Continental Baking Company

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IN THE MATTER OF COKTINENTAL BAKING COMPANY ORDER ETC. , IN REGARD TO THE ALLEGED VIOLATION OF SECS. 2 (a) AND 2 (d) OF Tile CLAYTON ACT Docket 7630. Complaint, Oct. 27, 1959-Decision, Dec. , 1963 Order dismissing-the Commission concluding that respondent sustained its meeting competition defense-omvlaint. r-lwT'O'ing a manufacturer of bakery products operating some 67 bakeries and many more sales depots in 40 States and the District of Columbia, with discriminating in price between competing purchasers in violation of Sees. 2(a) and 2(d) of the Clayton Act.

CO:MPLAINT The Federal Trade Commission, having reason to believe that the party respondent named in the caption hereof and hereinafter more particularly designated and described has violated and is now vio- Jating the provisions of subsections (a) and (d), Section 2, of the Clayton Act, as amended by the Robinson-Patman Act, approved June 19, 1936 (U, C" Title 15, Sec. 13), hereby issues its complaint stating its charges with respect thereto as follows: CO'GKT PARAGR.&.PH 1. Respondent, Continental Baking Company, is a corporation organized, existing and doing business under and by virtue of the Jaws of the State of Delaware, with its principal offce and place of business located at Rye, New York. PAll, 2, Respondent is now, and for many years last past has been engaged in the production, sale, and distribution of bread and other bakery products for use, consumption or resale within the United States. Its total consolidated sales in 1957 were approximately $307 milion and its sales of bread in the same year were approximately $187 milion.

2072 FEDERAL TRADE CO:\L\IISSIOK DECISIONS Complaint 63 P.

PAH, 3, Respondent markets its products under widely advertised brands, including IV onder bread and Hostess cake. Respondent sells its products to thousands of retailer customers located throughout most of the "Gnitecl States. These customers are regular accounts with whom respondent has entered into contracts or arrangements to supply them with their requirements of bakery products made by it. Respondent operates approximately 67 bakeries and many more sales depots or loading stations located in 40 states and the District of Columbia, For the purpose of supplying said customers and of making deliveries pursua,nt to such contracts or arrangements, respondent ships its products both from its bakeries directly to its customers, some of which are located in States other than that from which such shipments originate, and from said bakeries to said sales depots or loading stations and to other bakeries, some of which depots and other bakeries are loc.ated in States other than that from which such shipments originate, for regular reshipment to its customers, some of ,,,which are located in States other than that from which such reshipments are made. Hesponclent carries on negotiations across State lines with some of its customers for the sale of its products, and adjustments of accounts between respondent and some of its cust.omers take place across such lines. Aclycrtisiug, Goth national ancllocal, i.s prepared null plncecl in media by l'e::ponc1en(s helldqmu'tel's in Il)"l' New York.

Respondent, from its headquarters, centrally purchases Taw materials for the manufacture of its product, as well as supplies, equipment, and other needs, and ships or causes to be shipped such items from various points to its bakeries located in States other than those from which such shipments originate. Respondent at all times maintains control, directly from its headquarters or through various regional offces, over the activities of its bakeries, such control being exercised over, among other matters, the area in which and the price at which each bakery is permitted to sell, standards of production to be maintained by said bakeries, all but minor repairs to plants and equipment, personnel policies, and funds collected and disbursed by said bakeries, In the exercise of such controls, respondent's headquarters, regional offces, bakeries, and sales depots carryon a steady flow of correspondence and other contacts with one another across State lines.

Thus there is and has been at all times herein mentioned a continuous current of trade and commerce, as "commerce" is defined in the Clayton Aet, in said products between respondent and its customers, PAR. 4, In the course and conduct of its business, respondent is now and during the times mentioned herein has been in substantial com- $; j TE\EXTAL B:\KIKG CO. 2073 2071 Complaint petition with other corporations, partnerships, individuals, and firms engaged in the production, sale and distribution of bakery products. Respondent's customers are competitively engaged with each other within the various trading areas in which they are engaged in business. P AH. 5. Respondent, in the course and conduct of its business, as above described, has been for several years Jast past, and now is, discriminating in price, directly or indirectly, between different purchasers of bakery products, who are in competition with each other by soJJing said products of like grade and quality to some of such purehasers at substantially higher prices than to other of such purchasers.

PAR, 6. Among the methods by "which respondent discriminates between said purchasers is the granting of discounts up to 7% off its list or regular prices on an purchases of said products by certain customers, including large chain food retailers, and denying such discounts to ot.her customers who compete with said favored customers. During the year 1958, for example, on purchases of approximately OOO by cert.ain units of the Safeway Stores chain respondent granted a discount of approximately $16 500. PAR, 7, The effect of such discriminations in price as alleged herein may be substantially to lessen competition or tend to create a monopoly in the lines of COlIunerce in which respondent and its customers are respectively enga.ged; or to injure, destroy or prevent competition with respondent or with purchasers therefrom vho receive the benefit of such discriminations.

\R. 8. The aforesaid acts and practices of respondent constitute violations of the provisions of subsection (a) of Section 2 of the Clayton Act as amended by the Hobinson-Patman Act. COVXT TWO PAR. 9. The allegations of Paragraphs One through 4 , inclusive, of Count One of this complaint are hereby adopted and are incorporated herein by reference and made a part of this Count Two as if they 'were repeated herein yerbatim.

PAR. 10. In the course and conduct of its business in commerce, as alleged, respondent has paid, or contrncted for the payment of, something of value to 01' for the benefit of some of its customers as compensation or in consideration for services or facilities furnished by or through such customers in connection with their offering for sale or saJe of products sold to them by respondent, and such payments "ere not made available on proportionally equal terms to al1 other customers competing in the distribution of respondent' s products, ____ , :! _ 2074 FEDERAL TRADE COMMISSIOK DECISIONS Initial Decision 63 F, PAn. 11. For example, during the year 1958 and several years prior thereto respondent contracted to pay and did pay money at the rate of $10 000 per year to Best Markets, Inc., Philadelphia, Pennsylvania, as compensation or as an allowance for advertising or other service or facility furnished by or through such customer in connection with its offering for sale or sale of products sold to it by respondent. Such compensation or allowance was not offered or otherwise made available by respondent on proportionally equal terms to all other customers competing with Best Markets, Inc" in the sale and distribution of respondent's products.

n. 12. The aforesaid acts a,nd practices of respondent constitute violations of the provisions of subsection (d) of Section 2 of the Clayton Act as amended by the Robinson-Patman Act. Ab, Brockman Horne and Afr. Pmtl J. Dubow for the Commission. llfr. Paul TVaTnke, MT. John H. Schafer, Mr. James V. Siena, Mr. Peter Barton H,ttt Washington, D.C" for the respondent. I:'ITIAL DECISIO:"T BY EDGAR A. BUTTLB, HEARIl\G EXA:lllKER 2\fAHCH 8, 1963 TABLE OF CONTENTS Page 1. THE RESPONDE:-L--- - -- 207H A. Identity, Total Sales, and :\number of Bakeriesu--_ 207G B. Products l\IarketcrL - -- - -- - -- - -- - -- - u- -- - -- - -- -- -- 2077 C. The Organization of Production and ?l1marketing :FaciliUes_ 2077 D. Inter-bakery Transfers- - - -- - -- 2078 E. Classification of Customers egot,iat.ions ,With Customers and j\Jethod of SC1Ting Customers__ 2080 F. The Demand for Bakery Products and t.he I\Iet.hod of Estimating It- - -- - u - u - -- - -- - - 2083 G. Compensation of DI'jver Salesmen_ 2084 H. Internal, or Int.ramural, Contacts and Controls_ 2084 1. In general - - - - - - u- -- u - -- - -- - - 2084 2. PrQ(lucti01L- 2084 3. Engineering- - - 2085 4. Accounting- - - - - - - - - - - -- - u - - 2086 5. Fiscal matters- - - - - - - - -- - -- _u - - - -- 2086 G. Purchasing_- u- n- _n - n n 2087 7. Personnel ___n_ 2088 8. Advertising_ 2089 9. Areas of distribution, transfers of bakeries aml depots, interbakery tranf..fel's, new products- - - 2091 10. Pricing- - - - - n - - - - - - - -- - -- - - -- - - - - -- u - - - - - -- 2091 II. Price DlFFEREKCES- -- - -- -- ---- -- - - 2092 _ __ _ ___ _ ..

COX' EXTAL BAKIXG 00. 2075 2071 InHial Decision TABLE OF CONTEi\TS-Continued Page III. PAY n:"TS FOR SERVICES----_ 2095 II' , USE, CONSc IPTION, OR RESALE OF THE PRODVCTS_-- 2095 V. THE CO nmRCE REQUIP, IENT - ------------------u-- 2095 A. Inten;tate Int(- nnural Product ::.\Iovement (From Seller to Customer) - - - - - - - - - - - - - - - - - - - - - - - 2097 B. Inter tate Intramural Product ::Iovement (From Bakery to Bakery) - - - - - - - --- -- 2098 C. Interstate Intermural Contracts (Between Seller and CustOlner)_ 2099 D. Interstate Intramural Contacts and Controls (lVithin the Seller s Organization) - - - - -- -- - -- - - -- -- - -- --- -- - -- - 2101 VI. LIKE GRADE A m QCALITY__ 2108 VII, COMPETITIVE INJUHY- - -- - ---- 2110 VIII, HESPONDEKT' S DISC()1;"TS TO IEET COMPETITION-- 2113 A. History of Discounts in the TlJarket Areas involved__--_-- 2113 B. Comparability of Base Prices of \Vholesale Bakers in the J.\Iarkct Areas in QuestiOlL - - - - - - - - 2120 C. Continental's Belief That the Lower Prices Met 'Were Lawiul_ 2121 D. Continental' s Discounts Challenged Under Count I Necessary to ::1eet Competitive Discounts--_--_ 2123 Acme :::Iarkets- - - - -- n - 2123 Capitol Shop- White- - - -- - - - -- - -- - - - - - - n - - - - --- 2124 Davidson s- - - - - --- - -- - - -- _n - - 2125 Food Fail'- - - - - - - 2127 Food- Rarna- - - - - - -- - --- -- -- - n - - -- - -- u- n - -- 2129 Good Deal ..arket:L - - - - - --- --- - -- - n - - 2130 Grand UniOlL - - - - n - - - - - - - - - - -- n - n - -- n 2131 Guarantee .:least l'darkets of Patcrson_ 2133 Heritage Dairics- - - - - - u n - - - - - -- -- - -- n- _n -- - n 2133 King s Supermarkcts- - - n - n - - --- - - - --- -- - n 2135 IVTayfair_ 2136 ivlutual Super Market:L - -- - n - --- -- - -- -- 2137 K ationnl Stores- - u u-- -- u - -- - - -- --- 2138 Pied Piper Supermarkcts- - - - - --- -- 2140 Safe ay - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 2141 Scotch Plains Shop-Riteu 2142 Sickel's ::larkcL - - - - -- -- 2143 Trunz_ 2144 Two Guys From HanisoJL______--------- 2145 \Vciss__ 2146 IX. RESPONDENT'S AD\"EHTISIKG ALLOWAKCES TO met COilII' ETITIOK - - - - 2147 X, EVIDENTIARY AXD CASE ANALYSIS OF RESPONDENT' MEETING COMPETlTJOK DEFENSL_--__ 2150 XI. TEH:IIIXAL CONCL USIO'iS- 2159 ORDERAPPENDIX-h -- - u - -- - - - - - -- - -- - -- - -- - --- - u u- -- -- - - 21612161 2076 FEDERAL TRADE COMj\nssIO DBCISIONS Initial Decision 63 F, The complaint herein issued on October 27, 1959, charges violations of Sections 2(a) ,md (d) of the Clayton Act involving the granting of discounts and the granting of advertising a.allowances in the sale of respondent' s bakery products. The Commission charges such differences in )letropolitan New Y ork-Ne\v Jersey, Camden, New Jersey, Trenton, Kew Jersey, and Philadelphia, Pennsylvania, which are discriminatory and may have the effect of substantially lessening com petition essentially at the customer level (i. secondary line competition), ' It does not appear from the record that counsel in support of the complaint has ma.de a serious effort to establish competitive injury or a likelihood thereof at the scJler level (i. primary line competition) , Respondent' s defense is essentially that (1) if there "ere discriminations, which it denies, they did not occur in the course of commerce (2) the purchases involved in such discriminations, if any, are not jn commerce, and (3) favorable prices granted by the respondent to some customers \\e1'e for the purpose of meeting competition a,nd that it met such competition in good faith pursuant to specific customer demands made upon it to meet competitor discounts, Proof adduced by respondent in support of its meeting competition in good faith defense wus on a customer by customer basis. The hearing examiner has carefully considered the proposed findings of fact and conclusions submitted by counsel in support of the complaint and counsel for the respondent, supplemented by extensive oral argument thereon, and such proposed findings and conclusions if not herein adopted, eit.her in the form proposed or in substance, are rejected as not supported by the record or as involving imnlatcrial matters.

1Jpon the entire record in the case the hearing examiner makes the following findings of fact and conclusions: THE RESPONDEKT 'L Identity, Total Sll1es, and Number of Bakeries- Continental Bnking Company is a corporation organized, existing and doing business under and by virtue of the laws of Delaware. Its principal offce and place of business is located in Rye, New York. Its total sales for the year 1957 "were $307 million, of \which $187 million \"ere sales of bl'cad. Its t.total sales for the year 1958 were $3:28 mi1- Jion, for 1959, $385 minion and for 1960, $410 minion,' In 1959, Con- "0f 63 witDE' S(,S wJ10 te"tinerl, 80 were called as Don-favored "injury " w:tneses ar.u 27 to 2proveComplaintlL meeting-competitionand answer. defense. s Tr. 700-06.

CO:\TINEXTAL BAKING CO. 2077 2071 Initial Decision tinental operated numerOllS bakeries and distribution centers, or depots, throughout the United States.

B. Products Marketed- Continenta.l produces and ma.rkets bread products under the brands ,Vander, Profile, Daffodil Farm., and Staff, and cake products under the brand Hostess. l;nder the IVonder brand it markets white, white lnade with buttermilk, wheat, and rye breads, blown n serve products hamburger buns, and frankfurter rolls. Under the Hostess brand it markets, among other varieties, cup cakes, Sno-bans Twinkies macaroons, fruit cakes and pastries. Cont.inental makes rest.aurant bread varieties as well as grocery varieties. Sweet goods are made from yeast. and the line blends into the cake line. All wonder white bread "' (exc pt buttermilk) is made from the same formula, whether it is regular round-top, sandwich, or thin-sliced. \Vhite bread is lift, in dificl'cnt sizes of loaves. The one- pound round-top white loaf is the Ja.rgest seller. All wonder wheat bread is made from the same formula, and the same is true for all rye bread and for all hamburger buns and frankfurter 1'0118.

C. The Organization of Production and JIarketing Facilities For the purpo,Ses of conducting its production and matketing op. erations, Continenhd has divided t.he country into regions, two of which are the New York region and the \Vashington region. The 'Vashington region, headquartered at Alexandria, Virginia, enters the case mainly to the extent that the N orristown, Pennsylvania bakery (near Philadelphia) was formerly attached to that region. This case essentially concerns the a,activities of the New York region headqua-rtered nt Bronx\'ille, Xe\\ York. Regional offces have the responsibility of operating the "business and the bakeries under (theirs control'"

Regions are headed by regional managers who are responsible to the headquarters offce. Under such managers is a staff of persons specialized in various plulses of manufacturing and marketing pro. cesses who render aid and assistance to operating facilities attached to the region, These staff people include the Ilegional Sales Manager, the Hegionnl Production Supervisor, the Regional Cost Analyst the J1e.gjonal Vehicular Supervisor, the Regional Engineer, and the Regional Personnel Director. Such operating facilities include bread and cake bakeries. Bakeries attached to the New York region are loc';Hcd in the follo\ying places: Buffalo, Rochester. Utica, Jamaica Tr. 337, 341 . 372. 373, 389.

'1'1'. . IGO , 501i. GIS. 7-!:j- L flil;)-()IL 5L1. 7-!i\. fi2D. JOG. '11'. 18:::7.

2078 FEDERAL TTIADE COMMISSION DECISIO)"":S Initial Decisioll 63 F, (Long Island), Brooklyn, and the Bronx, New York, Paterson and Hoboken eti Jersey, and Norristown, Penl1sylvania. The Norristown bakery was prior to 1958 attached to the \iV ashington region. The Jamaica, Brooklyn, Bronx, Paterson and K orristown bakeries are bread bakeries, and the Hoboken Hostess bakery is a cake bakery. (This Hostess cake bakery not only has its own cake route and depot system, but supplies the bread bakeries with their cake reqqirements for deliveries in aTcas not served by a Hostess cake route. ) 7 Bakeries typically have attached to them depots (sometimes refelted to as loading' stations, sales agencies, distribution centers, and other nfl,mes). Depots are located at varying distances from the bakery and are supplied from the bttkery with products by transport trucks. The bakery and each of its depots then become route sources of deliver:): trucks which senre the outlets of customers, usually, but not always, on a daily basis (except Sunday), Bread is perishable fragile, and bulky for its weight, and for this reason cannot be trans ported unlimited distances from a bakery- It is feasible and 8COnomica.l io transport bread up to 150 n1ile8 from a bakery to a depot for further distribution. It is then feasible and economical to deliver L1.0 to 60 bread from a route source to o.ustome1'8 within a rfLcbus of 111i188 from said source. Thus, ,within a radius of about 2,00 miles is about as far as it is possible to transport bread froln bakery to consumer.

For ex"mple, the Petterson bakery has attached to it dcpots located at leigh1anc1 and )'I-dcllctown, Kew York, and at Carlstadt: ,Yoodbridge, Asbury Park, ,Vashington, a,nel TrentOll: )few Jersey. Up until reJati,' ely recently the depot at Camden (Bellmawr), New Jersey, 'ITa,s attached to the paterson bakery, ancl the Korristown Pennsylvania., bakery had no depots. Camden was, in 1859 transferred to N onistown, Thus, until this transfer, al1 of the ShLte of Ne\\' Jersey,y served by Continentfbl \Vit.h bread \Vas served from its Patersou bakery and its depots.

D, Inter,bakery Transfers There are interstate intel bakery tra.nsfers with respect to some varieties of products. ,Vhen this occurs, usually, but not a1way3, the 7 Tl'. 710, 777- , 712-14, ex 180, Tl'. 710- , 3SG-30, ex 1LA, ex 189 , Tr. 507, 758-59.

s Tr. 3SS- , 499-501, 745-46, 2123, 723-25. 9 For an estimate of an e'\en shorter radius, see Tr. 312 where 50 to 100 mile" was thought to be the maximuil distance.

Tr. 496, See ex ISBA for map showing the locations of these depots. CX219n, . 021. See also ex 2D tlnough K for a listing of, find the areas served br, bakeries and their attached depots Jocllted all the way from ::lassacJJlsetts to North Carolina. .Although some bakeries arc located in states other than their depots, in many cases the areas served are almost entirely within the same State as the bakery. ;;;;;;;;;; :; ;;;;;; ;

CONTIXEXTAL BAKl G co. 2079 2071 Initial Decision t.transfer is from Bakery A direct.ly t.o Bakery B for furt.her dist.ribution by Bakery B t.o it.s depot.s, rat.her t.han directly from Bakery A t.o Bakery D' s depot.sY These int.erst.at.e t.ransfers may amount. to R major or minor share of a route source s sales: according to the peeiaJizntion of bakeries, proximity of the producing bakery, popularity of t.he variety.y, et.c.

For example, thc follmving chart shmvs 1958 total sales to groce.ry stores, the allount of those sales accounted for by transfers from out-oI-state bakeries, and the ratio of such interstate transfers to total sides to stol'esY s,, I Int:::'t, I Ratio of t, tmn" (B) to (A) Tren 1- Percent TIrCfJcL._"--on depot:...u_ ..uu_ ..-.u__u_-. $767, i-'S 68. 328 34. Cake.n .n__n_ _----_u_-----_u_--------u_------ 88, 501 13 547 1.;. Callclen depo,:

Breach_ ._u_--_u.--------- --------- 26P, 669 . 9 551,316 H.3 100, ;J J' ;;: 1:;;;; I In the case of Trenton) S182 D37 of the S268 328 of interstate tl'nl1sfers was accounted for by white bread made with buttermilk, and in the case of Camden, $209 252 of the $269 669 of such transfers was likewise a.ccounted for by buttcnnilk. Suc.h bread was a new and popular product made by the N orrisLown bakery. Thus buttermilk bread accounted for about 2/3 of Trenton s inter,sLtlte receipts of bread a.nd about 4 /5 of Camden s- .Hcnvever, during the latter part of 1958 the Paterson bakery began producing buttermilk bread and soon bega.n supplying all its depots, including Trenton and Camden, \with t.their requirements of this vi1riety.

vvith respect to Xorristown, all interstato receipts \were (except for a. relatively minor item) of b1'own n serve products, hamburger buns and frankfurt.eT rolls, all supplied by t.he PatcTson bakery." So that, with the exception of interstate transfers of buttermilk bread during 1058 such tnlnsfers accounted for a relatively minor part. of the above route sources' sales, and the Tocord indicates that the interstate transfers of this variety ceased or were sharply diminished. "\With the exception of buttcTmiJk, it appears that not 11 ex 219, Tr. 507-08, 594-95, 741-42.

!2CX12 6C.

Tr. 309 464 331J 51J6.

HCXllA.

2080 FEDERAL TRADE CO),DJISSION DECISIONS Initial Decision 63 P, lnore than 10% to 15% of these route sources' sales arc interstate transfers.

1With respect to cake, Trenton and Camden were receiving most of their supplies from the Hoboken Hostess cake bakery and only about 15% of their cake was recei'i"ed from out of-state. Since, presumably, Continental did not hayc a cake bakery in Pennsylvania necessity all of NorristO\V11 S cake had to be transferred from outstate.

There fire no transfers of bread from the New York region to bakeries outsicle the region, although there is some transfer of cakes It, can be. concJllc1ccl 1'1'011 the foregoing that ordinarily bread bakeries themselves produce by far the greatest amount of bread 'ivhich is sold by them and their depots, 'ivith inter-bakery transfers either intra- or interstate, accounting for a relatively minor share a.nd that since, c.ake production is an entirely different manufacturing process! interstate inter-bakery transrers of cake may account for a somel,vhat. greater share.

Bread varieties are transfe.rred by the Paterson, Bronx, Brooklyn and J amaica. bakeries to out-of-st.ate bakeries. The Bronx bakery appear, to be the source of Daffodil Farm bread for the area and the Janlnica, bakery the source of Profile. Such transfers appear to be generally of items other than round-top and sandwich white pa, bread, E. Classification of Customers: Kegotiations with Customers, a, ::Iethocl of Se.living Customers Continental classifies its customers into three general categories: retailers, restaurants, and government installations and institutions. This case concerns only sales to retailers, or grocery stores. As stated delin ries are made daily (except. SUllclays) to outlets of customers although bread has a shelf-Jie of 48 hours (and cake even longer). Presumably, this is done to insure that an outlet is well supplied every day. A grocery store outlet served by Continental is known as a, stop and one not seryecl is knmnl as a, non- ':top. Xegotiations for the srtle of bakery products are carried on by yarious levels of Continental's organization. In the case of large 1-5 See also Tr. 497, 49D which Indicates that inter-hal,er ' transfers account for a ,ery Uttle" or a " minor part" of a bakery s sales, CX lla, See also Tr. 336-40.

17 Tr. 740.

lB Tr, 2647--9, 19CX 221.

ro Tr, 595.

:I CX 2C; Tr. 744 , 312- , 725.

TI:\E:\'IAL K\KI)"G co. 2081 2071 Initial Decisioll chain stores, negotiations arc carried on by personnel from Continentars regional otree. On the pa.rt of the chain-store customers negotiations are usually on behalf of divisions or branches of the chains (although at times negotiat.ions are all behalf of more than one division). These divisions are comprised of a number of stores more than 100 in some cases, and ,,-hen negotiations have been com pletcd the chain provides Continental ,with a list of outlets and their addresses which Continental is author'jzcd to serve pro\Ticlecl store ma,nagel's feel that suffcient consumer dema, nc1 exists in their neighborhoods for one or more Continental products, and at the same time provides store managers "ith ::t list of Continental products which they are aut.horized to accept delivery of. Thus, the main elements of the sale of products to the chain take place between the regional offce of Continental and the cliyision offce of the chain. In the case of smaller local ella,in stores, negotia.tions are usually carried on by either depot 01' bakery managers or route supervisors according to the importance of the customer. Again, determinations of which products will be handled by these chains are made at chain headquarters, with Continental being furnished a list of stores, and store managers a. list of authorizecl Continental products. In the case of slYHlll single-store ell.stomers: the roure supenTisor may assist driver salesmen in negotiations for arrangement.s to serve with proclucts. Once arrangements have been made, to begin serving a customer the route salesman calls each day, picks up stale bread and cake from the bread rack (products be"r code markings) re"rmnges the products he fulds which are still fresh, and fills up the space alloted to him with products from his truck. He keeps what is knmvn as a route book, broken down by days of the week, in ,,,which he enters the unit "mounts of stales picked up, products he finds fresh, "nd new products he leaves. From that route book the salesman can determine what the customet s probable needs will be for any given the salesmanday of the week. When finished se.irving the rack, presents a sales slip, sllOwing t.he amount of new products left. from which is deducted the amount of stales picked up, to a store clerk or other store personnel, and the clerk either signs the slip or pays it, according to whether the customer is on a credit or a cash basis.

toHl('l' ill l111it. of ;; SLJ,lct' Space on the nlck is allotted by t11P ('n or "facings, a space 'Or facing being the width of the end of a loaf of bread along the front edge of the shelf, Lo"ves are stacked one 22 Tr. 77.2, 2025, 11134-35.

Tr, 775. 317-18, 465, 482. 516-17.

Tr. 725, 312 , 319- , 461, 625-27, 735-36, 318, 737-B8, 467-69, 518. 2082 FEDERAL TRADE COMMISSIOK DECISIONS Initial Decision 63 F, on top of the other, usually not more than three high, and at times a stacl, of loaves wil be placed behind the front stack, if the rack is deep enough, so that 'One space may accommodate six or more loaves. Also allotted by the customer is "position:' on the rack. Judgment of )"hat is first position on a given rack may vary between snJesmen but in general, it is the location on the rack where a brand of product will usually at.tract the first at.tention of most of thc store traffc. Once space and position have been allotted, the customer does not concern himself with how much products are left by the bakery sa.lesmal1j rather the salesman himself determines how much to leave to fill his space. Thus, once arrangements are Dlade to serve a eustome.r, the amounts of daily deliveries are a matter 'Of routine in which the customer does not interest himself. 5 The driver salesman continues to make routine daily deliveries lmtil for some reason the cust-mner decides to discontinue service. The grocery store customer ll1ay stock five or six brands of bread.

A route varies in size geographically and could cover two squrtre blocks, 10 square blocks, or n101'e, according to the density of the stops served and population. Route areas do not overlap. The average route serves between 50 and 60 stops.

The average doUar amount of Continental's weekly bread sales per grocery store stop is $12 in the metropolitan,n New York-New .Jersey, the Camden, and the Trenton, :New Jersey areas, and considerably less in the Philadelphia area.

The customer may be on a cash basis or a credit basis; however ao% of the sales of the Norristown bakery, for example, are for cash, N orristown invoices the credit customers and a.1l of thmn remit pay 111en!, to Norristown, except Food Fair stores which remit to the headquarters offce. The Paterson bakCl'J likewise bills all its customers a,nel most of them remit payment to it. Two factors of considerable importance in the sale of broad to consun1ers are (1) out-of stole a.advertising (in mass media) and (2) in-store display of bread (which is itself advertising), :i1ass-media advertising creates a.cceptability of a bra.nd anel a nmss of display of the product on a store s rack draws the final attention of the consumer at the point of sale. Thus, the quantity of rack space and 2J Tr. 2420- , 628. 629 , 1861, 735-36, 738 , 467-68, 489. All the lion-f!l:vored eustamers testified to this effect. For example, see Tr. 814-15, 839, 867etr. 318, 471.

r. Tr. 333, 465 , 556, 317, 556 630.

28 'l' r. 1871-72.

2P Tr. 346--8, 599-600.

COXTINE TAL BAKmG co. 2083 2071 Initial Decision the prominence of the position on the rack is of vital importance to the baker in enhancing sales. Salesmen endeavor to increase their space and improve their position.

F. The Demand for Bakery Products and the :\lethod of Estimating It Tbe demand for bread is relatively steady ."l It is observed that weekly sales of wheat bread by the Crunden depot during the year varied from a low of $100 clnring the 22nd week to $158 during the 23nl and 49th weeks and tb"t the weekly sales fell into tbe following brackets:

BT.'ckct: N1!nbero/weeks SIOO $IOg----- ------ -- -- ---- -- - - SIIO $llg- -------- --- - - $l20-$129- - --u-- --- -- --- --- -- -- --- SI30 SI39__- -------- - - SI40 $149__- --- -- SI50 $159--- - Total- - - - - - - - - Tbe only trend reflected is in buttermilk bread which started tbe year at $2 479 for the first week and ended it with S5 351 for tbe last week. Buttermilk was a new and popular seller. Bread and cake are baked in anticipation of consumer demand. This denland must be closely est.imated from day to day because of the prflctice of a ba,ker s st.flTlding the loss Oil stale returns which vary from 2,5% to 4% in tbe Philadelphia area and "re about 7% in the Canlden area (which is considered high). Stale return for t.he entire ew York region averages about 4% on bread and higher on cake because, ,'Thile the demand for bread is steady, the demand for cake is variable. Cake is not bought with the same frequency as bread. The salesman s route book is the source of estimations of how lTIuch bread should be baked for any given day to minimize the stale retail. Therefore, each day the salesman estimates from the history contained in his route book how much bread he wil need for a future day and then fills out an order blank" listing numbers of units of each variety, Thus is demand easily estimated and a close control maintained on quantities baked, The amount of products 30 Tr. 585-86, 590- , 1860, 590, 740.

