National Dairy Products Corporation

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IN THE MATTER OF KATIONAL DAIRY PRODUCTS CORPORATION ORDER, OPINIONS , ETC. , IN REGARD TO THE ALLEGED VIOLATION OF SECS. 2(a) and 2(d) OF THE CLAYTON ACT Docket 7018. Cmnplrn, Dec. 1957-Dedsion, July, 1966 Order requiring a company engaged in processing and distributing dairy and food products with h(- adquartcl's in New York City, to cease discriminating in prices and promotional allowances between competing retailers handling the product line of its Scaltest Foods Division, in violation of Sees. 2(a) and 2(d) of the Clayton Act.

Complaint 70 F.

COMPLAINT The Federal Trade Commission, having reason to believe that National Dairy Products Corporation has violated and is now violating the provisions of subsections (a) and (d) of Section 2 of the Clayton Act (U. S. Title 15, Section 13), hereby issues its complaint charging as follows com,T I Charging violation of subsection (a) of Section 2 of the Clayton Act, the Commission alleges:

PARAGRAPH 1. Respondent named herein is National Dairy Products Corporation. Respondent is a corporation organized and existing under and by virtue of the Jaws of the State of Delaware. Respondent' s principal offce and place of business is located at 260 Madison Avenue ew York City, New York. PAR. 2. Respondent is extensively engaged in the business of purchasing, manufacturing, processing, distributing, and se1Hng dairy and alled products in various States of the United States and in the District of Columbia.

Since respondent's incorporation on December 8 , 1923, it has acquired the entire stock or control of assets of numerous concerns. Respondent, formerly a holding company, in 1956 carried forward a program of integration and corporate simplification taking over properties and assets of more than forty principal domestic subsidiaries and continuing their operations as divisions. Respondent has also caused a number of its subsidiaries to be merged with one another. As of December 31 , 1956, respondent held 10070 of the voting stock in its remaining subsidiaries, being about forty in number. Respondent's program of integrating its subsidiaries is now wholly or substantially completed. Respondent conducts its business through its divisions and subvi-sidiaries. Through its Sealtest division, respondent sells milk, tamin D milk, homogenized milk, concentrated fresh milk, chocolate milk, buttermilk, cream, butter, eggs, cottage cheese, special milks, and other dairy products to homes, restaurants, stores hospitals, hotels, and institutions in States in the Eastern, Midwestern, and Southern parts of the Vnited States, including the District of Columbia. Respondent has numerous ice cream brands sold sectionally in various parts of about 33 States and in the District of Columbia, primarily in the Eastern part of the United States.

NATIONAL DAIRY PRODUCTS CORP.

Complaint Respondent is the larg-est distributor and seller of dairy products in the United States. Respondent's net sales for 1956 were 352 878 027.00.

PAR. 3. Respondent sells dairy products of like g-trade and quality to a large number of purchasers located in many States of the United States, particularly in those of the East, South, and Midwest, and in the District of Columbia for use, consumption, or resale therein.

Respondent maintains and operates a large number of receiving stations, manufacturing, and processing plants and distribution depots located in or near the cities, towns, and places where it sells its said products. The bulk of respondent' s said products are delivered to its customers in its own trucks. PAR 4. In the course and conduct of its business respondent is now and for many years past has been shipping dairy products from the State or States where such products are manufactured processed, or stored in anticipation of sale and shipment, to purchasers located in other States of the United States and in other places under the jurisdiction of the United States, including the District of Columbia in a constant current of commerce as "commerce" is defined in the Clayton Act. Respondent also sells its said products in commerce as "commerce" is defined in the Clayton Act to purchasers located in the same states where such products are manufactured, processed, or stored in anticipation of sale.

Included among respondent' s plants and facilities for the manufacture, processing, and sale of dairy products, respondent owns and operates a manufacturing- and processing plant located in the city of Toledo, Ohio, where it manufactures and processes substantial quantities of its diary products which respondent sells in Ohio and Michigan. Other substantial quantities of said products are manufactured and processed in other States by other divisions, plants, or subsidiaries of respondent, which respondent ships or causes to be shipped to respondent' s Toledo, Ohio, plant for subsequent distribution and sale. Some of such products are shipped in packages ready for sale and others are shipped in bulk and are further processed in respondent' s Toledo plant for subsequent sale. Raw milk is purchased by respondent from farmers and dairymen located both in Ohio and in other States, including Michigan, which is shipped and transported to respondent's Toledo, Ohio, plant where it is processed and subsequently sold to purchasers located in Ohio and Michigan. Respondent owns or op- Complaint 70 F.

erates a depot and sales offce in Monroe, Michigan, to which its said products are transported or caused to be transported by respondent from its Toledo, Ohio, plant for subsequent sale in Michigan. Respondent transports, or causes to be transported, substantial quantities of its said products in respondent's own trucks from respondent' s Toledo, Ohio, plant into Michigan which respondent seIJs and delivers to customers located in Michigan. In other instances respondent seDs its said dairy products to distributors who transport said products from Toledo, Ohio, to various cities, towns, and places in Michigan, principally nearby to Monroe, Michigan, who sell the same to customers in those areas. Respondent has been and is engaged in a constant and uninterrupted trade in its said products in interstate commerce in sales of its dairy products in the States of Ohio and Michigan, as herein alleged.

PAR. 5. The bulk of respondent' s wholesale business is done with retailers such as stores, restaurants, hotels, and other businesses and establishments which resell to consumers. Respondent, in thc sale of its said products to retailers and consumers, is in substantial competition with other manufacturers processors, distributors, and sellers of dairy products. Many of respondent's retailer- customers as herein described are in substantial competition with one another in the resale of respondent' s said products to consumers.

PAR. 6. In the course and conduct of its business in commerce respondent has discriminated in price in the sale of dairy products by scoring such pl"ducts of like grade and quality at different prices to different and competing purchasers. Included among such sales at discriminatory prices were sales particularlyof milk and other dairy products by respondent, those made by and through its Sealtest division, in the cities of Toledo, Ohio, and Monroe, :YIichigan, and in nearby cities, towns and places in Ohio and Michigan.

One of the methods and plans used by respondent to effect and carry out such discrimination in price is a quantity discount or rebate schedule or system applicable to its retailer-customers located or doing business in the areas of Ohio and Michigan hereinbefore described, which respondent formulated and put into effect on or about November 1 , 1954, and which with certain changes therein, is stil in force and effect. Respondent' s quantity discount and rebate plan is applied to the monthly purchases by its retailer-customers of respondent' __ NATIONAL DAIRY PRODUCTS CORP.

Complaint dairy products computed in points including aU kinds of fluid milk and buttermilk, half and half, whipping cream, coffee cream, sour cream, and cottage cheese. Each fluid milk product and cottage cheese is assigned a given number of points, as follows:

quart milk (all kinds) point half and half - 2 points whipping cream coffee cream sour cream buttermilk point pound carton cottage cheese points Respondent' s monthly quantity discount and rebate schedule as amended and effective in 1956, based upon respondent' s point system and showing the average number of retailer-customers in each discount brackct and the percentages of discounts or rebates received for the months of March, August, and November 1956 , is as foUows :

Points No. of torrers Percent o to 699 Toledo, Ohio 414 Monroe, Mich. 109 None 700 to 999 Toledo, Ohio Monroe Mich.

1000 to 1499 Toledo, Ohio Monroe' , Mich.

1500 to 1999 Toledo, Ohio IVIonroe, Mich.

2000 to 2999 Toledo, Ohio ::Ionroe Mich.

3000 to 4999 Toledo Ohio Monroe Mich.

5000 to 6999 Toledo Ohio Monroe Mich.

7000 to 9999 Toledo Ohio Monroe Mich. None 10000 to 999 Toledo Ohio Monroe, ::1(1ch. None 15000 to 999 Toledo, Ohio l\lonroe Mich. 10% 25000 to 999 Toledo Ohio Monroe Mich. None 11% 40000 and over Toledo Ohio Monroe Mieh. 12% Total number of customers 783 Respondent' s sales of its products in Toledo, Ohio, and Monroe Michigan, including sales made in nearby cities and towns amounted to 38 605 115. 31 for the year 1956. :\iany of respondent' s retailer-customers in these areas were large chain stores Complaint 70 F. T.

and other stores having a common ownership or control, including voluntary associations or groups of stores having a central buying offce. In the quantity discount schedule hereinabove set forth, such customers are shown as a unit, regardless of the number of individual stores involved for the reason that respondent in computing the volume of monthly purchases of such customers pays or credits its monthly quantity discount or rebate according to the rate applicable to the aggregate purchases of aD stores in the chain or central buying group without regard to the monthly volumes of purchases of such individual stores. If purchases by such customers are paid for in cash respondent rebates the discount at the end of each month by check. In the case of credit sales the discount is credited on the monthly bils. Many of the individual stores in Michigan belonging to a chain and sold respondent' s dairy products by respondent' s independent distributors are paid the discount or rebate applicable to the aggregate purchases of all the stores of the chain. Respondent accomplishes this by requiring its independent distributors to pay 770 of the discount and respondent pays the balance of 570 of the maximum discount to the chain s headquarters. All of the large chain stores and central buying groups are paid the maximum discount or rebate by respondent on purchases made by all their stores located in Toledo, Ohio, and Monroe, Michigan, and elsewhere. The more numerous of respondent' s retailer-customers are those who receive no discounts or rebates under respondent' monthly quantity discount and rebate plan and those customers whose purchases fail within the smaDer discount and rebate brackets under said plan. These are the small, usually independent retailer-customers who compete with the large chain and central buying groups which respondent's discount and rebate system is principally designed to favor and whose volume of purchases in most instances falls within the highest brackets of said quantity discount schedule.

PAR. 7. The effect of said discrimination in price by respondent in the sale of dairy products has been or may be substantially to lessen, inj ure, destroy, or prevent competition: (a) Between respondent and its competitors in the sale and distribution of dairy products;

(b) Between retailer-purchasers of said products receiving such discounts and rebates computed by the percentages of each bracket of said quantity discount and rebate schedulc and competing retailer-purchasers receiving none;

NATIONAL DAIRY PRODUCTS CORP.

Complaint (c) Between retailer-purchasers of said products receiving such discounts and rebates computed by the percentages of higher brackets of said quantity discount and rebate schedule and competing retailer-purchasers receiving such discounts and rebates computed by the percentages of lower brackets. PAR. 8. The discriminations in price as herein aDeged are in violation of subsection (a) of Section 2 of the Clayton Act. COUNT II Charging violation of subsection (d) of Section 2 of the Clayton Act, the Commission aneges:

PAR. 9. Paragraphs One through Five of Count I hereof are hereby set forth by reference and made a part of this count as fully and with the same effect as if quoted herein verbatim. PAR. 10. In the course and conduct of its business in commerce as aforesaid, respondent has paid or contracted for tbe payment of money, goods, or other things of value to or for the benefit of some of its customers as compensation or in consideration for services or facilities furnished or agreed to be furnished by or through such customers in connection with the handling, sale, or offering for sale of respondent' s dairy products and respondent has not made or contracted to make such payments, allowances, or consideration available on proportionally equal terms to an of its other customers competing in the sale and distribution of such products.

Included among such discriminatory and disproportionate an owances respondent has paid and avowed advertising and promotional aDowanees in connection with the resale of its said products to some of its customers while not offering such payments and anowances to other competing customers. As ilustrative of such practices, respondent has paid certain amounts of money to selected customers, principally to large grocery store chains on openings of new stores, special advertising events, and other advertising campaigns where such advertising includes Sealtest products. Many of respondent's dairy products are sold to the public under the trade name "Sealtest." In such instances the advertising copy is prepared and paid for by the customer at the local newspaper rate, sometimes at discounts, and respondent pays said favored customer on the basis of national line rates which are much higher than the local or discount rates which the advertiser is required to pay to the newspaper. Respondent has not offered such anowances and payments to many of its custom- ..

Initial Decision 70 F. T. ers who compete with those who receive such benefits. Many of such discriminatory payments and allowances as herein alleged have been made by respondent to its customers located and doing business in Toledo, Ohio, and in Monroe, Michigan, as well as other places and towns in the States of Ohio and Michigan. PAR. 11. The acts and practices as alleged in Paragraphs Nine and Ten above are in violation of subsection (d) of Section 2 of the aforesaid Clayton Act.

M?". William H. Smith for the Commission. . Robe'/" S. Gordon and M?". Clw.?'les H. Watts of New York Chadwell, Keele, Kayse?", Ru.qgles MeLa?"en of Chicago, and Mr.111. , by JVI?". John T. Ch"dwell, Mr. Rich",'d W. Mel"ren Paul H. LaRue for respondent.

INITIAL DECISION BY LEON R. GROSS, HEARING EXAMINER JULY 10 , 1963 IKDEX Page Preliminary Statement Findings of Fact:

General Findings - - Price Discriminations-Toledo-:.lonroe - - - Price Discriminations-Lansing-Jackson-Battle Creek Area 108 Price Discriminations-Memphis, Tennessee - - - - 115 Price Discriminations-New Orleans, Louisiana: 127 MUk -- Ice Cream - - 131 Respondent' s Cost .Justification - - 136 Respondent' s Meeting Competition Defense 155 Count II, Respondent' s 2(d) Violations 165 Conclusions 170 Order - - 172 Appendix A- Interstate Commerce" Ruling of January 18 , 1960 173 This proceeding is based upon a complaint charging respondent, National Dairy Products Corporation, through its Seal test Foods Division (hereinafter sometimes called " Sealtest" ), in Count I with violating subsection 2 (a) of the Clayton Act, as amended, and in Count II with violating subsection 2 (d) of that Act. The subsections provide inte,' nlin: (a) That it shall be unlawful for any person engaged in commerce, in the COline of such commerce, . . . to discriminate in price between different purchasers of com modi tics of like grade and quality. . . where the effect of such discrimination may be substantially to lessen competition or tend to , . . .

NA TIONAL DAIRY PRODUCTS CORP.

Initial Decision create a monopoly in any line of commerce, or to injure, destroy, or prevent competition with any person who either grants or knowingly receives the ben-:fit of such discrimination, or with customers of either of them. , . . , . . . to (d) That it shall be unlawful for any person engaged in commerce pay. . . anything of value. . . to a customer of such person. . . in consideration for any services or facilities furnished by or through such customer . . . unless such payment. . . is available on proportionally equal terms to all other customers competing in the distribution of such products or commodities.

The record is voluminous and contains hundreds of pages of exhibits which include very technical charts and graphs developed in the course of respondent's cost justification defense. Respondent admits that its Sealtest Foods Division has sold and seDs its products of like grade and quality at differing prices to customers who compete with each other in the resale at retail of such products.

Respondent defends the 2 (a) charges on the grounds inter alia that: (1) some of the challenged transactions are not in interstate commerce; and (2) complaint counsel has failed to prove the requisite competitive injury resulting from Sealtest' s price differences. A portion of respondent' s evidence consists of its meeting competition " defense authorized in subsection 2 (b) of the Clayton Act providing:

. . . upon proof being made. . . that there has been discrimination in price or services or facilities furnished, the burden of rebutting the prima facie case thus made by showing justification shall be upon the person charged with a violation of the section Provided, however That nothing herein contained shall prevent a seller rebutting the prima facie case thus made by showing that his lower price or the furnishing of services or facilities to any purchaser or purchasers was made in good faith to meet the equally low price of a competitor, or the services or facilities furnished by a competitor. However, the largest and most voluminous portion of respondent' s case is its cost justification defense under subsection 2 (a) of the Clayton Act, providing:

. that nothing herein contained shall prevent differentials which make only due allowance for differences in the cost of manufacture, sale, or delivery resulting from the differing methods or quantities in which such commodities are to such purchasers sold or delivered. . . . Respondent' s counsel has characterized its cost justification as possibly the most elaborate and expensive defense of this kind ever presented to the Federal Trade Commission. It involved stop watch time studies, for onc week for each delivery route, during July 1958, of every milk delivery, on each route, to respondent' Initial Decision 70 F. T. wholesale customers in the Toledo, Ohio-Monroe, Michigan, area, and for one week each, for each of the ice cream delivery routes in Memphis, Tennessee, from approximately October 19 1959, to November 18, 1959. Each separate delivery function was timed with stop watches, cost studied, and costs thereon allocated. Respondent stresses the paucity of proof in this record of injury to primary line competition in the areas involved. Subsection 2 (a) does not impose the responsibility upon Commission counsel of necessity of proving primary line injury so long as the evidence in the aggregate establishes the anti-competitive effect of respondent' s price discriminations.

Respondent concedes in its proposed findings and brief that if the price differential is substantial injury to competition in the secondary line may be inferred. (See the Commission s decision in Tri- VaUey Packing Association Docket No. 7225 and 7496, Commission s Opinion dated May 10, 1962 (60 F. C. 1134J; American Oil Company, Docket No. 8183, Commission s Opinion dated June 27, 1962 (60 F. C. 1786J ; and the Commission s Opinion of June 28, 1962 , remanding the case in United Biscuit Company of America Docket No. 7817 (60 F. C. 18931. This latter case involved a volume discount schedule somewhat similar to the one involved in the instant case.

The Supreme Court, in C. v. Anheuser-Busch, Inc. , 363 S. 536, (1960), has defined a price discrimination within the meaning of the phrase "discriminate in price" in subsection 2 (a) as merely a price difference, and respondent' s price differences to competing customers are readily admitted by it in this record. Prices" as such are not the pricing mechanism with which most of the evidence in this record concerns itself. It is rather, respondent' s volume discount, or rebate schedules, which established graduated varying rebates to be allowed by respondent from its published list prices, in the event a customer purchased a stipulated volume of ice cream, or a designated number of rebatable points of fluid milk and dairy products. The effect of allowing different rebates from the same list price to competing customers may be a price discrimination. (See United Biscuit, supm. Respondent' s pricing practices during the cost study periods are suffciently typical and ilustrative of its pricing practices to furnish a basis for adjudicating the price discrimination charges. However, the entire record, including aD testimony, exhibits pleadings, and extensive oral argument have been carefully considered.

NATIONAL DAIRY PRODUCTS CORP.

Initial Decision Respondent has not offered any substantial evidence in defense of the subsection 2(d) charges in Count II of the complaint. In its brief respondent implies that it is chiefly interested in having such 2 (d) cease and desist order, if any, as may be issued limited to the products as to which the violation has been found. This proceeding is now before the undersigned hearing examiner for final consideration on the complaint, amended answer thereto, testimony, and other evidence, and proposed findings as to the facts, and conclusions, together with briefs and repJy briefs, and oral argument. The hearing examiner has careful11y considered the proposed findings and conclusions, the briefs and oral argument. A11 findings and conclusions of Jaw proposed by the parties which are not hereinafter specifically found or concluded are herewith rejected. AD motions heretofore made, and presently undisposed, which are not otherwise specifically ruled upon in this decision, are hereby denied. Based upon the entire record of this proceeding, the examiner makes the following: FINDINGS OF FACT Respondent, National Dairy Products Corporation, a Delaware corporation, with its principal offce and place of business at 260 Madison A venue, K ew York, :' ew York, is described as the largest dairy corporation in the world. It is a single, integrated company (Tr. 879). Respondent manufactures and distributes in interstate commerce a variety of food and other products including fluid milk products and ice cream manufactured and distributed by its Sealtest Foods Division.

Respondent opcrates through seven separate divisions: Sealtest Foods, Kraft Foods, Breakstone Foods, Sugar Creek Creamery, Humko Products, Metro Glass, and its Research and Development Division.

Sealtest Foods Division has seven geographical divisions: the K ortheastern at Schenectady, New York; the Metropolitan in :'ew York City; the Eastern and Breyer Divisions in Philadelphia, Pennsylvania; the Southern with headquarters at Charlotte North Carolina; the Great Lakes at Pittsburgh, Pennsylvania; and the Central at Chicago, Ilinois. A vice president in charge of each of these seven geographical divisions reports directly to the President of Sealtest Foods Division (Tr. 6163). Its Southern Division is typical in general organizational structure. The Southern Division is headed by a vice president of Sealtest Foods. Each of the four districts within the Division is headed by a district Initial Decision 70 F.

manager. Within each district are a number of zones headed by zone managers. Below the zone level is the branch or plant manager. A zone may have from three to six branches. In most instances plants are located within a zone (Tr. 6164), but in those instances in which a zone does not have a plant located within it it is supplied by a plant from another zone. At the branch level, a branch or plant manager is responsible for the operations in the particular community in which he is located. Branches and plants handle milk and ice cream; some handle both; and some handle only milk or only ice cream (Tr. 6164).

In some instances the ice cream may be manufactured and sold through a marketing organization separate and apart from the fluid milk marketing operations.

The product line involved in this proceeding is the fluid milk homogenized milk, vitamin D milk, concentrated fresh milk, chocolate milk, buttermilk, cream, butter, eggs, cottage cheese, ice cream, and other dairy foods and aD other products which are manufactured or sold by respondent' s Seal test Foods Division. The period of time basically involved in these proceedings are the years 1956 to 1960, inclusive.

Respondent' s net sales for its fiscal years 1961-1956 were: 196L 790 834 000 1958 548 386,000 1960 667 176 000 1957 - 432 319 000 1959 605 725 000 1956 352,878 000 According to respondent' s annual report to its stockholders for the year 1961 (CX 189), it had 69,993 stockholders, 48 822 employees, and the book value of its common stock, excluding intangibles, was $445 901 000.

Respondent sells its milk and other dairy products to distributors, retailers, and consumers. Distributors who purchase from respondent resell to retailers and consumers. Some distributors who purchase flom respondent act as its agent in making deliv- Eries to some of respondent' s retailer-customers. ::ast of respondent' s retailer customers resell to consumers. In the sale of its milk and other dairy products to its various types of customers respondent is in competition with others sellers of such products. Many of respondent' s retailer-customers are in competition with other of its retailer-customers, and in some instances with respondent' s distributor-customers.

Respondent sells fluid milk and other dairy products of like grade and quality to a large number of purchasers located ,:.

NATIONAL DAIRY PRODUCTS CORP.

Initial Decision throughout the United States and in other places under the jurisdiction of the United States for use, consumption, or resale therein.

Respondent, in the sale of its fluid milk and other dairy products to distributors, retailers, and consumers, is in substantial competition with other manufacturers, processors, distributors and sellers of said products.

Respondent sells fluid milk products and ice cream of Eke grade and qualiy to its various wholesale customers at various places, including those located in, and served by, its plants at Toledo, Ohio-Monroe, Michigan; Jackson-Lansing-Battle Creek Michigan; Memphis, Tennessee; and New Orleans, Louisiana. The company markets its pmducts in most of the States of the United States east of the Rocky Mountains; in Canada; the British Isles; much of western Europe: and Australia. Although respondent has contended throughout the proceedings that certain of its individual plant operations are not in interstate commerce this examiner incorporates herein by reference his ruling of January 18, 1960 (Appendix A attached), including the facts found therein, in which he denied respondent's motion to dismiss this proceeding on the grounds that the chaDenged transactions, or some of them, were not and are not in interstate commerce. Respondent is engaged in commerce, as "commerce " is defined in the Clayton Act, as amended.

The Federal Trade Commission has jurisdiction over the parties and the subject matter of this proceeding and this proceeding is in the public interest.

Respondent, as an integrated corporate entity, is legally responsible for all of the acts and doings of each and all of its offcers and employees acting within the scope of their authority. In order to obtain a cease and desist order, complaint counsel need not have proven a Section 2 violation by each of Sealtest' branches, zones, districts, and divisions. Although the evidence in this record has not been confined solely to Sealtest's pricing practices for the two units used in pricing its products a half-gallon container of fluid milk and a gaBon of ice cream, unless otherwise indicated, this initial decision wil generally be deemcd to refer to those two units because the evidence with respect to Sealtest' s pricing practices for its half-gallon milk units and gallon ice cream is typical and illustrative of the pricing practices being challenged. In some instances Sealtest's milk and ice cream product lines Initial Decision 70 F.

are separately manufactured, priced, sold and delivered in separate marketing systems to its customers. Milk is sold directly to consumers in their homes; to distributors at the platform who pick it up and resell it to their own accounts in stores or homes and sometimes deliver it to respondent's customers. Respondent' milk products with which we chiefly deal here are those which are sold to wholesale customers for resale at retail. Sealtest s ice cream is ordinarily delivered to stores who resell it at retail to "take-out" customers. In this decision, the phrase off-premise consumption" or "off-premise customers" refers to the ultimate consumers who take the particular product off the premises where it is purchased.

In every area where respondent operates, and particularly in the areas as to which evidence was introduced in this proceeding, competition in the milk and ice cream business is very keen. There are local competitors who operate only in the particular market or region and companies which operate in several States or on a nationwide basis. Ilustrative of respondent's interstate competitors are Borden, Foremost, Beatrice Foods, Carnation Milk, and Dean Milk Company. Ilustrative of local competitors are Page, Babcock, Driggs, Sewell, Fornier-Lakeside, Loud and Jackson, Taylor, and Mid-West.

Complaint counsel' s evidence in this record has been confined to respondent' s pricing practkes in (a) the Toledo, Ohio-Monroe Michigan, area; (b) the Lansing-Jackson-Batte Creek, Michigan area; (c) the Memphis, Tennessee, area as to ice cream sales only; and (d) the New Orleans, Louisiana, area. Respondent' s pricing procedure under particular attack is its so-called volume discount or rebate schedules. However, there is substantial proof of "off-list" pricing which was not related to any discount schedule. This "off-list" pricing is conceded by respondent' s witnesses, John Armstrong, who had general supervision of its Toledo milk study, and Clayton P. Thompson, who had general charge of its Memphis ice cream study. Sealtest' s monthly quantity discount schedule for Memphis ice cream effective February 4, 1957 (CX 76) is typical of such a schedule:

Discount Gallons Pe-rGallon 50-79 - 80-109 110-139 - - 140 & over - NATIONAL DAIRY PRODUCTS CORP.

Initial Decision Dealers owning and maintaining a1l of their own equipment wih receive 10rt per gallon discount from our quoted wholesale list price on bulk ice cream, bulk sherbet, bulk ice milk, half gallons ice cream and sherbet, pints ice cream and sherbet. No discount wi1 be paid on specialty or novelty items. The Malone and Hyde stores who were a member of the Malone and Hyde group stores in Memphis had their purchases aggregated and Malone and Hyde received a 7 cents per gallon rebate as did National Food of Tennessee (Tr. 887), and Kroger (Tr. 890). A 7 cents per gaDon rebate was also paid to Food Center. Respondent referred to such off-scale rebates sometimes as "offscale" and sometimes as "specially negotiated. Respondent' s quantity discount schedules for milk and dairy products were more complicated: the various items in the Sealtest dairy line were assigned a designated number of "rebatable points" and, in determining the discount (or rebate) bracket into which a customer felJ, the rebatable points were totaled, not the doHar or product volume.

The complaint (Par. Six, page 82) sets forth an example of the manner in which rebatable points were aHocated to fluid milk products:

1 quart milk (aU kinds) 1 point 1 quart half and half 2 points 1 quart whipping cream 8 points 1 quart coffee cream 4 points 1 quart sour cream 4 points 1 quart buttermilk 1 point 5 pound carton cottage cheese 5 points Some of respondent' s dairy products did not have any rebatable points assigned to them, yogurt, orange juice, malted milk and butter.

The period of the cost study" or "cost study period" as used in this initial decision, unless otherwise designated, means for Toledo-Monroe milk the month of July 1958, and for Memphis ice cream, October 19, 1959, to November 18, 1959. The rebate schedule in effect at Toledo during the cost study period provided for rebates from 2 percent off list price, to be paid to customers purchasing from 700 to 999 rebatable points, up to 12 percent for customers purchasing 40,000 or more rebatable points per month. In August 1960, respondent put a revised rebate schedule into effect at Toledo with a revised point bracket and rebate scale. Under that schedule no change was made in the number of rebatable points required, to and including a 5 percent Initial Decision 70 F. T. rebate. The succeeding rebate brackets, 6 percent through 12 percent, inclusive, were narrowed so as to qualify customers for higher rebates upon the purchase of fewer monthly rebatable points.

In the Toledo-Monroe area effective November 4 , 1956 , respondent' s wholesale list prices for homogenized milk was 42 cents a half gallon and 21 cents a quart. The following changes became effective on the dates shown: February 3, 1957, the wholesale list of the half gallon was 40 cents, and the quart 20 cents. On April , 1957 , the wholesale price list of the half gad on became cents, and the quart 19 cents; on July 7, 1957, the whol€sale list of the half gaDon .returned to 40 cents, and the quart to 20 cents. On August 1 , 1957 , th€ wholesale list of the half gallon rose to 42 cents, and the quart to 21 cents (CX 5 in camera). Respondent' wholesal€ list prices forhomogenized milk in Toledo and Monroe for 1958 were: Effective February 2 , 1958, the half gallon 40 cents, and the quart 20 cents (CX 57). On April 6, 1958, the half gallon was priced at 38 cents, and the quart 19 cents (CX 58) ; and effective April 20, 1958, the half gallon was 40 cents, and the quart was 20 cents (CX 59). It was on the basis of these or similar wholesale list prices that respondent' s discounts and rebates were computed, paid and avowed, in those instances where respondent adhered to its discount and rebate schedule. The July 1958 and August 1960 Toledo-Monroe milk volume rebate schedules were:

August 1960 (CX 172) July 1958 (Cost Study Period) Revised Point Brackets (CX 168- and Discount Scale Monthly Rfibatable Points Monthly purchase of Required Rebatable Points Required Rebate o - 0 - 699 999 700 - 699 0% 700 - 000 - 999 2% - 1 499 3% 1,000 500 - 1 999 500 - 1499 4% 1 000 - 2 999 000 - 1999 000 - 2,999 5% 2 000 - 3 999 000 - 4999 6% 3 000 - 4 999 000 - 6999 7% 4 000 - 5,999 10,000 - 9999 8% 5 000 - 6,999 000 - 14999 9% 6 000 - 8 499 10% 7 500 - 9,999 000 - 24,999 11 % 8 39,999 and over 40,000 and over 12% 10,000 Although respondent put the new discount bracket into effect in August 1960, in Toledo, it did not make new time and cost studies under the new schedule. It utilized the time studies, cost studies, and customers' quantities purchas€d, shown in its July NA TIONAL DAIRY PRODUCTS CORP.

Initial Decision 1958 time studies, and classified customer locations in accordance with the brackets in the new schedule to show the new bracketby-bracket cost (Tr. 5035, 5062). Insofar as the record shows the revised rebate schedule is stil in effect and is the one under which Seal test is currently pricing its dairy products in the Toledo area.

The rebates indicated in the above schedules were paid on the basis of a published price list. For example, one of Sealtest' s customers in the 10 percent rebate bracket, buying a half gallon of milk which was listed at 40 cents, paid a net price of 36 cents. A competing customer receiving no rebate paid 40 cents. It has been testified to by several witnesses, is agreed to by the parties, and is found as a fact that a very few cents or percentage points difference in the price of Seal test' s products would be sufficient to cause a customer to change from one seller to another seHer, at both the wholesale and retail levels, in aH of the markets as to which evidence was introduced. The parties here have agreed and the examiner finds that competition in the sale of Sealtest's products here involved, including ice cream, is very keen in aH the localities as to which evidence was offered, at both the wholesale and retail levels. Respondent admits throughout its proposed findings, and it is found that Sealtest' s volume rebate schedules resulted in its sehing products of like grade and quality in the four different geographic areas here involved at different net prices to its customers who competed with each other in the resale of said products retail and that the difference in price was substantial. Under the Supreme Court' s holding in C. v. Anheuser-Busch, Inc., 363 U.S. 538, this constituted a price discrimination. Seal test discriminated in the prices at which it sold its products during the relevant periods in its (a) Toledo-Monroe, (b) Jackson-Lansing-Batte Creek, (c) Memphis, and (d) New Orleans area operations. Such discriminations included the practice of paying higher rebates to some customers than were paid to other customers; of paying no rebates to some customers, and rebates of varying amounts to others; of speciaHy negotiating higher rebates to some customers than were provided for on any rebate schedule (e. the original 12 percent rebate to the Kroger chain in the Toledo-Monroe area, the 7 cent per gallon rebate on ice cream to the Malone & Hyde chain in Memphis, and the special prices for its milk products and ice cream to the Hil stores and their successor, the Winn-Dixie chain in New Orleans). Initial Decision 70 F.

Some examples of respondent' s price discriminations are particularized below for the areas indicated. Findings have not been made for each and every price discrimination proven in this record. The facts hereinafter set forth are deemed adequate to support a finding that Sealtest discriminated in price within the rationale of the Anheuser-Busch; Tn- Valley; American Oil; and United Biscuit decisions supra. It is not necessary, to support a cease and desist order, that Seal test's pricing practices be broken down and separately analyzed for its fluid milk sales and its ice cream sales. Although the Memphis evidence was restricted to Sealtest' s ice cream sales, Sealtest' price discriminations, whether in the fluid milk or ice cream line, should be proscribed unless they are either cost justified, or found to have been made in good faith to meet the equally low lawful price of a competitor. PRICE DISCRIMINATIONS-TOLEDO-MONROE Sealtest Foods Division maintains a bottlng plant at Toledo Ohio, for milk distributed in the Toledo-Monroe, Michigan areas. Tbe Toledo plant was formerly known as Ohio Cloverleaf Dairy (Tr. 93). Prior to 1956, it was a wholly owned subsidiary of respondent (Tr. 27, 94, 104).

The Toledo plant handles and distributes a general line of fluid milk products in Toledo and the surrounding area (Tr. 27; CX 46). It sells its milk products for both wholesale and retail home delivery (Tr. 277). The Toledo plant does not manufacture ice cream. Ice cream is manufactured in Detroit and Kalamazoo, Michigan, and Huntington, Indiana. Toledo distributes annually about 600 000 gallons of ice cream within its territory (Tr. 138). Although no bottling is done at respondent' s Monroe branch, it distributes milk, prepackaged for the consumer, in Sealtest trucks on wholesale and retail routes (Tr. 198- 205). The Monroe area is served from routes originating in Detroit (Tr. 123 152 163) .

Approximately 10 percent of the Toledo plant' s total volume of fluid milk products is shipped to the Monroe, Micbigan branch (Tr. 123, 162-163) which serves the city of Monroe and most of Monroe County (CX- , 48). It is redelivered by the branch on its wholesale and retail routes (Tr. 205). Wholesale milk distribution is effected by respondent through 22 routes at Toledo and 5 at Monroe (Tr. 1620; RX 34). Wholesale customers served by these routes include retail stores, which purchase for resale at retail; and restaurants, hotels, and institu- NATIONAL DAIRY PRODUCTS CORP.

Initial Decision tions, which purchase for on-premises consumption (Tr. 1765 1858-60). Evidence in support of the complaint has been confined chiefly to sales to customers purchasing for resale at retail, representing about 82 percent of the Toledo plant's volume (Tr. 1874). The Toledo plant uses distributors operating from HilsdaJe Hudson, Adrian and Tecumseh, Michigan, to serve areas in lower Michigan which are not otherwise served by the Monroe branch. The distributors seh for their own accounts to both wholesale and retail customers and serve some Kroger and a Wrigley store (Tr. 221- , 225). They also deliver to retail outlets which are Sealtest customers.

In June 1958, the Toledo plant' s wholesale price for half gallons of milk in paper cartons was 40 cents (CX 59; Tr. 229- 232, 480, 2047, 3288, 3373). Other items were sold at the wholesale price shown on CX 59, subject to rebates ranging from 2 percent to 12 percent, depending upon quantities purchased under the Toledo plant's graduated quantity discount schedule. Butter yogurt, Reddi-Whip, and orange juice, were not subject to rebates (Tr. 289- , 411).

In early 1958, the wholesale price of milk, half gaHons, in paper cartons, distributed by the Monroe plants, was 40 cents (Tr. 3373). The Monroe branch was using a rebate schedule similar to that of thc Toledo plant (Tr. 247, 248, 3306, 3392-93). In Respondent's Proposed Findings (hereinafter referred to as RPF) number 48 , page 21 , respondent admits: The record shows that the Toledo plant sold Sealtest fluid milk products at different rebates to different wholesale customers in the Toledo and Monroe areas (CX 5 , 13 , 19, SIA , 5IB; R. 417, 436 , 452, 454, 471 , 483, 494). The differences in the amount of rebates paid such customers resulted from the application of the rebate schedule. No wholesale milk customer received a discount higher than 12 percent (R. 3091 , 3293-94). The Kroger and Wrigley stores served by the Toledo-Monroe plant' s Michigan distributors each received a 12 percent rebate (Tr. 172, 186- , 223).

Paul Julian of Hudson, Michigan, one of respondent' s distributors, paid a 7 percent discount (Tr. 178) to seven of his wholesale customers (Tr. 173, 177-78), and the other distributor, Lemon Hephner of Adrian, Michigan, did not pay any discounts to wholesale accounts other than Kroger and Wrigley. Julian s 7 percent discount to his wholesale customers was paid out of his own pocket. Respondent had speciaDy negotiated the 12 percent rebate to Kroger and Wrigley, and at the time of the 1958 hear- Initial Decision 70 F.

ing at Toledo, the 12 percent discounts to Kroger and Wrigley were shared, 6 percent by the Toledo plant and 6 percent by the distributors themselves (Tr. 179, 186- , 190, 223-24). Seal test is accountable for the 12 percent discount paid to the Kroger and Wrigley stores served by the Michigan distributors (RPF 51). At the Toledo hearings, Richard O. Files of Vi1age Farm Dairy, a Sealtest competitor, testified to a decline in the sales of that company. LeClare A. Smith of Trilby Farms Dairy, likewise a Sealtest competitor, testified to a decline in retail sales, and attributed such decline in part to "loss leader" sales of milk in the supermarkets (Tr. 340).

Donald S. Shunk of Cherry Grove Dairy, serving the Toledo- Monroe areas with 17 retail routes and a wholesale route, also testified to a decline in his retail home delivery business and attributed this decline in retail sales to the "loss leader" practices in the supermarkets (Tr. 370-73). These "loss leaders" were made possible in part, by Sealtest' s pricing, which paid the high volume supermarkets as much as a 12 percent rebate, and the small independent no rebate.

Some of Sealtest' s competitors in the Toledo-Monroe area were among others, Driggs, Babcock, Page, :Ieadow Gold, Cherry Grove, Borden, Vi1age Farm, and Trilby Farm Dairy. Respondent asserts that the change in its discount schedule which became effective in the Toledo-;Vlonroe area on August 1 1960, reducing the volume requirements for the 6 percent to 12 percent brackets, and reducing the 12 percent bracket from 000 rebatable points to 10 000 rebatable points, was effectuated because competing dairies, notably Driggs and Babcock, provided for their top rebate with fewcr rebatable points. Respondent' s Exhibits 165 and 166 are attached to an affdavit (Respondent' s Exhibits 166- , C and D) by Glenn W. Whittaker zone manager for respondent out of Toledo. Respondent's Exhibit 165 purports to state the points discount schedule for Driggs dated February 1 , 1959, and Respondent's Exhibit 166 purports to be the Babcock schedule. Solely en the basis of Mr. Whittaker affdavit, the examiner cannot find that Respondent' s Exhibits 165 and 166 establish the prices charged by Driggs and Babcock for their milk products. These exhibits are not the best evidence and are based upon hearsay. Even though it were found that Respondent' s Exhibit 165 and Respondent's Exhibit 166 were Seal test' competitors ' discount schedule, such fact, would not excuse the respondent' s price discriminations in the Toledo-Monroe area. NATIONAL DAIRY PRODUCTS CORP.

Initial Decision Such evidence does not prove the net prices at which Sealtest' competitors in this area were sellng their products which competed with Sealtest' s products.

At the time of respondent's cost study in the Toledo-Monroe area, 423 grocery stores and other locations selling respondent' milk and milk products for off-premises consumption were served from wholesale milk routes. Respondent discriminated in price between competing wholesale customers listed on CX 168A-N by paying many of them no rebate and by paying others at discounts ranging from 2 percent to 12 percent. Many of the un favored wholesale customers competed with the favored customers in the resale of respondent's milk and milk products. The payment of the rebates and the variations in the rebates paid resulted in substantial competitive injury to respondent's unfavored wholesale customers.

John H. Armstrong of A. T. Kearney & Company of Chicago who was in charge of respondent' s Toledo milk study, testified (Tr. 2122-23) that of 22 Kroger stores in that area served by the Toledo plant during the study period, only 3 Kroger stores purchased the 40 000 rebatable points per month to fall within the 12 percent rebate bracket. "evertheless, the entire Kroger chain was paid a 12 percent rebate. The Kroger stores which received the 12 percent unearned rebate competed with other customers of Sealtest who received a lesser rebate, or no rebate at all. Although evidence of price discrimination was introduced for respondent' s ice cream sales separately from the rest of the Sealtest product line, it was unnecessary for complaint counsel to have proven price discrimination for both iee cream and fluid milk products separately. Even though Seal test ice cream was priced and rebated differently from the rest of the Sealtest line al1 that complaint counsel need have proven is price discrimination as to any of the product line. Prior to the time Sealtest started serving Kroger in 1955, Kroger had not been served by any other dairy but had processed its own brand of milk at a company-owned dairy (Tr. 278, 3014 3107). Prior to agreeing to pay its 12 percent rebate to Kroger in 1955, Seal test' s top Toledo rebate had been 10 percent. From 1955 until February 1960 Sealtest was the sole supplier of milk products to the Kroger stores in the Toledo area (Tr. 3012), and paid Kroger its top 12 percent rebate while it was at the same time paying no rebate, or substantially less rebate, to Seal test customers with whom Kroger competed.

_.

Initial Decision 70 F.

A & P had about 18 stores in the Toledo area which purchased only Sealtest cottage cheese and dip. Yet the entire chain was paid a 10 percent specially negotiated rebate (Tr. 2983). A & P competed with other Sealtest customers who purchased its entire product line; who were paid no rebate or less rebate than the 10 percent to A & P.

GJenn Whittaker, respondent' s Toledo-Monroe manager, testified (Tr. 3007 et seg. that he had a conversation with Danny Buick of Foodtown (Monroe) in early 1958 and Buick told him United Dairy was giving him a "28 percent off from list retail." Since Sealtest' s highest rebate bracket was 12 percent, it was not meeting United's aDeged 28 percent rebate with its 12 percent rebate. The number and percentage of store locations buying respondent' s dairy products in thc Toledo, Ohio-Monroe, Michigan, area during the cost study week, which were paid off-scale rebates, by brackets, were:

- No. of Store Ko. of Store Locations Paid Rebates Locations paid Off- Percent of on Basis of Scale Rebates, by 1\0. of Store Rebates Brackets (CX 168A- Locations Paid, by Paid Off- Rebate Brackets Chain ScaJeRebates, Bracket (CX 168A- Stores Other By Brackets 100.00% 100.

125 96. Totals 423 36.41% The rebates paid by "respondent during July 1958 in the Toledo Ohio-Monroe, Michigan, area to chain and group stores compared with rebates earned by the stores in each chain or group during the study week were:

:;.

12% 11% 168- (CX 10% Stores Individual by k W Study during 15% Earned Rebates I I TotalofNo.Stores 153 PaidJuly19.'B Rebate etc.

Store Grocers Foods Drumstick,Stores White Chain P. & Bear & SearsCasper-MigloresGolden A.BellmanAssociatedRedJoseph'Tri-CountyBigSavewaySeawayKrogerNationalFoodtownWrigleyTotals H H IJKKLLLLMMNN I rebates 168168168168168168168168168168168168168168168168 Reference exexexexexexexexexCXexexexexexex off-scale at of Saleg 71.61 53.100.100.100.72.100. 100.00%100.100.100.100.100. 100.100.100. study. sales PercentOff-Scale stores, in at included 252.267.218.973.114.248.496.508.265.165.521.28003.489.778.502.000. not SalesOff-ScaleRebategroup Latter and M). &1chain (RX ToLaI Sales 252.267.218.973.114.248.567.508.265.165.602.003. 778.502.000.towere: Rebatable 24,121.64 stores 1958 Mich. Paidproducts Off-ScaleRebate July Stores of Adrian, anddairy No. TotalSold duringits of Monroe sales to Pai.lJuly1958 Rebate !lales point off-scalerespondent of by etc. Dollar combined I , on Isales StoreEi Grocers Super Foods percentage Chairlor computed Group Drumstick White Foodtown IIIII! P. the & BearRebatable & Rebate and SearsMarketCasper-MigloresGoldenA.BeUmanAssociatedRedJoseph'Tri-CountyBigSavcwaySeawayKrogerNationalFoodtownWrigley NATIONAL DAIRY PRODUCTS CORP. 103 Initial Decision Respondent' s Exhibit 54-A lists 45 Sealtest independent customer-locations in the Toledo-Monroe area for which the discount paid in July 1958 varied from their sales volume bracket during the week of the study. Respondent admits that some of these customers were paid off-scale. Respondent's Exhibit 54- A reflects inter alia the following:

Correct Discount Based on Company Discount Paid Method of Customer s Name in July 1958 Computation Peoples Market 12% Segur Market N aneys Place Mullens Grocery La Plant Grocery 10% Country Market 10% Save Mor Super 12% Prescott Market 10% Hoffmans Market 10% Respondent' s Exhibit 127 A shows that during the period of the Toledo milk cost study, respondent' s 423 off-premises consumption customers were paid rebates as foliows: (It should be noted, however, that in Respondent's Exhibit 127 A the individual customer Jocations are aIJocated to rebate brackets in the new rebate schedule (CX 172) which became effective in August 1960 supra. Cost tributionBS Percent Individual No. Customer Discount of Rebatable 1.O('8tio119 Paid Locations Sales 699 (0%) 155 51.59 700- 999 39. 000- 499 31.57 500- 999 26. 000- 999 22. 000- 999 19. 000-4,999 19. 000- 999 17. 000- 999 000- 499 (10 14. Voluntary & Cooperative Groups i Associated Grocers 22. Red & White 12. TriCounty Super Do1lal' 19. Safeway 11.0 Stores under Common Ownership Foodtown (Monroe) 24. New Beer Stop, etc. 24.45 Casper-Miglores 23. See footnotes at end of table, page 104. 104 FEDERAL TRADE COMMISSION DECIEIONS Initial Decision 70 F.

Cost as Percent Individual! ::oo Distribution Customer Discount of Rebatable Locations Paid Locations Sales Corporate Chains A&P 23. Sears 23. Bellmans 17. Big Bear 11.5 Joseph' 10. National 10. Kroger W rigleys Seaway Foodtown, Inc. 10. (a) Prescott Market, see Respondent s Exhibit 54. (b) Mickas Market & HofTrnans )1arkct. See Respondent's Exhibit 54. "Includes State Park Beer Stop and Co1den Drumstick. Associated Grocers group, with 39 locations, whch was paid the highest, or a 12 percent rebate, had a distribution cost of 22. percent of rebatable sales ascribed to it. Individual customer locations in the 5 percent rebate bracket had almost the same distribution cost, 22.79 percent of rebatable sales, and yet the individual customers received less than half the rebate which the Associated Grocers group received. According to Respondent' s Exhibit 127- , during the cost study period, in Toledo-Monroe respondent paid a 12 percent rebate to customers whose distribution costs expressed as a percentage of rebatable sales, varied from a low of 60 percent to serve one location of W1'igley to a high of 24. percent to serve four Foodtown locations. Expressed another way, although Foodtown s distribution costs were more than 21; times the distribution costs of Wrigley they both received the same 12 percent rebate.

Similarly, individual customers with two locations, whose distribution costs are stated to be 14.52 percent of rebatable sales were paid a 10 percent rebate, and New Beer Stop, State Park Beer Stop, and Golden Drumstick were paid the same 10 percent rebate even though their distribution costs arc stated in Respondent' s Exhibit 127 A to have been 24.45 percent of rebatable sales. , as respondent aSficrts, distribution costs, expressed as a percentage of rebatable sales, were the criteria by which Sealtest fixed the rebates which it paid its customers, such criteria was, in practice, ignored by respondent in pricing Sealtest products. John Armstrong, in charge of the Toledo cost study testified to this fact, in effect. Such practice implies basis defects in Sealtest' quantity discount schedules and the studies made to cost justify them.

NA TIONAL DAIRY PRODUCTS CORP. 105 Initial Decision In Respondent' s Exhibit 45A captioned "Summary of sales and distribution costs-by location-computed time" the 423 customer locations used also for Respondent' s Exhibit 127 supra were allocated to different rebate brackets than those to which they were a1Jocated on Respondent' s Exhibit 127 , as fo1Jows: Rebate Bracket Locations in Brucket 0-- - . 165 2- -- u_--- ---_u_-_u - -- 38 3. - - - 43 _u_u_ - - 40 78---- - 8 lO- 12- A & P 10- -- 18 Respondent' s Exhibit 45A reflects that distribution costs to the 18 A & P locations were 23.15 percent of rebatable sales. If A & P had been rebated according to such distribution costs, it would have been in the 5 percent rebate bracket. A1Jocation of the 423 store locations to discount brackets on the Respondent' s Exhibit 45 series does not jibe with the similar adocation on Respondent' s Exhibit 127 (supra). Commission s Exhibit 61 in camera shows rebates to respondent' s 15 largest ice cream customers purchasing for resale at retail in Toledo for March through May 1958 as fo1Jows: camera) gal. in May 10%10% 10%10% 10% RETAIL Rebates 101 61 AT (CX RESALE1958 gaBon FOR MAY AI'rilRebat 10%10% 10%10% 10% THRU I : PURCHASING MARCH gaBon s",, 10% 10% 10%March10%Rebates OHIO, 101 CUSTOMERS TOLEDO, , CREAM Ohio Ohio ICELEA Ohio II Grove, Ohio Ohio: Ohio Ohio CLOVER Stickney, Harbor, LARGEST Ohio Toledo, , Address B/2llefontaine, CoJumbusOakLima,3326 Trilby, Fremont, OHIO I I FIFTEEN TO Market Stores) Stores Carryout Markets Johnson WhiteStores Super Stores Market Market Grocery Co.Co.& FoodMarket Variety sMarket A. Market REBATES N. Food s Furrcy G LG. I I KrogerBartley(Red NationalKoh1'sKoehlerNahorhood(1) Cook'ManorShictsD&DBurkey CU8tomcrJosephF. III I NATIONAL DAIRY PRODUCTS CORP. 107 Inital Decision According to Commission s Exhibit 168- in camera during the cost study period, respondent's Toledo, Ohio, plant had wholesale customers in Toledo numbering 208 to whom respondent paid and allowed discounts and rebates from 2 percent to 12 percent. For the same period respondent had wholesale customers in Toledo numbering 132 to whom it paid and allowed no discounts and rebates. For this same period, respondent's Monroe Michigan, branch had wholesale customers numbering 52 to whom respondent paid and allowed discounts and rebates from 2 percent to 12 percent and wholesale customers numbering 31 to whom it paid and allowed no discounts and rebates. The discount and rebate schedules utilized by Sealtest' s Toledo and Monroe branches were tailored and applied principally to purchases by independent wholesale customers, and not to respondent's chain store customers. During the cost study period respondent' s independent wholesale customers purchasing respondent' products which, on a point basis, came within the 0 percentpercent brackets of the discount and rebate schedule, were paid and allowed discounts and rebates by respondent more or less according to said schedule.

In the payment and allowance of rebates to corporate chain stores and central buying groups, wholesale customers, Sealtest frequently disregarded its discount and rebate schedule. It paid higher rebates to the corporate chains and central buying groups than should have been paid and allowed, had its rebate schedule been adhered to. These higher "off-scale" discounts and rebates to the corporate chains and central buying groups gave them a competitive advantage over the independent grocer, and competitively injured the independent vis- vis the corporate chains and central buying groups. For example: John Davis, owner of an independent grocery in Toldeo, paid respondent 40 cents net for its milk in half gallon containers. In the resale of respondent's products Davis' store competed with Kroger, Big Bear and Joseph' s (Tr. 296). These stores purchased the milk for 40 cents list Jess a 12 percent rebate, thereby paying 35.2 cents for the same half gallon for which Davis was paying 40 cents (CX 168- , 168- , 168in camera).

Ben Peterman, a Monroe, Michigan, grocer, paid respondent 40 cents for a half gallon of milk and received a 2 percent rebate (Tr. 417). Peterman was in competition with Kroger and Gruber Stores in his vicinity, both of which were receiving a 12 percent rebate on respondent's products, and were therefore paying re- Initial Decision 70 F.

spondent less for its products than were the independents with whom they competed.

Peter Betrus worked for his father who owned an independent grocery in 2\10nroe. The store purchased Sealtest' s half gallons of milk for 40 cents, less a rebate of 4 percent or Jess. Betrus' average rebate was about 3 percent. A Kroger store about a mile distant from Betrus, which competed with him in the sale of such products, received a 12 percent rebate. Betrus testified that his competitors were Foodtown, Kroger, Wrigley and Gruber (Tr. 441), a1l of which were paid a 12 percent rebate (CX 168- 168- in camera) .

Fred Burke, an independent grocer in Monroe, paid Seal test 40 cents a half gallon and 20 cents a quart net. His store was competing with a Kroger store about six blocks away, a Wrigley store about 15 blocks away, and Gruber s about a mile away, a1l receiving a 12 percent rebate (Tr. 457-8).

Walter Joseph Salwitz, owner and operator of a grocery store in Toldeo, paid respondent 40 cents for its half gallons of milk and received a 2 percent rebate. Salwitz purchased the entire Sealtest line (Tr. 482). His store was competing with Kroger, Big Bear, Joseph' , and National Tea in the resale of respondent' products, a1l of which stores were paid a 12 percent rebate (Tr. 483).

Earl Alvin Boger, (Tr. 493 et. seq. operated a grocery in Toledo, and paid 40 cents a half gallon, net, for respondent' s milk. He was competing with a Kroger store, about four blocks away, which was being paid a 12 percent rebate; and was paying 35. cents per half gallon of milk. Boger also purchased other products in the Sealtest line.

PRICE DISCRIMIKATIOK- LANSING-JACKSO BATTLE CREEK AREA Sealtest maintains a fluid milk processing plant at Lansing, Michigan, which processes milk, chocolate milk, bottled milk half and half, and skimmed milk (Tr. 581). Additional products in the line butter, yogurt, cottage cheese and coffee cream are obtained from other sources. Al1 of these products, except butter and yogurt, are sold under the Sealtest brand. The sales territory of the Lansing plant embraces a1l of western Michigan (Tr. 627), with distributing plants at Grand Rapids, Jackson and Kalamazoo. Lansing does not manufacture ice cream. Wholesale distribution to stores in Jackson was achieved by p.

NATIONAL DAIRY PRODUCTS CORP. 109 Initial Decision company trucks operated on company routes, transporting milk products from the Lansing plant to Jackson, and by independent contract haulers.

