National Dairy Products Corporation

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IN THE MATTER OF KATIOKAL DAIRY PRODl'CTS CORPORATION ORDER, OPINIONS , ETC. , IN REGARD TO THE ALLEGED VIOLATION OF SEC. 2 (a) OF THE CLAYTON ACT Docket 851;8. Am.ended Complaint, July 26, 1.963 De(;isi()n June, 1967 Order requiring a major food distributing corporation with headquarters in New York City to cease discriminating in price on a regional basis in the sale of its jellies, preserves and other food products. , Amended Complaint 71 F.

AMENDED COMPLAINT The Federal Trade Commission, having reason to believe that the party named in the caption hereof, and hereinafter more particularly designated and described, has violated and is now violating the provisions of subsection (a) of Section 2 of the Clayton Act (U. S. Title 15 , Section 13), as amended by the Robinson-Patman Act, approved June 19 , 1936, hereby issues its amended complaint, stating its charges with respect thereto as follows:

COU:-T I Charging violation by National Dairy Products Corporation of subsection (a) of Section 2 of the Clayton Act, as amended, the Commission alleges:

PARAGRAPH 1. Respondent named herein is National Dairy Products Corporation. Respondent is a corporation orggnized and existing under the laws of the State of Delaware, with its principal offce and place of business located at 260 Madison Avenue, Xew York, New York.

PAR. 2. Respondent, through its Kraft Foods Division, for many years has been and is now extensively engaged in the business of manufacturing, processing, distributing, and selling various food products, including cheese and cheese products, margarine, mayonnaise, salad oil lvIiracle Whip" and other salad products, caramels, marshmallows, Kraft Dinners, and a complete line of jellies and preserves throughout the United States Canada, and many foreign countries. Said respondent' s total net sales of all products for the year 1960 exceeded $1 600 000 000 and its net sales have exceeded one bilion dollars annually since 1951.

PAR. 3. Respondent' s Kraft Foods Division sells and distributes jellies and preserves and its other products of like grade and quality to purchasers thereof located throughout the various States of the United States and in the District of Columbia for sale, consumption or resale therein. Respondent' s Kraft Foods Division maintains and operates branch sales offces in all principal cities of the United States and Canada from which it sells its said products to purchasers. Kraft manufactures and processes jellies and preserves in three plants located at Buena Park, California; Garland, Texas; and Dunkirk, Kew York, from which said jellies and preserves are NATIONAL DAIRY PRODUCTS CORP. 1335 1333 Amended Complaint distributed by Kraft to purchasers located throughout the several States of the United States and the District of Columbia. PAR. 4. In the course and conduct of its business, respondent is now, and for many years past has been, engaged in commerce as "commerce" is defined in the Clayton Act, in that it has sold and distributed, and is now selling and distributing, its products to purchasers thereof located in States other than the State of origin of shipments and has, either directly 01' indirectly, caused such products, when sold, to be shipped and transported from the State of origin to purchasers located in other States. There is now and has been, a constant course and flmv of trade and comnlerce in such products between said respondent in the State of origin and purchasers thereof located in other States and the District of Columbia.

Kraft has sales and distribution branches in all principal cities of the United States and Canada and said products are shipped and sold to purchasers with places of business located throughout the several States of the United States and the District of Columbia for resale to customers within the United States. PAR. 5. Respondent, through its Kraft Foods Division, sells its jellies and preserves to retailers, cooperatives, \vho1e8a1e1'8 and other purchasers through company employed salesmen. Yfany of respondent' s purchasers are in substantial competition with other purchasers of respondent.

Respondent, in the sale of its jellies and preserves to retailers cooperatives, \vho1e8a1e1'8 and other purchasers, is in substantial competition with other manufacturers, processors, distributors and sellers of said products.

PAR. 6. In the course and conduct of its business in commerce respondent has discriminated and is now discriminating in price in the sale of jellies and preserves by selling such products of like grade and quality at different prices to different purchasers. Included in, but not limited to, the discriminations in price as above alleged, respondent has discriminated in price in the sale of said products to retailers, cooperatives, wholesalers and other purchasers in the Baltimore, :VIaryland, Washington, D. , Richmond, Virginia, and Norfolk, Virginia trading areas by charging said retailers, cooperatives, wholesalers and other purchasers substantially lower prices than charged by said respondent for the , co-sale of said products of like grade and quality to retailers operatives, wholesalers and other purchasers located in the other of respondent's trading areas throughout the Nation. PAR. 7. Respondent, through its Kraft Foods Division, has . ............. ___ Amended Complaint 71 F.

