. per gallon. They included 11 Esso stations, 2 Gulf stations, 2 Mobil (Socony) stations, 5 Sunoco stations, 7 Amoco stations, 4 Cities Service stations, 8 Pure Oil stations, 3 Shell stations, 4 Sinclair stations, and 5 Texaco stations. Some of the retail dealers received rebates off of their tank wagon price. It was reported that the Sun Oil Company was operating on a commission agreement plan similar to respondent's. On the basis of this report, respondent put jnto operation its contract sales or consignment agreement plan (CX 229A and B). This survey shows 96 stations in the area of which 16 were Atlantic. There is no explanation in the record of the variance between this exhibit and the previous exhibit a, to the number of st.ations.

Prior to June, 1957, the normal retail price of regular gasoHne by Atlantic stations located on Routes 13 and 113 in Sussex County, State of Delawa.re, in and around Seaford and Georgetown was 2\). per gallon, although, as hereinbefore indicated, most competitors were selling at 26. 9i per gallon. The Atlantic dealers and lessce-clea.lers were paying respondent a tank wagon (truck) price of 24. 3i per gallon, giving the dealer a margin of slightly more than 5i per gallon. The Atlantic dealer at Rehobeth Beach was sc11ng this grade for 30. 9i per gallon and was paying Atlantic 25.31 per gallon.

Atlantic dealers and lessee-dealers could not compete with such Jow retail prices of their major competitors. They appealed to the respondent for relief. Representatives of the respondent contacted their dealers and offered to put into effect what \vas known as a Contract Sales Plan, which included a ': consignment agreement" as hereinbefore indicated. This plan had been theretofore extended to the Atlantic dealers in Eastern Pennsylvania and in the northern areas (!'ew Castle and Kent Counties) of the State of Delaware and was in effect at that time. The record contains a statement of respondent' s gasoline pricing policy to dealers at or about this time (CX 151 A-C).

V. RESPONDENT' S CO!'SIGN1\ffid AGREE1\E T POLICY In the statement of policy in effect prior to and early in April 1957, it is recognized by the respondent that its primary method of marketing gasoline to dealers is by tank wagon delivery at prices 1428 FEDERAL TR/I.DE C01HnSSIO;\T DECISlO Initbl Dccisiun G3 F.

GOlnpetitive with those or major competitors, and that the success of their dealers dcpended on their promptly meeting thc retail prices of competitive stations and marketing gasoline through compara ble outlets in the same area. According to this policy, when price \yar conditions prevail ill a given competitive trade area, so that the spread between the dealer price of Atlantic gasoline and the prevailing service station price at comparable service stations in a competitive trade area is less than four cents per gallon, all Atlantic deale-rs will have the choice or the following alternative courses of action:

(a) Continue to buy their gasoline at prices applicable under normal dealer operation; or (b) Execute a Contract Sales Agreement which is aho known as a consignment agreement and become consignee of the respondent for the retail sale of Atlantic owned gasoline; or (c) Terminate all existing contractual,l relations with the respon dent.

rllc1er the provisions of this consignment n.agreement, the dealer ,YflS io rcc-cive a commission of 3. per gallon on Atlantic regular gasoline and 3. on Atlantic Premimn Imperial gasoline. This consignment agreement provided for a consignment inventory, repJenishment delivery equal to the amount of gasoline sold out of consignment inventory and constituted the dealer as trustee of the proceeds from the sale of Atlantic gasoline. It also granted the dealer total commissions from the sale of respondent' s gasoline of at least $400 per month, provided the dealer s average monthly gasoline gallonage for the preceding nine calendar months exceeds 999 gallons. Title to the gasoline delivered from time to time to the dealer to replenish or augment the original consignment invcntory did not pass to the dealer, but was considered as though such gasoline had been a part of the original consignment inventory. It was also provided in the original consignment agreement that upon the termination of the agreement, the gasoline on hand in the dealer s tanks should be returned to Atlantic, or at the dealer option he might purchase such gasoline at Atlantic s prevailing dealer price applicable at that Jocation on the date of termination The foregoing policy in effect in April 1957, was superseded b another policy quite similar, except that, instead of a flat commission per gallon, the dealer s commission was computed upon the basis of 23% of the service station price including taxes, and adjusted to the nearest one tenth cent per gallon on Imperial gasoline and one half cent per gallon on Atlantic regular gasoline (OX 157A-H).

THE ATLA::"T'IC HEFL1\IXG CO. 1429 1407 initial Decision Further changes were made in the respondent's policy with respect to consignment contracts on July 9 and July 18, 1957 (CX 167A-B and CX 171A-H). Important conditions of the plan iu effect in July 1957 at the time of the said price war in Sussex County were as follows:

1. The Company will place gasoline on consignment with the dealer subject to prior approval by the Credit Department. At the time of each replenishment delivery, the volume of gasoline on consignment is to be brought to its original level. The dealer will settle in cash at the time of replenishment for the number of gallons equal to the replenishment delivery on the basis of Atlantic posted service station price at the time at which the gasoline was sold, less a commission for Atlantic gasoline, representing 23% of the service station price for the product, excluding all taxes. 2. At.lantic will specify the service station price of gasoline posted by the dealer during the period of the consignment plan llgreement the dealer to be trustee of proceeds of sale. 3. Title to gasoline constituting any replenishment delivery shall not pass to the dealer.

The form used to obt.ain the acquiescence o:E the derl1er, as finally adopted in Tuly 1957 for dealers located in depresse(l price areas is as follows (CX 173-F) :

Your Salesman hab f'xplained to you Ath11tic s l'l'iclng Policy dated .Jul:v 9, 1057, for Dealers located in depressed price areas. Atlantic offer's you two choices in accordance 'Tith said price pollc.'. (1) Continue to buy Gasoline at Atlantic s dealer price for your area. (2) Sign a Consigmnent Plan Agreement fl1d become our Consignee for the retail sale of Atlantic owned Gasolines.

l'lea."e sig-n the original copy of this letter indicating your choice in the spfI' e p1'0'iided.

Cordially yours District j\Ianager I select choice Xo. -- --. I understand that if I selected Choice :No. 1 and wish to clwnge my "election, it is my obligation to notify Atl:mtlc and that my right of selection continues only as long as the above designated Pricing Policy remains in eff('ct in the area in ,which I operate. Da te --------- ---------- Dealer - VI. THE CONSlG1\J\fENT AGREEMENT 11\ OPERATION One of respondent' s Jessee-dealers was located at Rehobeth Beach Dela ware, llfr. Raymond D. Crevison who began to operate for Atlantic in March 1957. In June 1957, he, was purchasing the regular brand of gasoline from respondent at 25. per gallon, w"hieh was the tank "Wagon price in that a.TE:a at that time, and 28.80 per gallon for Imperial. lie first entered into a. consi.gnment agree- ,SQ-01S--139- 1430 l"EDEHAL TRADE C01L\IISSION DECISIOXS Initial Decision 63 F.

ment which was in effect on July 1, 1957, as hereinbefore described June 1958and later agreements were entered into in October 1957, tel'111inated byand August 1958. The consignment agreement was mutual consent on November 12 , 1958, after 1\11'. Crevison asked to be released in a ietter dated :y ovember 1, 1958. Mr. Crevison first heard of the price ,val' from his customers "hen it was about 28 miles north near :Milford in Kent County in June 1957. It was beginning to hurt his business as he couldn t lower his prices to meet the lower prices upstate.

j11'. Crevison was told by the Atlantic representative, a 1f1'. ::1artin ,,,hen the price war hit his community that, if he ,vent on consignment, it "would t.ake care of the price wa.r, that "it was a ' way or protecting me so that I could lower my prices . He was told he could stay on the plan as Jong as the price condition prevailed. dated July The record contains a copy of a Credit Memorandum, , 1957, of The Atlantic Rpfining Company, crediting the aCCoil1t of Raymond D. Crevison with the value of gasoline in his inventory at the time of going on the Consignment Agreement on July , 1957, as follo\ys: Atlantic regular gasoline 2 062 gallons at 25. pel' gaHon, and Atiantic Imperial 786 gallons at 28. or a total credit of S748.0Ci (eX 119-A).

The storage tanks operated by :Mr. Crevison have a capacity of 000 gallons, and they were normally checked once a month. After he went on consignment, at the time of each delivery he paid for the amount of gasoline that was delivered to replenish or replace thc gasoline that had been sold. BegiIlling on July 5, 1957, gasoline was delivered to lr. Crevison under the consignment agreement plrn, and, according to invoices or delivery sEps, which at first T\ere in the same general form as the sales slips theretofore used Ir. Crevison paid the new reduced retail price of 26. , less tax of or a net price, in- Sif State and Federal, and less 4.30 commission, cluding tax for regular gasoline thus delivered, of 22. per gallon which hc was instructed by Mr. Martin to sell at 26. per gallon to the public. At the same time, under a similar procedure, he paid 26. per gallon for Imperial, his commission being 4. per gallon. This arrangement continued on through the year 1957 until September 16, 1957 when he was required to raise his price to the public to 29. per gallon on regular gasoline. On the basis he was operating, his commission on sales on September 29 , 1957 was 5 per grLlJon on Tegular gasoline, and 5i on Imperia,J gasoline. He was issued a Credit :Memoranc1um on September 30) 1957 to account for the increase in price of consignment gallons between inventory and , THE ATLAKTIC REFINING CO. 1431 Initial DccbieJ1approvedH07consignment level sold on contract sales plan prior to the price change on September 16, 1957. The gasolme was dehvered by the same tank drivers, and he made payments to the driver for gasoline delivered the drivers "stickino' " tile tanks before and after de livery to determine the exact quantity to be paid for. During the time that .Mr. Crcvison was on consignment in July 1958, he ran out of regular gasoline and obtained permission from Mr. Martin to purchase some Atlantic regular gasoline from the wholesale distributor in that area, a :Mr. farsh, operating under the name of the Atlantic Oil Company, at Georgetown. This \\fls the only time that he was allowed to make any gasoline purchtlses on behalf of The Atlantic Hefining Company. According to the aIes slip in the record, he paid the same price to the wholesflle.r for the regular gasoline delivered by the wholesaler that he had been paying Atlantic for the same gasoline, which at that time was 23. per gallon, which was then being sold at retail at 28. per gallon. The purchase from the "wholesale distributor was made on June 29 , 1958, and the next delivery of gasoline by Atlantic, RCcor(Jing to delivery slips in the record, was on July 3, 1958 (CX 127-J) .