31 See ex 15 which shows sales by 'veeks of certain varieties for the year 1958. o2Tr. 316, fi24 7::8-30.

3B Tr. 313-16.

See ex 16 tbru 19.

2084 FEDERAL TRADE CO::CvIISSIO DECISIOXS Initial Decision 63 F, which the driver salesman loads on his truck each day is determined by how much he expects to sell to the customers he serves, G. Compensation of Driver Salesmen plus commis- The driver salesman is compensated on a base-pay sion basis, so that the more products he serves an outlet with, the more compensation he receives and the greater are Continental's dollar distribution costs. In keeping with this system of salesmen compensation "hereby the salesman makes more money for selling more Thegoods, the salesman s working hours ate not set by Continental. 'Only factors which limit his working hours are the availability of p!.'aducts at the beginning of the day and a rule that he lTIUst turn in his order for products for future days by a certain time towards the end of the day. Collective bargaining is done on a group basis that is, by Continental and its competitors acting together, so that. Continental knows what its competitors' labor costs are. H. Internal, or Intramnral, Contacts and Controls 1. In 9 general Bakeries and depots are operating units of the Continental corporation. :Many controls are exercised over their production and marketing operations, which controls necessitate numerous contacts regional offces, andback and forth between the headquarters offce, suallybakeries, for the most part being of an interstate nature. 1J the regional offce is the conduit through which these contacts take place. For example, instructions to the Paterson, Xew Jersey, bakery are received by the bakery from the ew York regional offce in Bronxville, New York, which has received them from ContinentaFs headquarters in Rye, New York. Again, the N orristown, Pennsy 1- ",V ashingva,nia, bakery in making a request would transmit it to the ton regional offce in Alexandria, Virginia (when Norriswwn was attached to that region), ,,-which in turn would transmit it to headquarters in Bye, New York.

2. P?'oduction Among interstate controls are those over production of the bakeries. For example, in 1035 there \Vas initiated a series of Bread (!Tr. 464, 466-67, 46!1, 407- . 502, 509-10, 623, 727-28, 315-16. 617. sa Tr. 482 , 631, 317-18, 466, 400, 713- , 2125. :r See ex 225: "Continental' s general offce in Rye, cw York, Includes divisions with responsibilty for Sllles, accounting, engineering, production, and purcha8fng. Each of these divisions has many routine documents and forms which regularly pass between Rye, the Regional Offices and the bakeries. In addition, other documents regularly pass between the management and administrative personnel located in Rye and the Regional Offces and the bakeries. The total of the documents Is In the hundreds, and is too large to attempt to list.

COi\TTIKE:\TAL BAKING CO. 2085 2071 Initial Dccision Production Bulletins distributed from headquarters to the bakeries. Bulletin No. 1 states: that the bulletins are to be kept in binders for future reference. They "ere in no "ay to replace, but were to supplement, the 16 N anatives which had previously been sent to bakeries and which dealt with Controllable Cost FRctors. The Bulletins would be written with primary consideration of the most important phase of the operations of Wonder Bakeries - bread Quality. It must be recognized that the finest ingredients and the best formulae ,,-il not bake bread good enough to bear the name 'VQ::TDER unless manufacturing skil is exercised and basic fundamental principles observed. There is a right way to do anything and any deviation from the right way is the wrong way. These Bulletins wil establish the right way in which manufacturing wil be carried on. Bulletin No, 33, issued in 1954, deals with moisture content of bread, pointing out that bread containing a moisture content of 36% stales faster than bread with 38% (the legal limit), and directs that efforts be made to raise such content as close to the maximum as. possible. Bulletin K o. 34, issued in 1957, goes into fine detail on how sanitation procedures shall be used in making brown N serve products.

Thus, strict production controls are exercised fr01n headquarters to insnre a national rigid standard of qua.lity for Continental's products, with discretion to be exercised by bakery personnel only over such matters as are affected by local water and cEmatic conditions and local preferences. The regional offces have staff members who as specialists can be dispaJchecl to ba.keries to aid with production problelns. A research laboratory is maintained at headquarters for the purpose of maintaining quality' of products and developing new products. Such new products are then pl'duced by the bakeries according to demand in a bakery s area.

3. Engineering The same is true with respect to the engineering connected with a bakery. Engineering Bulletins were initiated even before the Production Bulletins. For example, Engineering Bullotin Ko. 54-D relates to maintenance and testing of scales and points out that: "The accuracy of ani' scales is a 1110St import.ant part of our 'PRECISION BAICIKG' " No. 2-B is a is-page docwnent relating to operation and maintenance of cabinet bread coolers and containing detailed drawings for construction of a cooler. )fo. 87-C is a 7-page document relating to plant utility services and goes into detail as to how to save :: ex 22 a.nd 22A.

BiCX 22B & e.

oW Tr. 717. 773 , 369. 528, 463- , 473 527- . 715. 773, 714-15, 718. 7S0-01S C0--132 2086 FEDERAL TRADE CO:vvnSSIO DECISIONS Initial Decision 63 F, money on gas and electricity, directing the bakery manager to make friends with the local utility represents.tive for the purpose of ferreting out the cheapest rates. It further provides that after the manager has visited the representative he is to fill out and return to headqua.rters an attached form report, giving full instructions on the use and operation of equipment consuming gas and electricity to the end that ultimate efficiency will be achieved.

Regional offces have engineering experts to help on problems. The Regional Engineer solves the engineering problems that occur at the bakeries and acts as liaison between bakeries in the exchange of new methods and ideas. The Regional Vehicular Supervisor performs the same function with respect to the route trucks and other vehicles. Thus, the construction and operation of the mechanical parts of bakeries and their distribution systems is closely controlled and supervised by the headquarters and regional offces through interstate chalilsls.

4, Accounting The bakeries pcrfoTln their accounting functions according to a system of numbered accounts prescribed by the headquarters offce and periodically render profit-and- loss statements of their operations. L-:pon occasion bakeries will receive detailed instructions from the regional OffCB as to how to set up and keep accounts relating to specific customers. An inter-bakery clearing account is lnaintained by headquarters for the purpose of charging and crediting bakeries for iheir inter-bakery transfers and other transactions. Periodically a tmvelling auditor calls upon a bakery to audit its accounts, Should a bakery desire a change in the form of the route books used by a driver salesman, approval 11lust be secured from headquarters. 5. Fiscal1natte1' Bakeries l'eULin no control over the moneys conected from sales of products ami are allowed to disburse funds only for bakery payroll and :;other miscellaneous local disbursements." This is accomplished by a system of local and interstate bank accounts. Each bakery maintains at its local bank both a "general" account and a "local" account. All daily bakery receipts are deposited in the "general" account and periodically are, upon appropriate directions, transferred to one of several "concentration" ba.nks located at central points (in the prespnt ease ew York City) and then tra,nsferred from "concentration accounts to checking accounts for use y the headquarters offce. n ex 22A, ex 222-224.

.t TI". 715-716.

Tr. 519-22, 383, 421 , 519- , 800 , 802- ex 227 , ex 97, Tr. 441 , ex OB, Tr. 360- , 434-35, 719- , 364- , 328, 461-62. COKTI EKTAL BAKI G co. 2087 20il Initial Decision Bakeries are not authorized to draw funds for their own use from their "general" a.accounts. The bakery then receives funds for its loear; account from the "concentration" bank on an "imprest" basis that is, a.s an advance, by each ,veel\ requesting such an impre,st in an amount suffcicnt to bring its "local" account up to the level required for payroll and miscellaneous disbursement.s, including the payment of discounts to some customers.

The operation of the so'stem is described as follows: C0l1tinental Baking Company maintains for each bakery two bank accounts; Gcm;ral Account and a Local Account both of which are maintained in the same local bank in the town where the bakery is located. All cash receipts of the bakery are deposited in the General Account. local bakery personnel is authorized to sign checks on the General Account, but the local bakery is authorized to issue Depository Transfer Checks on the General Account. These are forms bearing a printed signature which the bank is authorized to honor, and payable to the Concentration Bank for credit of Continental Baking Company only. These Depository Transfer Checks are used to transfer to the Concentration Account the funds deposited daily in the General Account. Funds are transferred periodically from the various Concentration Accounts throughout the country to Continental's checking ac. counts for general corporate disbursement purposes. The: Local Account is used by the bakery for payroll and other miscellaneous 10CDl disbursements. 'J'his account is established in an amount suffcient to meet the bakery s normal weekly requirements, and is operated on an imprest basis, lJeing reimbursed every week. Each week, after the lJakery has deter mjned the total amount of its disbursements from the Local Account for the week, a letter is sent by the bakery to the Concentration Bank, requesting that its Local Account be reimbursed by that amount. The Concentration Bank transfers the requested amount to the bakery s local bank for credit to the Local Account, and charges the Concentration Account for the amount so trb.I:sfel'l'ed. 45 Thus, the bakeries are rnerely collection agents for the Continental corpor,ration, the collected funds being continuously chanJleled into the c.corporate treasury for use in anyone of the approximately 42 states where the corporate.lon does business. Since labor contracts possibly call for expedition in preparation of and the payment in cash of weekly payrolls, that job is left to the bakeries, but payroll disbursements and the administration oJ what amounts to a petty cO"sh fund are the only elements of discretion left to the bakeries in handling the money of the corporation.

G. PU,1chasing The headquarlers oilice centrally purchases for practically all of the needs of the bakeries. Product ingredients and wrapping and labeling matcl'ials are so Pllrehased and shipped directly to the bakeries ex 226.

See also ex 4:3 & 44, Tr. 348-55.

2088 FEDERAL TRADE COMMISSION DECISIOKS Initial Decision 63 F, from sources of supply located in various states throughout the "United States, Such purchasing is done automatically by the headquarters offce from periodic inventories submitted by the bakeries. Other bakery needs are purchased by the headquarters offce as a result of purchase requisitions submitted by the bakcries. For example ", there is a New Jersey blLkery requisition to the New York hemlquarters offce for the purchase of 100 000 brown n serve rolI trays frolll a Pennsylvania suppUer 49 ; there is also a District of Columbia, requisition for the purchase of a carton-forming machine from a Karch Carolina supplier and 50 a purchase order issued by the headquarters offce to the supplier.

In fact, bakeries themselves do relatively little independent pur. chasing. Such purchasing is limited to expenditures of $50 or less ($300 for engineering services), and is usually confined to items such as spark plugs and tire chains for the trucks and soap and toilet paper for the washroorns. Naturally, these limits do not apply in cases ,vhe1'e emergencies develop when to keep the plant operating purchases of goods and services by bakeries may exceed these amounts.

All group life and health as wen as property and liability insurance is placed with carriers by the headquarters offce. Thus, in case of a collision involving a truck, the matter becomes one for the headquarters or regional o11ce to handle.

7. Personnel ,With respect to personnel, the bakery managers' capacity to hire and fire independently is confined to such employees as driver salesmen and housekeeping personnel. The manager can recommend the hiring and firing of upper level bakery personnel but the decision to do so is not his but the regional or headquarters offce s. The bakery manager himself is hired and transferred by these offces. Colletcive bargaining, although it may be carried on locally, is nevertheless, out of the hands of the bakery manager and in the hands of the regional tB Tr. 358 , 557; CX 2C, 25 through 33; Tr. 374- , 462. "Tr. 527, 600.

ex 34A.

,g ex 85A.

50 ex 35B.

M Tr. 376-78.

52 Tr. 357- , 462, 526-27, 717. The Norristown manager claimed he purchased yeast locally, but the reason given for that was to insure freshness. Tr. 358. He was contradicted on this point by the Regional Manager. Tr. 715, 53 Tr. 457-58, 718-19.

. . :. COX'TINE TAL BAKn,m co. 2089 071 Initial Decision 01' headquarters offce, there being a special labor relations man, specialized ill labor relations, who functions for the N ew York region, as ,yell as other regions on negotiating labor contracts. To insure uni- Jormity among jobs from one bakery to another, detailed job descriptions specifying duties are issued to the bakeries by the regional or headquarters offce, The headquarters offce distributes film strips to be used in training l1e,y employe( s. The Regional Personnel Director supervises safety procedures at the bakery and engages in recruiting college graduates for employment at the bakery. He also acts as liaison in the distribution and exchange of ideas on hiring, training, etc. between bakeries.

8, Ad'l'ertising ontinent.aFs adn rtising, in its various forms, is almost entirely n, .function of the headquarters offce. Some national mass-media adycrtising is done to a limited extent using television networks, but most of it is done on a local or regional basis through newspapers radio and TV spots, and billboards. :Magazines arc not used because of 'faste circulation. Continental maintains an advertising department at its headquarters in Rye Kew York, but most of the ach ertising is placed by its advertising agency located in New York City for local and interstate dissemenation.

\ t times bakery managers will recommend an idea of a strictly local naturo which might tie in with some local acbvity as distinguished from an DIrer-all carnpaign. Continentars advertising manager will frequently approve such an idea, pursuant to which the headquarters advertising department will get together with the advertising agency to prepare copy or a. script, to make the decision to place the advertising with the local medium, and to contract with the medium. Upon o('casion a bakery manager docs pia, ce advertising locally, but that is nn exception t.o the rule. ormally all advertising is pJacecl and pni(l for by t.he headquarters offee.

At times a bakery manager will call for advertising support in cerhljn phases of his business. For example 56 the evidence indicates a .series of int.eroiIce correspondence concerning advertising support for ,Yoncler Old Fashioned IOfd in eastern North Carolina. The manrer of the \Vashington region CAlexanc1ria, Vjrginia) first wrote the :lchcrrisiI1g manager in Rye: "XCIY York, asking for such support. The :'J 'II' fi;)- . J(j4" (Itl l-: ex 2 -+: '11', I-- 72. .,T:: ;171. J::;i- :!G 50 '1'r, 785- 88, 456-57, 5€ ex 38A through n, 2090 FEDERAL TRADE COM:\IISSI01\ DECISIONS Initial Decision 03 F.

advertising manager replied that headquarters did not have anything prepared on this variety, that it was doing wen on the ,Vest Coast and in other markets without support, but that something was being for use in theprepared on a similar loaf, ,Yonder Country Style, Kansas City and St, Joseph markets which might be of interest, The regiona.l manager replied that Old Fashioned would be sold at the same price as ('our standard loaf of 'V onder Bread" since it was the same formula, and he thought it could be ad,-ert.ised profit.abl)., He suggest.ed t.he Count.ry Style advertising be altered to fit. Old Fashioned, The a.advertising manager answered that he would prepare some advcrtising for Old Fashioned bl1t wanted to know the exact ar€n.. "here it. should be advertised so he could line up his plans, He planned to use only radio because t.he bakery s report.s of sales " showed t. hat Old Fashioned was "definitely an Agency item," sold best in "country arcl1s. " As soon as a recording ,vas made of the script, a copy \\onld be sent to the regional ma.nager. The manager of the Raleigh bakery then wroto directly to the advertising manager listing the towns \VheTc ftchy rtising should be concentrated a.nd sugg-testing a TV station. The advertising manager replied that headquaTt.ers was "buying local nLdio" in five na.med towns for three 'weeks at 10 spots per week. fie turned down the TV suggestion because TV would not do an adequate job.

In advertising Profile and Dauodil Farm breads an entirely separate and different campaign is used from that used for \Vonder bren.c1. In the words of Continental's advertising manager, Profile "i:3 a dif- It isferent type. of pro(ll1ct. ,Ve have a different advertising story. a. diffe.rent type of bread from ,Yonder Bread and requires individual trea.tme,nt." The same is true of Da.nodil Farm. ?\Iost of ContinentaFs bread products are advertised as \Vonder bread. This concept of dissimihrity from an advertising viewpoint however does not exclude their competitiveness with other breads all the mad;.:et. 1\lost of the designs for packaging are prepared by the headquarters art, depa.rtment. \Vhell a new one is prepared, it is sent to the bakery to inspect, and if t.he bakery manager suggests a. chn.nge thich sounds reasonable, it wil be made, If he simply does not like the design, it win not be forced U1Jon him. The same is true with point- Form 430, regularly submitted by bakeries to the 'headqlJarters offce. - 361. 37S- 81.f; Tr. 788-89.

CONTINEJ\'T AL BAKIXG 00, 2091 2071 Initial Decision of-purchase material, most of it being prepared at headquarters and bakery managers at times making recommendations. Continental spent about 6,5% of bread sales in advertising bread in 1961." Bread sales in 1957 were $187 millon. 9, ATeas of distl'ibntion, tmnsfeTs of bakeries and del)ots, il1te1'bakery transfers, new products The areas of distribution of Continental's bakeries of course do not overlap. A bakery can recommend that its area be changed but the decision to do so is made by the regional or headquarters offce, Decisions to transfer a bakery frolll one region to another are ma.de by headquarters, and to transfer a depot from on8 bakery to another are made by the regional offce. In addition, decisions to allow interbakery transfers are made by the headquarters or regional offce. Although the bakery can recommend the productjon and marketing of a new product in its area, the decision t.o do so is made by the headquarters or regional once. The Regional Sales Manager s job includes making certain that various selling and promotionrJ activities are carried on and generally supervising sening by the bakeries. As stated, he negotiates with large chain customers for the sale of Continental's products and he also negotiates the granting of discounts to such large customers.

10. Pricing Pricing of products is under' the control of the regional a,nd headquarters offces. List prices arb usually the same for the area served by a route source but may vary, as in the case of the Trenton depot area which depot sells at one price in its northern area a,nel at another in its southern area. GpOll occasion, prices may be changed all 11 given variety of product on a given route, in which case approval is requested by the bakery of the regional and headquarters offce, 59 Tr. 790, 432-33. See CX 3\JA t 1"ough D which is cOJ'espomlenre cancel"using a promotion beginning in Little Roc);: Arkansal' , 1D1'olving !l character named Cactus Vick. Cactus Yick was a TV personality and lealler of a children s organization called the Square Shooters Club. The sales manager of the I.Jittle Rock bakery wrote the promotion supervisor at the headquarters office suggesting' how membership C'arr1s sllOnJd be made up, attaching a pl'oposefJ bread raek "hanger" displaying a pictllre of Cactus Vick and asking for several thouRaIll of these, and further aRldng for 1000 photos mitable for autographing. The promotion supervisor replied making' counted suggestions for the membership cards and hangers and pointing ont the expens!\.c Dn:nle of photos. The sales manager than agreed in every respect with tbe promotion super-visor lUJd canceI1ed the pbotos.

GJ Tr. 789, 794.

on Tr. 719- , 723 , 514- , 339, 341- , 714. Tr. 570 , 459 , 529-30; CX 17, 18; Tr. 391- , 529 , 18G6-6f!; ex 51 tJJrOl1gh 53; Tr, 380.

2092 FEDERAL TRADE CO:\IMISSION DECISIONS Initial Decision G3 F, Approval for off-list pricing is requested by filling out and submitting a Form 487, and for granting an advertising allowance by submitting a Form 486A. A 487 is used for any list price variant, termed a "production adjustment", be it a bid on government installation business, a territorial change as described above, or a discount granted a favored customer, The Forms 487, when prepared by the baker:v, are transmitted to the regional offce for approval, and after they are personally approved by the regional manager they are transmitted to the headquarters office for personal approval by the directors of bread sales and cake sales as appropriate. Approximately in IV5G it appears that depots began .filing out and submitting to their bakeries a form entitled "Request for Production Adjustment Allowance" (herein referred to as a Depot R.equest) ,vhenever the depot recommended a discount be granted to a cllstomer, A bakery s practice is to report a lost account to the headquarter offce.

When a discount is granted on bread it applies to all varieties of bread purchased by a customer, and the same is true of cake. ,V11en 11 discount is granted on bread, it mayor may not be granted on cah:e also.

II, PRICE DIFFERE:\CES The record is abundantly clear that Continental grflnts a 5 cliscount (75'0 in the case of Nlltional Grocery Stores) to certain customers and grants no discount to certain competing cllst01ners. These price differences are not reflected in customers' resale prices, Continental's products being generally solel by all competing customers at the same price. In fact, Continental follows the practice of affxing the "suggested" retail prices to such products in the form of end labels. Tho custom in the industry is for resellers to realize about an 180/0 margin (18 % of the retail price) on bakery products. There is thus no retail price competition in the sale of advertised brand bakery products since the retaij price of the bake goods of Continental' s com- &. ex 151; Tr. 382, 391, 799. 801, 1851-52. M Tr. 416-17, 1837, 2121, 627- . 633-34. ex 84B. After approval of the Rel)l1est, the bakery manag-er prepares a Form 487 for transmittal through channels to the headquarters offce. Tr. 604.

&Tr. 405.

Tr. 458. 552, 757, 759-60.

e7 Tr. 470, 777, 782 . 731 . 453. 454- , 553-55, 558-02. . ,, :\.:: , ::., _ _ _ _ _ TllEXTAL B:\KI:\G co, 2093 2071 Initial Decision petitors IS not affected by any discount they mny also grant. However, such discounts on brefLd permit discounts on other products the grocery and meat line which have a low margin of profit and are highly competitive.

The non-favored customers classified according to route, source number of route emanating from that source, and city and town in which each customer is located are as follows: Paterson Bakery A rea 50 fig7Q 71 Nonfavored customers Competitors of nonfavored customers Paterson baken' routes. Pearl River, N. Y -- Grand Union, "( North Wiliam St.-l block, Edsall & B rgmanlJ, Food Fair, I\Jiddletowl1 Rd.

Safeway, :1Iiddletown Rd.

Grandway, Route 59 anuct, Acme, lontvale.

Vailey Fair, HiJsdale.

Wiliams Timmcrman, Pearl Rjver, K. Y - ---- Cirand Union, 7 North Wiliam St. Food Fair, :'Iiddletown Hd, Safcway, Middletown Rd. Kemmer s Delicatessen, Nanuet, Y. .uu Grandway, Houte S!J, Nanuet (next door), Safewa, :\!iddletowil Rd. Fooo Fellr, l'didoletown Rd.

Quadrel' s IIIarket, Upper IIIontclair, N"J.-- - KiI:g s Supermarket, 75 feet away (from Quadrel' I Ac; llcv Rd.

Broadway Quality :\farket, Passaic, I GuaraJitee 1\larket-3 blocks away, CarJst,adt depot routl's: Lillian Blum, Irvingto, "-'J- Good lJeai Sapermarket-lrniJe, Woodbridge dcpot routes:

Harris Food ;\Iarket, Perth Ambo)', N. Two Guys From Harrison, e. :;, 9, Mayffll, COI1VCI1Y Blvd, and .Fl1yett. St. :.layfalrl\!markets, Smith St.

I Stcve s Dairy, 277 Smith St., 1 block.

Steve s Dairy, Pert!1 An1hoy, :\,J-- (i'ocompetJtOISlndwated. Clark' s Delicatessell, Great KiUci, ::- Trum Starket, 3P8d Amboy Rd, l mile aW"1iY. Island, :\.

Homestead ;'larket, Tottcllvile, u ",,,, Food- Raj1a, 300 Amhoy Rd. 1 block aw\\y. Island, s Country Store, Hosene L__ J Pied l'iper- mUes. Sam EJm Delicatessen, Westfeld, N,J-- " Slutmil Stores, 13R Ccntral Ave. I Safeway, 206 North Ave, (3 4lJlocks). i ACI le, South Ave. door. Scotch Plains Shop-Rite-Ilext, Scotch Plains, s Deiicatessen Hollman K.L- 140 South Pl\\i\field A,e. l block a',;ay. Food F\\ir, K,J - _n- Mickey s Market, South Plaillfleld Capl!o; SJwp. Rite, 118 Haml:toll ..\.-ve. H lJlock awa, Grai)(l Umon, South PlainrIC1d- l1i:e away. Asbury P:uk depot routes: Henry s Delicatessen, Red Bank J. - I Acme.Sarell' Bv. I Mayfair.

I Davidson Ridmtel1i' larket, Red Bank, ,", Acme. I :1hyfair, \ SDfeway, within :'2 mile.

Trenlon depot routes. , TIordentown, X,J. - 1'\\' 0 GUYS From Harrison, Route 2CA Appll'gate Delicatcssen I Acme, . george s :'Iarket, Hord ntown, N.J- (;UJ' S From J-arrbon.

Granad\\ s Grocery, Bordentown, N.J..._ ! Acme Two (;Uys Yrom IIiirrisoJl. Fr,)I S Delicatesscn, Trenton, N ,J ,"-" - Penn Fruit, Ilextstorc Food Fair, up t.he trreL Vallry Fair C at:o:laJ Grocery store lor.cession), 1 mileaw\J'\.

Public deal Market, 'Trenton - Food Fair"Brunsw:t: rmd Vir. concession), 1 V itb Foiden ttiona1 Grocery Store See footuotes at end of table.

, .__ __. .

2094 FEDERAL TRADE COMMISSION DECISIOKS Initial Decision 63 F.

Paterson Bakery Area 58 Gg 70 7I Continued Nonfavored customers Competitors of DOI1favored customers C:mJom (Bcllma"ln) depot routes:

Barron, CanldCll, N, n- Heritage, 6Fi:'ortb6th St. Acme, 6th and State.

I Food .Fair. Fritz Food \Tarket, Camdcn, N..L_-- Weiss, 6th and Grant. \\elos, 4th and York.

Lennie s Delic2.less€n, Camclell i Best :\1markets, :Fetleral St. ::Ic'lnn S :\lRrkOt, Camden, K. n_--u ' Weiss 13r 05. . 4th and Grund. '\.eme, 5 bl()ck away. \ll crendin s Wait i\"hilman Store, Westfield Food Fall. Ij,o,e, Acme. I Heritnge, DelseaDr. Dunn s)Jarket oodrnH\' , K. ' Sic!cel' N.J. I Pen:l "Fru:t. 1"OOd F:tir.

Acme.

Evergreen Cold Cuts.

E.crgreen Cold Cuts, Woodbury, N -- Siek€'l's, 1000 yards away. Acme Food Fair.

cx 182 C , D, I , J, O-Q, 183R, T; Tr . 800, l03R , 1041 , 979, 953 , 932. 01 ex 184 C, D , E , F, G, I, 0 , P, U, V; Tr. llIO, 1135, 807, 941 , 9oo, 907, 876, 1000, 1052. :0 ex 185 C, D; Tr. 1081 , 1008, 1171, 144\), 1485, 1503, 1361 , 1557, 1248. Tr. 1325, 1225, 1228 1192-93, 1304, 1283.

NOlTistown Bakery Area 72 Konfavored emtomers Competitors of nonfavored customers "?orristown bakery routes.

:\Ielilo s Food :'Ir rk('t, Plliladelph:a, Pu-u_ --- Food Fair (Best :\Iarkets), 22d and Cambria. , Penn Fruit, '22d at LelJJgj).

1-oweJ;ton Food Market, PlJi adejph;a, Fa_n- Iarke!' 5, Laneaster Ave.

;ctr.1382 1440 The favored customers whose discounts are challenged under Count T of the complaint include the following:

American Stores (Acme :Markets) Capitol Shop-Rite Davidson s Foodtown Food Fair Food- Rama Good Dcal Markets Grand Union Guarantee Meat Markets of Paterson, Inc.

Heritage s Dairy King s Supermarkets Mayfair Supermarkets :\iutl1al Super :\larkets ational Grocery Stores Pied Piper Supermarkets Safeway Stores Scotch Plains Shop-Rite Sickel' s Food Center Trunz, Inc.

Two Guys From Harrison Weiss Brothers 73 See ex 190.

COXTINE01TAL BAKIXG CO. 2095 2071 Initial Decision III. PAY:\lEKTS FOR SERVICES In the case of two large customers, Best :\larkets and Food Fair St.ores, Continental made payments of money as compensation or in consideration for the furnishing of services and facilities of an advertising and promotional nature by said customers. These payments Tlere made pursuant to agreements in Jieu of discounts to meet competition or as arrangements similar to those of Continental' s competitors to meet competition. Continental neither made nor did it offer to make payments aforesaid to other of its customers competing with the above two, (See findings hereinafter set forth re the meeting of competition defense, ) To have done so either as to discounts or payments for services would have extended competitive inequities at random beyond the scope of meeting competition in good faith. IV, rse, CONSV1\PTIOX, OR RESALE OF TI-IE PRODL.CTS The products involved in this case in the sale of which c1iserimina tions occurred were sold by Continental for resale by grocery stores ,dllocated in the 1.united States and for consumption within the United States.

V. THE CmJMEHCE REQUIRE:YIENT In the case of many products, such as, for example, table salt (the product involved in O. v, lIorton Salt 00" 1948, 3341.. S. 37), the commerce requirement of the Ilobinson-Patman Act presents no part.icular problem, The manufacture of the product seeks proximity to t.he source of raw materials and the finished product then is shipped to customers located generally over the country. There is thus interstate product movement, and the orthodox indicium of a sale iI1- commerce' is present, even though the act itself Inakes no requirement that goods move across state lines for conm1erce to attach. In the case of other products, for example, bread, the nature of the product is such that its manufacture must seck proximity to consumers, the raw materials being gathered from over the country and proeC3sec1 or assembled at the manufacturing plant. Although it could be sa-ic1 that such businesses were "local" in nature, that is true only because of the peculiarities of the product. Otherwise, Continental ,,"oula hardly require a.approximately 59 bakeries to serve its customers in .42 states.

Oh\ iously, bread is perishable, fragiJe and bulky in relation to \yeight (the same is true to a great extent of cake) and the product 71 Tr. 443, 2557 , 746.