The examiner rejects respondent's contention that its Lansing - Jackson - Battle Creek sales are intrastate transactions, and not in the course of interstate commerce (See RPF 102, 103), in spite of the holding in WilkLrd Dairy Cm' v. National Dairy Products Corp. 309 F. 2d 943 (6th Cir. 1962). On May 27, 1963, the Supreme Court of the United States denied certiorari in the Willard case. Respondent urges that its Jackson-Lansing-Battle Creek operations are exempt from the Robinson-Patman Act under the rationale of the Willard decision. Even though the facts should support respondent's contentions, which they do not, respondent' price discriminations in other areas are suffcient to support a cease and desist order, unless cost justified, or made in good faith to meet the lawful lower price of a competitor. However, in this proceeding the product line involved is not ony fluid milk, but an of the Seal test products sold by it in the Jackson-Lansing-Battie Creek area. The record wil support a finding, in this examiner s opinion, that discriminatory pricing by respondent during the relevant period in its Jackson-Lansing-Battle Creek area did involve Sealtest products which moved in interstate transactions. In his dissent to the Supreme Court' s denial of certiorari in the Willard case, Justice Black pointed out that the lower court decided the interstate commerce question on a technical point of pleading. Willard requested permission to amend its complaint so as to plead properly the facts which would have conferred jurisdiction, and moved to dismiss its complaint without prejudice so that it could file a new suit. The district judge rendered summary judgment, dismissing the suit on its merits. This examiner ruling of January 18 , 1960 , dealing with respondent's "interstate commerce " defense is attached to this opinion as Appendix In his dissent to the denial of certiorari, Justice Black stated in the Willard case:

Judgments like the one left standing here make it diffcult indeed for small, independent, local companies to survive against the predatory assaults of their larger and more powerful interstate competitors. At the time of the September 1958 hearings at Lansing, Michigan, the wholesale price of half gallon Sealtest homogenized, Vitamin D milk was 40 cents in Lansing (CX 62, App. A, Item 2; Tr. 537) ; 38 cents in Jackson (CX 73; Tr. 537, 836) ; and 33 cents ), ), ), ), . . . . ), ), ), Initial Decision 70 F.

in Battle Creek. The wholesale prices of other items in the Jackson-Lansing fluid milk Hne are shown in the price lists appearing in the record as Commission s Exhibit 62, and Exhibit 73. There was a volume discount schedule in the Lansing area similar to that in Toledo (CX 62, App. A, Item 3, Tr. 530, 611-13), containing rebate brackets ranging from 3 percent to 10 percent. This discount schedule was revised as of October 6, 1958, by increasing the rebate payable for 18 000 rebatable points and over from 10 percent to 12 percent (CS 168).

K 0 discount schedule was ever put in effect for the Jackson area (Tr. 541 , 3577- , 3641), although as shown by Commission s Exhibit 62, Appendix A, Item 4, discounts ranging from 5 percent to 12 percent were granted by Seal test to its wholesale customers in that area.

The Sealtest discount schedule was withdrawn in the Battle Creek market shortly after it was introduced, and since August , 1958, the wholesale prices of fluid milk products and by-products in the Battle Creek area have not been subject to rebates (CX 62, App. A, Item 2).

In its proposed finding (RPF 109) respondent admits The record shows that Scaltest fluid milk products have been sold at different prices to different wholesale customers in Lansing and Jackson, Michigan (CX- , App. A, item 4). The price differences among the wholesale customers in Lansing resulted from discounts granted pursuant to the discount schedule in effect there and from discounts negotiated with individual customers. The price differences among the wholesale customers in Jackson all resulted from discounts individually negotiated, no discount schedule having ever been used in that market. (R. 541, 3577- , 3641) At the Lansing hearing, on March 12, 1959, complaint counsel offered the testimony of John M. Foster (Tr. 1319 et seq. Wil- Ham Alexander (Tr. 1334 et seq. Vincent Pecora (Tr. 1337 seq. , David Magliocco (Tr. 1353 et seq. Frank Paradise (Tr 1387 , et seq. Mrs. Ruth Blackwell (Tr. 1398, et seq. Orlando Fabino (Tr. 1411 et seq. and Peter Forte (Tr. 1427 et seq. al1 of whom were independent grocers in Lansing, Michigan. These witnesses testified to the keen competition in their business in that area; and the fact that just a few cents or percentage points difference in the price of Sealtest's products would cause a customer to change from one seller to another. The witnesses testified to the adverse effect of Sealtest' s price discriminations on their business.

Magliocco named Schmidt' s as one of his competitors, sellng NATIONAL DAIRY PRODUCTS CORP. 111 Initial Decision Sealtest' s milk cheaper than he could sell it. Mrs. B!ackwe1l was being paid a 3 percent rebate, paid 37 cents for a half gallon of milk, and had received complaints from her customers that her milk price was higher than the price of her competitors. Among the competitors named were National Food Stores, A & P, and Schmidt' s Stores.

Mrs. Blackwell further testified that 2 or 3 cents in the prke of milk would cause a customer to change stores (Tr. 1403). In administering its rebate bracket in Lansing, a1l stores where there was a common ownership had their purchases aggregated. In Lansing in June 1958, respondent paid rebates to 16 wholesale milk customers with 53 outlets; in July 1958, to 17 v.wholesale customers with 54 outlets; and in August 1958, to 16 wholesale customers with 54 outlets.

Robert A. Tice, Jr., manager of respondent's Lansing area, testified that the sales volume of the Lansing plant for the year preceding the consolidation of the Lansing and Grand Rapids operation on March 1, 1958, was approximately $2 milion, and after the consolidation was $4 milion (Tr. 605). In the area served by the consolidated operation, respondent's Lansing operation was the largest of a1l competitive operations (Tr. 609), its trading area covering Lansing, Jackson, Battle Creek, Grand Rapids and Kalamazoo.

Commission s Exhibit 62 , page 17, shows that in Jackson Michigan, during June, July and August 1958, respondent paid 10 percent rebate to National Food Store, K o. 40, and to Wrigley Store No. 34. It paid a 12 percent rebate to Kroger Store No. 93. Respondent entered the Jackson dairy products market in the spring of 1957. Prior to that time the prices of al1 the Jackson dairies were about the same (Tr. 775). After respondent entered this market, it offered lower prices to the customers of the other dairies who had been in business in Jackson. Dairies thereafter operating in Jackson were Serval1-Jersey; Fornier-Lakeside, Loud & Jackson, Purity Ice Cream Co. of Adrian, Mkhigan, and the Lansing branches of Borden, Swift, and Harvin; Page of Toledo, Miler Dairy Farms of Eaton Rapids, Matthews, a local company, Risdon of Detroit, and Meadow Gold Division of Beatrice Foods (Tr. 6021- , 6033-35). By a series of acquisitions, Harvin is now part of McDonald Dairy Products Co. of Flint. Respondent' s entry into the Jackson market disturbed what had otherwise been a stablized price situation and resulted in price cutting and discriminatory pricing. Initial Decision 70 F.

Oliver Sweitzer of Serva11 Dairy Farms testified (Tr. 664 seq. to losing business to respondent after it entered the Jackson market with its lower prices. The accounts claimed to have been lost included Top Notch Ice Cream Stores, Niehauss Grocery, Putnam s Finer Foods, Kational Food Stores, Inc. , Fenwick' Grocery, Cunningham Drug Stores, and Jackson Food Market Inc.

Mr. Sweitzer testified on September 17, 1958 (Tr. 668). " I attributed the fact that discounts are prevalent today to the fact that it was the desire of National Dairies to attain a percentage of sales in the town and I believe that it was a means of predatory competition on their part to undersell the local dealers. The milk business of the Wrigley Store at Jackson was taken away from Fornier-Lakeside by respondent as well as the Kroger business. Respondent was paying the Kroger chain a 12 percent rebate (CX 62, page 17 in camem) and the Wrigley chain a 10 percent rebate during June, July and August 1958. Among respondent' s wholesale customers in Lansing, those not receiving and those receiving discounts competed in the resale of respondent's milk and milk products, with others especially supermarkets, receiving discounts or larger discounts. The owners of small independent grocery stores, hereinbefore named: Messrs Foster, Alexander, Pecora, Magliocco, Paradise, Mrs. Blackwell Fabino and Forte, receiving either no discounts or small discounts, were competitively injured by respondent's pricing practices in Lansing. They competed with other Sealtest customers who were buying its products at lower net prices. In the Jackson, Michigan, market, Harold Peterson installed the first wholesale route for respondent in early 1957 (Tr. 1437-38). Peterson testified that the price he offered to wholesale customers was the base or list price that other local dairies were charging their customers reduced by respondent's volume discounts which ranged from 3 percent to 10 percent (Tr. 1438-39). Peterson and Cowden, both employees of respondent, solicited wholesale business (Tr. 1440). Some of the stores which received a 10 percent rebate, obtained it without regard to volume (Tr. 1441-45). The amount of the rebate was not reduced in the event that the stores receiving it did not sell the volume upon which a 10 percent discount was based under the discount schedule (Tr. 1443).

When Sealtest entered the Jackson market it undercut the prices previously prevailing in that market. Its discounts were .

NATIONAL DAIRY PRODUCTS CORP. 113 Initial Decision not related to the volume of rebatable products purchased. This pricing practice continued for the most part, during 1958 (CX 62 page 17 in ca.mera). Respondent' s discriminations in price injured its competitors. Its unfavored wholesale customers competing with its other favored wholesale customers were also injured. During the period of the time study, Sealtest discriminated in the prices at which it sold its dairy products in Lansing, Michigan, by paying varying rebates from its list prices to its customers who competed in the resale of Sealtest products. This resulted in competing customers paying different net prices for respondent' s goods of like grade and quality. The following customers in Lansing were paid the indicated rebates from respondent's list prices:

3 percent - - - - - '" Anthony s Foodmarket 'B&J Sboppe Craig s Market DeMarco s Grocery '"Everybody s Market Jim s Market Wally s Food Market 4 percent - Nakfoor Grocery Pete s Market 5 percent - "'Vet' s Market 10 percent - A & P "'Home Dairy *L & L Shoprite Market *Lansing Wholesale Grocery Co.

National Food Stores "'Schmidt Bros. Super Market *Tom s Shoprite Market (CX 62 , page 15) Of these 17 customers, rebates to 9 were individually negotiated, and 8 of the rebates were based upon the rebate schedule.

During the same period other competing customers in Lansing were paid lesser rebates or no rebates at al1. During the period of the cost study (July 1958), respondent' Lansing, Michigan, wholesale customers purchasing ice cream for resale at retail were allowed rebates per unit as follows: CUBtomeT Name Rebate Per Unit Butterfield Theatres, Inc. 0957 Dz. "'Converse Drug 1356 Gal. Family Drug - 1338 Gal. Gasper Drug - - 2304 Gal. N orthside Pharmacy 1726 Gal. Rumsey Pharmacy - - 0539 Gal. Schmidt Bros. Super Markets - - - 0582 Gal. Rebate includes loe per gal. equipment allowance on bulk and package. (CX 62 . page 16. .

Initial Decision 70 F. T. At the same time other competing wholesale customers of respondent who purchased its ice cream for resale were paid either no or differing rebates.

During the period of the cost study (July 1958), respondent' Jackson, Michigan, wholesale customers purchasing ice cream for resale at retail were allowed rebates per unit as follows: Customer Name Rebate Per Unit Barrett' s Take Out 0472 Gal. Butterfield Theatres, Inc. 2500 Dz. Driscoll' s Mkt. 0087 Gal. Ernie Schel1ing 0634 Gal. "'Edw. Schonhard Party Store 0833 Gal. "'Topnotch Dairy Store .4557 Gal. "'Wrigley s No. 84 3031 Gal. Rebate includes per gal. equipment allowance on bulk Bnd package. (CX 62, pa.ge- 18. At the same time other competing wholesale ice cream customers of respondent in Jackson were paid either no or differing rebates. Battle Creek milk customers received rebates August 5- 1958, as follows:

Komarek' s Grocery #1 and #2 rebated at 31 Orchard Park Grocery - - rebated at 31 (CX 62, page 19.

Some of Sealtest' s Battle Creek ice cream customers were paid a rebate for June, July, and August 1958. The rebates per unit paid for July 1958 were:

Customer Jul1l19S8 Unit Rebate li Andy s Drive Inn 2428 Per Gal. Dandy Handy Dairy Store 0583 Komarek Grocery 0723 Mac s Variety Store 1137 Orchard Park Grocery 0238 Purity Dairy Bar 2138 .Rebate includes per Jlallon equipment allowance on bulk and package. (CX 62, page 20. In July 1958, respondent paid differing rebates to its Jackson Michigan, customers as indicated below. These were not based upon any volume discount schedule, but were specially negotiated as follows:

Rebate CURtomeT Topnotch Dairy Store - 10 (later increased to 120/) Barrett' s Take Out National Food Store No. 40 Wrigley, Inc. , No. 34 .

NATIONAL DAIRY PRODUCTS CORP. 115 Initial Decision Rebate CUBtomeT Kulsea Grocery Ideal Fruit Market Robinson s Wildwood Market Hanser Roman Grocery Red Vest Dairy Bar Day s Grocery Dutch Clee s Market Putnam Foods Jackson Food Market 10 (later increased to 12%) Neihaus Grocery Kroger No. 93 (CX 62 , page 17.

Respondent's payment of these rebates constituted (See CX 62 page 17) a price discrimination between the above customers and those receiving no rebates, as well as a price discrimination between respondent's customers receiving differing rebates. It resulted in competing customers paying different net prices for products of like grade and qualiy being sold by respondent in the Jackson-Lansing-Battle Creek area.

PRICE DISCRIMINATIONS-MEMPHIS, TENNESSEE Complaint counsel offered no evidence of discrimination in the prices at which respondent sold its milk to competing customers in Memphis, Tennessee, because the state law prohibited discounts in the sale of milk (Tr. 910). Insofar as this initial decision relates to Memphis, it deals solely with respondent' s pricing of its ice cream.

More than 10 national, regional and local ice cream companies served the Memphis wholesale market. They included: Swift Midwest, Taylor, Sealtest, Colonial, Klinke, Southern, Santi Memphis Ice Cream Co. and Velvet Ice Cream Co. (Tr. 925- 992- 1052 1075) .

The Seal test Foods Division maintains a milk and ice cream plant at :l1emphis which is under the jurisdiction of its Central Division with headquarters at Chicago (Tr. 871-72). The raw milk used by the Memphis plant is obtained in the normal course of business from a receiving station at Martin, Tennessee; 75 percent of this milk is produced on dairy farms in Tennessee and 25 percent in Kentucky. The Memphis plant manufactures the mix used by it in making ice cream (Tr. 880-82), and distributes the ice cream from the Memphis plant and from branches at Milan Tennessee, and Grenada, Mississippi, and by a distributor at Paragould, Arkansas (CX-85; Tr. 863).

Initial Decision 70 F.

The Memphis plant packages ice cream under three brands: Sealtest" (its regular), "Fro-Joy" (its secondary), and "Hyde Park" (comparable to "Fro-Joy ) the private label used for ice cream sold to the member stores of Malone & Hyde, Inc. (hereinafter sometimes referred to as "M & H" ), a Memphis wholesale grocery chain. Sealtest brand ice cream has a higher butter fat solids and flavoring content than Fro- Joy (Tr. 904 et. seq. 5508-09). Respondent's Fro-Joy and Hyde Park brands are goods of like grade and quality.

As previously found, respondent's volume discount schedule for Memphis ice cream, effective February 4, 1957, applied to wholesale sales of package ice cream on the basis of monthly purchases which was:

Discount Gallon/! Per Gallon Less than 50 None 50-79 - 80-109 Ilo-139 140-and over Since February 4, 1957 , the wholesale prices of Sealtest and Fro-J oy package half i'allons and pints have been subject to voJume rebates, ranging from 2 cents to 5 cents per gallon (CX-76; Tr. 53- , 5415-17). An additional 10 cents per gallon allowance was paid on these items to customers owning and maintaining their own refrigeration equipment.

Commission s Exhibit 77 in camera a list of respondent' s ten largest ice cream customers pruchasing for resale at retail, served by routes originating in Memphis, January through July 1958 reflects rebates paid by respondent, as follows: ./q, and 51/ 71/ pet gal/an rebate per gal/on rebates :Malone & Hyde, Inc. - - - Bruno By-Ryt Food Store-Sit per gal. Food Center of Tennessee - - Bud & Hals-5c per gal. (Kroger and National Tea stores Weona No. IOS-5C per gal. should also have been shown as re- Weona No. 106-5d per gal. cipients of 7(: per gallon rebate. Village Grocery-5d per gal. Clarksdale, Mississippi Frayser Drive Market-Sc per gal.

Nic Nac Grocery-3q, 41, 5e per gal.

DeCaro s Drive In-21, 3d, 4c per gal. During respondent' s cost study period in Memphis ending November 18 , 1959, its ice cream was sold at discriminatory net prices to its customers who competed in the resale of such ice .

NATIONAL DAIRY PRODUCTS CORP. 117 Initial Decision cream. Some customers received no rebate, while others were rebated on the basis of the rebate schedule then in effect from 2 cents per gai10n to 5 cents per gai1on, and the large food chains National Tea, Kroger, Food Center, and Malone & Hyde were rebated on the basis of 7 cents per gai10n (RX-109-C). According to Respondent' s Exhibit 117- , Sealtest paid 213 customers in accordance with the package rebate schedule, during the Memphis cost study period, as foi1ows:

Rebate Paid CWJtomerll No rebate 140 21 per gallon - 31 per gallon per gallon gallon - 12 At the same time, 222 off-premises customers were paid offschedule rebates 4-7 cents per gai10n as follows: Customer Locatione Malone & Hyde 190- National Tea Kroger Food Center All other - 22- 222- The 22 locations listed as "aI1 other" in Respondent's Exhibit 117-A are further identified on Respondent's Exhibit 109-C. appears, however, from Respondent' s Exhibit 109- that there are 24 stores instead of 22 listed on Respondent' s Exhibit 109as having been paid off-schedule rebates as foi1ows: Ducount Bracket Rebate Paid (Gallons RebatableJ (Per Gallon) Month- W€€k-11.54 Bolivar Drug Croswell Drug - Philpot Grocery Posey Drug Purdy-Jester Drug Company S. & S. Drug -- - -- -- Swindler s Pharmacy Selmer Drug Peels Drug Rhea Drug Walker s Walgreen A tkins Grocery & Market M. & R. Grocery - _ Initial Decision 70 F.

Discount Bruclret RebntePaid (Ga!londRebatable) (Per Gallon) Month-50- Week -11.55-1S.47 Wings Food Market Fletcher Pharmacy Foppiano s Grocery Harrell Drug - Jack' s Sundry Wiliams Store National Food Store #5 Spotts Drug Month-80-109 Week -18.48-25.

Terrell Drug WaJdran Drug National Food Store #32 - Month-110-139 Week -25.41-32.

None (RX 109C.

During January through July 1958 , of respondent's ice cream customers purchasing for resale at retail in Memphis, the indicated number did not receive rebates:

Total urr.b('r Number not of Wholesale Receiving Month Customers Rebate Percent January 1958 304 219 MarchFebruary 1958 1958 313325 229222 322 199April 1958 321 188May 1958 319 158June 1958 322 162July 1958 This shows that from 50 percent to 73 percent of respondent' s retailer-customers did not receive rebates during the month of January through July 1958.

Many of respondent' s customers who did not receive rebates were in competition with Kroger, National Tea, and Food Center stores, and with retail stores franchised by Malone & Hyde receiving a 7 cent per gallon off-schedule rebate (Tr. 887), and with other retailer customers of respondent receiving 2 cents, 3 cents, 4 cents, OJ' 5 cents per gallon rebate according to its discount schedule.

Malone & Hyde, Inc., food distributor in the Memphis area for many years, maintains warehouses at Tvlemphis, Sikeston, Missouri, and Tupelo, Mississippi (Tr. 5401). From these warehouses NATIONAL DAIRY PRODUCTS CORP. 119 Initial Decision it supplies approximately 333 retail food stores with a full line of grocery products. AJI of its retail stores are independently owned but member stores pay membership fees. In February 1958 221 M & H stores (respondent' s largest group of wholesale customers) in the Tennessee-Arkansas-Mississippi area purchased and resold respondent' s ice cream products (CXs 77 and 91, both in camera).

Commission s Exhibit 75-A is respondent's list price dated July 20, 1957, and the current list prices at the time of hearings in Memphis in November 1958. At that time the price of Fro-Joy had been reduced from $1.9 to $1.15 per gallon (Tr. 867-69). Respondent' s price for a gallon of Sealtest brand in half gallons was $1.32 (Tr. 907).

Mr. Hyde testified that M & H requested respondent to package a private label ice cream that they could seJl at a low price. Respondent sold its private label Hyde Park ice cream at a lower wholesale price to the M & H chain than the competing stores paid respondent for its Fro-Joy brand.

Respondent asserts that the M & H chain constituted only one customer and that, since this firm was the only wholesale food distributor to which respondent sold ice cream, this firm, as a wholesaler, was not competing with any of respondent' s other retailer-customers.

The evidence does not support respondent's position concerning the competition between the M & H stores and respondent' s other retailer-customers. Respondent's general manager at Memphis Vaughn L. Ashenbrenner, testified, and it is found, that many of the stores which did not receive discounts from respondent purchases of ice cream, or received a discount less than that allowed !v & H, competed in the sale of respondent's products with the Malone & Hyde group and with the Food Center stores in Memphis:

Q I would like for yeu to tell me, Mr. Ashenbrenner, I am interested in the question of competition between these stores that receive nothing and the stores of Malone & Hyde and Food Center of Memphis who do receive discounts on the purchases of ice cream; as you win note there from Commission s Exhibit No. 77 you can see the Malone & Hyde discount. Q I want you to tell me if it isn true that many of these stores that I just read off to you from Commission s Exhibit No. 80 who receive no discounts on ice cream, aren t they, many of them in competition with ivlalone & Hyde Stores and Food Center of Tennessee? Initial Decision 70 F.

A Yes, sir.

Q That is in the sale of ice cream? A Yes, sir.

Q And dairy products? Yes, sir.

HEARING EXA:\INER HIER: Is the same thing true with Food Center and these independents? THE WIT ESS: Well, these stores that he is mentioning here, Your Honor, are in competition with Food Center and :Malone & Hyde Stores, yes sir. (Tr. 886 , 887.

The Food Center stores, one of respondent's largest Memphis ice cream customers, at the time of this testimony, consisted of six large supermarkets located generany throughout the city of Memphis. and were receiving, as previously found, 7 cents a gallon rebate, which was 2 cents a ganon more than was provided for Memphis ice cream rebates in respondent' s "volume rebate schedule" (Tr. 888). They also received a 10 cent per gallon allowance if they purchased and maintained their own refrigeration equipment and an advertising anowance computed on the basis of 2 percent of total purchases.

K early 40 percent of respondent's ice cream purchased by :Vlalone & Hyde was packed under the Hyde Park label (RXs 100 117-A). :val one & Hyde salesmen solicited their franchised stores to sell brands handled by the company, including respondent' ice cream. Respondent's driver delivered its ice cream directly to the individual M & H stores (Tr. 1030, 1045, 5402, 5405-6) and upon delivering the ice cream, obtained a signed invoice showing the amount delivered (Tr. 1030, 1045, 5406). During the period of respondent's cost study in Memphis (October 19, 1959-November 18 , 1959), 190 separate Malone & Hyde store locations were represented in Respondent's Exhibit 108- , one of the cost study exhibits. Respondent treated Malone & Hyde as a single customer for some purposes of the cost study, but as 190 individual store locations in running the stop watch time studies.

The 190 Malone & Hyde store locations reflected in Respondent' s Exhibits 108 and 117- , if rebated according to the schedule, would have been in brackets as follows: Rebate Bracket "lumber of Locat!-lna (if) NATIONAL DAIRY PRODUCTS CORP. 121 Initial Decision Rebate Bra.ket Number of Locations 5 -- - ----- 6513 However, these 190 locations were paid rebates, as previously found, of 7 cents per gallon.

In computing the 7 cents a gallon rebate payable to Malone & Hyde on the ice cream purchased by the member stores, respondent aggregated a1l the purchases of a1l Malone & Hyde stores. In addition, an advertising and promotion allowance amounting to 2 percent on total dollar purchases, excluding ice cream novelties which were not rebated, was also paid. The 7 cent a gallon rebate was passed on to the member stores of the Malone & Hyde group. Mr. Hyde testified on November 17, 1958, that the 7 cent a gallon and 2 percent arrangement had been in effect "about two years under verbal agreements with Sealtest. He also testified (Tr. 1011) that the rebates received from respondent are returned to the stores "at the end of their membership period. Every four weeks, Sealtest sent Malone & Hyde a recap "showing the number of gallons each one of our member stores have purchased and the amount of refund that is due them" (CXs 92-A thru 92- in camera).

Clayton P. Thompson, Assistant Comptroller of Sealtest and the man in charge of its Memphis ice cream study, testified (Tr. 4418) that one of respondent's customers at West Memphis (Spotts ' Drug, RX 109-C) which had received a 20 cent rebate from respondent was placed in the 2 cent bracket on Respondent' Exhibit l08-A when the cost study was made. Respondent' s Exhibit 108-A shows that, during the period of the time study, out of a total of 435 customers receiving rebates, according to the exhibit, 204 were in the "no rebate" bracket: No. ofCul!tomeT8 Per Gallon Rebate ReceivinlJ the Rebate Or! - - 204 2r! - - 91 3r! - 4r! - 5r! - - 85 435 (RX 1 08- Competitor witnesses testifying concerning inj ury to first-line competition in Memphis, were John C. Pontius of Robert S. Taylor, Inc. ; Myron Garber, President of Memphis Ice Cream Co. ).

Initial Decision 70 F.

and Hearn W. Tidwell, President of Southern Ice Cream Company. Mr. Pontius testified (Tr. 934) that a 3 percent difference in the wholesale price of ice cream is suffcient to switch business from one supplier to another: that one of his brands competed with one of respondent's brands: and that his business had declined during the last five years (Tr. 926 , 927) because of the competition of supermarkets with drug stores which formerly were the bulk of his accounts.

Myron Garber listed respondent as one of his competitors in the Memphis area (Tr. 972) ; testified that his customers were mostly grocery stores; and stated that his company had not shown a profit for the last five years on account of his competitors low wholesale prices for ice cream" (Tr. 977, 1005). Respondent' s Fro-Joy and Hyde Park ice cream brands, packaged and sold by it at wholesale, are comparable to Garber Thrift-Pak" brand (Tr. 979, 993). The Thrift-Pak brand competes with Garber s "Super Rich" brand and is comparable to and competes with respondent' s Sealtest brand. (Tr. 980, CX 88. ) In Garber s experience, a 2 cent a gallon difference in the wholesale price will influence stores to switch business from one supplier to another (Tr. 989).

Tidwell named, among his competitors, Sealtest, Swift & Company, Midwestern Dairy Products, Taylor Ice Cream Company, Colonial Ice Cream Company, and Santi Ice Cream Company (Tr 1051 , et seq. His "Southern" brand competed with the Seal test brand. At the time of the hearing, November 17 , 1958, he was selling Southern for $1.60 per gallon for pints and $1.20 per gallon for half gallons. It was this witness' opinion that the national companies, such as respondent, usually set the standard of prices in the market and that a difference of 4 percent or 5 percent in price would swing any business.

Al1 of the witnesses testified (Tr. 1055) that price was a big factor in gettng the Malone & Hyde business, and Tidwell stated that on many occasions he had tried, but was unable to obtain business from a M & H member store because of respondent' s special price arrangement with them (Tr. 1056- 1059). Respondent's witness, Clayton Thompson, testified (Tr. 4390) that at least 225 of the customer locations appearing on Respondent' s Exhibit 108-A (one of the cost study exhibits) were rebated at a higher rate than they were entitled to under respondent' s discount schedule, and that the rebates to these 225 locations were not cost justified (Tr. 4392). NATIONAL DAIRY PRODUCTS CORP. 123 Initial Decision Respondent' s volume discount schedule was applied only to sales to independent wholesale customers. Higher discounts were paid to chain stores and central buying groups. Mr. Thompson testified (Tr. 4394-96) :

HEARING EXAMINER GROSS: That is not-see, that is where you and Mr. Smith cross horns, Mr. Thompson, because you have said that these cost justifications are not based on the customer basis but they are based on a location basis; is that right? THE WITNESS: The schedule itself is based on a per location basis, your Honor.

HEARING EXAMINER GROSS: All right. Then if you are going to pay them on a customer basis then you are disregarding the schedule; is that correct? THE WITNESS: That is correct.

THE WITNESS: I was thinking how to phrase jt in a sense. The schedule the discount schedule, and the rebate schedule for package customers or offpremise customers as reflected in the published price Hst at Memphis, which is in my opinion completely justified on RX lob- , that schedule purports to show the cost justification of the schedule itself if applied on a per location basis, or when applied on a per location basis. There are, if our arithmetic is correct here-l am using the 225 locations which was an estimate, if we recall, but that would leave 215 customers or locations that were paid on the schedule, and in my opinion would be cost justified.

Now, as to the balance of the 2f25 locations of which we are speaking, they are not cost iustijied on the schedule themselves that is as to the schedule but are cost justified except for those which I mentioned as against those customers who are on the schedule. (Emphasis supplied. Mr. Thompson further testified as to respondent' s pricing of its ice cream in Memphis:

. . . I found no situation of muUiple store operations that were being paid on the schedule. As have previously testified- HEARING EXAMINER GROSS: When you say these schedules, which schedule do you mean? THE WITNESS: The package rebate schedule. HEARING EXAMINER GROSS: How were they being paid? THE WITNESS: The chains in each case were being paid, as I have said in the two chains, let's say 7 cents per gaHon, which was off the schedule, it was a negotiated price, and there was no reason to find it on the schedule. It is an off schedule price entirely, it had nothing to do with the rebate schedule itself. (Tr. 4756.

Eighty percent of the rebatable package ice cream was sold off-scale in Memphis and not in accordance with the published . . .

Initial Decision 70 F.

quantity discount schedule, as shown by the following tabulation prepared from Respondent's Exhibits 1I7-A and 1I7- Percent Off Scale Scale Totals OffwScaJe to Total No. of Customer Locations 213 222 435 51% Packaged Ice Cream Rebatable Gallons 558 231 12,789 80% One hundred and forty customer locations, or 26 percent of the total, received no rebate during the study week. Seventy-three out of 533 customers received a rebate of 2 cents to 5 cents per gallon (RX 1I7-A). The regular published rebate schedule was applied by respondent to only 20 percent of the gallonage of packaged ice cream sold by the respondent in the Memphis market and surrounding territory.

Respondent bases its claim of cost justification of its quantity discount schedule for ice cream in the Memphis area on Respondent' s Exhibits los- , 109- , 1I7- , lis- , and 1I9- , among others, and the testimony of witnesses Clayton P. Thompson James F. Benjamin and ,John P. Duffy. However, 80 percent of the rebatable ice cream gallonage, as previously found, was sold at off-scale prices. Witness Thompson further testified: HEARING EXAMINER GROSS: In other words, it is your contention that LRXJ l08- rOV€S that ex 76 if administered as it is set out would be cost justified'? THE WITNESS: That is correct.

HEARING EXAMINER GROSS: but the fact of the matter is that it is not administered as it is set out.

THE WITNESS: That is correct. (Tr. 4414. Respondent' s cost exhibits summarized weekly sales and distribution costs classified by package rebate volume brackets for deliveries of ice cream during the study period. The customers were classified on the basis of the volume of ice cream purchased during the study week in accordance with the published rebate schedule (Tr. 4241). However, only 20 percent of the gallonage sold to the customers was rebated in accordance with the published schedule.

Clayton Thompson and James Benj amin testified on behalf of respondent that detailed time studies were made of the wholesale delivery of ice cream produced in respondent' s Memphis, Tennessee, plant (RX 95- H). The time studies were made for a period of one week for each of the nine routes operated out of that NATIONAL DAIRY PRODUCTS CORP. 125 Initial Decision plant during the period from October 19 to November 18, 1959 (Tr. 4146). The delivery and other distribution costs applicable to Memphis ice cream were computed for October 1959 and allocated to the various distribution functions (RX 103) Then the monthly expenses were averaged for the study week and average costs per functional unit obtained as a basis of allocation to customers (RX 105) .

Through the application of statistical formulae to its stop watch observations, the drivers' time was " computed" for each delivery and for each customer location during the study week (RXs 96- , 97, 99, 106, and 107). In allocating "Direct Delivery Expenses" to customers (RXs 107, 108-B; Tr. 4211-13), respondent did not use the time as actually observed, but used this computed" time. However, the computed times differed substantially from the observed times (See RX 115). Few example, on a 10-gallon delivery of ice cream to three different customers, the observed times varied widely, yet the computed times used by respondent were identical:

Delivered Computed Observed Reference Gallons Time (Min. Time ()tin. RX 175A; Tr. 4321- 10.0740 RX I 75G: Tr. 4322 10.0740 RX 175-1; Tr. 4322 10.0740 When respondent later allocated its delivery expense (Tr. 4327), it used computed time, instead of observed time. This resulted in variations of as much as 50 percent from the actuaJities. Mr. Thompson testified:

HEARING EXAMINER GROSS: Don t let me misquote you then. If T understand you, what you are saying is that although your rebate schedule could be cost justified on a theoretical basis that it actually is not being used down there as a matter of practical fact; is that right? THE WITNESS: In these- , sir, it is being used for all of the stores that are on the regular price schedule.

HEARING EXAMINER GROSS: For tbe independents? THE WITNESS: That is correct.

HEAR,ING EXAMINER GROSS: In other words, the independents are being rebated on the basis of the schedule which is here being tried; is that right? THE WITNESS: Yes, sir.

HEARING EXAMINER GROSS: But the chain stores are being rebated on a different basis? THE WITNESS: That is correct, but not because they are chains, your Honor. (Tr. 4756-57.

$ .

Initial Decision 70 F.

For the Memphis ice cream cost study, Respondent' s Exhibit 108-A prepared on a per location basis (comparable to RX 45for Toledo milk) shows distribution costs per gallon of package ice cream.

Rebatable Distribution Volume Rebate Gallons Sold Locations Costs PerRe. Requirements Point (See ex 186-A- batable Gallons 49 Gal. 136 204 6471 50-79 Gal. 338 5014 80-109 Gal. 780 4754 110-139 Gal. 591 .4268 140-over Gal. 944 3425 An other customers 5734 Deliveries to M & H stores were included in the cost study on a per location basis. M & H stores were allocated to the rebate volume brackets as determined by their respective deliveries for the study week. Nevertheless, a 7 cent per gallon rebate was paid on a11 such gallonage.

At the same time, Respondent's Exhibit 117- A reflects the following per gallon distribution costs to respondent's off-schedule customers.

Rebatable Distribution Customer Rebate No. of Gallons Costs Fer Re- Locations Sold batable Gallons Malone & Hyde 190 760 3726 National Food 5552 Kroger 136 4177 Food Center 123 3840 All Others Various 229 4826 A rebate of 7 cents per gallon was special11y negotiated for M & H whose distribution costs were $. 3726 per gallon as well as for Kational Food whose distribution costs were $.5552 per gallon. This reflects a $. 1826 difference in distribution costs between two chains receiving the same 7 cent off-scale rebate. This is a greater difference in distribution costs than existed between the 2 cent rebate bracket ($. 5014) and the 5 cent bracket ($.3425). This casts doubt upon the manner in which Memphis rebate schedule was structured, and the validity of the cost study which was made to justify such schedule. Considered along with the witness Thompson s testimony, supm that 225 locations which had been time studied in connection with Memphis ice cream were rebated at a higher rate than they were entitled to; that these 225 locations were not cost justified; and that the volume discount schedule , NATIONAL DAIRY PRODUCTS CORP. 127 Initial Decision was not used for rebating multiple unit operations, but only for independent customers, Seal test's price discriminations in Memphis appear to have been, and are, found to be precisely the type subsection 2 (a) was designed to prevent. At the time of the hearings the examiner pointed out to the witness Thompson that respondent was going to great expense and trouble to cost justify its Memphis ice cream rebate schedule which respondent had, in fact, ignored for more than 50 percent of its customers and 80 percent of its gallonage (Tr. 4390 seq.

PRICE DISCRIMINA1'IONS-NEW ORLEANS, LOUISIANA Milk:

Respondent maintains a milk and ice cream plant at New Orleans, Louisiana, with distribution branches at Baton Rouge, Louisiana, and Jackson, Mississippi. It operates a condensery at Brookhaven, Mississippi (Tr. 1086). These are part of respondent' s Southern Division with headquarters at Charlotte, North Carolina. A substantial percentage of the raw milk coming into the Sealtest New Orleans plant originates in Mississippi, the remainder originates in Louisiana.

Respondent packaged under its Sealtest brand at the New Orleans plant homogenized milk, cream line milk, chocolate milk buttermilk, skim milk, chocolate drink, whipping cream, breakfast cream, sour cream, half and half, creole cream cheese, and dry cottage cheese (Tr. 1087, 1145). From June 1951 until October 1960, respondent packaged milk products under a private label Velva" for the H. G. Hi1 Stores, Inc., a food chain in the New Orleans area, and for the Winn-Dixie Stores, Inc. , which were successors to the Hi1 stores (CX 98- C; Tr. 1091-92). Although the New Orleans plant never published a discount schedule for Sealtest brand milk items (Tr. 1103-1146), respondent did grant discounts on this brand to select customers. Respondent' s private label milk products, packaged under the Velva label, was supplied to the Hil stores and to the Winn-Dixie super. market chain, as successor to the Hi1 stores, at negotiated prices. In its proposed finding 155, respondent admits- Prior to August 1 , 1958 , Sealtest's "'ew Orleans plant sold milk and milk products to different wholesale customers at different prices. Such price differences resulted from the rebates granted to certain wholesale customers on their purchase of Sealtest brand milk items, and from the somewhat lower prices charged Hil Stores Initial Decision 70 F.

and its successor, Winn-Dixie, for Velva brand milk items." (CXs 98- C, 107- , 108, 109, 114-118) Winn-Dixie is a large corporate chain supermarket operation and almost all of its stores are large supermarkets (Tr. 1160-61). It is an interstate operation, having stores in a number of States including Florida, Alabama, Mississippi, and Louisiana (Tr. 5993). Its capital stock has been traded on the New York Stock Exchange (Tr. 5994). Respondent served a minimum of 25 Winn- Dixie stores from its :\ew Orleans plant and made deliveries by truck to each store (Tr. 1128-29). The Winn-Dixie stores in the Metropolitan New Orleans area were and are in extensive competition with other grocery stores in that area to which respondent sold its products. According to respondent' s own witness, Winn-Dixie "pretty well blankets this area competitively in the retail distribution of milk and milk products. " (Tr. 1165) Sealtest brand milk-half gallons, homogenized vitamin D and pasteurized-were sold by the ""ew Orleans plant at the following wholesale prices from the dates indicated: 2-58 26- D. 47C 49. 49. Pasteurized 4 7 45. 47. 47. (CX 102-105.

Respondent' s prices of Vel va brand milk sold to Winn-Dixie stores during the period January 1 through July 31 , 1958, under its contract with Winn-Dixie as shown by Commission s Exhibits 164-B and 163-F were as follows:

31- ZS- :1-30- Standard Milk gals. 3890 3802 Homo. Vito D 1h gals. 3906 3884 i .3818 31- I 5- July 58 Standard Milk % gal. 3870 ;;8 Homo, Vito 112 gal. 3884 j-t 3672 3784 . During the months of January through July 1958, respondent sold its milk and milk products to 14 :\ational Food stores located in New Orleans and in other places in Louisiana and in Mississippi (CX 115). Respondent's total gross sales to National Food stores amounted to $91 701.82 on which respondent paid rebates of $7 327. 60 or 7. 99 percent of sales (CX 115). NATIONAL DAIRY PRODUCTS CORP. 129 Initial Decision During the months of January through July 1958, respondent also sold its fluid milk products in the amounts indicated to other wholesale customers who received rebates as follows: Nameo-f GrOBS Amount of Percent Customer Sales Rebate Rebate Schwegmann Bros. $62 479. $3,123. (CX 117) Time Saver, Inc. 45,830. 583. 10% (CX 117) B & C Stores 368. 562. (CX 117) J. L. Collns 980. 349. 75% (CX 118) During the months of January through July 1958, respondent sold milk and milk products to Winn-Dixie Stores, Inc. , (which respondent delivered to its stores located in Metropolitan New Orleans) at net biling as per respondent's contract with Winn- Dixie, in the total amount of $464.410 (CX 107-A). Subtracting sales of respondent's milk and milk products sold under respondent' s own trade brand Sealtest, respondent' s sales to Winn-Dixie stores of milk and milk products processed and packaged under Winn-Dixie s trade brand Velva for the months stated, amounted to $385 951 (CX 114).

Respondent' s Velva brand milk products and its Sealtest brand were goods of like grade and quality.

Respondent' s net price of milk to Winn-Dixie during the year 1958 , preceding the November hearings in ew Orleans, was 4 cents or 5 cents a quart (approximately 20 cents a gallon), less than its regular published wholesale price (Tr. 1111). The outof-store resale price for some stores was 49 cents a half gallon in paper cartons.

Commission s Exhibit 109 indicates that of the total number of respondent' s milk customers in New Orleans purchasing for resale at retail from .January through September 1958 , those receiving and those not receiving rebates are divided as follows: Not Receiving Receiving 1858 Customers Rebates Rehates January 631 615 February 634 613 March 640 619 April 642 621 May 645 623 June 651 629 July 659 637 August 665 665 None September 674 674 None Frank Meydrich (Tr. 1182 et seq. independent grocer and operator of the Venice Gardens Super Food Market at 2727 South ), ), Initial Decision 70 F.

Claiborne Street, New Orleans, who had been sellng Sealtest products for a considerable time, testified to the adverse effect upon his business resulting from the competition of a Winn-Dixie store which was right across the street. The adverse effect upon Mr. Meydrich's business was ascribed by him in part to the low price at which the competing Winn-Dixie stores were able to sell Velva brand milk. At transcript page 1193, Meydrich testified that when the housewives found that they could buy Velva milk at a reduced price at the Winn-Dixie store "they stayed with it" and never came back to him.

James L. CoIlns (Tr. 1213 et seg. independent grocer in New Orleans, had a competing Winn-Dixie store right across the street which sold Seal test milk, and ice cream. Collins was paying 45 cents for pasteurized milk and 47 cents for homogenized milk. The Winn-Dixie store was seIJng a gallon of milk for 89 cents which was less than Collins ' cost. Mr. Collins testified further that he had been competitively injured by respondent's pricing practices in New Orleans and that Winn-Dixie was selling respondent' s products cheaper at retail than the price at which Collins could buy at wholesale (see CX 155). Co11ns testified that Velva milk is of like grade and quality to Sealtest milk (Tr. 1219), and that, although his gross sales were showing an increase, his net profit was way down from the previous year due to competition from Winn-Dixie.

Henry L. Weysham (Tr. 1228, et seg. trading as Piggly Wiggly, an independent grocer in New Orleans carrying a general line of groceries, including Seal test products, had a Winn-Dixie store about a block and a half away. He was paying 45 cents or 47 cents for a half gallon of respondent's milk. Although he was given a discount on Sealtest beginning in the spring of 1958 which brought his cost down (Tr. 1232), it did not put him in a position to compete with the 39 cents a half gallon at which Winn-Dixie was selling the milk it was purchasing from respondent. Weysham testified (Tr. 1233), " Milk is a volume item, a traffc item. When housewives can pick up a botte of milk for six or seven cents cheaper than anywhere else, she s going to shop there. "

Witnesses from two of respondent' s competitors, T. F. Carver of Walker-Roemer Dairy (Tr. 1261 et seg. and Hughes O. Otnott, sales manager of Walker-Roemer Dairy (Tr. 1276 et seg. and Cleveland G. Jenkins (Tr. 1291 et Beg. of the Estelle Dairy, testified concerning the competitive impact upon their business NATIONAL DAIRY PRODUCTS CORP. 131 Initial Decision resulting from the discriminatory prices at which respondent was sellng its milk products in the New Orleans area, particularly respondent' s special prices to Winn-Dixie. In addition to Walker- Roemer, and EsteJle, other competitors in the area were Borden and two additional local companies, Brown s Velvet and Gold Seal.

The examiner rej acts respondent' s argument that its declining position in the New Orleans fluid milk market negates any finding of injury to pdmary line competition due to respondent' pricing of its milk products in New Orleans. Proof of injury to primary line competition in a Robinson-Patman case does not require the same evidentiary showing that is required in a Section 7 case. Price discrimination under subsection 2(a) may be proscribed where its effect may be substantially to lessen competition or tend to create a monopoly in any line of commerce. It is possible that the adverse effect may not inure to the benefit of the discriminator, but wil inure to another competitor who reaps the benefit of the price discrimination. Respondent's pricing of its milk in Kew Orleans injured Walker-Roemer and EsteJle dairies even though respondent has not been proven to be the only beneficiary of the price discriminations which respondent practiced. Both Caver and Jenkins testified that Winn-Dixie specials on Velva brand milk c2caused them to lose retail home delivery business. Otnott testified that he was unable to seJl any of Walker- Roemer s milk products to Winn-Dixie although he had been constantly seeking to do so. Walker-Roemer was unable to obtain any of Winn-Dixie s business because of the special pricing arrangements existing between respondent and Winn-Dixie. The evidence supports a finding, and the examiner finds, an adverse competitive effect upon both primary line and secondary line competition as a result of respondent's pricing of its milk products in the New Orleans area. However, as previously stated proof of competitive injury to either the primary or secondary tiye is aJl that is required for the issuance of a cease and desist order.

Ice Cream:

Sealtest' s New Orleans plant manufactures ice cream which it sold and distributed in the New Orleans area and, from branches in the Baton Rouge, Louisiana, and Jackson, Mississippi, areas (Tr. 1086- , 1121- , 6004-05). Such ice cream was packaged under the plant' s own "Sealtest" and " Clover land" brands. Seal- , Initial Decision 70 F.

test brand ice cream contained 12 percent butterfat and true fruits and flavors. Clover land, the secondary brand, contained 10 percent butterfat and might have artificial flavors (Tr. 1088). From 1951 to October 1960, the New Orleans plant packaged ice cream under the private labels Velva for H. G. Hi1 Stores, Inc. and, thereafter Superbrand" for the Hil Stores' successor Winn-Dixie Stores (Tr. 1161- , 5928, 5929-30). Velva and Superbrand ice cream were of substantially the same grade and quality as Seal test' s own Cloverland brand (CX 98- 187; Tr. 1091- 5931- 5906 6000) .

Ice cream manufactured at the New Orleans plant was sold and distributed to wholesale customers in the New Orleans area and from branches, to wholesale customers in the Baton Rouge, Louisiana, and ,Jackson, Mississippi, areas (Tr. 1024 , 1086- 1121-22) .

Sealtest and Clovcrland package ice cream was sold at the following wholesale prices (pel" gallon of half gallons) from the dates indicated:

Jan. June 25, Sept. 3, Aug. 1 $1.70 $1.60 $1.60 $1.60Senltest 1956 HI56 1957 1853 CloverIand 1.40 1.30 (CXs 100, 101 , 197.

Prior to August 1, 1958, the wholesale prices of Sealtest and Cloverland ice cream vv ere subject to volume rebates of 2 cents to 10 cents in accordance with a rebate schedule (CX 106) containing five J'ebate brackets, established on the basis of annual quantities purchased: 6 000 gallons-IO cents; 4 000 gallons 8 cents; 000 gallons-6 cents; 2 000 gallons--4 cents; and 1 000 gallons 2 cents. The schedule provided for the payment of the same rebates on a monthly volume of one-twelfth that of the annual volume requirement for the same bracket (CX 106; Tr. 1104 5909- 5923-25) .

From 1961 to approximately July 1956, Sealtest and Velva products were priced to H. G. Hi1 Stores, Inc. , in accordance with the letter agreement dc,ted May 30, 1951 (CX 98- C). Under this agreement, Velva ice cream was sold to this customer at the same published wholesale price as Cloverland (CX 98-A). Following Winn-Dixie s acquisition of H. G. Hill Stores, Inc., about July , 1956, the private label was changed from Velva to Superbrand (Tr. 5930). On or about August 1, 1956, the net price to be paid NATIONAL DAIRY PRODUCTS CORP. 133 Initial Decision by Winn-Dixie for Superbrand ice cream was established at $1.10 per gallon for half-gallon packages, or $1.05 where Winn-Dixie furnished its own refrigeration cabinets (Tr. 5971). Sealtest ice cream was furnished to Winn- Dixie at regular published wholesale list price as it had been to Hil Stores (CXs 98- , 99; Tr. 5971) .

In its proposed finding (RPF 535), respondent admits: Prior to August 1, 1958 Scaltest's New Orleans plant sold package ice cream at different prices to different wholesale customers (CX 110A and B 119-121). Such price differences were the result of rebates granted to certain wholesale customers on their purchases of sealtest and Cloverland package ice cream, and of the lower net price to Winn-Dixie for Superbrand ice cream.

From January through July, 1958, respondent paid its ice cream customers, named, the indicated rebates: Average Customer Gallons Rebate Rebates per gallon Winn-Dixie 2(- 898. 777. 14.02" (CX 119) Schwegmann Bros. : 13 563 752. 12.920 (CX 121) Time Saver Stores ! 5:238 462. 831 (CX 121) on its own brands of ice cream, Sealtest and CloverJand. A 10 cent per gallon rebate on their purchases of Seal test and Cloverland ice cream were also paid to A & P , J. L. Collins, trading as Piggly Wiggly, Pap s Food Store, P. I.G. Store, Crawford Store, Sav Way Store, and R. C'. Hatton, trading as Piggly Wiggly (CX 1l0- B).

Respondent discrimination in price between different, competing wholesale purchasers in the sale of ice cream of like grade and quality manufactured and sold in respondent' s New Orleans area operations. From January through July 1958 respondent sold its Sealtest brand to a large number of competing customers at the list price of $1.60 per gallon with no discounts. For the same period, respondent sold the Sealtest brand ice cream to Winn-Dixie Stores at an average discount of 14.02 cents per gal- Ion; Schwegmann Brothers at an average discount of 12.92 cents per gallon; and Time Saver Stores at an average discount of 8. cents per gallon. Respondent' s net prices to Winn-Dixie for its ice cream, established around August 1 , 1956 , continued in effect until July 31 1958.

Competition between the Winn-Dixie supermarkets and respondent' s other customers in the New Orleans area, both favored and Initial Decision 70 F.

non-favored customers, has heretofore been found in the milk marketing practices and is reiterated for its ice cream pricing. James L. Collins and Henry Weysham whose businesses were found to have been competitively injured by respondent's pricing of its milk products were likewise competitively injured by respondent' s discriminatory pricing of its ice cream. From January through September 1958 , of respondent's ice cream customers in the New Orleans area purchasing for resale at retail, those receiving and not receiving a rebate and/or refrigeration allowance are divided:

Number not Year Total number Customers Re- Receiving 1958 of Customers ceiving Allowances Allowances J an uarv 386 343 Februa 389 344 March 400 349 April 408 357 May 427 372 June 423 357 July 410 343 August 412 402 September 402 392 (CX 112 in camera.

Respondent asserts that the Louisiana statute, known as the Louisiana Orderly Milk Marketing Act (La. Rev. Stats. , Title 40 Ch. 4 940. 23) which became effective August 1 , 1958, has interposed a statutory bar to future price discriminations in Louisiana and that respondent' s prior price discriminabons in Louisiana are moot and wi1 not be repeated.

The Louisiana Orderly Milk Marketing Act banned aU rebates, discounts, and price concessions on milk and ice cream. In 1962 the Act was amended to provide for the regulation of mile and ice cream pricing by the State Milk Commission. What respondent' s argument boils down to is that the Louisiana Orderly Milk Marketing Act wil prevent it from violating the Robinson-Patman Amendments to the Clayton Act. If the federal regulation of pricing did not prevent respondent from discriminating in the prices at which it sold products of like grade and quality to competing customers in Louisiana prior to passage of the Louisiana statute, what assurance is there that the state statute wil achieve that which the federal statute sought, unsuccessfully, to achieve? Respondent points out that Winn-Dixie has purchased its own milk and ice cream plant, and that since October 1960 responp€y NATIONAL DAIRY PRODUCTS CORP. 135 Initial Decision dent' s New Orleans plant has no longer supplied Winn-Dixie with jJrivate label milk and ice cream (Tr. 6185-86). The thrust of this argument is that since respondent no longer sells to Winn- Dixie, in whose favor it discriminated, it wii not in the future again discriminate in favor of any other customer or customers. This argument is untenable for obvious reasons. The examiner rejects respondent' s assertions that its discriminatory pricing in the New Orleans area has been rendered moot: (a) because the Louisiana Orderly Milk Marketing Act prohibits rebates and other price concessions in the sale of milk and milk products and ice cream; and (b) the loss of the Winn-Dixie account constitutes positive assurance that Sealtest in its New Orleans operations wii not, in the future, violate the Robinson-Patman Act.

Respondent discriminated in price in favor of customers other than the Winn- Dixie stores: Schwegmann Bros. , Time Saver Inc., B & C Store, A & P, Pap s Food Store, P. I.G. Store to the competitive injury of its non-favored customers in pricing both its milk and ice cream in the New Orleans area during the pertinent period. The loss of Winn Dixie as a customer constitutes no positive legal assurance, that respondent may not in the future discriminate in price in favor of other customers as it has in the past.

In the course and conduct of its business in commerce respondent' s Sealtest Foods Division has discriminated in the prices at which it has sold its products in its (1) Toledo, Ohio-Monroe Michigan; (2) Jackson-Lansing-Eattle Creek, Michigan; (3) Memphis, Tennessee; and (4) Kew Orleans, Louisiana, trade areas by selling products of like grade and quality at different prices to differer.t, competing customers. The evidence shows that the effect of such discriminations in price in the areas indicated has been and may be substantially to lessen, injure, destroy, and prevent competiticn between respondent and its competitors, and between respondent' s customers paying higher prices and those customers paying lower prices who compete with the non-favored customers in the resale of the Sealtest Foods Division s product Jine or portions thereof. The record supports a finding and the examiner finds an adverse competitive effect upon primary Jine competition and secondary line competition as a result of respondent' discriminatory pricing practices in the trade areas here involved. Although the evidence has been presented as to respondent' s ice s prod-cream pricing separately from the remainder of Sealtest' Initial Decision 70 F. T. ucts line, this is of no legal significance or effect. Complaint counsel need not have proven a complete and separate case of price discrimination for each of the seventy items in the Sealtest line nor separately for fluid milk products and ice cream in a1l of the trade areas involved. Any unlawful price discrimination proven as to any of the items in Sealtest's product Ene should be enjoined.

Respondent' s price discriminations are legal1ly excused if they have been proven to be either (a) cost justified, or (b) made in good faith to meet the equal11y low, lawful price of a competitor. Respondent concedes that not a1l of its price discriminations are cost justified: For example, in connection with its ice cream cost study in :vemphis respondent's witness, Clayton Thompson, testified that 225 out of the 435 locations which were included in the ice cream cost study were paid rebates which were not cost justified on the basis of the rebate schedule then in effect, and John Armstrong testified in connection with the Toledo-J\Iom' milk study that some of the Toledo-Monroe price discriminations were not cost justified. However, respondent' s over-al1 position is that its discriminatory prices which were not cost justified were made in good faith to meet the lawful, low price of a competitor.

Having found that respondent' s pricing in the four areas was discriminatory and adversely affected competition in the primary line and in the secondary line, it is now in order to consider respondent' s affrmative defenses of cost justification and meeting competition.

RESPO S COST JUSTIFICATION Respondent' s cost study witnesses included, among others John H. Armstrong of tbe management consultant firm of A. Kearney & Company, Chicago, Ilinois, who was in general charge of the Toledo milk study, and Messrs. Rich and Hansen also of the Kearney firm; Kenneth B. Fishpaw, comptroller, respondent' s Sealtest Foods Division; Clayton P. Thompson, assistant comptroller of Sealtest; James F. Benjamin, an industrial engineer on respondent's staff; Dr. Joel Dean of the firm of Joel Dean & Associates, economists, and statisticians; John P. Duffy of the Dean firm; Dr. James :VI. McKie, Professor of Economics and Business Administration, Vanderbil University; and Wilbur S. Duncan, of the accounting firm of Arthur Anderson & Company. Respondent has stated that this study, exclusive of attor- NATIONAL DAIRY PRODUCTS CORP. 137 Initial Decision neys' fees, cost approximately $450 000. The studies proceeded on the assumption that insofar as they dealth with the processing, manufacturing, distribution and sale of Sealtest products, respondent did not have any significant differential in material costs with respect to one customer or group of wholesale customers as against others; that through the processing stage and into the cooler or freezer the raw materials and processing cost the same regardless of what customer received it. Messrs. Armstrong, Duffy, Rick, Hansen and Benjamin rode Toledo-Monroe wholesale milk routes and as a result of their observations prepared forms for recording time spent by drivers on route and delivery functions. A1l daytime studies were carried out for a period of a week for each delivery route during a fourweek period, July 6 through August 2, 1958, on a1l 27 of the regular wholesale routes operating out of respondent's Toledo-Monroe branch for a six-day period Monday through Saturday. This resulted in 162 time studies (Tr. 1786, 1795, 3676-77). A sample time study of a regular delivery route is in the record as RX-24A-Z24 and a sample special delivery time study appears as CX-169A to Z15.