effected said discrimination behveen and among its customers in the manner and by the method hereinafter described. During the first half of 1961 respondent sold to its purchasers in the four aforementioned trading areas only, jellies and preserves on a buy one, get one free basis. For every case of said product purchased at thc regular price respondent' s Kraft Foods Division would deliver an additional case of said product free of charge. This discrimination amounts in effect to a 50% discount in price to the purchasers and is a substantially lower price than that price at which respondent sells said products to purchasers in other trading areas throughout the United States. A sample comparison of respondent' s net prices per case of jellies and preserves to purchasers in the various trading areas of respondent' s "Eastern Division " other than the four aforementioned and described trading areas and the net prices per case of jellies and preserves to purchasers in the aforementioned four trading areas is hereinafter set forth:

"'let In'ice pet case Eastern division (other than the \Va hington- \Vashington-Ba:timore- Haltirnol"e- Norfolk- Richmond NOl"folk- Rchmomi Product ng areas) -,,,d;n 10 oz. i--l Apple Jelly $2. $1.00 Apple-Mint Jp.lly ....... 1.95 875 Black Raspberry Jelly 1.65 Grape Jelly......m 1.125 StrawlJerry Jelly 1.575 12 oz.

Apricot Preserves 525 Blackberry Preserves 625 Cherry Preserves 1.575 Peach Preserves. 1.525 Strawberry Preserves 1.875 20 oz.

Apple Jelly 1.65 Grape Jelly -- 1.825 Blackberry Preserves 375 Peach Preserves ", m... 225 Strawberry Preserves 975 In addition, respondent, in )jeu of delivering' the free goods due its customers as a result of purchases made on the buy one, get one free basis, paid many such purchasers in the aforementioned foul trading areas an amount in cash equal to the normal )jst I-ATIONAL DAIRY PRODGCTS CORP. 1337 1333 Amended Complaint price per case of jellies and preserves. Said purchasers, to the extent that they received cash in lieu of merchandise, obtained an equivalent quantity of jellies and preserves absolutely free. In effect respondent, through its Kraft Foods Division, has given away a substantial quantity of jellies and preserves to its purchasers in the four aforementioned trading areas. The above-described price discrimination and product giveaway was confined to the aforementioned four trading areas and was not granted by respondent in any of its other trading areas which span the Nation.

The above-described sales activity cost respondent in excess of $1 300 000. Respondent utilized its great size, geographical and product diversification, and great financial power to subsidize its losses in an effort to expand its sales at the expense of local, small, nonintegrated competitors. Respondent's small local competitors were not operating in a large number of markets; therefore, they were not in a position to subsidize sales at prices below cost in one market with funds secured from sales at higher prices in other markets as was respondent. PAR. 8. The effect of such discrimination in price by respondent in the sale of jellies and preserves has been or may be substantially to lessen competition or tends to create a monopoly in the line of commerce in which said respondent is engaged, or to injure, destroy or prevent competition between respondent and its competitors in the n1manufacture, processing, distribution and sale of such products.

PAR. 9. The discriminations in price, as herein alleged, are in violation of subsection (a) of Section 2 of the Cbyton Act, as amended.

COGNT II Charging violation by :. ational Dairy Products Corporation of subsection (a) of Section 2 of the Clayton Act, as amended, the Commission alleges:

PAR. 10. Paragraph One and subparagraph one of Paragraph Four of Count I hereof arc 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. ll. Respondent, through its Breakstone Foods Division for many years has been and is no\v extensively engaged in the business of manufacturing, processing, distributing, and selling various dairy food products, including cottage cheese, cream cheese, and other soft cheeses, sour cream, yogurt, wbippcd Amended Complaint 71 F.

butter, and other dairy specialties throughout the Eastern Seaboard and South Atlantic States of the United States from Massachusetts to Florida, including the District of Columbia. PAR. 12. Respondent's Breakstone Foods Division sells and distributes yogurt and its other products of like grade and quality to purchasers thereof located throughout the various States of the Eastern and South Atlantic regions of the United States and in the District of Columbia for sale, consumption or resale therein. Respondent' s Breakstone Foods Division maintains and operates distributing branches in Somerville, Massachusetts; New Haven, Connecticut; Youngsville, Syracuse, and Walton, New York; Newark, New .Jersey; Philadelphia, Pennsylvania; and .J ackson, Tampa and Miami, Florida, from which it sells and distributes its said products to purchasers. Breakstone manufactures and processes yogurt in plants located at Walton, New York and Youngsville, New York, from which said yogurt is distributed by Breakstone to purchasers located in various States of the United States and the District of Columbia.