, , 2096 FEDERAL TRADE CO;\L\llSSIO DECISIONS Initial Dccisiou G3 F, can be shipped only Jimited distances from manufacturer to consumer. Therefore, although to some extent bread is shipped across state lines from bakeries to bakeries, from bakeries to their depots and even from bakeries to customers, a substantial amount of it never crosses state lings. Thus, in this industry commerce problems are present.ed which ate not presented in the table salt and other industries. Section 2(a) requires not only that a seller who discriminates in price be "engaged in commerce" and discriminate "in the course of such commeI'ce, but that " either or any of the purchases involved in such discrimination" be. "in commerce . Section 2(cl) requires not only that a seller who discriminates in payments be "engaged in eommerce" but that the payments be made " in the course of such commerce . The language of Sec. 2(d) does not contain the third commerce requirement of Sec. 2(a), but the Section has been interpreted as containing it. Shreveport lIfacaj'on-i L1Janufact1tring 00., Inc. 7719, January 24, 1962, Comm, Dee" 60 F. C, 196, It has been heJel that a seller s merely being engaged in commerce will not suffce for a Robinson-Patman violation but that the violation must itsoH occur in the course of commerce. See, for example Sec. 2 (a) : il year v, Shell 0 il Co, 1951, ",D. Calif. 96 F, "n1'1" fi70: /)" "j' v. Shell Oil Co. 1953, E, Y" 115 F, Supp, 886; Sears, Roebne/, 00, v, Blode 19',:\ D, Calif" 110 F, Supp, 96; CentmlIce OTCCO" 00, v. Golden Rod Ice Orea11 Co" 1961, 7 Cir" 287 F. (2) 265; See, 2 (c1) ; Sun 00811etie Shoppe, Inc. v. Elizabeth Arden Saiel 00'11'" 1949 , 2 Cir" 178 F. (2) DO; A111Crican News 00" v, 1962 , 2 Cir" 300 F, (2) 104, Thus, only one leg of the discrimination, either the favoring or the non-favoring Jeg, must be in the course of commerce, illo01' v, ilead' s Fine Bread Co" 1954 , 348 D, S, 115; Shreveport illacaTOni, 8npm, Although See, 2(d) is subject to the interpretation that factors other than the sale of "products or commodities in eommcrce will satisfy its commerce requirements (see Corn Prodnets Refining 00, v. 1945, 324 D,S, 726, 744-45), the hearing examiner finds for the reasons hereinafter set forth t.hat sales of products, with respect to which payments were made in this case, ,yel'B in the course of commerce.

Important questions here are: ,Vhat is a sale under the Robin::on- Patman Act and what fa.cts arc required to make a sale one in the ('onrse of commerce? The hearing examiner substantially concurs with the commendable analysis of counsel in support of the complaint that there are. four gcnera1 factual situations to be considered which lead one to the con- CONTINEXTAL BAlU:NG CO. 2097 2071 Initial Decisioll clusion that the commerce requirements have been 11let under the facts of this case, A, Interstate Intermural Product Movement (From Seller to Customer) \.s stated, the shipment of brcild both in tractor-trailers to depots and in route trucks to stores, must necessarily be confned to a limited area. For example 75 the territory penetrated by the Paterson, New Jersey, bakery and its depots reflects that this territory closely hugs Kew Jersey State lines except that the Paterson bakery s route coverage spills O\r81' int.o New York. It luts depots in J\1iddletown and llig1I1and, Kew York, the routes of which penetrate three or four southern ew York counties. \Voodbridge, New Jersey, depot's routes go into Staten Island, New York. Thus, the bakery which produces the goods itself delivers a comparatively small quantity int.erstate to customers. It ships a larger quantity 'Of products in bulk t.o its distribution points interstate for interstate delivery, and it ships other goods to its distribution point interstate for interstate delivery, Therefore, with respect to these New York areas, there are sales accompanied by interstate product n1ovements. The sales to both the earl River and Kanuet, New York, favored and non-favored customers (deliveries being made by Paterson bakery routes) are all clearly sales in commerce. Similar COllllnerce is present in sales when deJi\'ries are made from the . Woodbridge, New Jersey, depot to the Staten Island, Kew York, favored and non-favored customers. The Section 5 case of TV ard Baking 00. v. FTO 1920, 2 Cir., 264 F, 330, had held that when a baker transported bread from one state to another and its drivers there sold such bread "to such storekeepers as wanted to buy" no interstate commerce was involved, that sales in the second state were purely local. However, the Section 2(a) cases of Standard Oil 00, v. 1951, 340 V.S, 231, and particularly 1Iloore v. Mead' s Fine Bread 00., supra have clearly superseded the reasoning of the TV ard case which in any event does not appear to be factually comparable to the instant case. Prior to Standard Oil and subsequent to the passage of the Robinson-Patman Act there had been many treble-damage gasoline cases and the commerce question was prominent in each because of the practice in that industry of refining in one state and shipping in bulk to terminals in another, after which the gasoline was sold and delivered to retailers in the second state, Courts held both ways ex 188A and FEDERAL TRADE COM:\nSSIO DECISIONS2098 Initial Decision 63 F, Standa1'd Oil settled the ques-on the flow of commerce question, tion by holding that a R.obinson-Patman "sale:' may have been completed at a service station s gasoline tank but that the sale actually extended back through the local bull, station clear to the refinery located in a,another state, since the gasoline moved interstate in anticipation of a regular demand which could be accurately estimated. In the case of jJ oore v, Al ead it appears to ' be held that bread transported from New Mexico to Texas for sale, in the words of Ward to such storekeepers as wanted to buy" were not local sales. Here the record is replete with evidence that bread is baked and delivered in anticipat.ion of a regular demand easily est.im"ted by Continent.al. Thus, t.he shipments by Paterson to the Xew York depots are similar t.o the Standard Oil factual sit.nation and the route t.hc Pat.crson bakery and t.he ,V ood-deliveries into New York by bridge depot. appear to be within the purview or jJ oore v, J1 earl. These interstate shipments, however, are not of major consequence when compared with a bakery s t.total sales. B, Int.erst.ate Int.ramual Product. )lovement (From Bakery to Bakery) In the area at issue, Bakery A produces most of the products it sells and assembles the rest. from t.he seller s ot.her bakeries, B, C and D. The total product line is then dist.ribut.ed from Bakery A to its depots for delivery to cust.omers, Some of such imported product.s come from out.-of-state and they are then distributed t.o some customers out-of-st.ate but mostly to cust.omers located in the same st.atc as Bakery A. For instance, the Jamaica, New York, bakery ships Profile bread to the Paterson, Xew Jersey, bakery, which bakery in turn commingles that bread with the bread that it produces and then serves both New York and X ew .J ersey customers with the full line. Actually as to such imported bread, the facts merely add an additional stopping point t.o the Standard Oil situation, and that case it seems would control as t.o the sales of that bread to the bakery s intrastate customers. Furthermore, such interstate imported bread, when commingled with that locally produced, taints the entire line wit.h commerce, so that sales of the locally produced bread to intrastate customers would also be sales in the course of commerce.

7B Commerce was present: Alabama Ind. Service Station Assn. v. Shell Pet. Corp. 19B9, D. Ala., 28 F. Supp. B86; Midland OU CD. v. Sinclair Rei. 00., 1941 , N.D. Il., 41 F. Supp. 436; commerce was not present: Lipson v. Socrmy Vacuum Corp. 1937, 1 Cir., 87 F. (2) 265; Lew1 v. Shell OU Co. 1943 , N.D. m. , 50 F. Bupp, 547; Spencer v. Sun Hl Co. 1950, CODn., 94 F. Supp. 408.

.. : ..

COKTE\ENTAL BAKING CO, 2099 2011 Initial Decision However, resolving the commerce question entirely upon interbakery transfers see1n questionable, since even in the area where bakeries are the most densely located the indications are that not more than 10% to 15% of a bakery s sales are accounted for by such transfers. The probability exists that in some other areas bakeries are too far apart to make any transfers feasible. C. Interstate Intermural Contacts (Between Seller and Customer) The question of what is a sale under the Robinson-Patman Act goes to the heart of this commerce issue. Concepts enunciated in the Law of Sales, such as passage of title, shifting of risk of loss etc., are inapplicable here. See for example American News, 81tpra which reaffrms the indirect-purchaser doctrine that there do not have to be direct sales to establish a seller-customer relationship; Standard Oil, supra which in effect holds that a sale in commerce is more than delivery of goods and passage of title to a customer; and Nachman v. Shell Oil 00. 1945, Md., 19445 CCH Trade Cases par. 57 361 , which considered the important point to have been interstate customer contacts in a case where the court felt there was no interstate delivery of the product. Thus, a sale under Robinson- Patman goes far beyond common law concepts. "\Vhat the Act contemplates as a sale is the total transaction that takes place (which includes in addition to seller-customer contads interstate activities of the seller, and interstate activities of the customer as discussed in J, H. F'ilbert, Inc. 1957, Comm. Dee" 54 C, 359, 370- Shreveport illacaroni, supra and Oorn Products supra. Such construction is consistent with the Court of AppeaJs statement in Standard Oil 1949 7 Cir., 173 F. (2) 210 214, that: We decline, as the Supreme Court did in StaJJord v. Wallace supra, p. 519 .. '" '" Ij to defeat this purpose in respect to such a stream (of commerce) and take it out of complete national regulation by a nice and technical inquiry into the noninterstate character of some of its necessary incidents and facilties when considered alone and without reference to their association with the movement of which they are an essential but subordinate part. .After all, as Justice Holmes said in Swift ana Company v. United States commerce among the States is not a technical legal conception, but a practical one, drawn from the course of business." The modern concept of commerce is one w ich gives full sweep to the commerce clause of the Constitution within the limits of the implementing statute, a liberal view of the congressional purpose as expressed in the statute, and a realistic view of what business is doing as it moves across state lines to accomplish its purpose. " The record shows that the transactions here involved begin by a contact, usually originated by Continental, between seller and customer for the purpose of Inaking arrangements to serve the cus- 2100 FEDERAL TRADE CO:\DHSSIOX DECISIONS Initial Decision 03 F, tomer s store or stores \with Continental's products. Negotiations then take place and if successful the customer agrees to handle either Con-Continental's full line or a certain part of it and assigns to tinental a certain position a.nd a certain amount 'Of space on the store s bread rack, after which Continental begins daily service to the store, 'What the negotiations end up with, then, is an arrangement whereby Continental is to fill the store s daily requirements of Continental's products. Once the arrangements have 'been completed and space -assigned, the customer no longer concerns himself with deliveries except to payor sign a charge slip for whatever products the driver salesman leaves, Thus, a major element of the sales transaction takes place during the negotiation and a,uthorization across state lines as to terms and discounts to be granted pursuant to company policy centrally controlled. If a customer is on a credit basis, Continental periodically invoices for products delivered and the customer remits. The discount may be deducted from the invoice by Continental or by the customer or else Continental sends a check therefor. Payments are also made by check upon Continental's being invoiced by the customer. These seller customer contacts arc themselves integral and important parts of the sales transactions.

It is the hearing examine.r s view that respondent's interstate advertising 77 and negotiations for reaching agreements for service to stores of products and for customer price or payment and discounts as \yell as invoicing and remission of moneys, \'\which involve and make use of interstate means of communications are, suffcient under the act to cause the, total transaction to be in the course, of commerce. These means include interstate traveling, telephone calls, telegrams and use of the mails pursuant to which local salesmen are fiallv authorized to consummate daily sales of bread at a price, Und the facts 'Of this case the ultimate sale is merely a step in an interstate cha.in of events required to consummate it as an executed contract, the authority for which must express itself across state lines. The foregoing theory of sales transactions is not premised upon the interstate product movement concept but upon the requirement of the ad t.hat sales tra,nsactions be in the course of commerce even though product movement from Continental facilities to customer facilities takes place entirely intrastate. As 8.Ilother facet of interstate customer contacts, it should be poi ted ont that such take place also between Continental and the p:lrchasers of its products in whom it is the most interested viz 77 See Ford Motor 00. v. O., 1941 , 120 F. (2) 175. CO:,,TINE1\-TAL BAKING CO. 2101 2071 Initial DL'(ision consumers, by means of 111ass-media advertising. Not only are media \with an interstate coverage, such as television, radio, and large ily newspapers, employed by Continental, but arrangements and contracts with media over the country are the result of interstate contacts between the media and Continental's headquarters and its advertising agency, both located in the state of New York, with invc1icing and remission of moneys for time and space employing interstate communication.

That advertising is an important part of the total sales transaction is shown by the opinion of the Sixth Circuit in F01'd lvlotor 00. 1041, 120 F. (2) 175. This was a Section 5 case, involving decepti ve consumer advertising by Forel. Ford contended that sales t.o the consumer by the car dealer were purely intrastate and thus the deceptive practice was not in commerce. In rejecting this contention and holding advertising to be an integral part of a total interstate transaction the court said, at pp. 183:

Advertising goes hand in hand with volume of production and retail distri. burian. It operates to increase the demand for and availabilty of goods 2nd to develop quickly consumers' acceptance of the manufactured products. Expressed another way, it breaks down consumers ' re1:i:;tance, creates consumers' ;:lcceptance, and develops cunsumers' demand. The use of advertising as an aid to the production and uistrilmtion of goods bas been recognized so long as to require only passing nutice. The economy of mass production is just as well known and the effects of adverti"ing may be described as mass selling without which distribution would be lessened and a fortiori production correspondingly decreased. The present advertisement of the method for financing the purchase of petitioner s cars on credit was an integral part uf their production and distribution. It seems reasonable to assume that the direct customers of Continental, the retailers, probably read Continental's mass-media advertising, and the a,mount of it and consumer acceptance created thereby enter prominently into a retailer s decision to handle ContinentaPs prouucts. Thus, being an integral part of the sales transactions, its interstate nature in inducing sales nationally must be given weight in resolving the commerce issue in this case.'8 D. Interstate Intramural Contacts and Controls ("Within the Seller Orga,nization) A considerable portion of Contincntal:s discount business is done with substantial customers operating stores located entirely or largely 7BTr. 482, 517, 585-86.

TSO-Ols--69--33 2102 FEDERAL TRADE COMMISSION DECISIOKS Initial Decision 63 F, T. within the same state as the bakery and its depots, with which customers all negobations are carried on at the depot and bakery levels never requiring the intervenbon of the regional offce. These negotiations are entirely intrastate. Biling is done by the bakery and payments are all made intrastate, Except for some products which have moved interstate from bakery-to-bakery, the products with which these customers are served never cross state lines. Thus, the foregoing theories of commerce under these facts may be questionable. It has been established that bre.,) must of necessity be produced near to its consumption and that bakeries, far from being autonomous operations, are closely controlled in every important phase of their business in which discretion might otherwise be used by bakery personnel The bakery does not purchase its raw materials or wrapping supplies, those being automabcally purchased by the headquarters offce upon inventories routinely submitted by the bakery. Those materials and supplies are procured and shipped to the bakery from out-of-state, The method of manufacture by the bakery is directed in detail by headquarters to the end that Conbnental's national brands will have a national standard of quality. Likewise, the bakery is told in detail how equipment shall be constructed and operated to the end that uniform national effciency wil be achieved. Headquarters makes certain that acconting procedures will be unifoT1n throughout the country, and of course all insurance is purchased by and adjusted with headquarters. So dependent is the bakery upon he,adquarters that no more than minor purchases can be made by: the bakery, an others requiring a request for issuance by headquarters of a purchase order. The bakery has no control over the moneys collected from sales, these being automatically transferred to the corporation s interstate treasury for completely independent use by headquarters. The bakery cannot even price it.s products, and, in fact, cannot even grant a discount t.o a single-store customer, without seeking and obtaining approval and authority therefor by headquarters. Selling areas are determined by headquarters, and the hiring and firing of all but low-echelon personnel is out of the hands of the 'r For example, CX 191 through 211 show with respect to all the favored customers listed in tbose exhibits with tbe exception of American Stores, Food Fall', Grand "Lnion, and Safeway, that all negotiations for the sale of products and the granting of fayor- 1tism, fis wen as all Invoicing and remission of moneys occur between Continental and customer without any interstate contracts. (Tbe Norristown, Pennsylvania, bakery manager testified that sucb was also tbe case with all of Continental's Philadelphia area customers except Food Fair) Tr. 346-48. However, Best Markets, a large Phlla delphia chain, received payment of Its advertising allowance from Continental' s head. quarters offce. CX 161 B.

CONTINENTAL BAKING 00. 2103 2071 Initial Decision bakery. Advertising, although much of it is accomplished by local campaigns through local media, and although the bakery may make requests and suggestions, is for all intents and purposes entirely a headquarters' function, The bakery s role is largely ministerial. It merely goe about the day-to-day procedures of baking and delivering products and endeayoring to acquire new customers for those products subject. t.o respondent' s policy and cont.rolls which require interstate cont.act.s in formulat.ion and dissemination, The actions of the bakery are those of a puppet whose strings are kept taut by an interstate organization, All these controls over the bakery form an int.ricate web of interest.ate contacts" Literally hundreds of different forms flow back and forth in making these contacts. Thus, any sale transaction in which the bakery plays a part, either in nego6ations, invoicing, making or receiving payment, or making deliveries is a transaction 01' contract in the course of commerce which although not executory becomes an executed contract upon performance by respondrnes salesmen acting under authority of a central offce ,,,which operates interstate.

In S. v. South-EMtern Underwrit61"S Assn" 1944, 322 D, S. 533 a rather similar situation was presented. This case involved an attempt to bring the activities of fire insurance companies within the terms of the Sherman Act., The commerce question was perhaps the most important to be resolved, Appellees contended that the business of insurance was local in nature, that its regulation had always been left t.o the States, it being purely intrastate in nat.ure, and t.hat it was not subject to federal jurisidiction because the fire insurance business was not commerce. The District Court had agreed with this content.ion. In reversing, the Supreme Court remarked, at page 537: .. * '" As recognized by the District Court, the insurance business described in the indictment included not only the ex ution of insurance con. tracts but also negotiations and events prior to execution of the contracts and the innumerable transactions necessary to performance of the contracts. All these alleged transactions, we shall hereafter point out, constituted a single continuous chain of events, many of which were multistate in character, and none of which, if we accept the allegations of the indictment could possibly have been continued but for that part of them which moved back and forth across state lines. True, many of the activities described in the indictment which constituted this chain of events might, if conceptually separated from that from which they are inseparable, be regarded as wholly local. But the District Court in construing the indictment did not attempt such a metapl1ysical separation. .....

\\ 2104 FEDERAL TRADE Coyimission DECISIONS initial Decision 63 F.

Thus, the District Court did not attempt to fragmentize the insurance business so as to segregate the Inaklllg of local contracts from the rest of the insurance business and the Supreme Court appears to concur in this respect.

The Supreme Court continuing its remarks at pages 541-12 state: This business is not separated into 48 distinct territorial compartments which function in isolation from each other. Interrelationship, interdepend. ence, and integration of activities in all the states in which they operate are practical aspects of the insurance companies ' methods of doing business. large share of tbe insurance business is concentrated in a comparatively few companies located, for the most part, in the financial centers of the East. Premiums collected from policyholders in every part of the United States flow into these companies for investment. As policies become pa:raJJle, cbecks and drafts .fow back to the many states where the policyholders reside. The result is a continuous and indivisible stream of intereuurse among the states composed of collections of premiums, payments of policy obligations, and the countless documents and communications which are essential to the negotiation and execution of policy contracts. Individual policyholders living in llany different states who own policies in a single company;y baye their separate interests blended in one assembled fund of assets upon which all are equally dependent for payment of their policies. The decisiollS which that company makes at its borne offce - the risks it insures, the premiums it charges. the investments it makes, the IOSSt's it pays - concern not just the people of the state where the borne offce happens to be located. They concern people living far be;yolld the boundaries of that state.

That the fire insurance transactions alleged to have been restrained and monopolized by appellees fit the above described pattern of the national immrance trade is shown by the indictment before us. Of the nearly 200 combining companies, chartered in various states and foreign countries, ani" 18 maintained their borne offces in one of the six states in which the E.V. operated; and 127 had headquarters in either New York, Pennsylvania, or Connecticut. During the period 1931-1941 a total of $488,000 000 in premiums was collected by local agents in the six states, most of which \vas transmitted to home offces in other states; while during the same period $215.000,000 in losses was paid by checks or drafts sent from the home offces to the companies' local agents for delivery to the policyholders. Local agents solicited prospects, utilzed policy forms sent from home offces, and made regular reports to their companies by mail, telephone or telegraph. Special trnnllng agents .supervised local operations. .. * * The Court then points out that other cases seemingly inconsistent with its holding were handed do\Vn when no attempt had been made to assert federal jurisdiction, when the only regulation of insurance was by the states. "But past decisions of this Court emphasize that legal formulae devised to uphold state power cannot uncriticalJv be accepted as trustworthy guides to determine Congressional p under the Commerce Clause. ' p. 545.

CO:\TI"EXTAL BAKI"G 00, 2105 2071 Initial Decision The appenees attempted to have the Court scrutinize the local sale and issuance of policies of insurance as being the only activity to be exarninerl. To this the Court replied, at pages 546-7: * * * Another reason much stressed has been that insurance policies are mere per!;:oral contracts subject to the laws of the state where executed. But this reason rests upon a distinction between what has been called "local" and what "interstate, a type of mechanical criterion which this Court has not deemed controllng in the measurement of federal power. cr. Wickard Filburn 317 U. S. 111, 119-120; Parker v. Brown 317 U. S. 341, 360. We may grant that a contract of insurance, considered as a thing apart from negotiation and executioll. does not itself constitute interstate commerce. Cf. Hall Geiger-Jones Co. 242 U. S. 539, 557-558. But it does not follow from this that the Court is powerless to examine the entire transaction, of which that contract is lilt a Vfll't. in O1'(le1' to (1ltl'1'lline wl1etlH'l' there llay be a chain of events which becomes intel.state commerce. Only by treating the Congressional po\yer oyer commerce Among- tlle ,:1:1tpl' i1S a "technic-al legal conception" rather than as a "practical one, drrnyn from the course of business " could such a conclusion be reached. witt (G Co. v. United States 196 U.S. 375, 398. In short, a nationwide business is not deprived of its interstate character merely because it is built upon sales contracts which are local in nature. 'Were the rule otl)f'1'Yise. fe' I'; hnsine.,""L':' (:ml\l he :'ilid to Ill cllg'ng rr1 in intel'state commerce.

1'111:' , the Court COllCel'lIS itself: n111lost entirely, 110t. 'with interstate contacts between the insurance company and its policyholders, but ,,,ith the interstate contacts and controls which occur between and among the insurance company s headquarters and its agents. Contacts with policyholders seem to have been purely intrastate in nature. The importrmt point was the existence of an interstate web of activities \'which \'ent on before and after the occurrcnce of these local contacts, which included local issuance of policies, local premium pay4 ments, and local transfers of damage-claim checks. Dnder this concept the ,yeb of interstate activities in effect turned the local transactions into interstate transactions which were in the course of interstate eomrnerce. It also seems reasonable to conc.ude from this holding that the same concept may be applied in evaluating whether or not in a. Clayton Act Section 2(a) case the discriminations are in the course of commerce and the purchases in commerce, or in a Q (cl) case 1.he payments are made in t11C course of commerce since the projection controls over such transactions brings them into commerce sa That the majority held that the local transactions were in the course of Interstate commerce is cIHefl111y pointed ont by the Chief Ju tice Stone s dissent. 322 L. S. at 562 et seq. The portion of the indictment at issue did not allege that restraints affected interstate commerce. Mr. .Justice .Jack, In dissenting. was act11ally in agreement with the majority on the commerce issue but was not in favor of upsetting long-establisl!ed state regulation of Insurance. Ibid. at 584 et Beq. 2106 FEDERAL TRADE COMMISSION DECISIOKS Initial Decision G3 F, aside from the issue of engagement in interstate commerce or its effect.

In 1959 the Seventh Cireuit decided a jurisdictional issue in Holland Furnace 00. v, O" 269 F. (2) 203 cert, den. 1960, 361, U. S, 932. That was a Sec. 5 case, but the decision was based largely upon Standard Oil a See, 2(a) case, the Court remarking, at p, 211: .. . * That (Standard Oil) involved price discriminations under and in .iolation of Sec. 2(a) of the Clayton Act" * .. does not affect the question interstate commerce within the meaning of the Federal Trade Commission Act. The Holland Furnace case involved deceptive practice of Holland' salesmen in their door-to-door selling activities, Holland claimed these practices were local and so not in commerce. The Court found they were in commerce, being a part of a larger interstate transaction. There, Holland manufactured furnace components and shipped them from State A to a warehouse in State B for assembly. The salesmen s activities complained of took place in the sale of furnaces in State B. The Court quoted from the Commission s opinion as follows, at p. 209:

.. .. * The heating equipment is manufactured in Holland, :\Iichigan, and shipped from there and sold by respondent' s authorized representatives on a nationwide basis in some 45 states through respondent's own retail outlets. .A realistic view of respondent's activities in moving its products from :\lichigan across state lines to accomplish its stated purpose of direct sales to ultimate consumers through "500 Direct Factory Branches serving Over 15 000 000 Customers" admits of no other conclusion than that respondent is engaged " commerce. "

Contracts bebveeri responuent and branch managers and salesmen; corrcs. pondence between the home offce in lichigan and field personnel; those contracts between respondent' s salesmen and the purchasing public on respondti See Moore Y. Mead' 8 Fine Bread Co. 348 "U.S. 115 in which the Court states: We think that the practices in the present case are also included within the scope of the antitrust laws. We have here an interstate industry (8ic) increasing its domain through outlawed competitive practices. The victim, to be sure, is only a local merchant; and no interstate transactions are used to destroy him. But the beneficiary is an Interstate business; the treasury used to finance the warfare is drawn from Interstate, as web as local, sources which include not only respondent but also a group of interlocked companies engaged In the same line of business; and the prices on the interstate sales, both by respondent and by the other Mead companies, are kept high while the local prices are lowered. If this method of competition were approved, the pattern for growth of monopoly:r would be simple. As long as the price warfare was strictly Intrastate, interstate business could grow and expand with impunity at the expense of local merchants. The competitive advantage would t11en be with the interstate combines, not by reason of their sklls or ellcienc;\' but because of their strength and abilty to wage price wars. The profits made in interstate activites would underwrite the losses of local price,cutting campaigns. o instrumentality of interstate commerce would be used to destroy the local merchant and expand the domain of the combine. But the opportunities afforded by interstate commerce would be employed to injure local trade. Congress, as guardian of the Commerce Clause, certainly has power to say that those advantages shall not attach to the privilege of doing an interstate business. p. 119.

p, CON'IINEJ\TOTAL BAKING CO. 2107 2071 Initial Decision ent' s behalf which must be accepted by the home offce; and representations made by salesmen in sellng respondent' s products-all are part and indicate a pattern of conduct in commerce within the meaning of the Federal Trade Commission Act.

The Court could find no point, from shipment of components to a salesman s front-door sales, where the stream of commerce logically ceased, It said, at p. 210:

Under the policy and practice found by the Commission there seems to be no logical point between shipments from the State of :Michigan and the sale and delivery of Holland's products through its employees to the ultimate consumer in another state when, in view of the provisions and purposes of the Federal Trade Commission Act, they cease to be in interstate commerce until they rest finally in the possession of the purchaser or ultimate consumer. "-7itbout the sales, deliveries and installations made by Holland' s salesmen and servicemen from its own warehouses its interstate business would cease. With those sales, deliveries add installations, and measured by them Holland has a continuous inter!:tate business reaching into forty-four states. Lnder such facts the temporary warehousing of the products in each separate state in Holland's own warehouses is but an incident in the interstate business. The work of Holland' s salesmen add servicemen create and are an essential part of Holland' s vast interstate business and therefore is in commerce and subject to the regulative powers of the Commission. Holland argued that the cases of O. v. Bunte Bros., Inc" 1941 312 D, S. 349 , and TV ard Baking 00. v. F, , supra were controllng but the Court cast both of those aside because in Bunte the respondent was engaged in purely intrastate business and because Ward was decided upon the authority of a tax case and so was "entitled to little weight here." The court, in reaching its conclusion, relied heavily upon Standard Oil v. F, , supra. It felt that in both Standard Oil and in H olla7ld the interstate commerce was wholly dependent OIl the sales made subsequent to storage in connection with which unfair and deceptive practices were used and kept moving throllgh estimates of future needs created by said sales, 212. Thus the Court reasoned that the local sales by Holland' s salesmen T\ere but a part of larger interstate transactions which included many interstate intra,mural contacts and controls such as we have hero a,s \fell as interstate movement of components for local mechanical assembly or chemical processing.

1\ o\'here in the Clayton Act is there a requirement tlu t goods must mo1'O across state Jines in order for there to be a saJe in commerce. Section 2 (a) merely requires that a sale be in commerce, and Sec. 1 defines "commerce" simply as "trade or commerce among the several states, etc, The touchstone of interstate product movement has grown over tbe decades to be one reliable guide, but th9.t guide grew 2108 FEDERAL TRADE CO:\fMISSION DECISIONS Initial Decision 63 F, up before the influx of interstate chains of business establishments which of neccssi,ty must be relatively localized in their activities. Nor is there any inflexible rule of construction requiring that interstate contacts between seller and customer-whether interstate product shipments, interstate negotiations, interstate contracts, or interstate billing and pa.ying-occur for a sale to be one in commerce. " commerce" must be construed in the light of the evidence in each individual case. The broad interpretation of this phraseology enunciated by the courts is a clear indication of this. Accordingly, the hearing examiner finds all of Continental's sales including those made in Now Yark, its he.adquartcrs state, are sales in commerce. The New Yark sales, as well as other sales, are all an integral part of the respondent's interstate system of sales control and promotion, The Supreme Court has made it clear that inflexible mechanical criteria arc not controlling in the measurement of Federal power over commerce.

VI, LIKE GRADE A D QUALITY Continental markets its bakery products by delivering them aU on one truck (except in densely populated areas such as t11e metropolitan New York City-northern New Jersey a.rea where it is feasible, because eake has a longer shelf-life tha.n bread and so does not require delivery as often, for cake to be delivered by separate trucks), It offers to sell any or all items to any given customer. These bakery products are classified and branded as Hostess cake products (which include cup cakes, Sno-balls, Twinkies, macaroons, fruit cakes, and pastries), as IVonder bread products (which include white, white made with buttermilk, wheat, and rye breads, brOlvn n serve rolls, hamburger buns and frankfurter rolls), as Profile bread, and as Daffodil F,mn bread, There is only a single grade and quality of Hostess cake products, of IV onder bread products, of Profile bread, and of DaiIodil Farm bread.

Although marketed together as Continental's bakery products, t.he Jines of products are classed separately in making prices to customers in that discounts on Hostess cake products do not necessarily accompany discounts on IVonder, Profile, and Daffodil Farm bread products. Discounts on all products at the same rate were usual hmyever dependent. upon the competition to be met, The discount on bread S2 See s. v. South Eastern Underwriters A88n. 1944 , 322 U. S. 533 and Moore Mead' 8 Fine Bread Co., 1954. 348 U. S. 115. 8: ex 259B.

li Tr. 506.