\Vhile :Mr. Crevison was operating on cOllsignment, he made no changes in his signs at his place of business, which read R. D. Crevison, Proprietor . He carried his own liability.y insurance on his stock and equipment, except gasoline, kept the money from all sales in his cash register and did not keep monies from gasoline sales separate from his other sales in the cash register or in the bank, and did not keep a separate set of books for the sale of gasoline although the gasoline is entered as a separate item on the books. During the year 1958, he received the sum of $7 621 from The Atlantic Refining Company as gross commissions under his consignment contract on which he paid an income tax. Another Atlantic lessee-dealer, who had a somewhat similar experience, was :1\1'. HO'lvarcl T. j\1:orris of Georgetown, Sussex County, Delaware. Iis service stat.ion was on Route 113. The respondent' eonsignment plan was first brought to his attention during the price war in July 1957 by respondent's salesman, 1\11'. j\Iartlll, who told him that the respondent was going to do sornething about the price war and try to help the dealers out. 1\'11'. l\forris entered into a consignment agreement with the l' respondent on July 2, 1957, which provided, among other things, that 1\1:1'. forris would sell respondent's gasoline "at posted service station price designated by Atlantic from time to time. " At the time that l\fr. :Morris went on consignment all of the Atlantic dealers in that area were on consignment, except ___ ,, __ ._ !)(;:: 1432 FEDERAL TRADE CO:-if IISSIOX DECISIOXS Initial Decision 6:J F. some small dealers, usually grocery stores, with one or two pumps and who were being sold gasoline by a wholesale distributor. Mr. 1\fol'is remained on consjgnment until the agreement was cancelled by mutual consent as of September 27, 1958. The record contains a Jist of thirty-seven Atlantic dealers who were on consignment in Area No. in 1957-1958, two of which were in lIaryland and six of these replaced others (CX 406 A-C). On September 13, 1957, respondent issued a price change on dealer 1'etail posting on consigned dealers on gasoline in Delaware and !maryland, effective September 16, 1957, as follows (CX 258and B):

DELA'''.3HE Kelt' ('08tlc County:

Avove C&O CalJal-no change-wil remain at 26. Below C&O Canal to Rent Crmnty line-the retail vosting on Atlantic wil change from 26. to 27.

Kent COllntu:

IncJuc1ing entire city of :Iilfo!"l-tb(: retaij posting on Atlantic ,yil change from 26. ' to 27.

TJ1C new dealer spread wil ue J. on Atlflltic flljc1 3.1(' (In Imperial. 811138(\1' County:

71)(' (L'aJn l'c'tu il IJ:"ic ill change fl' ll :?G.8c n :?i) TIle 11ew dealer sprelld wil he 5 " on .-\tlantie :l1H1 5. on Imperial. D""ll111l' , :\ldl"yland wil (:Dny tbe Su" ex COllnty retflil posting of 28Jk. JIOIyever. clue to tax tl' u('tllre, their . llrefJd wil be -LSd on .\Jlantic a111 5.31 on lInperial.

l\JARYLAXD \Vicomico County The special tank -wagon price for Salisbury, Pittsvillc aeld Bivalve will be removed. The tank wagon price ,, ill revert. t.o normal of 1 i . 5.. for A tlant-ic. Consignment wil be removed at Bishop and Bi hopvill(o. Thereafter t.he dealer costs in the respeeti "e nre,1S were a f(Jllow Xew Ca.stlc County (Area 1) - ___T --- 22. Carer 2)- 23_ Cent County_ _T n. Su,ssex Count)- 2'1.D In those same areas, the regular dealer tunk wagon prices thereafter were as follows:

Xc,v Castle County (Area lL -- - -- 24. (Area 2L u - --- - - - 24 Kent County - - 2- Swosex Countyu- - -- - - - - - - - - - - 25. Representatives of the respondent called upon thejr consignment dealers on September 16 , 1957 and c.hangecl the price of regular THE ATLAXTIC HEFIXIXG CO. 1433 1407 Initial Ded ion gasoline on the service station pumps from 26. to 29. 9i throughout Sussex County, Dehw, and from 26. 9i to 27. 9i in Area 2 of New Castle County and Kent County, Delaware (CX 281-E), and in Area 1 of New C!1style County no change was made (CX 342-A). It wid therefore be seen frOJIl the foregoing that, while apparently the price \var \vas over in Sussex County, lower retail prices \were still being postcd by Atlantic on regular gasoline in Xew Castle County and Kent County.

Although most. of t.he evidence in the record relates to the price war in Sussex County, which apparently enoed on September 16 , 1957 as h( l'ejnbefore, indicated, one dealer located in Odessa, Dela\yare which is in New Castle County, continucd to sell at the higher price of 29. 9t per gallon, and paid the regular Lank wagon price throughout the Snmme1' of 19;'7 and the Spring of 1958 \vhen apparently the price war ended in that County, which is the northernmost County in Delaware. This dealer operated a small store and an auto salvage yard, and (Ecl not. depend as rnnch on the retail sa.lc of gasoline as some of the ot.1wr dealer:;. )'lr. Carlisle \vas more independcIlt than some of tbe other:: and declined the offer of the respondent to go on the c()nsj mmm1t a ree,ment plan. Finally, in the Spring of 1958, he did cut the prjce just before the price war was oyer, and, at the request of represent!1tives of the respondent, entered into a mlltual agreement to cancel ant his dcalership. He then became a dealer for Texaco.

VII. TI-IE -WHOLESALER COOPERATIOK In order to uphold 1he prices established by the respondent through its deft.lers operating on c.onsignment agreements located along Routes as. 13 and 113 in Sussex County around Seaford and Georgetown Delaware, an attempt was made by representatives of the respondent to secure the cooperation of respondent's wholesale distributors and the retail dealers sold by them in maintaining the pric.es estab. lished by the respondent eluring the time of the price Wflr and subsequently. This was clone by respondent creating a fictitious or constructed dealer tank I'ragon price, which was the price the ,yholesalc distrilmtor \yas to charge its dealers and was computed by llsing the fixed retail price, excluding tax, for respondent's consumer lessee-dealers in the affected area Jess 23%. The respondent then reba1ed two- thirds of the difference between the fictitious denier tank wagon price and what ,yould be the normal uealer price. The v,'holesnle distributor absorbed the remaining one-third. In order 1434 FEDERAL TBADE CCJ)L\!ISSIOX DECISIONS Initi,ll Decision 63 F.

for the wholesale distributors to obtain this rebate from the respondent, however, they had to satisfy three conditions: (1) They must seJ! at the fictitious or reduced dealer tank wagon prices to those retail dealers located in a depressed or price-war area.

(2) They must furnish respondent evidence of such sale in an application for the rebate on forms previously supplied to thell by the respondent. On these forms, they must indicate the dates and total gallonage sold at the reduced price and a list of the dealers to \\"hom they gave the rebate.

(3) Upon receipt of the forms, the respondent calcnlated the amount of t.he rebate and remitted to the distributor, but only for the nl1mber of gallons sold to those dealers who had resold at respondellt. s fixed retail price established for its consignment lesseeloss fordealer stations. The distributor had to sustain the fun sales to those dealers for whom the respondent disallowed the rebate. \s n, matter of practice, it had been customary for many of the llall dealers located on the main high ays, who were being sold unc1 selTiced by respondent' s cli tributors, particularly the Atlantic Oil Company in Georgetown: Delaware, to sell their gasoline to the Jil,blic at a clifIerential of 2, per g:n,lion lower than the price fit ,which the gasoline "as sold by respondent's dealers and lesseedealers on the main high \fays and in Rehobeth Beach and Georgetown, From July of 1057 until Septcmbcr 1057, the posted retail price lor Atlant.ic regular gasoline at its consignment dealer stations \Tas 26, . In September 1957, as hereinbdore indicated, reand thespondent increased this retail price to 20, 01 per gallon, cooperation of t.he wholesaler distributors was sought and obtained by respondent to get all of l\1r. iarsh' s elealers to post this increase in price. Four small dealers would not post this higher retail price and respondent in October 1057 rcfused to rebate to the wholesale distributor on their purchases (CX 108A-H), After checking the retail prices of these dealers, representatives of the respondent called upon them, along "with :Mr. J\:Iarsh, the distributor, in an effort to get them to raise their price on regubr gasoline to the same as that of the col1sjgnee dealers of the respondent in that general area. Thc:3C representatives went so far as to threaten to revoke Mr. Iarsh' s franchise if these dealers did not cooperate, and :111'. lVlaTsh \TitS urged to pull their equipment, which he owned, and to send in their contracts to determine whether they could bc broken. Mr. J\Iareh did not pull any of the equipment, but he did ecnd in to respondent contracts with two of the dealers, but nothing happened to them as they could not be broken.

/:

THE ATLANTIC REFIYI:,G CO' 1435 1407 Initial Deci:,ion As a result of the pressure that was used by respondent's representatives and other retail dealers in the area and on the main hio'Jnmv these four dealers did finallv raise their rices to conform to the price being posted by respondent's lessee-dealers operating J' under the consignment plan, but only for a short time, a.s the necessary result of sllch complim1ce was the loss of sales. Subsequently, t hey dropped their price on regular gasoline bRek to 27.91 per gaHon. As one witness testified, he was hurt by the ga,soline war in the Summer of 1957, as he could not sell as much then because the consignment dealers on the highway were selling at the same low price. IIis margin of profit was so low he could not reduce his price further and, ,,,hen the Atlantic consignment dealers advanced their prices on regular gasoline to 29. per gallon and this dealer did likewise, it was necessary for him to again reduce his price 27.90 per gallon in order to maintain it volume necessary to contjnue in business. 1-1e estimated that, ,vhen he put his price up to 29.00, his regular gasoline sales fell off 45%. Re3pondent ,vas not successful in its attempt to get all the small dealers purchasing from wholesale distributors to maintain the posted retail prices at \\which its consignment dealers were selling gasoline in the Fall of 195'7. However, since respondent allowed a rebate to 1\11'. :\1arsh based on Atlantic s posted price on date of delivPTY, and that it refused to make such a rebate allowance for only font dealers out of twenty, whose names and gallonage had been submitted to respondent for rebate, it may be inferred that the other sixteen dealers were maintaining the posted retail prices. Commission s Exhibit los- , t.he definite statement is made t.hat '\\"e "ill not refund on his accounts not posting 29.9if. VIII THE VOL1 ;VIE OF ATLANTIC GASOLI E SOLD AT RETAIL AND WHOLESALE Ii\ EASTER NSYL- VA'NIA REGION A'ND WIL IINGTON, DELAWARE, DIS- TRICT 1. Retail Sales (a) In Eo,ste;' n Pennsylvania Region As hereinbefore indicated, most of the evidence in this case re htes to competitive conditions in Area 4 or Sussex County of Dela- 'yare. However, there is evidence in the record indicating that the other areas of the \VjJmington, Delaware, District of the Eastern Pennsylvania, R.region were a part of respondent's general plan of operation. Thjs Eastern Pennsylvania Region ha.d separate Dist-icts jn \Vil1iamsport, H.eading, IIarrisburg, \Vilkes Barre, and ,, 1436 FEDERAL TRADE COJ.LMISSIOK DECISIO:KS Initial Deci.;;ion 63 r.

Allentown, in addition to the ",Vilmington District in which Sussex County is located as Area 4. In order to get some idea of the ultimate probable effect of the practices disclosed in the record and discussed in this decision, consideration should be given to the total operation in that region and in the \Vilmington District. For instance, in 1056, in the Eastern Pennsylvania Region approximately 1600 service stations, either dealer-owned and operated or owned and Jeased by Atlantic, dispensed Atlantic gasoline and the volume of sales of gasoline in that region ,vas approximately 132 OOO OOO gallons. In 1957, there were approximately 1700 Atlantic service slations in that area, and the total volume of sales was approximately 000 000 gallons, and in 1958 there \\ere approximately the same number of service statimls and the volume of sales was approximately 000 000 gallons.

(b) In Wilmington District In 1956, the total number of Atlantic service stations in the 'Vilmington District. ,,-as approximately 204-; in 1957, 208; and in 1958 209. The total retail sales of gasoline in the 'Vilmington District in 1956 amounted to 20 000 000 gaJJons; in 1957 , 11 ,800 000 gaJJons; and in 1958, 9,200 000 gaJJons (CX 205 and 206). 2. Deliveries to Consign1nent Deal61' During the years 1957 and 1958, the approximate volume of delivery of gasoline to service station dealers, pursuant to consignment agreements, in the entire Hegion wa.s 48 500 000 gallons in 1957, "nd 71 900 000 gaJJons in 1958. In the "Tilmington District alone, in 1957, the volume was 8 600 000 ga.lions, and in 1958 , 11 800 000 gaJJons (CX 210).