Respondent proceeded on the premise that the time for delivering its products to its customers res presented the most variable of it.s costs; that the output of its delivery men could be expressed in terms of the units of the different products delivered; and that the wire case used hy respondent for its delivery was the most accurate measure of the driver s output (R. 2310). The wire case held nine half-gallons, sixteen quarts, or twenty-five pints, and forty half pints. Irrespective of the product mix "the case is handled by the driver in the same manner" (Armstrong R. 1941). The driver would carry in to the store one case or two, one in each hand. Where more than two cases were being delivered, the driver would stack one case upon another up to five cases and use a two-wheel hand truck to wheel the product into the store. For the Toledo- 10nroe study, half-gallons of homogenized milk in paper cartons respresented the bulk of route sales-63. 54 percent of the total number of cases and 59. 41 percent of the dollar value of the products delivered during the study. Quarts of homogenized milk in paper represented 7.42 percent of the cases and 6. percent of the dollar volume; other items individual1ly represented 2.5 percent or less of the total (Tr. 1946; RX 31A & B). Drop time" was defined in the time study as the time that a driver spent on the premises of a particular customer taking or- Initial Decision 70 F.

del's, delivering the product, placing it in the display case, returning empty containers to the truck, col1acting where necessary, and performing driver to customer delivery functions. Although respondent has proposed many findings which set out in detail al1 of the procedures used in conducting the cost studies in reducing the observed time to IBM cards, verifying the time etc., it is not essential to an understanding of the cost study to describe the study step by step in detail. AI1 of the details of the time study were submitted to complaint counsel in advance of the hearing at which they were offered in evidence and complaint counsel did not put in any evidence of his own to rebut the cost study evidence of respondent. Respondent contends: (1) that "statistical analysis of the Toledo data produced a drop-time curve and estimating equations which, given the size of a delivery, yield the most probable amount of direct labor time required by the driver to make delivery. Respondent claims ' computed time' is more reliable than the actual observed times recorded during the relatively short study period because computed time averages out random factors (which can distort a few observations), such as fast and slow drivers, congestion in the aisles or at the unloading dock, and the like. Thus computed time shows more accurately than a week' observed time the direct labor time requirements necessary in order to service a customer of given size over the course of a year. Respondent asserts additionally (2) testing the Toledo curve by sample time studies in other areas corroborated its validity and provided additional confirmation that an adequate sample had been obtained at Toledo; (3) the sample time studies in other areas showed that the Toledo curve expressed what might called a law of Seal test route men; wherever physical distribution of milk is handled in substantially the same manner as in Toledo, the Toledo drop-time curve may be used as a ' universal curve' for testing time-volume relationships and making cost studies on an economical sampling basis; (4) the fact that, in different mar- (approximately 7c)kets, a relatively constant proportion the routeman s time must be spent in supporting (or route overhead) activities-as shown by the Toledo and the sample time studies-confirms the soundness of spreading indirect time in proportion to the direct and assignable time. Respondent presented in two steps the Toledo cost study: First store,respondent computed the cost of serving each off-premise location by location, for the week studied; it then classified al1 NATIONAL DAIRY PRODUCTS CORP. 139 Initial Decision such customer locations-on the basis of volume delivered during the study week-in brackets corresponding to those of its discount schedule (CX 5, p. 8; CX 168P). Second, respondent presented evidence with respect to the actual costs of serving, and the discounts it actually paid to, different "purchasers" at Toledo (RX 47 A-C, 54, 57 A-B). It collected the costs of serving onestore customers (grouping them by volume bracket), and it collected the costs of serving voluntary and cooperative group and corporate chain customers, showing the cost of serving each such purchaser for all the store locations it operated. It is respondent' s contention that section 2 (a) of the Robinson- Patman Act, by its terms, prohibits discrimination in price only as "between different purchasers " ; that the individual stores of a corporate food chain, such as Kroger, A & P, Malone & Hyde, and Winn Dixie, are not individual "purchasers" under the Act, but that The Kroger Company, A & P, Malone & Hyde, and Winn Dixie is the purchaser and each store location is merely a delivery point. Respondent contends that in adopting the cost justification proviso Congress clearly intended that the cost of serving cOJ'porate and cooperative "chains" should be considered, and this Commission has consistently dealth with the business entity, regardless of its units receiving deliveries, as being the "purchaser " for cost justification purposes. Accordingly, it is the cost of distributing to the food chain, and not to its individual store locations that is to be considered in connection with the application of the cost justification proviso.

Additionally, respondent contends that while it may properly classify its customers in volume brackets and use its discount schedule as a yardstick for determining discounts to be paid to individual store operators (it being completely impractical to make monthly study of the cost of serving each such store), it may at the same time pay discounts to chain customers either on the basis of averaging individual store volumes to determine bracket or on the basis of individual negotiations, so long as the discounts so paid make only due allowance for cost savings actually realized in serving sucb customers as opposed to their competitors. As a result of its experience in the Toledo milk cost study, respondent' s study for Memphis ice cream was on a somewhat streamlined procedure. The exhibits in this latter study correspond to a large extent to exhibits in the milk study and serve like purposes (Tr. 3806-08). During the Memphis studies, package ice cream sales (half-gallons and pints) represented 81 per- Initial Decision 70 F. T. cent of the total volume, including bulk, package, and novelties. The half-gallon respresented 94 percent of the package sales (R. 3814). Half gallons were packaged two to a bag and handled by the plant and the delivery man in a gallon unit. Pints were packaged eight to a box, also constituting a gallon and handled in the same fashion.

The ice cream was distributed on 9 routes operating out of the Memphis plant (the 9 routes handling about two-thirds of the plant' s production), and through branches at Milan, Tennessee, Grenada, Mississippi, and a distributor at Para gould, Arkansas. An ice cream route operated in similar fashion to the wholesale milk route except that the ice cream trucks were kept at much lower temperatures (Tr. 3810-11). There was no shipping platform for Memphis ice cream as there was for Toledo milk. The ice cream moved directly from the hardening room into the refrigerator trucks, and the ice cream driver in :vemphis did not load: he merely checked to be sure that the truck contained what he had ordered the night before.

Clayton P. Thompson, assistant comptroller of Sealtest Foods had overall supervision of the time study in Memphis. James F. Benjamin, an industrial engineer on respondent's staff, was responsible for making the time studies and compiling the data, and John P. Duffy of Joel Dean Associates, was responsible for the statistical analyses (Tr. 3821- , 3829, 4005- , 4853-54). Three men from respondent' s audit staff, Messrs. Foy, Sackett, and Keefe, who had prcviously worked on the Toledo studies made the actual time studies. They also did the compiling and helped with the accounting phase (Tr. 3822-3823). Drop time " at :vemphis was taken as an individual reading (Tr. 3826- , 4006- , RX-91). The observers rode with the drivers during the complete day from the time they punched the clock in the morning unti they punched out at the end of the day and recorded the amount of time it took to perform the various activities involved in running their routes and making their deliveries (Tr. 4014- , 4822-24). The time stndies began on October 19 1959, and continued until Kovember 18 , 1959, each of 9 routes being studied one complete week during the period. The study covered fifty route days (most routes operating 6 days a week but some a lesser number). The studies included observations of slightly over 1 000 deliveries to more than 500 customer locations (Yr. 3823- , 3910, compare RX 96-D).

In certain details, the Memphis ice cream cost study differed NATIONAL DAIRY PRODUCTS CORP. 141 Initial Decision from Toledo milk in that (1) the gallon package was used as the unit of measure instead of the wire basket, and (2) the drivers did not load the ice cream trucks at Memphis. The trucks were pre-loaded. Certain time which had to be computed in with Toledo milk did not have to be computed in the Memphis study. The rebate on Memphis ice cream is and was expressed in terms of cents deducted from the posted wholesale price per gallon instead of in the percentile rebate brackets used in Toledo milk.

Otherwise, most of the observations with reference to the validity of the technical, scientific, legal and accounting aspects of the Toledo milk are reaffrmed as to Memphis ice cream. That is to say, the method of making the study, the procedures for using the data after it had been collected, and the data s effcacy in establishing the cost justification for the :Memphis rebates are as valid for Memphis ice cream as they were for Toledo milk. These aspects of the Memphis study have not been specifically challenged by rebuttal evidence of complaint counsel. In Memphis ice cream as in Toledo milk the real problem arises from the fact that although the cost study indicated that a certain rebate should be paid to a particular customer location, in too many insiances a higher rebate was paid to that customer. Sealtest has the same challcnges to meet with reference to its ice cream cost studies that it has to meet with reference to its Toledo milk study. How does it rationalize its off-scale and off-list rebating? Its rationalization for off-scale and off-list rebating of Memphis ice cream is the same as for Toledo milk that substantially all its off-scale and off-list pricing was either (1) cost justified, or (2) done to meet competition. An additional problem in Memphis ice cream was the Malone & Hyde situation which accounted for a large bulk of Sealtest' s volume of ice cream in Memphis and which was rebated at a flat 7 cents per gallon, which figure was not even on the rebate schedcon-ule. Sealtest maintains that Malone & Hyde is a wholesaler, stitutes only one customer, and that the retail outlets for which Malone & Hyde acts as wholesaler are not, in fact, privy to pricing arrangments between Malone & Hyde and Sealtest. John P. Duffy testified that he concluded in connection with the Memphis ice cream study that it did not make any significant difference whether they used the package or the gallon as the unit of measure or some combination of the two (Tr. 4884) ; that the rebate schedule . . does not reflect.. other highly parti- .).

Initial Decision 70 F.

cularized factors. . . " (Tr. 4869 et seq. We have got to eJevate or restate these highly particularized observations to the same level of generality that obtains in and is reflected by the rebate schedule. This can only be done by an averaging process. (Tr. 4870; italic supplied. ) At page 4873 the witness testified that it was necessary to use estimated times as opposed to observed times because "the use of observed time would entail serious inequities. " (Tr. 4874.

Respondent emphasizes that it regards its cost justification defense "with a great deal of seriousness. " (Tr. 5843. ) The examiner has considered such cost justification with equal seriousness. This cost justification involves thousands of pages of transcript, numerous exhibits, graphs, and cost projections. It includes the testimony of many witnesses and the expenditure of $450 000 as above stated. The examiner, who observed aB the cost study witnesses, hereby attests to their excellent professional competence educational background, qualifications and knowledgeabmty. After having considered the entire record on cost justification the examiner finds that the respondent has not proven by reliable probative, and substantial evidence in this record that its price discriminations, which have heretofore been described in part made only due aBowance for differences in the cost of manufacture, sale, or delivery resulting from the differing methods or quantities in which respondent's Sealtest Division s productsthe entire product line, including ice cream-were sold or delivered to the favored, vis-a-vis the unfavored, customers. Stripped of technical, statistical, and economic ornamentation the basic thrust of the cost study evidence was to justify two quantity rebate schedules the milk schedule in Toledo-Monroe in July 1958, and the ice cream schedule in Memphis, Tennessee, during October 19--Kovember 18, 1959. (These schedules have previously been set out on p. 92 for Memphis ice cream and pp. 93-94 for Toledo-Monroe milk.J Respondent' s basic premise for both these cost studies has been as previously stated, that its material cost for its products up to the time that they are ready for delivery to its customers is substantially the same-that it is only in the delivery and distribution of its product that the costs vary. Kenneth B. Fishpaw testified (Tr. 5751) "Web, I believe that the only common denominator we have for allocating distribution costs is time. '' * * Time is a controlling factor of cost and is common to each of our markets.

), NATIONAL DAIRY PRODUCTS CORP. 143 Initial Decision Dr. Roberts, president of Sealtest Foods, testified: The purpose of a schedule of this kind lrespondent' s discount schedule) is to be able to reflect to the buyer, which in this case would be a store, the cost reduction which the disb'ibutol' has in delivering larger volumes per stop, per delivery, as against a small stop operation. (Italic supplied. For example, a person who may buy two cases of milk as against a person buying 20 cases of milk, there is a lower cost per unit in delivery of the 20 cases than there is in the case of two cases. * '" '" (Tr. 6182. rhis premise is not startling, nor surprising, and Commission counsel has not challenged it.

The specially concurring opinion of Justice Douglas in United States v. Borden Company, 370 U. S. 460 (p. 472 et seq. is so descriptive of the instant proceeding to justify its reproduction in full. In that opinion Justice Douglas said: This is not a case that involved problems of centralized purchasing by Jarge enterprise for all its constituent members, where the volume involved reduces the unit cost. We have here purchases by constituent members of chain stores of milk and milk products that will be sold at the particular store. The competitor is not a membel' of 6, competing chain or, if it is the chain of which it is a part is a smaller one. The costs studies here involved have little, if any, relation to centralized managemEOnt. They in the main pertain to t\vo factors of cost. First, is the volume of sales of milk and milk products to the individual store and the method of payment. Second, the degree to which the store relieves the seller of milk and milk products from the costs of handling the product as it enters the store, of stacking or storing the products, and of returning the empty bottles or cartons. The changes in the Clayton Act made by the Robinson-Patman Act now before us were made to limit discounts as "instruments of favor and privilege and weapons of competitive oppression. " S. Rep. No. 1502 , 74th Cong. , 2d Sess., p. 5; H.R. Rep. No. 2287 , 74th Cong., 2d Sess., p. 9. The allowance by 2(a) of "differentials which make only due allov.:ance for differences in the cost of manufacture, sale, or delivery resulting from the differing methods or quantities in which such commodities are to such pprchasers sold or delivered" was explained as follows:

This limits the differences in cost which may justify price differentials strictly to those actual diffe?'ences trQ,ceable to the particular buyer for and against whom the discrimination is granted, to the different methods of serving them, and to the different quantities in \which they buy. But such differentials whether they arise in operating or overhead cost must, as is plainly stated in the phrase quoted above, be those resulting from the differing methods or quantities in which such commodities are to such purchasers sold or delivered.

This, in its plain meaning, permits differences in overhead where they can actually be shown as between the customers or classes of customers concerned, but it pncludes differentials ba-sed on the imputation of overhead to particular C1Jstomers or the exemption of others from it where such overhead repre.sents facilities or activities inseparab1e from the seller s business Initial Decision 70 F.

as a whole and not uttributable to the business of partimdar customers of the particular customers concerned in the discrimination. It leaves open as a question of fact in ea.ch case whether the differences in cost urged in justification of a price differential-whether of operating or of overhead costs-is of one kind or the other. That is, whether or not it answers the above requirements as to differences resulting from differing methods or quantities in which such commodities are to such purchasers sold or delivered. " H. R. Rep. No. 2287 supra, p. 10. (Italics added. While in some cases costs relevant to the issue of discrimination under the Robinson-Patman Act may be computed class by class, the only costs relevant here are those computed store by store. The question of cost of delivery to all stores in the favored chain is hrelevant, because overhead costs applicable to a business as a unit have no bearing on any of the cost formulae presented by this record, In the case of Bowman DUlTY Co. as the Court points out, the company charged all independents for customer service rendered by Bowman s dcliv erymen whether the independents availed themselves of the service or not. Bowman also charged independents for the time and expense of daily cash collections and for the costs of delays in collecting. These items were charged to independents even though it was not shown that their system of payment was always in cash, rather than by central bilings, the system used by the chains.

In the Borden case an independent who purchased substantially larger quantities than the average chain store could not qualify for the discount the chain store obtained. This resulted because the independents were treated as one class, the chain stores as another class. As in Bowman the independents who did not make cash payments were treated as if they did; and they were not given the advantage which the chain stores enjoyed by reason of central ized biling even though they were on a credit basis. What was said in Champion Spark Plug Co. 50 F. C. 30, 43, is relevant here:

Respondent' s cost of doing business undoubtedly varied as among its different customers. All of its selling expenses were not applicable on a proportionately equal basis to sales to all of its customers. However, in the absence of a sound basis for determining the actual cost of selling to particular customers, the sales to each customer must bear their proportionate share of the entire selling expense. A cost justification based on the difference between an estimated average cost of sellng to one or two large customers and an average cost of selling to all other customers cannot be accepted as a defense to a charge of price discrimination. Where centralized purchasing for many stores takes place, the costs of dealing with the group as a class become relevant to the problem under 2(a). But where, as here, no centralized purchasing is involved, the store-by. store costs are the only criteria relevant to the 9 2(a) problem. Otherwise those with the most prestige get the largest discounts and the independent merchants are more and more forced to the wall. The case was argued as jf the grant of discounts was a natural right and that the Act should be construed so as to make the granting of them easy. The Act reflects, however, a purpose to control practices that lead to monop- NATIONAL DAIRY PRODUCTS CORP. 145 Initial Decision oIy and an improvcrishment of our middle class. I would therefore read it in a way that preserves as much of our traditional free enterprise as possible. Free enterprise is not free when monopoly power is used to breed more monopoly. That is the case here unless store-by-store costs are used as the criteria for discounts. This case is thus kin to that in Moore v. lvlead' s Fine Bread Co. 348 U. S. 115, where the lush treasury of a chain was used to bring a local bakery to its knees. Here, as there, the chains obtain a "competitive advantage" not as a result " of their skills or effciency" but as a consequence of other influences.* There pricecutting was the weapon. Here it is the discount. Each leads to the same end-the aggrandizement of power by the chains and the ploughing under Of the independents. The antitrust laws, of which the Robinson-Patman Act is a part, were designed to avert such an inquest on free enterprise, Even though respondent' s Toledo milk and Memphis ice cream rebate schedules had been cost justified on the basis indicated by Justice Douglas, which they were not, for reasons which are pointed out in this decision, such rebate schedules were disregarded so frequently that they were not the basis for respondent' pricing of most of the volume of its products which were sold to its competing customers during the cost study periods in Toledo and Memphis: only three out of 22 Kroger locations, al1 rebated at 12 percent, purchased the 40 000 rebatable points, required during the cost study. The feeding of distribution data and costs from 19 Kroger locations rebated at a 12 percent rate which they did not earn, and locations of other customers, rebated at a higher rate than they qualified for, distorted the data. The inclusion of 190 Malone & Hyde locations in Memphis (rebated at 7 cents per gallon, 2 cents per gallon higher than any bracket of the schedule), likewise fed non-representative data into the Memphis cost study. Eighty percent of the Memphis gallonage was rebated at a higher rate than the locations earned. If the rebate brackets in the discount schedules were supposedly fixed by respondent's time studied distribution costs, it must be pointed out that respondent paid a 12 percent rebate to Toledo customers whose distribution costs varied, as stated elsewhere in this decision, from a low of 9. 60 percent to a high of 24. 37 percent. In Memphis there was a similar great variation in distribution costs in the same rebate bracket: For instance, although both were rebated at 7 cents per gallon, Malone & Hyde had a stated per gallon distribution cost of $.3726 (CX 186H), whereas Kational Tea had a stated cost of $.5552. Aside from such savings as might have resulted from central *See Curtis/! Candy Co. 44 F. C. 237 , 267-268, 274: International Sau Co 49 F, C. 138 153- 155 , 157: Champion Spark Plug Co., 50 F. C. 30, 43. . _ Initial Decision 70 F.

biling, and sales expense, the cost of delivering Seal test products to the 190 separate Malone & Hyde locations in Memphis did not vary substantially from the cost of delivering the products to 190 independent locations. Each Malone & Hyde location required the same amount of distribution time as though it were an independent location. If bracketed as independents the 190 locations would have received rebates as follows:

Rebate brackets Number of locaHonD - - - 51 - - - --- - - - 40 -- - - _u - - - 13 - - - 65 Another objection to the cost studies is respondent's use of computed" time instead of "observed" time. Respondent has asserted in its proposed findings, in its original brief, and its reply brief that the application of correlation analysis and the "method of least squares " to the time study data has been approved by government agencies including the Federal Trade Commission, in similar cost studies. It was by this procedure that respondent' cost experts converted "observed" time to "computed" time. N evertheless, when a particular delivery function of respondent was observed and timed, the observed time should have been fed into the data analysis process, rather than a proj ected "computed" time. The witness Thompson admitted that the substitution of computed time resulted in processing cost study data which varied as much as 50 percent from the actual observations (Tr. 4327 et seq.

In Memphis 10 231 out of 12 789 rebatable gallons sold during the cost study period were rebated off-scale, and more than 50 percent of the customer locations served were likewise rebated off-scale.

According to RX 45C 423 Toledo-Monroe locations which were cost studied during July 1958 grouped into discount brackets according to volume of rebatable products purchased during the week of the study as follows:

Rehntnble Points Discount Per Month wcati0I18 Req1.jred Rebate o - 699 165 700 - 999 1000 - 1499 NATIONAL DAIRY PRODUCTS CORP. 147 Initial Decision Rebatable Points Discount Per Month Lccatiou8 Required Rebate 1500 - 1999 2000 - 2999 3000 - 4999 5000 - 6999 7000 - 9999 10000 - 14999 15000 - 24999 10% 25000 - 39999 11% 40000 and over 12% A& P 10% However, according to RX 57, of these 423 locations those belonging to voluntary and cooperative groups, stores under common ownership and corporate chains were actual1Jy rebated as fo1Jows: Voluntary Ilnd Cooperative Groups: Rebate Paid No. of Locations Associated Grocers 12% Red and White Tri County Super Dollar Saveway Stores under Common Ownership:

Foodtown (Monroe) o New Beer Stop, State Park Beer Stop and Golden Drumstick I ;!- P Casper-Miglores Corporate Chains:

A A&P Sears Bellmans Big Bear Josephs National Kroger Wrigleys Seaway Foodtown, Inc.

153 locations RX 45C (which follows) gives a per location breakdown of the rebates earned by these customers based upon volume of rebatable products purchased during the week of the cost study, to wit: OF OOO- Over 231.77-Over 12% + Study 000-H99 of 769.23-231.76 11% 9+ (3!J 000- 22 10% 24,!J99 ,461.54-5,769. DISTRIBUTION 000. 307.69- 14,9!J9 23,461.53 Purchased-Week MILKCUSTOMERS 000-999 9 615.38-307.68 1,2 MONROE 000-D!J9 37 Product 6 153.85-615. 84 31- AND 11 CONSUMPTION 000-!J!)!) 6'Ya 153 1 6\1.1 Rebateable 999 0 of 000-2 6fj2, TOLEDO 461.5-1- PREMISE Volume u8 500-l.Jgg 46U,3 by I Ii' #7018OFF 346.15- C.B 1fJ9 "i10 41 000-1 346,14 230.77- 1-- F. . AND -76 Locations 3111 99() : of RX45A 1!)700- 161.5 151 164 161.53 Number IN 0- I I I I CORPORATION, Total 225 SIZE 355 III I ! f-- RY Drum Park Brackets- Product Product Oumership PRODUCTS Locations: Scale Scale#Bracket- Dollar OnOff Month# Corporate Rcbateable Bracket-Week StateGolden LOCATIONS Discount Customer Cooperative and of Grocers DAIRY Super Common(Monroe)Stop, Miglores of Scalc- Rehateablc Relmteablc Different Sales Same White Versus and - Except Customer Stop Month ofWeek: in ofMonth: in Cent Beer tions andCounty Under Chains Pcr Per PerDollar Week Reerstick Total Points Points Discount Doca ThoseVersus Those GroupsAssociatedRedTriSaveway FoodtownNear Caspers NATIONAL Toledo-Monroe Distribution Individual Voluntary Stores III 2, August ending period both Monro, in deliveries weeks four of 1.4 and Toledo in deJiverea weeks eight of 405 423 % of custOlne:r. basis these the of on Locations listing Inc. deliveries detailed Premise forChains: Foodtown, Off special 5-1 Markets Bear RX Total SearsBellmansBigJosephsNationalKrogerWrigleysSeaway A&P jf1cJudin #SeeCorporate Note: 1958. Initial Decision 70 F.

According to RX 57 A respondent' s maximum 12 percent rebate was paid to J 23 locations of a group of respondent' s customers in the Toledo-Monroe area even though only five locations qualified for a J 2 percent rebate according' to RX 45C. Respondent admits in its proposed findings (RPF 338) the 12 percent discount to Associated Grocers and Tri-County Super Dollar among the voluntary and cooperative groups, the 10 percent discount to A & P, the 7 percent discount to Sears, the 10 percent discount to Bel1man s are not fully cost justified. The cost studies failed to establish the basis upon which respondent assigned rebatable points to the various items in the Sealtest product line. For example, why was one rebatable point assigned to a quart of milk and eight points assigned to a quart of whipping cream? (p. 93 s"pm. Which was done first in Sealtest' s rebating practices: assigning rebatable points to the items in the product line, or ascertaining distribution costs? This is vital because one of respondent's drivers could carry a case of whipping cream into a customer location in the same time that he could carry in a case of quarts of milk, but the customer would earn eight times as many rebatable points for the whipping cream as for the milk. It is true that some of the cost study witnesses testified that they had studied "product mix" for the deliveries and concluded that it averaged out. However, if time is the most costly element in Sealiest' s delivery and distribution process, and it takes the same amount of time to deliver a case of milk as it does to deliver a case of whipping cream, but the whipping cream is worth eight times as many rebatable points as the milk, this element should have been taken into account in the time studies. A Seal test driver serving a large supermarket might be able to deliver many cases of whipping cream because the supermarket sells suffcient whipping cream at retail to buy it by the case. Another driver, delivering to an independent grocery store, possibly would deliver cases which contained considerably fewer rebatable points per case, but require the same amount of time to deliver.

Using "rebatable points" purchased as a basis for fixing rebates appears therefore to be inconsistent with using "distribution costs " unless the correlation of the two is shown better than was done.

Another practice in respondent's cost justification which the Commission and the Courts have disapproved is "aggregating and "averaging" the purchases by al1 the locations of multi-unit NATIONAL DAIRY PRODUCTS CORP. 151 Initial Decision customers in determining the rebate bracket into which the customer falls. In its Reply Brief (p. 33) respondent asserts: In one breath, counsel supporting the complaint contends that Sealtest aggregated the volume of multi-unit purchasers in order to determine their rebate brackets under its discount schedules and in the next breath he states that large portions of Toledo milk and Memphis ice cream volume were sold off-scale that Seal test' Toledo milk rebate schedule "was not used determining the applicable rebate on sales to chain or group stores" (CCPF 63), and that a large portion of Seal test' Memphis ice cream volume "was sold off-scale and not in accordance with the published quantity discount schedule (CCPF 69) (emphasis supplied). These two propositons are obviously incompatible: either Sealtest aggregated volume in order to determine rebates payable in accordance with its schedules or it negotiated rebates outside its schedules (to meet competition). As we have demonstrated in our proposed findings of fact (RPF 354- , 613), the latter proposition is true; the former is not. The examiner respectfully disagrees with respondent' s position stated above. RX 45C, supra lists 16 customers in the voluntary and cooperative groups, stores under common ownership, and corporate chains, with 153 locations, for which the volume was aggregated in order to determine their brackets under respondent' discount schedules. Messrs. Whittaker, Armstrong, Clayton and Duffy testified that Sealtest aggregated and averaged the purchases of multi-unit customers to determine rebates payable according to the rebate schedules and to fix off-scale rebates. Respondent' s multi-unit customers were cost studied on a per location basis, but paid rebates on the basis of aggregating the sales of all the units in a chain.

Respondent' s position is that the cost justification statute uses the word "purchasers" and, therefore, the point of competition is between "purchasers Malone & Hyde vis-a-vis National the indepen-Food, Kroger vis-a-vis A&P, the chain vis-a-vis dent. Although 22 Kroger locations were included in the Toledo- Monroe cost study, John Davis testified that he competed with a specific Kroger location, a specific Big Bear, and a specific Joseph' s location. Ben Peterman likewise named a specific Kroger and Gruber store in his vicinity. The Betrus' store competed with specific Foodtown, Kroger, Wrigley and Gruber stores. The independent store owners who testified from other areas were able to indicate the specific locations of their competitors, as well as the multi-store operators as a class.

In the Borden opinion supra Justice Douglas stated, inter alia:

Initial Decision 70 F.

While in some cases costs may be computed class by class, the only costs relevant were those computed store by store Although complaint counsel has not pressed his allegation of territorial price discrimination, such territorial price discrimination would exist if large national retail grocery chains such as Kroger and A&P could, by negotiating an off-scale rebate in a particular area be put at a competitive advantage with reference to its competitors in an adjacent area. The innate nature of dairy products being what they are (not susceptible to warehousing, central distribution techniques, etc. Sealtest products must be delivered to the store location from which they are resold at retail. It is from a specific location that competition emanates.

During the course of the hearings respondent's witnesses were asked to react to a hypothetical situation in which two grocery stores purchase the identical volume of Sealtest rebatable products for any given period of time. One of the stores is an independent being rebated at 5 percent and the other store is a member of a corporate chain rebated at 12 percent. None of respondent's witnesses was able, within the theories of its cost studies to justify paying a 5 percent rebate to the independent and a 12 percent rebate to the adjoining corporate chain store, without the competitive injury which the statute is designed to prohibit. John Armstrong testified (Tr. 2666):

A. Well, the first question that had to be determined was whether and what was the relationship between distribution costs and the volume in which customers were served and whether the discount schedule that Toledo had used was cost justified in itself. We chose to test whether the discount schedule was cost justified on a per location basis. I emphasize that because in making this test we did not aggregate the sales to the various chains or voluntary groups. Vle took each location of the chain or voluntary group and let it stand on its own feet. \Ve were using the data purely to test the relation ship between distribution costs and the volume delivered during the week of the study. RX 45-A shows that the discount schedule interpreted on a location basis is cost justified.

Mr. Armstrong further testified (Tr. 2677) that the cost study never analyzed A&P by volume bracket. On respondent' s Exhibit 45 "* * .. A&P is set forth separately as 18 Jocations. . . . Because A&P doesn t buy a full line of products. It buys only cottage cheese." Nevertheless A&P was granted a 10 percent discount on its purchases of cottage cheese alone (Tr. 2680). The NATIONAL DAIRY PRODUCTS CORP. 153 Initial Decision cottage cheese purchased by A&P was only one out of 70 products in the Sealtest Jine. Respondent has not proven that the A&P stores, considered on an aggregated basis, or on a per location basis purchased between 15 000 and 25 000 rebatable points of cottage cheese per month during July 1958 so as to qualify for the 10 percent rebate under the schedule then in effect. James W. McKie, who, among other things, had ridden the company delivery trucks in order to be familiar with its distribution problems, testified (Tr. 2831-32) : Q. Then if the record shows that a Krogers store by reason of the quantity received was placed in a certain bracket and the discount that that store actually received did not correspond to the bracket in which the qllantity placed , what effect would that have on your computation: A. It wouldn t have any effect on the computation of the actual cost saving. It would have no effect at all upon that because the measurement of the time associated with the volume of product dehvered depends upon the volume of product delivered. It had nothing to do with any discount actual,lly paid. (Emphasis supplied.

Q. "Tell, do you mean to say that if 100 cases of milk are delivered to the Kroger store and 100 cases of milk are delivered to an independent store that the costs of delivery are different? A. No, sir, I do not. Our computation would show, I am speaking now of Mr. Duffy s computations, Mr. Duffy s computations would show, in my judgment, that the avemge costs a",sociated with these two deliveries would be the same. (Emphasis supplied.

As previously stated, in August 1960, respondent put a new discount schedule into effect in Toledo (p. 94 supra) but did not make new time and cost studies to justify the new schedule. Respondent utilzed the time studies, cost studies, quantities purchased, as well as the other data which had been collected when it supra) Res-was cost studying the old Toledo schedule. (p. 94 pondent asserts, nevertheless, that its new schedule is equal1ly as well cost justified as the original Toledo schedule which was cost and time studied. It would appear, therefore, that under respondent' s theory practically any rebate schedule could be cost justified. In its proposed findings (RPF 343, p. 143), respondent states Accordingly, there is no particular or specific discount schedule which is necessarily applicable to a given market; there are many possibilities with respect to different bracket widths, different breaking points between brackets, and different amounts of discount. * * *"

Respondent asserts that its volume discount schedules represent a good faith attempt to pass on cost savings to its customers; ).

Initial Decision 70 F.

and that some sort of volume discount pricing is essential to the survival" of the dairy industry. A volume discount schedule which is properly cost justified, and administered without discrimination, may provide a pricing mechanism by which cost savings are passed on to Seal test customers. Volume discount schedules are not unique to the dairy business. The Commission and the Courts have passed upon the legaliy of volume discount schedules in many different situations. They have not found that volume discount schedules constitute discriminatory pricing per se. In the specific factual situation of this case it is the administration or application of Sealtest's volume discount schedules, particularly the high percentage of off-schedule rebates; "aggregating and "averaging" for multi-unit chain operators, and the substitution of computed time for observed time which resulted in many of the price discriminations. Respondent's contention that a denial of its right to use a volume discount schedule would "hurt not only Sealtest but the entire dairy industry" misreads and misinterprets the thrust of prior decisions and precendents in which graduated quantity discount schedules have been adjudicated. John Armstrong testified that respondent' s practice of aggregating purchases would explain the discount received by quite a few customers but it would not explain al1 (Tr. 2434-40, 2480 seq. 5158 et seq. Respondent admits "what while Sealtest' s cost study exhibits showed that many of its discounts were cost justified, others were not * * *" and "But Sealtest made no claim either that a1l its discounts were paid in accordance with its schedule, or that a1l its discounts were cost justified. * . *" (RPF 358 p. 150) Moreover, Clayton Thompson testified as previously quoted "Now as to the balance of 225 locations of which we are speaking, they aJ'e not cost justified on the schedule themselves that is as to the schedule " * *" (italic supplied). In its original brief (pp. 56-59) respondent refers to Justice Douglas ' concurring opinion in the Borrkn case supra and states "* * * But Justice Douglas, we submit, misreads the legislative history upon which he relies, and he represents a minority of one on the Court upon this point."

Respondent also a1ludes to Examiner Creel' s disposition of the cost defense in Foremost Dairies, Inc. Docket 7475 (62 F. 1344J. Since respondent' s brief was filled in this case the Commission has decided Fonmost (see opinion dated May 23, 1963). In that opinion the Commission also quoted the Borden decision in 370 U. S. 460. The Commission inter alia stated (pp. 1361-1362J: NATIONAL DAIRY PRODUCTS CORP. 155 Initial Decision As to respondent' s claim that its discounts to the Barber, Speedway and Furr s chains were cost-justified, it is clear that the cost study relied upon fails to meet the basic requirements of an adequate cost justification defense. Although the study was based upon purported differences in delivery costs between purchasers within designated average delivery-volume brackets, discounts were not granted to all purchasers within the larger volume brackets, but only to the Furr, Barber s and Speedway chains. Independents whose delivery volumes approached or equalled those of the chain stores received no discounts. Thus, although respondent asserted that the challenged discounts were cost-justified as against the 70 percent of its Albuquerque customers who fen within its 1.40 quart average delivery bracket, Conniff's Market, an independent whose owner testified that he competed with the Barber s stores averaged 72 quarts per delivery but received no discount. This is precisely the defect condemned by the Supreme Court in United States v. The Borden Company, 370 U. S. 460 , 469-70 (1962). As the Court observed II . . . such a grouping for cost justification purposes, composed as it of some independents having volumes comparable to, and in some cases larger than, that of the chain stores, created artificial disparities between the larger independents and the chain stores. It is like averaging one horse and one rabbit.

In view of this obvious defect, there is no need to consider the other asserted deficiencies in respondent' s cost justification defense. In view of respondent's own admissions that many of its price discriminations are not cost justified, and for reasons which have heretofore been specificaUy set forth, the examiner is unable to find that respondent's price discriminations, proven in this record, made only due aUowance for differences in the cost of manufacture, sale, or delivery resulting from the differing methods or quantities in which Seal test products were sold or delivered to its customers.

RESPONDENT S MEETING COMPETITION DEFENSE Subsection 2 (b) of the Clayton Act (p. 87 supra), inter alia, provides "* * * that nothing herein contained shaU prevent a seUer-rebutting the prima facie case thus made by showing that his lower price * * * to any purchaser or purchasers was made in good faith to meet the equaUy low price of a competitor * * *" (italic supplied).

It should be noted that the statute speaks only in terms of "the equaUy low price of a competitor" and does not use the words discount" or "rebate.

Respondent seeks to excuJpate aU of its discriminatory prices which are not cost justified by asserting that, as to each customer rebate was paid, such re-to which a non-schedule or off- schedule Initial Decision 70 F. T. bate was paid to meet a similar rebate offered by one of respondent' s competitors.

Inasmuch as meeting competition is an affrmative defense, the burden of going forward, and the burden of proof are upon respondent. Since the statute does not speak in terms of rebates or discounts, respondent was under the burden of placing in this record the best evidence available from which (a) the competitor 'Pice being met could be ascertained; (b) proof that such price was a lawful lower price; and (c) evidence that such price was not part of an inherently discriminatory pricing system. Assuming that respondent' s rebates or discounts were only price reductions, it was incumbent upon respondent to prove its competitors' list prices from which the competitive discounts were allowed. In one or two instances, respondent has sought to prove a competitor s list prices, but it has not proven the competitor s rebate schedule.

If respondent had proven, which it has not, that al1 of its competitors had identical list prices for all products in the Sealtest line, then, by proving that it was meeting a competitor s rebate with an identical rebate, it would, infcrentially, be proving what competitive price it was attempting to meet. Such proof is not in this record. One of respondent's witnesses, Melvin B. Lewis, an offcial with the Saveway buying group, testified that Saveway was wiJing to accept a 12 percent discount from Sealtest at a time when the members of the group were receiving a 15 percent discount from Meadow Gold (Tr. 3251). Respondent paid a 12 percent rebate to Tri- County Super Dollar to match a 10 percent rebate of Page Dairy, and a 12 percent rebate to Foodtown (Monroe) to meet a 28 perceTIt nbate from United Dairy (p. 100, supra). The competitive rebate which respondent was allegedly meeting was frequently determined by nothing more than conjecture by Sealtest employees.

In Standard Motor Products lTIc. , 54 F. C. 814 at 823, the Commission discussed rebates, and the practice of aggregating purchases, both of which are present in the instant case. 20. The defense of meeting competition in connection with sales to the various group members is without merit. The good faith requirement of section 2(b) of the Clayton Act is not met where a price discrimination, with the required resultant effect, is for aggressive rather than defensive purposes. The allowance of discounts and rebates to members of the various groups based upon the aggregate purchases of all the members was designed' to meet competition generally and to obtain the business of all the members of a group and were not allowed to meet an equally low price of a competitor. NATIONAL DAIRY PRODUCTS CORP. 157 Initial Decision 21. If, as contended by the respondent, it granted a cumulative annual rebate to members of groups, based upon the aggregate purchases of all the members because its competitors were offering such rebate based upon the aggregate purchases of the members of a group, it could not be considered that such action was in good faith since the respondent well knew that the rebates offered by its competitors as well as the rebates offered by respondent to group buyers were unlawful in that the differences in price accorded group and Dongroup purchasers could not be justified by showing differences in the cost of manufacture, sale or delivery since their source is a rebate system, based, not on the quantities or other factors involved in any particular sale but rather upon the combined dollar amount of a11 sales to a group. Sealtest knew, or should have know, that the granting of cumulative volume rebates by its competitors, and particularly the practice of aggregating and averaging, might have resulted in price discriminations. When Sealtest adopted that practice to meet competition, it was not necessarily meeting a lawful Jower price, but may have been adopting a discriminatory pricing system within the interdiction of F.T. C. v. A.E. Staley Mfg. Co., 324 S. 746 , and C. v. Cement Institute 333 U. S. 683. In its proposed findings 371 (pp. 156-157), respondent states: 371. Much of the evidence adduced in support of the meeting competition defense refers to the granting of equivalent discounts or rebates from equal list prices." This is but a reflection of the realities of the market place, since price competition is waged by milk and ice cream companies through the granting of discounts or rebates from published wholesale list prices. Because of virtually identical raw material and labor costs, there is close similarity in the published wholesale list prices of the different companies serving a particular market. Customarily, the?' efore, the mutching of a competitor s rebate results in a meeting of that competitor s equally low price within the meaning of the Section 2(b) p?'oviso.

OC'The JJric,, of raw milk (the principal ingredient in fJujd milk and ice cream products) is in many markets fJXt'c1 by Government order . so that all dairies in the market purchase raw milk at the Same price. This is the case in the Toledo-Mon1' oe and :;ew Orleans areas (R. 210. 1141 , 5887-88, 6042-431. In markets such as Lansing, Jackson, and Rattle CT( where Government orders are not in effect, farme1'S sell milk through producers' cooperatives at the same price to all dairies (R. 593-94). Labor costs tend to be the samt' for alj dairies in 11 market because of the existence of mal' ket- wide Jabo1' contracts (R. 5S58 , 6043). In its Reply Brief (p. 49) respondent states: '" * * It is true, of course, that Section 2(b) speaks of the "equally low price of a competitor" but, as we have shown (RPF 371; cf. our supporting brief, p. 88), list prices ,of cornpetito?'s in the various markets ordina?'ily are the same, and price competiti:on in the dait' y industrIJ is 1VrLged in terms of discounts from equal list prices. '" .; '" (Emphasis "supplied. Initial Decision 70 F.

Respondent has not proven in this record, one of the abovestated basic assumptions of its meeting competition defense, list prices of competitors in the various markets ordinarily are n One inference that might be drawn from the the same * * * above statements of respondent is that the entire dairy industry uses a pricing system that is discriminatory, and hence unlawful under subsection 2 (a) of the Clayton Act. There is no proof of such fact in this record. As previously found in this decision, quantity rebate schedules are not discriminatory per se. Such schedules can be structured so as to be cost justified, and they can be administered so as to be non-discriminatory. If, however, a rebate schedule has neither attribute, it might be part of an unlawful pricing system.

It is significant that respondent has asserted its meeting competition defense as to most of the same Toledo-Monroe milk customers (pp. 101 , 102 , 103 , 147 and 148 supra) and Jackson milk customers (p. 114 supra) whose rebates respondent defended as having been cost justified. Respondent' s position appears to be that price discriminations may be cost justified, in part, and meet competition, in part. Respondent defends its 12 percent rebate to the 22 Kroger stores in the Toledo-Monroe area, its 12 percent rebate to the 39 Associated Grocers stores, and its 7 cents per gallon rebate to the Malone & Hyde stores on the grounds that the price discriminations resulting from such rebates were partly cost justified, and partly granted to meet competition. Justice Douglas in the Borden opinion (p. 144 supra), indicated that the "grant of discounts" is not "a natural right.

Among others, respondent's meeting competition witnesses included:

Glenn W. Whittaker, manager, Sealtest- Toledo zone William Matie, Associated Grocers' offcial Melvin B. Lewis, Saveway Stores offcial Frank Rossi, Seal test' :.onroe branch manager Kenneth Cowden, former Sealtest Jackson branch manager Gerald Dorr, Sealtest Jackson branch manager Robert J. Fauson, former Seal test Lansing plant manager Harold Hurni, former Sealtest Lansing wholesale milk salesman Robert Gage, former Sealtest Lansing wholesale milk salesman Lawrence Huntley, Sealtest Jackson wholesale milk salesman Ruth Nordman, one of the owners of Topnotch Dairy Store Kenneth Booth, owner of Jackson Food Market Cayce Medford, Sealtest Memphis ice cream sales manager H. Robert Teesdale, former Sealtest Memphis ice cream sales manager Mrs. Lawrence Matracea, proprietor of Jack' s Sundry, Memphis , NATIONAL DAIRY PRODUCTS CORP. 159 Initial Decision Joseph Foppiano, proprietor of Foppiano s Grocery, Memphis Frank Fletcher, proprietor of Fletcher s Pharmacy, Memphis Lewis Robinson, executive vice president, and president of Cloverland Products Corp., later a division of National Dairy Products Corp. , New leans, La.

Thomas King, former Sealtest New Orleans sales manager Charles Landreth, former Sealtest New Orleans zone manager J. D. Allen, former Sealtest Lansing & Jackson ice cream manager Richard T. Greenfield, Sealtest Toledo ice cream manager Laton M. Henderson, former executive vice president of Cloverland Dairy, New Orleans A substantial portion of respondent's meeting competition evidence consisted of the recital by its employees or former employees of conversations with Sealtest customers. At the time such testimony was offered, complaint counsel objected that such testimony was hearsay. The examiner admitted the evidence for the limited purpose of proving that such conversations may have taken place. However, the examiner specifically ruled that the hearsay evidence was not proof of the truth or falsity of the facts alleged to have been stated. This examiner concurs in the statement in Exquisite Form Brassiere, Inc. Docket 6966* that in Corn Products Refining Company v. 324 U. S. 726, and C. v. E. Staley Mfg. Co. 324 U. S. 746 the Supreme Court held that hearsay evidence of a competitor s offers, believed by the respondents therein, was not suffcient 'to show the existence of facts which would lead a reasonable and prudent person to believe that the granting of a lower price (promotional allowances would in fact meet the equally low price of a competitor.' " Respondent did place in the meeting competition record the testimony of non-employee witnesses, including among others, William Matile, an Associated Grocers offcial, Melvin B. Lewis, a Saveway Stores offcial, Ruth Nordman of the Top Notch Dairy Store (see pp. 113-115 supra), and Mrs. Lawrence Matracea Joseph Foppiano and Frank Fletcher (pp. 117-118 supra), al1 of Memphis. However, the testimony of these witnesses does not overcome the infirmity inherent in respondent' s strong reliance upon hearsay, its failure to offer primary evidence of the facts upon which it relies, and its departure from the "best evidence rule. The best evidence of competitors' list prices would have been the price lists themselves. Best evidence of the rebate schedules would have been the schedules themselves. In most instances the best evidence of competitors' offers of rebates was not adduced. .See vised Initial Decision After Remand date March 15, 1963, p. 14 (64 F. C. 271. 280). ), Initial Decision 70 F.

When the "best evidence" was offered, it did not substantiate respondent' s assertions.

The testimony of Ruth Nordman (Tr. 5316 et seq. one of the owners of the Top Kotch Dairy Stores in Jackson, Michigan, does not support a finding that respondent's 12 percent rebate to Top Notch Dairy was paid to meet the offer of a 15 percent rebate by Serval Jersey Dairy: The facts are that Mr. Sweitzer of the Servali Dairy had loaned the witness and her husband a dairy cooler and other store fixtures to get started in business. When Mr. Sweitzer learned that the N ordmans were using the property which he had loaned them, to store Seal test products, and that Don Donaldson, a Sealtest distributor, was running a Seal test retail truck from the Nordman s place of business, Sweitzer on a Saturday morning, "took the compressor off the milk cooler; he took the cash register and the counter, the shelving, just about everything in the store" (Tr. 5320) from .the Top Notch Dairy Store, and refused to furnish Serva11 products to the Nordmans. Mrs. Nordman "took on Sealtest milk that day that Mr. Sweitzer pulled out our equipment" (Tr. 5326) in the spring of 1958. At that time Sealtest gave Top Notch Dairy a 10 percent rebate. Granting the 10 percent rebate was not necessary at that time to meet competition. " Later the 10 percent was increased to a 12 percent rebate. Respondent asserts that RX 159 shows the reason for the 12 percent rebate. RX 159, purporting to be a letter dated April 21 , 1958, from Mrs. Nordman to Seal test -inter a1-ia stated: Servall Dairy has offered us a lS (cdiscount from the regular wholesale list price. Unless your company can compete, let this letter be notice that we are discontinuing Scaltest Dairy Products as of April 12, 1958. Very truly yours, Ruth P. Nordman (Mrs. Charles Nordman) The letter, although dated April 21 , 1958, was not offered when its author testified in April 1961 , but was offered later through respondent' s witness, Gerald Don on February 5, 1962. The record does not disclose why respondent did not offer the letter when its author was on the witness stand and could have been cross-examined concerning the alleged J 5 percent offer from Servall. Mrs. Nordman did not mention such 15 percent offer, allegedly made in April 1958, when she testified in April 1961. On the basis of the entire record the examiner finds that respondent' s 12 percent rebate to Top Notch dairy was not granted to meet a 15 percent offer from Servall. RX 156 considered in the context of ).

NATIO:-AL DAIRY PRODUCT, CORP. 161 Initial Decision the record is not proof of respondent's meeting Serval1 competition.

Similarly, RX 16 and RX 17, letters dated in January 1958 from tho Santi Ice Cream Company to Malone & Hyde in Memphis do not substantiate respondent's assertion that Sealtest' s 7 cents per gallon off-schedule rebate on ice cream to the Malone & Hyde Stores was paid to meet the competition of Santi Ice Cream Company. These letters, dated in January 1958 and offered at hearings in Memphis on November 17 , 1958 , were part of the cross-examination of complaint counsel's witness, Joseph R. Hyde (Tr. 1031 et seq. The original Sealtest rebate to Malone & Hyde had been negotiated by Vaughn Ashenbrenner in 1951 at 5 percent. It was changed in 1954 (Tr. 1010). The 7 cents per gallon plus 2 percent for advertising arrangement had been negotiated for Malone & Hyde "about two years" before Mr. Hyde testified on November 17, 1958, in Memphis (Tr. 1011). That means the discriminatory pricing found in this decision was estabHshed in the year 1956, considerably before the competitive offer of Santi Ice Cream, claimed to be proven by RX 16 and RX 17. The testimony of Melvin B. Lewis of the Saveway buying group (Tr. 3251 et seq. which was paid a 12 percent rebate (pp. 103 148 , supra) reflects some of the flaws in respondent's meeting competition defense: (1) Sealtest did not match competitors' rebate offers with identical rebates (i. it matched Meadow Gold' 15 percent with its own 12 percent; Tr. 3251); (2) Saveway switched from Meadow Gold to Sealtest-not because of the rebate paid by Sealtcst-but because the Meadow Gold containers leaked, and its milk turned sour because of the long distance it had to be transported. "We just had to get some other brand of merchandise" (Tr. 3251) ; (3) Sealtest's 12 percent rebate to Mr. Lewis may have eliminated Meadow Gold as a Sealtest competitor but it did not meet the price of Cherry Grove dairy which continued to spot into the account with Seal test. Mr. Lewis was paying Sealtest 40 cents base price less a 12 percent rebate, or $.3520 per half gallon, and was paying Cherry Grove 33 cents. He sold SeaJtest milk for 39 cents, and Cherry Grove at 3 for a dollar. His volume was divided between Scaltest and Cherry Grove about 50 percent to each; (4) Mr. Lewis could not state whether any dairy other than Sealtest had a 12 percent discount, nor was he familyiar with the prices of other dairies or their discounts (Tr. 3253). although he had been in the grocery business since 1923, with Kroger for four years, A & P for nine years, and in business for Initial Decision 70 F.

himself since November 1936. With such business background Mr. Lewis could be expected to be familiar with the pricing and rebating practices of the dairies in his vicinity-if such practices were a matter of common knowledge, as respondent asserts. Mr. Matie, another meeting competition witness, an offcer of the Associated Grocers buying group, had done business with Sealtest for 30 years. In 1954, Meadow Gold offered a 5 percent rebate to the Associated Grocers group on an individual basis and a 10 percent rebate if al1 or substantially a11 of the stores in Associated Grocers would put in Meadow Gold products. Associated Grocers did not make Meadow Gold's offer known to Sealtest. Sealtest did not meet Meadow Gold's offer, and lost a few of the Associated Grocers stores. Sealtest gave a 10 percent rebate and later a 12 percent rebate to the Associated Grocers stores. At the time of Mr. MatiIe s testimony on September 23, 1960, in Toledo, he was buying from Driggs and Sealtest and gettng a 12 percent rebate from each. He was paying 40 cents per half gallon Jess a 12 percent rebate and selling the products out of his store at 39 cents. The witness emphasized the importance "a qualiy product" as well as price has, in meeting competition (Tr. 3144) in the dairy business. In 1954, the time of Meadow Gold' s offer the Associated Grocers buying group had 30 to 40 stores. At that time Mr. Matie was buying from Page Dairy and Sealtest. He did not contact Page or Sealtest before accepting Meadow Gold' s 10 percent rebate offer. Meadow Gold split into his store with SeaJtest and Page.

Mr. Matile testified that he never saw a Meadow Gold discount schedule (Tr. 3162). He further testified (Tr. 3175) : A. At that time we were having trouble with Meadow Gold products. It was being shipped too far. I don t believe it was refrigerated enough, and we were having a lot of trouble, we were having leakers, and we were having sour milk.

HEARING EXAMINER GROSS, What is leakers? THE WITXESS: Well, the cartons, I think, they were handled roughly and they were hauling them too far.

HEARING EXAMINER GROSS, I see.

A. And the boys, the rest of the store owners were getting a little disgusted, so was I , because it makes a lot of mer:; in your case if you get a leakeI'. You have to clean them Up. We had been after them to establish maybe a place in Toledo to distribute the milk from, but they were hauling it in from Lima and we were having considerable trouble. So when Sealtest carne out with their new schedule, we were pleased because we had had our fin, I would say, at that time of Meadow Gold. This testimony indicates that Associated Grocers did not switch NATIONAL DAIRY PRODUCTS CORP. 163 Initial Decision back to Sealtest because Sealtest was "meeting competition price-wise, but for other reasons.

Mr. MatiJe could not recall when Sealtest started paying the 12 percent rebate to Associated Grocers (Tr. 3183). He had no personal knowledge of Driggs ' and Babcock's 12 percent rebate bracket (see p. 98 supra).

The testimony of Laton Michell Henderson who signed the original contract dated :,lay 30 , 1951 , between Cloverland Products Division of respondent and H.G. Hi1 Stores, Inc., New Orleans, Louisiana (CX 98 A , B and C), of Lewis Robinson (Tr. 5857 , et seq. and of Charles E. Landreth (Tr. 5965) does not support a finding that respondent's prices to the Winn-Dixie chain (after they bought out the Hi1 Stores) were made to meet the price of any competitor. The alleged competitive offer of Foremost Dairies to Winn-Dixie does not stand proven in this record. Foremost did not have a plant in New Orleans and had to haul its products from a distance. CX 99 sets forth in skeleton form the conditions under which Winn-Dixie continued to buy Seal test products as an extension of the original Hi1 Stores agreement of May 30, 1951. Hearings set, or requested, in New Orleans to receive other meeting competition testimony were cancelled at respondent's request. The testimony of Messrs. Henderson, Robinson and Landreth as to the Winn-Dixie pricing arrangements does not establish that they were made in good faith to meet the equally low lawful price of a competitor, what that price was, nor when or how Seal test met the offer. In his book Complete Guide to the Robinson-Patman Act (Prentice-Hall, Inc., 1963 Edition), the Honorable Wright Patman states, p. 96:

Question. Maya seller utilize the good-faith proviso to justify quantity or volume discounts, which he regularly grants to customers qualifying therefor on the basis of quantities they purchase, by showing that anyone of his purchasers could have obtained an equally low price from another seller on a like quantity? Opinion. No. See International Salt Company, No. 4307, FTC, 1952. In International Salt Co. , et al. 49 F. C. 138, the Commission inter alia stated (p. 153) :

'" * * Thus, while respondents on September 17 , 1936 , apparently altered the amount of and the requirements for receiving this quantity discount to conform with what they understood to be the pricing practices of their competitors, this fact is of no particular importance, since the practice of granting discoun ts on the basis of the total annual requirements of a purchaser regardless of from whom they were purchased was employed by respondents Initial Decision 70 F. T. or their wholly owned subsidiaries prior to that date. Contrary to respondents' contention, the price differences resulting from the granting of these discounts to some but not all of the respondents' competing customers were 110t the consequence of departures from a non-discriminatol' Y pricing scale which were made to meet lower prices of competitive sellers, but represented only the continued application of the discriminatory pricing standard previously adopted by respondents and used by them since November 1935. Moreover, despite the fact that the illegal nature of this discount was brought to the attention of respondents by the Commission s complaint 1940, there is no evidence that respondents made any attempt to eliminate or lessen the amount of this discrimination until 1948. Respondents, in such circumstances, cannot be said to have acted "in good faith" within the meaning of section 2 (b) of the sla tute.