PAR. 13. Respondent, through its Breakstone Foods Division sells its yogurt and other dairy products t.o retailers, cooperatives wholesalers and other purchasers through company employed salesmen.

Respondent, in the sale of its yogurt and other dairy products to said purchasers, is in substantial competition with other manufacturers, processors, distributors and sellers of said products. PAR. 14. In the course and conduct of its business in commerce respondent has discriminated and is now discriminating in price in the sale of yogurt by selling such products of like grade and quality at different prices to different purchasers. Included among such sales at discriminatory prices \\There sales of yogurt to retailers, cooperatives, wholesalers and other purchasers in the New York metropolitan area at prices substantially lower than charged hy said respondent for the sale of said products of like grade and quality to retailers, cooperatives, wholesalers and other purchasers located in the other of respondent' trading areas in the United States.

PAR. 15. Respondent, through its Brcakstone Foods Division has effected said discrimination between and among its customers in the manner and by the method hereinafter' described. For some time prior to May 1961, respondent sold its yogurt to retailers in the New York metropolitan area at a store-door price of 131 per half-pint container, plain, and 161 per half-pint con- :._ NATIONAL DAIRY PRODUCTS CORP. 1339 1333 Amended Complaint tainer, flavored; and to jobbers and those retail chains which redistribute respondent's product to member stores from their own central warehouse at a price of 119 per half-pint, plain, and 140 per half-pint, flavored.

Beginning in lVlay 1961, respondent Imvered its yogurt prices in the New York metropolitan area by 39 per half-pint to its store- door customers and 21120 per half-pint to its jobber and warehouse customers, \vhile continuing to sell said product in all other trade areas at prices which had existed for some time prior to May 1961.

In Kovember 1961, respondent raised its yogurt prices to purchasers in all trade areas other than the Xew York metropolitan area. The price increase ranged from 10 to 1%0 per half-pint container to jobber and warehouse customers and from 1 to 26 to store-door customers.

Thus, at all times since :\Iay 1961, respondent has sold its yogurt in the New York metropolitan area at prices 'which are substantially lower than the prices at which respondent sells said product to purchasers in its other trading areas. A comparison of respondent' s yogurt prices to purchasers in its various trading areas for the relevant time periods is hereinafter set forth;

Prior to May 1 , 196, I, SubsequentMay 1 , 1961to :f' Subsequentovember 1 , to1961 Store Area Jobber I Sto:-e obberI I StoreJoiJber ldo )Jc\v York metro- Plain. .11 13 i 085 085 politan area. Fia vored I . 115 115The New England Plain 145 165 States-Exclud- Flavored 145 165 ing Fairfield County, Conn.

(Also Albany, Y. after July 1961.) The area served Plain out of the Fla vored 16 I Philadelphia I . Pa., branch. State of Florida I Plain 135 135 .16 and lo\ver south 135 16 I 135 Georgia.

I Flavored (Breakstone s "Jobber " and "Warehouse" prices are the same. All above prices are for the half-pint container size, Amended Complaint 71 F.

PAR. 16. The effect of such discrimination in price by respondent in the sale of yogurt has been 0" may be substantially to lessen competition or tend to create a monopoly in the line of comn1crce in which said respondent is engaged, or to injure, destroy or prevent competition between respondent and its competitors in the manufacture, processing, distribution and sale of such product.

PAR. 17. The discrimination in price, as herein alleged, is in violation of subsection (a) of Section 2 of the Clayton Act, as amended.

Count II Charging' violation by K ational Dairy Products Corporation of subsection (a) of Section 2 of the Clayton Act, as amended, the Commission alleges:

PAR. 18. Paragraphs One, T\VD, ancl Four 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. 19. Respondent' s Kraft Foods Division sells and distributes a marshmallow cream topping (hereinafter referred to as Yrarshmallow C,'eme) and its other products of like grade and quality to purchasers thereof located throughout the various States of the United States, in the District of Columbia, and in Puerto Rico for sale, consumption or resale therein. Respondent' s Kraft Foods Division maintains and operates branch sales offces in all principal cities of the United States and Canada from which it sells its said products to purchasers. Kraft manufactures Marshmallow Creme in a plant located at Palmyra, Pennsylvania, from which said product is distributed by Kraft to purchasers located throughout the several States of the United States, the District of Columbia, and Puerto Rico. PAR. 20. Respondent, through its Kraft Foods Division, sells its lVlarshn1allow Creme to retailers, cooperatives, wholesalers and other purchasers through company employed salesmen. :VIany of respondent s purcbasers are in substantial competition with other purchasers of respondent.