3. Sales to Disttz7JlttOTS During the years 19:16, 1957, and 1958, the approximate sales of Atlantic to distributors in the entire EtlstCl'll Pennsylvania Hegion ere as follmvs: In 1856 , 81 800 000 gallons; in 1057, 72 700 000 gftl1ons: anllin 1958, 7L700 OOO gallons. In the ,Vihningtoll District t1011e, the sales to distributors \were as follmys: In H);jG, 1:2 000 000 gallons: ill 1957, 11 100 000 gallons; rmd in 1D58 , lO (jI)() OOO gallons (eX 07).

IX. TI-IE VOLli.JIE OF EEBATES on ALLOWX"ICES TO DISTRIDliTORS ,With respect to the gnllons of gfLsoliJlc upon \which rebates or a.llowancc:J were gin:n by Atlantic to its distributors and the approximate donar arnOl1nts in the total Eastern Pennsylvania, Region THE ATLA TIC REFI ING CO. 1437 1-:07 Initial Decision during the period of time from ,Tanuary 1, 1957 to April 13, 1959, the totals were as follows: The gallons "were 8 968 800, and the dollars were $126 915. In the Wilmington District, alone, the gallons ,were 605 '100 and the dollars were $6 700. (CX 211. In addition to Charles 1arsh at Georgetown and Frankford, and ,Yn1tcr Lister at Seaford, both in Sussex County, other distributors handling Atlantic gasoline in Dc1a\yare in the '\Vilmington District in ,July 1957 ,were the Clements Supply Co., Clayton, Deja ware, and Hammond &, TRylor, \Vilmington, Dehlware. Other distributors in that area were in JIa.ryland.

CONCLL SIOXS It is concluded from a thorough consideration or the facts, as set, forth in the foregoing findings a,s to the principal allegations or Counts I ancl l.t the respondent has utilized a legal rnethocl of procedure in meeting the cornpetiti ve situation 'with "which it \\ confronted in J uly 1957 in the "Delmarva Peninsula :: in protecting its dealers from the price \yar that \yas ple\' alent in that area. The policy, \which it adopted in the use of c.onsiglll1cnt contracts with its dealers making them its agents, brings the. respondent within the priuciples lilid down in the U1J/ited State.s v. General Elech'ic Co. case, 27 S. 476 , decided in 1926, and legally gives the respondent control oyer the prices at \yllich its gasoline is Eold through its clea,lers and lessee- dealers io the consuming public. The important features of the consignment agreement, "which bl' llg it within the principles of the General Elech' l:c deeision, are: 1. Title to the .gasoline is reserved to Atlantic.: and it has the right. to determine the amOlUlt of tIlc consignment in the inventory of the dealer at any time.

2. ..\.11 gasoline in inventory in the dealer s tanks remains the property of Atlantic until sold, and money received for the sn,1e of gasoline by the dealer 1s held in trust for the Atlantic account. 3. Atlantic fixes the price at which the gasoline is to be sold by the dealer in all instances.

4. Atlantic is obligated to bear all expenses of c1eliycry and removal of consigne(l gasoline.

5. FpOll termination of the consignme.nt agreement, the consignee 11(-; option of retnl'lling- the eonsigncd gasoline orpnrcha,sing it from Atlantic.

G. The consignee dealer is required to pay over proceeds of sales less fixed cOlnm1ssion at regular intervals. 7. Atlan6c assnmes an risk of casualty Joss where negligence or willful act of the dealer has not coni ributed to the Joss. 1438 FEDERAL TRADE COlThIISSION DECISIONS lnital Decision 63 F.

8. Atlantic assumes all taxes on consigned stock. Although it is contended by complaint counsel that these dealers were coerced, and that they had no alternative but to enter into the consignment agreements to stay in business, it is not believed that there is sufficient evidence of any form of coercion to destroy the validity of the agency relationship which is brought about by the signing of the consignment agreement and the posting of the retail prices by the respondent. So far as the record is concerned it is clear that in all instances the respondent offered to help the dealer meet an impossible competitive situation. In each insrcmce the dealer was able to continue operation throughout the pric:,e war with commission allowances which enllbled him to stay in businct:s. It was to the interest of respondent that these dCrLlers be kept business to continue as rL conduit for the dispensing or responclenCs gasoline and other petroleum products to the consuming public. Complaint counsel contend that there is no absence of c,oercion in this case and no n,rm-length rlealing- yoll either sign or go out of business." On t.he other hand, the assurance is given the deflle.r that, if he will sign, he may remain in business. There ,YflS mnhmlity, both in the entering' into the contract and in the termination of the contract. This is jllu trflted by the experience of :311' Crevison, a R.ehobeth, Dela\\ are, dealer, ,,"which is set forth in considerable detail in the foregoing findings.

Although there is no decision of either the Conrt of Appeals or the United States Supreme Court passing srecifieally on the legality of consignment agreements by oil companies,s in meeting competitive sit.uations in price wars, there is some indication in some of the decisions that such a,n agreement would be lawful. See Standard Oil Company v. 337 U.S. 293, 296. The experience of the one dealer in New Castle Count.y that did not sign the consignment agreement and continued to handle Atlantic gasoline throughout the period of the price Vi;r in the Summer of 1 D57 is evidence that there \Vas no coercion used. That dealer probably ,youlc1 not have survived except for the fact that his principal means of livelihood \'ere other than from the sale of gasoline \'which he purchased at the usual tank wagon price. Eyon when the price \'ar ,vas about over and this dealer finally reduced his retail pri('c out of spite, he \'as not compcl1ec1 to break his lease or go out of business, but, as the record sho\\ there ,vas mutual.l consent to terminate the lease. This dealer then became a Te ,lco deolcr.

'Vij-h re pect to the a,lleg' ations of Count. III of the comnhint ho\\-eye1' , t.he record shay,s thflt the re ponclent 'YflS not satisfied to THE ATLANTIC RE:FINI:KG CO. 1439 1407 Inital Dccision control the retail price of Atlantic gasoJinc in the large stations located on the main highways of the "Delmarva Peninsula, but deemed it necessary, in order to have one posted Atlantic retail price, to control, insofar as it. was possible, the retail price of small dealers that were being sold by wholesa Ie distributors of Atlantic gasoline. This respondent attempted to do by securing the cooperation of the 'wholesale distributors in selling rehtil dealers at prices suggested by Atlantic and in compelling their retail dealers to seu Atlantic gasoline at the same prices as respondent had posted at the service stations of the deniers that had signed consignment agreements. There ,were two wholesale distributors in Sussex County; one, the Atlantic Oil Company operated by Mr. Marsh in Georgetown, Delaware, on Route 113, who sold principally east of that highway; and t.he other was Listed-r Oil Company operated by ,Ya1ter II. Lister, located at Seaford, Delaware, on Route 13 , who sold principally ,,'cst of that highway and between that highway and Route 113. By securing the cooperation of these two wholesale (li8tribntors, respondent attempted to fix and control the retail price of Atlantic gasoline in aJl retail gasoline stations in Area, 4-Sussex County-and, admittedly, this was its purpose. :\11'. 1\f(11'sh, the mvner of Atlantic Oil Company, was an un"Willing conspirator, but he did c.ooperate to the extent indicated in the foregoing findings and, although respondent as not successful in all instaner,s in getting these small retail dealers to post. ret.all prices which coincided with those fix d by the respondent under the cor signment agreements, it was successful in most instances. Certainly tho coercive methods used by representatives of the respondent to obtain the cooperation of the wholesale distributors and to compel their small dealer customers to raise their prices ill Septcrl1ber 1957 to coincide with the prices fixed by respondent in the service stations of the dealers on the main highways, are evidence of an intention to conspire with the ,yholesale distributors to fix uniform retail prices of Atlantic gasoline in that area.

Counsel for the respondent made the point in his oral argument that "it takes two to tango, suggesting thereby that there ,yas no conspiracy, since there must be two or more pa,rties to a conspiracy. That may be true, but sometimes an unwilling partner may be compelled to cooperate, and that is the situation in which idi'. 1Iarsh found himself 'when representatives of the re.spondent took him with them to call upon his retail gasoline dealer customers to get them to raise their prices. He l1irln t want to l10 it, but he was threatened with the loss of his OIyn franchise if he did not cooperate. I-lis presence gave the customers the impression that he as consenting 1440 FEDERAL TRADE C()?\L\IISSIO_ DECISIONS Initial Deci...inll 63 F. to the actiYlties of rcspondcnfs repl'csentnti,- , en n though he said nothing. It was a joint call nncl the respondents representatives \yore the voice of the conspiracy. It is belie'-ed that the allegations of this Count have been substantially sustained by competent and reliable- evidence in t.he record.

The contention of counsel for respondent that the activities of respondent to secure the cooperation of \yhoJcsale distributors to maintain prices of gasoline by retail dealers sold by them are not in interstate commerce.e is re iected for the 1'e,180n that such actii7ities fire a. part of the m-er-all conspiracy to fix -nnd maintain 'iyholesale and retail prices and invoh'es the sale of ,1 product by the \yholesaler and rei-nilex which took on interstate CluTilder when it ,,,as 10acled 111 the ta.nk cat or tank truck at Salisbury, :Marylanc1, and did not Jose that. character until it \\' as pnt in the llutomobjle of the cllsj-omer in the l' etail gasoline stat.io111 since the only break ill the continnons and regular :Ao\y of the product \YflS ;1 temporary one in the tank of the \whole,sfller and the tank of the retailer only long enough to Een' e the ultimate purchaser.