After careful consideration of all of the facts, the Commission is of the opinion, and fmds, that respondents have not shown that their discriminatory prices accorded the recipients of this discount \were lower prices made in good faith to meet an equally low price of a competitor. Respondent' s meeting competition defense wi1 exculpate its discriminatory prices only if such discriminations in price were made in good faith to meet individual competitive situations. Good faith is not present if a seller adopts the unlawful discriminatory pricing system of a competitor. The meeting competition defense is not available to justify specific lower prices on the basis of an inherently discriminatory pricing system. The equally low price of a competitor must be the equally low lawful price for a given quantity. If a seller fixes a lower discriminatory price, he must have reasonable grounds upon which he can conclude that his competitor s lower price does exist and what that price is. Good faith is not proven in a record if the seller acts entirely on unsupported, unverified verbal statements, nor is good faith established if the seller knew, or should have known that his competitor s price was unlawful, or inherently ilega!. * "' "' "' The seHer has the burden of bringing himself within the exculpating provision of 2 (b), 'which has been interpreted to afford an absolute defense to a charge of violating 2(a), notwithstanding the existence of the statutorily prohibited anticompetitive effect Standonl Oil Co. v. Federal Trade Comm 340 U. S. 231. Federal T1'ode Comm n. v. Sun Oil Co. 371 U. S. 505. Respondent has not, by reliable, probative and substantial evidence in this record, sustained the burden imposed upon it by and within the rationale of the footnoted decision (shown below). Res- "See C. v. .-. E. Staley Mfg. Co., 324 U. S. 746 (945) : C. v. Standard Oil Co., 355 U. 396 (1938): C. v. Cement i'stitllte 333 U. S. 683 (19,j8); C. v. National Lead Co. 352 S. 419 (1957); C. v. Standard Brands, Inc., 189 F. 2d 10 (2d Gr. 19. 1) ; Standard Oit Co. 1,'. Brown 2:-\8 F. 2d 4 ( th Cjr. 1956); Standard Oil Co. v. 340 U. S. 231 (1951): Corn Products Ref. Co. v. ,324 U.S. 726 094(5). NATIOl'AL DAIRY PRODUCTS CORP. 165 Initial Decision pondent has not proven that its discriminations in prices in the four trade areas involved in this proceeding, during the relevant periods, which were not cost justified, were made in good faith to meet the equally low lawful price of a competitor. COUNT II Respondent' s 2(d) Violations Paragraph Ten of Count II of the complaint filed herein inlet alia alleges:

PARAGRAPH TE : In the course and conduct of its business in com meree, as aforesaid, respondent has paid or contracted for the payment of money, goods, or other things of value to or for the benefit of some of its customers as compensation 01' in consideration for services or facilities furnished or agreed to be furnished by or through such customers in connection with the handling, sale, or offering for sale of respondent's dairy products and respondent has not made or contracted to make such payments, allowances, or consideration available on proportionally equal terms to all of its other customers competing in the sale and distribution of such products. Respondent' s Sealtest Food Division has an advertising fund made up out of corporate earnings which is used by respondent' Sealtest division to advertise Sealtest products in magazines of national circulation, such as Time, Life and the Saturday Evening P08t. Respondent also advertises by other publicity media of national scope, including television and radio. R. Roberts, president of Sealtest Foods and a vice president of National Dairy Products Corporation inter ,d:ia testified: *' *' * Now, what about the sales advertising operations of these various divisions. Are they separately are they entirely separate or not? A. The entire organization for each of these divisions are entirely separate. In the case of Scaltest Foods \ve have 0111 own complete organization, do our own selling, advertising distribution, and by the same token Kraft has their organization that handles all of their products, and there is no joint selling or joint advertising or joint distribution of these products one division as against the other. (1'1'. 6172.

* * * Q. What about advertising? Is there any joint advertising or joint collaboration on advertising policies at all? A. There is none. We are in tJJe position of maintaining in Sealtest Foods our own advertising department with entirely separate agency from the agency that is handling the Kraft' s advertising. Our advertising is handled by N. W. Ayer, I believe there is theirs is handled by J. "' alter Thomson. I don t know of any other division of Xational Dairy tllat is using N. W. Ayer except Sealiest Foods. \Ve have an advertising manager and in his organization he has other people. vVeprepare with X. \V. Ayer our own advertising material, carryon our own television programs and carryon a11 of our own newspaper and magazine advertising.

Initial Decision 70 F.

Q. Without any joint collaboration with any of the other divisions? A. That is correct.

Q. And confined to your Sealtest products? A. And advertise only our own Sealtest products. (Tr. 6175-76. Even though Sealtest has such national advertising program for its products, it did make advertising and promotional payments to certain of its individual customers in the trade areas involved in this proceeding, during the relevant period, without making such payments available on proportionally equal terms to a11 of its other customers who competed, in the sale at retail of Sealtest products, with the customers to whom such promotional and advertising payments were made.

Glenn Whittaker, Sealtest' s Toledo manager, and Robert A. Tice, Sealtest' s Lansing plant manager, testified that respondent' advertising and promotional allowances were not offered or made known, or made available to a11 competing wholesale customers of respondent on proportionally equal terms. Certain favored customers of respondent were selected for the advertising and promotional allowances, which were paid to them. By letter dated May 31 , 1957, to the Federal Trade Commission (CX 51 A, B and C) from counsel for respondent, the following admissions, with reference to respondent's advertising and promotional allowances are made:

'" '" '" With respect to the practices of Ohio Clover Leaf regarding advertising, promotion and other allowances, the situation continues much the same as set forth in previous letters and statements to you. Ohio Clover Leaf has paid certain amounts of money to wholesale customers on grand openings, special anniver::ary events, and extensive advertising campaigns where such advertising includes Sealtest products. The advertising copy is prepared and paid for by the wholesale customer and Ohio Clover Leaf reimburses said wholesale customer on National Line rates for that portion of the ad occupied by listing of Sca1test products, (usually quite small in proportion to the entire ad). This has been a uniform practice of Ohio Clover Leaf Dairy with respect to its wholesale customers but has not been generally circularized or published by Ohio Clover Leaf or urged upon its wholesale customers. Such allowance has been made only upon request from the who1resale customer. In many instances, according to our observation, the who1resale customers in their daily and weekly advertising have included in such ads Sealtest products, but unless some special event or campaign was being carried out such wholesale customers did not request and did not receive payment from Ohio Clover Leaf Dairy for the inclusion of Sealtest products in such aos. * Exhibits in the record indicate the following non-proportional- , at or about the datesized advertising or promotional payments shown, in the amounts indicated, to Sealtest customers named in the Toledo-Monroe; Jackson-Lansing trade areas: NATIONAL DAIRY PRODUCTS CORP. 167 Initial Decision Amount of Advertising Date Customer orPromotiona1 Payment Associated Grocers 8.40 27- 8.40 10- 8.40 29- 10- 66. 10- 50. 12- Circle M Market 56. Dick' s Market 20. Foodtown Stores 89. FoodtoW1 Supermarket 46. 26- 73. Food Town 39. 12- Foodtown Stores 122.43 29- 33. 10- 89. 12-11- Dixie Foodtown 198. 23- Joseph' s Super ::markets 752. 980.

24- , Kroger Company 250. 25- 20. 21- 250. 31- 250. 10- 250. 16- 21.00 23- 829. 169.

Lagos Food Market 10. 27- 15. 24- 16. 10- 16. 50.

13- 17. 24- 25. 28- 25. 18- 23. 10-16- 33. 11-13- 34. 12-18- 41.72 23- Nat: JTal Food Stores, Inc. 167.40 Save Way Super Mkt, Inc. 50. 50.

50.

27- 50. 16- 50. 29- 50. 18- 50. 50.

12- 50. 10-16- 50. 10-30- 50. 18- Sears Super Market 123. 31- Anthony Wayne Shopping Ctr. 26. 25- Wrigleys Stores, Inc. 1250. 18- 981.34 21- 975. 24- 1204. 17- 979. 21- 926.45 Initial Decision 70 F. T. Amount of Advertising Date Customer Dr Promotional Payment Wrig1eys Stores, Inc. Continued 22- $1154. 14- 878. 13- 1037. 10-15- 848. 11- 875. 12-16- 1168. Exhibits in the record likewise show the following advertising and promotional payments were similarly made by Sealtest to its customers named without being offered or made available on proportionally equal terms to other Sealtest customers who competed, in the retail sale of Sealtest products, with the customers to whom such payments were made:

Amount of Advertising or Promotional Date Customer Payment 16- Dutch Klees 13. 16- Putnam s Market 14- Nickoff' s Grocery 25. 26- Val-l;-\Vay Stores 12. 10- 31.40 13- WrigJeys Stores, Inc. 1877. 21- 1685. 14- 1623. In May 1958, R. J. Fauson, a Sealtest Products manager, wrote to the Great Atlantic & Pacific Tea Company in Grand Rapids Michigan For a period of one week, preferably the grand opening week, we wil sell our 1 lb. cartons of cottage cheese on the basis of 1 lb. free with each lb. purchased. Additionally we will have a lady demonstrator sampling and pushing sale of cheese for a 3-day period during the sale. As ofj'erecl before we wil also grant the services of one of our wholesale supervisors during the entire opening week. His services would consist of helping to keep your dairy case stocked, as well as, helping stock other products used in your dairy department. (Italic supplied; ex 62, App. A , Item , p. 22.

In June 1958 a special advertising a1Jowance in the amount of $483.52 was paid to the Great Atlantic & Pacific Tea Company by respondent's Detroit Creamery Division upon the opening of a new store, without being made available on proportiona1Jy equal terms to respondent's customers who competed with A & P in the resale at retail of its Sealtest food products. Witnesses who testified in support of the complaint at Toledo , .

NATIONAL DAIRY PRODUCTS CORP. 169 Initial Decision and Lansing stated that they had never been offered an advertising or promotional allowance by respondent in accordance with the terms of the May 31, 1957 letter set forth supm. Such witnesses included, among others John Davis (Tr. 299) ; Ben Peterman (Tr. 422) ; Fred Burke (Tr. 454) ; Walter Salwitz (Tr. 486) ; Earl Boger (Tr. 497) ; Vincent Pecora (Tr. 1343); David Magliocco (Tr. 1371) ; Frank Paradise (Tr. 1395); Ruth Blackwell (Tr. 1402) ; Orlando Fabino (Tr. 1417). and Peter Forte (Tr. 1432). Mr. Forte testified as follows:

Q. Well, how about for advertising, do they ever offer you any money to put adds (sic) in the paper or anything like that? A. No.

Q. No? A. No.

Q. Do you notice that these chain stores advertise in the newspapers? A. Yes.

Q. Do you think that has any effect on your business? A. It all has an effect.

Q. What is the effect? A. Lo"\ve1' prices.

Q. Weil, does it cause more business to go to them than to you? A. Well, yes. (Tr. 1432-33.

Vaughn L. Ashenbrenner, general manager of the Memphis Sealtest Division, testified (Tr . 899, et seq. that Sealtest had no regular plan for cooperative advertising between the COfnpany and its customers in Memphis. Promotional payments and other advertising allowances were made to certain selected Sealtest customers for special occasions and grand openings. These advertising and promotional arrangements were "an individual1Jy negotiated deal."

In :YIemphis, Sealtest paid a 2 percent advertising and promotional a1Jowance to Malone & Hyde, National Tea and Food Center chains. This 2 percent a1Jowance to Malone & Hyde, National Tea and Food Center was "individual1Jy negotiated" and was not made available on proportionaHy equal terms to a1J of the other Sealtest customers in Memphis who competed with the Malone & Hyde stores, Kational Tea and Food Center in the resale at retaij of Seal test products.

Charles E. Landreth, Sealtest New Orleans manager, testified (Tr. 1154) that whatever promotional advertising aHowance Sealtest paid to its New Orleans customers was done "on an individual negotiated basis" and "confined to special cases," The witnesses further testified that Seal test had furnished free samples .

Initial Decision 70 F.

of its products to the Winn-Dixie Stores for Winn-Dixie to use for advertising and promotional purposes.

Among others, non-proportionalized advertising and promotional payments by Sealtest-New Orleans are shown by exhibits in the record as follows:

CUBtome1' Amount La Roccas Pharmacy - $ 20. LG. Super Market 24. Crosby s Store 10. Time Saver Stores, Inc. 65. 54.

32.

National Food Stores of La., Inc. 120. Sal's Super Market 7. Complaint counsel has proven, by reliable, substantial and probative evidence, that in the course and conduct of its business in commerce, respondent's Sealtest Foods Division has paid, or contracted for the payment of, money, goods, or other things of value to or for the benefit of some of its wholesale customers located in the Toledo, Ohio-Monroe, Michigan, trading areas, in the Lansing-J ackson, Michigan, trading areas, in the Memphis, Tennessee, trading area and in the ew Orleans, Louisiana, trading area, as compensation or in consideration for services or facilities, including advertisements and promotions in newspapers, new store openings, anniversary sales, the giving away of free merchandise, and other forms of advertisement and promotion, furnished, or agreed to be furnished, by or through such customers in connection with the handling, sale, or offering for sale of respondent' s fluid milk, dairy products and ice cream; and respondent has not made, or contracted to make such payments, allowances or considerations available on proportionally equal terms to al1 of its other customers competing in the resale and distribution of such products.

CONCLUSION 1. National Dairy Products Corporation, a Delaware corporation, respondent, whose principal offce and place of business is 260 Madison Avenue, Xew York, New York, through its Sealtest Foods Division, manufactures, processes, sells and distributes in commerce, as "commerce " is defined in the Clayton Act, as amended, a variety of food and other products including fluid milk products, ice cream, butter, eggs, cottage cheese, yogurt, and orange juice.

NATIONAL DAIRY PRODUCTS CORP. 171 Initial Decision 2. Respondent's Sealtest Foods Division, in the manufacture processing, sale and distribution of the Sealtest product Jine was and is in substantial competition with other manufacturers, processors, distributors and sellers of identical or similar food products, including fluid milk products, ice cream, butter, eggs, cottage cheese, yogurt, and orange juice.

3. Many of the customers to whom respondent' s Sealtest Foods Division sells one or some or all of the items in its product Jine are in substantial competition with each other in the resale of Sealtest products to their customers.

4. The Federal Trade Commission has jurisdiction over the parties to, and the subject matter of, this proceeding, and this proceeding is in the public interest.

5. During the years 1956 through 1960, inclusive, in its Toledo Ohio-Monroe, Michigan, trade area; its Jackson-Lansing-Battle Creek, Michigan, trade area; :Ylemphis, Tennessee, trade area; and New Orleans trade area, respondent's Seal test Foods Division has, in the manner heretofore set forth herein, discriminated in price in the sale of one or some, or all of the items in the Sealtest product Jine, by selling products of Jike grade and quality at substantially different net prices to different competing customers. 6. The effect of the aforesaid discrimination in price by respondent' s Sealtest Foods Division in the sale and distribution of its , des-products has been, or may be substantially to lessen, injure troy or prevent competition between respondent and (a) its competitors, and (b) between SeaHest's favored and its non-favored customers.

7. The discriminations in price practiced by respondent's Sealtest Foods Division, as related herein, did not make only due al- , sale or deliv-lowance for differences in the cost of manufacture ery, resulting from the differing methods or quantities in which Sealtest' s food products were, or are, to its purchasers sold or de- Jivered.

8. Al1 of the price discriminations practiced by respondent' Sealtest Foods Division, which were not cost justified, were not made in good faith to meet the equally low lawful price of a Sealtest competitor.

9. The price discriminations practiced by respondent's SeaHest Foods Division, as aforesaid, violate subsection 2 (a) of the Clayton Act, as amended, and should be proscribed. 10. In the course and conduct of its business in commerce, during the period of time, and in the four trade areas involved in this Initial Decision 70 F. T. proceeding and enumerated above in conclusion 5 , respondent' Sealtest Foods Division has made substantial promotional payments and advertising allowances, and furnished goods, or other things of value to or for the benefit of some of its customers in connection with the sale or offering for sale of Sealtest products without making or contracting to make such promotional payments and advertising allowances, goods, or other things of value available on proportionally equal terms to al1 Sealtest customers competing with the customers to whom such payments and allowances were made, and to whom such goods and services were furnished. These practices of respondent violate subsection 2 (d) of the Clayton Act, as amended. Such violations of subsection 2 (d) of the Clayton Act, proven in this record, were not committed in good faith to meet the equal or better offers of respondent's competitors.

11. Respondent' s payments and furnishing of goods, and other things of value, as aforesaid, are proscribed by subsection 2 (d) of the Clayton Act and should be enjoined.

OIWER It is onlered That respondent National Dairy Products Corporation s Sealtest Foods Division, and respondent' s offcers, representatives, agents and employees, directly or through any corporate or other device, in or in connection with the sale or distribution of any of the items in the product line of the Sealtest Foods Division, including but not limited to fluid milk, dairy products ice cream and other food products, in commerce, as "commerce " is defined in the amended Clayton Act, do forthwith cease and desist from:

1. Discriminating, directly or indirectly, in the price of such products of like grade and quality by selling to any purchaser at net prices higher than the net prices charged any other purchaser who competes with the purchaser paying the higher price;

2. Paying or contracting for the payment of anything of value to or for the benefit of any customer as compensation or in consideration for any services or facilities furnished by or through such customer, in connection with the offering for sale, sale or distribution of any of the products in the Sealtest product line, unless such payment or consideration is made available on proportionally equal terms to al1 other customers competing in the distribution of such products with the favored customer.

NATIONAL DAIRY PRODUCTS CORP. 173 Appendix Appendix A To INITIAL DECISION Ruling On Respondent's Motion To Dismiss Proceedings Because The Challenged Transactions Have Not Been Proven To Be Interstate Commerce" As Defined In Section 2 Of The Clayton Act The complaint issued in this proceeding on December 31, 1957 alleges that respondent Kational Dairy Products. Corporation violated Section 2 (a)' of the Clayton Act by of the Clayton Act by il1legal price discrimination, and Section 2 (d) of the same Act' by paying or contracting to pay something of value to or for the benefit of any of its customers without making such payment or payments available on proportionally equal terms to a1l other customers competing in the distribution of respondent' s products or commodities.

The original complaint charged violations in respondent' s Toledo, Ohio, and Monroe, Michigan, operations, but evidence has been received with reference to respondent's Memphis, Tennessee and New Orleans, Louisiana, operations. Motions to strike the Memphis and New Orleans evidence have been denied. Proposed amendments to tk oiig;nal complaint to conform the pleadings to the proof were file,d December 21, 1959, and have not yet been accepted by the Hec, ing Examiner.' Respondent is charged in the complaint with sellng in interstate commerce through its Sealtest division milk, Vitamin D milk, homogenized milk, concentrated fresh milk, chocolate milk, buttermilk, cream, butter, eggs, cottage cheese, special milks, and other dairy products, as well as ice cream and orange juice, and in allowing quantity discounts which are violative of Section 2 (a) and advertising allowances violative of Section 2(d).

1" (a) That it shall be unla,dul for any person engaged in commerce, in the course of such commerce, either directly or indirectly, to. discriminate in price between different -purchasers of commodities of like grade and quality, ,vhere either or any of the purchasers involved in such discrimination are in commerce, where such commodities are sold for USt:, consumption, or resale within the United States or any Territory thereof or the District of Columbia or any insulal possession or other p:ace under the jurisdictiun of the United States, anu where the effect of such discrimination may be substantially to lessen competition or tend to create a monopoly in any line of commerce, or to injure, destroy, or prevent competition with any person ,"vho either grants or kno\vingly receives the benefit of such discrimination, or with customers of either of them: .. ,.

215 D. C. Sec. 13.

The amendment to the complaint filed December 21 , 1959, seeking t.o charge a violation of 3 of t.he Clayt.on Act was not the subject of t.he motion herein ruled upon, but, insofnr as this ruling decides whether respondent was and i8 engaged in interstate cummerce so as to be subject to t.he jurisdiction of the Federal Trade Commission llr.der the Clayton Act, this ruling also decides the int.erstat.e commerce issue for purpuses of the ;j amendment. also if the amendment should subsequentiy be accepted by the Hearing Examiner. Appendix 70 F. T.

At the close of the case-in-chief of counsel supporting the complaint, respondent made motions to strike certain evidence, and other motions, which the Hearing Examiner ruled upon on October 7, 1959, except those motions which have been considered as motions to dismiss the proceeding because: 1. The transactions here involved were not in interstate commerce as defined in 2 of the Clayton Act; and 2. The evidence in the record has failed to prove that the effect of the quantity discounts and advertising allowances which respondent has made available to its customers may be substantially to lessen competition, or tend to create a monopoly in any line of commerce, or to injure, destroy, or prevent competition with any person who grants or knowingly receives the benefit of such discrimination or allowances, or with customers of either of them. The Hearing Examiner considers this motion as a demurrer to the evidence.

The instant ruling addresses itself solely to the interstate commerce issue.

Respondent' s motion to dismiss the proceeding because interstate commerce has not been proven in the n::cord is overruled and denied for the following reasons:

Respondent, Kational Dairy Products Corpclatlon, is a Delaware corporation with its executive offices in New York, New York, and is the largest dairy corporation in the world with annual sales in excess of one and one-half bilion dollars. It is a single integrated company. " (See transcript p. 879. ) For the year ended December 31 , 1958, the company had current assets exceeding $275 000 000 and total assets in excess of $550 000 000. The total assets of respondent for the year ended December 31 1948, was $260 849 000. Respondent has plants, among others, in Liverpool, England; Hamburg, Germany; Melbou.rne, Australia; and in Montreal, Quebec, Canada. The company s plan of integration and simplification of its corporate structure became operative within the last two or three years. Respondent has over 50 000 employees. Its operations in the United States are conducted through Divisions, of which the SeaJtest Division and Kraft Foods are but two. Sixteen (16) of respondent' s operating divisions are in the milk and ice cream business and the remaining of these twenty-two (22) divisions are in other phases of the business. There are divisions which sell ice cream only; divisions which sell milk and milk products and ice cream; and a few divisions which sell milk and milk products NATIONAL DAIRY PRODUCTS CORP. 175 Appendix only. Sealtest is not an operating division but an administrative division through which the affairs of the operating divisions of respondent's milk and ice cream business are channeled. " Sealtest" is the brand name used nation any by respondent for its milk, and milk products, butter, cheese, and ice cream; but not an operating divisions of Sealtest use the "Sealtest" brand name. Breyer" ice cream is one operating division of Seal test which does not use the Seal test name. There are sixteen (16) operating divisions under the Seal test Division.

The Sealtest operating divisions do not process an of the products that they sen. Butter, eggs, and orange juice are transported freely by respondent across one, and in some instances, several state borders in moving from original producer to ultimate consumer.

Respondent does not endeavor to confine its operations by states, but moves its products freely across state lines if economy and effciency of operations so indicate. An operating division of Sealtest, in addition to sellng the products which it itself processes, sens products processed by other divisions. Operating divisions of Sealtest do business in more than one State. Orange juice, butter, and other Sealtest products are transported across state lines by respondent before, and after, being processed. The operating divisions of respondent obtain financial assistance from the Seal test Division in New York for capital expenditures, and other expenditures outside the day-to-day operations of the divisions. Respondent maintains major bank accounts in New York City. For major expenditures at the operating level, funds come from the K ational Dairy Products Corporation in Kew York, if the divisions do not have enough funds available in their own local accounts. The divisions require approval from National in New York City, through the Sealtest Division, to make certain expenditures, particularly capital expenditures.

Sealtest products are advertised in magazines of national circulation, such as Time, Life and The Satunlay Evening Post and by other publicity media of national scope, such as television and radio programs. Individual operating divisions of Sealtest contribute to a fund which is used to pay for the national advertising and promotion programs.

As an example of the manner in which respondent operates: Its Ohio Cloverleaf division of Toledo, Ohio, is a unit of the Detroit Creamery Company of Detroit, :vichigan, which in turn is an op- Appendix 70 F.

erating division of the respondent. Detroit Creamery reports to the regional offce in Pittsburgh, Pennsylvania. The Sealtest Division of respondent in New York accumulates the figures from each one of the seven regions which make up the Sealtest Division. Sealtest in New York obtains consolidated reports from the regions.

The assets of each and al1 the Sealtest operating divisions are owned by respondent. The employees of the operating- divisions are employees of the respondent. Respondent provides its operating units with national, and local, advertising, sales promotion programs, personnel procedures, accounting and fiscal procedures and establishes overall policy. Thirteen (13) of Sealtest' s sixteen (16) operating divisions sell milk, milk products and ice cream. Sheffeld Farms in New York, Chestnut Farms in Washing-ton , and Western Maryland in Baltimore seh milk only. Ten (10) of the sixtecn (16) operating divisions of Sealtest do an interstate business in thirty-five (35) States of the Union. Some of the operating divisions acquire fluid milk in States other than the States in which the Sealtest processing plants are located. Such fluid milk is purchased in one State, shipped across a State border into another State where it is processed and, in some instances sold wholly within the State in which it is processed and, in some instances transported across a State line for sale to the ultimate consumer. The products involved in such interstate operations of respondent, among others, are fluid milk, skimmed milk, fluid cream, flavored milks such as chocolate milk, cultured milk such as buttermilk, SOUl' cream, cottage cheese, eggs, butter, orange juice (Tr. 38), and ice cream.

Sealtest sells frozen desserts; ice cream in its various forms, in bulk and in packages, and in the form of novelties. ovelties are ice cream units frozen with or without a stick which seh for 5 or , in cups, and in individual molds.

Funds in the Jocal bank accounts of the operating divisions of Sealtest in excess of normal operating requirements move up through respondent's organizational structure across many State borders to respondent's principal bank accounts in N ew York City. Such funds are used for respondent's general corporate purposes, including the payment of dividends to stockholders. Respondent' s Lansing, Michigan, plant of its Detroit Creamery Division seHs orange juice, which is packaged in Florida and sent to Lansing, Michigan. Ice cream mixes are brought into respondent' s processing plant in Kalamazoo, Michigan, from a plant in NATIONAL DAIRY PRODUCTS CORP. 177 Appendix Huntington, Indiana. In Kalamazoo, this mix is used to make ice cream which is subsequently sold by respondent inside the State of Michigan and in States across the border of Michigan. In the Lansing, Michigan, plant, respondent processes milk, chocolate milk, buttermilk, half-and-half, and skim milk. One of the Sealtest divisions maintains a sales offce and distribution branch in Monroe, Michigan, and respondent's products delivered to customers into Michigan by said Monroe branch are transported from the Toledo, Ohio, and Monroe, Michigan, plants of respondent and thereafter ultimately sold in Ohio and Michigan, crossing and recrossing State Jines in the process.

Respondent' s Ohio Cloverleaf Dairy in Toledo, Ohio, purchases some of its raw milk from farmer producers in Michigan. The milk is brought into Toledo, commingled with milk from Ohio processed and sold to ultimate consumers within Ohio and outside Ohio. Ohio Cloverleaf in its Toledo plant processes cream which is obtained from outside the State of Ohio, and transported into the State. It bottles the cream, standardizing, and pasteurizing it. Until about March 1957, sour cream was obtained in ten gaDon cans and then packaged by Ohio Cloverleaf in its Toledo, Ohio plant but was not otherwise processed. Since about March 1957 Ohio Cloverleaf obtained its soured cream in intra-division transfers. This soured cream comes pre-packaged. Ohio Cloverleaf obtains some of its butter from Midwest Creameries of Middlebury, Indiana, and some from National Butter Division of Kational Dairy Products of Dubuque, Iowa, by intra-division transfer. In each instance the butter comes pre-packaged and Ohio Cloverleaf does not put it through any processing.

Cottage cheese is obtained by intra-division transfer from Ovid Michigan. Approximately 90 per cent of the cottage cheese comes to Ohio Cloverleaf already packaged. Approximately 10 percent of the cottage cheese comes to Ohio Cloverleaf in Toledo in bulk to which the plant adds vegetables, or pineapple, or whipping cream, as the case may be. This product is packaged by Ohio Cloverleaf at its Toledo plant, and sold both within and outside the State of Ohio.

Sealtest operates in Memphis, Tennessee, under the name of Clover Farm Dairy Company, which is under the Seal test Central Division. Sealtest Central Division, :VIemphis, services parts of Tennessee, Mississippi and Arkansas. The branches are served out of the Memphis headquarters and then distribution is made from the branches. There are branches in Milan, Tennessee; Appendix 70 F. T.

Grenada, Mississippi; and up until May 1 , 1958 , at Paragould, Arkansas.

Trucks delivering respondent' s ice cream from its Memphis plant for distribution cross State lines in so doing. Distributors also come to Memphis, pick up milk at respondent's Memphis dock " and take it back to the territories in which they distribute it. Such distributors are located, among other places, in Tupelo, Mississippi; Clarksdale, Mississippi; Jackson, Tennessee; and Jonesboro, Arkansas. A distributor who comes to respondent's Memphis plant to pick up a load of milk does so in contemplation of transporting that milk back across the State lines and selling it in the area that he serves near his home. The management of the Sealtest "'Iemphis plant knows that milk picked up by one of its distributors at its Memphis plant wi1 be transported across State lines for sale in the distributor s territory. The Memphis plant sells its milk to the distributors f. b. dock in Memphis. Cottage cheese is sold by respondent at its Memphis plant in the same manner as respondent' s milk is sold. In respondent's Memphis operation the milk is sometimes sold to distributors who sell to the ultimate consumers and respondent' s ice cream is, sometimes, sold by the company hauling it in its own trucks to its final customers.

The echelon above Sealtest' s Memphis Central Division is Sealtest Central Division with headquarters in Chicago, Ilinois. Both Memphis and Nashville, Tennessee, are under the same offce. The Chicago offce is called Sealtest Central Division Headquarters and has jurisdiction generally over the :Yidwest and some Southern States.

The Sealtest bank account in Memphis is maintained in the name of Sealtest Central Division of National Dairy products trans- Memphis, Tennessee. The money from that bank account is ferred to New York City by drafts. Memphis can draw drafts on Generally, the money which it has transferred to New York. tional Dairy of Kew York makes arrangements with the Memphis bank to transfer the money to New York. Respondent draws a draft to the Memphis account.

Inter-company transfers are made to respondent's Memphis plant. This plant purchases for resale, butter which has been processed by its other divisions. Some such butter comes from St. Paul, Minnesota. Ice cream is manufactured in Memphis. Ice cream novelties are obtained for the Memphis operation from Chicago.

NATIONAL DAIRY PRODUCTS CORP. 179 Appendix Roughly 25 per cent of the milk which comes into the Memphis plant for processing comes from Kentucky. The remainder comes from Tennessee.

Respondent' s Southern Dairies Division has a plant in Brookhaven, Mississippi; sales branch in Baton Rouge, Louisiana; branch in Jackson, Mississippi; and the main plant in New Orleans, Louisiana. A portion of the sales made by the Kew Orleans plant is made outside of the State of Louisiana. Respondent's New Orleans plant buys the ice cream novelties which it resells from Atlanta, Georgia, and Birmingham, Alabama, and its butter from respondent's Brookhaven, Mississippi plant.

Respondent' s New Orleans plant packages its products for the Winn-Dixie chain stores under the name of Velva (Tr. 1092). About 60 per cent of the raw milk for the New Orleans operation comes from the State of Mississippi, and the remainder comes from the State of Louisiana. It is brought in directly to New Orleans in bulk pick-up tanks. The milk is delivered to respondent' s plant in New Orleans. The route man goes to each farm and picks up the milk from the farmers' tanks and puts it in a large tank and transports it to the respondent. Respondent doesn t take possession of this milk until it is received in its plant. The route man is an outside hauler who hauls milk for ten or twelve farmers. He is paid on a contract basis with each independent farmer. The route man has no contractual relationship with Seal test. Some of the route men live in Louisiana and some live in Mississippi. Whether they live in Louisiana or Mississippi they haul the milk with the intention that it be bought by respondent at its New Orleans plant. The farmers co-operative in Tangipahoa is paid directly for the milk bought from its members. Purchases directly from farmers are paid with a separate check drawn on New Orleans funds. The Mississippi milk brought into the New Orleans plant is put in processing vats and commingled with the Louisiana milk, so as to become indistinguishable. Respondent' s New Orleans plant maintains a bank account there to finance its day to day operations. An account is maintained at each location where respondent does business. Respondent also m intains a transfer fund, and deposits made to that fund constitute a general account out of which respondent makes disbursements. These disbursements are reimbursed by a draft drawn on respondent' s Charlotte, K.C. plant. Money that respondent collects is placed in the transfer fund and is transferrable Appendix 70 F. T.

every day to the home or division offce in Charlotte C. The Charlotte C. offce has the overall supervision of the New Orleans offce, which offce carries out whatcver direction or orders are given to it by the head of the division offce in Charlotte. The Southern Dairy Division of National Dairy is under the general supervision of the Charlotte, North Carolina, offce. The milk that comes from out of the State of Louisiana in a raw state to be processed in respondent's New Orleans plant constitutes an almost daily movement of the raw milk from the producer to the ultimate consumer.

The above facts, among others, are proven in the record by evidence introduced by counsel supporting the complaint. In addition, respondent, in its amended answer filed on June 13 , 1958 admits that in the years 1956- , it integrated into the corporation the properties and assets of more than forty (40) domestic subsidiary corporations, some of which have operated since that time as separate divisions and others of which became parts of divisions. Respondent admits that as of January 1 1958, it held one hundred per cent of the voting stock in its remaining domestic subsidiaries which, as of that date, were four (4) in number. Respondent admits that its Seal test Divisions sell dairy products hereinbefore enumerated, to homes, restaurants, stores, hospitals hotels, and other customers in certain areas in thc Eastern, Midwestern, and Southern parts of the United States, including the District of Columbia. Respondent in its amended answer admits that certain of its Seal test Divisions sell ice cream under several brand names in various parts of thirty-seven (37) States in the Eastern, Mid-Western, and Southern parts of the United States and the District of Columbia. In its amended answer respondent further admits that certain of its Sealtest Divisions sell a number of different kinds of dairy products to a large number of purchasers located in different States of the United States, including the Eastern, Southern, and :lIidwestern parts thereof, and in the District of Columbia, for use, consumption, or resale therein, and that some of such products sold to some of such purchasers are of like grade and quality. Respondent further admits in its answer that certain of its Seal test divisions maintain and operate receiving stations, manufacturing and processing plants, and distribution depots, located in or near some of the cities towns, and places where it sells its dairy products. Some of the dairy products distributed by the Sealtest Divisions are delivered to customers in respondent's own trucks. NATIONAL DAIRY PRODUCTS CORP. 181 Appendix Respondent further admits that for many years past certain of its subsidiaries shipped dairy products from the State or States where such products are manufactured, processed or stored to other States and other places under the jurisdiction of the United States, including the District of Columbia, in which they were subsequently sold to customers: and respondent admits that since 1956 certain of the Seal test Divisions have shipped dairy products from the State or States where such products are manufactured, processed or stored to other States and the District of Columbia, in which locations they were subsequently sold to customers.

Respondent further admits in its amended answer that one of the Sealtest Divisions maintains a manufacturing and processing plant in Toledo, Ohio, where it manufactures or processes a variety of dairy products which are ultimately sold to customers in Ohio and Michigan. Some products manufactu red or processed in other plants of respondent are shipped to the Toledo plant and are thereafter distributed and sold. Some of these products are shipped in packages ready for sale, and others are further processed or packaged before they are resold. Respondent admits in its amended answer that its Toledo, Ohio, plant purchases raw milk from farmer producers whose farms are located in Ohio and Michigan, which milk is processed at the Toledo plant and ultimately distributed to customers in Ohio and Michigan. Respondent further admits in its amended answer that one of its Sealtest Divisions maintains a sales offce and distributing branch in Monroe, Michigan, and that a1l products delivered to its customers by said branch are first transported from the Toledo, Ohio, plant to the Monroe, Michigan, branch and ultimately sold in Michigan. The Toledo plant sells some dairy products to distributors who cause such products to be transported to customers, some of whom are located in Ohio and some of whom are located in Michigan.

The facts proven in this record, and respondent's admissions in its answer present such a clear and unequivocal picture of interstate commerce that the hearing examiner questions whether a very protracted discussion of the case law is required. If respondent's sole product involved in this proceeding where fluid milk, the examiner might consider as a serious legal contention respondent's attempts to reason that its fluid milk does not flow in interstate commerce. However, even that product has been Appendix 70 F. T.

decisively ruled upon. See S. v. Unive?'sal Milk Botte Service 85 F. Supp. 622' at page 626 where the court held: The flow of fluid milk from producers in Kentucky and Indiana through the defendants to consumers in the Cincinnati Area, described in the indictment, is a continuous day by day flow. Being a perishable commodity, fluid milk cannot be stored 01' warehoused until a ready purchaser happens along. Immediate sale is essential. It is obvious that the milk on hand must be sold and delivered each day by the distributors to make room for the milk going through the defendants' plants on the following day. Since " commerce among the states is not a technical legal conception, but a practical one, drawn from the course of business " (Swift & Co. v. U. S. , 1905, 196 U. S. 375 , 398, (25 Ct. 276 , 280, 49 L.Ed. 518)), it would seem that the mere description of the flow of milk establishes its interstate nature until it has been delivered the distributors to consumers in the Cincinnati area. The pertinent decisions of the Supreme Court fully support this view. Swift & Co. v. U. S. supra. * * * The intention and expectation of a seller and a buyer that the commod ity sold would be shipped in interstate commerce is a valid test in determining whether or not the sale is a transaction in interstate commerce, even though completed before the actual physical interstate transportation occurs S. v. Reading Co., 226 U. S. 324, 367 (33 S. Ct. 90, 57 L. Ed. 243J: Lemke Farmers' Grain Co. , 258 U. S. 50 , 53 , 54 (42 S. Ct. 244 , 66 L.Ed. 458J; Interstate Xatural Gas Co. v. Federal Power Commission, 331 U. S. 682 , (67 Ct. 1482, 91 L, Ed. 1742); Mandeville (Island Farms) v. (American) Crystal Sugar Co. , 334 V. S. 219 (68 S. Ct. 996, 92 L. Ed. 1328). * * * Sales of milk by producers in Kentucky and Indiana to the defendant distributors are made with the intention and expectation of both parties that the milk would be transported to Ohio and there immediately sold by the distributors. The price to be paid to the producers by the distributors depends upon the amount of that milk which is resold by the distributors to wholesale and retail customers in Ohio, and the price is not determined until after that resale. The resale in Ohio is as integral a part of the interstate commerce as is the sale by the Kentucky and Indiana producers to the distributors. Moreover, and more importantly, not only fluid milk, but sour cream, butter, eggs, orange juice and ice cream are originated processed or purchased by respondent and freely transported by respondent across state Jines from origin to ultimate consumer. It is price discounts and advertising allowances with reference to the sales of all these products that have been charged, and proven in this record.

Moreover, adopting this Commission s position in the Matter of J. H. Filbert, Inc. a corporation, Docket No. 6767, the Examiner declincs, in this proceeding, to restrict himself to a "fragmented" view of respondent' s business, in a "nice and technical inquiry into the non-interstate character of some of its necessary inci- . A.ffmd. 188 F. 2d 95!J. See also PBQples Gas Co. v. P11blic Service Commission 270 U. S. 550. l'evely Dair'1 Company v. United States 178 F. 2d 363 . 366. NATIONAL DAIRY PRODUCTS CORP. 183 Appendix dents and facilities " or to consider such isolated transactions alone and without reference to their association with the movement of which they are an essential but subordinate part. The Examiner does not believe that respondent would seriously suggest that respondent's sale of fluid milk, and variations thereof, can be isolated or excised either in a business operating sense, or in an adjudicatory sense, from respondent' s overall Sealtest operations. Nor would respondent wish to do so. At the time the instant statute was being considered by the Congress, the following, intel' aZie. appears in its legislative history:

The bil prohibits such discriminations where either or any of the purchas ers involved in such discrimination are in interstate commerce. Where a manufacturer sells only to customers within the State, his business is beyond the reach of Federal authority and is not included within the provisions of this bill. This exemption, however, is not important for practical purposes. He may not sell to a mass buyer at discriminatory prices for delivery within the State and shipment then to other States, since such sales are, by longsettled law, interstate commerce. Moreover, the important discrimantions here forbidden are of a kind that can only be granted to some at the expense of the rest. The small manufacturers, operating purely "within the State, ordinarily lacks the diversified list of customers which he must have in order to absorb from them his losses in price cuts to a favored few. Since his smaner customers can always go to the interstate seller, even within the same State, and demand the same prices granted to his larger interstate buyers, the small intrastate seller is precluded from raising his prices to his smaller customers suffciently to absorb such losses.

Where, however, a manufacturer sens to customers both within the State and beyond the State, he may not favor either to the disadvantage of the other; he may not use the privilege of interstate commerce to the injury of his local trade, nor may he favor his local trade to the injury of his interstate trade. The Federal power to regulate interstate commerce is the power both to limit its employment to the injury of business within the State, and to protect interstate commerce itself from injury by influences within the State.

In this Examiner s opinion the language quoted above is unambiguous. Respondent falls within the concept of interstate commerce enunciated in such quotation. This concept was reaffrmed by the Supreme Court in Moore v. Meads' Fine Bread Co. , 248 S. 115, 120.

Interstate commerce is an intensely practical concept drawn from the normal and accepted course of business. (United States v. Yellow Cab Co. 332 U. S. 218, 231.) It could not be effective if it '80 Cong. Rec. 9416-17.

Opinion 70 F. T.

were otherwise. Respondent is not in a position to demand an the business advantages of free and unrestricted commerce between states on the one hand, and at the same time, to seek asylum in the very web it has spun.

Respondent was ranked twenty-first among the largest industrial corporations in the United States in an article in Fortune magazine for July 1959.

The motion to dismiss the proceedings on the ground that the challenged transactions do not constitute interstate commerce under subsections 2(a) and 2 (d) of the Clayton Act is, as previously stated, denied and overruled.

Another ruling issued simultaneously with this one wi1 deal with other matters now pending before the Examiner. OPINION OF THE COMMISSION JULY 28 , 1966 BY DIXON Commissioner:

The complaint in this matter is in two counts. Count I charges respondent with discriminating in price in the sale of dairy products in violation of Section 2(a) of the Clayton Act, as amended. Count II charges discrimination in the granting of promotional allowances in violation of Section 2(d) of that Act. In his initial decision, the hearing examiner found that the charges were sustained by the evidence and ordered respondent to cease and desist from the practices found to be unlawful. Respondent has appealed from the findings and order under Count I of the complaint and counsel supporting the complaint has filed an appeal which places in issue the scope of the examiner s order. Respondent, National Dairy Products Corporation, manufactures and distributes in interstate commerce a variety of food and other products. In 1958, it operated almost entirely through seven separate divisions: Sealtest Foods, Kraft Foods, Breakstone Foods, Sugar Creek Creamery, Humko Products, Metro Glass and Research and Development. The evidence in this case under the Section 2 (a) charge deals with the pricing practices of one of these divisions, Sealtest Foods. More specifically, to sustain this charge, complaint counsel introduced evidence dealing with Sealtest' s sales of dairy products, including fluid milk and ice cream in (a) the Toledo (Ohio) -Monroe (Michigan) area; (b) the Lansing, Jackson, Batte Creek (Ylichigan) area; (c) the Memphis (Tennessee) area as to ice cream only; and (d) the ew Orleans (Louisiana) area.

NATIONAL DAIRY PRODUCTS CORP. 185 Opinion The evidence establishes, and it is not seriously disputed, that respondent sold its dairy products to competing customers at. different prices in each of these areas. Respondent, however, contends that the examiner erred in finding that its price differences in these areas have the required adverse competitive effects, either among its competitors or among its competing wholesale customers (principally retail grocery stores). Additionally, respondent argues that the examiner was in error in rej acting its affrmative defenses that its lower prices in each of these areas were either cost justified or were granted to meet the equally low prices of competitors.

Respondent also contends that the examiner erred in ruling that its sales of fluid milk products in the Lansing, Jackson, Battle Creek, Michigan, area are sales in interstate commerce as required by the statute. As this issue is not raised as to any other area, we wil consider it first in this opinion. There is no dispute that the milk and milk products sold in this area from respondent's Lansing plant are produced in dairy farms located in Michigan, processed in the Lansing plant, and sold exclusively to customers located in Michigan. The hearing examiner, in holding that sales by the Lansing plant were interstate sales, relies on certain evidence showing the relationship and the interdependence of respondent's various branches, zones and divisions.

The evidence relied upon by the examiner reJates to the general over-all organization of respondent' s business. However, it is our view that the theory adopted hy the examiner would require detailed information as to respondent' s internal operations, which is Jacking in this record. The interstate commerce issue was not tried on the theory relied upon by the examiner and we conclude that the evidence is insuffcient to support his holding. We turn, therefore, to a consideration of respondent's pricing practices and its defenses in each of the other areas involved in this proceeding.

Toledo-Monroe Area (Milk) Sealtest Foods operates a mi'k processing plant in Toledo, Ohio, and this plant maintains a milk distributing branch in Monroe, Michigan. The plant handles a general line of fluid milk products and the milk which it processes and bottles is sold both to wholesale customers and directly to the consumer at retail home delivery. Respondent has 22 wholesale milk distribution Opinion 70 F.

routes in Toledo and 5 in Monroe. Approximately J 0 percent of the Toledo plant's volume of fluid milk products is shipped to Monroe where it is redistributed on wholesale and retail routes. About November 1 , 1954, the Toledo plant initiated a monthly quantity discount schedule. This schedule was based upon a point system" whereby each fluid milk product sold by the plant was assigned a point value. The number of points accumulated during a month determined the percentage of rebate earned by the wholesale purchaser. Points were assigned as follows: 1 quart milk (all kinds) 1 point 1 quart half and half 2 points 1 quart whipping cream 8 points 1 quart coffee cream 4 points 1 quart sour cream 4 points 1 quart buttermilk 1 point 5 pound carton cottage cheese 5 points Discounts ranging from 3 percent to 10 percent were allowed on all items in the plant's line of products except butter, yogurt, Reddi Whip and orange juice. In March, 1955, 11 percent and 12 percent brackets were added to the discount schedule. A 2 percent bracket was added to the schedule in August, 1956. Thus, in 1958 at the time of the hearing in this matter, respondent's Toledo discount schedule applicable to wholesale sales by the Toledo plant and the Monroe branch was as folows :

Points (per month) Percent o - 699 700 - 999 000 - 1 499 500 - 1 999 000 - 2 999 000 - 4 999 000 - 6 999 000 - 9,999 000 - 14 999 000 - 24 999 000 - 39,999 000 and over Evidence introduced by respondent in September, 1960 , discloses that on August 1 , 1960, the above schedule was superseded by another schedule also containing discount brackets ranging from 2 percent through 12 percent but with the monthly point requirement to qualify a customer for the 12 percent discount reduced from 40 000 points to 10 000 points, and with correspond- NATIONAL DAIRY PRODUCTS CORP. 187 Opinion ing reductions in the point requirements for the 6 through 11 percent brackets. With certain exceptions, allegedly made for competitive reasons, respondent thereafter sold its fluid milk products in accordance with the 1960 revised schedule. Respondent' s principal wholesale customers in the Toledo-Monroe area are independent stores, multi-unit chains which include corporate, voluntary (wholesaler sponsored and supplied) and cooperativ€ (served by retailer-owned wholesale house) chains and stores under common ownership.

The record establishes the rate of discount granted to a11 of respondent' s Toledo-Monroe customers for the month of July, . 1958. Thus, of the independent stores, one hundred fifty- five received no discount; thirty-one received 2 percent; thirty-eight received 3 percent; twenty-six received 4 percent; ten received 5 percent; and seven received 6 percent. There were an additional nine independent stores, three of which were entitled to 2 percent under the schedule but were paid no discount due to oversight or clerical error, four of which received 10 percent and two of which received 12 percent.

Of the corporate chains, the following received 12 percent discounts: Big Bear, Joseph' , Kational Food, Kroger, Wrigley s and Seaway Foodtown, Inc. Two corporate chains, A & P and Bellmans, received 10 percent and one, Sears, received 7 percent. A11 of the voluntary and cooperative chains consisting of Associated Grocers, Red & White, Tri County Super Dollar and Saveway, were granted 12 percent discount. One of the three common ownership organizations received 12 percent and each of the other two received 10 percent.

The threshold question for decision with respect to respondent' pricing practices in the Toledo-Monroe area is whether the examiner erred in finding that the effect of its price differences was to lessen competition with respondent's competitors and among its competing wholesale customers. In this regard, the statute does not require a showing that injury has actually resulted, but simply that the effect of the discriminations "may be substantially to lessen competition or to injure, destroy or prevent competition.

With respect to injury among respondent' s competitors, complaint counsel introduced the testimony of the representatives of three small Toledo dairies. A11 three were engaged principal11y in the sale of milk at retail home delivery, this method of selling constituting 95 percent of one dairy s business, while another op- Opinion 70 F.

erated fourteen such routes and only one wholesale route. The examiner s finding of primary line injury is based on the testimony of these witnesses that they lost home delivery sales because of the low milk prices of local supermarkets. While not disputing the loss of home delivery sales by these local dairies, respondent contends that the examiner was wrong in predicating competitive injury on this factor alone. It argues that there is substantial evidence in the record as to other factors which caused the losses of sales by these dairies which the examiner failed to consider.

We agree with respondent. Among other things, the evidence establishes that there has been a downward trend in home delivery sales in the Toledo area due to the introduction of half gallons of milk in paper cartons in supermarkets and due to the every day low prices of milk at "cash and carry" stores which began operating about three years prior to the hearings in 1958. In addition, one witness testified that general economic conditions in the market have contributed to his loss of sales. Respondent' home delivery business in the Toledo area declined about 29 percent from 1954 to 1959. Moreover, the witnesses testified that either brands of milk, in addition to Seal test, were offered by supermarkets at the low prices. The record fails to disclose the extent of such sales of Sealtest milk as compared to competing brands. Under these circumstances, we conclude that the evidence fails to establish the likelihood of competitive injury among respondent' s competitors in the Toledo-Monroe area. Respondent strongly objects to the examiner s statement that it has admitted that secondary line injury may be inferred from its price discriminations. While we fail to find such an admission in this record, its absence is not the controlling faetor on this issue. Substantial evidence fully supports the examiner s finding of potential injury among retail grocers competing in the sale of Sealtest milk.

The aforementioned discounts, ranging from 2 percent to 12 percent, were paid by respondent on the basis of its published wholesale list prices. ln the period beginning November 4, 1956 to June, 1958, respondent' s wholesale list prices for the Toledo- Monroe area ranged from 42 cents to 38 cents for half gallons of homogenized or regular milk and from 21 cents to 19 cents for quarts. At the time of the hearings in this area, the wholesale list price of the Toledo plant was 40 cents for the half gallon container and 20 cents for the quart.

NATIOi\AL DAIRY PRODUCTS CORP. 189 Opinion It is conceded by respondent that no independent grocery store purchasing from the Toledo plant received more than a 6 percent discount, whereas virtually all of its chain store customers were receiving a discount of 12 percent. Several independent grocery store owners testified. They received either no discount or a discount of 2 or 3 percent on their purchases of Seal test milk. Their retail prices to the public generally were from 41 cents to 43 cents a half gallon. The generally prevailing retail price of Sealtest milk at the chain stores was 37 cents. At regular intervals either on weekends or each month, the chains offered Sealtest milk at three half gallons for one dollar. The independent store owners named chain stores sellng Sealtest milk as their competitors. All of them stated that they had lost business as a result of the chain stores' prices, one of them characterizing the effect of such pricing as "devastating" on his sales volume. Other owners testified that their customers were not wiling to pay the price their stores charged for milk and would drive a substantial distance to take advantage of low milk prices. One Toledo grocer, in answer to a question as to whether his store was in competition with other stores selling Sealtest milk stated: "We can t be in competition with them the price we pay for it. We do try to run a special occasionally at a loss to ourselves to try to be competitive." A Kroger store, receiving a 12 percent discount, is located four blocks from his store. Thel' e can be no doubt from this record as to the intensely competitive nature of the retail milk business in this area and that profit margins are extremely low. In this setting, respondent has continually discriminated in price in its sale of milk to the extent that chain store customers regularly sell Sealtest milk at a price lower than the price paid respondent for Sealtest milk by all its independent store customers, including those receiving the highest discount (6 %) granted to an independent under respondent' s schedule. The discounts granted by respondent are dearly s conclusion that substantial and we find no error in the examiner the effect of respondent's price discriminations may be substantially to injure, destroy or prevent competition with persons receiving the benefit of such discriminations. Federal Trade Commission v. Morton Salt Co. 334 U. S. 37 (1948); United Biscuit Co. of Amer-ica v. Federal Trade Commission 350 F. 2d 615 (7th Cir. 1965).

Having found that a prima facie case of price discrimination in the Toledo-Monroe area has been established, the next issue Opinion 70 F.

presented is whether respondent has justified these discriminations under any of the defenses afforded by the statute. Subsequent to the issuance of the complaint, respondent conducted an extensive study to establish that its discount schedule is cost justified and that certain discounts, while not on the schedule (off-scale), are likewise justified by cost savings. The study took place in July, 1958, and was conducted by a management consultant firm with the advice and assistance of industrial engineers, accountants, statisbcians and economists. The group, after analyzing respondent's operations, determined that unit costs of processing and manufacturing milk do not vary as between different customers. However, it believed that unit costs of selling and delivering do differ as between large and small volume purchasers, and the study was conducted on this hypothesis. In substance, respondent proceeded on the basis that the cost of operating its delivery routes in very large part represents payment for the time of its deliverymen. Therefore, the time required by a deliveryman to make deliveries of different quantities of milk is of particular importance since, according to respondent' s premise, time saved per unit in serving larger as opposed to smaller customers is money saved.

Respondent tested its hypothesis by time studies of delivery operations in the distribution of milk in the Toledo-Monroe area. Since about 85 percent of a1l Sealtest milk is delivered in this area in a standard wire case, the study group concluded that the best measure of the output of a route driver was the delivery of cases, and that time-volume relationship should be analyzed on the basis of minutes per case delivered.

The time studies covered a1l 27 of the regular wholesale milk routes operating out of the Toledo plant and the Monroe branch each for a six-day period, resulting in 162 time studies. In these studies, representatives of the study group or respondent' s employees recorded the drop time, that is, the time required by the drivers to deliver the product, place it in the customer s display case, and return empty containers to the truck. The study group then analyzed the drop time data and determined that it takes more time for a driver to make a large volume delivery than a small one, but less time per unit. For example respondent' s exhibits show that deliveries of 5 to 5. 99 cases took an average of 16.44 minutes, or 3.05 minutes per case; deliveries of 30 to 30.99 cases took an average of 37. 16 minutes, but only 1.225 minutes per case. After determining this time-volume rela- NATIONAL DAIRY PRODUCTS CORP. 191 Opinion tionship, the study group s next step was to identify and segregate all expenses applicable to wholesale milk distribution from its Toledo plant. These expenses were then assigned to customers on the basis of the time studies.

The study group then took all of the time-volume observations recorded during the study and by use of a mathematical formula obtained an equation for computing the normal, or most probable drop-time requirement for any given size of delivery. Using this computed time equation, the study group developed a time-volume curve which could be used in determining the most probable amount of direct labor time required to make delivery of any given size. Respondent tested this curve by sample time studies of direct labor time in other areas where physical distribution of milk was handled in the same manner as in Toledo. Respondent developed and presented the results of its Toledo cost study in two steps which are set forth in its proposed findings to the examiner as follows:

Step One. First Sealtest computed the cost of serving each off-premise store, location by location, for the week studied; it then classified all such customer Iocations--n the basis of volume delivered during the study week in brackets corresponding to those of its discount schedule and computed the cost of serving locations in each bracket for the week in which they were studied.