Respondent, in the sale of its Marshmallow Creme to retailers, cooperatives, 'ivholesalers and other purchasers, is in substantial NATIONAL DAIRY PRODUCTS CORP. 1341 1333 Amended Complaint competition with other manufacturers, processors, distributors and sellers of said product.

PAR. 21. In the course and conduct of its business in commerce respondent has discriminated and is now discriminating in price in the sale of Marshmallow Creme by selling such product of like grade and quality at different prices' to different purchasers. Included in, but not limited to, the discriminations in price as above alleged, respondent has discriminated in price in the sale of lVlarshmallow Creme to retailers, cooperatives, wholesalers and other purchasers in the Philadelphia, Pennsylvania, and Boston lassachuseUs trading areas and in other New England States by charging said retailers, cooperatives, wholesalers and other purchasers substantially lower prices than charged by said respondent for the sale of said product of like grade and quality to retailers, cooperatives, wholesalers and other purchasers located in other of respondent' s trading areas in the United States. For exan1plc, respondent has effected discriminations between and among said purchasers by selling lVIarshmallow Creme in certain trade areas at prices 25 S1: to 33% % higher than prices charged purchasers in other trade areas, and by granting other price reductions of from 30Q to 600 per case in certain trade areas only.

PAR. 22. The eiIect of such discrimination in price by respondent in the sale of lVlarshmallow Creme has been or may be substantially to lessen competition or tend to create a monopoly in the line of commerce in which said respondent is engaged, or to injure, destroy or prevent competition bet-ween respondent and its competitors in the manufacture, processing, distribution and sale of such product.

PAR. 23. The discriminations in price, as herein alleged, are in violation of subsection (a) of Section 2 of the Clayton Act, as amended.

Jihtherinaton and M1' Alan NIT. F. P. Fav"rella, Mr. A. T. Stone of Washington, D. , for the Commission. McLaren of Chicago, Il., Chadwell, Keele, Kayser, Ruaales attorneys for the respondent, by M1' John T. Chad,cell, Mr. and Mr. Robert L.Richard W. McLaren, MI. Alan R. Kidston Day, of counsel. M eSSFS. William E. Nuessle and Panl Kerins also participated as counsel.

............... ....... .. ... .. ..... .. ............. .................. ............................................................... ... Initial Decision 71 F.

INITIAL DECISION BY HERMAN TOCKER. HEARING EXAMINER TABLE OF CONTENTS Page Introductory u. 1343 Primary-Line and Secondary- Line Cases 1343 The Complaint in This Proceeding 1344 Respondent' s Position 134,) Interstate Commerce 1345 Count I , Introductory 1345 The Count I Price Cut "'"'-- 1346 The Promotion as Originally Conceived 1348 Xature of the Count I Price Cut - -- 1350 The Market Reception of This Offer 1351 The Below Cost Nature of This Promotion -- 1352 Respondent' s Alleged Purpose 01' Heason for This Promotion 1353 The Effect of This Promotion on Competition in the Areas Involved 1354 Count II-What is Yogurt 1363 The Charge. -- 1363 The Yogurt Market. . 1364 The Area involved moo "-- -- un - - .... 1365 The Det",ils of the Price Differential 1365 The Supporting Evidence 1366 Trend of Breakstonc Sales 1366 Trend of Dannon Sales .. ...-.... 1368 Dannon s Sales and Breakstone s Price Differential 1368 Dannon and Breakstone Sales to the Chains 1369 Trend of Lacto Sales 1371 Alleged Decreases of Lacto Sales to Particular Customers. 1372 The Storekeeper Te3timony -- ... ... ... .P.. 1373 Lacto s Alleged Loss of Opportunity to Expand 1375 Additional Comment en the Yogurt Sales Statistics for the Kew York Area -- 1376 Conclusion as to Yogurt 1:379 Count III - -- 1379 General :?Iatters -- -- 1380 Durkee- Mower, Inc. , Tweet, Inc., and Cremo Manufacturing Company, the Companies Claimed to Have Been Adversely Affected 1381 Kraft and Marshmallow Cream Topping. 1382 1960 Promotions .......- 1384 1961 and 1962 Promotions 1389 Prior Promotions of Marshmallow Cream topping by Durkee, Tweet and Cremo . - -- 1389 The Climate of Marshmallow Cream Competition Prior to Kraft 1390 Sales Decreases Suffered by Durkee, Tweet and Cremo ....- - 1394 Changes in the Competitive Picture Following Kraft' s Entry .. 1400 Existing Markets, New Entrants and Promotions Incidental Thereto 1402 Summary Comments on Rulings, Findings, Conclusions, and Order 1404 Findings of Fact 1405 Conclusions 1411 Order 1411 , .