It is Hnrcalistic to cut the flo\'; of flu' product in hyo or three, segments to c1epri\'e the Commis:-ion of jurisdiction m er the activitie of the respondent to keep the al(, of the pro lnct from unlawful interference by agreements to fix the \dlOlrsale anc1retaij prices at. which it is s01c1 to the consmning public. Assnm.ing) ils hat; been col1cluded :\bol- , that respondent has Jegall ' fixed the prices at ,which it ells g,iso1ine at retail through dCf!ler OIl consjgnment, it does not follo\y that it can protect that price by securing" the cooperation of \dlOle':3ale distributors flnd rctail clealeTs sold by them where1)y the ,wholesalers sell at prices suggested by respondent and ,yhereh ' the i' etail dealers a.gree to sell and do sell at the prices fixed and posted by respondent. Such actlyjties all the part of respOJJc\ent constitute all illegal restraint. on the sales activities of such cooperating \\.hole :alers and retailers and since the Atlantic let ljJ price sought to he protected ndrnitteclly is a. sale by respondent in interstate ('OmmelTc, the agreement or ('0oper,1tiye flcr.iyity is also in sllch commerce. COllll:ml for respondent. cite 8.ncl rely upon St(!iulaTd Oil 00. FTO 340 17". S. 231 a.nd footnote 6 on page 288, as authority for their contention that the transactions im-oJ,-ecl in this case in Connt III are not in interstate commerce and the Commission does not have jurisclic.tion. At best, this reference i dicta ince the transaction involved in that case ,,' as a sa Ie to the retail dealer. The fa,cts in the present case bring it rno1'e in line ,,,ith the principJe enuneiatcd in the ease or (117i119 !(lc-!c sol1L.i11e Paper C01n- THE A'ILA!\TIC REFINING CO. 1441 1407 Initial Decision pany, :317 S. 664, at pp. 568-9. That case involved the Fair Labor Standards Act and employees of a ,vholesalc paper company who are engaged in the delivery, from company warehouses in the State to customers within the same State, after a temporary pause at such warehouses, of goods procured outside of the State upon prior Ol\.lers from or pursuant to contracts with such customers. It was held that such goods 1'et8.in their interstate commerce character until finally delivered to the customer: and they are not divested of that eha.l' acter by the te1nporary pause at the ,ya.rehouse, or by the fact tlud title to them pcl8ses to the cmnpany upon theit delh;ery at thell'(Iiehouse. Also, '"'he1'e the custonwrs arc recurrcnt as to the kind and quant.ity of merchandise, and the manager can estimate with precision the needs of his trade, such transactions would be included in the group held to be "in commerce , in the prescnt. case, applying the rule of that case, where the retail dealer holds the gasoline in his tank for suffcient length of time to make deliveries by pumps to regular cllstomers en though title passes to the ret:til dealer upon delivery to his tank t11p gasoline is still in interstRtp movement until delivery is made to the automobile owne1'-1he ultimate consumer. In view of the foregoing it is therefore conclndec1 t.hat respondent. acting through its agents, offcers, and employees, a,nd its wholesale distributors, engaged in se.Jling respondent's gasoline and other petroleum products to inc1ependeJJt ervice stations in the " Delmarvfl Peninsllla: area for the p11l'p0:3o. of supprcssing, preventing, hindering, and stabilizing price competition in thc distribution and sale in commerce of Atlantic gasoline at retail, as well as wholesale, h entered into and carried out. H planncd common course of action understanding a,nd agreement ,with its sai(l wholesale distributors to maintain and fix the price nt ,which Atlantic gasoline "'n; sold or would bc sold at thewholesalc level, as well as at retail, in g'llsolinG jervice stations sold to by saicl distributors, all in violation of Section 5 of the Feele,ral TnHle Commission Act.

ORDER It is ordered. That the rcsponele, , The Atlantic Rcnning Cornpany, ft corporation, its offcers, directors, agents, representatives, 01' elnployees, elircctly 01' through any corporate or other cleviec in, 01' in connection ,with, 1hc ofrel'ing for sale rtle, or distribution of its gasoline 01' other petrolmun plo(bct in commerce as "commerce " is defined in the :Federal Trade Commission )J:t, shall Iortlnyith l'N1Se ancl desist from coercing, pprsuading, inducing, or othfT\\"lse' ull(luly influencing, directly 01' indirectly, its independent ,yholesale clis- 1442 FEDERAL TRADE CO:\IMISSIOK DECISIONS Opinion 63 F.

tributors to enter into, cooperate in, or carry out any planned common course of action, understanding, arrangement, a.agreement, combination, or conspiracy to establish, fix, stabilize, maintain, or adhere , by any means the wholesale price at which said products are sold by said wholesale distributors or the retail prices at which its said products are to be resold by retail service stations owned and operated by said dist.ributors and/or retail dealer customers of said wholesale distributors.

OPINION OF THE C01\BlISSION :MAY 16 , 1963 By ::fAclxT1. ComrnissioneT:

This matter is oefore the Commission upon the cross appeals of respondent and counsel supporting the complaint from the hearing exa.miner s initial decision in part sllshLining and in part dismissing the charges of the complaint.

The complaint alle,grs that respondent * a rnajar petroleum products marketing company, individually and in combination "ith others, engaged in practices which had the purpose and effect of unlawfully fixing and maintaing the resale prices of gasoline in violatjon of Section 5 of the Federal Trade Commission Act. Although the complaint deals with essentially a single basic factual situation, it is divided into three counts. In Count I it is alleged that the respondent individually violated the Act by coercing and forcing its lessee-dealers through means of a system known as a temporary consignment contract", to sell at uniform and noncompetitive prices. Count II of the complaint incorporates all of the allegations of Count I by reference. This Count howe\Ter charges a conspiracy between respondent and its unnamed lessee. dealers to fix and maintain uniform and non-competitive prices. The medium through which the alleged conspiracy was allegedly effected is the aforesaid "temporary consignment contracts" between respondent and the co-conspirator lessee- dealers. Count III incorporates all of the allegations of Counts I and II, and in addition charges a conspiracy between the respondent and its unnamed independent wholesale distributors of gasoline. The alleged vehicle of this conspiracy differs somewhat irom that charged as existing between respondent and its lessee-dealers. Count III charges that uniform consumer resale prices were fixed and maintained by gra,nt- . Respondent' s correct name Is The Atlantic Refining Company. THE ATLANTIC REF ING CO. 1443 1407 Opinion ing the co-conspiring distributors certain allowances or rebates which they were to pass on to their dealer customers who would agree to adhere to the prices fixed by respondent in its ilicit practices involving its lessee-dealers.

The hearing examiner found that only Count III of the complaint had been sustained, and issued an order which directed the respondent to cease and desist from fixing or maintaining the "wholesale orprice:) at which its products are sold by "wholesale distributors" the retail price at which its products are to be rcsold by retail service stations owned or served by wholesale distr1bl1tors. Complaint counsel arc appealing the dismissal of C01mts I and II of the complaint, and respondent is appealing the finding and order with respect to the allegedly ilegal practices charged in Count III. The respondent is a Pennsylva,nia corporation, pTirnarily engaged in the production, sale and distribution of gasoline and other petroleum products throughout a 17-state marketing area. Its "regular gasoline is sold under' tile brand name "Atlantic " and its high test fuel under the name "Imperial". Respondent owns and operates refineries at Philadelphia, Pennsylvania, and Atreco, Texas. In H!56 its gross domestic sales of petroleum and chemical products, including sales of its consolidated subsidiaries, amounted to approximately $379 000 000.

The respondent markets its gasoline in two ways. It sells directly to the operators of retail gasoline service stations who either own and operate their own stations, or lease the premises from the respondent or others. The second marketing system entai.ls sales to wholesale distributors who in turn resell to retail service station dealers. In the geographic "rea with which the facts of this case are concerned, respondent used both systems. The controversy in this case centers chiefly in an area referred to by the examiner as the "Delmarva Peninsula". As a ghnce at tlw, map will show, the Delmarva Peninsula is that body of land ,which separates the Chesapeake Bay from the Delaware Bay and Atlantic Ocean. It acquires its Dame from the fact that it lies within the boundaries of the States of Delaware, Maryland and 'Virginia. In 1957 a gasoline price war erupted on the Peninsula. The allegedly unlawful acts and practices of this respondent were performed in connection with this price .war.

The practices engaged in by the respondent in the Delm:uva price war were not spur of the n10ment expedients but constituted the implementation of pre.cletermjned company policy.y. The respondent \. :::: , ;: 1444 FEDERAL TTIADE CQ:\nJISSION DECISIOXS Opinion 63 F.

states "nncler price war conditions it is the policy and practice of respondent to assist its retail dealers to rem,1in in business. It is like,vise the policy and practice of respondent to assist its distrilmtors in order that they may, in turn, sell to their retail dealers at a price ,which alj01YS such retail defllers to be .generally competitive and thus not suffer economically and competit.iveiy 01' be forced ant of business.

Since, as aforesaid, the respondent utilized t,yO methods of distribution, their "assistance ' to dealers in a price- ,var area, ,yas accomplished in different fashions. A.\S a.lleged in Counts I and II of the complaint, all direct sales to retail scrvic.e station, the respondent. utilized temporary consignment conti'flets. This procedure ,,- as devised flJlcl implement eel by the C'ompfllY in early 1056, It prm-icled: hen price ,Y111' conditions prevail in a gi,-eJl competitive trade, area, so thflt. the spread behyeell the dealer Cta.nk "agollJ price of JttJant ie gasoline and the prevailing service station price at ('011pnrabJe sen- ice tations is less than 4 , per gallon, all Atlantic dealets: ill be oflerell the opportunity t.o "execute a contract sales a-agreement an(1 heco11e Ollr contract.ors for the retail aJe of lantic-owned gl1so1ine It is important io note that the c011panis program.m as planned and irnplcmented, did not entail forcing dealers, including lesseedealers, operating on cOlnpany-m\llCcl premises to execute the COllsigJlment agreements but. under the circumstances, such overt control ,yas llnnec.essary. Any dealer faced \with a price-war situation ,yas offered the consignment program or nothing, In other words. the compflny ,yonlc1 not reduce its prices to him to enable him to independently set his own resale price a.nd thereby meet competition as he saw fit. 1-Ie '''as offered, in effect Hobson s Choice.c " of cOlltillujng to buy at the normal dealer price, entering a consignment agreeme,llt, or terminating al1 existing contractual relations with the respondent. -:\.s several of the clea,ler-,witnesses testified, it was a rase of either signing the consignment contract or gojng out of business. respondent argues that the only coercive force present in the situation was engendered by the price '''in' ma.rket conditions, which the record shmys iL did not create, But this is no ans,yel'. One cannot justify oiIering a hot poker to a d1'O\yn1ng man by avel'ing that the ,yater was to blame. To the extent thflt the. lessee-clenJers had no Hernative but econOlnic death to entm.jng a consignment-agreement 1', lth re3ponclent it must be IOlmd that they 'very pressnred or coerced to enter sllch contracts and the hearing. examiner s findin::" to , THE ATLA T'fIC HEFIXIXG CO, 1445 1407 Opinion the contrary is in error. 1-1o\\evel', there, does. not appe tT to be any evidence in this record that the respondent used its position of economic power over its lessee dealers to force them into entering the eontntct. Vnc1er the business conditions -which.h existe(l, such pressure ,YHS unnecessary.

The basic charge made in Counts I and II 01 the', complaint is that the consignment program as practiced by the respondent, resulted in illegal price fixing. The factual complex in ..vhieh the aHegedly illegal schenw. ,nts utilized is described by the hearing examiner pages 1426 and 1427 of the initial decision. In summary, he found that from t,ime to time during early IV57 the respondent surveyed the COllsmner prices charged by various gasoline companies' outlets in the Delmarva Peninsula. The survey disclosed that in respondent's areas 1 and 2, both in Newen.style County, Delaware, the major marketing companies' outlets ,,- ere selling regular gasoline at prices ranging from 25.9 t.o 27.9 cents per gallon. In Kent. COl1nt.y Delaware (respondent s area 3) prices ranged from 25. D to 28. cents. In Sussex County Delaware (responden(s area 4), there 1\ere only two prevalent prices, 26.fJ cents and 27. cents. By .Tune 1957 the respondent had alrea.dy placed its consignment program into efrect in its areas 1 :2 and 3 but had taken no action in this respect with respect to the Sussex County area. In .June 1957, Atlantic made another surveyor the Delmarva Peninsula area and found that the majority or the major brand C0111petitors in the areas 1, 2 anel 3 "ere posting retail prices at 26, cents per gallon on regula.1' gasoline. Effective lTune 2, , 1957 , rcspondent reduced the c.onsumer p1'iee at its contract sales consignment stations in these areas from 27. to 26.9 cents pel' gallon. By .Tuly 1 1937, it appeared that. HlOst of t.he gasoline stations in t.he Sussex County area were then posting it price of 26.9 cents IJer gallon for regulfll' gasoline. 'rho examiner found that the st.ations selling at this price indnc1ecl " 11 Esso stations, 2 Gulf stations, 2 :Mobil (Soeony) stations, 5 Snnoc.o stations, 7 Amoco stations, 4 Cities Service stations, 8 Pure Oil stations, 3 Shell stations ,1 Sin clair stfltions, and 5 Texac.o st.ations. Some of the retail dealers received rebfltes off of their tank wagon price. It as reported that t.he Sun Oil Company \yas operating on a commission agreement plan similar.r to responcle nts.