TTh EDo--AL BAKING CO. 2109 2071 Inital Decision applied not only to Wonder bread but also to Profile and Daffodil Farm; in other words, to all bread the customer chose to handle, The Court in the 11100g case Be said in effect that when Moog made no attempt to govern or to det.ermine whet.her or not certain customers bought cert,ain items nf a line, the Commission did not have the burden of becoming immersed in the sman details of matching items bought by competing customers to prove a fact, the disproof of "which by l\loog would have been sheer happenstance. That situation seems pa.rallel to the one here.

Thus, when competing customers handle any part of the I-lostess cake line a discrimination in price is on goods of like grade and quality. The same can be said for Continental's bread line. If a favored customer handles "'Vander white bread and a competing nonfavored customer handles Profile a discrimination in price is on goods of like grade and quality for one reason, because both are priced as a, line of bread, and for another, because both varieties a.re used for the same purpose, namely, as bread. The evidence is clear that the competing favored and un-favored customers of Continental \were buying and seHing Continental bake products of like grade and quality in the market areas hereinbefore identified specific proof of like grade, and quality is not, howeve.r, an essential statutory requirement in establishing a defense of meeting competition in good faith. It seems reasollable t,o assume, nevertheless, that de mini1nis the statute contemplate,s the reduced price or allowance in each individual situation must, be in a competit.ive line, otherwise it could hardly be considered a bona, fide method of meeting competition. This can only be de- 5 Tr. 2140 41. ex 190 consists of tabulations !'showing 'Varieties of products sold to favored cmtomers (CX 190A is the key sheet awl the rest of the tabulations are brokeD down by ronte sources and then by routes). CX 190B through F cover favored customers served by the Paterson bakery and the Carlstadt and Woodbridge depots and do not !'how any deliveries of cake products. Presumably the areas served by these route sources are served by separate cake routes and Continental, in prepuring these exhibits, merely overlooked including the cake items. CX 190G and n, however, cover the favored customers served by the Asbury Park and Middletown depots and do show cake deliveries, thereby indicating that in those areas the same route truck dc1ivers both bread and cake. The record shows that two non-favored customers (Henry s Delicatessen and Ridm'teJl' s Market) were served by Asbury Park Route #4 who were served with cake und were in ('olIpetition with Safeway, Acme, and Mayfair outlets, all of which are shown on CX 190G as being !'served by the same Route :tt4 and all of which are also served cake. These two nod.favored customers arc served ,..Ith Wonder white and "cracked" wheat bread and hamburger buns and frankfurter rolls, as well as Prome bread. CX 100G shows that the Safeway and )fayfair outlets are served with all of these products and the A('me (American Stores) outlet is served with Profile. With respect to DafIortil Farm bread, CX 190 shows that Edsall & Bargmann (served by Paterson Route ,#14) handles it and is in competition with Grand t:union and Food Fair outlets, which also handle it; that Clark's Delicatessen (served by Woodbridge Route #30) handles it and Is in competition with a Trunz Marlret outlet, wblch also bandIes It; and that Hoffman s Delicatessen (served by Woodbridge Route #45) handles It and Is in competition with Scotch Plains Shop.Rite, which also handles it. 'J(;QU Inrilistriu', Iill' 1-.7. 0., ;J9. S Cil' 3S F. (2) -13. Initial Decision 63 F, termined by the circumstances in each case as evidenced. The evidence in the instant case would seem to indicate, in view of the manner in which the bake goods business is conducted (as herein set forth), that one geneml line of bake goods is competitive with another, particularly in view of competition for the allocation of counter space and preferred counter position as an inducement. to market demand.

VII. COMPETITIVE IKJURY Respondent argues that the supermarkets to which it allegedly grants favorable prices are not in competition with IoeaI grocery stores Vd10 now specialize in certain types of groceries and meats because these local stores do not and cannot have many of the facilities which enable large volume buying at the supermarkets. Alt.hough there is some realistic merit to this argument, as an economic fact neither the courts nor the Federal Tmde Commission have taken cognizance or it. In ract, the very purpose and intent of the Robinson-Patman Act is to protect small businese, It is true, as ennnciated by counsel for the respondent, that if supermarkets were eliminated it would not make supermarkets or local grocery stores. On the 'Other hand, the business or the local stores would be enhanced, it is believed, if supermarkets were eliminated even though the emall local stores could not offer the public all the facilities and accommodations available at supermarkets, Therefore, to .a. substantial degree, it would appear the small grocer is a competitor of the supermarkets in the same geographic market area.

Respondent argues that the bakery products it sells are not competitive price-wise since these items retail at the same price in the supermarkets as in the local grocery st.ores. Therefore, respondent says a11nwances to favored customers (i. the supermarkets) cannot substantially lessen competition. To the contrary, however, such allowances in a highly competitive market, more pa.rticuJarly the grocery business where the margin or profit is smaU , may substantially lessen competition or tend to create a monopoly if allowauees on one product afford the opportunity of reducing prices on other items that are highly competitive and have a low margin of profit. "Whether the products sold at a discriminatory price have the effect of substantially lessening competition in the retail sale of that particular product as distinguished from other products in the same market would not in and of itself appear to the hearing .. ) CONTINETIAL BAKING CO, 2111 2071 Initial Decision examiner to be a controlling economic factor within the purview of Section 2(a) of the Clayton Act."

Favored-customer price-cutting or loss-leadership on products not involved in the discrimination at issue (but on which price reductions aro significant enough to cause a reasonable probability of consumer diversion on many products, including the 'One at issue) is merely another incident of the advantages gained indirectly over non-favored customers. Installation of motorized shopping carts in supermarkets, for instance, as well as loss-leadership on such a product as coffee, might very well cause consumer diversion. In the Auto Pmt8 cases 88 it was pointed out that with the amounts by which non-favored customers were discriminated against these customers could hjrc mute salesmen, operate more trucks, expand their plants, and open branch houses, In this case non-favored customers, if they could have purchased at the same price as favored customers, would have been able to improve their plants to make them more comfortable, attractive, and convenient to consumers as well as engaged in prjce cutting on highly competitive products such as coffee and sugar.

The evidence establishes that non-favored customers were in competition vdth favored customers located as much asa mile or more awa.y. This was so because many consumers were equipped with automobiles. .Although a non-favored customer may have drawn his t.trade from his immediate neighborhood, that same trade could drive to a relatively distant outlet ofa favored customer to shop for the, weekly supply of groceries. The ne,arer such an outlet was located, the more competition it provided for fil- , or day-to-day shopping. And, of course, the fact that favored customers advertise in newspapers of wide circulation and distribute circulars by direct mail to 5 000 or more addresses is some proof that they draw their customers from relatively wide circles.

B'See auto parts cases g. Moog lnd!(strics, Inc. v. 1955, 51 F. C. 931; aff' 'i6 , 8. Cir.. 3.S F. 2d 4,3; '.1058 , g'3J "L. . 411: rhcu' . deli.. 6 U, S. 905; Whittaker Cablc Corp. 1955, 51 P. C. 958; afJ' 1956, 7 Cir. , 239 F. 2d 253; Edelman Co. v. 1955 , 51 F. C. 978; a1!' 1956, 7 Cir., 239 F. 2d 152 which hold that, regardless of whether there was any price-cutting by customers on any products, probable injury was present as here where there was Ii highly competitive market, with low profit margins, and the discrimination WIlS not insubstantial. Injury in the secondary line, according to those cases, does not require a diversion of trade caused by price-cutting, or what may be termed direct injury. (This is obviously so because otherwise the :\IcGulre Act would provide an exemption not only to the Sherman find Federal Trade Commission Acts but to the Robinson-Patman Act as well, since by fair-trllding bis product a seller could e1iminllte any customer price-cutting. 8BId.

!I See Carpel Frosted Foods, Inc., 1951, 48 F. C. 581, 596, to the effect that advertising in newspapers places grocery-store Ildvert1sers In competition with other grocery stores in the area of the newspaper s circulation. , , 2112 :FEDERAL TRADE C0:\1IISSION DECISIONS Initial Decision 63 F.

There can be no doubt that the grocery business is a highly competitive one. Most of Continental's non-favored customers are usually small family enterprjses, in some cases employing no outside help, remaining open for long hours, and offering such services as credit and deliveries in an attempt to compete with the larger supermarket stores, Small profit margins in the grocery business are realized by both favored and non-favored customers. For example, the "JTew York division of Safe\vay Stores made no profit in 1957, and, in 1958 profits were considerably less than 5%; and Davidson Bros., operat. ing t.-wo supermarkets with annual sales of $2.2 million, has made " 90no profits for "the last few years.

Of furt,her significance is the fact that bakery products account for a substantial share of a grocery store s business, usually averaging around 50/0 but in some cases accounting for considerably more. ,With respect to the amount of t.he price diiIerence in this case, the record csta:blishes that in every case except one the amount of Continental's discount granted to fa\rored customers was 5%. (That exce,ption was X ational Grocery Stores which was first granted 5% and htcr an extra 2%.

A recent order nncl supporting reasons of the Commission on the subject of injury in United Bisc'ldt C/o. of Am,erica D. 7817, vacating an Initial Decision June 28 1902, where the examiner had cljsmissed the complaint. because he felt a discount schedule ranging from 0% 60/0 in 112% increments, applying to the sale of crackers and cookies to grocery stores, did not produce the required effect, states: '" * * Considering the highly competiti,e nature of the market and other factors mentioned, a volume discount of G%, tantamount to a difference in price of 6%, was clearly substantial. Likcn'ise substantial were the lesser discounts shown ranging up to G% (GO F. C. 1893, lS9SJ. Clearly, the test for competiti.e injury set forth in 1forton Sa, It \1 add applied in the automoti,e cases. above mentioned should go,ern this proceeding. Thus the Commission hils unqua.liiiedly held that the grocery business is highly competitive llld a discount of a.s much as 5% on such items creates a difference in price of such substantiality as t.o cause probable competitive injury 92 under cjrcumstances similar to those herein, even though there is no customer prjce-cutts11g. The hearing examiner thercforc makes the same finding in this case '\'\ith regard to Continental's discounts or allowances on bake goods. DO See also Appendlx demonstrating the low margin of profit In the grocery lines In. eluding meats and delicatessen Hems.

1334 U.S. 37 (1948).

2 See Dorn Products Refining Go. v. 324 U. S. 738. COXTI:.ENTAL BAKI G CO. 2113 2071 Initial Decision VIII. RESPONDENT' S DISCOliNTS TO :\feet COMPETITION Respondent has satisfied the requirements of Section 2(b) of the act, since the evidence dml10nstrates that the discounts in question were given in good faith to meet the equally low or lower prices of competitors.

A. History of Discounts in the Market Areas Involved Before 1953, Continental Baking did not grant discounts to any of its ret.ailer customers in the market areas involved in this proceeding. As a, matter of business policy, Continental appears to have been opposed to gnlnting discounts. The granting of discounts by competing wholesale bakers caused a revision of this policy in 1953 in partie-nlar individual situations .where discounts or allowances were necessary to survive competition. Not only is there no evidence of discounts granted by Continental before 1953, but the record rewals that Continental refused discounts prior to tlutt time even though it meant the loss of customers or a drastic reduction in purchases by a cllstomer. In contrast: there is abundant evidence of discounts grant-ed to retail grocers by COl1tinentaPs competitors wen before 1953.

Continental's major competitors in the ew York-New Jersey and Philadelphia market areas " er(\ General (bakers of Bond Bread), Vard (bakers of Tiptop Bread), American (bakers of Taystee Bread), Gordon (b"kers of Silvercup Bread) and Fischer bakeries. An of these bakers sen a fun line of baked goods comparable to the line of products sold by Continental in these markets. Numerous smrLller bakers also sell in various localities throughout these mar kets. In addition to the testimony of Continental's representatives the record as to the individual discounts in issue in this case vividly demonstrates that Fischer, "Vard, General, and Gordon were Contin e.ntal's major competitors in the ew York-New Jersey aretl during the time in question.

The first baker to grant discounts from list prices in the New Y ork- Xew .Jersey area \Vas Fischer Baking Company, beginning as eflrly as 1937 or 1938. These discounts originally ,were 2% and soon moved up to 5%. Through these discounts Fischer developed a strong position in the K cw ersey market, to the detriment of other brlkcrs serving that alert.

93 See Timberman, Tr. 1888-39, 2135.

W See TImberman, Tr. 1840-41, 2141--2; Lynch Tr. 1964. B2 See Timberman, Tr. 1839-40; Lynch, Tr. 1961-62; Helm Tr. 2147-48. 2114 FEDERAL TRADE COMMISSION DECISIOXS Initial Decision 03 F.

,\lard Baking Company was giving discounts in the markets in question before 194'2. By the late 19'10' 5 or early 1950's many of Continental's other competitors in the Kc\y Jersey market began to give discounts to retail food stores. COlltinclltaFs empJoyecs heard pcr-; sistent reports of discounts given by 'Nard, General, and A_llcrican bakeries. The prevailing discount then being offered by these bakers \yas 5%. Customer witnesses testified also that it was common knowledge in the trade by 1953 that, with the exception of Continental and Gordon, all of the major bakers serving the New Jersey market were giving discounts.

The history of ,Varcrs discounts, ,yhieh began before 1942, is of special interest. By 1955 "T ard had so many discounts, in such a variety of forms and rates and negotiated by persons at an levels of managenlcnt, that the central offce of the company was llIable to keep track of them. In March 1955, ,Vard' s changed from the disorganized procedure to an "allmvance" of 5% to each store which would indicate an intention to purchase more than $50 worth of bread and cake per week over an eight-week period. This program was announced to the trade by press release, and at its peak was extended to 4 000 Ward customers in the "metropolitan New York market. This region was defined by Mr. Sidders as that area below Poughkeepsie and )liddletown, :New York, and east of the Delaware River extending as far south as and including Philadelphia. Upon the inception of this program those who had been receiving a ,Vard cliscount were, with 9iA Olle or two ulllamecl exceptions, made its beneficiaries. In December of 1957, after the legality of the program had been questioned, it was withdrawn and ""Vard 'vent back to a strajght 5% discount without refere.ncc to any required dollar amount of purchases.

Though characterized as payments under an " advertising allowance" contract, the 5% reduction given by ,Yard to some of its customers from 1955 through 1957 was in fact simply a discount. All that \vas ostensibly required was the participation by the retailer in six special '\Varcl promotions during a 52. -week period. Though Ward' s offered six promotions timed to coincide with holidays when baked products sales were high, the retailer was not bound to participate in these, but could choose any time of year and any type of promotion, The display materials were supplied by ,Vard's and the 00 See Bidders, Tr. 2642, 2681; Timberman, Tr. 1841-42; McKinnon, '1'r. 1922-23, 1941, 1956-57; Lynch, Tr. 1965; Kaufelt, Tr. 1785-88. A. See Bidders, Tr. 2681, 2638-39, 2675-76, 2640, 2677; ex 258; Tr. 2642, 2078. 97D See Slrlrlers, Tr. 2675, 2680.

CONTIKENTAL BAKING CO. 2115 207 Initial Dccision display erected by the Ward' s salesman. There was never any attempt to correlate the 5% reduction with the retailers' expenditures. ward made no check on the retailers' performance under these contracts but took a satisfactory sales record in lien of proof of performance. Further evidence that the ward 1953-57 arrangement was not in fact an advertising contract is found in the fact that the promotions participated in by the retailers while party to the contract were eontinued after ward's withdrew the plan. This continuation occurred only because these promotions involve no expense to the retailer, and are of benefit to him in that they increase his volume of sales. The record establishes that Contincntal's continued refusal to meet discounts granted by competing wholes,Lle bakers had, during the period 1948- , a serious detrimental effect on its sales. E11sworth Timberman, Regional :Manager for Continental's New York region which encompasses the market involved in this proceeding, testified that beginning in 1948 or 1949 Continental encountered sales problems directly traceable to discounts given by Continental's competitors. This decline in Continental sales took place at a time when had Continental merely held its market position, its sales would have increased because demand throughout the market was increasing. Continental introduced documentary evidence graphiea11y demonstrating the serious decline which occurred in its sales between 1948 and 1952 in the metropolitan K ew York and New Jersey markets. Continental:s gross bread sales in 1948 for the regions served by its Hoboken and Paterson ew Jersey, bakeries and its 10unt Vernon, Bronx and .Jamaica, New York, bakeries totalled 92 915 491 pounds. In 1949 this volume dropped to 65 791 658 pounds. This Joss was attribnta:ble in part to an extended stl ke which closcd Continental's metropolitan Kew York bakeries for twenty-one weeks during that year. But the fact that the strike was not the sole cause is borne out by Continental's experience after the resumption of New York production and its expedence in New Jersey, where its bakeries were not closed during the strike. After production was resumed in 1949, Continental's sales volume stayed well below the 1948 volume until 1953. Gross sales in 1950 of 81 273 978 pounds were more than 10 milion pounds below 1948. Sales continued to decline in 1951 dropping to 79 018 528 pounds. Though sales in 1952 increased 85,133 452 pounds, this figure was stil well below the 1948 volume of nearly 93 million. Only when Continental began to grant discounts in situations of competitive necessity in 1953 , did its sales 98 See Sidders, Tr. 2678- , 2694 , 2693.

99 See Timberman, Tr. 1836-37, 1844 , 1885, 1890 , 2110. 2116 FEDERAL TRADE COM:VIISSION DECISIO Initial Decision 63 F.

volume regain the 1948 figure-with the small excess over 1948 only commensurate with the overall growth in the market dema,nd. 10o Continental's experience in ew J ersey similarly proves that its decline in sales in the metropolitan K ew York and ew J crsey market during the period 1948-1952 was attributable in substantial part to competitive discounts. Kew Jersey sales declined in a pattern paral. lel to that of its total metropolitan New York-New Jersey sales although the 1949 strike involved only the Xew York plants. 1949, Continental's sales in New Jersey dropped more than two million pounds below 1948 sales-a decrease of more than 5%. 1950 saw another decline more than two million pounds below 1949 and Tllore. than four million oyer los' below,y 10+8. ID51 "-H3 the low mark for this pe-dot) ill Xc,,, Jers('y sales (lroppillg to ;j3 ;)+D OO;3 pounds, nearly 18% below 19-18. De pite an increase in IDj:2 , to 7:21 032 101.-\ pounds, sales rernained substrmtial1y below\\V IH4S. Finally, ill 10;5:3, Continental regained in Nev, Ter::ey as jt did in the Jnrge.r mnrkeL arcn. These figures lend emphatic support to the test.imony of Contillental:s employees that discounting by its comperitors had seriously clarnngec1 its market position,101B The use of discounts by some of Continent.ars competitors appears to have been stimulated by the 1949 strike. This strike, by the teamsters and salesmen of the Kew York bakeries, forced a shutdown not only of Continental's plants but the plants of General, Ward, and American. However, t\VO major bakers in this area, Fischer and Gordon, "ere not members of the same bargaining unit, t.hey were therefore able to replace the struck bakers in many retail outlets. Other bakers, such as Thomas, which did not ordinarily produce types of bread competitive with those of the major producers, beg-an to manufacture and scn such products. More distant bakers who had not previously sold in the New York area entered this market to fin the void. After settlement of the, strike, COlltinental t.hus found it impossible in many retail outlets to regain its shelf space and volume. Hmvever, Continentars Ult\villingness to discount as metllOc1 of restoring its r.ompetitiye position \,, as Ol)\' lOllSl ' not . ShilJ'CCt bv General and \Varc1. In the new market conditions created bv e strike, they made incre, sing use of discounts in the attempt t regain their pre-strike volume.102 In 1953, Continental finally concluded that some discounts would have ' to be granted to meet lower competitive prices and avoid con- 100 RX SA-C, 4A- IOU. See Timberman, Tr. 2144.

lol:BRX 3B.

lo: See Timberman, Tr. 2112 13. 2125- , 2144, 212S 30. CO"'TINENTAL BAKING CO. 2117 2071 1 nical Derision tinuing drastic Joss of business. This decision was reached only after Continental had been sllbjected to heavy pressure by its retailer customers receiving dlscounts, from other bakers, and after it had been eliminated from many stores because of its refusal to grant discountsYJ3 Two situations represented the culmination of pressures on Continental and finally triggered the change in its policy. The tirst these, described in detail in later Findings, involved Continental's sales to the Food Fair chain. Continental, though constantly solicited over an extended period, had flatly refused to grant Food Fair a discount. Faced with a tinal ultimatum, Continental had to choose either to meet competitive disc01:mts 'Or to lose completely this very important customer. At about this same time, members 'Of the Twin Counties buying cooperative brought concerted pressures against Continental for discounts. The stores in this cooperative were at this time receiving discounts from al1 of Continental's major competitors. In their weekly meetings, the members decided to exact discounts from Continental through selected pressure. Choosing those stores where Continental did its greatest volume of business the members bega.n to cut down, and in some cases to discontinue their purcha.es from Continental. The intensity of this effort is attested to by the fact that, during a period of three weeks in 1953 Continental was put out of rubout thirty stores owned by members of the cooperative. Subsequent findings detail specific instances in which members of the Twin Counties buying cooperative exacted discounts from Continental.'"

Continental' s decision to meet competitive discounts in the New York-Kew Jersey region was reached after lengthy deliberation by its offcials. Its new policy, promnlgated through frequent contacts by the regional manager with his plant managers and other sales personnel, was to permit discounts only where a competitor was giving a discount in as great or greater a.mount and where necessary for Continental to continue selling to that customer. Discounts were confined t.o product lines comparable to those on which Continental's competitors were offering discounts. 105 The Continental sales personnel who appeared as witnesses during the hearings a11 testified that they understood the Company s policy to be that a discount could be granted only when they "ere satisfied that the customer was receiving a discount from a competitor and they were convinced that Continental ha.d ,to meet this discount to 103 See Timberman. Tr. 2128, 2135-36. 10! See Lunch, Tr. 1886-1987; TIejm . TI', 2214- , 2164. 100 See Timberman, Tr. 1848--9 , 2137, 2140--1. 780-015-69--134 2118 FEDERAL TRADE COMMISSION DECISWNS Initial Decision 63 continue to serve that customer. Continental' s salesmen have refused to give a discount when a customer has not satisfied them that he is getting a discount from one or more of Continental's competitors. Similarly, where a customer has requested a discount but Continental has been able to continue to sell, no discount has been granted. Continental has not adopted a system of granting discounts on the basis of the size of the customer. Discounts have been given to small stores, as well as to supermarkets, where Continental has been satisfied that competitors were giving discounts and that Continental had to meet them to continue its sales. Accordingly, some chain stores sold by Continental-A&P most prominently-have never received a discount from Continental. On the other hand, proprietors of a single store, whether a supermarket or a neighborhood grocer, have received discounts when Continental was satisfied that they were receiving discounts from competitors and a failure to meet these discounts would result in discontinuation of purchases from Continental'" The fact that a competitive situation exists which Continental must meet was, of course, determined initially by a customer s representation that he was receiving discounts from list prices from one or more competitors. On some occasions documentation was obtained in the form of discount checks, competitors' invoices, etc. In all instances moreover, Continental's salesmen were able to check a grocer s claim that he was receiving discounts from competitors against their famili arity with the market, the customers, and the eompetitors. A grocer receiving a discount inevitably gives that supplier greater shelf space. :Mr. Sidders, of 'Ward Baking Company, testified that a bread salesman kno,vs whether a competitor is favoring a customer by his observation of the treatment given that competitor in rack position and space allocation. liltimately, therefore, verification of a grocer claim that he was receiving a discount from a competitor derived from the informed business judgment of the Continental salesman. Knowledge that other bakers in the market were giving discounts, and that the particular-r customer was an aggressive businessman who would obtain any discounts that were available, together with reduction in purchases from Continental and less desirable shelf space for Continental products, would lend strong support to the customer s contentions.'"' The accnracy of this business judgment is abundantly confirmed by the fact that in every record instance where Continental 100 See McKinnon, Tr. 1930; Lynch, Tr, 1976; Heim, Tr, 2217, 2239--0; Sundell, Tr. 2362-63; Lynch, Tr. 1986; Helm, Tr. 2235; Lynch, Tr. 1986-87. 101 See Helm, Tr. 2235-36.

108 See Testa, Tr. 549-50; Lynch, Tr. 1978-79; Heim, Tr. 2218-22; Sundell, Tr. 2359- 60; Brown, Tr. 447; Lyncb. Tr. 1991-92; Sundell, Tr. 2362-64; Sidders, Tr. 2668; Brown, Tr. 443--7; Testa, Tr. 550-52: Lynch, XI'. 1981- 1)2. COKTDiE "IAL BAKING co 2119 2071 Initial Decision granted discounts proof was submitted that the customer had been offered, and that almost all were actually receiving, as great or greater discounts from one or more competitors.

Before Continental changed its discount policy in 1953, it had fallen from a strong second position to fourth or fifth baker. Subsequent to the adoption of its tightly controlled discount policy, Continental regained its position as second baker in the Kew York-New Jersey markets. The protracted delay in meeting competitors' discounts resulted, however, in serious continuing loss of business for Continental. Some cust0111ers who discontinued purchases lmcause ContincntRl refused to meet a discount have never resumed their former volume of purchases of Continental bread.

Before Continental began to grant any discounts to retailer custonlers to meet competition, departures from list prices were a negligible percentage of its gross sales in the New York region. These departures were confined to pricing on sales to institutional customers such as schools and military installations. By 1959, total rednctions from list on sales from the Paterson Bakery, which serves the largest market involved in this case, amounted to 2ro of gross sales. This was the peak figure reached ill the years 1953- , and included, in addition to competitive discounts, both the lower prices on sales to institutional customers and geographic price decreases uniformly adopted for all retailers on portions of Paterson routes which ran into areas where Continental encountered lower competitive list prices. l1O The competitive conditions which compelled Continental to 111cet some discounts continued throughout the period involved in this proceeding. In the case of each of the Continental discounts shown by the record, the competitive discounts which Continental met remained in eiIect through 1959. In no instance in which a competitor granted a discount was it later withdrawn. Indeed, when Ward Baking tried to eliminate its discounts in these markets, in Mareh 1955, it found it impossible to do so and remain in business. In 1957, Ward again had to abandon an attempt to withdraw discounts under threats of ternunation of purchases.111 Testimony of customer witnesses further reveals the intensely competitjvc sit.nation prevailing in these markets throughout these years. Alexander .Tacob, owner of the Capitol Shop-Rite, testified that Fischer Baking Company negotiated a discount with headquarters of the Shop-White Cooperative, extending a discount to all its members. 100 See Timherman, '1'r. 184!J-50, 1890-91; Heim, Tr. 2234- , 2237. 1:0 See Timberman, Tr. 1885, 1893, 1895-96. 111 See Sidders, Tr, 2680, Tr. 2638-39.

2120 FEDERAL TRADE COMMISSION DECISIO: \,T l1Jitial Dech:ion 63 F.

Leroy Dayidson, owner of the Davidson s Food Towns, testified that some major ba.kers, among them American Baking, had offered him, discounts if he would anow them to serve his stores. There was also testimony that in 1956 or 1957 many bakers in the New Jersey market increased their discounts to 70/0.112 Thus, the record abundantly documents the fact that competing wholesale bakers were already granting discounts in the market areas involved in this proceeding years prior to the time when Continental began to meet these lower competitive prices. Aecordingly, and as revealed in subsequent findings dealing with the individual competitive situations, ContinentaFs discounts were not used aggressively or as a weapon to obtain new customers, at the expense of its sellercompetitors. Standard M otOT Products 54 F. C 814, 822 (1957), aiid, 265 F. 2d 674 (2d Cir. 1958). As detailed in subsequent findings, there was no instance in which Continental by granting a discount supplanted any competing wholesale baker then supplying the particular retail grocer. l\1:moreover, the record shows no instances "horo any retail grocer became, asa result of the discounts, an excJusive Continental customer.

B. Comparability of Base Prices of IVholesale Bakers in the Market Areas in Q,question Tho record establishes that., in the market areas involved in this ease, retailers do not engage in price competition jn the sale of brand bread. On the other hand, competition at the wholesale level is so keen that each baker of brand bread must meet the wholesale prices offered by his competitors or lose his volume. Because bread is a perishable item, lower retail prices do not encourage large scale buying for future needs. And, because bread is a staple item for which there is relatively eonstant demand, retail price reductions do not increase over-all bread sales. At the same time, a grocer who ean buy a brand of bread at a wholesale price below that of competing brands wi1 not reduce the shelf price of that brand, but win sen it at the same retail prices as competitive brands. Because sales of the brand bought at lower wholesale prices yield him an addition1Ll profit, the grocer wi1 favor that brand. This can be easily done because brand preference means relatively litte, the bulk of bread sales being "impulse" purchases. The brand most prominentlv displayed in the most eonyenient location on the baker s rack wi1 ou sen competitive items. The wholesale baker s inability.y to exploit consumer preference means that he cannot sell his product in profitm See Jacob, Tr. 1702; Davidson, Tr. 2383- 2378; George, Tr. 1815, , .

CONTTh ESTAL BAKI?\G co. 2121 2071 Inital Decision able quantities at prices above those charged by his competitors. Nor can a brand bread baker increase sales by pricing below his competitors, inasmuch as they wjJ feel compelled to come down to his price level.113 Similarly, if one baker in a market announces higher wholesale prices and the groeer finds that he can continue to get his markup by e1Jing at higher rebtil prices, he typically increa.ses retail prices on the comparable products of competing bakers who have not raised their wholesale prices. This phenomenon inescapably leads the other wholesale bakers to increase their wholesale prices. The fact that al1 these bakers are subject to the same cost increases serves as an added reason for similarly timed increases.1 C. Continental's Belief That the Lower Prices Met "' ere Lawful The record also establishes that Continental had no reason to question the lawfulness of the eOlnpetitive prices which it met. 1nst8f1d, ContinentnJ's management could and did believe that its competitors' discounts were lawful.