Step Two. Seal test secondly presented evidence with respect to the actual costs of serving, and the discounts it actually paid to, different "purchasers at Toledo. It collected the costs of serving one-store customers (grouping them by volume bracket), and it collected the costs of serving voluntary and cooperative group and corporate chain customers, showing the cost of serving each such purchaser for all the store locations it operated. The cost exhibits presented under the first step have been designated as "per location" exhibits and those under the second step as "per customer" exhibits. Respondent states that the per location exhibits were not offered as the ultimate proof of the discounts it allowed. Instead, it avers that these exhibits prove (1) the basic cost/volume relationship; (2) that, as administered on a per store basis, its volume discount schedules are cost justified; and (3) that the discounts actually paid to independent store customers in accordance with the schedules are cost justified, each as against the others.

The Commission has carefully considered these per location exhibits and finds that, to the extent that sales are made on a location-by-location basis, respondent has justified its Toledo milk Opinion 70 F. T.

discount schedule. These exhibit show that respondent has properly computed delivery time, properly allocated costs, properly applied expenses of selling lo each location, and has assigned each location to its proper bracket on the basis of point purchases. These exhibits fmther established that, with the exception of a rle minimis amount between the 11 percent and 12 percent brackets the cost saving to respondent in serving each higher volume bracket as against the next smaller bracket is at least 1 percent. We conclude that the examiner s criticism of these exhibits on the grounds that respondent used computed time rather than observed time, and that it used a point basis rather than a dollar basis in establishing its volume brackets, is not justified. We turn next to a consideration of respondent' s second, independent line of cost exhibits. Respondent designates these per customer exhibits as its ultimate exhibits, taken directly from the cost data, and offered to show cost justification of the discounts it actually allowed to different lJu:rc!wscrs in the Toledo-Monroe area.

As we have previously stated, al1 of respondent' s independent store customers for whom cost justification is claimed fell within the 0-6 percent bracket on its schedule. Eleven of the sixteen multi-unit chains purchasing from respondent received 12 percent discounts, four received 10 percent and one received 7 percent. It is respondent' s contention that its per customer exhibits show that the discounts granted to certain of these multi-unit chains were cost justified.

Respondent calculated its costs of serving multi-unit chains as follows. First, it proceeded on a store-by-store basis, the same as for independent store customers. It took the time required for each delivery to each store unit of the chain and computed thc cost. It then figured the other costs of selling and distributing to each store unit. The costs of distribution to each unit were then totaled and this total was divided by the total dollar purchases of rebatable products of all units in the chain. Basic to respondent's cost justification defense is its contention that the combined units of a chain, and not each individual store unit, is the purchaser. Thus, following this reasoning, it is 1'e- 1 Responuent p:r;lnteu discounts to other multi-unit chains a well a to certain independent stars, which We e in c;.cess of t (' di counts to which they wou:d be entitJeci under resPOJl(lent' discount schecc;le. Respon(!e"t c1efcnrJs the discrjminatory prices resuJLngfrom these olf- chf'(;uJe ais o;mls on the g"() Ir.ds that, in ach ir.st8'1C'" it \HIS mE tjn:; ihe equrllly low r)ri e of a competitor. This cipfc1lsP will be discussrd bter in this opinion. 'For flll inde,wndent st(n8 l" .1stomel", re lJo!Jdent divirled the store s rebatable j)urchase dollars into l"csIJo"dent s cost of distributing- to that store to determine its cost pel" doiJar. NATIONAL DAIRY PRODt:CTS CORP. 193 Opinion spondent' s position that the calculation described in the above paragraph yields its cost per dollar of sales of serving the chain as a purchaser. On this basis, respondent's exhibits show that its costs of dealing with certain multi-unit chains receiving a 12 percent discount" were over 6 percent less than its costs of serving independent customers in the 6 percent discount bracket. The foregoing discussion relates to respondent's method of computing distribution costs for multi-unit chains. As to respondent' s method of determining rebate bracket for multi-unit chains, it states that its policy is to total the point purchases of aU the units of the chain and divide by the number of units. Respondent contends that, in practice, averaging the purchases of mult-unit chains to determine discount bracket yields a discount rate which reflects the cost savings realized in serving such chains.

We have no doubt from this record that unti convenient to do so after revision of its discount schedule in 1960, respondent did not determine discount brackets for multi-unit chains by averaging their purchases. Until 1960, a customer was required to purchase 40 000 or more points per month to qualify for the 12 percent bracket. It is undisputed that under respondent' s aUeged averaging procedure, before 1960, no chain would have qualified for the 12 percent discount. Despite respondent's arguments to the contrary, the evidence establishes that before 1960, respondent determined the discount bracket for a chain by aggregating the purchases of aU the stores of that chain. The mere fact that respondent established a point requirement for a discount bracket that could only be attained by aggregating purchases is a clear indication of its policy. Moreover, respondent's own reasons as to why it added a 12 percent bracket to its schedule shortly after it was initiated confirms its policy of aggregating purchases. In brief, respondent states that the 12 percent bracket was added after it conducted a special time study in 1955 for the Kroger stores and determined that a 12 percent discount would be warranted to an account with Kroger s volume. The 40 000 point requirement respondent then established for the 12 percent bracket could only be attained by aggregating the volume of Kroger stores. The manager of respondent's Toledo plant testified unequivocaUy that the 12 percent discount granted to Kroger was 3 The corporate chains receiving 12 percent discount, for which cost justification is claimed arc Big Bear Kroger, Joseph' , National Food, \Vrigley s and Seaway Foodtown, Inc. The voluntary and cooperative groups \\ere Red & \Vhite and Savcwa.y. Opinion 70 F.

based on the discount schedule (Tr. 3112). Moreover, he testified that all of the discounts granted in the Toledo area were in accordance with the schedule. The evidence discloses that none of the multi-unit chains could have attained the discounts they received under the schedule other than by aggregating purchases of all units. Other evidence of record fully establishes that it was respondent' s policy to determine discount bracket for chains by aggregating purchases.

Respondent vigorously denies that it aggregated the purchases of chain units to determine discount bracket, contending that it was forced to go off schedule (i. grant a 12 percent discount to certain chains that did not attain the required 40,000 points by averaging) because of competitive pressures. In 1960, however respondent rectified this off schedule situation for chains claimed to be cost justified by the simple expediency of reducing the point requirements for the 12 percent bracket to 10 000. Subsequent to that time, with respect to discount schedule administration any chain could obtain a 12 percent discount under the schedule if the total point purchases of all of the units divided by the number of units, exceeded 10 000 points. As before noted, respondent argues that for cost justification purposes, this procedure yields a discount rate which reflects cost savings. In any event, whether the 12 percent discount is considered to be off schedule (prior to 1960) or on schedule, it is respondent's contention that for cost justification purposes, the cost that is to be considered in dealing with a chain is that derived from totaling the distribution cost to each store of a chain, whether large or small, and dividing by the total purchases of these units.

The hearing examiner rejected respondent' s cost justification defense, in part, for the reason that discounts to multi-unit purchasers must be cost justified on a store-by-store basis. We agree. Just as the practice of aggregating purchases or chain units to determine bracket has no relation to the costs of dealing with the chain, so the averaging of purchases has no relationship to the costs actually incurred in dealing with each store. The perishable nature of the product involved, milk, precludes central warehousing. Therefore, with the exception of centralized biling for chains, which is not a significant factor in the cost study, respondent's milk is physically distributed to each store of a chain in identically the same manner as to an independent competitor. Thus, the largest independent customer respondent has in Tr. 149 , 2,19, 283, 2434-35. 2!J70, 3033 , 3063, 301)6, 3071, 3141, 3181-82 and 3258-59. NATIONAL DAIRY PRODUCTS CORP. 195 Opinion this area received only a 6 percent discount whereas a competing chain store unit of the same volume receives 12 percent, not by virtue of any savings in cost to the store but solely by reason of its membership in the chain. In effect, each chain is considered as a separate class of purchaser apart from the independents. Obviously, mere membership in this class does not lessen the cost of dealing with a store.

Respondent' s cost study is based on a time-volume relationship, that it takes less time per unit to deliver a large volume of milk than a smaller volume. The cost savings which respondent allegedly realizes in dealing with a mult-unit chain arises principal1y from the time saved in making delivery to the large volume stores of the chain. In practice, therefore, respondent takes the over cost justification in delivery to the large stores of a chain and credits this time saved to the smaller stores. In our view, this is not a valid costing procedure under the Robinson-Patman Act. The primary purpose of this statute is to curb excessive concessions secured by chain buyers in competition with independent stores. It was designed to limit discounts as "instruments of favor and privilege and weapons of competitive oppression." To permit the cost procedures advocated by respondent defeats this purpose. From the standpoint of competition, respondent' s method of determining costs for a chain is not related to the realities of the market. An independent store competes in the sale of Sealtest milk with the individual stores of a chain unit, not a hypothetical "average " store.

In support of its argument that it should be permitted to average the volume of a chain to determine discount bracket, respondent relies in part on the legislative history of the statute. Specifically, it quotes from that part of a House Judiciary Committee report' which states that physical economies that are to be found in mass buying by a chain are not disturbed by the bill. It is obvious, however, that when taken in full context, the Committee s report did not have reference to economies in mass buying in the sense employed by respondent. The report deals with mass purchasing in the sense of a large delivery to a central location with consequent savings over small deliveries to many locations. We find nothing in the reports or the debates on this bil which lend support to respondent's contention that Congress intended that a seller could apply any economies in dealing with a large store of a In the Matter of Thompson Products, lne., 55 F. C. 1252 (1959). H.R. Rep. No. 2287, 74th Qmg., 2d Sess. 17 (1936). Opinion 70 F. T.

chain to its cost of distributing to a smaller chain unit to justify a discriminatory discount to the chain.

In summary, respondent, by its costing procedure, would justify two discount schedules in the Toledo-Monroe area. One, with discounts ranging from zero through 6 percent, applies to independent stores whiJe the other, with higher brackets through 12 percent, benefits the chains. Since the competition with which Section 2 (a) is concerned is between the individual stores, whether independent or a unit of a chain, such costing procedure cannot be accepted. Accordingly, we hold that respondent has failed to cost justify the discounts it has allowed to multi-unit chains in this area.

In defense of those prices resulting from the granting of discounts in excess of those to which a customer was entitled under the discount schedule, respondent contends that each of these lower discriminatory prices was granted in good faith to meet the equally low price of a competitor.' It is respondent' s argument that it was meeting a competitor price within the requirements of Section 2 (b) by matching the competitor s discount.' In its appeal brief (p. 87) respondent states that "* * .' when Sealtest met a competitor s rebate, it no more than met the ' equally low price of (thej competitor' on a net price basis, Obviously, this argument is valid only if, as further contended by respondent, the wholesale list prices of the competitors whose 10\ve1' prices respondent claimed to be meeting were similar to respondent' s. The hearing examiner held that respondent failed to make this showing. We recognize, in this regard, that the examiner s ruling imposes too strict a burden upon respondent by requiring that it show the actual list prices of it.s competitors. The good faith requirement of Section 2(b) does, however, impose upon respondent the burden of showing the existence of facts which would lead a reasonable person to believe that the wholesale list p,'ice from which respondent granted its discount was no Jowor than the wholesale list price of the competitor whose price it was allegedly meeting. Federal Trade Commission 'These' customers include Associated Grocers (AG), Sears, Bel1man s, Tri County S'.per Doll!!,.. Foodtu\vn (Monroe), Casper-ilIiglo)'e s, People, La Plant, Country ),Iarket, Save Mol', S..g. , Prcscott, IvbJlen s. !\'ancy, Hoffman s, A & 1- and New 11eci' Stop- State Park Beer Stop- Golden Drumstick.

'Sectjor. 2(b) of the Statute jJl'ovirles that a seller may rebut a prima facie case of pric:e diSClimination " fly showing that his lower price I, (, to any Jlul'chascr or purchasers was made in good fe. ith tu meet an equally low y;rice. of a com11etitor " " ,:. " (emphasis added). NATIONAL DAIRY PRODUCTS CORP. 197 Opinion v. A. E. Staley Mfg. Co. 324 U. S. 746 (1945). Respondent has failed in this burden.

We first point out that respondent' s defense differs from that recently considered by the court in the Calul10ay Mills case. Callaway Mills Co. v. Fedeml Trade Commission 362 F.2d 435 (5th Cir. 1966). In that case, Callaway adopted an annual quantity discount schedule ostensibly to meet discount schedules offered by its competitors. The evidence established that Callaway sold only a tufted line of carpeting whereas its competitors sold both woven and tufted lines. Additionally, Callaway s line was smaller and less expensive that its competitors In determining the validity of Callaway s defense under Section 2 (b), the court examined in detail the manner in which carpeting is sold. It referred to the fact that each manufacturer makes a wide variety of carpeting of different quality and that often there is a difference in construction, design, patterns, colors or materials between carpets selling at the same price level. Moreover, the court found that the Callaway discount schedule and that of its competitors, applied to their ful1line of carpets, regardless of the type or price.

It was the court's conclusion that " In the circumstances and under the facts of this case, Callaway ,. * * could in ' good faith' attempt to meet the competition by granting similar volume discounts especially since no workable alternative is evident. In the case before us, which involves the sale of milk, none of the marketing factors which the court found to be significant in the sale of carpeting, has any application. And here, respondent does not rest its Section 2(b) defense on the granting of discounts under its discount schedule, as did Callaway. Instead, respondent argues that, in individual situations, it was meeting a competitor s equal1ly Jaw price, and that it was doing so by matching that competitor s discount. Therefore, as part of its good faith burden respondent must show the existence of facts which would reasonably lead it to believe that its wholesale list prices were no lower than that of the competitor whose price it was allegedly meeting. In support of its position, respondent relies on evidence showing a similarity of certain costs among the different dairies in this market. First, respondent points to thc fact that the price of raw milk is fixed by government order so that al1 dairies purchase raw milk at the same price. Second, respondent states that labor costs tend to be the same for a1l dairies due to the existence of marketwide labor contracts. However, contrary to respondent' Opinion 70 F.

contention, the similarity of these two cost items does not provide a reasonable basis for assuming that wholesale list prices are the same, a fact of which respondent should have been well aware. While the cost of raw milk and labor may account for a uniform cost of producing milk at the plants of the various dairies these items fail to take into account a cost item which would substantially influence a dairy s wholesale list price. We refer to the cost of distribution. As respondent has well documented in this record, there are numerous items of expense which must be considered in determining distribution costs. Respondent relies to some extent upon a statement by its Toledo plant ice cream manager, in commenting on list prices for ice cream in that area, that there is an industrywide labor contract which spells out the commission paid to drivers. Assuming that the commission paid to drivers for milk delivery is also fixed by labor contract, this is the only item of distribution cost of a competitor of which respondent could be at all certain. However, this showing is of little, if any, significance as to competitors' distribution costs. First, the commission paid to drivers accounts for less than 50 percent of the total wholesale delivery costs. Second knowledge as to the rate of commission paid to drivers is of no consequence in the absence of information as to the competitor volume of sales. Respondent does not claim to know the sales volume of any competitor nor does it claim to have knowledge of any facts upon which it could reasonably make this determination. LCnder the circumstances, we find that respondent has failed to demonstrate any reason to believe that the wholesale list prices of competitors whose prices it claims to have met were the same as its own. Not only has respondent failed to make this showing, but the evidence clearly and convincingly discloses that the wholesale list prices of certain of these competitors were higher than respondent' The quantity discount schedules of certain competitors evidence this difference in wholesale list prices. Respondent states that knew these discount schedules, and it has placed the schedules of two competing dairies in the record. One of these is Babcock Dairies, a competitor whose lower price respondent claims to have met in selling to several of its off-schedule customers. We set forth the full Babcock discount schedule (RX 166A): Monthly Sales Points NATIONAL DAIRY PRODUCTS CORP. 199 Opinion Monthly Sales Points 1750 _u-- 2000 -- 2500 - -- -- - u - - u -- 3000 d_' 10 Using the 1070 bracket as an example, only 3,000 points monthly are required under the Babcock schedule while the respondent' s schedule required 15 000 points. Even after respondent revised its schedule in 1960, which revision respondent contends was necessary to bring its point requirements into line with competitors' schedules, 7 000 were required. Respondent, of course, does not claim to have met a competitor s price in the granting of discounts from its discount schedule. Instead, respondent states that in granting discounts to meet a competitor s lower price, it went off schedule. Thus, a customer who claimed to have been offered a 10 percent discount by Babcock may have purchased enough points to justify that discount from Babcock. Its purchases would not be suffcient to warrant a 10 percent discount on respondent's schedule. Respondent would then go off schedule to grant the 10 percent discount. The vital point to keep in mind in considering the different point requirements of respondent' s and Babcock's schedules is that price is the one crucial item in the sale of milk at wholesale. Retailers must carry milk and this record is replete with evidence that competition is cutthroat, to the extent that one or two cents difference on a half gallon will mean the difference between a profit or loss on milk to the grocer. Although complaint counsel attempted to establish ,a preference for nationally and heavily advertised brands such as Sealtest, there can be no question from this record that as to milk, a basic homogeneous product, it is the net price to the grocer which determines whether he wi1 continue to buy or wil change suppliers.

It is in this context that the various discount schedules must be considered. And it is in this context that the disparity between wholesale prices becomes obvious.

Let' s assume, as respondent contends, that wholesale list prices are the same-using as a basis, 40 cents a half gallon. 1.nder the Babcock schedule, a customer would be entitled to a 10 percent discount if he purchased 3 000 points a month, a net price of 36 200 FEDERAL TRADE COMMISSIOK DECISIONS Opinion 70 F. T.

cents. Under respondent' s schedule (p. 186 of this opinion), he would just barely rate 6 percent, giving him a net price of 37. cents. The evidence firmly establishes that this net price difference in most instances is suffcient to divert a retailer s purchases to Babcock. We do not believe that respondent and Babcock competed on that basis. Rather, we think it obvious that Babcock' discounts were granted from a higher wholesale list price than respondent' s and that Babcock competed on a net price basis by maintaining lower point requirements on its discount schedule. One thing is abundantly clear from this record, a dairy could not sell milk in this market at net prices which were consistently one or two cents above its competitors There is direct testimony that there is a two cents a half gallon difference between respondent' s list price and that of one competitor, Page Dairy. Page s price was two cents less a half gallon and t.here is no evidence as to point reqldrements for obtaining a discount under the Page schedule. In any event, this testimony clearly refutes respondent's basic premise upon which its Section 2 (b) defense rests that wholesale list prices of those competitors whose lower prices respondent claims to have met were the same as respondent's. With the Page wholesale list price admittedly two cents less a half gallon than respondent' , there is no justification on this record for inferring, as respondent argues that the wholesale list prices of these competitors were the same as respondent' While it is true that a seller claiming the meeting competition defense is not required to prove that its prices were in fact equal to those of its competitors, it must show the existence of facts which would lead a reasonahle person to believe that its lower discriminatory price would in fact meet the equal1ly low price of a competitor. (Fedeml Tmde Commission v. A. E. Staley Mfg. Co. supra.

Respondent states that it knew the requirements of its competitors' discount schedules. However, the fact that respondent knew its competitors' discount schedules does not mean that it knew, or that it had any reasonable basis to assume, that the wholesale list prices of these competitors were the same as its own. It is obvious that if respondent's milk is normally competitive at a 3 percent discount with a competitor s milk at a 6 percent discount, respondent by granting a 10 percent discount to meet the 10 percent discount on the competitor s schedule, could not claim to be meeting the competitor s lower price. In such a case, respondent would be NATIONAL DAIRY PRODUCTS CORP. 201 Opinion substantially undercutting the price of its competitor by granting the same discount.

In the Continental Baking case (Docket 7630, Dec. 31 , 1963) (63 F. C. 2071J, we dismissed a complaint charging a violation of Section 2 (a) upon the grounds that respondent had sustained its burden under Section 2 (b). In that case, respondent was meeting discount offers of its competitors. We pointed out in our decision that not only were the competitors' discounts equal to or larger than Continental's but that in every instance of record Continental' s "net price to the customer was no lower than its competitors' net prices. " This holding is well documented in the hearing examiner s initial decision wherein he made explicit findings as to the similarity of list prices based on the testimony of many purchasers. Thus, the factual situation in that case is far different from the case before us where we are asked to sustain a Section 2 (b) defense on an inference of the identity of list prices when the facts, known to respondent, indicate to the contrary. We hold that respondent has failed to show that there is reasonable basis for believing that it was meeting the equally low price of a competitor, as contended. We cannot now infer from a showing of similarity of certain costs that competitors ' list prices were the same as respondent's and, on the basis of such an inference, further infer that respondent was either aware of this price identity at the time it granted the discriminatory price or that it at least attempted in good faith to satisy itself that it was meeting an equally low price.

Respondent has failed to meet its burden under the meeting competition defense in stil other respects. Thus, many of the discounts it seeks to justify were those in the amount of 10 and 12 percent which it granted to multi-unit chains. Much of the testimony that respondent relies upon to establish its defense is to the effect that it believed the customer because it knew that the 10 or 12 percent offered by a competitor was the highest discount bracket on the schedule of the particular competitor. In those instances where a voluntary or cooperative chain was involved, respondent had been serving stores of the chain on an individual basis. In many instances, respondent knew that the volumes of the individual stores were small and it should thus have known that the competitor s offer was based on aggregating purchases to establish discount bracket. In fact, respondent's Toledo plant manager testified that he was told by certain of these customers that the competitors' offers were based on aggregating sales to Opinion 70 F.

determine bracket on the competitors' schedules. Knowing this and knowing that these competitors were sellng to different customers at different prices, respondent was aware that the prices it was aJIegedJy meeting were discriminatory and should have been placed on notice that such prices might not be justified by savings in cost to the competing sellers. It was therefore incumbent upon respondent to come forward with evidence showing that under the circumstances, it had no reason to believe that the prices of those competitors who were aggregating purchases were not lawful Respondent has faUed in this burden. Specific reference is made in the initial decision to two accounts which respondent contended were granted discounts to meet competition. These were Associated Grocers (AG) and Saveway. Both of these are grocer s cooperatives, the former consisting of 55 to 60 stores, while there are 6 stores in the Saveway group. Respondent introduced testimony of representatives of both these groups in support of its defense.

In brief, respondent argues that its discounts to these two groups were granted to meet the same or higher discount offers by MeadowgoJd. Respondent had been serving individual stores of each group before the Meadowgold offer. At least with respect to the AG group, these were practically all small stores and respondent should have been well aware that it could not cost justify 10 percent discount, which was the amount of the Meadowgold offer. Moreover, Meadowgold had the additional distribution expense of serving the Toledo area from Lima, a distance of some 80 miles. Therefore, we think that the Section 2 (b) proviso is not satisfied by a mere showing of the Meadowgold offer. In our view good faith in these circumstances requires an additional showing by respondent of circumstances which would lead it to believe that the MeadowgoJd offer could have been justified on a cost savings or some other basis.

One other aspect of respondent's discounts to AG and Saveway must be noted. Representatives of both accounts testified that they had diffculty with Meadowgold milk due to the distance was being transported. Both testified that they intended to replace Meadowgold and that, in fact, their purchases from respondent were increasing befm' respondent offered a lower price. This coupled with the express testimony of the Toledo plant manager (tr. 283-84) that the purchases of AG and Red & White ' were 9 Saveway, which was a corporate chain, disbanded in 19. 8 and the stores became members of the Red & \ 'white voluntary group.

NATIONAL DAIRY PRODUCTS CORP. 203 Opinion aggregated to determine discount bracket, strongly indicates that the discounts which respondent granted these two accounts were not to meet the Meadowgold offer but were the result of respondent's determination to aggregate purchases of cooperative units. In any event, counsel supporting the complaint conclusively rebutted the evidence introduced by respondent as to its discount to Saveway by establishing that Meadowgold, whose offer respondent aI1egedly met, withdrew entirely from the Toledo market within about six months after its offer and that, thereafter, respondent continued its discount at the same rate. Respondent failed to introduce any further evidence in support of its meeting competition defense as to this customer. Under aI1 of the foregoing circumstances, we find that respondent has failed to establish the good faith requirement of the Section 2 (b) defense.

Memphis, Tennessee (lce Cream) The evidence dealing with the Memphis area relates to respondent' s sale of ice cream under a monthly quantity discount schedule which was initiated in February, 1957, and to certain discounts respondent aI10wed which were off schedule. The schedule, which applied to the sale of packaged ice cream was as foi1ows:

Gallons DiacQi.mt per Gallon 0- 50 - 79 80 - 109 110 - 139 140 and over At the time this schedule went into effect, respondent was selling two brands of ice cream from its Memphis plant. Sealtest brand, with a butterfat content of 11 percent had a wholesale list price of $1.32 per gallon. The secondary brand was Fro-Joy which had a 10 percent butterfat content and sold at $1.19 per gallon. In February, 1958, the per gai10n price of Fro-Joy was reduced to $1.15.

Apart from sales under its discount schedule, respondent also sold to certain customers at a net price lower than the net price charged customers in its highest discount bracket. Respondent contends that these were specially negotiated discounts. Most of the evidence in the Memphis area relates to the special discount respondent allowed to stores affliated with the Malone Opinion 70 F. T.

Hyde organization. It is respondent's argument that Malone & Hyde is a wholesaler and the rebates it received constitute a lawful functional discount. The hearing examiner rej ected this argument and we agree with the examiner.

There is very little dispute as to the facts concerning the Malone & Hyde transactions. It is established that Malone & Hyde has been engaged in wholesale food distribution in the Memphis area for over 50 years. In 1944, it organized the Malone & Hyde Cooperative Stores. At the time of the hearing, 335 independently owned retail grocery stores belonged to the organization. To qualify as a member, a retailer must do a certain volume of business and pay Malone & Hyde an annual membership fee of $364. Ma- Ione & Hyde maintains warehouses from which it supplies these stores with a full line of grocery products. Mr. Hyde testified that he sells to the member stores at the Malone & Hyde cost plus a fee of 3 percent for handling and delivery in Memphis. In 1951, Malone & Hyde entered into an arrangement with respondent whereby it agreed to promote, sell and advertise Sealtest and Fro-Joy ice cream in the member stores. This agreement was verbal and the understanding was that on the volume of business that Malone & Hyde could produce, it would be paid 5 percent of dollar sales. Malone & Hyde retained 2 percent for credit and accounting work and for promotion, and passed 3 percent to the member stores. Under this arrangement, Malone & Hyde accepted the credit risk on a11 shipments to its stores and respondent billed Malone & Hyde for total deliveries.

In 1954, respondent voluntarily increased the discount to 7 percent, 5 percent of which was returned to the individual stores. Finally, in 1956 (and again verbally) respondent increased the discount to 7 cents per gallon plus a 2 percent allowance on total dollar purchases (excluding novelty ice cream items). The 7 cents was returned to the member stores and :\1alone & Hyde retained the 2 percent allegedly as compensation for advertising, to handle bjjing and for assumption of credit risk incurred by respondent in selling to the stores.

There were at least 190 Malone & Hyde stores receiving ice cream from respondent. The 7 cent discount applied to their purchases of both Sealtest and Fro-Joy ice cream. Subsequently, at the request of Malone & Hyde, respondent bep;an furnishing these stores with a private label ice cream known as Hyde Park, which was of the same grade and quality as Fro-Joy. Although the exact date on which this delivery began is not in evidence, the record NATIONAL DAIRY PRODUCTS CORP. 205 Opinion establishes that the stores were receiving Hyde Park in 1959 at a wholesale price of $1.05 per gallon Jess 7 cents per gallon discount, at which time the wholesale price of Fro-Joy was $1.15. The record discloses that in a one month period in 1959, respondent sold over 8 600 gallons of ice cream to Malone & Hyde stores. Of this total, which constituted over 70 percent of respondent' volume in Memphis, 40 percent represented sales of Hyde Park. The circumstances are such that there is very little difference between the manner in which a Malone & Hyde member store is serviced by respondent as compared to a non-member retail customer. In both cases, respondent receives orders directly from the store, delivers the ice cream directly to tbe store and services the cabinets. Whel"eas an independent store owner may pay the deliveryman, the Malone & Hyde store is furnished with a copy of the invoice and the original is sent to Malone & Hyde headquarters. Once a week, respondent bils Malone & Hyde for al1 stores and receives a check drawn on the Malone & Hyde account. In arguing that Malone & Hyde is the purchaser and thus entitled to a functional discount, respondent alleges that it has nothing to do with the price at which its ice cream is sold to the stores. However, the record contains numerous copies of invoices to Malone & Hyde stores and on each, the price per gallon of both Sealtest and Hyde Park ice cream is specified. Moreover, respondent regularly sends to Malone & Hyde headquarters a recapitulation sheet which shows not only the number of gallons each member store purchased (by name) hut also the amount of refund due each store. Likewise, the 10 cents per gallon equipment allowance which respondent grants to stores having their own ice cream cabinets, is paid directly to the member stores. And, finally, the fact that part of the 2 percent which respondent grants to Malone & Hyde is for assuming the credit risk of the member stores is consistent only with the fact that the parties themselves regard the member stores as the purchasers. Obviously, were Malone & Hyde the purchaser, there would be no risk involved to respondent insofar as the credit of the stores is concerned. Considering the facts of record, the Commission concludes that respondent' s sales of ice cream were made to the member stores of the Malone & Hyde organization and that these stores performed no function different from that performed by their competitors who purchased respondent' s ice cream. This is not to say that Malone & Hyde could not perform services for respondent and be reimbursed therefor. Presumably, 2 percent allowance re- Opinion 70 F. T.

ceived by ;VIalone & Hyde was payment for such services and such payment is not included in our finding of a price discrimination in sales to Malone & Hyde stores.

In addition to the Malone & Hyde stores, respondent allowed the 7 cents per gallon discount to three other Memphis customers: Food Center, a corporate chain with six stores; four or five stores of the National Food chain; and one Kroger store. The evidence establishes the intense competition which exists in the resale of respondent's ice cream in Memphis. There is testimony that, at the time respondent's wholesale list price for Fro- Joy ice cream was $1.15 per gallon, the retail price in the Memphis area varied from 53 cents to 59 cents a half gallon. The testimony of respondent' s competitors in this area indicates the competitive importance to retailers of a few cents difference in price. The three who testified placed the amount which would cause a retailer to switch suppliers as between 2 cents and 4 or 5 percent per gallon. The testimony of several retailers, introducd by respondent to the effect that they needed a discount in order to effectively compete, confirms the significance which they attached to lower net prices. Furthermore, the highly competitive nature of the retail ice cream business is reflected in the testimony of respondent' s offcials who stated that certain of their customers threatened to quit pUlchasing unless their discounts were raised three or four cents a gallon.

Over 200 independent stores, constituting over 50 percent of respondent' s customers, received no discount. In this regard Mr. Hyde testified that he wanted Hyde Park ice cream in order to sell at 53 cents a half gallon at a time when these 200 customers were paying $1.15 per gallon for ice cream of the same grade and quality.

Considering the facts of record, we conclude that the discounts granted by respondent, and particularly the 7 cents per gallon granted to chain customers, were substantial and had the probable effect of lesssening competition between respondent's retail purchasers.

We next consider respondent's argument that the discounts which it granted under its quantity discount schedule were cost '" The court in the United Biscuit case, in commenting on Ii monthly quantity discount 8schedule, h,, stated that "The apparent purpose of n graduated discount system is to afford S01T.e C\lt()mC'rci "l" eater profits. ., .:' ,. There \VQuld be no purpose for United to burden itself with maintaining its p!'icir. g practices unless it believed that tbe discounts are suffciently attractive to inrluce a greflter volume of purchases from its customers. It follow that if ' he discounts life intended fl lin inducement, necc any they must he considered of a snnstBntial character. United Biscuit Co. of Amrrica Federa.l Tra.de Comm.ission 350 F. 2.d 615 , 621 (7th Cir. 1965), NATIONAL DAIRY PRODUCTS CORP. 207 Opinion justified and that its off schedule discounts were either cost justified or were granted to meet competition. Respondent conducted an extensive time study of its wholesale ice cream distribution routes in Memphis during the period from October 19 to November 18, 1959. As in the Toledo milk study, the ice cream study was made on a location-by-Iocation basis, regardless of whether the location was that of an independent store or a store of a chain. Nine routes were studied for fifty route days, covering slightly more than 1 000 deliveries to more than 500 store locations. The time-volume relationships were analyzed on the basis of minutes per gallon delivered, total ice cream distribution expenses were determined, and these expenses were assigned or allocated to customers on the same bases as that used in the Toledo study.

We have carefully reviewed respondent' s cost study exhibits and we conclude that respondent has cost justified its Memphis ice cream discount schedule on per location b"sis. As in the Toledo study, respondent has properly computed and assigned delivery time and costs, and has assigned each location to its proper bracket on the basis of purchases. Respondent's exhibit, based on these cost studies, shows its distribution cost per gallon sold was 6543 for the 0 bracket; $.5193 for the 2 cents bracket; $.5042 for the 3 cents bracket; $.4279 for the 4 cents bracket; and $.3394 for the 5 cents bracket. However, we reject respondent' s argument that certain of its off schedule discounts are cost justified. The two off schedule discounts for which respondent claims cost justification are those granted to the Malone & Hyde stores and to Food Center. In both instances, respondent claims cost justification on the basis of totaling distribution costs of alj stores of the group and dividing by the total purchases. For the reasons stated with reference to the Toledo cost justification defense, this procedure is rejected. Moreover, the cost justification defense is invalid as to both of these groups for other reasons. As to the Malone & ;Hyde stores, the evidence H establishes that the average volume of purchases of the stores of that group was less than the average volume of the purchasers in the 5 cent bracket on respondent' s schedule. Thus, it is obvious that there were independent stores in respondent's 5 cent bracket which had volume purchases larger than the average of the Malone & Hyde stores. In condemning this same method of classification of purchasers, the Supreme Court has stated that "Such a grouping for cost justifillRX 109-- 208 c FEDERAL TRADE COMMISSION DECISIONS Opinion 70 F. T. cation purposes * " " created artifical disparities between the larger independents and the chain stores. It is like averaging one " 12horse and one rabbit.

With reference to Food Center which received a 7 cents per gallon discount, respondent's own cost exhibits " disclose that its distribution cost per gallon to stores of that chain is practically identical with its distribution cost per gallon to customers in the 5 cent bracket on its schedule. Thus, it costs respondent $.3840 per gallon to distribute ice cream to Food Center stores while its cost per gallon to customers in the 5 cent bracket is $.3869. Clearly, this cost difference of $.0029 cannot justify a 2 cents per gallon difference in price.

We hold that respondent has failed to establish that its lower net prices to Malone & Hyde stores and to Food Center were cost justified.

Respondent has presented a meeting competition defense with respect to discounts granted to certain independent stores, which discounts were in excess of those warranted by the stores ' volumes on the discount schedule. Respondent' s offcials testified as to reports they received from customers of higher discount offers from competitors. These offcials stated that they personal11y contacted the store owners whom they named, and they gave the time and place of the conversation, the amount of the competitor offer, and, in most instances, the name of the competitor. Additionally, respondent introduced evidence in verification of these reports, including the testimony of certain of the customers. Counsel supporting the complaint failed to rebut this evidence and we hold, therefore, that respondent has sustained its burden of showing that its discount to each of these independent store customers was made in good faith to meet the equal11y low price of a competitor.

Respondent also contends that the 7 cents per gallon discount which it granted to Malone & Hyde stores, Kroger and Food Center were made to meet competitors' offers. With reference to tbe Malone & Hyde stores, respondent introduced two letters dated in January, 1958, from Santi Ice Cream Company to Malone & Hyde offering to sell a private brand ice cream at $1. 18 per gallon less 10 cents per gallon discount. As pointed out by the examiner, the discriminatory discounts were granted by respondent to Malone & Hyde stores long before these 12 United States v. Borden Co., 370 U. S. 460 (1962). RX 117- NATIONAL DAIRY PRODUCTS CORP. 209 Opinion letters were sent. Moreover, the net price offered by Santi was higher than the net price respondent charged the Malone & Hyde stores for its Hyde Park ice cream, which brand accounted for nearly 40 percent of the ice cream purchased by these stores from respondent.

On this appeal, respondent now relies on the testimony of Mr. Hyde that, prior to the Santi offer, he had received similar offers from other companies which he named. Nowhere in this record is there any testimony by respondent's offcials or by Mr. Hyde that either the Santi offer or any other offer by a competitor was reported to respondent. In fact, Mr. Hyde testified that he had no desire to change suppliers because of Sealtest' s national advertising and consumer preference in the area. This evidence stands in sharp contrast to the evidence relied upon by respondent in support of its mceting competition defense in the granting of off schedule discounts to independent stores. The evidence clearly establishes that respondent initiated discounts to Malone & Hyde stores and voluntarily continued and increased these discounts without regard to competitive offers. Respondent' s failure to allege that it was even aware of any competitors' offers is suffcient to invalidate its argument that it was acting in a good faith effort to meet an equal1ly low price of a competitor in granting discriminatory discounts to Malone & Hyde stores.

With regard to its discounts to the Kroger store and to Food Center, although respondent generally states on this appeal that these discounts were granted to meet competition, it cites no evidence in support of this defense and we find none in this record. Accordingly, we hold that respondent has failed to establish that its 7 cents per gallon discounts to Malone & Hyde stores, to the Kroger store and to Food Center were granted in good faith to meet an equal1ly low price of a competitor. New Orleans (Milk) Respondent' s New Orleans plant processes and sells fluid milk products in the New Orleans metropolitan area and had distribution branches in Baton Rouge, Louisiana, and Jackson Missis sippi. It did not have in effect any quantity discount schedule in the sale of milk during the period covered by this record. However, the record establishes that respondent granted discounts ranging from 5 percent to 10 percent off wholesale list price to at least five wholesale customers in the first seven months of 1958. , ..

210 FEDERAL TRADE COMMISSIOK DECISIONS Opinion 70 F.

During this period, respondent had over 600 wholesale customers who received no discount.

In addition to these discounts, respondent for a number of years has sold milk to its largest wholesale customer in this area at a net price lower than its net price to any other customer. The undisputed facts concerning this favored customer are as follows. On May 21 1951, respondent entered into a contract with H. G. Hil Stores, Inc., a chain of food stores in New Orleans, whereby it agreed to furnish that customer with fluid milk products under a private label Velva." By the terms of this contract, the price charged for Vel va milk, which at that time was packaged only in quarts, was the Federal Milk Market Order price of raw milk plus 6 cents per quart. The contract further provided that Hil stores would use respondent's milk exclusively, except for milk supplied by St. Charles Dairy, in al1 of its retail stores. " In addition, the contract provided that respondent would sell Hil stores its Seal test brand of milk at published wholesale list prices. The record establishes that there is no difference in grade or quality between the homogenized vitamin D and pasteurized lines of the Sealtest brand and the respective Vel va private brand line. In 1954, respondent' s New Orleans plant began packaging milk in half gallon containers. Shortly thereafter, respondent entered into negotiations with the Hil stores as a result of which it began furnishing that customer with half gallons of milk under the Velva label at a price of 11 cents per half gallon over the Federal Milk Market Order price of raw milk. About July 1 , 1956, the Hil stores were acquired by Winn- Dixie Stores, Inc. Respondent continued to supply Velva brand milk to Winn-Dixie at the same price as it had to Hil stores. On October 1 , 1956, the arrangement was modified and, thereafter the price to Winn-Dixie for Velva milk became 7 cents per quart and 12. 8 cents per half gallon above the Federal order price of these respective quantities.

The wholesale list prices of Sealtest brand homogenized vitamin D and pasteurized milk from respondent' s New Orleans plant were as follows, beginning on the dates indicated: 10/28/57 6/2/58 8/1/58 9/26/58 49/ 47if 49if 49if Pasteurized 471 45/ 471 471 H St. ClH\1.1e Dairy had been the Em stores' SllJ1plier. The record establishes that shortly after this contract, St. Charles D:oiry discontinued business, leaving respondent as the e;:clush'e supplier.

NATIO!\AL DAIRY PRODUCTS CORP. 211 Opinion During this same period of time, respondent's price to Winn- Dixie for half ganons of Velva milk, based on its contract, varied from 39 cents to 36. 7 cents for homogenized vitamin D milk and from 38. 9 cents to 36. 5 cents for pasteurized. Thus, respondent maintained a net price of about 10 cents per half gallon less to Winn-Dixie than to its numerous other customers who received no discount.

Winn-Dixie bas at least 25 stores in New Orleans and respondent's plant manager testified that Winn-Dixie "pretty well blankets this area" competitively in the retail distribution of milk. Respondent' s sales of Velva brand milk and milk products to Winn-Dixie for the first seven months of 1958 totaled about $386 000.

The probable adverse competitive effect stemming from respondent' s lower prices to Winn-Dixie is readily apparent from this record. The testimony of one of respondent's offcials establishes that the generany prevailing retail price of half gallons of milk in the New Orleans area was 49 cents. This is about the price which most of respondent' s customers paid for milk. Moreover the evidence discloses that Winn-Dixie stores regularly ran weekend specials in which they sold Velva milk at 39 cents. Three of respondent' s wholesale customers testified in this case. Their testimony establishes that milk is a very vital item in their stores, that they make only about 2 cents profit on a half gallon and that it is their experience that the housewife wil shop where milk is a few cents a bottle cheaper. These retailers testified that they had lost sales due to Winn-Dixie s lower prices on milk and in this regard, one retailer stated that a Winn-Dixie store across the street from him sold Velva half gai10ns at the 39 cents price for an entire two-week period.

There can be no doubt from this record that milk is a highly competitive and very low profit item in the "ew Orleans area. We think it obvious that the difference between the prices which respondent sold to most of its wholesale customers and the lower prices accorded Winn-Dixie was substantial. We hold, therefore that the effect of respondent's price discriminations may be substantiany to lessen competition among respondent' s wholesale purchasers.

Respondent argues that the hearing examiner erred in holding that it had failed to establish that its lower prices in the :-ew Orleans area were granted to meet equany low prices of its competitors.

212 FEDERAL TRADE COM:vISSIOK DECISIONS Opinion 70 F. T.

As we have noted, respondent granted discounts off list prices to a few wholesale milk customers in addition to Winn-Dixie in New Orleans. With respect to these customers, respondent' offcials testified as to their conversations with the owners, giving the times and places of the conversations. Respondent also identified the competitors making the offers and stated the amount of these offers. Respondent's offcials testified to additional facts in verification of these reports, including the fact that in at least one instance, the competitor actually replaced respondent before respondent agreed to give the discount. Complaint counsel made no attempt to rebut this evidence. On this record, we conclude that with respect to favored customers other than Winn-Dixie, respondent' s lower prices were granted in good faith to meet the equally low prices of competitors. We hold, however, that respondent has failed to establish its meeting competition defense in the granting of discriminatory prices to Winn-Dixie. As to the contract negotiated in 1951, respondent states that it relied upon competitors' bids to public institutions such as hospitals, schools and naval bases. However, these bids could give very little, if any, indication as to a competitor s offer to Winn-Dixie since the sale to public institutions involved delivery to one location whereas the Winn-Dixie sale involved separate delivery to each store. It is well established that the cost of delivery is a very significant item in determining price. Moreover, the testimony of respondent's offcial establishes that its offer of 6 cents per quart over the Federal Milk Market Order price was based on studies made by its accountant "of the kind of goods that were to be sold and the services to be rendered," l When respondent first introduced milk in half gallon containers in New Orleans in 1954, it was contacted by the owner of Hi1 stores, a Mr. Penick, who demanded Velva half gallons on the same price basis as Velva quarts at 6 cents above the Federal order price for a half gallon of raw milk. The representative testified that, when he told Mr. Pcnick this was not possible, he was told "to go back and get my costs and come back to see him. Respondent' s offcial testified that he did this and that the figures he got from his accountant showed a saving of about one and two-tenths cents for a half gallon as compared to two quarts. When respondent' s offcial was contacted by Mr. Penick' s assistant, he did not inform him of this exact savings but offered to 15 Tr. 614.

Tr. 5864.

NATIONAL DAIRY PRODUCTS CORP. 213 Opinion sell at a one cent saving for half gallons one cent less than the twelve cents above raw milk cost for two c'uarts. Mr. Penick then joined the negotiations and after learning of this offer, told respondent' s offcial that a Co-op at Franklinton, Louisiana, had stated they would sell Hil stores at 4 1/2 cents per quart and 8 cents per half gallon above the respective raw milk prices. Respondent relies on this evidence to support its defense that its price to H. G. Hil Stores and its successor, Winn-Dixie, for half gallons of milk was granted to meet the Co-op offer. We disagree.

In the first place, we think this evidence establishes that the offer to Hil stores was the result of the study hy respondent' s accountant and was made irrespective of any other offer. Moreover as contrasted to the evidence respondent introduced concerning its discounts to other purchasers, it has made no' showing of an attempt to verify the reported Co-op offer. That such attempt is essential to a good faith showing is evidenced . by the testimony. Respondent was aware that the Co-op had been a by-product plant which "hadn t been doing so well" and was just trying to expand into the bottling field for wholesale delivery. Respondent had just completed an accounting study which showed the lowest price it could charge. Thus the alleged price offer by the Coshould have been suspect on its face, particularly since the Cowas located outside of Kew Orleans and would have the additional delivery costs. Moreover, the Co-op offer was allegedly made in 1954 in an effort to develop a new line of business. Respondent offered no evidence that this was a continuing offer to Hil stores nor is there any evidence that respondent believed the Co-op ofter extended to Winn-Dixie after it succeeded the Hill stores.

On this record, we find that respondent failed to show that its lower prices to Winn-Dixie were made in good faith to meet the equally low price of a competitor.

Respondent has raised two additional defenses with respect to its pricing in the :\ew Orleans area. It refers first to a Louisiana statute known as the Louisiana Orderly Milk Marketing Act. The evidence does not go beyond the effective date of this statute which was August 1, 1958. As enacted, this statute banned all rebates, discounts and price concessions in the sale of milk. The statute was amended in 1962 to provide for the regulation of milk pricing by the State Milk Commission.

Second, respondent states that subsequent to the hearings in Opinion 70 F. T.

Ncw Orleans, Winn-Dixie built its own milk plant and respondent lost the private label business.

It is respondent's contention that these two developments render moot the issue of price discrimination as to its fluid milk sales in Kew Orleans. The hearing examiner rejected both of these arguments, pointing out as to the first that there was no assurance that the state statute would achieve that which a federal statute has failed to accomplish. As to the second, he held that loss of Winn-Dixie does not constitute assurance that respondent wil not discriminate in favor of another customer. We agree with the examiner. Moreover, our order wil not be limited to the State of Louisiana but will extend to any area in which respondent may engage in similar price discriminations in its sale of milk."

One other issue is raised by respondent relating to all of the areas covered in this proceeding. It is respondent's contention that the examiner erred throughout this proceeding in holding that its fluid milk products and its ice cream products constitute a single product line so that respondent could be enjoined from discriminating in price in the sale of both products if a violation were proved as to only one. However, since we have found a violation as to both products, wc conclude that it is unnecessary to rule on this issue for the purpose of the order to be entered. The appeal of counsel supporting the complaint places in issue the scope of the ordcr as to both the Section 2 (a) and the Section 2(d) charge of the complaint. Specifically, complaint counsel contends that the examiner erred in limiting the order to the product line of respondent's Sealtest Foods Division. It is his contention that the order should be broadened to include all food products of respondent' s entire organization.

This record establishes that, prior to 1956, respondent carried on its various lines of business through subsidiary corporations. By the end of 1957, it had integrated its subsidiaries so that it was operating through seven separate divisions. Each of these divisions is separately organized and under separate management. "It is interesting to note that in a very recent action, a Florida state court issued a temjxlra,.y restraining order against this resLJondent under 11 Florida stat' lte which prevenl unfair discrimination in the saJe of mil . In its brief in support of jt, interlocutury .!IJpeal from thi action, reslJundent argues in part that the subject matter has been preempted by Fedend l'eg'Jlation, stating that.;

Examination would indeed reveal that the Federal regulation in this field has stretched its tenacles into every nook and cranny of commercial free enterprise and no room could be left fol' state suppleTr.(!n\,, io,l. The Federal interest i so dominant and all inclusive as to preclude enforcement of state Jaw on the same subject, NATIONAL DAIRY PRODUCTS CORP. 215 Dissenting Opinion Each manufactures and distributes its own distinct product lines Seal test being the only division engaged in fluid milk and ice cream operations. Due principally to the different types of products handled, the various divisions employ different distribution systems. There is no joint use of trademarks nor is there joint advertising among the divisions.

On these facts, we conclude that an order limited to the products of the Sealtest Foods Division is suffcient to afford effective relief from the practices we have found to be unlawful. Accordingly, complaint counsel' s appeal is denied. Respondent has also appealed from the hearing examiner s finding of primary line injury in each of the products in each of the areas involved in this proceeding. We have examined the evidence and we are in agreement with respondent that complaint counsel has failed to adduce suffcient evidence to establish circumstances from which it may be reasonably inferred that injury among respondent' s competitors may be a result of respondent's pricing practices in any of these areas.

Respondent has not appealed from that part of the initial decision relating to the Section 2 (d) charge. The only issue under this charge is the scope of order, raised by complaint counsel' appeal which we have denied. Accordingly, we are adopting the hearing examiner s findings and conclusion on the Section 2 (d) issue.

On the basis of the foregoing, respondent' s appeal is granted in part and denied in part, and the appeal of counsel supporting the complaint is denied. To the extent that the findings of the hearing examiner are deficient or in error, they are modified to conform to the factual findings together with the reasons and bases therefor embodied in this opinion. An appropriate order wil be entered. Commissioner Elman dissented and has filed a dissenting opinion. Commissioners ;\lacIntyre and Jones did not participate. Commissioner Reily concurred and has filed a concurring opinion.

DISSENTING OPINION JULY 28 , 1966 By ELMAN Commissioner:

In the leading case of C. v. A. E. Staley Mfg. Co. 324 U. 746, 759 , the Supreme Court held that the meeting competition defense afforded by Section 2(b) "does not place an impossible .;

Dissenting Opinion 70 F. T. burden upon sellers. " Emphasizing "the good faith requirement of the statute " the Court stated that "Section 2(b) does not require the seHer to justify price discriminations by showing that in fact they met a competitive price." The entire course of judicial interpretation has reflected an emphasis on realistic and common-sense applications of the defense. In the most recent case on the subject Callaway Mills Co. v. decided by the Court of Appeals for the Fifth Circuit on June 13, 1966 (8 S. & D. 195), the court reiterated that a seHer asserting the defense need not show that his prices were in fact equal to those of competitors but only that they reflected the response of a reasonable and prudent seHer to what was believed in good faith to be the exigencies of competition.

In Continental Baking Co. Docket No. 7630, decided December , 1963 (63 F. C. 2071, 2163), the Commission discarded the rigid, unrealistic approach which had been taken in some earlier cases. The Commission s opinion stated:

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 standard of good faith is simply the standard of the prudent businessman responding fairly to what he reasonably believes is a situation of competitive necessity. C. A. E. Staley Mfg. Co. 324 U. S. 746 , 759-60. see StrLndard Oil Co. v. , 340 S. 231 , 249-50. Such a standard, whether it be considered "subjective " or objective, is inherently ad hoc. Rigid rules and inflexible absolutes are especially inappropriate in dealing with the 2(b) defense; the facts and circumstances of the particular case, not abstract theories or remote conjectureshere, a seller, shouldhasgovernaffrmativelyits interpretationshownand application.justification for selectiveWhere,priceas reductions, as "good faith" responses to the exigencies of competition Congress provided the shelter of Section 2 (b). The approach taken in Continental Baking finds strong support in the decision of the First Circuit in Forster Mfg. Co. v. 335 F. 2d 47 (1964). In that case the Commission had held that a seller must affrmatively show that he knew the exact prices of competitors that he was meeting. In reversing the Commission s decision, the court stated (335 F. 2d at 55-56) : We may not be in as intimate touch with the ways of commerce as the Commission, but we would be naive indeed if we believed that buyers would have any great solicitude for the welfare of their commercial antagonists, sellers. The seller wants the highest price he can get and the buyer wants to buy as cheaply as he can, and to achieve their antagonistic ends neither expects the other, or can be expected, to lay all his cards face up on the table Battle of wits is the rule. Haggling has ever been the way of the market place. The Commission s requirement is unrealistic. NATIONAL DAIRY PRODUCTS COR.P. 217 Dissenting Opinion The "way of the market place" is familar to the Commission as well as the courts. Especially where competition is most intense sellers may have to determine or aajust price offers quickly and on the basis of imperfect knowledge or unverified information concerning their competitors' price offers. The Commission purports to accept the holding of Staley, Forster and CalkLway Mills that a seller invoking the 2 (b) defense is not required to prove that his prices were in fact equal to those of his competitors. It states (p. 196) that "the examiner s ruling imposes too strict a burden upon respondent by requiring that it show the actual1ist prices of its competitors." The Commission insists, however, that respondent must satisfy the burden of showing that its list prices were the same as, or no lower than, those of competitors whose prices it was allegedly meeting (pp. 186-201). For al1 practical purposes, the Commission is thus imposing on respondent a burden of proof no less strict and unreasonable than that imposed by the hearing examiner.

The Commission recognizes "the intensely competitive nature of the retail milk business in this area" (p. 189). It states that the "vital point to keep in mind * * " is that price is the one crucial item in the sale of milk at wholesale. Retailers must carry milk and this record is replete with evidence that competition is cutthroat, to the extent that one or two cents difference on a half gallon wi1 mean the difference between a profit or loss on milk to the grocer. Although complaint counsel attempted to establish a preference for nationally and heavily advertised brands such as Seal test, there can be no question from this record that as to milk, a basic homogeneous product, it is the net price to the grocer which determines whether he wi1 continue to buy or wil change suppliers. * * * One thing is abundantly clear from this record, a dairy could not sell milk in this market at net prices which were consistently one or two cents above its competitor (Pp. 199-200.

As the Commission also recognizes, the record shows that bargaining between sellers like respondent and their retail customers revolves around discounts off wholesale list prices, not net prices. When respondent was told by customers that it had to match the discounts being offered by other sellers, its choice was either to meet such competition or "get out." 1 Since "price is the one cru- 1 For example, and it is oniy one of many in the record, resIJondent' s ToJeda Rred zone manager testified with reference to a conversation he had with the Big Bear supermarket' buyer at the latte\" s offce in Columbus, Ohio: A. He was a buyer for the company and he said that he had been offered Ii discount and .

Dissenting Opinion 70 F.

cial item in the sale of milk at wholesale" and "it is the net price to the grocer which determines whether he wil continue to buy or wil change suppliers " (p. 199), the only reasonable and realistic conclusion respondent could have drawn was that it was meeting the competitive prices of other sellers when it matched the discounts which the latter were offering its customers. To be sure, matching a competitor s discounts would not be meeting his net price where the competitor s list price from which the discount is given is lower than respondent' s list price. And, of course, buyers may indeed seek to induce sellers to beat rather than meet, one another s prices. However, the validity of a competitive response under the meeting competition defense is not to be tested by hypothetical possibilties but in the light of actual market situations. The only relevant question here is whether respondent, in the circumstances of this particular market situation, had reason to believe that in being asked to match its competitors' discounts or " get out" it was being asked to meet its competitors' prices. As the majority opinion points out, net price is determinative in this market. In the transactions here involved it is simply not credible that respondent would have been told to "get out" where it in fact met but did not beat a competitor net price.

Under the majority view, respondent had a duty to "can the bluff" of the buyer. If it did so and it turned out that the buyer was not bluffng and in fact had a lower price offer from a competing seHer, respondent would be "out." In that event, however respondent-even though it lost the customer-might perhaps find some consolation in the knowledge that it was living up to the Commission s extraordinary standards of conduct for seHers in competitive markets-under which a seHer in this kind of situation must run the risk of losing either a customer or an antitrust case.