At this time t.he Sussex County lessee-dealers were paying respond ent 24.3 pel' cent per gallon for regular gasoline. The examiner found that at this cosj- price Atlantic dealers and lessee-dealers could not compete \with sneh loy\' retail prices of their nmjor competitors. They apppflled to the. respondent for re.lief.:: III response 780-01S-, 6!J- 1445 FEDERAL TRADE CO:-IMISSION DECISIONS Opinion 63 F.

to this "appeal, the respondent's representatives contacted the dealers and ofiered them the consignment agreement which respondent refers to as its "contract sales agreement.

There is no dispute concerning the basic details of the consignment program. The hearing examiner succinctly explains it at page 1429 of his initial decision, in the following terms: 1. 'I'he Company wil place gasoline on consignment with the dealer subject to prior approval hy the Credit Department. At the time of each replenish. ment delivery, the volume of gasoline on consignment is to be brought to its original level. The dealer wil settle in cash at the time of replenisbment for the number of gallons equal to the replenishment delivery on the basis of Atlantic s posted service station price a!; the time at which the gasoline was sold, less a commission for Atlantic gasoline, representing 23% of the service station price for the product, excluding aU taxes. 2. Atlantic wil specify the service station price of gasoline posted by the dealer during the period of the consignment plan agreement, the dealer to be trustee of proceeds of sale.

3. Title to gasoline constituting any replenishment delivery shall not pass to the dealer.

The record reveals that respondent entered consignmcnt agreements "with 37 of its dealers in its area number 4 during 1957 and 1058. Two of these dealers ".ere located in 11maryland and the remainder in Delaware. Although the price war was over in Sussex County, Delaware, by September 13, 1957, dealers in that County remained under the consignment program until as late as September 1958. The price war continued for a longer time in Newcastle and ICent Counties in Delaware, and there too the consignment-agreements remained in effect during 1958.

There can be no doubt but that respondent, through the operation of this consignment program,m as above described was able to, and did, in fact, fix uniform retail prices for gasoline sold to consumers by its lessee- dealer service stations in its areas 1, 2, 3 and 4, located 011 the Delmarva Peninsula. But in order to maintain the prices established by the respondent through the consignment program, it \Yas necessary to secure the compljance of these dealers -who did not buy directly from respondents but through an intervening wholesale distributor. Respondent's announced policy on pricing is: There wil be only one retail price at all times in any given pricing area. This wil be called Atlantic s posted retail price. A reasonable relationship wil always be maintained between posted retail price, posted dealer tank wagon price, and posted consumer tank wagon price. Since the dealers buying from a "wholesale distributor were his customers and not those of the respondent, control over their prices could only be maintained and secured by en1isting the cooperation .

THE ATLANTIC RE.FINING Co.. 1447 1407 Opinion of the wholesale distributor \\110 served them. The hearing examiner found that the respondent did secure the cooperation of its sometimes un\\il1ing distributors, and thereby conspired with them to fix prices as charged in Count III of the complaint and in violation of Section 5 of the Federal Trade Commission Act. The system pursued was to grant the wholesale distributor a lower price to enable him to in turn sell at a lower price to such dealers as would maintain the consumer price set l1d fixed by respondent for its direct buying dealers operating under the consignment plan. The simple mechanics of the pricing procedure utilized are explained in an Atlantic l:mlJetin to its district 111nmlgers, as follmvs: A fictitious dealer tank( wagon price wil be computed by using the retail price, excluding tax, that we have established on contract sales operation less 230/. 1;' 01' example, if \ve are on contract sales operation at 26. , the fictitious dealer tank wagon price for use by the distributor would be 13.8. This is the price which we would expect distributors to charge their dealers within the area where we are on contract sales operations If a wholesaler sold to a dealer at the "fictitious dealer tank wagon price " under' certain conditions prescribed and enforced by the respondent, he would, upon application to respondent, be rebated twothirds of the difference between the price he charged the dealer and what would be a normal dealer price. He was required to absorb the remaining one-third. The conditions prescribed by the respondent for a 'wholesaler to meet in order to secure his rebate, were: (1) They must scll at the fictitious or reduced dealer tank wagon prices to those retail dealers located in a, depressed or price-war area. (2) They mllst furnjsh respondent evidence of such sale in an application for the rebate on forms prcviously supplied to them by the respondent. On these forms, they must indicate the dates gallonage sold and list the dealers to whom they gave the rebate. (3) Upon receipt of the forms, the respondent calculated the amount of the rebate and remitted to the distrjbutor, but only for the number of gallons sold to t e deillers ,,dlo had resold at respondent's fixed retail price established lor its consignment lesseedealer stations. The distributor had to sustain the full loss for sales to those dealers for whom the respondent disallowed the rebate. The way in which respondent' s pricing plan worked with distributors is indicated by the experience of the Atlantic Oil Company of Georgetown, Delaware, one of respondent's distributors in Sussex County, Delaware. Charles B. Marsh, the witness representing this distributor, testified that the company had around 18 dealer -customers. During the price wars in Sussex County in 1957, respondent assisted the Atlantic Oil Company in aiding the latter ...

1448 FEDERAL TRADE CO:\IMISSIOl\ DECISIOXS Opinion 63 F.

dealers by gran6ng refunds (in effect a lower tank wngon price) on miles. Atlantic Oil Company sold its dealers at a reducecl price. fl1c1 ill turn applied to the respondent for refunds based on the dealer assistance.

These compensatory refunds were granted by the respondent to' Atlantic Oil Company on the understanding, the evidence 8hol'8 that the distributor would 10'\vo1' its price,s to c1crdel's and that the dcalc1'3 in turn would post pump prices suggested by the respondent. Mr. farsh testified that J. 'White, an employee of respondent cheeked on the pump prices of :Marsh's dealers and rcportc\l this information to l\1arsh. This same 811p10:yee also accompanied,d ::Iarsh on inspection tours of l\farsh's dealers. At such times ,Vhite asked the dealers to raise their price to the figure recommended by respondent. :Most of Jiarsh's dea.lers posted uniform pump prices during the 1957 price wars but thero were fOllr notable hold-outs. These \were: Eunting Frankfort, De.1a,yare; Burton, Georgetown Delil,",are; R. .J. Campbell, I, rankfort, Delaware; and :McGee &- 'Vest, Somerville, Delaware. 'Vhen these dealers refused to sell at the pump prices specified by respondent, Atlantic Oij Company ,yas denied compensatory refunds on transactions with them. This is reveal.led by the testimony as \Veil as documentary evidence. Various employees of respondent, such as Ir. 'White and 1\11'. liug-hes, contacted witness :Marsh about the four nonconforming de,alers and insisted that they raise their prices. 1\11'. 'Yhite rec.om mended as possible action against these dealers, if they refused t.o conform to the recommended prices that :Marsh take out their pumps mld insignia. 1\larsh wa,s also threatened with the loss of his franchise if he did not bring these dealers into Ene. 1\11'. Zin11, Dist.rict Sales l\ianagcr of respondent, requested from j)'Iarsh and received the contracts that this distributor had with such dealers. Ir. Ia1'sh testified that the explained purpose of obtaining the contracts was to see if they could be broken. IImvever, no such action was taken. The four recalcitrant dealers all thereafter raised their prices, oJ returnedhongh some did thistoonlytheiras a temporarypriormeasureprices.and shortlv As aforestatec1, the hearing examiner c1ismissecl Counts r and of the complaint, dealing \with the consignmcnt program. The dismissal is based upon his belief that the decision or the Supreme Court in UnitecZ States v. GeneTCI Elect'!ic Co. (272 U. S. '176 , lU2G), Ie-gaIly gives the respondent control over the prices at which its gasoline is sold through its dealers and lessee-dealers, to the COllsmning public.

THE ATLA TIC REFI:\I).TG CO. 1449 1407 Opinion Be.fore emba.rking on a discussion of this phase of the hearing examiner s decision, it must be clearly understood that the Commission, by discussing- consignment separately, is not adopting and endorsing the seriatim treatment afforded this matter by the hearing examiner. The Commission considers the respondent s consignment program to be an integral and inseparable part of its overall pricing policy. In restraint of trade matters, and particularly those involving conspiracies, the legal1ity of conduct is not to be. judged by dismembering the evidence and viewing it as sepa rate and distinct entities. United States v. Patten 226 lJ. S. 525 5,,4 (1 D) : Amm'ican Tobacco Co. , et al v. UnitecZ States 147 F. 2d , log (Gth Cir. 1944). Sep;tmte discussion is here afforded the consig:nment plan solely because of the uniqne and separate defense elltered with respect to it.

The obvious point of departure in any discussion involving price flxin:.:: is Socony- VrlCI/wn Oil Co. v. United States (310 U.S. 150 :2:2-228 (1940)) wherein it. \yas held t.hat any device which has the purpose and effect of fi ;:jng prices is an illegal restraint of trade. It i; illegal pel' , \YlthOllt. regard to whether prices were actually fixed or \Yhethe.r the c1eyice \"as completely unsuccessful in that reg-n 1'1. It is the net of conspiracy or eombinnt.ion itself 'which.h is unlawful, and no further ShCfWl11g need be made. \Vithout doubt this record shmys that responde.nt did agre, , conspire, and combine \\.jth it:: lessee-dealers throug-h the medium or this consignment progTnnl to fix and stabilize the consumer price of ,.r' \soline in the area under consideration. l ndcr the Socony- (fCWun doctrine such a course of action is clearly unlawful unless the re ponclent is afrol'cled shelter within the aegis of the General Eleoti'ic case. It is the Commission s \,.iew that General Elect1'ic does not aiTord tile respondent. the needed shelter and that the hearing eXflminer s cont.rary Jillcling t11a t it does was in error, and must be re,yerse, There is a c.earcnt distinction between the facts presented by the Cenei' lll Electric litigation and the instant matter. During the pm.jod prior to 19:2G, General Electric had managed to purcl1false all of the outstanding- patents necessary for the manufacture of incandescent lamps. It in turn, licensed other corporations, including c.ompetitors such as \Vestinghouse, to manufacture a,nd sell lamps produced through the General Electric patent. All licensees "' ere required to adhere to an agency-type distribution plan set up by General Electric, and ",..ere permitted to se.ll only at the pr1GCS set by General Electric.

1450 FEDERAL 'fHADE COM nSSIO DECISIOXS Opinion 63 F.

In 1924 the government filed a petition against General Electric and others charging that the agency system of lamp marketing employed by them was violative of the Sherman Act. The case was tried in 1925 in the lCnited States District Court for the Northern District of Ohio, and the Government's petition was dismissed (15 F. 2d 715). This decision was appealed to the Supreme Court which in 1926 affrmed the District Court (272 U.S. 476). The Supreme Court decided that the agency method of distribution employed by the defendant was in fact a valid agency and not a disguised purchase-a,ncl-sale arrangement, and that General Electric as the owner of the patent, entirely controllng the use and sale of incandescent lamps, \'as \\within its rights in imposing upon its licensees conditions that their sales should be at prices fixed General Electric.