In each of the markets invoh- : Cont.inental faced the competition of up t.o five major bakers and numerous local .and specialty bakers. Each of the major bakers: and many of the others, were giving discounts during the period in question. Fischer began discounting as each as 1937. and ,Yard bec.an at least as earh as 194'2. An of the maj r bakers' except Contin ntal and Gordon ere giving discounts by 1950. During this entire period there has be.en no decision by t.he Fede.ral Trade Commission or any court holding l1nla\yful a discount on the sale of bread to retailers. W11ile actions of the Fedeml Trade Commission and the courts in past eases are not, of course: decisive of tire issues here: they do bear all the question n-whether Continental luld any reason to doubt. the bwfulness of the prices which it met. From 1914 hen the Clayton Act was enacted, until 1953, the year in which Continental granted its first discount, the Federal Trade Commission issued six complaints involving discriminatory price diilerences in tlle sale of bread. Three alleged violations 'Of Section '2 of he amended Clayton Act."" and three alleged viobtions of Section 5 of the Federal Trade Commission ACt.1l Five of t)1e8e com- ')3 See Brown Tr. 447, 450: Testa, Tr. 589; Sidclers, Tr. 26G8; Brown, Tr. 482-83; Testa, Tr. t)90; Timberman, '1r. 1861- 62; Zayeckas, '1'1'. 629; Timberman, Tr. 736- 739--0, 1860-62; Lynch, '11'. 1967.

'1; See Testa. '1r . 566-569.

ni! Continental Baldn.g Co. 30 F. e. 1393 (J'fay 31 , 1940) ; Continental Ba/dng Cu. 37 F. e. 670 (Oct. 18, 1943) ; Geneml Baking Co,) 32 F. e. 1635 (Dec. 13, 1940). 1H Ward Baking Co. 264 F. 2d 330 (2d eir. 1920); New England Baking Co., 2 e. 465 (May 13 , 1920); WU. d Baking Co, 5 F. 'l' C. 483 (July 20, 1922). 2122 FEDERAL TRADE CmnnSSION DECISIOXS initial Decision 63 F.

plaints were dismissed by the Commission, one 'against Continental itself being dismissed ibecllUse the " allegations of the complaint have not been sustained by the evidence." m A sixth, upheld by the Commission, was reversed on appeal. In that case it was held that bread sold in the same manner as Continental's is not sold "in commerce. " 118 Since 1953, five comp1paints, excluding the present case, have been issued by the Federal Trade Commission, charging a violation of Section 2 in the sale of bread. One of these cases has already been djsmissedY9 Two have been settled by consent orders expressly stating that they do not constitute an admission by respondents that they have violated the law as alleged in the complaint '" and two are stiH pending.'" In view of this history, and in the light or the serious and complex questions bearing on the validity of Con- , ittinental's own prices entirely apart from its Section 2(b) defense is clear that Continental could reasonrubly believe its competitors prices were lawful. The prices met by Continental were not the result of a two-price system or other inherently discriminatory pricing method. They \Were not a consequence of geographic price cutting or local price wars where all of the circumstances indicative of an llnlawful price reduction were a matter of common knowledge. Continental had no reason to think that any price differences in its competitors' sales could not be cost justified or defended as made in response to changing market conditions. The long period of years over which the discounts of Continental's competitors went unchallenged also justified Continental's assumption that the prices it was meeting were lawful.

The exact number of reta,il customers served by Continental and the 'other.r bakers in the markets in question is not a matter of record; obviously! however, there are thousands of them. Equally obviously, no baker can know the nature Rnd scope of an of his competitors activities. 1-1e cannot, for example, know whether a competitor is offering discounts to all of his customers who compete with one another or just to some. 1\ or ean he exchange price and other sales information with competitors without exposing himself to the gravest antitrust hazards.

111 Continental Baking Co. 37 F. C. 670, 678 (Oct. 18, 1943). li Want Baking Co. v. , supra. ll Huber Baking Co. Docket No. 7629, Sept. 15, 1961, CCH Trade Reg. Rep. Para. 15.389.

12 Ward Baking OQ. 55 F. C. 1142 (Feb. 10, 1959): Willam Frieho!er Bakin(J 00. fS5 F. C. 993 (Jan. 7, 1959).

lI Southern Bakeries Co., Docket No. 7881; American Bakeres Co. Docket No. 8120, COKTDlEXTAL BAKING CO. 2123 2071 Initial Decision Furthermore, there is no evidence that the discounts met by Continental had themselves been given for purposes other than to meet the equal11y low and non-discriminatory prices offered by another baker.

D. Continental's Discounts Challenged Under Count I Necessary to :Meet Competitive Discounts Evidence was introduced with respect to 20 discounts granted from Continental's list prices to retail grocer customers. A11 but two of these customers were shown to have been, at the tiIne and throughout the period covered by this proceeding, receiving nt least as high discounts from one or marc of Continental's competitors. In the other two instances, proof was presented that they had previously been offered, and had immediately available to them, discounts from Continental's competitors at least as high as that granted by Continental. As hereinafter set forth with respect to each of these customers, Continental never gave a discount greater or a resulting net price lower than those afforded by competitors to these particular customers, while in some instances the Continental discount was smaller and the net price accordingly was higher. Finally, the evidence establishes that Continental's salesmen consistently adhered to the Company policy of giving discounts only where they were competitively necessa.ry. Although in minor instances 122 this, in a sense, involved the necessity of granting discounts in seeking new business, it was to meet old competition in the same trade area or to seek old customers at new locations under identical economic conditions prevailing in the meeting of competition to hold old business in a highly competitive low margin of profit grocery market. The policy enunciated by the Commission preclusive of a meeting competition defense as to new business would therefore not appear to be applicable under these facts as well as for other reasons herein set forth.

Acme il markets In late 1956, the stores in the Kearny Division of Acme Markets were being supplied by the Fischer Baking Company and General Baking Company. Fischer was the leading wholesale baker in those 122 See transactions re Capitol Shop-Rite, Food- Rama., King s :Markets, Acme, Best Markets.

12 See Sunshine Biscuits, Inc. v. July 11 , 1962, 7 Clr., 306 F. (2) 48. There the abstract Question of whether or not the granting of a lower prlce to obtain a Dew customer was permlssable under 2(b) was answered in the nflrmative. Howner, the Commission has recently issued a Public Statement to the effect that Its decision not to seek Supreme Court review of that case does not reflect a change of position by the Commission on the point of law involved. Public Statement, press release, November , 1962.

, , . 2124 FEDERAL TRADE co nIISSIOX DECISIOXS Initial Deeision 63 F.

stores, selling a full line of baked goods. However, the bulk of the baked goods carried in these Acme Nlarkets were private label iwms produced by Acme in its own bakeries.l2.! Joseph Alesi, grocery buyer for Acme s Keamy Division until 1957, testified that when he assumed that position in 1947 the Fischer Baking Company wa,s gi\ying a discount to the stores in that Division. This discount was never less than 5 per cent, and Mr. Alesi testified that it may have been morey In late 1956 or early 1957 , Free1erick Ic.Kinnon, then regional sales lnanagcr for Continental Baking Company s 1\ ew York region, contacted :Mr. Alesi in an effort to place its products on the shelves of the Acme iarkets in that area. In the ensuing discussions )lr. Alesi told yir. McKinnon that Acme was receiving a 5% discount on list prices from another baker, and that unless Continental granted equally low prices he would not authorize purchase of Continental bread. :lir. McKinnon recalled that Mr. Alesi toJc him of discounts from Fischer and General. Mr. AJesi specifically recalled telling llfr. McKinnon about the Fischer discount."" A 5 % discount was eventually negotiated between 1ir. Alesi and )11'. M:cIGnnon for Acme s Kea.rny Division. This Division encompasses orthern New Jersey, start.ing at Tom s River, and Stat.en Island and Long IsJaml in Kew York. Because Acme s private label bread and the ful1line of Fischer products made purchase of another full line unnecessary, these stores never purcha,secl any Continental product other than Profile Bread. The products purchased from Fischer included Hollywood Bread, a specialty item competitive with Continental' s Profile. o competitor of Continental was replaced and there is no evidence that Acme reduced its purchases from any competitor as a result of the discount granted by Continental. Both Fischer and General continued to grant discounts to Acme I(carny Division stores throughout the period involved in this proceeding a.nd thus to sell at prices at least as Imv as those offered Continental. 128 Capitol Shop-Rite \Vhen the Capitol Shop-White first opened in 1955, it carried a full line of baked products from Fischer, General, and Gordon. All j See Heim II" 190; :ileEin:JOn . Tl'. 19,'.2- '.3; \lf' i, 'II'. 2600- , 26(1::\ 2607 , 2614. 2619.

= See Alesi, Tr. 259S- , 2602-03, 260S- , 2611. 2625. 1-"6 See McKinnon, 'Ir. 1930- , 1932-33, 1936- , 1943, 1956-57; Alesi, 'Ir. 2601- 03, 2612-13.

l2 See Timberman, 'Ir. 1851; McKinnon, 'Ir. 1933; Alesi, 'Ir. 2599- 2600 , 2602 , 2621, 2624.

12 See AlesI, 'Ir. 260S- , 2625.

, ( CONTIKL' TAL BAKI:cTG CO. 2125 2071 Initial Decision these bakers sold comparable products at identical list prices. About one year after Capitol Shop-Rite opened, the Fiseher Baking Company negotiated a 5'70 discount through Shop-Rite Cooperative headquarters, and their discount extended to a11 of the Shop-Rite stores including the Capitol Shop-Rite. The individual store owners did not negotiate their discounts separately. Mr. Jacob, owner of the Capitol Shop-Rite, then told General Baking, ="BC, and Gordon that they must meet this competitive offer or he would ce,ase purchasing from t.hem, and two or three 129A months after the Fischer discount General and KBC gave the Capitol Shop- Rite a 5'70 discount. When Gordon refused a discount, Mr. Jacob stopped purchasing Gordon products. Gordon later extended a discount and Mr. Jacob resumed purchasing irom that baker. 129 In about 1956, the Capitol Shop-Rite began purchasing from Continental but bought only a limitec1line because of limited space in his store. Mr. Jacob did not at first request a discount from Continental because Continental's volume with him was so small. 130 In 1957, Mr. Jacob discontinued his purchases from Fischer Baking Company and the General Baking Company on the ground of poor service. I-Iearing of this Terry Lynch, of Continental, approached Ir. Jacob and discussed the possibilities of Continental's selling more products to the Capitol Shop-Rite. Mr. Jacob agreed on condition that Continental meet NBC's prices and discounts. ="BC was serving Capitol Shop-Rite with a full line of baked goods, sold at the same list pric.e as Continentars products, and was giving a 5% disc.count. unless Continental met this discount 1\1:1', J a.cob would not have purchased Continental products for his Capitol Shop-Rite store. 131 The discount given by Continental ill 1957, as well as the competitor s discount previously in effect, continued at 5% through the period eove.red by this proceeding.132 Davidson In tho early 11:50' , the Davidson Foodtown Stores \were members of t.he Twin Counties buying cooperative. The Davidson stores 'were then buying a full line of baked products from Fischer, "'Yard, Gen eral, American, KBC, and Continental. Continent.al had been ser\'- 12IA See ,Tacob, Tr. 1695, 1701-03.

I2B See Jacob, 'lr. 1703-- , 1691. 1705, 1709. 1. See Jacob, Tr. 1692-93, 1714; Lynch, Tr. 1980- 1'1; Jacob. Tr. :1692. l3 See Jacob, Tr. 1692-94; Lynch. Tr. 1981: Jacob. 'Ir. 1697-98; Lynch, Tr, 1982--83, 2004: Jacob, Tr. 1694-95, 1697, 1704 , 1711- , 1692- , 1697, 1714-15. 132 See Jacob, Tr. 1698.

2126 FEDERAL TRADE COMMSSION DECISIONS Initial Decision 63 F.

ing the Davidson stores since 1937-38. AU of these bakers charged the same list prices for comparable products. During the early 1950' , Davidson received discounts from aU of the bakers of brand bread supplying his stores. A 5 % discount from the Fischer Baking Company was the first-beginning at least six months before the discount from the Continental Baking Company. Because Fischer was the first to give Davidson a discount, it was the favored baker in the Davidson stores and did the largest volume of business. The discounts given Davidson by Fischer extended to its ful1Ene of baked products.

The discount from Continental was negotiated between Lcroy Davidson, at that time secretary of the Davidson chain and responsible for the selection of bread suppliers for those stores, and Julius Hein of Continental Baking Company. Mr. Heim testified that Mr. Davidson contacted him and told him that Fischer, NBC, Ward, and General were giving his stores a 5ro discount and that in order to continue serving his stores Continental would have to meet the resulting lower prices. Mr. Heim at first refused to grant the requested discount and Davidson s began to reduce its purchases from Continental. From second or third position among wholesale bakers in the Davidson stores, Continental's standing during the period of reduced purchases dropped to last. 'When it became apparent that Mr. David. son "\,ould continue to reduce his purchases until Continental was completely out of his stores, Davidson s was given a 5 % discount.135 Davidson s did discontinue purchases from Gordon, bakers of Silvereup bread, and American, bakers of Taystee bread. These ba,kers e1'8 dropped, at least in part, because of their refusal to give A, discount. Some other ma.jor bakers not serving the Davidson stores have oiIered Davidson discounts if he would purchase from them. Mr. J),widson testified that Am81.iean Bakeries had made such an of. fer.1S6 A discount from Fischer, in effect when Continental grant.ed its discount, has continued in effect, increa,sing to 7 at some time before October 1959. The discount given by Continental continued in effect at 570 throughout the time with ,which this proceeding is concerned.1s1 133 See Helm, Tr. 2154, Davidson, Tr. 2381-82; Heim, Tr. 2151, 2152; Davidson, Tr. 2372, 2397.

1:. See Davidson, Tr. 2374-78, 2R89; Helm, Tr. 2149, 2153; Davidson, Tr. 2382, 2389- , 2397.

135 See Helm, Tr. 2149- , 21M , 2153; Davidson. Tr. 2374-715. lao See Da.vIdson, Tr. 2390-91, 2398- , 2378, 2883-. 1. See Davidson. Tr. 2879, 2392. COKTI 'mN'IAL BARING CO. 2127 2071 lnitia-l Decision Food Fait The Food Fair stores in the markets covered by the evidence are divided into three separate regions-the Northern New Jersey region the New York metropolitan region and the Philadelphia and Southern .New Jersey region. The bread suppliers authorized to serve the Food Fair stores vary from region to region. Within each region the major bakers have sold comparable items at the same list prices. From 1950 to 1959, Fischer, General, Continental, and American bakerics served the N ew York metropolitan region Food Fair stores. General was the leading baker in those stores. Food Fair discontinued its purchases from 'Varc1 in this region sometime after 1953 because of poor service and stale merchandise. During the same period the Northern X ew Jersey region of Food Fair was served by Fischer .General, Continental, and, in a few instances, by Ward. Fischer and General were the leading suppliers in this region. Continental was third or fourth.

Friehofer, Fischer, General, and Continental served the Southern New Jersey and Philadelphia Food Fair stores. Friehofer and Gen- 140eral were the principal suppliers in those stores. In 1953 , Food Fair was receiving a 5;'o discount from Fischcr Baking Company and General Baking Company in all three regions described above. Both of these discounts had been in effect since at least 1946. In addition, 'Vard Baking Company was giving a discount to Food Fair in its X ew York and X orthern K ew Jersey regions. 141 Beginlling about. 1950 or 1951, Lawrence Ellis, Bakery Division Director for Food Fair stores and responsible for purchasing bread products for those stores, asked for a discount from Continental. Mr. Ellis was told by Ellsworth Timberman, the Regional Manager for Continenta.l's New York region ,,'which includes Korthern New Jersey, that Continental could not give him a discount as a matter of Company policy. Mr. Ellis repeated his request over a period of at least a year and a half. During these conversations, 1\11'. Ellis informed lIir. Timberman that other ,yholesale bakers Iye.re giving him a discount. Finally, in 1953, Mr. Ellis told NIl'. Timberman that Fischer and General were giving Food Fair a 50/0 discount, and that he could no longer just.ify purchasing from Contincntal at higher prices. Faced with the alternative of losing a customer as substantial 1. See Ellis, Tr. 2051- , 2074-75.

1$ See Sells. Tr. 2053- , 2099. 2052, 2056. lco See Sells, Tr. 2054- , 2067; Wilson, Tr. 2538. 1& See Sells, Tr. 2057. 2002-03, 2065-66, 2089, 2107-08. 2128 J;-EDERAL TRADB COMMISSION DECISIONS Initial Decision 63 P.

as Food Fair, Continental decided it had to grant the demanded discount. 142 The discount negotiated with Food Fair was initially denominated an " advertising allowance." One contract 143 provided for payments of $650 every three months covering Food Fair s purchases from Continental ill the metropolitan K ew York region. The other contract 144 provided for payments of $1 300 every three months covering Food region.Fair s purchases from Continental in the Northern New .Jersey These mnounts were calculated to be equal to a 5% discount on Fooel Fair s purchases from Continental in the respective areas.1 Both Continental and Food Fair regarded these payments not as advertising allowances but as straight discounts estimated to equal e1'5% on Food Fair s purchases from Continental. Food Fair ne\" rendered any advertising service on Continental products, nor did Continental expect Food Fair to do 80. 146 Since the lump sum payments were based on Food Fair s historical level of purchases from Continental, the parties agreed to review the amount.s periodically so that they -would continue to Teflect a 5% discount. In accordance with this understanding, the sums originally negotiated with Continental for t.he New Yark Food Fair stores and the orthern New J crsey Food Fair stores were increased several times as they lagged behind Food Fair s increased purchases from Continental. In time, these lump sum payments were abandoned and a Hat 5% discount on current sales was substituted.1 In 1956, Continenta.l ,yas serving some 16 of the 60 Food Fair stores in that chain s Philadelphia region. Arnold Wilson, of Continental' orristowll Bakery, contacted La-.vrence Ellis and sought to increase Continental's sales to that chain. Continental was not at t.hat time giving Food Fair a discount and Ellis refused to authorize expanded purchases from Continental in the Philadelphia l region because of this. Mr. Ellis told :lir. wilson that since Food Fair was getting discounts from other companics in the Philadelphia.a regions Continental would hate to meet. them. Fooel Fair \';a ) at that lime receiving a 5jc discount from Fischer, General, Friehnfel' , am1 Stroehmann, aJl of whom ,were enpabl(' of serving al1 the Foo(l Fail' Phibdelphia stores,18 140 See Timberman, Tr. 1844--5; Sells, Tr. 2050, 2058--59; Timhermnn, Tr. 754 , lS43- 44, 1875. 1879-80; Sells, Tr. 2060-61.

U3 ex 119A- 1'" ex 120A- 1'5 See Timherman. Tr. 1846-47; Sells, Tr. 2064. 1"" See Timberman, Tr. 751 , 7;53-54. 1845--7; Sells, Tr. 2001. 2064-55. 147 See Sells, Tr. 2101-02, 2062; Timberman, Tr. 1845--6: Sells, Tr. 2108, 2064- 65: Timberman, Tr. 1846.

li8 See Wilson, Tr. 2536-37; Sells, Tr. 2065-66, 2068-69; Wilson, Tr. 2538-39, 2562. CONTINENTAL BAKING CO. 2129 2071 Initial Decision Mr. "Wilson finally worked out a discount which provided for a pftyment of $70 a month. This figure represented 5% of Continental's sales to the 16 Food Fair stores Continental was then serving. Thereafter, Continental began to sell to more of the Food Fair Philadelphia. stores and, as the number of stores increased, the payment as a percentage of Continental's sales decreased, and fell as low as 12%. 149 In 1957, "'ilJiam Brown, who had become the Norristown Bakery :1Uanager, checked with J\Ir. Ellis to determine whether it was competHi \'c1y necessary to continue the $70 a month payment. lie was told tllat. it \V118 necessary for Continental to continue its payments since Fl'iehofcl' , General, and Stroehmann were giving discounts ranging from 5% to 10%. 150 In 1938, Food Fair acquired the Best :Markets stores, most of which wel' e located in Philadelphia. Mr. Ellis of Food Fair discovered that Fischer and Friehofer had been giving 7% discounts to Best Markets allcllH demanded and received from those bakers a 7% discount for Food Fair. 'The other bakers supplying Best Markets also continued their disc0l111tS to those stores after the Food Fair acquisition. :Mr. EJJis also clis(;covered that Continental had been giving an advertising alu\\"cUlce La Best la.rkets. fie complained that this allowance was mol' C ad valltageous than the discount given by Continental to Food Fail' s Philadelphia stores and, in negotiations with Mr. "\Vilson, of Continental, he insisted that the $70 a month payment be converted to It flat 5% to meet the discounts being given by Continental's com. pet,i1ol's. The advertising allowance to Best :Markets was no longer paid by Continental after those stores were acquired by Food Fair. 151 j?(jod- Hctlw III 195(;, the Food- Rama store on Amboy Road, in Tottenvi1e Staten Island, ,'"s being served with ful1lines of bread products by Fischer Gordon, Bond, and ward. In 1956, Continental Baking began to sell in the Tottenville area. c\.nc1re\v Sundell, Sales Supervisor fol' ContillentaFs 1Voodbridge, New Jersey, Depot, talked with J oseph Iazurek, M'llager of the Food- Rama and responsible for its purchasing. 11r. :i\azurek informed NIl'. Sundel1 that the Fischer Baking Company was giving his store a 5% discount and that Contillcnta1 would have to meet this.152 Ita See Sells, Tr. 2068-70; Wilson, Tr. 2537- , 2544. 2577; Brown, Tr, 4771-J; Wli- SOIl, Tr. 2538.

1&1 See Brown, Tr. 477H- , 486.

10 See Elljs. Tr. 2079-80, 2085-86; Timberman, 'I'r. 1845-'16; Sells, Tr. 2070-71;Wilson, Tr. 2539--2, 2548-50. See Mazurek, 'lr. 1658, 1670- 71, 1651-52; Sundell, Tr. 2352, 2354-55; :\fazurek 'l' r. 1660- . 1671-72; Sunden. Tr. 2360. 2130 FEDERAL TRADE COM:ISSION DECISIONS Initial Decision 63 F. C..

At the time, Fischer was in fact giving Food- Rama a 5% discount. Fischer granted this discount in 1952 when Mr. Mazurek found that Fischer was giving a discount to a competitor. When Continental granted a discount to the Amboy Road Food- Rama Fischer was selling that store a line of products similar to the line purchased from Continental, charging list prices the same as the list prices charged by Continental for comparable products. After the Continental discount was negotiated, Gordon, General, and vVarc! a11 voluntarily extended discOlmts to Food- Rama. Food- Rama did not enter int.o any contract or aSSlUne any obligation to purchase from Continental, and none of Food- Rama s bread suppliers was displaced when Continental began to sell to that storey' The second Food- Rama, located in Tottenvi1e, was, before its acquisition by Food- Rama in 1958, a Rolls Food Store, which purchased Continental products. when Mr. Sundel1 contacted the manager of this store-an individual no longer with Food- Rama- -was told that in order to continue serving the store under its new ownership, Continental would have to meet 5% discounts being given that store by Fischer and General.'"

Both the Food- Rama stores continued to receive 5% discounts from their balwd goods suppliers, including Continental. during the period covered by this proceeding.

Good lJealll1 markets In the early 1950' , there were two Good Deal :Markets, located in IrvinbTtOn and U nioll, New J crsey. They were served by American and Fischer Baking Companies, and for a brief time by Continental Baking Company. Shortly after Continental began to sell to these stores fr. Aic1c1anan, their owner, a.pproached Julius Heim, of the Continental B"king Comp"ny, and asked for a discount. Mr. Heim told :Mr. _Ajdekman that, because of Continental's strict policy, he could not extcnd discounts. lXII'. Aidekma.n said that he was getting a discount from American, but IHr. I-Ieim persisted in his refusal, and Mr. Aic1ckman therefore discontinued purchasing from Continental. '" By 1956, there were three Good Deal :vlarkets, a store having been purchased that year in Chatham, New .Jersey. This store had been served by Continental under its prior ownership and followjng the acquisition Good Deal continued to purchase a fu11line of Continental products in that store. In addition, Continental had succeeded in 16. See Mazurek, Tr. 1659, 1664, 1677. 1659- 1672 , 1677-78, 1657, 1662. See Sundell, Tr-. 2354. 2355, 2356, 2360.

S'!,! Mazurek, Tr. 1661-62.

1M See Heim, Tr, 2173- , 2175-77.

'"r:NE1' AL BAKIKG 00. 2131 Initial Deision2071 serving the other Good Deal Stores, but only with a limited line of products because of its refusal to give a discount. A11 three Good Deal stores were buying lines of products comparable to that of Continental in 1956 from American, Fischer, and General. These wholesale bakers charge the same list prices for comparable items. American, bakers of Taystee bread, was the leading' baker in the Good Deal Markets in 1956, and held that position through 1960. In 1956, Good Deal was receiving 7% discounts from Fischer, American, General, and some of the specialty bread companies. 158 Some t.ime after Good Deal bought the Chatham store, Morton lloth, buyer-supervisor with the Good Deal Markets and responsible for the purchase of baked products, contacted Continental concerning a discolllt. Mr. Roth discussed this at different times with Messrs. Testa, La11y and Heim, of Continental Baking Company. A 5% discount was finally negotiated between Morton Roth and Julius Heim. During these negotiations, which took place over a 6-month period, .Mr. Roth insisted that Continental grant a discount in order to continue serving the Chatham store and also as a condition to Continental's selling a full line to the other two Good Deal Markets. He informed :Ill'. Heim that the other wholesale bakers were giving Good Deal a 7% discount. m Continental finally granted a 5% discount to the Good Deal Markets and was allowed to supply a11 three stores. The discount from Continental continued at 5% from the time it was granted through the period in question. The discounts from American, Fischer, and Geneml continued at 7% throughout this period. Grand Union In I9DIS, the Grand "Cnion stores in the market areas involved in this proceeding were served by Continental, Fischer, Ward, and General. These bakers a11 supplied the Grand "Cnion stores with full lines of baked products \which sold at the same wholesale list prices and ')'ere resold by Grand Union at the same retail prices. 'Ward was the major supplier, and served a11 of the Grand Union stores in J\T ow York and ew Jersey that were served by Continental. Fischer also served all of the Grand Union stores in the 1' ew Jersey 157 See Roth, Tr. 2307, 2308-09, 2311, 2315. 151 See Roth, Tr. 2307-08, 2313; Hefm, Tr. 2183-84; Roth, Tr. 2327-28. 2308- 2314, 2324.

159 See Helm, Tr. 2178- , 2230-31; Roth, Tr. 2306- , 2321-22; Helm. Tr. 2177-78;Rott" Tr, 2310-11; Helm, Tr. 2180- , 2183; Roth, Tr. 2313. 100 See Heim, Tr. 2181- , 2205-06; Roth. Tr. 2312. Initial Decision 63 F.

area. Continental m,s the second largest baker in the Grand Union stores, being substantially smaller than IVard, slightly larger than Fischer, and larger than General. IVard was also supplying Grand " 161 union s private label bread- Fresh Bake. In 1955, IVard Baking Company offered a discount to Grand Union. The ,Yard discount, given in an effort to increase sales to Grand Union, was 5') on total purchases from IVard of any store which bought over $50 per week of ",Vard products. Grand Union was not required to provide any promotional services to obtain this discount and an of the Grand L union stores "'ere at that time purchasing over $,")0 per \\' eek from 'Yard, as they were fr01n Continental. After lYnrd granted its discount to Grand Union, it was given the prefelted position on the Grand Union bread racks, next to the private label bread. Continental's position and space on the Grand Union bread racks sUllered and ,VareFs sales increased while Continental's 162 sales climinished.

Becau e of Contincntars c1eteriol'atjng position in the Grand Union stores, Frederick lIIcIGnllol1 , then ew York Regional Sales )Janager for Continental, ealled on James Litehhult, the bakery Sales ianagel' of Grand Union s X ew York rcgion and the person responsible lor selecting its bread suppliers. During the ensuing conversations :lir. Litchhult initiated discuosion of the possibility of Continental giving Grand Union a discount. He told )Ir. :MeIGnnon that ContinentaFs sales ,were suffering in the Grand Union stores because Grand "Cnion ,nts fa,voring bakers that gave discounts, and that, unless Cont.inental met the. prices of these bakers, its sales to Grand Union woule! in al1 probllbility cease completely. :Ill'. Litchhnlt testified that he tolcll\r. IcKinnon that he was receiving a 5') discount from IVard. McKinnon recalled that Lir.chult identified General ,me! Fischer, as well as IVard, as bakers giving Grand Union 5') discounts. 163 From his talks ,,-ith :lir. Litchhult, it became obvious to Mr. Mc- Kinnon that Continental could not hold its business with Grand Lnion unless it met the competitive prices and he finally agreed to do SO.l64 161 See Litchhult, Tr. 2019-20; McKinnon, Tr. 1924-25, 1936, 1958; Lltchhult. Tr. 2018, 2024; McKinnon, Tr. 1925-26; Lltchhult, Tr. 2038-39, 2042; McKinnon, Tr. 1932 1958 ; Litchhult, Tr. 2018.

1M See Litchhult, Tr. 2019- , 2037- , 2049, 2026-27; ::cKinnon, Tr. 1928-29; Litcbhult, Tr. 2022.