By imposing on respondent the burden of showing as to each individual transaction that it knew or had reason to believe that its wholesale list prices were the same as, or no lower than, those of its competitors, the Commission is demanding the sort of evidence which, as a matter of commercial reality, win frequently be unavailable to a seller operating in the hurly-burly of the marketplace. As the court recognized in Forster a buyer playing off one seller against another may hold his cards very close to the chest from the other two dairies and, therefore, we had te at least meet the discount or we went out. Q. Did you meet the discount that be told YOl1 he had. A. Yes, sir." (Tr. 2997.

NATIONAL DAIRY PRODUCTS CORP. 219 Dissenting Opinion and not disclose the specific terms of the competing offer or the identity of the competing seller. Even if respondent had knowledge of all of its competitors' list prices, presumably that would stil not satisfy the Commission unless respondent could also prove that it knew which specjj\C competitor was making the rival price offer in the particular transaction. This is a demand for the kind of proof which the courts have held to impose an impossible burden on sellers. As a practical matter, the Commission is imposing a burden of proof on respondent which, like that imposed by the hearing examiner and which it purports to reject, is not satisfied without a showing of the actual list prices of specific competitors.

In this case, as in Tri- Valley Packing Association Docket Nos. 7225 and 7496, decided July 28, 1966 (p. 223 herein), the Commission requires proof by a seller that he "used reasonable dilgence in verifying the existence of a lower price of a competitor. (Tri- Valley, p. 285) Presumably, a seller could satisfy the Commission that he "used reasonable dilgence in verifying the existence of a lower price of a competitor" by showing that he called his competitor to ascertain whether the customer was truthfully quoting the competitor s price offer. This would take care of the seller under 2 (b). But where would it leave him under the Sherman Act? Proof that two sellers discussed price and that they quoted the same price to a buyer is enough to send them both to jail for i1ega! price- fixing. In Automatic Canteen Co. v. 346 U. S. 61 , 73- , the Supreme Court emphasized the duty of reconciling the Robinson-Patman Act "with the broader antitrust policies that have been laid down by Congress." The Court rejected any interpretation of the Act "putting the buyer (or seller) at this peril whenever he engages in price bargaining. Such a reading must be rejected in view of the effect it might have on that sturdy bargaining between buyer and seller for which scope was presumably left in the areas of our economy not otherwise regulated. " To y€quire proof of "reasonable diligence in verifying the existence of a lower price of a competitor" is to place sellers in a dilemma where they must run the risk of criminal! prosecution under the Sherman Act in order to protect against a charge of violating the Robinson-Patman Act. This is hardly the way to Hreconcile" the two Acts.

The sweeping and onerous burden on seller" which the Commission imposes in this case and in Tri- Valley is neither compelled nor supported by the Supreme Conrt' 8 decision in Staleu. The finding of the seller s lack of good faith in Staleu was based on a. whoJe variety of circumstances, including some "which strongly suggested that the buyers ' claims lof Jowel' , Concurring Opinion 70 F. T. Another regrettable aspect of the Commission s decision in this case is that it appears to resurrect the notion, interred sub silentio in Continental Baking, that a seller claiming the 2(b) defense must affrmatively show that he had reason to believe that the competitive prices he was meeting were lawful that "these prices could be cost-justified or otherwise excused under any of the exceptions to the prohibitions of Section 2(a). Tri-Valley Packing Association 60 F. C. 1134 , 1173 (1962) ; see also American Oil Company, 60 F. C. 1786, 1812 (1962). The imposition of so rigorous and exacting a burden of proof on sellers claiming the meeting competition defense seems to be contrary to the course of judicial interpretation reflected in Staley, Callaway Mills and Forster As I wrote in dissent in Tri- Valley Packing Association supm (p. 1176):

The Jaw should not be construed as forcing a seller to compete at his perij. A sales manager who is trying to compete * * * is not, of course, required to become a detective or a judge,"* A businessman who must operate in the pressures of the marketplace cannot be expected to conduct a survey into his competitor s costs or to prophesy whether the competitor s lower price will later be held unlawful.

COT\CURRING OPINION JULY 28 1966 BY REILLY Commissioner:

According to the Staley decision ' a seller is not required to justify price discriminations by showing that in fact it met a competitive price. It must show only the existence of facts which would lead a reasonable and prudent person to believe that the granting of a lower price would in fact meet the equally low price of a .competitor. A showing that a seller met a competitor s discount, however, does not necessarily prove that the seller had reason to believe that it was meeting a competitor s price or that it believed that it was responding defensively in a situation of competitive necessity. A simple ilustration wil explain what I mean: suppliers A and B regularly sell the same or comparable products at discount off wholesale list prices. The list price of seller A is $1.00 and that of seller B 95; . Because of this difference in the prices, the net prices of the two sellers are approximately the prices offered by e"mjwting sellers I were without merit " and which, " all taken together demo)l tl"ated It lack of good faith. (324 l:. S. at 7 Corwin D. Edwards The Price Discrimination Law" (1959), p. 567. 324 U. S. 746.

NATIONAL DAIRY PRODUCTS CORP. 221 Concurring Opinion same when supplier A sells at a 10 % discount and supplier B at 5% discount . Assume further that A and B normally compete in the sale of their products when A sells at a 10% discount and B at a 570 discount. Under these circumstances, B could not increase his discount from 570 to 10% to a particular customer and justify the discrimination under 2 (b) by claiming that he was meeting A's discount. This would be true even though B testified that the customer had told him to meet the discount or get out.

By increasing the discount to 10% the discriminator in the illustration above would have reason to believe that his lower price would in fact undercut the price of his competitor. Certainly under these circumstances proof that he met the competitor higher discount would not establish that he was responding in good faith to what he reasonably believed was a situation of competitive necessity or that he thought his reduced price would meet that of his competitor.

Consequently, we do not believe that we are asking too much of respondent in the present matter to show not only that it met a discount but that in meeting the discount it had reason to believe that it was meeting or responding defensively to a lower price of a competitor. In other words, respondent must, as required by Staley, show the existence of facts which would lead a reasonable and prudent person to believe that the granting of a lower price would in fact meet the equally low price of a competitor. The dissent sharply criticizes the majority s holding that a price discriminator must show that he "used reasonable diligence in verifying the existence of a lower price of a competitor." , But this criticism comes more than 20 years too late. One of the reasons given by the Commission for rejecting the 2 (b) defense in Staley was that respondents had granted discriminatory prices without taking any steps to verify the existence of a lower price of a competitor. " In that case, the Commission commented upon the entire lack of a showing of diligence on the part of the respondents to verify the reports which they received, or to learn of the existence of facts which would lead a reasonable and prudent person to believe that the granting of a lower price would in fact be meeting the equally low price of a competitor. (Emphasis added. ) 324 U.S. at 759. The Court held that these circumstances 2 The majority so held in ita opinion In the matter of TriVaUey Packing ABsociaUon, Ducket Nos. 722S and 7496, decided ,July 28. 1966 :pp. 223 , 274 hereina. Final Order 70 F.

together with respondents' failure to prove that they had taken precaution to conduct their business in such manner as to prevent unwarranted discriminations required the conclusion that respondents had not sustained the burden of showing that their price discriminations were made in good faith to meet the lower prices of competitors.

The dissent holds that "To require proof of 'reasonable dilgence in verifying the existence of a lower price of a competitor is to place sellers in a dilemma where they must run the risk of criminal prosecution under the Sherman Act in order to protect against a charge of violating the Robinson-Patman Act" (dissent page 219). To my knowledge, no price discriminator has yet gone to jail because he made an effort "to learn of the existence of facts which would lead a reasonable and prudent person to believe that the granting of a lower price would in fact be meeting the equally low price of a competitor." Moreover, I can only assume that if the position expressed in the dissent had any merit it would have occurred to the Supreme Court and influenced its holding in Staley.

FINAL ORDER This matter having been heard by the Commission upon crossappeals from the hearing examiner s initial decision; and The Commission having determined, for the reasons appearing in the accompanying opinion, that respondent's appeal should be granted in part and denied in part, and that the appeal of counsel supporting the complaint should be denied; and The Commission having modified the initial decision to the extent necessary to conform to the views expressed in its opinion: It is ordered, That the following order be substituted for the order to cease and desist set forth in the initial decision: ORDER It is ordered That respondent National Dairy Products Corporation, a corporation, and its offcers, employees, agents and representatives, directly or through any corporate or other device in or in connection with the offering for sale sale or distribution of any of the items in the product line of its Seal test Foods Division, including but not Iimited to fluid in milk, dairy products, ice cream and other food products, commerce, as "commerce" is defined in the Clayton Act, do forthwith cease and desist from:

TRI-VALLEY PACKING ASSOCIATION 223 Syllabus 1. Discriminating, directly or indirectly, in the price of such products of like grade and quality by sellng to any purchaser at net prices higher than the net prices charged any other purchaser who competes with the purchaser paying the higher price;

2. Paying or contracting for the payment of anything of value to or for the benefit of any customer as compensation or in consideration for any services or facilties furnished by or through such customer, in connection with the offering for sale, sale or distribution of any of the products in the Sealtest product line, unless such payment or consideration is made available on proportionally equal terms to a1l other customers competing in the distribution of such products with the favored customer.

It is further ordered That the initial decision of the hearing examiner, as modified, be, and it hereby is, adopted as the decision of the Commission.

It is further ordered That respondent, National Dairy Products Corporation, shall, within sixty (60) days after service upon it of this order, file with the Commission a report, in writing, setting forth in detail the manner and form in which it has complied with the order to cease and desist set forth herein. Commissioner Elman dissented and has filed a dissenting opinion. Commissioners MacIntyre and Jones did not participate. Commissioner Reily concurred and has filed a concurring opinion.

IN THE MATTER OF TRI-VALLEY PACKING ASSOCIATION ORDER, OPI!\IONS, ETC. , IN REGARD TO THE ALLEGED VIOLATION OF SEcs. 2(a) AND2(d) OF THE CLAYTON ACT Dockets 7225 and 74J!6. Complaints, Aug. , 1958 and May, 1959- Decision, July 1966 Order modifying, pursuant to a decision and remand of the case by the U. Court of Appeals, Ninth Circuit, dated March 18, 1964, 329 F. 2d 694 (7 &D. 859), an order of May 10 , 1962, 60 F. C. 1134, which prohibited a San Francisco, Calif. , canner of fruits and vegetables to cease discrim TRI-VALLEY PACKING ASSOCIATION 223 Syllabus 1. Discriminating, directly or indirectly, in the price of such products of like grade and quality by sellng to any purchaser at net prices higher than the net prices charged any other purchaser who competes with the purchaser paying the higher price;

2. Paying or contracting for the payment of anything of value to or for the benefit of any customer as compensation or in consideration for any services or facilties furnished by or through such customer, in connection with the offering for sale, sale or distribution of any of the products in the Sealtest product line, unless such payment or consideration is made available on proportionally equal terms to a1l other customers competing in the distribution of such products with the favored customer.

It is further ordered That the initial decision of the hearing examiner, as modified, be, and it hereby is, adopted as the decision of the Commission.

It is further ordered That respondent, National Dairy Products Corporation, shall, within sixty (60) days after service upon it of this order, file with the Commission a report, in writing, setting forth in detail the manner and form in which it has complied with the order to cease and desist set forth herein. Commissioner Elman dissented and has filed a dissenting opinion. Commissioners MacIntyre and Jones did not participate. Commissioner Reily concurred and has filed a concurring opinion.

IN THE MATTER OF TRI-VALLEY PACKING ASSOCIATION ORDER, OPI!\IONS, ETC. , IN REGARD TO THE ALLEGED VIOLATION OF SEcs. 2(a) AND2(d) OF THE CLAYTON ACT Dockets 7225 and 74J!6. Complaints, Aug. , 1958 and May, 1959- Decision, July 1966 Order modifying, pursuant to a decision and remand of the case by the U. Court of Appeals, Ninth Circuit, dated March 18, 1964, 329 F. 2d 694 (7 &D. 859), an order of May 10 , 1962, 60 F. C. 1134, which prohibited a San Francisco, Calif. , canner of fruits and vegetables to cease discrim Initial Decision 70 F.

inating in price and paying promotional allowances among its competing customers, by adducing additional evidence in support of the charges against respondent association, Mr. J erame Gmfinkel for the Commission. MI'. Ricardo J. Hecht, Mr. Fmncis Kerne1' San Francisco Calif. , and Mr. Melville Ehrlich Washington, D. , for respondent.

INITIAL DECISION ON REMAND BY EDGAR A. BUTTLE, HEARING EXAMINER APRIL 15, 1965 The above-entitled matter ' was remanded for further proceedings by the United States Court of Appeals (9th Circuit) in connection with certain Clayton Act section 2 (a) and (d) issues hereinafter discussed. Incident thereto, the Commission s cease and desist order entered on May 10, 1962 (60 F. C. 1134), was set aside by the court's order of remand dated March 18, 1964 (7 S. & D. 859). In remanding the case the court invites the attention of the Commission to certain omissions of evidence which it believes, if available, could better resolve some of the issues. In setting aside the Commission findings and conclusions as to the section 2(d) charges, and order as to both section 2(a) and (d) charges the court seems to imply that a completely revised reissuance thereof might be appropriate based upon the evidence adduced initially in relation to the additional evidence adduced upon remand in accordance with the court' s suggestions.' The findings therefore, hereinafter cited, relate to all of the evidence in the case, including the evidence adduced before and after remand to the Commission, and by the Commission to the hearing examiner within the meaning of the 9th Circuit disposition consistent with the law of the case thereby estabUshed.

With regard to the section 2 (a) charges, the court appears to be of the view that there may not be anything in the record to in- 1 ReslJondent, Tri-Valley Packing Association, ineorredly named in the complaint in Doeket No. 7225 as Tli- Valley Packing- Association, Inc The name of rp.spondent has been changed on June I , 1:)63, from Tri-Valley Packin.- Association to Tri-Valley Growers. It was stipulated that the complaint be amended to incorporate this change (1'1' 1297-1298).

By stipulation be:ween the parties, Dockets 7225 and 7496 were consolidated under Docket 7225 (Tr. 1107-1108).

Since tile section 2(a) . orcjer has been set aside, more complete findings consistent with the law of the case enunciated by the court on tJw issue of rcJief as well as Jjndings re deficiencies in evidence enumerated by the court. aJ'R essentia!. Furthermore, thcrc is a relationship between the new findings on matters resolved by the court and evidentiary deficiencies cited by the court. See COJlclusioJls for full discussion. TRI-VALLEY PACKING ASSOCIATION 225 223 Initial Decision dicate that there was or is any obstacle which prevented or prevents nonfavored purchasers from buying Tri-Valley products in the so-called "California Street" market in San Francisco where they would have been obtained at tir same low prices as offered to favored purchasers in that market. As pointed out by the court, disposition of this question is dependent upon the facts pertaining to the availabilty to nonfavored purchasers of the low prices for Tri-Valley products on the "California Street" market and the application of the Jaw to these facts. In other words, are the lower prices discriminatory if available on "California Street" to aU competitors although not elsewhere in the same market area.

The court also states counsel for the Commission took the position before the court that a section 2(b) defense contemplated a good faith meeting of competition to each individual competitive demand rather than a good faith meeting of competition in response to a pricing system such as that represented by the " California Street" market. Furthermore, the court seems to be of the view that the Commission should ascertain by evidence whether or not Tri-VaUey was engaged in the "California Street" market in meeting "an equally low price of a competitor" within the meaning of section 2 (b). If the evidence indicates that Tri-Valley is not so engaged in meeting "California Street" prices, no further consideration need be given to the section 2(b) defense. the other hand, if the evidence discloses to the contrary, then the Commission must decide as a matter of law whether a section 2 (b) response may be directed to a pricing system as well as an individual competitive demand.

As for the section 2 (d) issue, the court points out as follows at page 22 (7 S. & D. 859, 878) of its decision: In Our opinion, where a direct customer of a seller, operating solely on a particular functional level such as wholesaling or retailing, receives a promotional allowance not made available to another direct customer operating solely on the same functional level, it is unnecessary to trace the seller goods of like grade and quality to the shelves of competing outlets of the two in order to establish competition. It is suffcient in that case to prove that one has outlets in such geographical proximity to those of the other as to establish that the two customers are in general competition, and that the two customers purchased goods of the same grade and quality from the seller within approximately the same period of time. Actual competition in the sale of the seller s goods may then be inferred even though one or both of the customers have other outlets which are not in geographical proximity to outlets of the other customer.

..

Initial Decision 70 F.

Relative to the Boston area, the court suggests the need for evidence that Tri-Valley engaged in a course of direct dealing with the retail outlets of Central Grocers as indirect customers of Tri- Valley since Central Grocers are not in functional competition with wholesalers. It is pointed out by the court that the only way of showing a section 2 (d) violation would be to treat Central Grocers' retail outlets as indirect customers of Tri-Valley, but that this may not be done in the absence of a showing that Tri-Valley engaged in a course of direct dealing with those retan outlets. Relative to the Portland area, the Court of Appeals indicates as fonows :

Tn the Portland area, 'Meyer, which received an allowance, is a retailer, and Hudson House, which did not receive a proportionally equal allowance, is principally a wholesaler, but may also be a retailer. No section Zed) violation was shown as to the wholesale operation of Hudson House, because that operation was not in functional competition with Meyer, and it was not shown that the independent retailers served by Hudson House were "indirect" customers of Tri-Valley," No section 2(d) violation was shown as to the retail operation of Hudson House, if there was such an operation, because it was not shown that any Tri- Valley goods were purchased indirectly by those Piggly-Wiggly outlets, during the period in question. This could only have been shown by tracing Tri-Valley goods to the shelves of those stores by means of the best evidence available.

Although the hearing examiner has advised counsel for the complaint and counsel for the respondent that, for purposes of clarity and since the court of appeals has set aside the 2 (d) findings and order of the Commission entirely, it is his intention to issue an entirely new initial decision, inclusive of new findings and a new order for the consideration of the Commission, respondent has elected to submit proposed findings which essentially relate only to incomplete evidentiary facts cited by the court in suggesting the adduction of additional evidence or record citations. Respondent' s proposed findings are as follows: 1. Subsequent to March 18, 1964, an employee of respondent, without first counsulting his superior or respondent' s counsel, destroyed certain documents belonging to respondent, produced by "If Hudson House does any retaiJng, it is because of Its ownenhip of several1 Piggly. Wiggly stores in the Portland area. Each of thes\! is apparently a !!eparate corporate entity and Tri-Valley contends that they are dealt with by Hudson House just as if they were independent retailers. (Footnote No. 22 in court decision. 'See Klein v. Lionel CQrp. 3 Cir. , 237 F. 2d 13; Rowe, supra j13. , Pl'. 398-399; contra Krug v. International Tel. Tel. Corp., J.. 142 F.Supp. 230. Examples of direct dealing suffcient to give application to the "indirect" customer concept, are to be found in America.n News Co. v. Federal Comm 2 Cir., 300 F. 2d 104; Elizabeth Arden. Inc. v. Federal Trade Comm 2 Cir. , 156 F. 2d 132; K. S. Corp. v. Chematrand Corp. D. N. Y. 198 F. Supp. 310: Champion Spark Plug Co. 50 F. C. 44. IFootnote No. 21 in court decision. , TRI-VALLEY PACKING ASSOCIATION 227 223 Initial Decision it for copying and inspection by representatives of the Commission, pursuant to order of the United States District Court. These documents were so inspected beginning on or about October 12, 1959. The court order did not require that these documents be thereafter preserved for any given period of time. The employee destroyed these documents acting under the mistaken belief that the decision of the Court of Appeals, announced on March 18 1964, had put an end to the proceedings brought against respondent. There are no facts in evidence that would justify the finding that the destruction of said documents was "wilful intentional/' or with Hfraudulent design " as those words are used in connection with the presumption relating to the application of the maxim of evidence omnia praesumuntur contra spoliatorern. 2. There are no facts in evidence showing that there was or is any obstacle which prevented or prevents nonfavored buyers from purchasing respondent's products in the so-called "California Street" market in San Francisco, and there is no causal connection between respondent's discriminatory prices and the competitive injury that its nonfavored buyers may have suffered. 3. Respondent's lower invoice prices to its favored buyers were made in good faith to meet the equally low prices of its competitors in the "California Street" market.

4. In 1957 and 1958, respondent paid an allowance of ten (10) cents a case for each case of canned fruits purchased from respondent to Central Grocers of Boston, Massachusetts. Centra! Grocers operated solely at the wholesale level during this period of time. Respondent did not offer or make available this allowance on proportionally equal terms to any other customer in the Boston area. There is no evidence that respondent during approximately the same period of time sold any good of the same grade and quality as those it sold to Central Grocers to any customer who competed solely at the wholesale level with Central Grocers. 5. In September and October 1957, Meyer, a retailer in the Portland, Oregon area, instituted a coupon book program. Respondent contracted with Meyer to participate in this promotion and to pay $350 as part of the cost of printing a page in the coupon book and agreed to redeem each such page at the rate of $0.248. These payments or allowances were made in consideration of the promotion and purchase of large quantities of respondent's peaches packed under Meyer s label during said months of September and October. The only other retailer customer of respondent in that area at that time was Safeway. There is no evidence that respondent Initial Decision 70 F.

during approximately the same period of time sold any goods of the same grade and quality as those it sold to Meyer to Safeway. 6. There is no evidence that Central Grocers' retail outlets were indirect customers of respondent.

7. There is no evidence that Hudson House s retail outlets, including the Piggly- Wiggly outlets, were indirect customers of respondent.

It is obvious, however, that new findings must be rendered since the Court of Appeals points out that it is setting aside the Commission s order as to both the section 2 (a) and 2 (d) '" issues which order is necessarily premised upon findings which the court considers inadequate to support the order. Furthermore, it is obvious from the opinion of the court that the record may be augmented by additional evidence of discriminatory transactions within the scope of the complaint in order to adequately resolve the questions raised by the court. The rendition of supplemental findings only, because of the many questions raised by the court in its opinion, would only tend to confuse the issues and their disposition. However, the hearing examiner has not only considered the limited proposed findings presented by respondent' s counsel incident to the remand, but the prior proposed findings originally submitted. Since the complaint counsel has submitted entirely new proposed findings relating to the evidence taken before, as weIJ as after, remand, the hearing examiner has disregarded the prior proposed findings of complaint counsel. The hearing examiner has careful1ly reviewed and considered the proposed findings of counsel in support of the complaint and counsel for respondent as heretofore indicated. Proposed findings and conclusions which are not herein adopted, either in the form proposed or in substance, are rejected as not supported by the record or as involving immaterial matters. Upon the entire record in the case the hearing examiner makes the following:

FINDINGS OF FACT 1. Respondent Tri-Valley Packing Association is a nonprofit cooperative corporation organized and existing under the laws of the State of California, with its principal offce and place of business located at 240 Battery Street, San Francisco, California. 2. Respondent is now and has been engaged in the business of 40 As to the 2 (d) charges the court also set aside the findings and conclusions. 'Admitted by answer. See also Tr. 14.

. . . . . . . .

TRI-VALLEY PACKING ASSOCIATION 229 223 Initial Decision sellng and distributing canned fruits and vegetables of many varieties, an of which it processes and cans at its plants in Modesto, San Jose, and Stockton, California. Respondent sens and distributes its canned fruits and vegetables under private labels and also under its own labels or brands. 3. Respondent sens its products to customers located throughout the United States for use, consumption, or resale. Its products were sold to wholesalers and retailers, including chain stores. 4. Respondent's sales of its products are substantial, amounting in the fiscal year ending January 31 1956, to $19 698 531.' 5. In the course and conduct of its business, respondent has engaged in commerce, as "commerce" is defined in the amended Clayton Act, in that respondent ships its products, or causes them to be shipped, from its place of business to customers located in States other than the State of California. 6. In the course and conduct of its business in commerce, respondent is in substantial competition with other corporations partnerships, individuals and firms engaged in the canning, sale and distribution of canned fruits and vegetables." 7. Many of respondent' s customers are likewise engaged, directly or indirectly, in competition with each other in the resale of respondent' s products within the same trading areas," 8. In the course and conduct of its business, respondent sold its products to Hudson House, Inc. , of Portland, Oregon, at higher Admitted by answer.

1 Admitted by answer.

S Admitted by answer: see also ex's 108, 109 and 111 , where it is disclosed that respondent's sales for ()seal year ending ,January 31 , 1957, were $21, 328, 283; sales for the year ending January ,31 . 1958 were S19, 935 747: and for the year ending January 31 , 1959. were $22 329 877. ex' s refers to Commission Exhibits; RX' s refers to R pondent' s Exhibits; and 1'1'. refers to record page citation.

"The answer admits that " respondent ships its products or causes them to be shipped horn its place of business to purchasers. " That respondent shipped its products in the course of commerce is further borne out hy ex's 33-49 which show sales to customers Jocated in Denver, Colorado; Portland, Gregoll; Bostoll, 1Iassachusetts; Portland, Maine; New York City; and Pittsburgh, Pennsylvania, among others. See Appendices A through R, attached to the proposed finding-s of complaint counse!, for evidence of sales by respondent in the course of commerce. IU The answer admits that respondent" . . . is in competition with other corporations engaged in the canni, sale and distribution of canned fruits Ilnd vegetables. " See also statement of the general manager of respondent at Tr. 43, that " every canner who is sellng the same merchandise is a competitor.

11 Respondent' s answer admits that " some of its purchasers are directly in competition with each other in the resflle of its products. " That many purchasers from respondent are engaged in competition with each other directly or indirectly in the same trading Ilreas is shown by ex' s 33- , and the tl'anserlpt testimony of purchasers within the trading areas of Portland, Oregon; Denver and Pueblo, Colorado: Portland, Maine; Boston, Massachusetts; ew .York City; l\"ew Jersey; and Pittsburgh, Pennsylvania. Details of this competition are hereinafter set forth.

Initial Decision 70 F.

prices than it sold its products of like grade and qualiy to Fred Meyer, Inc. , and Regent Canfood (Safeway Stores)." Under the 1957 Fred Meyer, Inc., coupon book program, in which Tri-Valley participated, Fred Meyer was given free canned goods amounting to one free can of peaches for every two sold by Fred Meyer. The total participation amounted to 20 750 free cans of peaches valued at $.232 each, or a total rebate value of $4 814. The price differential involved was 33112 percent. During the same time, Hudson House, Inc., purchased peaches of like grade and quality, paying the regular price with no rebate or discount or free goodsY 9. Hudson House, Inc., of Portland, Oregon, an unfavored purchaser of respondent in goods of Jike grade and qualiy, is a wholesale grocery distributor whose customers compete with the retail outlets owned and operated by the favored purchasers Fred Meyer, Inc., and Safeway Stores (Regent). The customers of Hudson House compete with the favored purchasers in the sale respondent' s products.

Hudson House, Inc., is a wholesale distributor with some 279 retail grocery customers serviced from its Portland warehouse. Of the approximately 279 retail grocery customers serviced by Hudson House, 138 of such customers are located in the Portland Oregon, metropolitan area, The record discloses that Safeway Stores, a favored retail purchaser from respondent, owns and operates 103 Safeway retail outlets in the Portland trade area that are serviced by Safeway Portland warehouse. Respondent's canned food products were purchased by Safeway Stores for its Portland trade area operations.

Fred Meyer, Inc., Portland, Oregon, another favored purchaser from respondent, is a locaJ!y owned, JocaJ!y operated retail chain. This retail chain operates at least ten retail food stores which seJ! canned fruits and vegetables to consumers throughout the Portland area. It purchases for resale to the consumer respondent's canned food products directly from said respondent." re- 10. In the course and conduct of its business in commerce, spondent sold its products to Central Grocers, Inc., and Standard 1. See ex' s 10-22, 24. 26, 33, 34: RX 1 and Appendix A. )3 See ex' Z6 and 83. See also ex' s 33-49 to effect that this price differential was in excess of three times any other demonstrated on these exhibits. H See '11'. 154- 157 , 196-197: ex 29.

See '1r. 185-186; ex' s 31-32; '11'. 61, 184- 185, 206, 209-212, 1436; ex' s 33-34. 16 See Tr. 11G, 118; ex 27; see statement under "Fred ).eyer, Inc, : '11'. 117- 1HJ , 61-62: ex' s 33- TRI-VALLEY PACKING ASSOCIATION 231 223 Initial Decision Grocery Company, both of Boston, Massachusetts, at higher prices than it sold its products of like grade and quality to First National Stores, and A & P, both of Boston, Massachusetts. 11. Central Grocers, Inc., and Standard Grocery Company (unfavored purchasers) are wholesale grocers whose customers compete in the Boston trading area with the retail outlets owned and operated by the favored purchasers First National Stores and A & P. The customers of Central Grocers, Inc., and Standard Grocery Company compete with the favored purchasers in the sale of respondent' s products.

More particularly, Central Grocers, Inc., Boston, Massachusetts (an unfavored purchaser) is a membership group of retaij stores whose gross sales are shown in CX 61 in ca,mera,. It has been referred to as a quasi cooperative, selling to some twenty-five affliate" accounts as well as to retailer stockholder members. The stockholder members number approximately 100, and sales by Central Grocers to the stockholders approximate 85 percent of the total. All goods purchased by Central Grocers from respondent are placed in its Boston warehouse and distributed to retaijers within a 15-miJe radius of Boston.

Standard Grocery Company is a wholesaler of grocery products with one warehouse located in Boston supplying some 700 small or medium size independent grocers in the Boston area. It is an unfavored purchaser of respondent."

First National Stores (a favored purchaser) is a retail chain owning and operating approximately 135-140 retaij stores in the Boston trade area, which are among the 197 First National retail stores which are serviced from the Boston (Somervi1e Division) warehouse.

The Great Atlantic & Pacific Tea Company (A & P) services 163 retail A & P stores from its Boston warehouse, some 81 of which are in the Boston metropolitan area. In the course and conduct of its business in commerce respondent sold its products to Hannaford Brothers Company, Portland Maine, at higher prices than it sold its products of like grade and quality to A & P, of Portland, Maine.

13. Hannaford Brothers Company (unfa vored) is a wholesale 11 See ex' s 35, 45 and Appendix B.

1" See Tr. 348-353; ex' s 67-68.

19 See Tr. 369 , 368, 370: ex 35. Appendix B. '0 See Appendix B: Tr. 384; ex 63A- 21 See Tr. 406-407: ex S9A- 22 See ex' s 36 , 37, 46: Appendices C, D, and E. 232 FEDERAL TRADE CO MISSION DECISIONS Initial Decision 70 F.

distributor of food products whose customers compete in the Portland, Maine, trading area with the retail outlets owned and operated by A & P. The customers of Hannaford Brothers Company compete with A & P in the sale of respondent' s products. Hannaford Brothers Company is a wholesaler. It is a corporation which supplies products to members of a voluntary group of some 122 retailers which are "Red and White" stores, and it also serviced some 70 "contract stores" which buy the same products as the "Red and White" stores, but do not handle the "Red and White" private label. Many of the stores serviced by Hannaford are in small towns in which A & P stores sell to consumers, and the majority of the Hannaford serviced stores are in the same area of distribution as that of the A & P Portland warehouse. 14. In the course and conduct of its business respondent sold its products to Bozzuto, Inc. , Waterbury, Connecticut, at higher prices than it sold its products of like grade and quality to First National Stores, Hartford, Connecticut, and to A & P, Springfield Massachusetts.

15. Bozzuto, Inc. (unfavored), is a wholesaler whose customers compete in the Hartford, East Hartford, and Waterbury trading areas with First National Stores and A & P. The customers of Bozzuto, Inc., compete with First'" ational Stores and A & P in the sale of respondent' s products. Eozzuto, Inc. , Waterbury, Connecticut, is a wholesale grocer that supplies groceries to a voluntary group comprised of approximately 250 retail members. These 250 retailer customers of Bozzuto not only are located in the same cites and trading areas in which A & P and First National Stores own, maintain and operate retail outlets, but compete with the outlets of the two retail chains.

16. In the course and conduct of its business respondent sold its products to Associated Grocers, Inc., Spiegel Bros., Star Markets General Grocery, W. E. Osborn Co. and Pittsburgh Mercantile, all of the Pittsburgh, Pennsylvania, trading area, at higher prices than it sold its products of like grade and quality to A & P of Pittsburgh (Homewood), Pennsylvania.

17. Associated Grocers, Inc., Spiegel Bros. , W. E. Osborn Co. (unfa vored purchasers) are wholesalers \vhose customers compete in the Pittsburgh, Pennsylvania, trading area with A & P '" See Tr. 400 , 411 ; ex' , n.

"Sce ex' s 38, 'L ; Appendices F, G, and H. See Tr. 488-490. 4.92; ex' s 64, 71, 89. '" See ex' s 39, 40A and B, 49; Appendices I and J. TRI-VALLEY PACKING ASSOCIATION 233 223 Initial Decision the favored purchaser. The customers of said three un favored Wholesalers compete with A & P in the sale of respondent's products.

Associated Grocers, Inc. , is a corporation owned by retailers and which reseJIs grocery products to about 140 of such retailers. It operates a warehouse in the Pittsburgh trading area. Approximately 90 percent or better of the business of Associated Grocers Inc., is to retailer members located in AJIegheny County. These retailer members compete with aji of the major chains and aji of the large independent retailers.

Spiegel Bros. is a wholesale grocer located in McKeesport Pennsylvania, which is just outside the Pittsburgh metropolitan area. From its warehouse in McKeesport, Spiegel Bros. services approximately 400 retailers in the greater Pittsburgh trading area, of which approximately 90 are located in Pittsburgh proper. Testimony discloses that the retailer customers of Spiegel Bros. compete with A & P.

W. E. Osborn Company, located in New Brighton, Pennsylvania approximately 30 miles north of Pittsburgh, is engaged in the wholesale grocery business, distributing to approximately 150 retailers located in Beaver County, Lawrence County, part of Allegheny County, all in Pennsylvania, and to retailers located in Ohio and West Virginia. Of the total number of such retailers, at least eight are located in Pittsburgh proper, and many others are located in the Pittsburgh metropolitan area. Testimony in the record reveals that the retailer customers of W. E. Osborn Company compete with A & P outlets.

A & P (the favored purchaser), through its Pittsburgh Unit sells and distributes to some 156 stores in the same trading areas as those operated in by the retail customers of the unfavored wholesalers. In Pittsburgh proper, A & P owns, maintains and operates approximately 21 retail outlets. 18. Star Markets, Inc., General Grocery Company, and Pittsburgh Mercantile Company (unfa vored purchasers) are retailers who compete in the sale of respondent' s products with A & P in the Pittsburgh trading area.

Star Markets, Inc., until August 1959, was a local independent retail food chain located in Pittsburgh, consisting of some 13 stores, of which approximately four were located in Pittsburgh proper. These retail stores sold food products to consumers 10- LISee 'Ir. 517: CX. 96; 'Ir. 518 , 520 , 523; ex 95; 'Ir. 531-533: ex 99; 'Ir. 534 , 544: ex 1028; .'11' . 548: ex' s 112- 113.

Initial Decision 70 F. cated in the area surrounding each store and as far away as 40 miles.

General Grocery Company is a single store operation located at 2115 Penn Avenue, Pittsburgh, Pennsylvania, which combines a retail (80%) and wholesale (20%) business. This company sells to retail customers and directly to consumers which it draws from approximately a 20-mile radius.

Pittsburgh Mercantie, 2600 Carson Street, Pittsburgh, Pennsylvania, is a local independent retail chain comprised of some nine stores, combining department store and food operations. The stores operated by Pittsburgh Mercantile sell Tri-Valley products in competition with A & P.

19. In the course and conduct of its business respondent sold its products to WaJkay Grocery Co., Jersey City, New Jersey; Middendorf & Rohrs, New York City; Grand Union, Paterson, New Jersey; Packard Bamberger, Hackensack, New Jersey; Wakefern Foods, Cranford, New Jersey; and Middlesex Foods, Inc., New Brunswick, New Jersey; at higher prices than it sold its products of like grade and quality to A & P (Paterson and Hawthorne . New Jersey), Safeway Stores (Kearney, New Jersey), and American Stores (Newark, New Jersey) 20. Walkay Grocery Co., Middendorf & Rohrs, Wakefern Foods, and Middlesex Foods, Inc. (unfavored purchasers) are wholesalers whose customers compete in the New York City- New Jersey trading areas with A & P, Safeway Stores, and American Stores.

Walkay Grocery Co. is a wholesale grocer located in Jersey City, New Jersey, which distributes to approximately 300 retail stores located in Hudson County, Essex County, Union County, and Bergen County, New Jersey. Customers of Walkay resell canned products in the aforesaid general trade areas in competition with A & P.

Middendorf & Rohrs, a wholesaler located in New York City, services approximately 400 retail stores in the metropolitan New York City area. The geographical area of distribution includes New York County (Manhattan), Bronx, Brooklyn, Queens, New York City; Nassau, New York State; Hudson and Bergen Counties, New Jersey. The retail store serviced by Middendorf & Rohrs competes with A & P and American Stores in the resale of food products.

H See Tr. 509-.110: ex 93; Tr. 521, 529, 525 , .153-554; ex 105; Tr. 555-556. s:o See ex' s 41-43: Appendices K. L, M, N, and O. TRI-VALLEY PACKING ASSOCIATION 235 223 Initial Decision Wakefern Food Corporation is a cooperative wholesale grocery operation located in EJizabeth ew Jersey, which services some 86 retail member stores. These retail stores resell canned goods obtained from Wakefern to consumers in the general geographicar area of the State of New Jersey.

Middlesex Foods, Inc., is a wholesaler located in Highland Park, New Jersey, that services approximately 700 to 800 stores. This wholesaler s customers are in competition with A & P. The A & P warehouses in Paterson and Hawthorne ew Jersey, service approximately 100 retail stores in the New Jersey and New York areas. In addition to the distribution from its Paterson and Hawthorne warehouses, A & P services approximately 30 additional stores from its Newark, New Jersey, warehouse. These retail stores fairly saturate the New Jersey area of distribution.

The Safeway Stores' warehouse located in Kearney, New Jersey, distributes canned goods to some 200 Safeway retail stores located within a radius of approximately 50 miles around New York City, which includes a substantial area in New Jersey. American Stores is a national chain with headquarters in Philadelphia, Pennsylvania, and maintains a warehouse for zone 7, located in South Kearney, New Jersey, from which it distributes food products to approximately 130 of its retail stores. :VIany of the American Stores' outlets are located in the trading areas serviced by the unfavored purchasers and/or their customers. 21. Grand Union Company and Packard Bamberger & Company (unfavored purchasers) are retailers who compete in the sale of respondent's products with A & P, Safeway Stores, and areas.American Stores in the New York City New Jersey trading Grand Union is a retail food chain, presently comprised of approximately 222 retail stores in the metropolitan New York City , ser-area. In 1957, the chain operated 165 of such retail outlets viced by its Carlstadt and Mt. Kisco warehouses. These retail stores resell canned foods obtained from respondent to consumers in trade areas which include the Bronx, Manhattan, Long Island Connecticut, and New Jersey.

Packard Bamberger & Company, located in Hackensack, New Jersey, operates a single department store that maintains a food department. It sells its food products to consumers within a 15- '9 See '1r. 423 , 428 , 432 , 42- . 437 , 440-441, 499-500: ex 91; Tr. 504 , 460, 464: ex 85: Tr 474-475; ex 86; Tr. 471. 480; ex 87; Tr. 481-483; ex 88; Tr. 486: ex 88. Initial Decision 70 F.

miJe radius from the store located in Hackensack. Competitors of Packard Bamberger include A & P, Grand Union, American Stores, Safeway, and Food Fair.

22. In the course and conduct of its business respondent sold its products to Associated Grocers of Colorado and H. A. Marr, Denver-Pueblo, Colorado, at higher prices than it sold its products of Jike grade and quality to Safeway Stores, Denver, Colorado. 23. Associated Grocers of Colorado, and H. A. Marr (unfavored purchasers) are wholesalers whose customers compete in the Denver-Pueblo, Colorado, trading areas with Safeway Stores. The customers of said un favored purchasers compete with Safeway Stores in the sale of respondent' s products. Associated Grocers of Colorado, a retailer-owned cooperative purchases canned fruits and vegetables from respondent and has such products shipped to its Denver and Pueblo, Colorado, warehouses. From these two warehouses, Associated Grocers services its retailer members. There are approximately 539 retailer members within the geographical area of Colorado and parts of Wyoming, Nebraska, New Mexico, and Kansas serviced by the Denver and Pueblo, Colorado, warehouses. A specific customer of Associated Grocers testified that he was in competition with a Safeway store located three blocks away.

H. A. Marr Company (another un favored purchaser), Jocated in Denver, Colorado, was, prior to January 1 , 1960, principally engaged in the wholesale grocery business, reseJlng grocery products from its warehouse located at 3001 Broadway, Denver Colorado. H. A. Marr was also engaged in the retaij grocery business since it owned and operated some retaij stores. From its Denver warehouse, H. A. Marr distributed its canned fruits and vegetables to some 128 retaij stores in its area of distribution, which included all of Colorado, and very small parts of Kansas, Nebraska, and Wyoming. Furthermore, four retailer customers of H. A. Marr testified that they were in close proximity to retail outlets operated by Safeway Stores.

24. Respondent' practice of charging certain purchasers higher prices than other purchasers in each of the trading areas previously discussed may have the probable effect of substantially 30 See Tr. 443, 444; ex 77; Tr. 445: ex 77D and E; Tr. 451-454, 457. 11 See ex 44; Appendices P, Q, and R.

32 See inth Circuit's opinion concerning actual competition in respondent s goods between customers of H. A. Marr and outlets of Safewa.y Stores. (329 F. 2d 701-702) See also Tr. 2:\1-232 , 235 , 237; ex 52; Tr. 237, 228 , 284 , 2R6-287; ex 56: Tr. 215-217 , 274 , 309-311 , 314 328-331: ex 561.

TRI-VALLEY PACKING ASSOCIATION 237 223 Initial Decision lessening competition with, or the probable effect of injuring, destroying or preventing competition with, the favored purchasers. The record discloses that respondent has discriminated in price between purchasers located in various cities. These differences ranged from 2 percent to 10 percent. The record contains many citations revealing that the grocery industry is highly competitive, with very low margins of profit."

25. The lower prices granted by respondents to certain purchasers in the trading areas previously discussed were not made available to the unfavored purchasers in each such trading area. Respondent failed completely either in assuming the burden of proving availability if this be a part of a section 2(b) defense or in going forward with the evidence if the ultimate burden is on complaint counsel.

It is the contention of counsel supporting the complaint that once evidence is received that respondent has systematically discriminated in price between competing favored and unfavored purchasers or customers of the unfavored competing with the favored in a highly competitive industry with low margins of profit a prima facie cas," hes been made. The burden of attempting to justify such discriminations is on the seller. Federal Trade Commission v. Morton Salt Co. 334 U. S. 37, 44-45 (1948). That the lower prices werp ",vailahle to the unfavored purchasers is an attempt at justification wherein the burden of proof rests with the seller. Support for this argument may be found in the court' opinion in the Morton SrLlt case, wherein the court stated at 334 S. 45:

as See Appendices A-R; Tr. 162, 166-167, 198, 287-288, 311-312, 318-319, 331-332, 340-341. 353 , 355, 358- , -372-373 , 416, 428, 430-431, 438, 455. 457, 495-496, 501, 513 , 521, 527-528. 534, 536-537, 548, 556; eX' s 50 in ca.mera. , 53 in camera, 55 in camera, 57, 59, 60 in camerli, 61 in camera, 62 in camera, 65-66, 73B-C in camera, 74, 75 in camera, 81, 82 in camera, 83 in camera, 90 in camera, 92 in camera, 94, 96-97, 101, 103-104, 106-107. See also opinion of the Court of Appeals in the within case 329 F. 2d 694 at page 702, to the following effect: This finding that the effect of the price competition "may be" substantially to injure competition, was essential to establish, under the circumstances of this case, a proscribed price discriminatiun within the meaning of section 2(a), The Commission, however, was not required to find that there had been actual injury to Buch competition, and it made no such finding. See Felkra! Tmde Commi88wn v. Morton Salt Co., 334 U. S, 37, 46, 68 S. Ct. 822, 92 I.. Ed. 1196. In the furegoing- connection also see Rowe, Price Discrimination Under the Robinson-Patman Act, at pages 184-185, including footnotes 49-53, and more particularly to the follo\vinv, effect: The importance of the Automotive Parti! dedsiolls Hes in their creation of another Bnk in the chain of inference sanctioned by "-JoTton Salt-by dispensing with any reflection of the supplier s price differentials in the customer s stable resale prices. In Morton Salt, a "substantial" price difft!rential snffdent to "influence resale prkes.' supported an implicit inference of lo t sales or diminished profits, which in turn indicated a poteptial competitive impajrment. ln the Automotive Patti! cases the particular price differential alone, in the context of keen competition and tight profit margins, furnished the foundation for a conclusion of adverse competitive effects among the rival resellers of the supplier s products. Initial Decision 70 F. T. -YVe think that the language of the Act, and the legislative history just cited, show that Congress meant by using the words Hdiscrimination in price in 9 2 that in a case involving competive iniury bet\veen a seHer s customers the Commission need only prove that a seller had charged one purchaser a higher price for like goods than he had charged OTIe or more of the purchass competitors Rowe, Price Discrimination Under the Robinson-Patman Act (1962), sec. 8. , pp. 186, 188 , appears to give merit to the position of counsel supporting the complaint. At page 186, in discussing the causal connection between a price discrimination and injury, it is stated:

'" '" '" Hence seners in secondary- line proceedings may vindicate their prices by the absence of any causal relationship between the discrimination and the competitive injury howsoever measured. At page 188, in referring to competitive effect, it is also stated: In sum, the refutation of prima facie detrimental competitive effects due to a seller s price differentiation by reason of dominant intervening economic factors depends on the degree to which the e factors overshadow the sup peer s price differential as a determinant of th(" ('ustoJ:ler s uHimate competitive situation.

Phrases such as "sellers in secondary-line pror:eedings may vindicate" or "the refutation of prima facie detrimental competitive effects" without question suggest that the burden with respect to availability of lower prices may weIJ be on the seller as a part of a section 2 (b) defense 01' as proof required of respondent in going forward with the evidence assuming he does not have the ultimate burden.

However, irrespective of the question of who has the burden counsel supporting the complaint has introduced clear and convincing evidence disclosing that the granted lower prices to the large chain purchasers located on "California Street" were not available to the unfavored purchasers.

Walter Tewes of Walkay Grocery Company (an unfavored purchaser) testified that he had no discussions with any offcial or employee of Tri-Valley with respect to prices being paid to buyers located on "California Street." He further testified that he never discussed with anyone "California Street" prices. Furthermore he stated that Tri-Valley s broker never said anything about California Street" prices.

Samuel Arshan, Middlesex Foods, Inc. (an unfavored pur- TRI-VALLEY PACKING ASSOCIATION 239 223 Initial Decision chaser), testified he never heard anything about "California Street" prices in 1957 and 1958. He further testified that he had never received any circulation of any material or data or price lists whatsoever from "California Street" indicative of what the California Street" prices were. He stated that he purchased Tri- Valley products at prices quoted by the broker, believing he was paying the lowest possible prices. There were no statements on the invoices concerning "California Street" prices. Tri-Valley brokers did not furnish Walkay with any written information concerning California Street" prices during the period from 1956 through 1958.

Walter Rohrs, of Middendorf and Rohrs (an unfavored purchaser) testified that he had no discussions with offcials of Tri- Valley concerning "California Street" prices. Furthermore, invoices submitted to the witness contained no comments concerning "California Street" prices. He further stated that he received no information from either Tri-Valley or its broker that witness' company could receive prices lower than what was quoted him by Tri-Valley s broker.

Russell Snyder, assistant sales manager of Tri-Valley in 1957 and 1958, specifically stated that customers of Tri-Valley were not informed that they could get better prices by opening offces on "California Street." No instructions were given to Tri-Valley brokers to inform its customers that better prices were available to customers having offces on "California Street." Further, the price lists issued by Tri-Valley made no mention of "California Street" market prices. " California Street" prices was not a question which the witness discussed with customers across the country.

The unavailability of lower prices to unfavored purchasers is also apparent from the fact that Bushey & Wright, a broker with offces in San Francisco, represented both H. A. Marr Grocery Company, Denver, Colorado, and Hannaford Brothers Company, Portland, Maine, in the purchase of Tri- Valley products and, nevertheless, these two purchasers consistently paid higher prices than Safeway and/or A & P. Apparently, having a buying representative on "CalHornia Street" is no guarantee that a purchaser will receive the lowest possible price from a supplier. If it were guarantee it would seem that the unfa voted purchasers would seek a favorable price on the "Street" through their brokers. If the prices identified were actually sought through the brokers, it is apparent that the brokers were unable to obtain the favorable Initial Decision 70 F. price on the " Street. " Either inference, contrary to the contention of the respondent, must lead to the same conclusion. 26. Respondent did not grant the discriminatory price concessions to the favored retail chains to meet in good faith the equally low price of a competitor.

Since the good faith meeting competition defense is a justification for a price discrimination which would otherwise be unlawful, the seller has the burden of sustaining this defense as enunciated by the court herein in remanding the case. See also Standard Oil Co. v. Federal Trade Commission 340 U. S. 231 (1951); Federal Trade Commission v. A. E. Staley Manufacturing Co., et ai 324 U. S. 746 (1945).

Respondent, relying on the section 2 (b) defense, has failed to introduce any reliable evidence to sustain its burden. In attempting to explain away the individual discriminatory pricing transactions favoring certain chains as contained in Appendices Arespondent called as a witness, Mr. Russell Snyder, assistant sales manager of respondent at the time of the transactions. He testified about general market conditions on "California Street " and that the lower prices were given to the favored purchasers to meet competition. Ml' Snyder further stated he could not remember the individual transactions relating to price competition. In describing the individual pricing transactions, the witness was relying on testimony concerning general company policy and his adherence to such company policy. Respondent did not introduce any documents concerning the prices of competitors, nor call any competitors to substantiate what their market prices or market practices were at the time of the transactions in question. The witness also testified that his company kept no memoranda concerning policies to be foi1owed by the sales force in connection with competitive market facts. The witness further testified that he did not keep a diary or memorandum of the prices charged by his competitors. He stated that he kept no records with respect to prices offered by competitors. When specifically asked for the identity of a particular competitor and the prices such competitor was charging, the witness was unable to answer. Thus, a reading of the record clearly reveals that respondent' evidence on the section 2(b) defense is the conclusion of respondent' s assistant sales manager that the company was meeting the 8tree Appendices Nand 0; Tr. 1116-1117, 1120; Appendix L; 'J. 1132 , 1134-1135; Appendices K and ? : Tr. 1155-1157 , 1353; exs 19SA- 214; Tr. 1354; 338 , 412-413; Appendices , D, E, P. and Q.

TRI-VALLEY PACKING ASSOCIATION 241 223 Initial Decision competitive market prices unsupported by evidentiary facts such as prices met, the specific sources thereof, and justifying circumstances.

Respondent contends that it had a general policy of only meeting competitive pricing practices. Performance of this policy, however, does not appear to be demonstrated beyond assertion. Commission Exhibits 216 through 219 indicate that in connection with the sale of tomato paste respondent did not meet the competitive market prices. Commission Exhibit 217 shows that the market price was $6, but, nevertheless, respondent sold tomato paste to A & P in early 1957 at $5. , at 10 cents lower than authorized. Furthermore, the $5. 90 price could not be explained except that it was A & p's price.

Commission Exhibits 223-225 reflect that respondent developed special price Usts in dealing with Regent (Safeway) and First National, two favored purchasers. In Commission Exhibit 199 (May 31, 1957, price Ust), the prices Jisted for apricots were suhstantially higher than those contained on Commission Exhibit 225. The same was true for yellow cling peaches. These special , aprice lists were issued for internal use. Abraham P. Friedman former attorney-examiner for the Federal Trade Commission, testified that H. Ziegler Bare, sales manager for respondent during the period in question, informed him that the special price Jists were prepared shortly before the market opened. Mr. Friedman further testified that Mr. Bare told him that as a copy of each special price Jist came out they destroyed a copy of such Jist. Mr. Snyder, a respondent representative, attempted to explain away the price lists by statements that they were developed as a result of market conditions. However, when asked to name particular competitors who had the same prices or lower prices contained on the special price lists, Mr. Snyder was unable to do so. Furthermore, Mr. Snyder did not, or could not, challenge Mr. Friedman s statement that Mr. Bare informed him the special . Ifprice lists were developed before the time the market opened the special price lists were developed before the market opening, then it is diffcult to see how the prices contained on those Jists were the results of prices being offered by competitors. Evidence introduced subsequent to the remand appears to estabUsh that there was no "California Street" market as distinguished from markets outside of California. In this connection Mr. Snyder testified (Tr. 1348) that in certain instances customers may get lower prices if they were not in "California Street. Initial Decision 70 F. T. He further testified that customers not on "California Street" could buy just as cheap as those on said "Street." No independent evidence was introduced showing that Mr. Snyder s description of California Street" practices were followed by competitors. As previously observed, wholesalers who testified concerning "California Street" prices indicated they never heard of them until taking the stand.

Apparently respondent adopted a pricing practice favoring large chain buyers with the "California Street" market as an excuse for the claim that "California Street" market prices had to be met. Absence of proof of specific prices or market prices met offers little probative weight to respondent' s theory it was reducing prices to meet " Street" prices.

There also may be some merit to complaint counsel's theory that even assuming there was such a thing as a "California Street" market with lower prices, and that competitors were engaged in the same practices, respondent has met an unlawful pricing system requiring rejection of the section 2 (b) defense. The evidence is not entirely clear on this point however. The original initial decision Was premised on such ilegality. Nevertheless this initial decision on remand is not, after a more critical review of the evidence.

In the foregoing connection, Mr. Snyder testified that sellng on California Street" begins with a canner, including respondent attempting to obtain from buyers located on said " Street" a reservation for a given number of cases of the commodity to be packed but substantially in excess of that purchased the previous year. A reservation is an informal record or memorandum where the canner agrees to supply a prospective buyer with a specific quantity of goods during the buying season. A buying season is not a contract of sale because the seller is not obliged to deliver, and the buyer is not required to take any merchandise unless and unti there is a meeting of minds on the price. It is for this reason therefore, that prices are seldom specified in the reservation. After reservations have been entered into, the canners, includjng respondent, announce their "opening prices, " The buyers note the opening prices. These prices are accumulated and analyzed by the buyers. When this analysis is completed, the buyers set the market price at the levcl of the lowest prices offered by reliable canners and go on to purchase goods at this price. Mr. Snydcr also testified that under the reservation system as practiced by Tri-Valley and competitors, the whole reservation TRI-VALLEY PACKING ASSOCIATION 243 223 Initial Decision would not be shipped to a purchaser in a single shipment. Competitors as weH as respondent would sell only a portion of the reservation at a time to a purchaser. Prices charged by Tri-Valley and competitors to chain stores on "California Street" were not dependent on the quantity sold to such purchasers. Tri-VaHey and competitors use the same manufacturing methods for aH customers, whether those customers be on "California Street" or elsewhere. Competitors use the same means of transportation as Tri- VaHey in transporting goods to customers across the country. The evidence does suggest, however, that probably neither Tri- VaHey nor its competitors could cost-justify the "California Street" prices. As the facts disclose, the lower prices on the Street" were not established as based on savings resulting from differences in the manufacture, sale or distribution of the sellers products to purchasers. Respondent's offcials were thoroughly familar with the canning industry, respondent being a member of various associations with canning interests. Respondent probably knew, or should have known, that prices on "California Street" could not be cost justified " but this does not entirely resolve the question as to the megality of the system. 27. Respondent, pursuant to a coupon book program, granted promotional payments to Fred Meyer, Inc. , a retailer located in Portland, Oregon, in 1957.