As "e see it, there is a '\ido difference between Genera,J Ele,ctric permanently implemented and universally applied agency distribution of products produced under its patent and the activity of the respondent as demonstrated by this record. In this case, respondent attempted to make its dealers genuine agents, but the change made \Vas merely of form and not OT substance. Dealers continued to operate their businesses after entering into consignment agreements in practically the same manner a,s before, except that they could not determine their own gasoline resale prices to consumers. They commingled money from the sale of gasoline with their receipts from the regular saJe of products other than gasoline. They continued to hold themselves out as full proprietors of their stations. They received gasoline and paid out money for its value nc1 they then sold it at retail as before. A dealer ent.ering the consignment program did not receive actual payment for his ga,soline 111ventory. The value of the gasoline was put into an escrow account. If more ga.soline was needed to bring the dealer s inventory up to the. pre-determined consignment level the dealer a.1so paid for this, and this sum was put into. escrow. ,Yhen the inventory was replenished, the dealer supposecl1y was paying for gasoline already sold, but in actun'! fad he was paying for gasoline delivered at the tinle of pa,yment. unlike Genera.l Electric, rhe agency distribution prognlD1 was not respondent's regular method of selling its products. The system is only used at irre,gulnr ini- ervn 1 :1nd in certain market" during price wars. The temporary nature 01 the progrl\m and t11e shifting back and forth of customers from dealer status to so-called agency status emphasizes that the consignment plan j a device to fix and. stabiEze ces, rather than a goml faith marketing method. ,, )). &: &: THE ATLA:.TIC REFINING CO. 1451 1407 Opinion Furthermore, decisions subsequent to the General Electric case have made it cleaT that where the antitrust acts are involve, , the crucial fact is the impact of the particular practice upon competition not the label it carrios. For example, in United States v. lIicf.sonite Om' the Supreme Court held that the result must turn not on the skill with which counsel has manipuJatec1 the concept of "sale:: and agency, but on the significance of the business prltctices in terms of restraint of trade (316 u. S. 265, 280; 1942). Judge Yankwich, in United States v. Richfield Oil Corp. 99 F. Supp. 280 (1;. D. Ca1.1951), affrmed pet curiam343 S. 922 (1952), seated: 1Ye must in each c:ase, get behind the facade which the organization has createc1 as did the Supreme Court ill the Masonite case when it went behind del credere agency, which, at first blush, seemed to be a fiduciary relationship established by the concern for its O\Yll purposes, and found, instead. a means for monopolization. The Court dif not then hesitate to declare the flgcnc:v a mere cloak for restraints ,. 0(" (99 F. Supp. 289). It is apparent from the facts that respondent very clearly desired to stifle price competit.ion among Atlantic dealers and it sought the complete control of Atlantic retail prices in the price ')c Lr a.rea. Respondent utilized the consignment system of marketing as L device to control prices admittedly to avoid the impact of the Clayton and Sherman Acts. Doubtless the respondent felt that it had devised a consignment program valid in that it met all of the criteritl of consignment as prescribed in the, law of agency a.nd it rnay well be tlwt for purposes other than antitrllst Jaw enfol'crment this consignmellt program could be upheld. But, as here employed\ to effect and participate as an integral unit of a horizontal and vertical price fixing scheme the responc1enes eonsi.gnment program must be helel as a violation of the Fec1era,l Trade Commission Act: Insofnr as Count III of the complaint alleging a, conspiracy.y inyo1ving respondent and its wholesale distributors is concerned, we agree ith the hearing examiner s finding that this Count has been sustained.

In United States v. Bmc8ch Lomb Optical Co., et ai 321 U. 707 72:1 (1944), the Court said: ",Whether this conspiracy and combination '\ as achieye,d by a.agreement. or by acquiescence of the wholesalers coupled with assistance in p.TIectuating its purpose is immateri"I" See "Iso United States v. Parke, Davis Co. 362 U. S. 29 (HWO). Here the participation of distributors in the scheme is shown. Distributor J\Iarsh eooperated by following the procedures established by respondent for the fixing and the control of prices. l\farsh also accompanied(1 respondent's representa,ti, 8s 011 inspection t.ours of deniers' stations for t.he purpose of influencing such dealers 1452 FEDERAL TRADE co:\nnSSIOK DECISIOXS Opinion 63 F.

to fo1lDlY respondent's lec.ommenc1ec1 1'2sale, prices. That this "as effectin is ShmYll by the fact t hat four recalcitrant clea.lcr changed their prices follmving such visits, although only temporarily in some cases. Such was acquiescence by the distributor in the illegnJ scheme coupled l'i- ith assistance in e.fTectl1ating Hs purpose. The hearing e.examiner found that distributor l\Iarsh wa,s an ull\yilling conspirator, but that fact is no defense ,,' he.1e the party actually pfu'tieipatcs in the c.onspil'flcy. See United States Y. Line JJutfTia7 (' 333 U. 287 (19-18). TheTe is also evidence of the pal'Licipution of distributor Listcr. Thus fl combination or conspiracy to nmintain resale prices ,vas ol'gflnized in vio1ntion of the _Fet1era1 Trade Commission Act.

The consignment agreement aITA.n enwnt "as an integral part. of the plan to fix anti maintain resale pric.e levels in the price "al' areas in the "Delmarva Peninsula . Thron !:h sneh agreements respondent "as able to generally maintain a. uniform level of prices on sales made through its dealers. This uniformity along with the actions resulting in the fi.xing of pl'ires on gasoline sold to dcmlcl's buying through dist.ribuiors gave to the re pollclent general control of price levels among dealers dispensing Atlantic gasoline in the affect.e.c ,1!' cas. The consignment. agreements are' unlawful as a part of the ,whole llnln, wful conl'se of conuuct. They were essential to t.he success of the price fixing scheme iust fl it "as necessary to the success of the venture for the c1e,llel's buying through (listl'ibntors to maintain reco1lInende,c1 prices. ",Vhere the whole conr e of conduct is illegal, specific practices, although in themselY!:s lawful, may be prohibited as part of the illegal whole. Cf. United Sla.tes Y. Bausch & Lomb Optical Co. , et a.1. 3Q1 CS. 707 (10H). In the Matter of Sn(!p- O'l- Tools Corporation Docket. Ko. 7116 (Decision of the Commission, XO\ member 1 , 1(61) l50 F. C. )035J, ,Ye hold in the cir- Clinstances that respondent is in dolat.ion of the la,y as charged in Counts I, II, and III of the complaint.

ponclent argues that its practices ,yhic.h the examiner found to be 1mb \\"fui ,were not. in interstate commerce. The position taken is that the commerce in\"ol\'ed in the sale of gasoline at. ,vholesale and at retail, with which the acts and conspiracies charged in the complaint are concerned, ,ymoe purely loed sales and not in inter. state commerce. Section 5 prohibits unfair 1lethocl of cOlnpetition jn (interstate) commerce and unfair or c1ecepti\ e acts or practices in deter'minatjon of the question turns (interstate) commerce. Onr on ,whether or not the course of conduct found to be unfair 1uts been engaged in in interstate commerce.

Respondent clearly does business in interstate COlllrnerce and the, gasoline ill\'olved in the resale price maintenance se-heme moved in THE ATLANTIC REFIJ\IXG CO. 1453 1407 Opinion interstate commerce. Respondent shipped its gasoline from its refIneries through terminal centers in Korfolk, Virginia, Newark, New Jersey, and its bulk dist.ribution cente1's in Salisbury, Ia.ryland, and \Vilmil1gton, Delaware, to storage tanks maintained by distributors Rnd lessee-dealers in the "Delmarva, Peninsula':' . Respondent, with main offces in Philadelphia, Pennsylvania, and with its regional offce covering the "Delmarva Peninsula" area. in East Reading, Pennsylvania, entered into sales contract agreements with lesseedealers in several,l states, including Dehnvare and laryla.ncl. The methods and practices used by respondent in obtaining the acquiescence and cooperation of its wholesale distributors in the price fixing scheme and their assistance in effectuating its purpose 'were engaged in in interstate COllnnerce. The parties themselves, that , respondent on the one hand and distributors on the other, were. located in different states and contracts between them involved interstate commerce. Various c10curnents llsed to carry out the scheme "\ycro transmitted across st.ate lines. l or instance, requests for refunds by distributors for dealer assistance were made on forms sent to Reading, Pennsylva,nia. Other evidence of t.he interstate character of the transactions relating to the, price fixing scheme includes eorrespondcnce, bul1etills and other matter which moved across state lines.

Thus, there \\'RS a transaction or fl scheme of an interstate character, regftrclless of the nature of the commerce involved in the Jocal distribution of the gasoline. Cf. Holland Furnace Company Fedeml tmde Commission 2(;0 F. 201 203 (7th Cir. 1050), C6?'t. denied 361 lrs. 932; GenentllliotoTs OOTJJOIy(,tion et al v. Fedentl T1'ade Commission 114 F. 2d ;,8 (2nd Cir. 1040); Ford JIol07' Cornpany v. Fedeml l'Tade Comml8"ion 120 F. 2d 175 (6th Cir. 1041), cert. denied 314 U. S. 668; United States v. Food and Grocery Eurea" of So,dhern Callfomla 43 F. Supp. 06(;, 072 (CS. C. S. Ca1. 1042). vVe hold, therefore, that the methods of competition acts and practices herein found to be unfair \\'erc engaged in in commerce" within the meaning of that term as used in the Federal Trade Commission Act.

The Commission is fnDy aware of the diffculties face(l by tnlcl( men at all levels of commerce when price wars erupt in the sale gasoline. It is realized that efforts often are made by some suppliers to cooperate with and assist their dealers in various "\yays so as to enable them to compete. in the course of price \'ars. :However, in (loing so they should avoid transgressions of the antitrust ht"\\"s. A seller may nppJy to the Commission for advice on appropriate legal methods for meeting t.he problem in the particular circumst.ances it faces. Thc solution, we arc sure, does llot lie in the use of 1454 FEDERAL TRADE CO:\L\HSSroX DECISIOKS Opinion 63 P.

price fixing schemes violating the antitrust laws. Respondent here cannot justly claim tllat it ,vas acting only in self-defense or the defense or its dealers since its course of conduct went beyond any such objective and reached into the area or unlawful price fixing. Sneh c.conduct we must condemn. Even if respondent had proceeded from entirely good motives, that circumstance would be no justifi cation here for the infractions or law disclosed. Fashion Originat01'8 O'tlild of Arnerica, Inc. , et al v. FeclelYtl T1'ade 001ntl1i8Sion 312 S. 457 (1941); Para?n01mt Pamo"s Lasky Oorporation, et aZ United States 282 17. S. 30 44 (1930).

The examiner found in the initial decision that on the forms for refunds on dealer assistance the distributors indicate " the dates and total galJouage sold at the reduced price and a list of the dealers to whom they gave the rebate. " This appears to be incorrect and \lhile it is not a crucial finding, we believe it should be changeel. The ,words "total" and "sold at the reduced price will not be nc10pted as part of the Commission s findings. The exceptions to the initial decision of respondent are rejected and the exceptions of counsel supporting the complaint are sustained lot he extent indicated. An appropriate order will be entered. Commissioner Elman does not concur.

Commissioners Anderson and Higginbotham did not pnxticipate in the de.cision of this matter, the former for tile reason that he (lid not hear oral argument, and the latter by reason of t118 fact that this matter ,YflS argued before the Commission prior to the time, he \vas sworn into offce.