1!1 See McKinnon. Tr. 1923- , 1926; Litchbult, Tr. 2016- , 2019, 2022; McKinnon, Tr. 1927, 1941; Litcbhult, Tr. 2022 , 2024; McKinDon, Tr. 1926-27, 1936. 1M See McKinnon, Tr. 1928 ; Litchhult, Tr. 2021. CO:\Trine:\'l' AL BAKING en. 2133 2071 Initial Decis-ion Both the discount given by Continental to Grand Union and the earlier discount giyell that customer by \tV ard continued in effect at 5% eluring the entire period in question. 16a G'UClrantee ill eat Markets oj Paterson In 1956, an four Guarantee :lIeat Markets were purchasing fun lines of bread products from Fischer, IVard, General, American GonIon, and Continental. These bakers had been serving the Gua:;:antee "'least larkets since at least 1942. The list prices charged by these bakers ,were the same for comparable products.166 The Guarantee Threat )'larkets were, in 1956, receiving discounts from Fischer, ward, and General. Ir. Scheraga, in charge of grocery buying for that chain, had obtained discounts from these bakers as it came to his attenti on that they were granting discounts. He first heard that discounts were available from the Fischer Baking Company and upon demand was able to obtain a 5% discount. This occurred approximately five or six years before he obtained a discount from Continental. \Vhen ::Ir. Scheraga, heard tha,t 'Val'd and Ge,neral were giving discounts he approached them, informed them th,tt. Fischer was giving him a discount, and demanded one from them. These discounts \ycre granted in the amount of 5% on all purchases and were also given before he obtained a discount from Continental. 167 In 19. , when Nil'. Scheraga heard that Continental was granting discounts to meet competition, he approached Continental and demanded one for Guarantee. Mr. Scheraga felt that because of his volume of business he was entitled to a discount from Continental. Ir. Schera.ga, obtained a 5% discount from Continental after telling Continental that he \vas getting 50/0 discounts from Continental' competit.ors.lob The earlier discounts from competitors and the Continental discount all continued at 5% through the period in question. lG9 Heritage Dairies Continental began to serve the first Heritage Dairy store when it opened in 1957. That store was also served by the Sanitary Baking Company, which supplied Heritage with white brea.d and specialty bread at lower list prices tlmn those charged by Continental."" 161 See Litcbbu1t, Tr. 2024-25.

le. See Scberaga, 'rr. 1721- , 1727- , 1739, 1721-22. 1e-, See Scberaga, Tr. 1724-25, 1727, 1740, 1715, 1724-25, 1728, 1735 , 1739, 1HO, 1728, 1731- , 1736.

188 See Scheraga, Tr. 1741-42, 1724-25, 1740, 1742, 161 See Scberaga, Tr. 1726, 174G.

)70 See Heritage, Tr. 2444-45; Zaveckas, Tr. 2G65. 780-0.18-69-'185 , 2134 FEDERAL TRADE COMMISSIOK DECISIO Initial Decision G3 F.

,Yhcn Heritage s opened a second store in :March 1958, Frank ZttVcclws, of Cont.inental, approached :Mr. Heritage and sought authorization to serve it. This authorization was not given, hmyever and when the store opened Ir. Heritage bought exclusively from the 20th Century Baking Company, taking a fun line of that baker products. I-Ie gave t\'"O reasons for doing this: First, the location of the second store was such as to make it desirable to carry a lower price bread like 20th Century and, second, the exclusion of Continental gave him leverage to pressure that company for a discount. 11r. Zavcclms was told by :Mr. J-Ieritage that he knew that discounts 50/0 discount ere available a,ud that unless Continental gave him a he \\ould not ana\\ them to serve this second store. 'When Continental did not agree to grant the discount, :Mr. Herita.ge turned the matter over to a 1\11'. Frank Deluca whom he had retained as an advisor to make arrangements w"ith suppliers to the second Heritage store. 171 lr. Zuyeckas discllssed serving the second I-Ieritage store with :Mr. Deluca, who had been a supermarket owner. 1\11'. Deluca reiterated Heritage s demand for a discount and told Zaveckas that he would be able to obtain one from ,Vard. While :Mr. Deluca was operating his mvn Supc1111arket, he had been a Contincntal customer and had demanded a discount from "'Ir. Zaveckas and told him that he was then receiving one irom "'Yard. 1\lr. Zaveckas had refused to meet this discount on this occasion and ylr. Dcluca had therefore drastieally reduced his purchases from Continental. lr. Zaveckas was a\ytll' from dealing with other customers in the sa,mc area, that 'Yard was offering 5% discounts. About two or three weeks after the second :Heritage st.ore opened, )lr. Zaveckrts 8upitulated, thc discount ",'as given, and Continental \Vas al1myecl to serve this second store. 172 In addition to meeting the threatened discount from 'Vard Ba.king Company, Continental was confronted with a situation whcrc both the I-Ieritage stores were buying a line of bread products at Imver \vholesale prices and selling them at lo"\ver retail prices than those of Continental products. The first I-Ieritage Dairy was served by the Sanitary Baking Company. That baker produced a white loaf of bread which retailed at 15 as eomparcd with 25 for the comparable Continental product. The respective products were sold on thc I-Iel'itage shelves in direct competit.ion for the consumer s dollar. In the See Heritage, Tr. 2445-46, 2448, 2450, 2452. 2472- , 2449- , 2457-.58: Zavec!;lls. Tr. 2566-08.

m See Zaveckas, Tr. 2570- , 2576-77; ex 93 A-B; Heritage, Tr. 2447, 2452-53. CONTI TOTAL BAKING CO. 2135 2071 Initiai Decision second IIeritllge Dairy, Heritage purchased baked goods from the 20t.h Century Baking Company at lower wholesale prices for resa.1 at lower retail prices than Cont.inental products. For exa.mple, a loaf of 20th Century bread sold at 5" less than a loaf of comparable Continental bread. The fact that 20th Century bread products were competitive with Continentars is dcmonstrated by the fact that IICl'it age proposed initially to stock only the 20th Century line in his seconu clairy store. Thus, the Continental discount, which amounted to but. about 1 : per Im-d, was not only no greater than the discount a,yaihble from 'VanI but was necessary t.o lessen the diffcrential bet-\veen Continental s prices and those of Sanitary Baking and 20th Century.l.3 As IIeTitagc opened new stores, Coniinentttl began to serve those stores, as did 20th Century. The Continental discount of 5% has continued -in effect in the IIeritage stores and the list prices of 20th Century products have continued to be greater than 5% below the 174 Est prices of comparable Continental p1'oducts. King s Supe1'markets Beginning in 1948, both Julius Heim and Charles Struble, the latter the Sales )fanager for Continental's ew York region, called on J(ing s Supermarkets in an effort to sell Continental products to those stores. At that time the King s markets )\'cre purchasing full lines of bread products from ,V"rd, Bond, Fischer, and :'BC. The Continental salesmen were unsuccessful in this effort. 2\1:1'. l\Iax Atlas the grocery buyer for King s until his death in 1960, to1c MI'. Struble that he would not purchase ContinentaFs merchandise without a dis count. Mr. Struble WJlS "lso told by Mr. Atbs th"t those bakers then serving IGng s were giving discounts,175 By 1955 Continent"l was selling one of its white bread products to the lCing s stores. Sometimes thereafter I(ing s agreed to accept a full line of ContinentJll products on condition that Continental meet the discounts of its competitors. A discount of 5% was negotiated by :Ill'. Struble, of Continent"J, "nd Mr. Atlas, of King s. The only King s employee 1"ho might have been familiar with the negotiation other than Mr. Atlas, ,,,ho is deceJlsed, was " Mr. IIilenbrand, no longer with King s markets and whose present whereabouts are linknown.

Fischer Baking Company, one of the bakers mentioned by Max Atlas a.s giving )\:ing s a discount w"s the principJll supplier of 1'03 See ZaveckaR , Tr. 257\1-80; Heritage, Tr. 2447-48; 2453-54; Zaveckas, Tr. 2574. m See Heritage, Tr. 2473-74; Zaveekas, Tr. 2583. 175 See Heim, Tr. 2191; BiIdner, 2272; Struble, 2405-08. 17'" See StrubJe, Tr. 2408-10; BiIdner, Tr. 2272. . , . Initial Decision 63 F.

baked goods to those stores and served the entire area within which the King s markets ".ere located in 1955. Mr. Struble was advised that the Fischer discount and the other discounts in effect when Continental gave its discount extended to their full lines of products. 1i7 Even after acceding to King s demand for a disc-aunt, Continental was allowed to serve but six of their ten storesya It is claimed tlult King s representatives involved in negotiation of this discount were not available to testify, and ICing s records are not available for any period earlier than July 1957. Those records indicate that in July 1957, King s was purchasing full lines of , I\:oesterbread products from General, Fischer, "'Yard, American and Continental. King s paid the same list price to all of these bakers for comparable products. In July 1957, and throughout the period involved here, IGng s was receiving a discount from all of these bakers. Fischer and General were giving King s a discount of 7%; Continental and the others gave discounts of 5%. Alan BiJdner and possessing the authorityGeneral :l\manager of King s markets, to terminate purchases from any supplier, testified that had Contin- Kingental or any other bread supplier withdrawn its discount, would have ceased purchasing from them. 17J Mayfair The Quality Market of New Brunswick and the Kenilworth Superweremarket, members of the Twin Counties buying cooperative, the original st.ores in the chain which came to be known as :Mayfair Supermarkets. Their General Manager was ::Ir. Stanley Kaufelt. The name lIIoyfair Supermarkets was adopted in 1958 when six stores purchased from the King Supermarkets were added to the original two stores. led Since 1950, an of the stores operated by 111'. Kaufelt have purchased fun lines of baked products from General, Fischer Ward Continental, XBC, Gordon, and Gourmet. These stores have paid all of their suppliers of advertised brand breads the same list prices. The price of Gourmet, a private label brand, is lower than that of advertised brand breads.''' Before the Qualitv and Kenilworth stores received an discounts Continental was the largest seder in both stores. Ward and Bond 17 Struble, Tr. 2410-11. 2414, 2440-41. Respondent's Exhibit G, prepared In the ordinary course of business in connection with the discount negotiated by Mr. Struble with KIng s, records Continental's understanding that the discount was necessary in order . . to meet competitors offer - - Struble, Tr. 2409-10. 17a See Struble, Tr. 2415-16.

171 See BUdner. Tr. 2261)- . 2273- , 2278. 2283 , 228 lA( See Kaufelt, Tr. 1749; llelm, Tr. 2155, 2164; Kaufelt, Tr. 1772-73. m See Kaufelt, Tr. 1758- , 1774.

CONTINENTAL BAKING CO. 2137 2071 Initial Decision were second and third, each se1Jng about $500 a week to each store. Fischer was last. Fischer was the first baker t.o give a discount to the Kaufelt stores, offering a 5 % discount to get a better position. Thereafter, Fischer was featured and given additional space. Ward and General followed Fischer, giving an equivalent discount. The additional shelf space granted Fischer because of the discount enabled that baker to move from fourth position to first position, replacing Continental, in the Kaufelt stores. Ward and General also improved their posibons and Continental dropped to fourth place in the Kaufelt stores.

In 1953, :Mr. Kaufelt, who as General Manager was responsible for the procurement of grocery products in the Kenilworth and Quality stores, had several discussions with Julius Heim, of Continental, regarding a discount. Mr. Kal1felt told Mr. Heim that other suppliers - among them Fischer, 1Vard and General were giving his stores a 5% discount. Mr. Kaufelt also told Mr. Heim that unless Continenta.l met these competitive prices he would discontinue purchases. Initially, Continent.al refused to give 1\1r. ICaufelt a disc-aunt, stating that it was contrary to company policy. J\fr. l(aufelt then began to cut down on his purchases from Continental This contributed furt.her to Contine,ntal's loss of position in the Quality and Kenilworth stores. Under this pressure Continental finany yielded to :Ill'. Kaufelts demands and granted a 5 discount. Even 'after this discount was granted Continental never regained the position it had enjoyed before the other bakers serving the Kaufelt stores began to discount. 183 The discount granted by Continental stayed in effect in the Mayfair Supennarkcts throughout the period at issue here. The discounts wl1ich were in effect when Continental granted its discount also stayed in effect through that time. All of tlh m remained at 5 % and ' ere extended to the l\T atiol1aJ Stores when they were acquired by Mayfair in 1959. 18' JI1Jtual S1Jper jJ1 w'lcets In 195B, the store which became the original store in the :\lutU:ll Super !\lat .;t chain 'vas a part of the J\Tational Stores ch11in. In ID55\ the two owners of tha;t store split off from the National Stores partnersJ1ipanc1 founded the ll1tl1al chain. The See Kallfelt, Tr. 1770, 1777; Helm, Tr. 2155-56; R.9ufelt, Tr. 1769- , 1778- 1761 , 1765-66, 1768, 1771-72, 1769, 1778-83; Heim, Tr. 2157. lss See Kaufelt, Tr. 1750, 1753, 1762; Helm, Tr. 2155; Kaufelt, Tr. 1762-65; Helm Tr. 2160-61; Kaufelt, Tr. 1777-78; Helm, Tr. 2156, 2158; Raufelt, Tr. 1778-83; Helm,Tr. 2159-60. lM See Kaufelt, Tr. 1764-65.

Initial Deci ion 03 F.

discount which had been negotiated in 1953 by Continental with 3f1'. George George, of the N'atianal chain, was continued when this store became the Mutmd Super :lIarket. The discounts of the other bakers which had been gmnted to this store as one of the K ational Stores continued also when it became a :J\utual store. 185 From 1955 to 1960, the Mutual stores bought full lines of baked products from Bond, Fischer, Taystee, NBC, and Continental. These bakers had the same list prices for comparable products and their products sold 'at identical retail prices.186 In 1 D55, the 1,futual cJ1ain opened its second store in W oodbric1ge K ow .r ersey. Leonard Silyerman, :ifutual's Vice President in cha.rge of store operations and responsible for selecting its bread suppliers called in al1 of the bakers who had been serving the original yIutual store and told them that in order to serve the se,c.ond JUutual store they vmuld have to extend their discounts to their sales to that store. Ir. Silvcrman called the Fischer represcntati vo in first because that. baker was then his largest supplier. Fischcr ""as at iLsked Fischcr for a 70/0that time giving a 5% discount. Silverman discount., \which Fischel" refused. In an effort to coerce a higher discount: ::fr. SilYE'rrmm cut down on his purchases from Fischer for three or fOllr \1eeks, but the Fischer discount rcma.ined at 5 %. After Fischer and some others had coneluc1ed arrange,ments for serving the second lutual store, Silverman called in t11C Continental repre- , a.nd BC had .agreed tosentative and told him that Fischer, Bond second Iutua.l mflrket.give J1utllal a 5% discount on sales to the Silverman told the Continental representative that in order t.o serve the second Mutual nmrket Continental would have to meet these competitive offers. In 1960, J\Ir. Silverman asked Continental for a 7% discount but ,vas rcfused. 187 From 1955 through 1960, the Mutual1 stores received a 5% discount on their purchases from aU of their.r major bread suppliers. This was a necessary condition of doi.ng business in these stores and J\lutua.l woulel have discontinued any bread supplier that discontinued its discount.

National Stotes In 1953, the major bakers serving the Xational Stores were'Vard General, Fischer Iillbrook, Gordon, .American, 'flnd Continental. 1M See George, Tr. 1797- 99; Helm, Tr, 2165-66; Silverman, Tr. 2339: Helm, Tr. 2170 2209- , 2171; Silverman, Tr. 2334.

J8 See Silverman, Tr, 2332-33, 197 See Silverman, Tr. 2330-31, 2341, 2335, 2342, 2344, 2350, 2346, 2335-36, 158 See SUverman, Tr. 2333, 2336.

, .

COXTINg TAL BAKING 00. 2139 2071 Initial Deci ion Al1 of these bakers served the National Stores with a fun line of bread products, and charged the same Jist prices for comparable products. General, Fischer, lIil1brook, and "Ward served an of the National Stores, and Gordon and American served al1 but the Trenton store. Fischcr was the largest seller in the National Stores, "\Vard was second, General third, and Continental, Mi1brook and Gordon tied for a poor fourth. At one time Continental had been among the leading bakers in the National Stores, ,but after the other bakers began discounting, Continental lost space and consequently lost volume. 1S9 By 1952 or 1953, the only bakers serving the National Stores with rulllines of bread products and not giving discounts were Continental and American Baking. Among those giving discounts were Fischer Ward, General, NBC, and Gordon. Some of the discounts had been in existence since before 1950, and an were in the amount of 5%. 190 In 1952 or 1953 lr. George George, then Gene-ral Manager and responsible ror purchasing grocery items for the J\ ational Stores asked Continental to meet the discounts of its competitors. His request was refused and he was told that, as a matter or company policy, Continental did not give discounts. Somctime later, :Mr. George contacted Julius Heim, the Continental sales representntive and renewed his demands for a 5% discount. Mr. George told 11r. :Hciff that it would be "advantageous" for Continental to extend hhn a discount, for if they refm!ed he Yfould discontinue purchases by the National Stores. During these discussions, 1\11'. George informed Mr. IIeim that the other bakers then serving him were giving him a dis- 191count of 5 % .

After first being refllseda discount, the X ational Stores cnt down on their purchases 'Of Contincntal products. The store managers would wait until the Continental salesman arrived in the morning, and they then would tell the salesman to leave substantially less bread than the custoDlflry amount. Thjs pressure, couplcd with the renewed threats by M::r. Ge,orge to discontinue completely pure.hases from Continental, finally resulted in his being granted a 5% discount. (J2 The granting 'Of a discount from list prices became a nee.essary prerequisite to a wholesale baker s doing business with the National :&'9 See George, Tr. 1796, 1810, 1818; Helm, Tr. 2211; George, Tr. 1810, 1820, 1824-26; Heim, Tr. 2167-68.

o See George, Tr. 1802, 1S12, J811, lS21- . J 829- , 1800-01. m See George, Tr. 1789- 91, J801 , 17fj9-1800, 1802-03, 1812; Helm, Tr. 2165; George, Tr. 1800, 1802- , 1831-32; TIcim, Tr. 2166-67; George, Tr. 1804 , Helm, Tr. 2166-67. See Hefm, Tr. 2167-68, 2216-17.

2140 FEDERAL TRADE COMMISSIO DECISIONS Initial Dedsion 63 P.

Stores. Mr. George discontinued his purchases from American Baking Company because of its refusal to grant him a discount. In 1957, a11 of the discounts given to the K"tional Stores by wholesale bakers of br"nd breads incre"sed to 7%. Fischer, Ward, and General were the first bakers to increase their discounts, "nd the Gordon discount increased shortly thereafter. In bet, Mr. George testified th"t, with the exception of Continental and American, a11 of the major bakers were "pretty easy as fa.r as discounts were eODeerned. Several weeks after these discounts went into effect, Mr. George again "pproached Julius Heim "nd asked for a comparable increase from the Continental Baking- Company. Yir. George told Mr. Heim that Fischer, General, and "lVard had increased their discounts to 7%, and that unless Continental increased theirs to that amount, he would discontinue purcha.ses. Continental again refused to accede to these demands and Mr. George cut down drastically on his purchases from Continental in the Elizabeth, New Jersey National store. This pressure, and the constant threats to stop purchases from Continental, finally resulted in Continental's granting the additional 2%. Continental was the last major baker to increase its discount to the National Stores to 7%. At a later date, the Paterson Bakery :Manager, Oscar Testa, approached 111' George in an effort to reduce Continental' s discount. Mr. George told Mr. Testa that if Continental cut its discount back to 5%, he would throw them out of his stores. 194 The discount given by Continental to the X ational Grocery Stores remained in effect. until those stores were sold to the layfair Super. markets. The discounts given by Continental's competitors also remained in effect until that time.19s Pied Piper Supermarkets Continental has been serving the Pied Piper Supermarkets with a fu1lline of baked products since at least 1949. In 1953, Mr. Samuel vV"ld, owner of the Pied Piper Supermarkets, called :lit. Lynch, of Continental, and demanded a 5% discount. Mr. vVald, a member of the Twin Counties buying cooperative, told Mr. Lynch that "lVard General NBC and American-the other major bakers serving the Pied Piper stores at that time-were giving him a discount and that unless Continental met this he would discontinue his purchases. Because at this time Continental was allowing no discounts, Mr. Lyneh 1IS See George, Tr. 1806-07, 1812, 1814.

See George, Tr. 1803.

lim See George, Tr. 1815-16, 1822, 1804, 1805, 1818, 1830, 1832; Helm, Tr. 2207-09, 2171-73; George, Tr. 1803- , 1829-30; Testa, Tr. 607-08. See George. Tr. 1803.

, p.

CONTINEl\TOTAL BAKE\G 00. 2141 2071 Initial Decision refused :Mr. vVald's demand. Mr. 1Vald immediately changed Continental's position on the bread racks in his stores and reduced his purchases from Continental by one-half. Before Mr. vVald began to exert this pressure to exact a discount, Continental had been the second largest baker in the Pied Piper stores. His action resulted in Continental's decline to the fourth baker ,oM in his stores. Mr. vVald renewed his demands for a discount and again threatened to discontinue completely his purchases from Continental, reiterating to Mr. Lynch that he was receiving discounts of 5% from Continental's competitors. when Continental continued to refuse, Pied Piper purchases from Continental ceased completely. Approximately three weeks to a month thereafter, Continental's absolute ban on discounts was relaxed and Mr. Lyneh was able to offer a 5 % discount to Mr. vVaJd to meet the competitive discounts. Mr. 1Vald then resumed purchasing from Continental, but Continental's sales to the Pied Piper stores never returned to the former volume. 19GB The discount given Pied Piper by Continental continued at 5% throughout the period involved here, as did the discounts granted career by competitors. Subsequent checks by sir. Lynch with JlIT. ,Va.ld revealed that these competitive discounts continued at 5%. 191 Safeway Prior to May of 1957, the Xew York Division of Safeway Stores had authorized its individual stores to purchase bakery products from Continental, General, Gordon, 1Vard, Harrison, Messing, and dozens of small local bakeries mostly baking It.alian and Jewish products" The list prices of these bakers were the same for comparable products. Continental had been serving the New York Division of Safeway for several years. Gordon was Safeway s largest sup peer of bread. On at least two occasions, in order to promote the sale of its self-produced private label bread, Saleway had ceased purchasing from a11 of its outside suppEers except Gordon and the small bakeries supplying special.lty items.198 In May 1957, the Division Manager of the New York Division of the Safeway Stores, :Ill'. vVeymer, informed the Division supply Manager, Mr. A. ,T. Davis, that Safeway Stores would accept discounts which met with the approval of the corporation s legal department. Prior to this time Safeway Stores had refused discounts. For example, Safeway did not accept a discount offered by Harrison prior to 1957.

19l'! See Lynch, TT. 1966-67, 1965, 1975, 2004. 19B See Lynch, Tr. 1996, 1971, 1968-69.

11 See Lynch, Tr. 1969-70, 2002-03.

IPS See Depos1ton of A. J. Davis, RX 1 4; RX 7, p. 20, PP. 6, 13-14. 19 RX 1, pp. 7, 8, 9.

, . , 2142 FEDERAL TRADE COM1vIISSIO!-T DECISI01\ Initial Decision 63 F.

After being informed of the change in Safcway s policy, J\fr. Davis contacted his major suppliers regarding discounts. This initial contact was followed by a letter to a11 the bakers supplying Safe,,-ay. One of the first to offer a discount Ward, conditioned its offer on the right to establish a special display and preferred position for 'Yard products, and would extend a discount only to Safeway Stores purchasing above a certain minimum. For this reason Safeway refused ,Yard's offer. Gordon, its largest supplier offered Safeway n 5% discount, yrhich ,ras approved by the Sa-icway legal department. This discount went into effect on Jnne 10 , 1957. General next 'Offered a similarly acceptable discount in the same amount which went into effect ou June 24 or 25 , 1957. Harrison and Iessing also offered discounts \\-which Safeway acccptcd.200 ,VJ18n first approached for a discount, Continental did not respond with an immediate over. Rather, Continental asked for informa tion about competitive discounts. Davis acknowledged that Continental's competitors were giving discounts, although he refused to specify names or amounts. The Continental represcntati\Te in. valved, l\Ir. Timbcrrnftn knees that 5 % ,,-as the prevai)ing discount granted by competitors. A discount of 59' ,Yas fiually offered by Con6nental and accepted in Xovember of 1957 by Sa.:away '011 the explicit understanding that the discount was necessary to meet competition.

In February 1958 Ward renewed its overtures to Safeway and offered a flat 59' discount on al1 bread and cake purchases. Thereafter, Safeway received a 5 % discount on the items purchased from V ard. 202 Scotch Plains Shop-Rite In the early 1950' , Continental was serving the Scotch Plains Shop-Rite. Continental was the second-ranking baker in this store. Fischer was first, General third, and XBC fourth. In 1953 , c\fr. Herbert Brody, owner of the Scotch Plains Shop-Rite, got in touch with Jerry Lynch, of Continental Baking Company, and asked for a discount. :\lr. Brody told Mr. Lynch that Fischer, General, and NBC ,-rere giving him discounts of 5 % and tllat unless Contine,ntaI met these competitive prices he would discontinue his purchases from Continental. fr. Lynch 203A refused a discount to Scotch Plains at this time and lr. Brody discontinued his purchases from Continental. 1\11'. Lynch 'a, s informed that Continental's sales to oo RX 1 , pp. S, 9, 19- . 28, 31; ex 249; RX 1 , pp. 10. 33-34. 40- , 9. 2J RX 1 , pp. 10, 11 ; Timberman, Tr. 764 , 765. = ex 250; Sjddcrs. Tr. 2661 2666.

A. See Lynch, Tr. 1970- , 1974; Brody, Tr. 2259- , 2293; Lynch, Tr. 2011-13. CONTIKENTAL BAKING CO. 2143 2071 Initial D€cision this store were being discontinued because of the refusal to grant the requested discount. 203B A short time after Mr. Brody discontinued his purchases from Continental, Continental began to grant discounts where necessary to meet competition. Mr. Lynch told Mr. Brody that Continental was prepared to meet his demands for 5%, but Mr. Brody refused to resume purchasing because Continental had deb.yed too long. In about 1955 or 1956, the Scotch Plains Shop-Rite was purchasing a ful111ne of bread products from Fischer, General, and NBC. The purchases from Fiseher included Hollywood Bread, a product competitive with Continental's Profie Bread. A11 of these bakers were giving Scotch Plains a minimum discount of 50/0 on all products purchased, including Fischer s Hollywood Bread. At about this 6mc Continental made a renewed effort to resume its sales to this store. :Mr. Brody reiterated his demands for a discount, asking first for 10%. The Continental representative was told that the bakers sllpplying this store-Fischer, Genera.l, and XBC-were giving Scotch Plains a 5% discount. :Ill'. Brody eventlm11y settled for a 5% discount and accppted a limited line of products from Contine,ntal confining his purchases to Profilcand Daffodil Farms 'Vhite Bread. To this clay, Continental has been unable to sell its fu1111ne of bread to the Scotch Plains Shop-Rite.

T11e c1iscomlt received from Continental continued at 5 %, as did t.he discounts from Continentars competitors. Ir. Lynch, of Continental, was kept a,,"are of the fact this his competitors continued their discounts to Scotch Plains Shop-Rite. Sic1eel' s M arlcet The Sickel's Market in 1Voodbury, New Jersey, from its opening in 1954, was served with fu11lines of bread products by General, Fischer, Friehofer, Parkw lY, and Continental, all of whom charged the same Jist prices for comparable products. During 1955 , Sickel's discontinued purchasing from General, Friehofer, and Parkway, because they WOUJd not give him discounts -and also because of poor service.

In Jnne 1 D55 Fischer, then the leading baker in the Sickel's larket, gt1,VC SickeFs a 10% discount. At that same time" "'Yard gave Sickel's a 5% discount. These discounts both applied to the fu1111ne o:m S.ee Brof1y, 'lr.2302: Lyncb, Tr. 1972, 2004. 20 See L nrb . Tr. 1973-74.

E05 See Brody, Tr. 2290-92, 2294-95; L;YDCh, Tr. 1972; Brody, Tr. 2305-06, 2291-92; Lyncb, Tr. 1974, Brod . 'l' r. 2302.

"' See Lynch, Tr. 2003; Brody, Tr. 2292-93. :.7 See Sickel, Tr. 24.7, 2479; Zaveckas, Tr. 2577-78; SlckeJ, Tr. 2499. , 2144 FEDERAL TRADE COMMISSION DECISIQXS Initial Dccision 63 F.

of bread items Sickel's was purchasing from each of these suppliers and they continued in effect after 1955. The Ward discount of 5 was not dependent upon any minimum amount of purchases by Sickel's and, though termed a "promotional allowance, Sickel's was not in fact required to do anything in the way of promoting ''\ard' products. The only difference between W ard'sand his other discounts was that Sickel's had to sign a written agreement. In 1956, Mr. Sickel ealled Frank Zaveckas, of Continental, to his store and demanded a 5% discount. Mr. Sickel told Mr. Zaveckas that Fischer was giving him a 10% discount and Ward a 5% discount and that Continental would have to equal the 'Ward discount or be thrown out of his store. Faced with this ultimatum, Continental granted the dcmanded discount.209 Continental, Fischer, and 'Ward continued to serve the Sickel's Market through the period in question here, and the discounts given by these bakers stayed in effect through that time. Though Mr. Sickel has tried, he has not been able to get Continental to increase its discount to more than 5%. Friehofer, since they were discontinued, has offered a discount to Mr. Sickel if he would take them back in his store, but Mr. Sickel has refused to do so. Trunz In 1958, there were 69 Trunz stores. Most of these stores carried only one brand of bread, although some of the larger stores carried two brands. About 90% of the Trunz stores were served by Continental; General, Gordon, and/or American served the remaining stores. The list prices charged by these bakers were the same for comparable items. All of these bakers were capable of serving all of the Trunz markets. 211 About a year or so after 1956, when he had assumed responsibility for t.he retail operations of the Trunz markets, Robert Trunz learned through conversations TIith other grocers of the existence of discounts from some wholesale bakers. He heard specifically that discounts were 'available from General American and Gordon. In several conversations with a General salesman, :ifr. Trunz was informed that General would give him a 5% discount if they were allowed to replace Continental in the Trunz stores Continental served. The General salesman said he had been assured by his superior that Trunz would get the discount if they increased their purchases. Armed with this offer, :llr. Trunz called the Continental representative with ro See Sickel. Tr. 2480-81, 2483, 2489, 2490- , 2493. oo See SIckel, Tr. 2481, 2483, 2485; Zaveckas, Tr. 2578-79. See Sickel, Tr, 2480, 2489- , 2499.

= See Trunz, Tr. 1919 , 1907, 1898-99, 1901. 1000, 1S12. CONTINENTAL BAKIXG CO. 2145 Initial Decision2071 whom he customarily dealt and requested a discount from Continenta1. He told ihis Continental representative that General had offered him a 5% discount if they could replace Continental, that he would prefer continuing to do business with Continentf\l but unless Continental would meet this competitive offer he would discontinue purchasing from them in favor of General. 'When faced with this potential loss of a substantial customer, Continental granted the requested discount in May of 1958.