The record discloses that Fred Meyer, Inc., caused to be printed coupon books for distribution to the consuming public. These books contained coupons mustrating various products sold by Fred Meyer to the public. The coupons advertised that they may be detached and returned for either a free supply of tbe products ilustrated, or for purchase of such products at reduced prices. Respondent participated in Fred Mcyer s 1957 coupon book program by executing an agreement wherein respondent agreed to pay Fred Meyer $350 for the mustration and advertisement, on a single page in the coupon book, of sliced or halved peaches under Fred Meyer s private label " NIy-te-Fine. " Fred Meyer, in 1957, received $350 from respondent.";

28. Respondent did not offer nor pay promotional payments or allowances on proportionally equal terms to Safeway Stores Portland, Oregon, Division.

See Tr. 743-751 , 770-854, 825, 782-783, H5D, 1507 , 1512 , 1514 , 1523, 1505-1506 , 1512-1513, 1448-1450: ex 218: TI' , 1420, 142. H26 , 1448, 1502-1506, 1353. 1356-1357, 741 764-765 746-749, 933-934, 937-938, 754-757 , 1327, 1330-l331, 1333 , 1336-1339, 1326, 1321-1325. ,6 See Tl'. 64 , 129; RX 1; Tr. 119-122; ex' s 10 , 11 , 24 , 26; RX 1 , p. 60; Tr. 97 , 109-111; ex' s 24, 26.

Initial Decision 70 F.

The coupon book program for 1957 was initiated by Fred Meyer, Inc. , with the amount of the allowance fixed by Fred Meyer. Further, the Fred Meyer bulletin with respect to the 1957 coupon book program specifically provides: "OFFER MUST BE EXCLUSIVE AT FRED MEYER DURING THE 4 WEEK PERIOD." The evidence clearly supports the finding that Tri-Valley was aware that the program was to be an exclusive one with Fred Meyer. Mr. Leslie Larsen, partner of KeIJey-Clarke, as respondent' Portland, Oregon, broker, was under specific instructions to pass along to Tri- V aIJey headquarters any requests for an allowance. Pursuant to such instructions, Mr. Larsen indicated that he passed along Commission Exhibit 221 to his principals. In this connection, Mr. Larsen testified as follows: Q. Now, to whom did you distribute CX-7 (CX 221) or copies thereof? A. Well, I probably sent them to our principals. Q. Did you send it to Tri-Valley in 19577 A. Well, like the other day, I can t swear that I did, but I assume I did. Q. Is that your normal procedure, to send it? A. That's normal routine procedure, yes, for anything we get. That' s our business.

That the coupon book program was an individually negotiated and exclusive deal with no offers of promotional allowances being made on proportionally equal terms to other customers in the Portland, Oregon, area, was attested to by offcials of Safeway Stores who testified that as far as they recall they had not received offers of promotional allowances from Tri- V aIJey at any time in 1956 or 1957 , with respect to either private labeled or Tri- V aIJey labeled products.

Further evidence that respondent had a policy of not offering promotional allowances on proportionally equal terms may found in the testimony of PhjJip Mark, executive head of Tri- Valley at the time, and H. Ziegler Bare, sales manager of respondent. At page 47 of the transcript, Mr. Mark testified that Tri- Valley would rarely promote a private label. Mr. Bare testified at page 77 that cooperative allowances were offered on more or less an individual basis within a specified territory. Respondent has introduced no evidence to indicate that it did offer promotional payments or allowances on proportionally equal terms to Safeway Stores in the Portland, Oregon, area. 29. The record discloses that both Fred Meyer, Inc., and the Portland, Oregon, Division of Safeway Stores were retail custom- "See Tr. 64- , 84, 149-150; ex' s 10 , 221, 226. ex 221; Tr. 14, , 1466 , 1410. 1414-1415; ex 226; ex 226C: Tr. 1475. 1479.

TRI-VALLEY PACKING ASSOCIATION 245 223 Initial Decision ers of Tri-Valley competing in the distribution of respondent' canned peaches, which was the subject of the advertisement in the 1957 coupon book program.

30. Respondent, in 1957 and 1958, granted Central Grocers Inc., promotional payments for the latter s promotion of products purchased from Tri-Valley in its order-guide book. The order-guide, as published by Central Grocers, Inc., and in connection with which respondent made payments, consisted of a book, published monthly or periodically, listing by some code aI1 the products sold by Central Grocers, and the sellng prices. Central Grocers would then distribute the order-guide books to its members and independent retailers. In connection with its orderguide books, Central Grocers solicited various suppliers, including respondent, for the purpose of getting these suppliers to feature their products in the order-guide books at a specified cost. The rate charged the suppliers, including Tri- V aI1ey, was fixed by Central Grocers. Through a mat, or some wording, the product of the seller making payments would be brought to the attention of the retailer customers of Central Grocers. The payments made by Tri-Vai1ey to Central Grocers in 1957 and 1958, in connection with the order-guide program, were based on any product purchased by Central Grocers. The rate was $150 on 1500 cases of any product purchased by Central during the year, plus 10 cents a case for purchases of any product in excess of the first 1500 cases. Furthermore, the payment was made in connection with any product purchased from Tri-Vai1ey under the private label of Central Grocers.

31. Respondent did not offer, nor pay, promotional aI10wances on proportionally equal terms to Standard Grocery Company, Boston, Massachusetts, a customer of respondent competing with Central Grocers.

The Circuit Court, in its opinion in this proceeding, found competition in thc Boston trading area between Central Grocers, Inc. a quasi cooperative wholesaler, and Standard Grocery Company, also a wholesaler. However, in remanding the case, the court was disturbed by the Commission s failure to indicate where in the reas See Tr. 116-119, 184-186; ex' s 11, 31-33. II) view (Jf the date of committee approval (2-27-;'7), as shown in ex 11, it is apparent that negotiations between Tri-Valley and Fred Meyer concerning participation in the 1957 coupon program occurred prior to the end of February 1957. Safloway was a customer of Tri- VaUcy in the purchase of canned peaches from January through March of 1957, at about the time Fred I\Ieyer WlIS also a customer of respo!ldent in peaches of the same grade and Quality, I;md at the time when negotiations were umle)' way for participation in the 19. 7 con pan book program See Tr. 1281-1284 , 920- , 1431, 920; RX 9E- Initial Decision 70 F.

cord it is shown that Central Grocers, Inc., purchased goods at around the same time that Standard Grocery Company purchased from respondent in order that it could be said both customers were in competition with respect to respondent' s products. Unfortunately, the attention of the court was not invited to Respondent' s Exhibit 9D, which expressly shows purchases made by Central Grocers on March 22 and Aprij 29 , 1957, which were in close proximity to the date Standard Grocery Company made purchases from respondent.

Mr. Hecht, counsel for respondent, stipulated that Tri-Valley did not make offers to other wholesalers in the Boston area that it would be wiIing to paticipate in order-guide programs. 32. Respondent did not offer, nor pay, promotional payments or allowances on proportionally equal terms to Food Centre Wholesale Grocers, Charlestown, Massachusetts, a customer of respondent competing with Central Grocers. n 33. Respondent's acts in granting discriminatory promotional allowances to Fred Meyer, Inc., and Central Grocers, Inc., were in violation of section 2 (d) of the amended Clayton Act. All of the elements for finding a violation of section 2 (d) of the amended Clayton Act with respect to respondent's granting of promotional payments to Fred Meyer are hereinbefore set forth." Summarized these elements include: (1) Offer and payment to Fred Meyer;

(2) No offer or payment to Safeway;

(3) Both Fred Meyer and Safeway are retaij customers of respondent in competition with each other; and '" See 329 F. 2d at p. 709; see also 'Jr. 348-349, 352-353. 369, 372, 1428-:1429, 1431: ex 45; '11'. 1432.

n See 'Jr. 1190-1191: ex's 131-142, 147-152 to the effect that Central Grocers and Food Centre \Vholesale Grocers were both customers of respond.ent at the time respondent was making- payments to Central Grocers under an order-guide promotional program. See also Tr. 1272-. 1274 indicating that Food Centre Wholesale Grocers is a wholesaler resellng in the same geographical area as did Central Grocers, and is in the same business as the Jatter. Also, 'II', 1274-1275 , 1277, 1432 reflecting, that although Food Centre Wholesale Grocers printed a catalog similar to that printed by Central Grocers, Tri-Valley did not offer Food Centre Wholesale Grocers any sums of money for featuring Tri-Valley purchased products in its catalog, nor did Tri-Valley offer any sums of money for any other forms of advertising !It the time when Central Grocers was receiving payments. These findinp,s meet the necessary standards of proof established by the Commission and the courts for holding a supplier in violation of section 2 (d). See State Wholesale Grocers, et al. v. Great Atlantic Pacific Tea Cn. ei al. 258 F. 2d 831 (7th Cir. 1958), cert. den. sub nom. General Foods Corp. v. State Wholesale Grocfir8. 358 V. S. 947 (l959); Vanity Fair Paper Mill., Inc. v. Federal Trade Commission, 311 F. 2d 480 (2nd Cir, 1962), cert. den. 372 U. 910 (1963) ; Atalanta Tradi1! Q Corporation v. Federal Trade Commission, 258 F. 2d 365 (2nd Cir. 1958) ; Kay Windsor Frocks, Inc. 51 F. C. 89 (1954); Henry Rosenfeld, Inc., 52 F. 1535 (1956); Chestnut f' ar1l8 Chevy Chase Dairy, 53 F. C. 1050 (1957); Commission 1960 Guides for Advertising Allowances and Dthe1' Me1'chandising Payments and Services, 1 C. H. Trade Reg., par. 3980, pp. 6073, 6076-6078. TRI-VALLEY PACKING ASSOCIATION 247 223 Initial Decision (4) Both customers bought from respondent the product which was the subject of the promotional allowances to Fred Meyer. Alj of the elements Jisted as applicable to the Fred Meyer arrangement in finding a section 2 (d) violation are also present in connection with General Grocers' order- guide programs with the exception of the disclosure that the unfavored customers did not purchase from respondent goods of the same grade and quality as those purchased by Central Grocers. However, because of the uniqueness of the arrangement between Tri-Valley and Central Grocers, it would not appear to be necessary to evidence that the competing unfavored customers bought goods of like grade and quality.

Unlike the factual situation existing in the Atalanta case, 53 565 (1956), rev 258 F. 2d 365 (2nd Cir. 1958), where the promotional allowances were given for the advertising of specific products, the payments to Central Grocers were granted to promote respondent's general Jine of products. Payments by Tri-Valley were made based on the purchase of the general line of respondent' s products. It is clear that the only requirements under the Central Grocers' order-guide plan were: (1) a customer relationship; (2) purchase of any type product from respondent; and (3) listing of the product in the order-guide book, which is nothing more than a catalog containing the identity of the various suppliers' products and the prices being charged by Central Grocers on those products. Both unfavored Standard Grocery Company and Food Centre Wholesale Grocers were: (1) customers of respondent purchasing at the same time as did Centra! Grocers; and (2) able to Jist the products purchased either in an order-guide or on price lists to be distributed to retailers. Since no specific product was the basis for promotional payments, then it is incumbent upon respondent to offer promotional payments to competing customers who purchased products at the time Central Grocers purchased such products, provided, of course, these customers would be willng to Jist respondent' s products in order-guide books or on price lists. CONCLUSIONS The law of the case that must be applied, as reflected by the Ninth Circuit Court of Appeals in remanding it to the Federal Trade Commission, is reducible to the following summary of conclusions reached by the court in appraising the evidence and findings of the Commission."

4i Tri- VaUey Packing Association v. deTal Tra.e Commission, 829 F. 2d 694. 248 FEDERAL TRADE COMMISSION DECISIO!\S Initial Decision 70 F.

(a) The Federal Trade Commission s order requiring the packing association to cease and desist from discriminating in the price of food products should not be set aside on the ground that the Commission adjudicated issues not raised in the complaint and at the hearings, where the association did not apply for leave to adduce additional evidence and therefore was not in position to argue that it was aggrieved by lack of notice as to the issues to be a.djudicated. See opinion of the Court of Appeals at page 700. (b) The evidence supports the finding of the Federal Trade Commission that certain food retailers who purchased from the wholesaler were in actual competition in a certain area with the retailer which purchased food products from the packing association at lower prices than those charged the wholesaler, in the proceeding for review of the Commission s order requiring the association to cease and desist from discriminating in the price of the products. See opinion of the Court of Appeals at page 702. (c) The findings of the Federal Trade Commission as to the actual direct and indirect competition between the retailers who purchased from the wholesaler and the retaij chain provide suffcient factual basis, insofar as existence of actual competition is concerned, for the order requiring the packing association, which sold directly to the chain and the wholesaler, to cease and desist from discriminating in the price of food products. See opinion of the Court of Appeals at page 702.

(d) The Federal Trade Commission s finding that the effect of price competition might be substantially to injure competition between the food retailers purchasing from the wholesaler which paid the packing association higher prices than those charged the retail food chain is essential to establish the proscribed price discrimination, but the Commission is not required to find that there had been actual injury to such competition. See opinion of the Court of Appeals at page 702.

(e) Whether disparity in prices charged by the packing association for goods sold to favored retailers and those sold to nonfavored wholesalers could endanger the ability of the retailers who purchased from the nonfavored wholesalers to compete with the favored retailers is a question for the Federal Trade Commission. See opinion of the Court of Appeals at page 703. (f) In a price discrimination case, it is not the function of the Court of Appeals to find the facts and the Federal Trade Commission should first speak as to the application of the law to the facts which are found. See opinion of the Court of Appeals at page 704. TRI-VALLEY PACKING ASSOCIATION 249 223 Initial Decision (g) The seller who has discriminated in the prices charged different purchasers of commodities of like grade and quality has the burden of showing that he acted in self-defense. See opinion of the Court of Appeals at page 704.

(h) The Federal Trade Commission s order requiring the packing association to cease and desist from discriminating in price must be set asidc for the determination of the facts pertaining to the availabiliy to unfavored purchasers of the low prices for the association s products at a certain market and whether the competition which the association faced in that market was the kind contemplated by the meeting of the competition defense available to the seller who had discriminated. See opinion of the Court of Appeals at page 706.

(i) The evidence warrants the finding of the Federal Trade Commission that allowances given certain customers by the packing association were compensation for the promotion, over a period of time, of the association s line of products and were not given exclusively to facilitate the original sale by the association to such customers. See opinion of the Court of Appeals at page 708.

(j) Where the seller s direct customer operating solely on a particular functional level receives a promotional allowance not made available to another direct customer operating solely on the same functional level, in order to establish competition, it is suffcient to prove that one customer has outlets in geographical proximity to those of the other and that customers purchased goods within approximately the same period of time. See opinion of the Court of Appeals at page 708.

(k) The purpose of the statute forbidding unequal treatment of customers as to promotional allowances is to require sellers to refrain from making allowances to one customer unless it is made available on proportionally equal terms to competing customers. See opinion of the Court of Appeals at page 708. (I) In determining whether there has been a violation of the statute forbidding unequal treatment of customers with regard to promotional allowances, it may be assumed that the seller s direct customers which are in functional competition in the same geographical area and which buy the seller s products of like grade and quality within approximately the same period of time, are in actual competition. See opinion of the Court of Appeals at page 708.

(m) Violation by the packing association of the statute forbid- 250 FEDERAL TRADE COMMISSIO!\ DECISIONS Initial Decision 70 F.

ding unequal treatment of customers with regard to promotional a1Iowances is not established where there is no showing of prox imity as to the time of the purchases by a wholesaler given an allowance and another wholesaler in the same area not given an allowance. See opinion of the Court of Appeals at page 709. (n) That the retailers, direct customers of the packing association, were not given a promotional a1Iowance by the association comparable to that accorded the wholesaler is not a violation of the statute. See opinion of the Court of Appeals at page 709. (0) Violation of the statute forbidding unequal treatment of customers with regard to a promotional a1Iowance could be shown with respect to the packing association s giving a promotional allowance to the wholesaler but not to the retailers in the same area only by treating the wholesaler s retail outlets as indirect customers of the association, but that could not be done in the absence of a showing that the packing association engaged in a course of direct dealing with the retailers. See opinion of the Court of Appeals at page 709.

(p) The packing association s failure to give proportiona1Iy equal promotional a1Iowances to a corporation, which was principa1ly a wholesaler but might also be a retailer, as the association gave to the retailer in the same area was not unlawful as to the wholesale operation which was not in functional competition with the retailer or as to any retailer operation, where it was not shown that the association s goods were purchased indirectly by the retail outlets during the period in question. See opinion of the Court of Appeals at page 709.

Although some of the findings herein relate to matters disposed of and resolved by the Court of Appeals in its opinion remanding the case to the Federal Trade Commission under the original findhogs and evidence supportive thereof, a1I the findings herein are consistent with the law of the ease as enunciated by the court. These findings are considered in relation to the opinion of the court, and any discriminatory transactions enumerated are either those previously referred to by the court, or additional transactions consistent with the concepts recognized by the Court of Appeals in entering its remand order.

While some of the findings relating to the Clayton Act section "A Altno' .lgh respondent's counsel urges to the contrary, Mommd Bros. BevBrar;e Co. v. National La,bot Relations Board 204 F. 2d 529, 532 (7th Cit'. 1953) is inapplicable since in t.hat case :he f)nclings were inconsistent with the law of the case and were unJ' related to the issues required to be ' resolved by the " inferior tribunal" or to the issue of relief incident to the setting aside of an administrative agency Ord€l' by the Ape;Jlite Court. TRI-VALLEY PACKING ASSOCIATION 251 223 Initial Decision 2 (a) charges perhaps are partial1ly redundant, they were included to clarify the evidence consistent with the court's version of the law of the case "n and to enable a better appraisal of the nature of the order that should be issued. In this connection it is observed that the court, with regard to the Clayton Act section 2 (a) violations, did not set aside the findings and conclusions of the Commission, but invited the attention of the Commission to certain aspects of proof which required clarification or the adduction of other evidence, particularly as to the availability of "California Street" prices to unfavored customers of the respondent and certain phases of respondent's section 2 (b) defense, which have been discussed herein incident to the findings. It is important that such findings be complete as well as consistent with the law of the case enunciated by the court in order to appraise the scope of the relief that should be granted, since the Court of Appeals in remanding the case has set aside the Commission s order with regard to the section 2 (a) charge. Furthermore, there is a relationship between such evidence and the evidence concerning which the Court of Appeals stated further clarification and findings were necessary.

In permitting new findings as to the section 2(a) charges, pursuant to remand, the Court of Appeals clearly indicated its intention that further evidence could be adduced if necessary. As regards the section 2 (d) charges, the court having set aside the findings, conclusions and the order, it is obviously mandatory that completely new findings, conclusions and an order be issued concerning facts which the court has permitted the Commission to adduce in the event that clarification alone on the present evidence is insuffcient. To meet the requirements of proof as enuniciated by the court and consistent with the established law of the case, additional competitive situations regarding promotional allowances have been included. Before the adduction of any evidence, respondent was made aware of the extent to which proof would be adduced and new findings rendered, both as to the section 2 (a) charges and the section 2 (d) charges. The respondent has urged essentially that its lower invoice prices to its favored buyers were made in good faith to meet the equally low prices of its competitors in thc " California Street" market, and that these prices were available to its nonfavored buyers. The orignial decision categorized " California Street" as an ilegal system and that, therefore, respondent, if it was meet- 4HJ This is one of the purposes for which the case was remanded. Initial Decision 70 F.

ing competition on "California Street " was meeting unlawful competition, and should have been cognizant of it. Therefore, it could not avail itself of a section 2 (b) defense. A more critical examination of the evidence since the original decision does not suggest that the reduced prices on "California Street" are either systematic or illegally systematic. Significantly, in this connection is the evidence that at least one purchaser on California Street" did not receive a favorable price. Supportive of this conclusion also is the absence of evidence as to whether or not Tri-Valley s competitors sold at reduced prices on "California Street" and, if so, the prices at which they consummated such sales. In the absence of price comparisons, there is an evidentiary vacuum as to any reduced prices on "California Street" from which any meaningful legal or ilegal price system can be reasonably imputed. Under these circumstances respondent' s theory that they are meeting "California Street" prices in good faith can have no merit since there is no substantial evidence as to what "California Street" prices or what competitiors' prices on " California Street" respondent is specifically meeting. Furthermore, the evidence affrmatively establishes that Tri- Valley s prices to certain "California Street" buyers are not directly offered or directly made available to "off-California Street" buyers by Tri-Valley. The evidence also establishes that no "California Street" prices, as such, comparable to Tri-Valley prices on the "Street " are made available to "off-California Street" buyers. Such prices, even assuming their existence could be established on some systematic or market price basis, are not adequately made known to "off-California Street" buyers in the market area so that they may take advantage of these prices. The argument that such " Stre€t" prices are available to "off-Street" California buyers becomes obscure in the absence of evidence suffciently comprehensive as to the specific prices of certain Tri-Valley competitors or specific market prices that Tri- V aJJey claims it is forced to meet on "California Street." The ultimate burden of establishing such evidence is on the respondent as a part of its section 2 (b) defense or in going forward with the evidence. Having failed to do so, respondent's section 2(b) defense is without merit, and it has failed otherwise in going forward with the evidence. Additionally, the evidence does not suggest the need to join ajj competitors in consummating necessary relief under a cease and ., See Finding 2.'i. Purchaser on " California Street" refers to broker representation on the Str.;et.

TRI-VALLEY PACKING ASSOCIATION 253 223 Initial Decision desist order since such over-a1l relief is unjustified in the absence of proof that the prices of Tri-Valley s competitors on "California Street," as weIJ as Tri-Valley, are reflective of an ilegal competitive system demonstrated by some price-cutting formula or technique, which clearly establishes " California Street" as a preferential market for certain favored buyers thereon. The methodol- , is en-ogy of doing business on the " Street " which is evidenced tirely insuffcient to establish any meaningful significance concerning the nature of the price system in the absence of specific comparative prices of "California Street" rival suppliers to particular buyers on the "Street. " In fact, the evidence indicates that even on "California Street" some purchasers apparently buy at higher prices than others." From this one must conclude that there is no " California Street" market price. Therefore, the respondent has failed to prove that its conduct in reducing prices on the "Street" has any relationship to such a market price resulting from necessary market procedures, systematic or otherwise, to which Tri- V aIJey must respond in order to remain in the "California Street" market place. These circumstances, as heretofore indicated, require that the respondent specifically prove the competitor s prices that Tri-Valley is meeting. Its failure to do so vitiates the need for dealing with aij of the competitors jointly under the assumption that there is a relationship between their prices and "California Street" as a separate and significant market based upon the necessity of price differences on and off that market.

N or can it be said that the " California Street" situation creates circumstances whereby no causal connection by the respondent's reduced prices and competitive injury is shown because Tri-Valley was confronted with a general systematic drop in prices on California Street," to which it had to respond. In fact, the Ninth Circuit indicates proof of competition, and probable injury is established as to the section 2 (a) charges." The burden of establishing such circumstances requiring such responses is properly a part of a section 2 (b) defense as heretofore suggested. Otherwise the nonexistence of a section 2 (b) defense would fail on com- .. See Finding 25.

329 F. 2u 690, 702.

Initial Decision 70 F.

plaint counsel " thereby contravening the very purpose of section 2(b) as an affrmative defense.

Tri- Valley s price differences remain unexplained, both "off- California Street" and "on-California Street." There is neither a showing that the favorable prices established were to meet the prices of identified competitors nor a showing of bona fide special circumstances necessitating price differences. Respondent' reliance upon general proof of "California Street" methods of pricing is entirely inadequate as evidence of competitive necessity in the absence of proving the specific level of " California Street" prices met or the specific prices of particular competitors met on California Street" as of a relevant time period. Under the facts of this case, therefore, the distinction between systematic and individual pricing is without significance in determining the meaning of a section 2 (b) defense. Also without significance is the issue of availability of rival prices on "California Street " since respondent has failed to introduce evidence of competitive prices or market prices met from which any meaningful inferences may be drawn as to the availabilty of such prices to unfavored customers of the respondent.

Complaint counsel has established that respondent in a market involving the sale of food which is highly competitive with a low profit margin has sold at prices on "California Street" less than prices off "California Street " and, in one instance, to a customer that had representation on "California Street" at a higher price than to other customers on "California Street. " The Commission is not obligated to assume the burden of otherwise establishing the non-availability of "California Street" prices to some customers in the absence of evidence as to what such prices met specifically are, particularly in view of evidence which suggests a variability of prices to customers on the "Street" itself, or the lack of a market price. Proof as to the availability of prices on "California Street" to any buyer does not connote the favorable price is always available. In fact, the evidence establishes an opposite inference. '" The burden of going forward with the evidence to estab- See American Oil case 325 F. 2d 101 (1963) 7th Gir. However, in that case the result may have been the same in any event since the evidence sustained a price war situation to which, according: to the court, the respondent was entitled to respond. Nevertheless, the court' irj(Hcation that the Commission failed to prove causa! connection between respondent' s reduced prices and JJ\'obable injudous competit:ve effect suggests the court may have overlooked the fact that the blnden of showing- noncompetitive effect under special circumstances involving a wtal ma;'ket or sc m"mt thereof may be an integral part of lJroving a section 2(b) response as required in establishing the meeting of an inl1ividual competitive situation. 19 Rowe, Price Discrimination 1:!iller the Robinson-Patman Act, pp. 234-235. '0 See Finding 25. TRI-VALLEY PACKING ASSOCIATIO!\ 255 223 Initial Decision !ish equal availability of a particular relevant market price is on the respondent. This it has failed to do. Furthermore, the evidence indicates "off- Street" unfavored buyers were not aware California Street" prices, since such information was not disseminated. This also gives credence to the belief that a market price in the normal sense on "California Street" was nonexistent unless it was available only to favored large buyers on the "Street" with buying capacity to lower the price. However, the evidence is somewhat conjectural on this point.

With reference to the Clayton Act section 2 (d) charges, the remand order of the Court of Appeals for the Ninth Circuit permitted the adduction of testimony and documentary evidence pertaining to respondent's failure to offer promotional payments or allowances to customers, which was not received in this case prior to the remand.

In remanding the case with respect to the section 2 (d) charge the court discussed the elements necessary for finding a section 2 (d) violation. At pages 707-708 the court states: There are three essential elements which must be established in order to prove a violation of section 2(d). We designate them as (a), (b) and (c) in this paraphrase of the statute: Where (a) two or more customers of a particular seller compete with each other in the distribution of the products of that seller, (b) the latter shall not payor contract for the payment of anything of value to or for the benefit of such a customer as compensation or in consideration for any services or facilities furnished by or through such customer in connection with the sale, or offering for sale, of any products sold or offered for sale by the seller (c) unless the allowance is available on proporR tionally equal terms to the competing customers. After enunciating the necessary criteria, the court proceeded to indicate in what manner the evidence failed to measure up to the standards essential for a section 2 (d) case. However, rather than dismiss the section 2 (d) charge for lack of evidence, the court returned the case to the Commissio.n, stating: (329 F. 2d, p. 710J For the reasons stated above we hold that the Commission findings and conclusions to the effect that Tri-Valley violated Section 2(d) must be set aside. As we have remanded this cause for further proceedings with regard to other matters we think it appropriate to afford the Commission, on such remand, the opportunity of calling attention to evidence presently in the record, or of producing additional evidence, which wil overcome the present seeming, or actual, lack of factual support for the Section 2(d) charges as discussed above.

Respondent appears to argue that the court' s remand order limited retrial to: (1) finding sales to Central Grocers, Inc. , and Standard Grocery Company, at approximately the same time; (2) Initial Decision 70 F.

indirect customer relationship between Tri-Valley Packing and the customers of Central Grocers, Inc., and Hudson House; and (3) tracing of Tri-Valley s goods to the Piggly-Wiggly stores serviced by Hudson House. Respondent' s position is without merit. Firstly, nowhere in the opinion does the court expressly command that the testimony on retrial be Jimited as suggested by respondent.

Secondly, the record is clear that it was to the criteria that the court was a1luding when remanding the case for the taking of further evidence. In the first full paragraph of its opinion at 329 F. 2d 709, just prior to discussing purchases between Central Grocers and Standard Grocery, the court made references to the criteria. It stated: "In the case before us, however, no set of circumstances has been called to our attention which meets the criteda suggested above It is obvious from the foregoing and the court' s statement in connection with the taking of further evidence that the court was giving the Commission the opportunity to take testimony relating to the Fred Meyer coupon book program and Central Grocers order-guide program in accordance with the criteria set out in its opinion at 329 F. 2d 707-708. In effect, the court directed the Commission, in setting aside its findings, conclusion and order, to correct the record in accordance with the criteria enunciated. In respect to the section 2 (d) charges involving promotional allowances, the record discloses that the respondent had a policy of offering such promotional allowances on an individual basis within a specified territory (Tr. 77). Also, respondent' s discriminatory promotional practices involved two separate and distinct type programs. The failure to offer Safeway Stores, one of the nation s largest chains, a promotional allowance when a competitor was offered one is a clear indication that respondent' s basic policy is to ignore the availabilty and proportionality standards established by section 2 (d), and deal with each customer on an ad hoc basis. A reasonably broad order against respondent would appear C. v. Ruberoidto be appropriate in view of such policy. See Co. 343 U. S. 470 (1952); C. v. Mandel Brothers, Inc., 359 S. 385 (1959) ; Vanity Fair Paper Mills, Inc. v. 311 F. 2d 480 (2d Cir. 1962), cert. den. 372 U. S. 910 (1963). Subsequent to March 18 , 1964, an employee of respondent, without first consulting his superior or respondent's counsel, destroyed certain documents belonging to respondent, produced by it for copying and inspection by representatives of the Commis- , TRI-VALLEY PACKING ASSOCIATION 257 223 Initial Decision sion, pursuant to order of the United States District Court. These documents were so inspected beginning on or about October 12 1959. The court order did not require that these documents be thereafter preserved for any given period of time. The employee destroyed these documents acting under the mistaken belief that the decision of the Court of Appeals, announced on March 18 1964, had put an end to the proceedings brought against respondent. There are no facts in evidence that would justify the finding that the destruction of said documents was "wilful intentional " or with " fraudulent design " as those words are used in connection with the presumption relating to the application of the maxim of evidence omnia praesumuntur contra spoliatorem, The rule is that the destruction by a party of documents which are relevant and material to a proceeding and ordered produced by the opposing party to the proceeding leaves the rebuttal inference that the information contained in the matter destroyed is unfavorable to the spoliator. 2 Wigmore, Evidence, secs. 285, 291; 31 A Corpus Juris Secundum, Evidence, secs. 152, 153 , 156 (2). Thus, the further question is whether respondent has satisfactorily explained away the destruction of the documents. It would seem respondent has.

Following the filing of proposed findings, counsel for respondent made a motion to strike certain parts of the reply of counsel in support of the complaint to respondent's proposed findings relating to the documents destroyed by respondent's representatives." It is the contention of respondent that it has been deprived of the opportunity of replying to Commission counsel regarding the destruction of the documents and that the remarks made by counsel supporting the complaint are scandalous. In the first place, the remarks of counsel in support of the complaint are not scandalous, and Green v. Elbert 137 U.S. 615, 623-624 cited by respondent's counsel is entirely inapplicable to the circumstances herein. Complaint counsel was merely attempting to argue his position which is that the destruction of the documents in question was wilful and that inferences unfavorable to the respondent should be drawn therefrom. In view of the carelessness exercised by the respondent in destroying such documents, it seems only just that complaint counsel should have the opportunity of arguing that the act was wilful, although the hearing ex- 01 See complaint counscJ's reply "From a study of" page I, ond ending with the words "the destruction of documents, " page 3: ahw bcginnin with the words "Also, had respondent not" and ending with the words " part of 1957," page 9. Initial Decision 70 F.

aminer has decided otherwise. Furthermore, respondent's counsel at the request of the hearing examiner, gave thorough consideration to the question relating to the destruction of the documents and there is no reason why counsel supporting the complaint therefore, may not vigorously oppose the proposed finding of the respondent to the effect that its active destruction was not wjIfu1. Since the hearing examiner has concluded that the evidence concerning such destruction of documents does not warrant a finding that it was wjIful, there is, furthermore, no point in granting respondent's motion to strike. However, in this connection, the respondent should be admonished for its carelessness in destroying any of its documents relating to the within case, even though such documents were returned by the Commission to respondent. " Such destruction should have awaited termination of the case by an appeal which in this instance reasonably could be anticipated by the respondent.

However, in view of the decision of the hearing examiner favorable to respondent on the issue of documentary destruction, a motion to strike has no merit and would serve no purpose. Furthermore, to encumber or strike complaint counsel's argument to the point where he could not respond to respondent's proposed finding and argument on the issue would indeed be an injustice. Respondent' s motion to strike, therefore, filed on April 5 , 1965 with regard to the matter hereinbefore identified, is denied. Premised upon the law of the case as enunciated by the Court of Appeals, it would appear that respondent has violated both section 2 (a) and 2 (d) of the amended Clayton Act. Furthermore, incident to the section 2 (a) violation heretofore discussed in ful!, there is no merit to respondent' s section 2 (b) affirmative defense. Respondent's meeting competition defense under section 2 (b) seems to be premised on the " California Street" situation as demonstrated by " California Street" general practices rather than by the actual market or competitive prices met.'" Mr. Snyder, a respondent representative, merely identifies the respondent' s sellng price in each instance as the market price, premised upon "California Street" practice unsupported by specific evidence of any cognizable market price or competitor price on the "California Street" market as related to particular '" If the resnondent's desi.wyed documents were delivered to the Commission in the first instsTIC"", someone mllst have thought they \\ere in issue, thereby requiring- care on the part of respondent to avoid destruction. Respondent also failed to consult its nttorney to Hscertfiin the JJossibJe need foJ' re:aining such document.s. m See ;,taternents of respondent' !) counsel Ir. Hecht, Tr. 739 and 744. TRI-VALLEY PACKING ASSOCIATION 259 223 Initial Decision contemporary sales by respondent on that market." Such evidence adduced by respondent's qualified" representative and sales manager is entirely self-serving, has litte or no probative weight in the absence of corroboration, and is without suffcient substantiality to sustain respondent's ultimate burden of proof in support of a section 2 (b) affrmative defense." The forgoing state or the evidence also strongly suggests that there is no established market price upon which availability thereof to any buyer may be established. Accordingly, the foi1owing order shall issue: ORDER It is ordered That respondent, Tri- V aI1ey Growers, a corporation, and its offcers, representatives, agents and employees directly or through any corporate or other device in, or in connection with, the sale of food products in commerce, as "commerce is defined in the amended Clayton Act, do forthwith cease and desist from:

1. Discriminating in the price of such products of like grade and qualiy by sellng to any purchaser at net prices higher than the net prices charged any other purchaser who in fact, competes with the purchaser paying the higher price or with customers of such purchaser.

2. Paying or contracting for the payment of anything of value to or for the benefit of any customer of respondent as compensation or in consideration for any services or facilities furnished by or through such customer, in connection with the offering for sale, sale or distribution of any of respondent's products, unless such payment or consideration is made available on proportionally equal terms to a1l other customers competing in the distribution of such products with the favored customer.

'See testimony of Russell P. Snyder, Tr. 722-860 a.nd 918-994. M See Tr. 722-723, 737-741 , 745-747, 748-7S8 , 760-773. :I See Cabin Crafts Inc. , Docket No. 7639. ,, of %Discr. 4.4% 125 .45 .45 Difr. doz.

Price 1.60 1.51.20 of No.Cases 150 100 500500 OREN A PORTLAND, (Safeway) (Safeway) (Safeway) APPENDIX Inc. Inc. Inc. AREA: Buyer: Inc. Inc. Inc.Inc. Canfood Canfood CanfoodHouse, House, House, TRADE Meyer, Meyer, Meyer,Meyer. FredRegent FredRegent RegentHurlson HudsonFredFredHudson Un ves 12% LIves npccled Ha 24 H- 131U 1727 11- Syrup Halves Syrup Spinach 48/8 - 24/303 21-57 Leaf Heavy Heavy I1-12-;)712- DateLight ' 11-27-57 11-18-5812-19- r- Apricots 24/2% Std.Apricots Fancy Choice Choice - No. 34 , peeled 34 34 Unpeeled 34 Apricots Product: CX Product: CX Product: CX Product: CX ;4' of %Diser.

Difl .10 .10 3.15 :JO Price c3:)0 650 125 150 350150 I MASS.

B BOSTON, ARE:APPENDIX Stores Stores Buyer Grocery TRADE Grocery Grocery Grocery Grocery Grocery Grocery National Natio!IaI PP P P P && & & & FirstCentral CentralFirst CentralAACentral ACentral ACentral AStandard Y.

171 069 045 0GG Paste No. Sliced Halves 11-075 Halves 11-075 9Halves 25-0969-046Halves 28-9-045 3400 - 5 4--3739 Inv. 6-26-033 8-25- 8-289-25-09510- I Syrup Syrups- Syrup 10--Syrup 10-Tomato Syrup -58 58 58 58 Fancv 9-16- Heavy 19-58Heavy29-5822-58 Heavy 17-5811-G8Heavy Heavy -10-5816. 24/303 7 829- 9-. 4- 10-17-5811- 1011- 11-11.-58 24/303 Choice Choice Choice24/303 Choice48/8 Choice: Corina:45 Peaches C. 31) dud Peaches 35 35 Pears 35 Pears 35 Pp-ars96/5 Product: ex Product: CX Product: CX Product: ex Product CX Proex ,, on of of #10-66 same cases %Disci.. of 30 Iov- 7. 4. 10.4. I I I se Icases but 30 purchased mfr. for .15 062**062** 57 I Allowance; 12-2'- Hannaford doz. date differentia. 60*Freight 3045 3040 where 1.1251.20 1.20 Price On 5.30* 3.55* ; price of dear 9055 #1Z-17-19 5035 #10-3-66 150 100 initial 175 No.CM'" not the isdifferential Inv. Inv. E 4.2% see .075. shipmentcut but 10-22-57 MANE AND from A&Pclear see D, shipment; but C, altho PORTL showing tbisdifferential; subtracte on5% 3(a) Co.shipment Co. 7. CO. shipment; Co.Co. Co. Co.Co. RX AREA: granted vven differentia!; Buyer thil this on Bros.on Bros. was Bros. on Bros.Bros. Bros. Bros.Bros. 4.2% 48/8. APPENDICES TRAE undispute cut P on P._ P givenAllowance P P given & & allowance & & respondent & was wasclear by HannafordAHannafordHannaford AHannaford Freight AHannaford AHannaford AHannafordHannafordsavings set DO cost recount"demonstrating showing 60. Allowance AIJowance No. ht anrl (j Sliced Sliced Halves Sliced 29-05725-17629-055 granted Sliced 16-075 justifiabledifferentia! granted; Inv. Freight 10-31-1D-24- Frei 10-24- 10-21-029 on the "count 6--24-0438-15-075 was 10-31-61 same Syrup IO- Syrup 110-24-46 Syrup (a) Syrup24/8* of Syrup of 3half % Allowance VB. D372/case RX . AD/caserecount 8-582-58 ieavy1/303 4-57.0372jC9.ecases Heavy Heavy 4-57 11-58 Heavy 17-19-22- 24/2 4- 3 on Heavy24/303 D: 48/8 - and Freight 11-14-11- 11-11- - for 24/303 11- computes 11-11-57 1W I I indicates Iindicates indicates Choice i Choice Choice 7- 9- Choice 9- count Choice (c) Peache Peaches -22--57 Peaches .013 Peaches presentation 33. 3(g)no 46Peaches 46 3(0 36 10 at C. C. C. C. C. N *RX 46 "'RX RX 36 SeeuThi!\ ex Product: CX dated Product: CX which Product:CX same Product: CX Product: CX 1111:111 ro 10.

:J5 .40 .40 85* 225 120 135 150 Co. Co.Co. Co. Co.Co. Co. Co.Co. Co. Co. Co. Co. Co. Bros. Bros.Bros. Bros. Bros.Bros. Bros. Bros.Bros. Bros. Bros. Bros. Bros. Bros. P P P P P P & & & & & & HannafordAHannafordHannaford HannafordAHannafordHannaford HannafordAHannafordHannaford HannafordAHannafordAHannaford HannafordAHannaford Y.

Sliced 29-05725-17629-055 Halves 15-07525-17629-055 charg-e Halves 29-05725-17629-055 Halves 3-0314-D783-03226-034 Halves 03l078032 9-9-9- 12-17-045 12-17-045 10-21-029 10-21-029 Syrup Syrup handling Syrup Syrup Syrup &-59 &-59 Heavy 22-26-5829- 19-22- special Heavy Heavy Heavy 22-26-29- 17-19-22-Heavy 21/3032-58 24/2% % 1- 1- 9- 10-21-11-11- 17-19-22--11-11- 24/2Choice Choice .05/"'ise Choice Choice24/303 Choice24/2% Peaches Peaches C.36 C.37 37 Peaches *includes Pears PearsProduct: CX Product: ex Product: CX Ploduct: CX Product: same Bozzuto Bozzuto of of by by %Discr. Promotional 5. 10 Buzzuto purchase put'cbase by with Diff. for fat' . .30 5(0) 5(f) purchase 1 RX RX dHferentiai for see price O* 5(e) 15* 20*see 90* but 3.40 20 5.40 RX Price but 5. 3.60* see of 725125 500150but 250 showing 200 No.Cases 40019"; 1125150 375 differential; differential; CONN. 4% 4% 2.8%; 13-58 H about about about differential; Sons or Sons 20AND or or dated . Stores Stores &.10 WATEURY, &.205.7% of differential;G, of of differential;F, #1219-46 5.8% 5.6% unrebutted Inv. diffet"ntial HARTFORD, differential on for differential net Sons StoresSons StoresSons StoresSons StoresSons unrehutt net net & & & or & & Buyer differential; or5.aO orunrebutted EAST for NationalBozzuto NationalBozzuto (Q 5% for purchaseAPPENDICES 5.20 National National Bozzuto ARE: NationalBozzuto NationalBoz7.uto BozzutoP cases Bozzutoal10wance 0) 3.60 laterabout allowance allowance (g or 200 FirstJohn FirstJohn FirstJohn Johns FirstJohn cases FirstJohn of FirstJohn TRAE & cases showsprice 100 75 promotionalof 5(a)net promotional promotional 49 for 15 10-19-57 10 Syrup No. RX2 7- llalves Halves 28-64 Sliced Sliced 2984 577-73 28-7- 21-0942&-079 19- dated .IO/case 10-19-57 8-26-49 .10/case 10-15-10-fact. 10-15-10- 11 Inv. 8-7939 .10/case 8-28-64 Heavy 73 10- 24/303 I on24/2% J in 10-Syrup Syrup 8- Syrup Syrup for for for dated ; - 5(c) 5(e)#10- 5(e) dated 57 5(a);differential (b) 9-57 5Choice 7-57 Heavy Heavy Heavy 19-57 Heavy 21/211225-5727-57 RX RX73 Spinach RX Spinach Date 24/2% &-59 24/2% RXInv. 9-20-57 price 2- RX On#10-7--73 on 10-17-,,7lO-18- 10-19-5710- 12-12- 10-17-5710-18- by on 24/3038- 9-27-57 I on#10- .10 by Choice Choice Choice Choice Fancy orFancy Cocktail made marl"Inv. madeInv. on Roods Peaches Peaches Peaches 15Peaches o. on C. C. C. C. 5(g) 45 "Claimsame "Claim same 45 -Glaim 45 .Unrebutted 45 -Unrebuttr 24/2% 38 Product: ex ofProduct:ex ofProduct: CX goods Product: CX allowance.Product: CX Product: RX Product: CX 9.4% :J. 2.45 100270100100120 320200240300 StoresSonsSons Sons Sons Sons Sons Sons Sons && & & & & & & National RozzutoBozzutoP PRozzutoPRozzuio RozzuioPBozzuto PnozzutoPBozzuto & & & & & & JohnRozzuto&SonsFirstJohnJohnA AJohnAJohn JohnAJohn AJohnAJohn 9-Sliced 17-00221-11025-13819-03826-07721/2% 16.-4124-044 24/30317-00224-004 Paste-96/612-075 19-038 5- 11-21-094 11-24-094 11-21-09412-23-031 Syrup Spinach Spinach Tomato 6-59 I-13- 13-5- 1-10-19-5-Heavy 9-19-13- Lcaf Lcaf 24/:303 8- 2-2- 5- 8- 2- 12-12- 12-12-Fancy-2610-13-12-12- FancyChoice Fancy Peaches C. 38 38 38Product:ex38 Product:CX Product:CX Produci:ex ,, of 7(;/0 %Discr. Diff. .40.40.40.40 .40 .40 3.40 :1. Price of No.Cases JOO 125100 100 100 J PA.

AND I PITTSBURGH, Inc. Inc.

Co. AREA: Co. Co. Co.Co. Co. Buyer Co. Grocers, Grocers, Mercantile Mercantile APPENDICES GroceryBros. Bros. Grocery Bros. Grocery Bros.Bros. TRADE Bros. Osborn Osborn Osborn P P P P P Markets P Osborn & E. & E. & & E. & & E. AAssociatedSpiegelStarW. AAssociatedGeneralSpiegel W. APittsburghSpiegel AGeneralW.Spiegcl AGeneral APittsburghSpiegelSpiegelW. 3818 2 No. 3-47 4- 1- 4. 3-44 4- 4- 4- Halves 2- Sliced Halves J3-Halves 19-23133- 2:J-:J8 J3-22-3- 19-la-30- 22- v. - - - - - 2:J-3034-- - J - - ) - - p - In ISy Sy 2 Sy Sy _ 24/2 . 57 5757 m 1- 1- 9- Heavy Spinach 15- 23 Heavy Heavy 15 1::/1111 Spinach13-57 24/2 Heavy24/303 21/21/2 0-10- 8- 1 11- 10-10- 11-10- 10-10-10-101-11-- 9-J3-5-10-1-11- JO-I0- 11- 11-15-4-11-1-11-11-la-la- Apdeots13-57 I I L Fancy Choice Choice Fancy Choice11-I Choice - Peaches Peaches Peaches 49 peeled 49 C. C.1H C. 19 49 Un 49 Product: CX Product:ex Product: ex l'rcdud: CX Product: CX Product:CX 3.45 6.40 I 100 50 Co.

OsbornBros.Markets MarketsP P E. - & & AW. SpiegelStar Start Y.

4-3-44 Royal 20-Sliced 018 9- 11-9-13- 8-30-Syrup Syrup 4-58Heavy15-571-5711-57Heavy24/303I4-58 9- 10-10-5711- 24/203Choice ChoiceCherries Peaches 49 Anne 39Product: CX Product: CX peach.

of !)j %Discr. I)/" 6.4'YI)6.1%6.4% choice 21J only Dill transaction;

20*.! 4.10 3.40 Price Middendorf of 150150 100800 100 125 No.Cases 100other 100 no 0 to JERSEY so, AND if N. N. NEW N, and N. N..1. N. City City M, CITy, some; Hackcnsack L , JerseyNYC . JerseyNYCPaterson, Hackcnsack,Paterson, Hackensack, K. YORK only Paterson, Co., so:

if Co. Nl';W N. K N. E. N. N. E. N. ,Co.,Rohrs, Rohrs, Buy",r but Co., Co., Co., Bamberger AREA: & & & Bamberger, Bamberger, Groe d-e; PatersonGrocery Paterson, Pater Paterson, Pat.erson,Grocery Pat.erson, Union Union 14 Union , l', P, P, P, APPENDICES 1' P, RX TRAm; & & & & N. & & AWalkayMiddendorf AWaJkayMiddendorfGrand AWalkayMiddendorfGrand APackard APackardGrand APackard under :I1 7 came 7 7 43 Halvesl Halves Sliced 5- 5- Sliced 22- Halves 26-4322-32 Sliced 5-6024/2%18-5710-57 22- 8peaches 8- R- 9 8- 8-14- 8-14--8-22-8-26- 8-11-8-26- Syrup Syrup 9-26- Syrups-22-9-26- Syrup theseSyrup Syrup_ 57 5707 8 5757 57 Light Light 57 Light that Heavy 27-5718- 18-5712-57 11-5727-57Heavy 18-2311. Heavy 18-5711-5723-27-G7rdApricots22-23- 24/303 21/21! 18/818 24/2%\) r.ues 10-12-57 10- Standard St.andard Choice 3t"Choice Choice Stand 24/21/ Peaches Peaches Peaches Peaches Peaches 41 C. No. C. C. C. 41 *Respondent 41 41 Unpepled 41 Y.C. 41 III ex Product: CX Product: CX Product: CX Produd: ex Product: CX Product: CX ;i' 100 10001000 225150 100 150100125 130100 N. N.

N.N. N.N.

N.N. Brunswick, Cranford, Kearney,Paterson, Kearney,Paterson,Paterson KearneyPatersonPaterson KearneyPatersonPaterson N.New Kearney,Kearney,Corp.,Cranford, Co.,E. Co.,,E.E. Co.E.E. Co.,E.E. Foods, FoodsFoods, Co., Co.,Co., Co.,Co., Co.,Co., Canfood Canfood Canfood,Canfood, Canfood Canfood Hawthorne, Union UnionUnion UnionUnion UnionUnion , P & MiddlesexA RegentRegentWakefern yvakefern RegentGrand RegentGrandGrand RegentGrandGrand RegentGrandGrand I Paste Halves Bartlett 9461669 1874Halves 856;\49Halves 9463491122 15273491122Halves 40464151 38554051 ;J-1878 54426 Tomato Syrup Syrup Syrup Syrup Syrup 48/8 48/8 fJ7 '17 Light - 19-26--Heavy 12-18-21- 4-8-11-Heavy 14-19-Heavy 19-19-26-Fancy 22--22-Heavy 19 24/30; 24/2%26-fJ7 3-3- 2- 2-- 4- % I Apricots Apricots Standard ChoiceCorina Choice Choice Choice 24/2 Peaches Peaches 42 96/611 Pears42 C. Unpce1cd42 C.42 Unpeeled42Product: CX Product: CX Product: CX Product: CX Product: ex Product: CX of %Disct'. 6.4% 6.4%6.4% Difr. .45 :10 Price 3.40 4.40 of No.Cases 175 120 350250 125 100 125 150 CONTINUEDO JERSEy-Continued AND N. CityCity CityCityN, CITy-NEW KearneyPaterson KearneyPaterson Paterson NYC NYC M.

E. E. E. NewarkJerseyJersey NewarkJerseyJersey Rutherford, KearneyL. Co., Co., YORK Rohrs, Rohrs,K, Buyer Co., Co., Co., Co., & & NEW Canfood Canfood Canfood, Stores,Grocery,Grocery, Stores,Grocery,Grocery, Union Union Union Union ARF.A: RegentGrand RegentGrand RegentGrand AmericanWalkayWalkayMiddendorf AmericanWalkayWalkayMiddendorfGrand APPBNDICES TRAnt; Halves No. Sliced 44224151 Sliced 25-14- Sliced 20-14- 26- Sliced 20-14- 26- Inv. Syrup 5-21-5-14- 10-30- 9 10-30- 10-10- ' I Syrup Syrup Syrup Syrup Light Light Ii I I 24-18- Heavy 23- 11- Heavy 28-17- Heavy 2;:-i)7 11- 29-5717-57 21/21h 48/8 24/2% 48/8 24/303 5 10-10- 11-21- 10-10- 11-21- 10-30- I I l-::-Standard Choice Standard Choice Choice Peaches Peaehes Peaches Peaches Peaches 43 43 C. C. C. C. C.

42 42 42 Product: CX Product: CX Product: CX Product:ex Product:ex ;.

3.15 200 200 125 125 City City KearneyJersey KearneyJerseyPatersonPaterson NewarkPaterson NewarkPaterson Stores,Grocery, Stores,Grocery,E.E. Stores,E. Stores,E. Union,Union, Union, Union, AmericanWalkay AmericanWalkayGrandGrand AmericanGrand AmericanGrand 20- Sliced Sliced Halves RX12(a)J22- Sliced 11-10-30- 11-10-30-10-10-11-11- (See 9-10-10- Syrup Syrup Syrup Syrup 48/8 LL 27- Heavy48/8 Heavy24/303 Heavy48/8 30-fi7 Heavy 11-13-11-21- 11.-13-11-21- 11-22- 10-10-10-31-57 Apricots I ChoicePeaches ChoicePeaches Choice ChoicePeaches C.12( C.43 .C.43 12(d) 43 Y Unpeeled Product: CX Product: CX RX Product: CX Product: RX RX on of %Discr. 270 0"/0r;( on Q.% brackets 6.4% in or shows; 35 Dill. .40 .40.40cases .40.40 2(a) 2240 RX tota of 50*50*S0* 70' However, (j. G.4S 5.45 Price 6.10 1450 5.5.70* on above; of 30 2055 150 200 No.CD-ses )05300200150140Only pears 110321 105 150120 1;J un.ler . R 884and applied. AND 890, Q, Transcript Tr. P, DENVE-PUEBLO (see Denver Pueblo discrimination DenverDenverDenver DenverDenverarr;ument Denver Denver Denver Denver Denver AnEA: Co., Grocers;price Buyer and (a) Grocers2 Denver Denver Denver Denver Grocers,Grocers,Grocers,Grocers, 6.2% Grocers,Grocers,Z(a) APPENDICES TRADE Canfood the Canfood, RXCanfood RX Canfood, Canfood, Canfood, Canfood, Associatell on Marr, Marr, Marr, Marr, to pears, see A. A. A. A. RegentAssociatedAssociatedAssociatedAssociated RegentAssociatedAssoc:alcrl RegentAssociated RegentII. Regents. RegentII. Regents. column these of allowance a.lJowance, Price" Pears 500/"Halves 60 No. ListSliced " 2174 Halves 2474 Sliced I-Ialves 24742882 194 recount recount almost 4-2699 10- 3-162 2-1!J312 Syrup 2-193 4-2G994-2788 3-2174 0-162 Syrup and 3-162 a.nd 2-2474 noteSyrup 11-25- to I Syrup Syrup Syrup 7 l-- 57_ 24/2 7 7 count least 77 couot 57 57 57 ;) ;)7 Light Light Light 24/: at 9-57 11- 11-57 27- 11-Heavy 19-57 Heavy 19-21- tahulation; 24/2 24/211219- 2-1/2%19-11--Heavy --e 11-5715- :1-27-57 3 3 12- 3--27-57: own regarding :1-19-57 Irer;arding:10-17-! Apricots Standard Standard Apricots Standard Choice Choice Choice _ Peacnes Peacnes Peaches ('..nsffuently, urnent 44 No. 14 ; -14 C. C. C. 24/2% *Arg;ument Unpeeled "Alg' ReSjJondents 41 44 44 Product: CX 2(a)Produd:ex Product: CX Product: CX Product: CX Product:peeledUnCX III I I .;.

185 100 Pueblo AvondalePuebloPuebloPuebloPuebloPuebloPuebJoPueblo PuebJoAvondalePuebloPuebloPuebloPuebloPuebloPuebloPueblo , Denver Denver GrocersGrocers,Grocers,Grocers,Grocers,Grocers,Grocers,Grocers,Grocers, Grocers,Grocers,Grocers,Grocers,Grocers,Grocers,Grocers,Grocers,Grocers, Canfood, Canfood, RegentAssociatedAssociatedAssociatedAssociatedAssociatedAssociatedAssociatedAssociatedAssociated HcgentAssociatedAssociatedAssociatedAssociatedAssociatedAssociatedAssociatedAssociatedAssociated Fruit Fruit 86- 8656 8658 - O 9 110-865410-865510-10-865710-10-865910-866010-8661 10-865310-865410-865510-8G5610-865710-865810-865910-866010-8661 Syrup Syrup Heavy 27- Heavy 27- - 0- 0- 10-10-10-4--10-10-10-45710-10- 12(\1) 10-101-10- 10-10-10- 110-10-2(e) 24/303* Choice RXChoice 24/2%* RX also also 44 44 Cocktail see Cocktail see Product: CX Product: CX Opinion 70 F.