OHm:n P.\TITLE\LLY ADOPTING INITIAL DECISION A 1) Pnm''TIKG ror THE FILING OP OBJECTIONS TO PROPOSED ORDER AND REPLY :\L\Y Hi: 1963 The Commission having rendered its decision in part allowing and in part clisallmving complaint counsel's exceptions to the initial decision and disallowing all of respondent's exccp60ns thereto: It is ordered That the Findings of Fact numbered I through IX of the Initial Decision be and hereby are adopted as the Findings of the Commission, excepting that the words " total" a.nd "sold at the re(lllcec1 price" jn item numbered (2) of part VII thereof are incorrect and are not adopted. Those prats of the initial decision not express1:v adopted are set aside and do not constitute part of the decision of tile Commission.

'" Proi1o ed Final Ol'ticr is omittrd in printing since it was cntcrccl as the Final Ordel' cf thr Commis jon.

THE ATLANTIC REFL''\.L\T G CO. 1455 1.107 Filwl Orrlel' It is further ordered That respondent may, within twenty (20) days after service upon it of this order and the attached Opinion of the Commission, file with the Commission its exceptions to the Proposed Final Order herein set out, a statement of its reasons in support thereof, and a proposed forn of order appropriate to the Commission s decision; and that counsel supporting the complaint may, within ten (10) da,ys after service of respondent's exceptions file a statement in repJy thereto, supporting the Proposed Final Order.

It is fWl'tlwr ordered That if no exceptions to the Commission Proposed Final Order are filed within twenty (20) days, the said Order shall then become the Final Order of the Commission. FIN"\.L ORDER Xm'E)IBER , 1963 Pursuant to 9 ,:1.22 (c) of the Commission s Rules of Practice, pub. lished "lay 16, 1962, 27 Fed. Reg. 4G09, 4621 (superseded August 1 1963), respondent w(ts served with the. Commission s deeision on appeal and afforded the opportunity to file exceptions to the form of the order ,,,which the Cornmission contemplates entering; and Respondent having timely fileel its exceptions to the order proposed, ,'(which exceptions were opposed by a reply filed by counsel support.ing the complaint and the Commission, upon review of these pleadings, having determined that respondent's exceptions should be disalJowed and tlmt the order as proposed should be entered as ihe final order of the Commission:

It is ordered That the respondent, The Atlantic Refining Company, a corporation, its offcers: directors, agents, representatives, or employees, directly 01' through any corporate or other device in or in connection w"ith, the oftering for s8.1e, sale, or distribution of gasoline, in commerce as ' col1mcrc.e:: is defined in the Federal Trade Commission Act, shall forthwith cease and desist from: 1. Entering into, c.continuing, cooperating in, or carrying out any planned common course of action understanding, arrangelnent, agreement, contract, or conspinwy with any person or persons not parties hereto, to establish, fix, adopt, maintain adhere to, or stabilize by any meallS or method, prices, terms or conditions of sale at which its grLsoline is to be sold. 2. Establishing, maintainjllg continuing, cooperating in, or carrying out, or attempting so to do, any plan, policy, program or a,ny consignment policy in combination with any other person or persons not parties hereto, for the purpose or ,with the 1456 FEDERAL TRADE CO:\IMISSIO DECISIONS Syllabus 63 Ii' ctTed or enabling respondent to establish or ftx the prices, terms or conditions of sale at \which its gasoline is to be resold by a denier after purchase from respondent.

3. Coercing, persuading, inducing, or otherwise unduly influencing, directly or indirectly its independent wholesale dist.ributors to enter into, cooperate in, or carry out any planned common course or action, understanding, arrangement, agreement, combination, or conspiracy to establish, fix, stabilize, maintain, or a,c1here to, by any means the wholesale price at which gasoline is sold by said wholesale distributors or the retail pricps at which gasoline is to be resold by retail service stations ownefl and operated by eaid distributors and retail dealer customers or said ,,,wholesale distributors.

PTo' vided, h01/J6ver That nothing herein contained shall be construed to Emit or other"yise affect any resale price maintenance contracts which respondent may enter into in conformity "ith Section 5 of the Federal Trade Commission Act, as amended by the McGnire Act (Public Law 542, 82m! Cong.. 2m1 Sess., approved July 14 , 1952), It is further onlered That respondent shall, within sixty (60) days after service upon it of this order, file with the Commis310n a report., in writing, setting forth in detail the manner a,ncl form in "which it has complied "ith the order to cellse and desist set forth herein.

By the ConEnission, Commissioner Elman not concurring: and Comrnissioners Anderson and Higginbotham not participating, the former for the reason that he did not hear oral argument, and the la.ter by reason of the fact that this matter \yas ilTgllCd before the Commission prior to the time "hen he ,yas s\yorn into offce. IN THE J\L\TTEI WIXSTOX SALES CO.. EC.

OHDl:n, ETC. , J Imc.\Im TO Tile \ALLEGED nol\TI(1X OF THE FEDn:. ADE CO)DIISSlQ ACT Duckct 8;;31. CowjJ!aint, Setit. 2" , 1DG,2':' J)('C', irl!l. SOl . 22 19G5 Order lcr111irin l; a Cl1iC';l;:n cli:,tl'ihnto1' to (,f'!1:-e l:i "cpJ'h(' ltjW; llh lle1'('h;;;H1) b:v ;,nc11 practice'!" ns "1(11:0 c1l'J1rmstL1tion" lml'portC'(ll:;- Jmwing that eertflin kitchen l;:nife woulr new.I' bee-Gmt' dl111 l) ' n.--ing it to saw a nail Reportec1 as amew:lcd by Hearing- Esam:l:!'" " ()l'rlel' of X.)y, 2G, 19G2 anrl :\lal' . 18. 19GB.

\.. , ,, 'VIXSTO?- SALES CO. , IXC. 1457 1436 COUlIJlaint jn half, when the lJail had been partially cut through prior to the demonstration and the cutting edge n."ed in slif'1!g a tomato to demonstrate that the sharpness had not been affected, was not the same edge used to cut the nail; and misrepresenting the regular lJrices for the knife and a food chopper in offering both for the purported usual price of one. CO)flJLATNT Pursuant to the proyjsions of the Federal Trade Commission Act and by virtue of the authority yested in it by said Act, the Federal Trade Commission, hflYlng reflS011 to believe that 'Vinsto11 Sales Co. Jlle. , a corporatioll, lins violated the pro\ isions of said Act, and it appearing 1:0 the Cmnmissioll thn,t a proceeding by it in respect thereof would be in the public interest, hereby issues its complaint stating its charges ill that respect ns follows:

P.:i.R.A,GHAPII 1. Responde,nt 'Vinston Sales Co., Inc., is a corporation organized, existing and doing business under and by virtue of the, laws of the State o:f'Illinois ith its principal offce and place of Imsiness located at .HOD 'Vest Grand Avenue in the city of Chicago State, of Illinois.

PML 2. Hesponclent is now, nncl for smne time last past has been engng( c1 in thp nd,Ye.rti ing oiIpl'ing for SfllG, sale and distribution of gl'neral merchandi::e, including a kitchen knife and a food chopper. i.l1, ;). In the. course and conclnct of its business, respondent now ('all rs and for some time, la,st past has ca,used, its said products, when sohl, to be shipped from its place of business in the State of 111i11ois to purchasers thereof locat.ed in ' nxiol1s other States of the lJnit.ed States, and maintrins and at an times mentioned herein has maintainNl, a substantin 1 COlll'Se. of trade in said products in commerce, as ('omme.rce is defined in the Federal Trade Commission Act. 4. In the conduct of its business, at all times mentioned herein rpspondent hns been in subst.nntial competition, in commerce, with corporations, fin1ls and illdi,-iduals in t.he sale of knives and food choppers of the same general kind and nature as those 501(1 by l'spondent.

i.. 5. In the eonrsc and conduct of its business, and for the purpose of inclncillg the sale of a kitchen knife and a food chopper respondent has made repre.sentations with respect to the quality said knife and to the regnln.r retail selling price of said knife and of the said food chopper. Sa.id statements and representations have been made in television broadc.asts.

Among and typical of the said representations, but not all inclusive, thereof are the following:

d like to show you ol1ething you Vl"obably \ynu!dn t believe if ;vou weren watching me with your own two eyes. Here is a regular two-inch box nail ))))) 1458 :FEDERAL TRADE CO DlISSIO DECISIO Complaint 63 F.

that 1':.\ going to saw in half with this tnife to prove absolutely that this knife wil ne,er, neycl' get dull. I'm going to place this nail into a vise. (A reproduction is aUacbecl hereto ilarked Exhibit 1 add made a part hereof. One thing I \Hmt .you to realize and understand, you can use this knife for eYCry job in the ldtehen and ODe of the joins, of course, is smving frozen iooll in half. Anothi!lg tiling you can use it ,,,:hen you re caning chicken or turkey and you come actl),SS a bone. Yon hrn-e no problem when it c:omes to cutting through it.

(A reproduction is attached hereto marked Exhibit .2 and made a part hereof. You Dotke Olle thing, it isn t too easy to cut a nail in half but this knife does it exactly the same as a sa,." and yet you have a knife that' s just as sharp as when I started.

(A reproduction is attached hereto marked Exhibit 3 and made a part hereof. As sharp as a razor.

(A reproduction is attached hereto ilftl'ked Exhibit 4 and made a part hereof. Proof positive is right here. Here s balance of a tomato and I'm going to. sho,v ;you that this knife til goe1: through that tomato just exactly the same as a hot knife going through butter, (A reproduction is attached hereto marked Exhibit 5 and made a part hereof. Here s the offer we have for you, the stainless steel edged knife, regular retail price $3. , all we ask you to "pend is $2.98. If you spend $2.98 at no, additional cost you get our regular $2.98 food chopper. In other words you get both items for $2. 98 if you order now. PAR. 6. Through the use of the aforesaid television commercial including the video demonstration, respondent has represented directly or by impbcation tlmt:

(a) Its kitchen knife will never get dull; (b) That said demonstration proyes that its kitchen knife will never get dull;

(c) The said dmllonstration proycs the ability of its kitchen knife to cut through a regular t"\yo-inch box nail; (c1) The said demonstration proves t.hat the sh l,rpness of the cutting edge of its kitchen knife js l1ulnectecl after having cut through a regular two-inch box nail.

PAH. 7. Respondent, by means of the aforesaid television commercial also represents that the usual and regular retail price for the kitchen knife regubrly retails at S8 and that the regular retail price for the food chopper is $'2. 98.

PAR. 8, In truth and in fact:

(ft) The kitchen knife will become dnll as a result of normal use. (b) The said demonstration does not prove: 1. That the kitchen knife i\ill never get dull. 2. The ability of its kitc)1C'n knife to cut throu!: a re.gular twoinch box nail. Prior to the c1emo1l5tration the n:il nse,! hod been parti dly cut through.

'" Pictorial exhibits are omitted in printing. 'VINSTO SALES CO" INC. 1459 1456 Inital Decisioll 3. The sharpness of the cutting edge of its kitchen knife after having cut through a regular two-inch box nail. The cutting edge used to demonstrate that the sharpness had not been affected by cutting through the two-inch box nail was not the same cutting edge used to ent through said nail.

(c) 83.00 is substantially in excess of the usual and regular retail price of said kitchen knife in the trade areas in "which it is offered for sale, (d) 82.98 is substantially in excess of the usual and regular retail price of said food chopper in the trade areas in which it is offered for sale.