The discount given by Continental to the Trunz stores continued at 5 % until Trunz stopped buying altogether from Continental and began purchasing from General, which gave Trunz the 5 % discount which that supplier had previously offered, Continental no longer sells in any of the Trnnz markets. American and Gordon, which had paso granted Trnnz a discount, were also eliminated from these stores in favor of General.

Two Guys From Harrson In 1958, the Two Guys From Harrison store in Bordentown, New Jersey, opened a grocery department. It was the second Two Guys store to have such a department. Continental was serving the first Two Guys grocery department, located in the Brunswick, New Jer. sey, store. Edward Kraus, General Manager of the grocery departments of the Two Guys stores, was responsible for the selection of bread suppliers. Mr. Kraus negotiated with Julius Heim and Oscar Testa, of Continental, in connection with Continental's servicing of the Bordentown store. 214 When the Bordentown Two Guys store was about to open Friehofer Fisher, "\Va, , General, Schaible, and Continental contacted Mr. Kraus for authorization to serve that store. The list prices were generally the same for comparable products, except that the prices of Friehofer and Schaible were slightly lower than those of the other major bakers. Because of their lower list prices the white bread of Friehofer and Schaible was retailed at a price slightly lower than the price of the other major bakers. Despite this difference in retail price these brands ,,-ete viewed as products of a quality comparable to the higher-priced brands. 215 Mr, Kraus required a11 bakers he authorized to serve the Bordentown Two Guys store to coutribute $300 each to the furnishing of the bread fixture, He also required that they grant a 5 % discount from 2l See TrUDZ, Tr. 1898 1000 1902- , 1917, 1904, 1906. iib See TruDz, Tr. 1913- , 1918.

IH See Kraus, Tr. 2242-43. 2241; Testa, Tr. 606; Helm, Tr. 2186; Kraus, Tr. 2245. See Helm, Tr. 2187- , 2213-14; Kraus, Tr. 2243-44, 2246- 2249-50. 2146 FEDERAL TRADE CO:\L\IISSIOX DECISIQ:\TS Initial Decision 63 F.'.r. list prices. ,Vhen discussing Continental's being authorized to serve the Bordentown store with :VII'. lIeim and Mr. Testa, Mr. Kraus told them of these conditions and told them further that those bakers he had thus far a.ut.horized to serve that store ha.d agreed to contribute to the cost of the bread stand and had granted a 5 discount. fr. ICraus had, at that time, completed negotiations with all of the other bakers eventuaUy authorized to serve the Bordentown store, Friehofer being the first baker to agree to pay for its share of the bread stand and to give the requisite 5 ro discount. "When it became obv ious t.hat. Continental could not serve this customer without granting the discount and contributing to the cost of the bread stand Continental extended a 5 ro discount and paid $300 for its share of the stand.

Tho discounts given to 1\vo Guys From IIarrison by Continental and its competitors upon the opening of the Bordentown store continued in effect in the Bordentown store and were extended to the other Two Guys stores opened during the period in quest.ion. These discounts all remained at 5%. 217 1V ei88 In 1956, there were three ,Veiss Brothers )farkcts Jocateu in Camden. AU three of those stores were served by Continental, General ,Yard, and Dugan, and two were served by Friehofer. All of these bakers sold a comparable line of bread products to "Weiss and had the same list price. 218 Sometime in 1956, \Veiss was offered and accepted a discount. from Ole ,Vard Baking Company. This discount of 5% was supposedly conditioned on VF ciss' purchasing $50 or more worth of bread and eake. :Mr. ,V"is8 mls uuable to recall whether the $50 was the minimum purchase per store or minimum aggregate purchases for the three \Veiss stores. r-fe docs recall, 1101,ever, that as long a,s this dis- 219count "as in effect, he ne,er failed to qualify for the 5%. The cyidence suggests that the $50 per week minin1um included the combined purchase,s of the three \Veiss stores. This conclusion is reached on the basis of these facts: In 1056, when the Continental elisc01mt was negotiated, each of the "'Vejss stores purcha,sed a total of oe!\Yeen 875 and S100 per "eek from all of its bakers. There were at that time five bakers serving two of the \Y ciss stores and four bakcl's serving the third store, :1\1'. \Ve,iss estimated that Continental's pu1' Z1 See Kraus, 'Ir. 224.; Testa, Tr. 606, 610, 612; Helm. 'Ir. 2189- 90; KI':l1Js, Tr. 2245 2251- , 2254, 2244-4G, 2253; 'Testa, 'II'. 612- 13; Helm, 'II'. 2188; ex 197A- 17 See Helm, Tr. 2188-89; Kraus, Tr. 2247- , 2250-54. 18 See Weiss, Tr, 2503-6; Zaveckas, Tr. 2574-75. m See Weiss, Tr. 2505-07, 2510, 2514-16.

, CONTINEXTAL BAKING CO. 2147 2071 Inital Decision chases of about $25 to $50 per week per store eqnaled his purchases Jrom 1Va.l'd s. lnasrnuch as ,Yard's sa10s were no more than Continental's, and since the total purchases in these stores did not exceed $100, and, since each store was served by a total of 4 or 5 bakers neither ,Yard nor Continental could have sold as much as $50 a week to each of the vVeiss stores. The fact that :lir. 1Veiss never failed to qwdify for the Ward discount leads to the conclusion that the ostensible $50 minimum, if it was observed nt all, applied to the purchases from an of his stores and not each individual store. After December of 1957 Ward' s payments to customers were all flat 5ro discounts. 22o Outer receiving the ward discount, Mr. vVeiss approached Continental, his next largest supplier. He first spoke to the Continental driver-salesman and told him that unless Continental gave him a discount he would cease handling their products. 1\11'. ""V eiss was then contacted by Frank Zaveekas, the Uellmawr Depot :lhnager. Mr. \Veiss repeated his demand for 11 discount from Continenta.1, telling 1\11'. Zaveckas that since he .was receiving a discount froln YVa,rd he ",Toned no longcr purcha.se from any baker ,vho did not meet that J.is count. Il'. "Weiss told :lir. Zaveckas that the ,Vard discount was 570 but made no mention of any $50 per ,veek requirement. Faced with the alternative of losing this custmner, Continental extend.eel a 221 5 % discount to the three \Velss stores. After the Continental discount, both General and Dugan gra.nted discounts on their full Jines of products sold to the vVeiss stores. The General discount was 5 ro and the Dugan discount was 8 ro for all purcha, ses over $25 per week. These discounts, and the ""Vard and Continent.al dis( ounts, remained in cfrcct through the period in question at the amounts originally negotiated. 222 IX. ItESPONDE:'T'S ADVERTISING ALLOWA:'CES TO l\LEET COMPETITION The evidence presented by complaint counsel under COUllt II of the compla,int involved a single transaction wherein Continental paid advertising allowances to Best :L\markets. The following findings set forth the competitive situation that led t.o the advertising arrangeme,nts bet\Y8Cn Continental und this customer. In the early HJ50' , Continental was the weakest baker in the Philadelphia market, wit.h only six or eight routes serving only 3;)0 sLops See W('lss, Tr. 2503- 0(;, 2510; Sldd('!'s, Tr. 2689. m See Wei,;s, Tr. 2507-08, 2511; Zavec!ms, Tr. 2575-77, 2589- 90. See W('lss, Tr . 2508-09.

2148 FEDERAL TRADE CO)'IMISSIO DECISIONS Initial Decision G3 F.

in the total market. Continental's major competitors there \\01'e Fischer, General, \Vard, Frichofer, Fleischmann, and Stroehmann. Arnold ,Vilson, manager from. 1949 to 1957, of Continental's Korristown Bakery, ",which served the Philadelphia market, made several eil'orts to improve Continental' s position. lie approached several chains in the area but they al1 insisted that Continental give them a discount. Mr. 'Wilson, because of company policy, was unable to do so. 1\11'. 1Vilson also investigated the possibility of advertising in order to create demand for Continental's products in the Philadelphia 1lttrket, but the rates in the major newspapers and television stations serving the area were prohibitive in view of Continental's very small sales in that market. 223 In 1954, Arnold 'Wilson approached .:Iilton Radler, of Best Markets, in an effort to begiIl selling to that chain in the area. set\ ed Continental's Norristown Bakery. Best J\iarkets was at the time buying from Continental in New Jersey. Mr. Radler told Mr. "lVilson that General, Fischer, Friehofer, and Stroehmann were paying Best l\Iarkets 10ro and participating in cooperative advertising arrangements with them, and, that to sen t.o Best :Markets, Continental \\ould have to agree to a similar arrangement. After negotiating with fr. Radler for a period of six months, Mr. 'Wilson concluded an arrangement. ",hereby Cont.inental ",ould pay $10 000 a year to Best Market.s, and Best Markets undertook to advertise Continental's products through storecasts, handbills, newspapers, and on the metropolitan bus line. The $10 000 payment was estimated to equal 10ro what. Continental would sell Best Markets during the first year. Bemuse Best AIarkets promised Continental space equal to the space held by other bakers in their stores, and bec,mse Best Markets promised intensive a.advertising of Continental's products, J\1:r. 1Vilson estimated that Continental could sell at least $100 000 worth of its prodmats to Best Markets in that first year. Mr. 'Wilson also investigated the actual cost of the advertising which Best Markets promised to do and concluded that Continental could not do this advertising on its own for an equivalent sum of money. 224 The payment from Continental to Best Markets was based of necessit.y on estimated pot.ential sales to those stores, for Best had no obligation to purchase any fixed amount from Continental. Further Continental was merely a110wcd to entcr into competition with those bakers already serving Best, since Best did not eliminate any suppliers on Continental' 8 entry. 225 .11 See Wilson, Tr. 2520- , 2541.

= See Wilson, Tr. 2524-27, 2529, 2531-32; RX 2 , p. 24, 2541-42, 2545-46, 2553-54. 2. See Wilson, Tr. 2545, 2554; Depositon of Theodore Zalles, RX 2 , pp; 14 , 33. , CONTIKEKTAL BAKI G CO. 2149 207' Initial Decision Theodore Zalles, then advertising director for Best :lIarkets, stated that aii the bakers supplying Best before 1955, were in fact paying advertising allowances, the average rate of which was 10% of their sales to Best. The services rendered by Best to each of these bakers were valued under a set scale of rates. In this manner equal treat- Inent per dollar paid was assured. :Mr. Zalles mentioned such ar- )'1:r.ntngements with GEneral, \Vard, Stroehmann, and Friehofer. Zalles also stated that entering into a cooperative advertising arrangement \Vas a necessary precedent to ContinentaFs serving Best Markets.

Throughout his tenure as N orristown Bakery manager, Arnold Wilson checked ever') two weeks on Best's performance of its advertising obligation under the contract. Best advertised Continental's products in both the Inq"irer and the B"lletin metropolitan Phil adel phia newspapers, and promotcd Continental's products through handbills, in-store displays, storecasts, and window signs. Best purchased the "d vertising space on the side of a trolley car of the Philadelphia metropolitan transportation system and advertised Continental's products thereon. 2Z7 Mr. "Wilson s successor as orristown Bakery manager, vYilliam Brown, also maintained a continuing check, on Best's performance under the contract. In addition to these observations by Continental' people, Best Markets sent material to Continental indicating the manner in which they were performing their advertising obligations. 228 The $10 000 annual payment to Best Markets was, after Continental' s first year s sales to those stores, less than 10% of those sales. Continental' s sales to the Best lYIarkets continued to improve so that by 1056, the $10 000 payment was less than 5% of its sales. Because Continental's sales were much larger than anticipated, Milton Radler often asked Continental to increase its payments so that they would equal the 100/ being given Best by its other baked goods suppliers a request to which Continental never acceded. The arrangement with Best Markets was renewed in 1957, while \Villiam Brown wa,s manager of the Norristown Bakery. ::11'. Brown WleS to1c by :MI'. ZaJles and :Mr. Isdana, Mr. Radler s successor in charge of purchasing for Best :Markets, that General, vYard, Stroehmann and Friehofer were parties to similar arrangements with Best. Mr. Brown was told that these competitive arrangements = RX 2, pp. 7-8, 10- , 27, 38, 29.

W1 See Wilson, Tr; 2G30-31, 2542; RX 2, pp. 11-12, 16, 19- , 32- , 36. 38. 2:J See Brown l'r. 401 , 413, 431, 433, 478-79; ex lola, 162A, 164A, 165A, 166A, 161A 169A, lila.

:= See Wilson, Tr. 2524-25, 2532-34.

7S0-G1S--69--136 2150 FEDERAL TRADE CO :CISS1ON DECISIONS Initial Decision 63 F.

amounted to from 5% to 10% of sales to Best :lfarkets. In particular he was told that General's allowance ranged from 5% to 8% and "lYard' s equaled 10%. Mr. Brown also was told of Continental' s competitors' deals by Best's field snpervisor.'eo Theodore Za11es testified that the arrangements with General, VV arcl StroehnHl1l1 and Friehofer did ill fact continue in effect in the Best In rkets unt.il those markets ,were acquired by the Food Fair stores in ID58. 231 x. EVIDEKTIARY AND CASE ANALYSIS OF RESPOND- ENT' S J\EETIKG COMPETITION DEFENSE Respondent has established by substantial evidence that each of thc discounts evidenced 'was given in good faith to meet. the equally lo''-\ prices of one or more competitors. The advertising arrange. ment with Best 1:markets: challenged under Count has been shown to have been necessary to meet equivalent arrangements granted by Continental' s competitors.

The Supreme Court has emphasized that Section 2(b) "does not place an impossible burden on sellers. O. v. A.E. Staley 00. 324 r. s. 746, 74D (lD45). It has also announced some basic guides by which the legal suffciency of an asserted defense under Section 2 (b) is to he tested. In Staley, the Court stressed that one asserting a Section 2 (b) defense must come forward with a showing of diligent efforts to learn of facts which would lead a reasonable and prudent person to believe that the granting of a lower price would only meet the equal1Jy low price of a competitor. Of., Automatic Oanteen 00. v. 346 U. S. 61 (1953). In its Standard Oil of Indiana decisions (Standard Oil 00. v. 340 U. S. 231 (1951) and F.T. v. Standard Oil 00. 335 U.S. 396 (1958)), the Court emphasized the requirement that competitive necessity be shown for the challenged discriminations. Continenatl has satisfied these tests. Prior to 1953, when competitive necessity forced Continental to grant its first discounts, in the markets in question, discounting by other ,vholesale bakers was prevalent and was spreading. Fischer Ea,king Company, a, powerful factor in these areas, had established a strong market position through the use of discounts beginning in the late 19:10's. "lVard Baking: Company, a maj or baker of advertised brand breads, had begun discounting in the early 1940' In 1949 , a strike took place in the ew York City area, closing the plants of Continenta.) and some of its major eompetitors. "\Vhi1c these 230 See Brown, Tr. 477K , 478, 488.

23 RX 2, pp. 13-14.

COXTTIEXTAL BAKDIG 00. 2151 20,,1 Initial Decision bakers were shut down, several new bakers entered the market, and those wholesa.1e bakers \\ho .were not struck, STIch as Fischer and Gordon, expanded their sales. Dpon resumption of production, Continental and the other bakers which had been struck found that much of their former volume had been lost to new suppliers. Although Continental refrained from discounting as a method of re-establishing its market position, the record establishes that its competitors be.gan to employ this practice vigorously. As a result, Continental feu from its position as second baker in the market to fourth or fifth 1'1 ace. By the end of 1953, Continental's sales in the New York market had returned only to their 1948 level despite the rapidly expanding market. 232 Because bread is not a product for which there is substantial brand preference, and because the granting of a discount does not result a lO\'-ered resale price l grocer will favor the baker that gives hiln a lower price and thus maximizes his profits. As discounting by its competitors became rampant in the market areas involved, retail grocers began demanding discounts froln Continental and threatening to cut riOlVll or discontinue purchases unless Continental met its competitors' lower prices. These pressures carne from major chains such as Food Fair, from small chains, and from singlt -store operators. For example, the members of the Twin Counties buying cooperative an association of small superularket operators, brought concerted pressure by cutting down or discontinuing purchases in those stores where Continental did its largest volume of business. These highly competitive market conditions might not, standing alone, suffce to justify under Section 2(b) the granting of anyone specific discount. I-Io-wever, the market situation within which Contine.ntal ,yas forced to compete is relevant ill uetermining whether its discounts were givell in good faith. Indeed, the prevalence of COlnpetitive discounts ",vas suc.h that Continental perhaps could have instituted ,, idespread price cuts lawfully in order to protect its position. L1Ldu;ig v. Amei.ican Greetings Oorp. 282 F. 2d 917 (6th Cir. 1960); Balian lee Cream 00. v. Arden Fanns 231 F. 2d 356 , 366 (9th Cir. 1955) ced. denied 350 U.S. 991 (1956); Maryland Baking Co. v. l'. 243 F. 2d 717 , 719 (5th Cir. 1957). See Anheuser Busch, Inc. 54 F. C. 277, 301 (1957), d on other gro1Lnds, 265 F. Qc1 677 (7th Clr. 1959), 1'v 363 U. S. 536 (1960). The evidence establishes, hmn el' , COlltillelltallimited itself to meeting individual "'!: Continental' s experience in the area served by its New Jersey bakeries, which were not struck in 1948 , establishes that the New York strike was not the only CRuse for Continental' s failng ."ales position 1n that marlret. Sales In New Jersey followed a pattern similar to those in New York, declining from 1H49 on and not returning to the 1948 level unti 1953.

2152 FEDERAL TRADE CO L\lISSIO:: DECISIONS Initial Decision 63 F.

competitive situations and to granting discounts in situations of compelling competitive, necessity.

In deciding that Continental had to meet its competitors' prices in order to survive in the markets in question, Continental's management established a rigid policy within which their salesmen were required to act. This policy dictated first that Continental would not offer discounts, but ,,,auld only consider them if demanded by a customer. A further rcquirement ",- as that Continental sales personnel negotiate discounts only when they we.re convinced that the customer was already getting, or had immediately available to him, a discount which resulted in prices equal to or lower than the prices that would result from the discount demanded of Continental."" Finally, the salesmen were instructed not to give discounts unless it was, in their judgment, necessary to do so ill order to continue a profitable volume of business with the customer in question.

As the foregoing suggests, Continental's policy envisioned the granting of discounts only in individual situations, when necessary to meet competition, and not to any particular class of customers nor withill any pre-defined "system of pricing which results in routine and continuing discrimination in fa.vor of a particular group of cuostomers."234 Certain major customers, such as A&P, bought from Continental without discounts. On the other hand, Continental gave IN eissdiscounts to smaller and non-supermarket customers, such as Brothers, Heritage s Dairy and Food- Rama, when competitive necessity required.

The record bears out the rigid adherence of Continental's salesmen to this company policy on meeting competitive discounts. Some customers were quick to volunteer the names of all competitors giving discounts and the amounts involved. Some ,were blatant in asserting that unless Continental met these discounts its bread would be excluded from the grocers' shelves. The record reveals, moreover, that when Continental tested such threats, it frequently found its shelf space reduced or its bread discontinued completely. At times, even after Continental had yielded to the pressure and met the competiti VB prices, it was unable to regain its former position. This occurred, for example, in the Iayfair and Pied Piper supermarkets and in the Scotch Plains Shop-Rite.

= The wholesale bakers of brand breads in the market areas Involved sold comparable products at comparable list prices. 'l' hus, equal discounts resulted in the same net prices.

2S See PUTolatoT Products, Inc., Docket 7850 (Initial Decision, Hearing Examiner Kolb, December 14, 1962).

COKTD1E 'TAL BAKING 00. 2153 2071 Initial Decision The most reliable evidence of a competitive situation that had to be met came, however, from the knowledge and experience of Continental's sales representatives. 'Vhatever the customers ' representations, they had to be verified by Continental personnel from their complete familiarity with the market and their informed analysis of the cust.omers' business conduct.

Yerification of the existence of competitive discounts came from observation of the favored treatment given to those bakers charging lower prices. 235 This favoriti8TI1 includes such t.things as increased s11eH space or a better Tack position. These arc indicia of competitive activity which a trained salesman could understand. As to amounts, Continental sales personnel had, by 1953, and during later years, learned enough about competitive discounts so that the amounts given by each baker 'were gencra.lly known. Some grocers requesting a discount would not overtly threaten Cllt, down or cease their purchases from Continental if their demands "Were refused. At times the determination of whether refusal of the discount would detrimentally affect sales to the demanding customer would have to depend on the salesman s knowledge of prevailing competitive conditions and the customer s characteristics. In an area where there \YRS no significant consumer preference for Continental bread, and when the particular customer was known to be an aggressive business-man, a Continental salesman would be compelled to conclude that failure to meet competitive prices would seriously prejudice Continental's sales position.

But whatever the source or nature of the information relied upon in cieterminjng whether to grant a discount, the record establishes that-before any of the discounts in question were negotiated the Continental salesman had convinced himself that the customer was receiving a discount or that one was il1nediately available to him that such discount resulted in prices equal to or lower than Continental's prices after the discount, and that a discount must bc granted in order to continue to do business with the particular customer. These facts satisfy the test of subjective good faith. The realis6c accuracy of Continental:s salesmen s business judgment is confirmed by the customer testimony in this proceeding. Their conclusions, whether based solely on customer assertions, or on circumstant.ial corroboration and documentation, proved unerringly correct. In every case involved here, Continental was, in fact, meet- :/ The testimony of Mr. Bidders. of Ward Baking Company, establisheB that anyone familar with the bread business can tell, from the way in which a grocer treats h1s bread suppliers which of those suppliers 1s extending favors to the grocer. 2154 FEDERAL TRADE COMMISSION DECISIOXS Initial Dedsion U3 F.

ing its c.ompetitors' discounts and the at least equally low net prices charged by competitors.

Special mention should be. made of the 'Vard Baking Company discounts that Continental had to meet.. From :lIarch 19,,5, through December 1957, 'Vard offered a so-called "promotional allowance. By its terms, this required that a store purchase S50 worth of .Ward' products a week to qualify for the lower price. The record, including the testimony of :1\1'. Sidders, 'Yard' s saies manager, establishes that in many, if not most, instances these "promotional allowances " \were only disguised discounts. Even the written agreements did not purport to require tlHlt the grocer expend any time or effort or funds on ard' s behalf. They specified only that he permit .Ward to conduct a few in-store promotions each year-at times of his choosing. 236 Several of the witnesses testified that they were never called upon by that the.re'Yard to provide any services. 1\11'. Sic1clers acknmylec1gccl \nls no real monitoring of performance under the plan, but only a survey of the customer s sales record. Few, if any, on-the-spot checks were madt . The requirement that a customer s purchases from V\' arel exceed 850 per week per store appears also to have been honored principally in the breach. This ostensible requirement is, in any 8-lent irrelevant here, for none. of the customers in question ever were held not to qualify. At all times they received (1. discount that ma.de the prices paid to ,Yard' s equal to those paid to Continental for comparable products.

The record al\'lndantly documents thc fact that the meeting of competitiY8 discounts became for Continent.al a matter of commercial survival. X at only has Continentars subjective good faith been proven, but the uncontroverted fads meet the objective test of the good faith meeting of competition set out by the Supreme COllrt ill its Standard Oil decisions.

The a.advertising arrangement with Best larkets was also gi,T under' circumstances which must satisfy any reasonable interpretation of Section :2 (b). Although the Commission has acknowledged that the defense of the good faith meeting of competition is available to a charge of the violation of Section 2 (d) of the act, it has not spoken it sitl1atil:ll.to the question of the content. of the defense in such Respondent corrcctly argues that the stanclards applicable llust be BMr. Sidders acknowledged that customers continued to pnrtidpute in slr:h promotions after the plan was withdrawn. proof of the fact that their partidpation duri!:" tllp. plan was not prompted by nor in exr:change for the payments made to them by ,VflerI. m'See Situ/ton, Inc. v. 1962 'Trade Cus. , 1!' 321 (7th Cir. 1962) (T. S. 472J; J. A. Folger and Co. Docket 8094 (Opinion of the Commission, September 18 1962) (61 F. C. 1166, 1184J.

COKTI ENTAL BAKING 00. 2155 2071 Initial Decision identical to those used in evaluating the defense to a charge under Sectjon :2 (a.). It must be shown that the seller, after diligent efforts rea omlbly believed that a. competitor or competitors had similar a-1rangemcnts ,with the customer and that its arrangement would meet and not beat those compe6tive arrangements. C. v. A. E. Staley, 8'Ltpl'a. Further, it must be shown that the offering of the challenged allowance was competitively necessary. 238 Standard Oil, supra. In determining whether an advertising allowance is equivalent to that of a competitor, it is probably suHicient to show that the challenged allowance, when expressed as a percentage of sales, is no greater than the allowance met. Reference to the services performed by the customer for each competitor, and exact identity in this resped, appears unnecessary. BeJlcfit to the seller is not relevant in a 2(a.) C t5e in determining whether a price given to mect conlpetition does no more than meet a competitor s price, and there appears no greater reason to consider relative benefits to sellers in a 2(d) case. The fact that under an advertising a.allowance some observable services are performed on be,half of the seller does not distinguish Section 2(d) from Section 2(0) for purposes of the Section 2(b) defense. A price discrimination, cognizable under Section 2(a), is never given unless the seller expects to realize some commercial benefit. That such benefits take a. for11 di:ierent from those rea.liz d by a seller i3 a. result of an advertising arrangement ma.kes them no less real. If a seller meets and docs not beat a competitor s price, 2(b) is satisfied in that respect nohyithstancling the fact that meeting the price may bring the seller commercial benefits which far snrpass those that had be, rea.lized b::. the competitor whose price is met. By a parity of reasoning if a. sc11cr gives a, customer an advertising al)O\"' nce \",hich equal to allowances given by competitors when expressed in terms of a percent.age of sales, the,n Section :2 (b) is satisfied in this respect, The fact that the customer may have used one seller s payments for se.rvices different from those afforded a competitor is irreleva.nt. This interpretation is inherent in Section 2 (b). That Section specific.ally aJIO\\"s "the furnishing of services or facilities * * * in good n" In J. A. Folger Co., SI/1J1G. the Commi ioj) denied tbe flssel'ted defense of meeting competition, declaring that " good faith" was refuted by the Examiner s finding that respondent would have entered into the challenged arrangements in order to advance its sales, irrespective of what its competitors bad done. 'Tbe facts wil not support such a finding here. Tbe long negotiations which preceded Continental' s deal with Best d1Jring" which competitive deals were often d!scD sed, indicate that Continental's primary pl1rpose In giving the deal was to meet competition. naturally, in entering this arrangement Continental' s sales through the Best Markets were advanced, but this of course is the Intended consequence of finy ad.ertising arrangement. The Commission in Fol qf3r makes it clear, however, that this alone wil not vitiate an asserted 2(b) defense to a 2(d) charge.

Initial Decision 63 F.

faith to meet * " " services or facilities furnished by a competitor. K 0 mention is made of any need to evaluate the respective benefits ccruing to the eellers furnishing services or facility.ies. A simibr construction must be given whether the Section 2(b) defense is invoked for a Section 2(d) allowance or a Section2(e) service. See Exquisite Fom, 1Jm",siere, Inc. v. F.T. 19U1 Trade Cas. 1.37 (D.C. Cir. 1961 C7 S. &D. 259J ; Elizabeth Arden, Inc. v. F. 156 F. 2d 132 (2nd Cir. 1946), cert. denied 331 U.S. 80U (1947). Any diffcrence in construction ,youlc11ead to absurd rcsuJts. .An allo\\ance given to customer to pay a demonstra tor s salary is cognizable under 2 ( d) . Direct provision of a demonstrator in a customer s store comes within 2 (e). In neither case need the seller asserting good faith meeting of competition demonstrate that he received no greater benefits than the competitor \I"hose allowance or whose services or facility he met. In the case of the allowance to Best :lIarkets, Continental has borne the burden of the good faith defense. Continental's representative negotiated over an extended period of time with Best l\1markets, during which time he was informed that the other wholesale bakers supplying those stores were parties to cooperative advertising arrangements. He was further told that these bakers were giving Best :rfarkets allowances e,qual to at least 100/0 of sales. The Continental allowance was calculated to reach this same 10%. In fact, this allowance amounted to less than 10% of sales even at the end of the first year. The Continental representative testified that he was told by the buyer that entering into the c.oopeTative advertising arrangement was a prerequisite to Continental' s servicing Best Markets, and this was corroborated by the Best Markets advertising manager.

At the time Continental entered into the challenged cooperative advertising agreement the Best :Markets were, in fact, receiving payme.nts under such fllTangements from all of the ,yholesale. bokers serving those stores. These payments, expressed as a percentage of sales, were equal to or greater than the payments given by Continental. The discount given by Continental to the Food Fair stores was originally cast in the form of an advertising allowance. Continental established that this arrangement was intended, from its very incep. tion, to bo a discount, given to meet equal.1 discounts from competitors. Food Fair provided no services under this arrangement that it would not have provided absent such payments. But even if this arra,ngement were cognizable under Section 2 (d), it is clear that it would be defensible under See/ion 2 (b).

The payments to Food Fair were, as the testimony of Continental's employees and the Food Fair offcial involved establish, based on a COKTIXEKTAL BAKI:-G co. 2157 2071 Inital Decision percentage of Continental's sales t.o those stores. That percentage was equal to, or lower than, the competitive discounts being given in fact been required toFood Fair at the time. If Food Fair had provide services and facilities to Continental under this arrangement the cash benefits to Food Fair \\0111d have been commensurately reduced. Thus, if it could be viewed as a 2(d) arrangement, it would have to be held that Contine,ntal's payments to Food Fa-ir were actually less than the payments made to those stores by its competitors. Continental does not contest that two of the twenty discounts challenged in this proceeding, those to American Stores (Acme markets) and the Food- Ha,ma\ were negotiated at the time when Continental in Sun-began selling to those customers. The Commission has ruled, shine B'iscuits Docket 7708 (Opinion of the Conmlission, September 1961) (59 F. C. 674, 678J, that the good faith meeting of competition defense is not available to a seller who grants discriminatory price reductions aggressively for the purpose of gaining new customers. This ruling is inapposite in this case. 239 The position that a reduction made to meet competition is lawful if ': defensive, rather than "aggressive, is no more than an attempt to give content to the "good faith: criterion of Section 2 (b). "There the reduction sought to be just.ified has had the effect of disrupting lJUsiness relationships and depri Villg a. competitor of an established cm:tome1' a showing of good faith competitive necessity would be dilTe-nlt in the extreme. Indee, : "here a cLlslmner has abrmc1011cc1 his previous source and begun to pnrchflse instead fronl a ney supplier the inference might well exiet that the new supplier s deal was somehow more advantageous.