OPINION OF THE COMMISSION JULY 28, 1966 This matter is before the Commission upon the respondent' appeal from the hearing examiner s initial decision on remand filed April 15, 1965. The hearing examiner, considering the whole record, including the transactions referred to by the court and the new evidence on remand, found and concluded that respondent had violated Sections 2 (a) and 2 (d) of the amended Clayton Act, as charged in the complaint. His decision contains an order to cease and desist the practices so found to be unlawful. The Commission previously, on May 10, 1962, entered an order to cease and desist in this matter (TTi- Valley Packing Association 60 F. C. 1134), which order was appealed to the United States Court of Appeals for the Ninth Circuit. That court reversed the Commission s order and remanded the cause for further proceedings in accordance with its opinion. - Valley Packing Association v. Federal Trade Commission 329 F. 2d 694 (9th Cir. 1964). ' The court directed further findings or consideration on three points: (1) Whether or not a causal link existed between the seller s prices and the impact on customer competition, or more specifically, whether the goods were generally available in the so-caJIed " California Street" market so that in turn a determination can be made on whether the injury was due to the price discrimination rather than the failure of the disfavored purchasers to take advantage of the oportunity to buy (id. at 703, 704) ; (2) the threshold issue of whether the prices allegedly met were competitive prices within the contemplation of the Section 2 (b) proviso (id. at 706), and (3) the question of the existence of evidence or the suffciency of such evidence as may exist in the record to support the Section 2 (d), Clayton Act charge (id. at 710). STATEMENT AS TO THE FACTS A recapitulation of the facts previously found by the Commission and concurred in by the court wiJI help establish the framework within which the questions on remand are to be considered. Tri-Valley is a cooperative corporation located in San Francisco California. It is engaged in the business of selling and distributing canned fruits and vegetables, aji of which it processe? and ! The court set aside the Commission s fimlings and conclusions 011 the Section 2 (d) charge and it set as;de the o1'der of the Commission on both the Section 2(13) Ilnd Section (2) (d) charges. (ld. at 710.

TRI-VALLEY PACKING ASSOCIATION 275 223 Opinion cans at its plants in California. It sells and distributes these products under the private labels or brands of its purchasers and also under its own brands or labels. In the course of this business products of like grade and qualiy are sold to a large number of customers located throughout the United States for use, consumption or resale. For the fiscal year ending January 31 , 1959 , its sales amounted to $22 , 329, 877.

Respondent includes among its customers wholesalers, retailers, chain stores and cooperative associations. Certain of these customers, including some twelve to fifteen retail grocery chains maintain buying agencies in San Francisco. In the course and conduct of its business Tri-Valley has sold its products to these customers at lower prices than it has sold products of like grade and quality to customers who did not maintain their own buying agencies in San Francisco. The difference in prices charged customers between those who maintained buying agencies and those who did not ranged from 5 cents to 50 cents or from 2 percent to 10 percent per case.

The record contains a large number of instances of price discriminations by Tri-Valley in favor of certain large chain stores and against wholesalers and retailers in the sale of canned fruits and vegetables of like grade' and quality. Among the examples of price discrimination between direct buying purchasers previously listed hy the Commission is the following: In March 1957, respondent sold products designated as Choice Heavy Syrup Sliced Y.C. Peaches to Safeway Stores in Denver, Colorado, at $5. per case, and to H. A. Man in D€nver, Colorado, at S5.55 per case. (60 C. 1180.

The court considered this example in detail and it agreed that the Commission s finding of price discrimination was supported the evidence. The court stated that the unchallenged evidence showed that Tri-Valley sold peaches of like grade and quality to Safeway at $5.30 per case and to Man' at $5.55 per case, a price differential of 4.5 percent. Further, the court concluded that, in this example, the evidence was adequate to support the Commission s finding of competition in retail sales between Safeway and Marr. (ld. at 701.) The Commission additionally found the existence of competition in the sale of respondent's food and grocery products between the favored chain stores and "independent retailers who were selling private label canned goods which they had purchased from nonfavored wholesalers. " (60 F. C. 1180. ) The court con- Opinion 70 F. T.

cul' red. It held the record evidence is suffcient to support the Commission finding that Foodland, Preisser, Piggly Wiggly No. 10 and Ce Buzz (retailers in the Denver area who purchased canned goods from wholesaler H. A. Marr) were all in actual competition with Safe way in the Denver area in 1957, in the resale of private label canned goods of the kind which each obtained that year from Tri- V alley. The court also held that while the evidence concerning actual direct and indirect competition between purchasers may be insuffcient as to some of the other purchasers and areas "for most purchasers and areas (it isJ suffcient to support the Commission findings. " (329 F. 2d at 702. The price discriminations shown in the record are substantial. There was testimony that those engaged in the resale of such products operate on a very narrow margin-so narrow that it is essential to take advantage of two percent discounts for cash. These discriminations in price, on the other hand, range from 2 percent to 10 percent. In view of the highly competitive nature of the business, price disparities of this kind could weil endanger the ability of the merchants paying the higher price to compete with the favored chain retailers. (329 F. 2d at 703. In the course of its business, Tri-Valley also granted certain allowances to Central Grocers, Inc. of Boston, Massachusetts and to Fred Meyer, Inc. of Portland, Oregon. Each of these aI10wances was granted pursuant to a specially tailored or negotiated arrangement, and no arrangement on proportionally equal terms was offered or made available to other purchasers of Tri-Vai1ey products serving, at least in part, the same areas served by Central Grocers and Meyer. (329 F. 2d at 697. ) Further details on the facts as to such aI10wances are stated hereafter in this opinion in connection with the discussion of the 2 (d) Clayton Act charge.

A vailability of the Lower P,.;ces-First Issue on Remand On the appeal before the Ninth Circuit Court of Appeals, respondent argued that the evidence affrmatively shows that the nonfavored buycrs could have availed themselves of the lower prices for which Tri-Valley and its competitors sold these goods in San Francisco. The court, in its opinion, stated that if the lower price would have been available to the nonfavored buyer in the same market where the favored buyer made his purchase, the probability of competitive injury due to the fact that the non fa- TRI-VALLEY PACKI!G ASSOCIATION 277 223 Opinion vored buyer paid more for the product is not the result of the price discrimination, but of the nonfavored buyer s failure to take advantage of the opportunity, equal1ly available to him, of buying at the same low prices.

Respondent' s main position seems to be, as it was before the court, that there is no obstacle which prevented the nonfavored purchasers from buying Tri- V alley products in the so-called "California Street" market in San Francisco. This position, plainly, is based on respondent' s assertion that there is a California Street market and a California Street price. The examiner, however found that there is no California Street market price. He also found, on the evidence, including that adduced on remand, that the lower prices granted by respondent to the favored chains were not made available to the un favored purchasers. The record does not support respondent's argument about a California Street market. The main source of information on this claimed market and its prices is the indefinite and inconclusive testimony of respondent's assistant sales manager, Russell Snyder which the hearing examiner apparently gave Jitte weight. Pertinent excerpts follow;

(Prior to Remand) By Mr. Snyder:

Q. And as a general statement; isn t it true that the "market price applicable to California Street" is lower than "the market price of the rest of the general market '?"

A. I don t think we should use "California Street " that is too much of a colloquialism.

HEARING EXAMINER BlTTTLE: Yes. \Vhat is it? Do you know what it means? THE WITNESS: Yes, I know exactly what it means. It means these buyers out here for A & P and the rest of the chain stores, that is considered California Street. That is where most of our merchandise is sold in this business.

(Tr. 944.

A. The prices are as low or lower as a general statement. Whether we are bringing in this market again, that is a matter of interpretation, but the prices as a general statement are no higher on California Street than they arc anywhere else.

By Mr. Snyder:

Q. As a matter of fact, they are generally lower; aren t they, :\11'. Snyder? A. Very often.

(Tr. 945.

278 FEDERAL made COMMISSION DECISIONS Opinion 70 F.

(After the RemundJ HEARING EXAMINER BUTTLE: But your testimony is in certain instances, if they were on California Street, they would get better prices; that' s so, isn t it? THE \VITNESS: Yes. In certain instances, but, on the other hand, Your Honor, I may say in certain instances they may get lower prices if they wert on California Street.

(Tr. 1353.

HEARING EXAMINER BUTTLE: Well, how would I know, in looking at these price lists, that if I purchased on California Street I would get a better price than if T purchased elsewhere, if there was any knowledge in the industry of this fact? How would I ascertain it from the data which I would receive as a broker? * '* * THE \VIT ESS: Specifically, any prices that were quoted on California Street were to be available to any other customer, and he should know about it through other brokers, through publications, through cannery sales lists through any number of sources. " "' * I am speaking of generally, just of general pricing level of California Street we are talking about. HEARING EXA),INER BUTTLE: \Vell, are you telling me that it was nationally known that you could do better on California Street than elsewhere? You are not telling me that, are you? THE WITNESS: No, sir.

HEARING EXAMIKER BUTTLE: It was not nationally known among brokers, I mean? THE WITNESS: I think anyone could buy.

HEARING EXAMINER BUTTLE: What is that? THE WITNESS: Your Honor, I think anyone could buy from California could buy merchandise on the general market levels as cheaply as California Street, anywhere in the country.

(Tr. 1355 56.

HEARING EXAMD, ER BUTTLE: In other words, you are telling me they could buy from Tri-Valley at the same price they could buy in California Street? THE WITNESS: I am speaking of it generally, in general, yes. If it was a particular competitive situation we met on California Street, or a particular lot- HEARING EXAMINER BUTTLE: Well, your testimony is that prices were only better in particular situations. What I am trying to find out from you is, if it isn t a particuhlr situation, how is it all the brokers or purchasers should have common knowledge of it on a nationwide basis? THE \VITNESS: ,.,ell, they wouldn t have any particular situations, Your Honor, just gencral terms.

(Tr. 1357.

This does not show, nor is there other evidence in this record showing, that the California Street market exists as respondent TRI-VALLEY PACKING ASSOCIATION 279 223 Opinion appears to contend, as a kind of commodity exchange and that the price quotations are open and notorious. While the prices, though not identified as California Street prices, assertedly were carried in various trade journals and financial journals, no such publications were offered in evidence. There is no precise information in the record as to the form and manner of such quotations. It appears fairly certain from Mr. Snyder s statements, however, that the Jistings in the journals did not mention specific transactions; rather, they showed just the "general pricing level of California Street. " (Tr. 1356. ) It was not explained how this would inform the prospective purchaser that Tri-Valley s goods were available at such prices and, in fact, the listing of the general pricing level would not necessarily mean the respondent was sellng at those prices. Neither would this necessarily mean that a particular purchaser could obtain the goods from respondent at such prices. Whether or not a prospective purchaser could have informed himself as to the " general pricing leve)" in California, it is clear that the unfavored purchasers had not heard of the so-caIJed California Street prices. For instance, Walter Tewes, former owner of Walkay Grocery Company, testified:

HEARING EXAMINER BUTTLE: Did you ever make any inquiry to ascertain whether or not prices on California Street were available to you? THE WITNESS: We never knew anything about it. We never knew about , never heard about California Street.

HEARING EXAMINER BUTTLE: You never heard about California Street prices at all? THE WITNESS: Never did, at no time. The first time we ever heard about it is here, at the last hearing.

(Tr. 1118.

Other witnesses in the trade testified to the same effect. We conclude, on the basis of this record, that the California Street market is not a regular exchange, and that it apparently is no more than a location for individual buyers-mostly chain stores-who enter into their own private agreements with the various California canners. Further, so far as the favored customers were concerned, it made no difference whether the purchaser was located on the Street or off the Street. If the lower preferential prices were available to the unfavored customers, as asserted, they could only have been available on the basis of possible dealings with the respondent, directly or through a broker aside from any so-called California Street market transactions. Respondent stipulates in its brief that it did not "through its price lists, invoices, brokers, or employees, give any information , p.

Opinion 70 F.

to these wholesalers (unfavored customers) regarding prices prevailing on ' California Street.''' (Respondent's reply brief ) Its claim in effect is that the buyer should keep abreast of the market quotations and seek out the lowest prices. ' There is no evidence in this record, however, that Tri- V aJJey would have given to the unfavored buyers the same low prices as those given to the chains had the unfavored buyers requested such prices. In fact, the circumstances generally suggest that such lower prices were not obtainable.

For instance, the record contains special price lists, identified Commission Exhibits 223 and 225, which Jists appear to contain prices available only to the chains listed. They are both entitled Special Price List for Regent and 1st ",ational." Regent is a division of Safeway Stores, Inc. ; 1st National is First"' ational Stores, both of which were favored chain customers of the respondent. Respondent's offcials claimed that these lists were documents for internal use only and that they were not distributed to customers. Yet, the further testimony is that the favored chains were notified as to the avai1abiliy of these prices, lower than contemporaneous list prices, and that other customers and brokers were not so notified. The testimony of Mr. Snyder, whatever it may show so far as meeting competition is concerned, seems to clearly foreclose any argument as to availability. He stated in part as to these lists:

A t this time there were certain competitive offerings to these customers certain offerings at below other list prices by our competitors to these customers, and we had to determine what we would do to meet those competitive offerings, and this is as f'a1' as we would go in meeting those competitive offerings to Regent and First National at this time, and we made up these lists so that all those within our sales department and in our biling department would know .where we stood in meeting these competitive prices. . . . (Tr. 1502.

The conclusion is inescapable that these were special prices for the chains mentioned only; they were not prices available generally.

Also, Snyder s testimony otherwise makes plain that the lower prices were tailored to the requirements or demands of the favored chains. Pertinent excerpts follow: 2 Such a position on "availabilty" does not accord with the view of that term 01' concept under Sections 2 (d) and 2 (e) of the amended Clayton Act. There the term "available " has been interpreted tu require some form of notification to tbe customer. In the Matter of Chestnut Farms Chevy Chase Dairy. 53 F. . 1050, l05\) (l\Ji), Vanity Fair Paper Mils, Inc. v. Federal Trade Commission 311 F. 2d 480 (2d Gir. 1962), TRI-VALLEY PACKING ASSOCIATION 281 223 Opinion Q. What would you then do, sir, to see to it that the balance of your reservation or a good part thereof was taken? A. Wen, you would know by the shipping instructions that it wasn t moving out in an orderly manner based on past experience in the industry movement. Therefore, you would check with the buyer to find out why. If you ate not in line, he wi1 tell you that you are not in line. Q. And after you brought your information to your superior, what would occur, if anything? A. He would decide whether he wanted to move the merchandise or whether he wanted to pass the business. If he wanted to move some merchandise, a:fer checking or verifying it for the prices, he would meet or beat those prices.

(Tr. 750-51.) The low prices so obtained were clearly a result of the buying power of the chain stores, and it would be wholly unrealistic to hold that such prices were available to the smaller purchasers. Though disfavored customers H. A. Marr Company and Hannaford Bros. Company were represented by a broker, Bushey & Wright, with offces in San Francisco, they did not participate in the lower prices. Respondent quibbles with the significance of this showing, asserting that the evidence fails to establish that Bushey & Wright was the broker on shown purchases or that the concerns made aji their purchases through Bushey & Wright. We believe the evidence suffciently supports the findings that the transactions in question were through Bushey & Wright, especially in the case of H. A. Marl'. The witness representing that wholesaler testified that it was "barely possible" some items were purchased through a local broker but that most were purchased through Bushey & Wright. A situation such as this where wholesalers were paying the higher discriminatory prices at the time they were represented by a broker on California Street, who incidentaJIy was not instructed to quote the lower prices, clearly demonstrates that the lower prices were not in fact available to disfavored purchasers.

Moreover, the broad design and purpose of the amended Clayton Act was to protect the small independent against the enormous purchasing power of the large chains. Individual negotiations, like those shown here with the chains, would not be practical for the unfavored group. The smaller independents and many wholesalers are not equipped and they do not have the resources Opinion 70 F.

to bargain on the same footing as the large chains. To construe the Act so as to require bargaining as a basis for price equality would be to deny the protection of the Clayton Act to the small customers.

The hearing examiner correctly concluded that the lower prices quoted by the respondent to certain favored chains were not in fact available to the unfavored customers. Respondent' s appeal from this finding, asserting it to be erroneous, is rejected. Section (b) Meeting Competition Defe'YI1Je-The Second Issue The second issue upon which the court remanded this matter concerns the Section 2 (b) defense and the stated "threshold" issue of whether or not Tri-Valley is engaged in meeting competitive prices within the meaning of the Section 2 (b) proviso. Stated otherwise, it seems that the question is whether the alleged meeting of the so-called California Street market prices was in fact meeting "an equally low price of a competitor a response to individual competitive demand rather than the meeting of prices on a systematic basis not contemplated by the proviso. Cf. Fed""Ll Tmde Commission v. Standard Oil Co. 355 U.S. 396 401 (1958).

When this matter was first before the Commission, counsel supporting the complaint argued that respondent was meeting a market price-not the lower prices of other sellers in individual competitive situations-and that the meeting of this market price claimed by counsel supporting the complaint to be unlawful, was not a good faith meeting of competition within the contemplation of the 2 (b) proviso. Referring to the Staley decision ' he specifically argued in this connection that "the Supreme Court stated that good faith is not present where a seller adopts the discriminatory pricing system of a competitor, or where the discriminatory prices are not granted pursuant to an individual competitive situation" (answering brief of counsel supporting complaint, page 19).

The Commission neither accepted nor rejected this argument but instead dismissed the defense on an entirely different ground. It held in effect that regardless of whether respondent had reduced its prices pursuant to, or to meet, a pricing system, it knew or should have known that its competitors' prices were discriminatory and, consequently, was precluded from claiming that it Pederal Tra.de Commission A. E. Staley, Mfg. , Co.. 324 U. S. 746 (1949). TRI-VALLEY PACKING ASSOCIATION 283 223 Opinion was meeting such prices in good faith unless it could establish that it had reason to believe that these prices were cost justified or otherwise excused under Section 2 (a). On respondent' s appeal from the Commission s decision counsel for the Commission repeated the argument originally made by counsel supporting the complaint that a discriminatory price " within the proviso of Section 2 (b) only if it is made in response to an individual competitive demand, and not as part of the sells pricing system such as that represented by the California Street market."

The court has instructed us to consider the arguments made by counsel and to determine whether respondent has established that it was meeting the .lower prices of other canners in individual competitive situations or whether it was selling pursuant to a pricing system. The court has specifically inquired, in this connection, whether "the competition which Tri- V alley faced in the California Street market is the kind of competition contemplated by the 'meeting of competition' defense of section 2 (b). We wish to point out first of all that we do not agree with that part of counsel's argument that respondent's meeting competition defense should be rejected because its lower discriminatory prices were made pursuant to a pricing system or because they were made to meet a pricing system employed by competitors sellng on California Street. While the record shows that respondent consistently discriminated in favor of chain store buyers, the record does not support a finding that either respondent or its competitors were selling pursuant to a pricing system. Certainly it does not show that they were sellng pursuant to a system of the type condemned in Staley, Corn P,'od1Lcts or any of the other cases v. Federalcited by Commission counsel. Cf, Standm'd Oil Co. Trade Commission 233 F. 2d 649 , 653 (1956). Moreover, aside from the question of whether respondent was meeting unlawful prices or had reason to believe that it was doing so, we believe that respondent could as a matter of law reduce its prices in individual transactions to meet lower prices of its competitors on California Street even if the latter were using a formal pricing system. Federal Trade Commission v. National Lead Compa.ny, 352 S. 419 (1957).

By holding that respondent's price discriminations were not made pursuant to or to meet a pricing system, we do not mean to suggest that respondent has shown that it reduced prices in re- Corn PTQducts Refining Co. 324 U. S. i26 (1949). Opinion 70 F. T.

sponse to "individual competitive demand. " In its first opinion the Commission accepted respOJident' s assertions that its price discriminations were made only in response to the prices of its competitors and rejected the 2(b) defense on respondent's failure to prove that in the circumstances shown to exist it had reason to believe that such prices were lawful' The court has stated, however, that it would be unnecessary to reach the latter issue "If . . . Tri-Valley was not engaged. . . in meeting 'an equally low price of a competitor' within the meaning of the proviso to Section 2(b)." It is therefore incumbent upon us to resolve the "threshold question" of whether the proof offered by respondent in support of its 2 (b) defense meets the basic requirement of Staley, supra that as to the various discriminations found to be in violation of 2 (a) respondent, as a reasonable and prudent person, had reason to believe that the granting of a lower price would in fact meet the equally low price of a competitor. In the first initial decision in this matter the hearing examiner in ruling on the 2 (b) defense found on the basis of evidence adduced by respondent that respondent was meeting a market price.' He held however that there was an "absence of evidence suffciently establishing that the discriminatory prices were to meet individual competitive situations." Subsequent to the remand the same hearing examiner has again held that respondent' s proof was not adequate to show that its price reductions were made defensively to meet the prices of competing sellers in specific transactions.

We agree with this conclusion of the hearing examiner. Section 2 (b) imposes upon respondent the burden of establishing that it :, Since the situation existing in Califurnia Street us described by respondent was un one which the Robinson-Patman Act was cel'tainiy intenrled to prevent Ii " market" wherein large buyers consistently received preferential treatment over their smliE!'r competitors, the Commission held in effect that respondent, being aware of that situation, could not he deemed to have acted in ..ood faith even though its discriminations in favor of the large buyers may have been made in individual transactions. It was the Commission s position that since the lowe1' price which lawfully may be met hy a seller must be a lawful price, Standard Oil Co. v. Federal Trade Commission 340 U. S. 231 , 249, a seder cannot be said to be acting in good faith if he meets a price which he knows or hfts reason to believe is unlawful. S(!e Att' y Gen. Nat' l Camln. Anti/nist Rep. 181-185 (1955). Testima y adduced by responuent after remand in sUPl10rt of its arg-ment that California Street prices were univel"sally availablp that anyone "could buy merchandise on thp general market levels as cheftpJy as California Street, anywhere in the country. " tends to distort the "California Street" market concept originally presented by respondent in support uf its argument that it was requilerl to sell at lower prices to meet the price level in the California Street market. In view of this testimony and respondent s failure to prpsent evidence as to the prices charg-ed by its "California Si.reet" competitors, even thuugh respondent asserted that these prices were carried in various publications, the hearing- examiner quite understa-ndably did not find in his second initial decision that respondent was meeting 8 market. price.

TRI-VALLEY PACKI!\G ASSOCIATION 285 223 Opinion was in fact acting defensively in response to lower prices of a competitor. As we stated in Continental Baking,' a seller must show that it was responding fairly to what it reasonably believed was a situation of competitive necessity. Respondent has failed completely to make this showing. Aside from the self-serving statements that it was a price foIJower and not a price leader there is nothing in the record to show that respondent' s lower discriminatory prices were made in self defense in response to competitors' prices or offers. Insofar as we can determine from this record, respondent may have been primarily responsible for the low "California Street" prices.

General testimony to the effect that price discriminations were made to "meet com petit jon, " without documentation or specific evidence, is never suffcient to support a finding that a lower price was "made in good faith to meet an equally low price of a competitor." If it were, any seller who may be discriminating in price in favor of large buyers, including those who were not meeting competitors' prices, could successful1ly defend against a 2 (a) charge simply by claiming that competition forced them to discriminate. In rejecting a 2 (b) defense based upon such evidence the Circuit Court made the following statements in Corn Products Refining Co. v. Federal Trade Commission 144 F. 2d 212 (1944), aff' 324 S. 726:

There was no testimony as to specific instances or facts but merely a conclujon upon the part of the witnesses that the prima facie case of discrimination was justified by competition. This, it seems to us, is not the sort of testimony suffcient to sustain a finding of exemption provided by Congress for meeting competition or to justify a finding that the p?Oima facie case of discrimination as to booking practiceo; has been rebutted. Indeed, if competitors prices were arrived at in the same manner, to approve the defense, we would be driven to the inconsistent position of approving one eviJ practice because it was indulged in in order to meet a similar evil practice. Having engaged in a practice which "may injure, destroy, or prevent competition " a seller may bring itself within the protection of the 2 (b) proviso only by showing that as to each discrimination it used reasonable diligence in verifying the existence of a lower price of a competitor and that the discrimination was made in good faith for the purpose of meeting such lower price. In summary therefore we find in response to the court' s inquiry that the evidence does not support the conclusion that respondent was selling pursuant to or to meet a pricing system. We also find 7ln th.e Matter of Continental Baking Company, Docket 1\0. 7630 (1963) IIJ3 F. . 2071). Opinion 70 F. T.

that respondent has failed to show that its lower prices were made to meet equally low prices of competitors within the meaning of the proviso to Section 2 (b) .

Evidence on the Section (d) Chm-ge-The Third Issue This matter was remanded on the Section 2 (d), Clayton Act charge to afford the Commission the opportunity of cai1ing attention to evidence presently in the record, or of producing evidence, to "overcome the present seeming, or actual, lack of factual support" for such aI1egation. (329 F. 2d at 710. ) The evidence on the Section 2 (d) aI1egation concerns the granting of aI10wances to Central Grocers, Inc. of Boston, Massachusetts, and Fred Meyer Inc., Portland, Oregon.

In 1957 and 1958 Tri-Vai1ey had an arrangement with Central Grocers, a "quasi-cooperative" owned by about 100 retailers in the area, the substance of which was that Tri-Vai1ey would pay Central Grocers 10 cents per case or $150 for the first 1500 cases of private label products purchased by it from Tri-Valley and an additional 10 cents per case for each case purchased thereafter during the year. Such payments were made in consideration of supplying Central Grocers' private label canned fruits and other products and in "return for that business and to move that volume of merchandise " although, ostensibly, the payment was for an advertising mat in a buying or ordering guide, which Central Grocers distributed to its retail stores once a month, featuring its products. Tri-Vai1ey did not offer or make available these arrangements upon proportionally equal terms to its other customers in the Boston area.

Among the respondent' s customers in the Boston area were Central Grocers, a wholesaler and favored account, and Standard Grocery, a competing wholesaler. As the court noted, there was functional competition between them but the court' s attention had not been cai1ed to any evidence indicating that during approximately the same period of time Tri- Vai1ey sold canned goods to both. In respect to this, the examiner, in the initial decision, refers Respondent's Exhibit 9- , which contains evidence of purchases in March and April of 1957 hy Central Grocers. Commission Exhibit 45 shows a sale to Standard Grocery in April 1957. The record on remand further shows that Tri- V aI1ey was sei1ing in the Boston area to three or more competing wholesalers, including Central Grocers, Inc. , and Standard Grocery Company in TRI-VALLEY PACKING ASSOCIATION 287 223 Opinion Boston, Massachusetts, and Food Centre Wholesale Grocers CharJestown, Massachusetts. The latter distributed a catalog similar to that distributed by Central Grocers. It is clear that each of these wholesalers resells to retailers operating within the same general geographical area. The record establishes that in the time period in which Central Grocers received the advertising allowances each of the three-mentioned wholesalers were purchasing products from Tri- Valley. Although selling its products to various competing wholesalers in the area in 1957 and 1958, respondent granted the above-described advertising allowance solely to the Central Grocers and did not offer or in any way make available to the competing wholesalers such an allowance. These facts are not in dispute.

Respondent contends, however, that there is no showing that the products involved were of like grade and quality, relying on Atalanta Trading Corporation v. Federal Trade Commission 258 F. 2d 365 (2d Cir. 1958). We disagree with the contention. The decision in Atalanta stressed the finding adopted by the Commission that the allowances were geared to specific products and the fact that the record failed to show anything to the contrary. (ld. 370. ) The cases are clearly distinguishable because here there is no question whatsoever that the allowance was given generally on all private label products purchased from Tri-Valley." Thus, having given the allowance to promote a general line, respondent was obligated to make it proportionally available to competing purchasers buying any item in that line. Tri-Valley completely disregarded the requirements of subsection 2 (d) of the amended Clayton Act. We believe a clear-cut violation of the subsection is shown in the Boston area.

In the Portland area in 1957, Fred Meyer, Inc., a chain retail organization operating twelve stores in that market, instituted a coupon book" program. These books were pocket-sized pamphlets containing detachable coupons ilustrating various products offered by Meyer to the purchasing public. Tri-Valley contracted with Meyer to participate in this coupon book program and agreed to pay $350 as and for the cost of the printing of the cou- Q. Now, :Mr. Snyder, was that sum of $150 given il1 cond tion with any -particular product? *,,,\ A. Yes, these are products of Tli- Valley bought by Central Grocers under their labels. Q. That is, all products purchased from Tri-Valley? A. Yes. Not the total cases, but it would allow, apply indiscriminately to the product. (Tr. 920-21.) This waz also stipulated by counsel.

(Tr. 1431.

p.

Opinion 70 F. T.

pons and to redeem each coupon at the rate of $0.248. Fred Meyer in return, offered to selJ three cans of its private label peaches (the product in the coupon offer) for the price of two. Tri-Valley complied with the terms of the contract and in 1957 redeemed 750 coupons turned in by Meyer. (329 F. 2d at 707. The court found that there was only one other competitor of Fred Meyer, Inc. , namely, Hudson House, Inc. , principally a wholesaler supplying 286 retail stores, of which 97 were in the Portland area. Hudson House also owns several Piggly Wiggly retail stores in Portland.' The court concluded that Hudson was not entitled to proportionalized treatment under Section 2 (d) because as a wholesaler it was not on the same functional level as Fred Meyer, and, further, because it was not shown that the independent retailers served by Hudson House were indirect customers of Tri- Valley. The record on remand discloses that in addition to Hudson House, Safeway Stores of Portland, Oregon, was a customer of Tri-Valley, competing with Fred Meyer, Inc., in the retail distribution of respondent's canned peaches, the product involved in the 1957 coupon book program. The allowance was not made available to Safeway on proportionally equal terms. There were other direct customers of Tri- V alJey purchasing products of like grade and quality at or about the same time such products were purchased by the favored customers receiving the special advertising or promotional allowances. The court, however, as to the Boston area, ruled that such other customers, who in that instance were retailers, were not entitled to treatment comparable to that accorded Central Grocers, because they were not in functional competition with the wholesaler. (329 F. 2d at 709. ) In regard to the Portland area, as noted above, the court similarly held that Hudson House, which is principally a wholesaler, was not in functional competition with Fred Meyer, the favored retailer. (329 F. 2d at 709-710.

Scope of Orde?' The court ruled that if the Boston area allowance received by Central Grocers and not made available to Standard Grocery is shown to be the only Section 2 (d) violation, that flagrant or extensive violations would not be disclosed and, accordingly, the cease and desist order should be of limited scope. The court cited Swanee Paper Corp. v. Federal Trade Commission 291 F. 2d 833 9 The court tatpll that each of these is a!JparentJy a separate cOr!lorate entity. (Footnote 710.

TRI-VALLEY PACKING ASSOCIATION 289 223 Opinion 838 (2d Cir. 1961)." Other violations have been shown a discrimination between Central Grocery and Food Centre Wholesale Grocers in the Boston area and between Fred Meyer, Inc., and Safeway in the Portland area. Moreover, the showing is that these allowances were given pursuant to specially tailored and individually negotiated arrangements without any attempt to make them available on proportionally equal terms or any terms to competing customers. Nevertheless, the court' s decision on substantially the same facts, which we must follow, emphasizes the need for limiting the order. This we wii accomplish by defining the prohibited conduct in the Section 2 (d) provision in the order in terms of promotional allowances made "pursuant to a special1ly tailored or negotiated arrangement " which was the precise practice respondent engaged in in violation of that subsection. Respondent, in its appeal brief, takes broad issue with the initial decision, contending in effect that some of the findings are inconsistent with those previously found by the Commission, including those approved by the court of appeals. In one particular as we understand the argument, it claims that the Commission found that the injured competition was between persons competing in the resale of private label goods purchased under each purchaser s private label whereas the examiner assertedly found injury broadly in "the sale of respondent's products." We fail to see the distinction, since both decisions deal with goods of like grade and quality. This argument is rejected.

A final point raised by the respondent has to do with Finding No. 8 in the initial decision on remand. There the examiner found that the free goods given to Fred Meyer, Inc. , in 1957 in connection with the coupon book program, amounting to a total rebate value of $4 814, was a price differential of 33 1/2 percent and that at the same time Hudson House, Inc., purchased products of like grade and qualiy for the regular price with no free goods or discount. The assertion is that the examiner erred in finding that respondent discriminated in price against Hudson by reason of the allowance it gave to Meyer in connection with the coupon book program; that such an aJ10wance is only cognizable under Section 2 (d) and cannot be made the basis of a price discrimination charge under 2 (a). The court in Fred Meyer, Inc. v. Federal Trade Commission Trade Reg. Rep. (1966 Trade Cas. ) 11 71, 721 (9th Cir. 1966) (359 F. 2d 351 , 362J, in ruling on this identical 10 But Compare Vanity Fair Paper Mils v. Federal T".ade Commission 311 F. 2d 480 (2d Cir. 1962).

290 FEDERAL TRADE CO:\MISSION DECISIONS Dissenting Opinion 70 F. T. allowance held that the $4 814 payment (which was the excess over the 3350 flat rate per coupon book page paid by respondent) was an amount directly related to, and dependent upon, the amount of goods purchased and resold by Fred Meyer and that it was a price concession cognizable under Section 2 (a). Respondent' s claim of error in this regard is thus rej ected. Respondent' s appeal is denied. The hearing examiner s initial decision, modified for elarification and to conform it to the views herein expressed by the Commission, wi1 be adopted as the decision of the Commission. An appropriate order wi1 be entered. Commissioner Elman dissented and has filed a dissenting opin- IOn.

DISSENTING OPINION JULY28 I966 By ELMAN Commissioner:

On December 27, 1960, the Select Committee on Small Business of the House of Representatives submitted a comprehensive report on "Small Business Problems in Food Distribution. " H. Rep. No. 2234, 86th Cong., 2d Sess. The report was based on lengthy investigations, hearings, and study conducted by Subcommittee ='0. 5 in 1959 and 1960. One of the principal subjects of the report was The effect of a few large chain food retailers in making their purchases of canned fruits and vegetables through West Coast buying offces located on or near California Street, San Francisco and alleged abuses incident to the so-caIJed California Street buying. " (P. 2. ) Prior to its public hearings, the Committee had received numerous complaints about the pricing practices of large corporate chain food retailers in buying canned fruits and vegetables in the San Francisco market. These complaints "were subjected to study and investigation by members of the staff of Subcommittee No. 5. Out of the information developed were formal proceedings by the Federal Trade Commission, charging that three medium or small canners or processors of canned fruits and vegetables had discriminated in price in favor of large corporate chain food retailers. " (P. 56. ) The report referred specifically to the instant proceeding involving Tri-Valley Packing Association in which the Commission issued its complaint on August 6, 1958. (P. 64.

Subcommittee No. held public hearings in San Francisco during October and November 1959. Its report reviewed in detail the TRI-VALLEY PACKING ASSOCIATION 291 223 Dissenting Opinion testimony and evidence showing the existence of widespread price discriminations resulting from the direct buying practices of the large retail chains in the California Street market. (Pp. 55-77. The report made "particular reference" to "the price discrimination practice by the Tri-Va1Jey Packing Association, and the testimony presented to Subcommittee NO. 5 by representatives of independent food retailers who complained about the effect of these discriminations. " (P. 73. ) The Committee s findings on the California Street market were summarized in the report as fo1Jows: In brief, the record shows that representatives of organizations of a few food retailers do the bulk of the buying of canned fruits and vegetables offered for sale in California. Sometimes they are referred to as the IIWest Coast" buyers of the retail organizations they represent. Frequently they are referred to as "California Street" buyers because they maintain offces on or near California Street, San Francisco. The prominent California Street buyers appeared and testified before Subcommittee No. 5. There were 11 in number * * * This integration of functions resulting in direct buying through field offces has been extended to include the buying of fresh fruits and vegctab1es, citrus fruit juices, and a number of other food items. Out of this integration of functions has developed a practice of inducing and knowingly receiving price discriminations and preferred treatment not accorded other food buyers. (P. 9.

As already indicated, this Commission proceeding against Tri- Valley was initiated in August 1958. On May 10, 1962, the Commission issued a cease and desist order against respondent. On appeal, the Court of Appeals for the Ninth Circuit on March 18 1964, vacated the order and remanded the case to the Commission for further proceedings. Thus, eight years after the complaint was issued, the case is again before the Commission. Tri- Valley is a farmer-owned and operated, non-profit, cooperative organization. It is only one of a large number of packers which sell canned fmits and vegetables on the California Street market in San Francisco. In 1957 Tri-Valley, along with other California Street sellers, sold its products to buyers in that market at lower prices than were available to buyers in other markets. As is shown by the record in this case and the report of Subcommittee )10. 5, and as is recognized in the majority opinion (pp. 277-282), (1) the California Street market is dominated by a few large retail food chains whose buying power enables them to set the prices in that market, which are generally lower than those prevailing elsewhere and are not available to buyers in other markets, and (2) the general level of California Street market prices Dissenting Opinion 70 F. T. was known to sellers and buyers in that market through price lists, exchange of information among brokers, trade publications and other means of communication.

Prior to the remand of this case from the Court of Appeals, the basic facts regarding the existence and operation of the California Street market were not in dispute. In their proposed findings of fact submitted to the hearing examiner, complaint counsel and respondent's counsel presented substantially the same factual description of the workings of the market.' Their description of the California Street market was accepted by the hearing examiner in his initial decision (Tr. 349-50), and by the Commission in Paragraph (9) of its Findings of Fact. These undisputed facts concerning the California Street market, and how prices in that market are determined, were summarized in the opinion of the Court of Appeals as follows:

The canners and processors who participate in the California Street market sell most of their products in that market. As of J 957, the prices paid for goods in this market tended to be lower than the prices paid for the same or similar goods by purchasers who were not represented in it. At the beginning of the pack year, the canners and processors who sell on the California Street market determine from their records the amount of goods sold to various buyers in previous years. The sellers then attempt to obtain "reservations" from th!: buyers for a given amount of merchandise to be delivered during the buying season, preferably in excess of that previously purchased.

After the reservations have been entered into, the canners announce their opening prices." These opening prices are usually announced by the large or important factors in the industry comprised of the three or four nationallyadvertised brand packers, or independent packers, of a particular commodity. When these price leaders have named their opening prices, the other canners after examining their costs, will usually follow and name prices which arc substantially similar to those of the 1eadcrs. After the opening prices have been announced, they Rre analyzed by the buyers who then set the market price at the level of the lowest prices offered by Teliable canners and prczeed to place their orders. A canner whose prices are in line with the established prices will receive a fair share of shipping instructions. If he does not, or if he received instructions only for limited quantities, the canner checks with the brokers, buyers or with other canners to determine the reason. (329 F. 2d 694, 705, emphasis added. At evcry stage of this extended litigation, respondent' s defense to the charge of price discrimination in the California Street market has been predicated on the above facts. Its defense has been simple and forthright: that the prices at which it sold these 1 CompJaiY1t counsel's proposed finding No. 32 (Tr. 153-55) : respondent's proposed findings on meeting competition (Tr. 320-25).

TRI-VALLEY PACKING ASSOCIATION 293 223 Dissenting Opinion goods were the market prices which the large buyers were paying at the time to sellers in the California Street market and which were generally known to sellers and buyers in that market. every stage, this defense of meeting competition has been contested by complaint counsel and rej ected by the hearing examiner and the Commission; but the basic factual premise on which the defense has rested was not disputed, or even put in issue, prior to the remand from the Court of Appeals. Until this second round of Etigation, it was accepted by all that the price discriminations challenged in this case were made at prices which "met" California Street market prices the prices at which respondent's competitors in that market were sellng at the time. It is elementary that a respondent asserting a 2 (b) defense must show that his lower prices were made in response to the exigencies of competition. Federal TTade Commission v. A.E. Staley Mfg. Co. 324 U. S. 746, 759-60; Standard Oil Co. v. Federal Trade Commissi:on 340 U. S. 231 , 219- 50; Continental Balking Co. Docket No. 7630, decided December 31, 1963 (63 F. C. 2071j. In the present proceeding, it is conceivable that complaint counsel might initially have chosen to oppose respondent' s 2(b) defense on the ground that its proof was not suffciently specific to show that its prices were "meeting" the prices of competing sellers. Complaint counsel might have taken the position that respondent had to present specific documentation showing, as to each sale it made, that other sellers in the market were contemporaneously making sales at the same prices. Had complaint counsel raised such an objection, a clear issue would have arisen as to whether it was enough for respondent to show generally that it was "meeting" the market prices at which its competitors on California Street were selling. But such an objection was not interposed by complaint counsel for the simple and obvious reason that it would have been completely inconsistent with the legal theory on which prior to the remand, he was opposing respondent' s 2 (b) defense. Far from contending that the evidence was inadequate to show that respondent was "meeting" California Street market prices complaint counsel affrmatively relied on such evidence to support his legal argument that respondent was not meeting competition in good faith. " In effect, complaint counsel conceded the adequacy of the proof that respondent was meeting California Street market prices. It was complaint counsel' s position, consistently maintained throughout the entire proceeding prior to the remand from the Court of Appeals, that respondent's 2 (b) defense should 294 FEDERAL TRADE COMMISSION DECISIO!\S Dissenting Opinion 70 F.

be rej ected on the ground that California Street prices were not individual se1Jers' prices but were general market prices and hence constituted an "unlawful pricing system. " For example, in his cross-examination of respondent's sales manager, who testified that respondent' s lower prices were made to meet competition and reflected the prevailing California Street market prices, complaint counsel sought to, and did, establish the facts that " order to se1J, you had to be competitive with the market" ; that you were competitive not with a competitor s price but with the market price; that you were being competitive with the market price at that time; and that "there is 'one market price applicable to California Street and another 'market price' applicable to those that purchase through brokers not located in San Francisco. (Tr. 939-943.

In his initial decision, the hearing examiner rejected the 2(b) defense, not on the ground that respondent failed to present evidence of specific prices of other sellers but rather on the ground that the California Street market prices met by respondent constituted an "ilegal pricing system. " Agreeing with complaint counsel' s arguments of law, the hearing examiner found that there were two market prices in respondent' s business: one price represented by the 'market price' to aji large chain buyers having representatives on California Street in San Francisco, and another 'market price' which applied to aji other buyers not represented on California Street. " " * These respondent' s exhibits show that'" * * the favored purchasers were buying at the market price' of California Street which was consistently and systematically lower than the list price. * * * Such an inherently ilegal system has no relation to meeting an individual competitive situation. " (Tr. 349-50.

As already indicated, the hearing examiner based this conclusion on the undisputed description of the California Street market and its operation, a g set forth in the proposed findings of fact submitted both by complaint counsel and counsel for respondent. See footnote 1 suprn. In his description of the market, which was substantia1Jy the same as that of complaint counsel, respondent' counsel also stated: "The situation which is disclosed by respondent' s evidence is akin to one that might prevail in a commodity market where the prices are set as a result of the forces generated by the interchange of 'bid' and 'ask' prices originating with a large number of not readily identifiable buyers and se1Jers. (Tr. 320.

In arguing before the Commission in support of the hearing ex- TRI-VALLEY PACKING ASSOCIATION 295 223 Dissenting Opinion aminer s rejection of the 2 (b) defense, complaint counsel laid great emphasis on the facts of record showing the existence of the California Street market and of the lower market price levels available to the large purchasers maintaining buying agencies there.' Complaint counsel's legal contention that the California Street prices were market, not individual sellers, prices and constituted a "pricing system" was neither accepted nor rejected by the Commission. The maj ority opinion was wholly silent on the point. Instead, the Commission-while accepting complaint counsel's description of the facts, as summarized in Paragraph (9) the Commission s Findings of Fact-rejected the 2(b) defense solely on the legal ground that respondent had failed to show that the lower prices of other sellers which it was meeting in the California Street market were " lawful" prices. The entire discussion of the 2 (b) defense in the majority opinion (pp. 6-7) (60 F. 1134, 1173) consisted of the following paragraph: Respondent next contends that the hearing examiner erred in holding that it had failed to justify its discriminatory pricing practices under the "meeting competition " defense contained in the Section 2(b) proviso. In order to establish this defense, respondent has the affrmative duty of proving that it reduced its prices to certain customers in good faith to meet the equally low price of a competitor. The Supreme Court in Standard Oil CO. Y. Federal Trade Commission 340 U. S. 231 (1951), clearly indicated that the lower price which may be met by a seller under the proviso must be a "lawful" price. Certain it is, therefore, that as part of the good faith requirement of this defense, respondent must at least show the existence of circumstances which would lead a reasonable person to believe that the lower prices it was meeting were lawful prices. This, however, respondent has not done. It has succeeded only in showing that a number of competitors, whose prices it claims to have met, had engaged in pricing practices whereby they had usually sold goods to certain favored customers at a "market price" which respondent admits was set by the buyer. The evidence offered by respondeni does not indicate whether these prices could be cost justified or otherwise excused under any of the exceptions to the prohibitions of Section 2(a) or that respondent had reason to believe that they could be justifled. We are of the opinion, therefore, that respondent has failed to establish the good faith requirement of the "meeting cOlnpetition" defense and its argument on this point is rejected.

When the case was appealed to the Court of Appeals for the ::inth Circuit, Commission counsel pressed the argument that the California Street market prices met by respondent were not individual competitors' prices but were part of a " pricing system. Again, Commission counsel-whh numerous references to the record described in detail the California Street operations as constituting a mn?'lcet where selling prices reflected market levels Answering- Brief of Counse: Supporting the Complaint, pp. 18-19. , Dissenting Opinion 70 F. T. and where large buyers were able to secure goods at prices lower than those offered to customers in other markets. ' Since this contention of counsel had not been dealt with by Commission, the Court of Appeals held that the case should be remanded "for further proceedings bearing upon " * * the question of whether the competition which Tri- V alley faced in the California Street market is the kind of competition contemplated by the 'meeting of competition' defense of section 2 (b). N ow that the case is back here on remand from the Court Appeals, the Commission remains adamant in its rejection of respondent' s meeting competition defense. However, it expressly rejects the position taken by Commission counsel in the Court Appeals, namely, that respondent's lower prices were not sheltered by 2 (b) because they were made pursuant to a pricing system or because they were made to meet a pricing system employed by competitors selling on California Street. (Opinion, p. 283. Instead, the Commission rejects the defense on the ground that respondent has failed to show that its lower prices were made to meet equally low prices of competitors. " (P. 286. ) In an extraordinary about-face, the Commission now abandons the view that California Street market prices are not individual seller s prices but general market prices set by the large chain buyers who dominate that market. Instead, the Commission indulges in the conjecture that respondent's prices were not made in response to competitive prices of other sellers in the market, and indeed that respondent itself "may have been primarily responsible for the low ' California Street' prices. " (P. 285. ) After eight years of litigation, the Commission now tells respondent for the first time that its proof of meeting competition was too general, and that it should have furnished specific documentation in each instance that "it used reasonable diligence in verifying the existence of a lower price of a competitor and that the discrimination was made in good faith for the purpose of meeting such lower price. (P. 285.

It seems to me that such an objection to the adequacy of respondent' s evidence comes rather late and with poor grace. Cf, FOTste1' Mfg. Co. , Inc. v. Docket No. 7207 , 1st Cir., May 1966 361 , F. 2d 340, 343. In essence, the Commission is tellng respondent after all these years that there is insuffcient proof of the basic factual premise upon which both sides, the hearing ex- , Brief for the Commission pp. 6- '329 F. 2d at 706.

TRI - VALLEY PACKING ASSOCIA TION 297 223 Dissenting Opinion aminer, the Commission, and the Court of Appeals proceeded in dealing with the legal issues arising out of the 2 (b) defense. This case was finally decided by the Commission on that factual basis in 1962, and the remand to the Commission from the Court of Appeals was not for the purpose of re-examining the suffciency of the proof in that regard. The Court of Appeals remanded the case to the Commission, so far as the 2 (b) defense was concerned for the sole and limited purpose of having it pass on the question-not whether Tri-Valley was meeting competition in the California Street market-but "whether the competition which Tri- V alley faced in the California Street market is the kind of competition contemplated by the ' meeting of competition' defense of section 2 (b)" (329 F. 2d at 706). That question the Commission now decides in respondent's favor.

The Commission does not indicate whether thc facts of record regarding the California Street market, its existence and operation, and the method by which California Street market prices are set, were always inadequate, or whether they merely became so after the case was remanded by the Court of Appeals. 1\01' does the Commission tell us whether Paragraph (9) of its 1962 Findings of Fact is being vacated because it is not supported by substantial evidence, or because it does not jibe with the Commission s present theory for rejecting the meeting competition defense. The Commission now rejects the legal argument advanced by Commission counsel in supporting its prior order before the Court of Appeals. But does the Commission also disavow the facts on which that argument was based? Does the Commission take no responsibility at a1l for the arguments and representations made by its counsel before the Court of Appeals? Flexibility in the administrative process is desirable and should be encouraged; but an agency is not wholly unrestrained in its conduct of prosecutions for alleged violations of law. The Commission s present disposition of the case does more than make the remand from the Court of Appeals an exercise in futiity. By repudiating so late in the litigation the basic factual premise of respondent' s defense which the Commission, its counsel and hearing examiner, as well as the Court of Appeals, al1 accepted prior to the remand; by constantly shifting from one ground to another abandoning one dubious position as soon as it is challenged only to move to another even more vulnerable, the Commission invites the criticism that it will follow any road leading to the issuance of an order. An order based on findings of violation of law should Dissenting Opinion 70 F. T. rest on more than the kind of quicksand the Commission stands on here. If the basis of its present decision should not be sustained on a further appeal, wil the Commission keep on looking for some other basis, not yet advanced by counsel, for rejecting respondent' s 2 (b) defense? Surely, the basic rules essential to the fair and orderly conduct of litigation are not inapposite to agency adjudication.

In this case, as in National Dairy Products Corporation Docket No. 7018, decided July 28, 1966 (1'. 79 herein), the Commission imposes an unrealistic and unreasonable burden on sellers asserting the 2 (b) defense. The Commission requires proof by a seller that "it used reasonable diligence in verifying the existence of a lower price of a competitor" (1'. 285). As I have stated in my dissenting opinion in National Dairy (p. 219 herein) : Presumably, a seUer could satisfy the Commission that he "used reasonable diligence in verifying the existence of a lower price of a competitor" by showing that he called his competitor to ascertain whether the customer was truthfully quoting the Qompetitor s price offer. This would take care of the seller under 2(b). But where would it leave him under the Sherman Act? Proof that two sellers discussed price and that they quoted the same price to a buyer is enough to send them both to jail for ilegal price-fixing. In Automatic Canteen Co. v. 346 U. S. 61 , 73- , the Supreme Court emphasized the duty of reconciling the Robinson-Patman Act "with the broader antitrust policies that have been laid down by Congress." The Court rejected any interpretation of the Act "putting the buyer (or seller) at his peril whenever he engages in price bargaining. Such a reading must be rejected in view of the effect it might have on that sturdy bargaining between buyer and seller for which scope was presumably left in the areas of our economy not otherwise regulated." To require proof of "reasonable diligence in verifying the existence of a lower p1'ice of a competitor" is to place sellers in a dilemma where they must run the risk of criminal prosecution under the Sherman Act in order to protect against a charge of violating the Robinson-Patman Act. This is hardly the way to "reconcile" the two Acts. In dissenting from the Commission s previous decision in this case, I noted that respondent is a relatively small farmers' cooperative selling in a market dominated by big buyers. The Commission s dogged determination to impose a cease-and-desist order on respondent is diffcult to understand. As I stated in my original dissent, it is hard to see how an order driving this seller out of the California Street market wiJ serve the ohjectives which Congress sought to achieve in passing the Robinson-Patman Act. The divergence between thc goals of the Act and its practical Section 6(a) of the Administrative Procedure Act provides: "Every ag:cncy shall proceed with reasonahle dispatch to conclude any matter presentell to it " .. " Cf. Deering Miliken Inc. v. Johnston 295 F. 2d B56 (4th Cir. 1961). TRI-VALLEY PACKING ASSOCIATION 299 223 Final Order applications is also ilustrated by the Commission s holding that respondent violated Section 2 (d). After eight years of Jitigation and two separate sets of hearings, two isolated instances of nonproportionalized promotional allowances, both involving paltry sums, are aij the Commission can scrape together from the voluminous record. It is precious litte justification for the broad " not violate the statute, or else" injunction which the Commission is issuing here. By imposing an order on Tri-Valley, a pygmy in the canning industry, on the theory that it has hurt Safeway, one of the giants of the food retailing- industry, the Commission again turns the Robinson-Patman Act topsy-turvy. The Act was designed to curb abuses of the buying power of the big chains. Too often, however, it has been used to thwart the efforts of small businessmen to meet the competition of their larger and more powerful rivals. This case is another entry in that sad record. FINAL ORDER This matter having been beard by the Commission upon respondent' s appeal from the initial dccision on remand and upon briefs and oral argument in support thereof and in opposition thereto; and The Commission, for the reasons stated in the accompanying opinion, having denied the appeal and determined that the initial decision should be modified for clarification and to conform it to the views set forth in its opinion and that as so modified it should be adopted as thc decision of the Commission: It is ordered That the initial decision on remand be, and it hereby is, modified by striking therefrom the following: The last two sentences in the first fuIJ paragraph on page 225.

The words " if this be a part of a section 2 (b) defense second full paragraph, page 237.

The words "as part of a section 2 (b) defense or, in the paragraph beginning with the words "Phrases such as" on page 238.

The first sentence at the top of page 242. The second paragraph of numbered paragraph 33 on page 246 beginning with the word "Summarized" and the first paragraph, page 247.

Cf. Central Retailc' Ow1!cd Grocers, Inc" Docket 1\' 0. 7121 (May 14 , 1962) LBO Flc 12081. rev 319 F. 2d HO (7th Cir. 1963) ; Alham/JTa- tvJotor Parts Docket o. 6889 (October 28, 1960) l57 F, C. 1007J. rev d, S()9 F. 2d 213 (9th Cir. 1962), new order to cease and desist December 17 , His5 (68 F. c. 1039J; Edwards The Price D;./crimination Law 1.50- , 626 (1959); Note Small Business Before the Fedcm/ Trade Commission. 75 Yale L..T. 487 (1966). Order 70 F.

The third full paragraph, page 247.

Following the words " Federal Trade Commission" in the first paragraph under "Conclusions" on page 247 , the comma and the phrase "is reducible to the following summary of conclusions reached by the court in appraising the evidence and findings of the Commission, and in this paragraph the word "that"

The paragraphs beginning with the paragraph identified as (a) under "Conclusions" on page 248 and ending with the paragraph identified as (p) on page 250, inclusive. Alj of footnote 48, starting with the word "However It is further ordered That the initial decision be, and it hereby , modified by substituting the word "reservation " for the word season " in the third sentence in the third full paragraph on page 242 thereof.

It is further ordered That the order be, and it hereby is, modifled to read as follows;

ORDER It is ordered That respondent, Tri-Valley Growers, a corporation, and its offcers, representatives, agents and employees, directly or through any corporate or other device in or in connection with, the sale of food products in commerce as "commerce" is defined in the amended Clayton Act, do forthwith cease and desist from:

1. Discriminating in the price of such products of like grade and quality by selling to any purchaser at net prices higher than the net prices charged any other purchaser who, in fact, competes with the purchaser paying the higher price or with customers of such purchaser. 2. Paying or contracting for the payment of anything of value to or for the benefit of any customer of respondent, pursuant to a special1ly tailored or negotiated arrangement, as compensation or in consideration for any services or facilities furnished by or through such customer, in connection with the offering for sale, sale or distribution of any of respondent' s products, unless such payment or consideration is made available on proportionally equal terms to alj other customers competing in the distribution of such products with the favored customer.

PACIFIC MOLASSES CO. ET AL. 301 223 Order Dismissing Complaint It is further ordered That the initial decision, as modified, be and it hereby is, adopted as the decision of the Commission. It is further ordered That respondent, Tri-Valley Growers shall, within sixty (60) days after service of this order upon it file with the Commission a report, in writing, setting forth in detail the manner and form in which it has complied with the terms of the order contained herein.

Commissioner Elman dissented and has fied a dissenting opin- IOn.