Therefore, the statements and representations referred to in Paragraph 5 were, and are, false, misleading and deceptive, PAR. 9. The use by respondent of the aforesaid false, misleading and deceptive statements, representations and practices ha,s had, and now has, the capacity and tendency to mislead members of the purchasing public into the erroneous and mistaken belief that said statements and representations were, and are, true and into the purchase of substantial quantities of respondent's products, by reason of said erroneous and mistaken belief.

PAn. 10. The aforesaid acts and pntCtices of the respondent, as herein alleged, were and arc all to the prejudice and injury of the public and of respondent's competitors and constituted, and now constitute, u11fair methods of competition in commerce and lmfair and deceptive acts and practices in commerce, in violation of Section 5 of the Federal Trade Commission Act.

Afr. Oharles J. Oonnolly and Mr. TV alter T. Evans supporting complaint.

Ah. Eli E. Fink and Ah. IleTbeTt L. Nudelm. for respondent. INITIAL DECISION BY "\V ALTER Ie. BENNETT, HEARING EXA::!I:\ER The Federal Trade Commission issued its complaint on September 27, 1962 , charging respondent with violation of the Federal Trade Commission Act by reason of alleged false, mislerlcling, and deceptive representations constituting unfair methods of competition and unfair and deceptive acts and practices in commerce. A pre-l1caring conference was held ovember 23, 1962 at which certain television advertising was viewed and the complaint was amended. Said conference was recessed three times at the request of both parties for the purpose of granting the,m an opportunity to enter into a dispositive stiplJlation.

1460 FEDERAL TRADE COM:\IISSION DECISIONS Inital Decision 6(: F. On .January 14 , 1963 , the parties stipulatec1 and on .January 21 19G3, counsel supporting the complaint mm'ec1 for an Initial Decision on the basis of said stipulation. Respondent opposed the immediate entry of an Initial Decision and requested time \within which to prepare proposed findings, conclusions, a brief and an order. On January 29, 1963, the hearing exr.miner, hy order, granted the JllOtion of counsel supporting the complaint for judgment and made the .January 1- , 1963, stipulation the record in the case. Said order also granted both parties until February 27 , 1963, to file proposed findings of fact, conclusions, a brief, and a. proposed order. At the request of both parties, the time for filing was extended to 1\iarch 15 1963.

Prior to the filing of proposed findings, counsel supporting the file.d Iarch 8 , 1963, sought reopening or thecomplaint by lnotion proceeding, to amend the complaint and to introduce further evidence. He also sought to enlarge the filing time to March 29, 1963. On the representation that counsel for respondent had no objection thereto, orders were issued reopening the Te('ord, admitting Rdcli. tional evidence, mnencling the complaint and extending the time For filing.

Proposed findings, conclusions, briefs, and orders ele flied ::1:11'ch , 1963.

Counsel for respondent, in his proposed findings dated )IfLrch 25 1963, stated:

Inasmuch as the stipulations of facts did, in effect, admit the truth of all of the facts alleged in the Complaint, it is assumed that the Hearing Examiner wil enter findings of fact herein substantially in accordance with the well pleaded facts as set forth in the Complaint. The sole issue remaining is a question of law as to the appropriate breadth of an order to be issued in this matter.

After-r considering the entire record, the hearing examiner makes the follo\ying findings, conclusion and order. All findings and ronc111sions not made in terms or in substance arc rejected as immaterial or erroneous.

FINDINGS OF FACT 1. Respondent \Vinston Sales Co., Inc., is a, corporation organized existing and doing business nncler and by virtue of the laws of the State of Illinois, with its principal offce and place of business 10- ('ated at 4100 ,Yest Grand _ \venue in the City of Chicago, State of Ilinois.

2. R.esponclent is now, and for some t.ime last past has been, engaged in the advertising, offering for sale, sale and distribution of general merchandise, including a kitchen knife and a food chopper. ) WffSTON SALES CO. , INC. 1461 1456 Initial, Decision 3. In the course and conduct of its business, respondent now causes and for some time last past has caused, its said products when sold, to be shipped from its place of business in the State of Illinois to purchasers thereof located in various other States of the united States, and maintains and at all times mentioned herein has maintained, a substantial course of trade in said products in commerce, as "commerce" is defined in the Federal Trade Commission Act.

4. In the conduct of its business, at all times mentioned herein respondent has been in substantial competition, in commerce, with corporations, firms and individuals in the sale of knives and food choppers of the same general kind and nature as those sold by respondent.

3. In the course and conduct of its business, and for the purpose of inducing the sale of a kitchen knife and a food chopper, respondent has made representations with respect to the quality of said knife and to the regular retail seJJng price of said knife and of the said food chopper. Said statements and representations have been made in television broadcasts.

Among and typical of the said representations, but not an inclusite thereof, are the following:

I'd like to show you something you probably wouldn t believe if you weren watching me with your own two eyes. Here is a regular two-inch box nail that I'm going to saw in half. with this knfe to prove absolutely that tbia knife wil never, Dever get dull. I'm going to place this nail in a vise. (A stil photographic reproduction of the video action at this point is attached to the complaint and marked Exhibit 1.

One thing I want you to realize and understand, you can use this knife for every job in the kitchen and one of the jobs, of course, Is sawing frozen food in half. Another thing you can use it when you re carving chicken or turkey and you come across a bone. You have no problem when it comes to cutting through.

(A stil photographic reproduction of the video action at this point is attached to the complaint and marked Exhibit 2.

You notice one thing, it isn too easy to cut a nail in half but this knife does it exactly the same as a saw and yet you have a knife that' s just as sharp as when I started.

(A stil photographic reproduction of the video action at this point is attached to the complaint and market Exhibit 8.

As sharp as a razor.

(A. stil photographic reproduction of tbe video action at this point is attached to the complaint and marked Exhibit 4.

. Pictorial exhibits are omitted In printing, 7S0- lS--69--3 1462 FEDERAL TRADE CO:\IMISSION DECISIONS Initial Decision 63 P Proof positive is right here. Here s balance of a tomato and I'm going to S20W you that this knife still goes through that tomato just exactly the same as a bot knife going through butter.

(A stil photographic reproduction of the video action at this point is attached to the complaint and marked Exhibit 5. ) II Here s the offer we have for you, the StaKeen Edge knife, regular retail price $3. , all we ask you to spend is $2.98. If you spend $2.98 at no additional cost you get our regular $2.98 food chopper. In other words you get both items for $2.98 if you order now.

6. Through the use of the aforcsaid television commercial. ineluding the video demonstration, respondent has represented directly or by implication that:

(a) Its kitchen knife wil never get dull;

(b) That said demonstration proves that its kitchen knife ,,'il never get dull;

(c) The said demonstration proves the ability of its kitchen :':l1ife to cut through a regular two-inch box nail; (d) The said demonstration proves that the sharpness of the cutting edge of its kitchen knife is nnaffected after having cut through a regular two-inch box nail.

7. Respondent, by Ineans of the aforesa.id television commercial also represents that the usual and regular retail price for the kitchen knife regularly retails at $3 and that the regular retail price for the food chopper is $2.98.

8. In truth and in fact:

(a) The kitchen knife \vin become dull as a result of normal use. (b) The said demonstration does not prove: (1) Thrt the kitchen knife wil never get c1nll. (2) The .bility of its kitchen knife to cut through a regular twoinch box nail. Prior to the demonstration the nail used had been partially cut through.

(3) The sharpness of the cutting edge of its kitchen knife after having cut through tt regular two-inch box nail. The cutting edge used to demonstrate that the sharpness had not been affected by cutting through the two-inch box nail was not the same cutting edge used to cut through said nail.

(c) $3 is subsantially in excess of the usual and l' regular ,'ctail price for the said knife in the trade areas in .which it is offeret for sale.

(d) $2.98 is substantially in excess of the usual and regular rettLil price of the food chopper in the trade areas in which it is offered for salo.

Therefore, the statements and representations referred to in Pantgraph Five were, and are, false, misleading and deceptive. WL\' STO:, SALES CO. , I:\C. 1463 1456 Initial Decision 9. The use by respondent of the aforesaid false, misleading and deceptive statements, representations and practices has had, and now has, the capacity and tendency to mislead members of the purchasing public into the erroneous and mistaken belief that said statements and representations were, and are, true and into the purchase of substantial quantities of respondent's products, by reason of said erroneous and mistaken belief.

CONCLUSION 1. The aforesaid acts and practices of the respondent, as herein alleged, were and are all to the prejudice and injury of the public and of respondent's competitors and constituted, and now constitute unfair methods of competition in commerce and unfair ancl deceptive acts and practices in commerce, in violation of Section 5 of the Federal Trade Commission Act.

2. The only question presented ill this proceeding is the form of the order to be issued. Paragraphs Four and Five of the form of order attached to the complaint are substantially the same as those contained in the Commission s order issued December 29, 1961 Jfatter of Colgate Docket No. 7736 r5D F. C. 1452). After remand from the Circuit Court, the Commission, in its opinion dated February 18, 1963 r62 F. C. 1269), stated that such portion of the order "* * * appear(sJ to have been wanting in the necessary clarity. Accordingly, a different forll of proposed order was issued. The proposed order issued after remand is therefore adopted with appropriate modification to fit the facts in this proceeding. Respondent' other proposal to limit misrepresentation as to savings to those arising from statements of price is without merit. ORDER It is onlered That respondent "\Vinston Sales Co. Inc. , a corporation, and its offcers, and responclenfs agent, representatives and employees, directly or through any corporate or other device, in con. nection "ith the oii'ering for sale, sale or clistrilrntion of kitcJ18n knives and food choppers, or any other products, in commerce, as commerce" is defined in the Federa,l Trade Commission Act: do forthwith cease and desist from:

1. Represe,ntlng directly or by implication t.hat respondents kitchen l011ves ,vill not become dull;

2. Using the term "reta,il price" or any other "\vorc1s of sin-lilin import or meaning to describe a price higher than the usual and customary retail price of any such merchandise in the tra.de area or areas where the representation is made; 1464 FEDERAL TRADE COl\L\IISSION DECISIONS Order 63 F.

3. l\1:srepresenting in any manner the sa villgS available to purchasers or respondent's merchandise;

4. Advertising any product by presenting a visual test or demonstration represented to be actual proof of a claim made for the product, where the test or demonstration does not constitute actual proof because of manipulating the product in a misleading manner, tampering with the object on which it is demonstrated, or employing any other misleading illusion. 5. Advertising respondent's knives or any other hardware product by claiming for it qualities or merits that the product does not in fact possess.

ORDER J\fODIFYING AND DOPTI INITL\L DECISION This matter has beell heard on respondent's appeal from the initial decision of the hearing examiner, filed April 2, 1963. The Commission has determined that respondent's appeal should be granted with respect to paragraph 5 of the order contained in the Initial decision, and denied in all other respects. Accordingly, It is ordered That the initial decision be, and it hereby is, modified by deleting the language of paragraph 5 of the order contained therein and substituting for such language the following: Yiisrepresenting, in any manner, directly or by im,plication, the qua,lity or merits of respondent' s knives. I tis fwther orde?'ed That the initial decision and the order contaiEcd therein, as modified, be, and they hereby are, adopted as the decision and final order of the COllnission. It is further ordered That respondent shall, within sixty (60) days after service upon it of this order, fiJe with the Commission a written report setting forth in detail the manner and form in ' which respondent has complied with this order.

THE PROCTER & Gfu\(BLE CO. 1465 1465 Complaint