Iere, however, no such situations are presented. a wholesale baker has retail grocer cuStOll1ETS that are a1l his own. Not only are exclusive purchasers virtually nonexistent, but there a.re no term contracts and no continuing c.ommitments between the grocer and the 'fholesale baker. Bread is bought on a day- to-clay basis and, as the reeorc1 shows, even the smaller retail groccrs purchase daily from several wholesale bakers. 1Iost of t11cm handle every bra.nd for which there is any appreciable consumer demand-if it is offered at competitive prices.

Despite the reversal of its ruling in this case by tbe Court of Appea.ls, Sunshine Bi. c!tite, In, R06 F. 2d 48 (7th Cir. 1962), the Commission has Indicated it wil adhere to its ruling. Federal Trade Commission News Release, Kovember 25 . 1962. Counsel in support of the complaint claims other discounts to obt'aln new business. Even assuming this to be correct, the circumstances in this case do not justify the conclusion that the respondent allowed a.ny discounts tor "aggreBslve' competitive purposes as distinguished from "defensive" competitive purpm;es.

2158 FEDERAL TRADE CO:-lmission DECISIONS Initial Decision 63 F.

Accordingly, acquisition of a new customer in this business means no more than the. opportunity to share in the available shelf space. Thus, in none of the cases in question, did Continental replace any existing bread supplieT. 'With respect to Food- Rama, the store manager testified that his store s purchases from Continental were made without displacement of any competitor. From a realistic viewpoint, whether a competitive reduction is defensive" or "aggressive" can have significance only ','I-here primary level competitive injury is involved. Here, of eonl'se, the, record is devoid of a serious attempt to show adverse e,ffect on Continental' competitors. )\There the inqury into probable competitive consequences is restricted to the secondary level, among customers of the seller, the question whether the grocer receives the lower price from an old or a new supplier can have no conceivable importance. ,\'hatever the competitive relationships between Retailer "A" and R.retailer IF may have been, they are wholly unaffected by the fact that RetajJer "A::, who previously bought bread at a lower price from two wholesa.le bakers, now buys his bread, at that. same 10,,,e1' price, from three wholesale bakers. 21o In discussing the S1.ln8hine Bi8C1tit case, in ite recent decision In the Matter of FOTSter Jllq. Co., Inc. the Commission explicity recognized this concept and stated: The court held, bowe,' , that tbe protection of Section 2(b) ,vas not lost simply because Sunsbine bad acquired new customers as a result of its meeting competition; the fact remained that each of tbe buyers to whom Sunshine offered the low price was already purchasing at that identical price from his regular supplier. Docket 7207, p. 32 (January 3, 1963). Finally, the respondent seller here ha.s only met prices ,,'which it had reason to beJicve Vi-ere lawful. The record in this case is abundant ,with evidence esta,lJlishing that Continental's management, as reasonable and prudent. businessmen, believed that the lower prices met ,were lawful.

To demand any fluiher shmving of facts that Continental had determined its compet.itors' prices to be lawful ,,- ould be to ignore commercial realities and to require an inquiry of extreme hazard under the antitrust laws. In each of the markets involved in this case t.here, are several bakers selling in competition. The number of grocers in these markets is in the thousands. The only conclusive "my in "which Contincnta1 could ascert.ain whether any competitor was treating all of his customers equally and, if not, whether customer-rs receiving unequal treatment were in competition and were threatened :J This was recognized by tbe Supreme Court in Standard Oil CO. T. 340 L. 231 (1051).

\\ CONTINENTAL BAKING CO. 2159 20il Initial Decision \yjr.1 injury, would be to exchange information as to prices and competitive practices with other wholesale bakers. Furthermore, there is nothing explicit in Section 2 (b) that remote ly requires that the seller invoking this defense establish the lawfulness of his competitors' prices.

In this proceeding every element of the good faith meeting of compet.ition defense has been established. To require more would be to make a nullity of Section 2 (b) and to deprive it of any realistic applica,tion. XI. TERMnlAL CONCLLSIOKS 1. In the case of some of the transa,actions shown in the record, the products sold at differing prices to diilering customers were produced and distributed "' holly within the State of production pursuant to interstate controls, negotiations and a.uthorization as to terms of sale. The evidence, therefore, est.ablishes that as to price differences there have been disc.riminations (although legal11y de,iensiblc) in the course of commerce and purchases in commerce. Accordingly, these tra,nsactions are cognizable under Section 2 (a) of the Clayton Act HS arrwnded by the Rohinson-Patman Act.

:2. In the ca e of some sales of Continental products shown in the record, involving products ba,ked by Continental outside the State of sale, and shipped in for sale to retail grocers, the rceord shows ihat these interstate shipments were made to insure the performance of 10early execllte,d contracts for bake goods, the terms of which erc negotiated and authorized by respondent in commerce and through the use of interstate media of communication and controls. For the reasons stated in paragraph 1 of these terminal conclusions as \yell a.s other reasons more specifically hereinbefore set forth in this dec.ision, discriminations ill the course of COIIUl1Crce a,nd pun hases in commerce are also apparent and cognizable under the Clayton Act as to such transactions.

:3. It has been est.ablished that respondent' s discounts or payments to ( certain favored customers, but not to all customers in the same competitive market hereinbefore described, may be sllbstantiaJJy to lessen competition or tend to create a monopoly in the sale of ba,ked goods, or to injure, destroy, or prevent competition as alleged in the e01lplaint, and that an order requiring respondent to cease and desist from continuing such practices should issue unless respondent prevails in its "meeting competition in good faith defense 4. However respondent Continental has established that each discount sllOwn by the record to have resulted in differing prices to 2160 FEDERAL TRADE COMMISSIOK DECISIONS Initial Decision 63 F.T . differing customers located in the same general marketing area was granted in good faith to meet the equally low net prices, including discounts, of one or more competing wholesale bakers. 5. "With respect to the payments made by respondent Continental to the Food Fair stores, it is concluded that these were intended as and accepted as discounts in price and were neither paid nor received ill consideration of any advertising or promotional services to be rendered by Food Fair to respondent Continental. These payments hence must be regarded as yielding price differences cognizable under Section 2(a) of the aet. As such, it has been proved that the discount to Food Fair was granted in good faith to meet the equally low or lower prices of competing wholesale bakers. 6. "With respect to the payments made by respondent Continental to Best Markets, it has been established that these were payments made for services or facilities furnished by Best :Markets in connection with the sale of Continental baked goods and hence, that these payments lire subject to Section 2(d) of the l1mended Clayton Act. It ha.s been proved that respondent Continental made these advertising allowances to Best JHarkcts in order to meet the equivalent advertising allmnll1ces paid by competing wholesale bakers for e-omparable se.rvices or facilities ailorded by Best J\1a.rkets. 241 It is further concluded, on the basis of both recent Court and Commission cle. cisions, that the good faith meeting of competition defense is a\ ailable as justification of a cha.l1enge brought under this subsectio;l of the act.

7. "With respect to the $300 paid by respondent Continental to Two Guys From J-Iarrison as a contribution to the furnishing of the bread rack in that customer s Bordentown, New Jersey, store, it is concluded that this must be treated as a, contribution to H, serdce or facility connected with the offering for sale of baked goods in this store and hence, that the payment is subject to Seetion 2(e) of the act. Ko violation of that subsection is charged in the complaint. It has been proved, 1110reover, that this furnishing of a service or facility to Two Guys From Harrison was lllade in good faith to meet the services or facilities furnished by competing wholesale bakers to that retail customer and that, therefore, this contribution was justified under Section 2 (b).

:o Exquisite Form Brassiere, Inc. '1' 301 F. 2(1. 499 (D. C. Cir. :1)611 cert. denied, 369 ES. 888 (1962) ; Sh1dton, Inc. v. 1962 Tra(le Cas. 70,321 (7th Clr. 1962) (7 &D. 472J.

2-2 See Remand Order In Docket Ko. 7717 Max Fact'll' If Co. ov. 10, 1962) ; J. A. Folger Company, Docket No. 8094, Commission Opinion of Sept. 18, 1962 , p. 5 C. 1166).

?\. , ?\. __ _ _ ,,, :: _ _ .. _ CO",TIKEN'AL BAKmG CO. 2161 2071 Appendix Accordingly, no showing has been made of any violation of Section 2 (a) of the amended Clayton Act, as charged in Count I of the complaint. Neither has there been any showing of a violation of Section 2(d) of the amended Clayton Act as charged in Count II of the complaint. The evidence, therefore, clearly justifies a dismissal of the complaint. Aecordingly, the following order shan issue: ORDER I t is ordered That the com plaint is herein and hereby dismissed. APPE"DIX DOCKET 7630-CoJ''l'NENTAL BAKING Co.

Tab:tlalion of data pertaining to sales and profits-Prepared from offcial transcript of proceedings before the FTC Gross profit 1';et profit (I:. mos. before owners Trans- renumeration SCript i Business I Total sales I page I (12 mos. "0. 1 ' Percent I Amount, Percent . Amount ofsalesj 3M Homestead Market, Amedeo Dimuro, owner, 7220 Amboy Rd., Tottenvile, Staten Islrlld, N. $EO oeoj 1\1. 451 $15 5(0) 9. 20) 187 400 Donald E. &31 Wiliam Timerman, \Vinters, owner, 8 Central Ave"

Pearl Hiver, N.Y_---- 000 S07 Qualiy Market, August Bergman, 150 0001 15 22 500 1 6. 71110 000 18-20 213, 580 10 I 480 8i1 TIofTrnan s Delicatessen, Wiliam A. i Pizzuti, owner, 375 Park Ave., I 18- Scotch Plains, K.L-- _u_uu--- 00070, 000 23-24 S15 860 hu-- Delicatessen, 91J Elm 'NiUiam Eifer Powder, 37 Elm St. , Westfeld, N.J-- 100 000 25 25 000 8 Ilm_m_8, 000 926 Liliim Blum, owner, 1316 Clinton' Ave., Irvington, N.L_-- 309 15 6 441 12 , 5 009 936 Sam s Country Store, Rae RosenbaUJil, owner, 1115 East George Ave. , RoselJe, ,N.L-- 1------ 950 Broadway Qualuy larket, Vmcent_- ' 25,4-5, 00G-2G,00G-8, 000000 2G-2517- 18, 7381-----138, 9 , 4- 185 Blanco, owner, 30!! Broad,vay, 971 Q ;'Ji ket tho11Y-Quadre owner, 64- Valley Hd., Upper Montclair L-- , li6 777, 24 714 11 I 18 467 1001 RidusteJlj' s Market, Louis RidustelJi owner, 15\) Monmouth St. , Red Bank. N.J --- . _u ---- -_n 1027 " Steves Dairy, St vc Szabatiu, owner 277 Smith St., Perth Amboy, ),.J .-- 000 j II fiDO 13- 120 1034 , Kemmer Delicatessen, Stephen Kemmer, powder, 102 Hockland Pl.

T\anuet Y-- 120 000 . 25, 20 0 I 80D 1033 MicKcy s )'larket, Michael D' nico O\\Dr-r, 30 South PJainfeld Ave., 12G-22 000 1 10 370 4-6 3 COO lci6 HeeySouths Plainfeld,Delicatessen and l\ppetizing Store. Hemy GJickma::, owner, 141 I Braud St., Red Bank, ?-1.J-- -_u 120 000 I 30 000 1 1.-11," I 500 1101 HG!rig Food ;\!arket, H. Schonberger owner 30!J Sl1lth St., Perth Amboy, u_----- OOG-30, 000 1 See footnotes at end of table.

/j . .\j). , ),, _. , , ; , Opinion 63 F.

APPENDIX-Continucd DOCKET 7630-CO?\TINEI\' TAL B.-\KING Co. Cont.inued Gross profit et profit (12wos. before owners Trans. I renmneration script Business I Total sales pa.ge (J2mos. No. Percent ofsaics i Amount I Percent Amount 1131 Clark' s Delicatessen . Charles R. Clark, owner, 203 Glffords L:me, Great Kms, Staten Island, N. Y-- O()O 310 &-9 fijj 1164 I Applegate Delicatessen, Frank Apple- -I 43 I gate, owmr, 75 Crosswkk St., Dor- 000-40, Olio 1- OQO 1185 1 II Frankgd?;'J.l1serendJllO,lt- "'!lit;11aQo\\-nor, DeJcili3tor 1 30, ! Dr. and Summit Ave. , Westvile Grove H__ 75, 000i 500 ()(I() J221 1\JeJVln :\Iarkct, Ielvll :\ro ris, owner 35' 41:! 981 ';5 1244 Fntz5th ' andFoodEnp.,Market,Camden,Samuels. Fritz owner, 7th & York, Camden 100 000 - 800 J278 Evergreen Cold Cuts, DomwieArCB.n i cGowner, 312 Evergreen Ave. , Wood- bury, -:, lGO, OOOI 000 000 1299 Dun s ?\Iarket, Edna :'Iae DUnn 324 Division St., Woodbury, I owner, 000; 11.4 I 200 1323 i L; l)cli are;se on;;;X-c;l , oW11er, \J810tb St. , Calnden , I --n- 500 1100 1330 JI p';biianZJ , employee,5.ieat 1fa 565'iietorClinton Ave.,;en:- '614"') 12, i. (0. (516) 1376 i M larket:Jo-'e1JJ; jieJi.ijo owner, 2\JM Nortb 32d St., Phlladelphla, X. I.- - 170 QOO 000 6 I 500 1427 PowcJJon Food Market, :\Jax Burt, I O'\'ller. 3237 PuwelltoD Ave., I'hilr- ! HO, OOD 18- ,5O 500 1446 G - Georie( oul(l 57 Mary St. , Bordentow11 J-- 000 15-15). 1 150 4;.- 000 1478 C. GnmadasGrocer)' JamesGranada, 1 f . :t 000 i60 380 1494 Fran s Delicatessen, .Francis A. Co- ' losi, OWller. 8;14 Parkway Ave " 50 000-55 000 500 7'" I 938 1551 B :ir;;:p.t r;;hai1i:- ron coowner, 501 North 5th St. , Camden, K. 000 0001 10.2 ! 600 1 Net profit after owner s sa;ary of $5,200. 2 Based on !Lvera e gross profit to total sales. 3 TIMed on average gross profit to average total sales. t Based on average gross profit to average total sales. I Based on average gTOSS profit to total sales. See Commission Exhibits 233 and 234.

7 After owner s sB.lary.

! Grocery department only.

i After owner s salary ofs3 900.

OPJNIOX OF THE COM:'ISSION DECI:TI:ER 31 , 1963 By EL IAN Comrrdssioner:

The complaint in this matter alleged that respondent, a corporation engaged in the manufa.cture a.nd sale of bakery products, granted discriminatory discounts on sales of its products to retail grocery , ,, COXTI 'lal BAKI TG CO. 2163 2071 Opinion stores, in violation of Section 2(a) of the amended Clayton Act, and granted non-proportional advertising allowances to competing eustomers, in violation of Section 2( d) of the Act. Respondent in its answer denied these allegations and, in addition, alleged meeting of competition in good faith as a eomp1ete affrmative defense. After full evidentiary hearings on the allegations of the complaint and answer, the hearing examiner filed an initial deeision in which he dismissed the compla.int on the ground that respondent has sustained its defense of meeting competition in good faith. Complaint counsel has a.appealed from this finding. Respondent, on this appeal while supporting the exa.miner s finding on the mee.ting-eompetit.ion issue has excepted to certain other findings of the examiner. Since have concluded that respondent has sustained its meeting-competition defense, and since meeting of competition in good faith is a complete defense both to the 2(a) charge (see Standard Oil 00. v. , 340 S. 231) (5 S.&D. 221J and to the 2(d) charge (see J. A. Folger & 00. C. Docket 8094 (decided Kovember 14, 1962) (61 F. 1166J, .we need not reach respondent's exceptions; and "We express no view on the correctness of the findings of the exa.miner to which respondent excepts.

Sect.ion 2 (h) of the amended Clayton Aet enables a seller to justify a price discrimination by shmving that it was made in good faith to meet a competitor s eqlla11y low price. The burden of justifying discriminatory conduct in such fashion is, of course, on the respondent.

At the heart of Section 2(b) is the concept of "good faith". This is a flexible and pragmatic., not technical or doctrinaire, concept. The shmdard of good faith is simply the standard of the prudent businessma.n responding fairly to what he reasonably believes js a situation of competitive necessity. F.T. O. v. A. E. Staley ill/g. 00. 321 U. 746, 759-60 (4 S.&D. 346 , 356J; see Standard Oil 00 v. , 340 S. 231, 219-50 l5 S.&D. 221, 232-233j. Such a standard, whether it be considered "subjective" or "objective, is inherently ad hoc. Higid rules and inflexible absolutes arc especia.lly inappropriate in dealing with the 2 (b) defense; the facts and circumstances of the particular case, not abstract theories or remote conjectures, should govern its interpretation and application. Thus, the same method of me.eting competition may be consistent with an inference of good faith in some circumstances, .inconsistent with such an inference in others. In the present ('nse, we find as n. fact that respondent has sustained its 2(b) defense. A record of marc than 1 000 pages was compiled 2164 FEDERAL TRADE COMMISSION DECISIO:VS Opion 63 )".

on the 2 (b) issuo in this case. It consists of the exhaustive examination and cross-examination of many customers and employees of respondent, covering every discount or service challenged in the complaint. After carefully analyzing this record, the hearing examiner conc1ncled that respondents' discount policy had been formllJated and implemented in good faith, honestly, reasonably and prudently, in order to meet competition. ",Vo agree with his analysis of the evidence. "\Ve do not, however, necessarily agree with his entire discussion of the law of Section 2(b). Accordingly, we do not adopt that part of the initial decision.

Briefly, the record shows the following. Prior to 1953, respondent refused to grant discriminatory discounts, although its major compei itors had, for many years, been granting such discounts on a large scale. As a result of its forbearance, however, respondent's market position had been 80 impaired that by 1953 respondent felt compelled to ,.econsider its no-discount policy. Its offcers decided that in order to avert a further drastic loss of business it would be necessary to grant some discounts.

The discount policy adopted by respondent as a result of the competitive situation it faced was a highly selective one. It permitted a discount to be granted to a particular customer only where an equal or Jarger discount had been given by a competitor of respondent on a competing product line and respondent would not be able to continue sellng to the customer in question without granting such a discount. In other words, discounts by respondent were available only in actual competitive situations.

Care was taken by respondent to ensure the gClluineness of the competitive necessity for pa,rticular discounts. In every case, customers cJaills that they were receiving discounts from competitors of respondent were adequately 'lcrifiecl by respondent's on-the-spot sales representatives. In fact, in every instance of record in which respondcnt gra,nted a, discount, its competitors: discount to the customer in question was eqmll to or larger than respondent: , and the latter s net price to the customer was no lower thlln its competitors' net prices. ,Ve have concluded that the .foregoing facts and circumstances (which apply equally to respondent' s grant of advertising allowances to mect equivalent advertising allowances granted by competitors of respondent) demonstrate rcspondenfs compliance with the good faith meet.ing of competition standard. 1Vhere, as here, a seller has affrmatively shown justification for selective price reductions, as "good COXTINEYTAL BAKIKG 00. 2165 2071 Opinion faith" responses to the exigencies of competition, Congress provided the shelter of Section 2(b).

Accordingly, the complaint against respondent is dismissed. Commissioner MacIntyre has filed a separate opinion. Commissioner Anderson concurred in the result. OPINION DECE::IBER 31 , 1963 By ltfAcINTYE Oommissi01wr:

The complaint in this case charged that the respondent, one of the largest firms engaged in the production, sale and distribution of bread and other bakery prod nets, with annual sales in excess of three hundred milion dollars, had been engaging in discriminations in violation of Sections 2 (a) and 2 ( d) of the amended Clayton Act. Paragraph Seven of the complaint alleged that: The effect of such discriminations in price as alleged herein may be substantially to lessen competition or tend to create a monopoly in the lines of commerce in which respondent and its customers are respectively engaged; or to injure, destroy or prevent competition with respondent or with purchasers therefrom ,,,ho receive the benefit of such discrimination. The hearing examiner found that the grocery business is "highly competitive; is characterized by "small profit margins; that bakery products account for a substantial share of a grocery store business; and that 5 percent price discriminations were granted by respondent "in the course of commerce. " In Finding No. Page 2159 of the initial decision, the hearing examiner stated that: It has been established that respondent's discounts or payments to certain favored customers, but not to all customers in the same competitive market hereinbefore described, may be substantially to lessen competition or tend to create a monopoly in the sale of baked goods, or to injure, destroy, or prevent competition as alleged in the complaint, and that an order requiring respondent to cease and desist from continuing such practices should issue unless respondent prevails in its "meeting competition in good faith defense. In the initial deeision it was found that accordingly these transactions are cognizable under Section 2(a) of the Clayton Act, as amended by the Robinson-Patman Aet.

In conclusion, the hearing examiner found that the discriminations practiced by the respondent were in good faith to meet equally low net prices and advertising allowances of competitors. Therefore, it 780-Q18 69--37 2166 FEDERAL TRADE COMMISSIOl" DECISIONS Opinion 63 Ji.

was ordered tlmt the complaint be dismissed. It was from that ruling that complaint counsel appealed to the Commission for a review of the matter. The Commission has now concluded and decided that the respondent has sustained its meeting competition defense, both as to the 2(a) charge (Standard Oil Oornpany v. Federal Trade 0071mission 3'10 U. S. 231 (1951)) (5 S.&D. 221), and the 2(d) charge (Bee A. Folger 00. , Docket 8094, 61 F. C. 1166 November 14 1962).

Thus, this ease becomes one of the rising number in which t.he Commission has ruled that the "good faith defense" provided for in subsection 2(b) of the Robinson-Patman Aet so limits the Commission s application of the law as to preclude it from proceeding to tJ18 entry of an order to cease and desist. It makes no difference that the discriminations involved proved to be destructive, as found by the hearing examiner, for the Supreme Court, in deciding the Stctndard Oil case stated: "' '" '" \Ve may '" '" '" conclude that Congress meant to permit the natural conSCQuences to follow the seHer s action in meeting in good faith a lawful and erjually low price of its competitor. (340 S. at 250) Also, it makes no difference whet her the facts of the record amply demonstrate that the destruction wrought by respondents discrimination is that of smaller competitors \"\ho ,yore not engaging in Ullhnyfnl conduct. Indeed, as the COllrt held ill the Standa) d Oil case on8 of the necessary ingl'cc1ients of the "good faith defense" upon which respondent here l'e.liecl, is that the equally low price of the competitor being met must be. a lawful price. The Courts opinion in that context uses the word "lawful" at least half a dozen times. The effect of this requirement that the price ' being met be a lawful price was demonstrated during the course of the oral argument before the Commission in this case. Releva,nt questions to and answers by COUllsel for respondent during the course of the oral argnme.Jt are quoted as follows:

CmDnSSJQKER ?IAcINTYRE: The burden that you are contending the Commission must carry in this case, on this point, is DO less than the burden that the Supreme Court in the 2 (f) case, Automatic Canteen matter, imposed on the Commission there, with respect to its burden on cost justification and so on.

),IR. WAl NKE: You mean with respect to showing that the buyer had reason to believe that the price he was receiving was unlawful? Cm.lMISSIOKER )'IAcIKTYJE: It was the Commission s burden to prove that much.

:\IR. WAIC\"KE: I would think that it would have to be, yes. COKTlXKNTAI BAKIKG CO. 2167 2071 Opinion !MISSIOXER l\IACINTYRE: To follow up, need this lower price be one that is discounted? It need not be a discount that is being met? l\1R. WAl XJm: According to the statute, you arc! entitled to meet an equally low price.

nnssIOKER )IACI TYRE: A non-discriminatory price? l\IR. ,VARKKE: It could be.

COM nssIOKER )IACINTYHE: And it could be by a small competitor who is op€rating in a single-area market.

).!R. 'V ARKKE: It could be, sir, provided that your competitive response does not exceed in scope the competitive offer that you are meeting. (Transcript of Oral Argument, pages 44 and 56.

It is said that it is necessary so to stretch the shelter of the 2 (b) goud faith defense" and thus extend it in order to provide a seller with the right to use the weapon of discrimination in price in self defense against another seller engaged in non-discriminatory selling. Compare the right thus extended with the right of seh defense long recognized in the law. The right of seh defense long recognized is ava.ilable only to counteract wrongful and unlawful conduct. It is not available to one who would damage his fcl10w man going about his affairs in a lawful manner. This inconsistency between recognized right of seh defense and what has been provided in the way of self defense under the "good faith proviso" is left unexplained by the Court and the Commission.

\Vithout attempting to explain or reconcile this mentioned inconsistency, it may be interesting and useful to look for the basis of the use of the term " lawful" price in the Standard Oil case. It seems clear that the Court in the Standanl o.a case concluded that the pricing being met should not be unlawful. Also, it is clear that in reaching this conclusion the Court looked ,back to its carlier ruling in Federal Trade Commission v. Staley Mfq. Co. 324 U.S. 746 (1945). Thus it would appear reasonable to inquire regarding the basis used by the Court in the Staley case for its ban there on meeting an unlawful price. Such inquiry makes it clear that the Court's ban in the Staley case on meeting an nlawful price was based on a showing that Staley had adopted an unlawful pricing system utilized by its competitors. Indeed! the Court, in reaching that conclusion, approved the modified findings made by the Commission in the Staley case.' Among the modified findings of the Commission thus approved by the Conrt in the Staley case were those which not only made it clear that Staley merely had not adopted but also was in a measure 1 See Staley case supra pp. 753-7::7.

Id. pp. 756-757'.

2168 FEDERAL TRADE COMMISSION DECISIOKS Opinion 63 F.

a party to the maintenance of the unlawful prlcmg system utilized by it and its competitors.

The record thus indicates that in the Staley case the Court did not approve Staley's meeting of the unlawful price of its competitors because Staley was a party to the maintenance of the unlawful pricing system. The Court had little diffeulty in seeing Staley's complicity in the unlawfnlness of the conduct of Staley's competitors in that instance. Of course, the matter of relying upon one own unlawful conduct as the basis for a self defense plea cannot be accepted for as we have seen it was not accepted ;by the Court in the Staley case. Staley's complicity with the Corn Derivitives Institute members in adopting and maintaining an unlawful pricing system and the Court's rejection of Staley's attempted injeetion of a self defense plea in meeting such prices under the "good faith proviso" are so different from the factual situation and the Court' ruling in the Standard Oil case that it does not appear possible to reconcile the two or explain one on the basis of the other. In the Standard case there is no hint that Standard was involved in setting the prices it claimed to be meeting. In the Standard case, us here lawful pricesit appears that the prices being met were competitive of competitors of Standard. evertheless, the Court in the Standard s use of the weapon of unlawful priceOil case approved Standard' discrimination to meet the equally low non- discriminatory lawful price of:a competitor who was going about his business and doing no harm to anyone except to provide Standard with a measure of competition.

The Commssion is leaving this case where the Supreme Court in the Standard Oil case ruled that it should leave it. The Commission ! See modified findings, Paragraph 6 (f) appearing In the Matter oj A.E. Staley Mfg. Co., et al., C. Docket No. 3803. 34 F. C. 1362, Sept. 13 , 1943, following remand in E. Staley Mfg. 00., et al v. Federal Trade Commission Yay 10, 1943, 135 F. 2d 453. Those modified findings, printed at 4 Statutes and Decisions (1944-1948) 795. 805, are quoted as 1ollows:

6(t) The Commission Is of the opinion that in order to successfully avn.1 of the defense provided by subsection (b) of Section 2 of the Act. a respondent must show affrmatively that his lower prices were made in good faith to meet an equally low price of a competitor and the Commission is not required to prove that such lower prices were made in bad faith. If it were necessary for the Commission to prove bad faith appropril1te steps would be taken for the consideration of the entire background of the Chicago-base-plus-freight pricing system used by respondents and their competitors, including the final decree Issued April 6, 1932, by the United States District Court for the Northern DIstrict of nllnoIs in United State' v. Oarn Derivatives Institute, et aZ. Equity Ko. 11634 (In which the respondents herein were defendants and consented to the entry of such decree). This decree enjoined the defendants from m8-ntanlng or continuing a conspiracy In restraint of trade and commerce In violation of the Sherman Act, which Included the agreed use of Chicago as aD arbitrary freight basing point from which to compute aud charge freight In addition to the quoted price for the purpose of enabling defendants to maInton oppressive and uniform net delivered prices for various corn products, Including corn syrup.

GREAT WESTERN DISTRIBUTING CO. .ET AL. 2169 2071 Syllabus here is trying to go as far as the Supreme Court indicated that may go in permitting destructive price discriminations under the Robinson-Patman Act.

Perhaps in the years ahead, the Snpreme Court again wil be provided with an opportunity to review this sort of problem. If should, I feel confident it will reconsider its use of the term "lawful prioe in the Standard Oil case and modify its ruling so as to preclude justification of unlawful destructive price discriminations on the basis of self defense against lawful conduct. If that should be done, nndoubtedly the Court wil make it clear that the "good faith defense, while not applicable to such situations of unlawful pricing as were involved in the Staley case, is, nevertheless, available as a matter of self defense and in complete justification for the use of price discrimination to combat unlawful and wrongful pricing practices of competing sellers.

FINAL ORDER This matter has been heard on complaint counsel's appeal from and respondent's exceptions to, the initial decision of the hearing examiner. For the reasons stated in the accompanying opinion, the Commission has determined that the findings contained in the initial decision should be adopted by the Commission in part only, and that the complaint should be dismissed. Aceordingly, It is ordered That the initial decision be, and it hereby is, adopted as the decision of the Commission to the extent consistent with the accompanying opinion.

It is further ordered That the complaint against respondent be and it hereby is, dismissed.

By the Commission, Commissioner Anderson concurring in the result.