NATIONAL DAIRY PRODUCTS CORP. 1343 1333 Initial Decision The Federal Trade Commission charges ~ ational Dairy Products Corporation with violations of Subsection (a) of Section 2 of the Clayton Act as amended.

PRIMARY-Lli\E AND SECONDARY-LI:-E CASES The more frequent cases arising under this section are concerned with the sale of goods by a manufacturer, distributor or wholesaler, etc., at different prices to different persons who are in competition with each other. This type of price differential is said to be in the "secondary-line. " The injury to competition in cases of this nature is that if Customer A, who is in competition with Customer B, is able to purchase goods of like grade and quality at prices lower than the prices at which Customer Bean make such purchases, he is in a position to COll1pete more effectively against Customer B. In such a case it is "self-evident namely, that there is a ' reasonable possibility' that competition may be adversely affected . Federa.l Tnlde C01nrnission MOTton Salt Co. 334 L.S. 37 (1948) p. 50. This proceeding is not a secondary-hne case.

The less frequent cases are those involving the granting of price differentials, not in the sense that individual CUS10ll1ers who are in competition \with each other may acquire advantages over their competitors such as those in the secondary-line just defined but rather the granting of price differentials on a territorial basis. This occurs when a manufacturer, producer or distributor sells in two or more sections of the country (or two or more market areas) and undertakes to sell in one or more of those sections or areas at prices lower than the prices generally charged by him for goods of like grade ancl quality in the other or others. When he does this, he also may be violating Section 2 (a) of the Clayton Act as amended. Such conduct could "lessen coml49 Stat. l. ZG; 13 t:, , SEC . 13, as am ndEc!, which, to the nt he\" rtin J1t. is: SEC, ,2. (a) That it srm11 be unlawful for any person engaged in comm rce, in the course of such commerce, either directly 01" indi)'ectly, to discriminate in price between ctitfer nt j)urchasen; of commodities of ij"e grade and fjuRlity, whe,'e dther or Rny of the purchases involved in such dic,' imination Hre in commerce, whe!' e such commodiUc are sold for use, consumption, OJ" resale within the L united States or any Territory thereof or the District of Columbi;! 0)" any insuiar possession or other:' place uwJe,. the jur sdiction of thl' U!litcd States, and where the effert of ;uch discrimination may be substanti?:ly to kssrn comj1rtition or tend to create a mcnopoly in Hny Jine of commerce, or to injure, destroy, or prevent competition with any per on who either grants or knowindy receives th benefit of such discrimination or with customers of either of them: A?1d jJrD1!I:ded further That nothir, p; hen:in ontained shall pre\'ent price chanp;es from time to time where in respons.o to chang:ing ronditions affecting the market for or the marketability at' th goods concerned. such as but not limited to actual or imminent deterioJ"ltion of perishable goods, obsolesce!1cc of SCRsona, goods, distress sales under court process, or sales in liood faith in discontinuance of business in the goods concf')- ned, , Initial Decision 71 F.

petition or tend to create a monopoly " in the sense that the financial strength of the price cutter may be such as to enable him io drive oui or weaken his own competition in the section 01' :Jrea in which he sells at the 10\ve1' price. Feder( l TTade Contmission v. Anheuser-Busch, Inc. 363 l:.S. 536 (1960). This is known as a "primary-line" case. A stronger showing of injury to or tendency to injure competition and create a monopoly required to establish a violation in a primary-line case, Commission s Policy Toward Geographic Pricing Practices, 3 CCH 1'1'. Reg. Rep. (9th ed. ) ?10 412 (1948).

THE COMPLAINT IN THIS PROCEEDING In this proceeding, K ational Diary Products is charged with violations in the primary-line. These arc set forth in three counts in an amended complaint issued July 26 , 1963. (The proceeding had been commenced in December 1962 by the issuance of a complaint alleging only one violation iVhat is no\v Count I of the amended complaint.

In Count I , it is allegcd that ~ational Dairy, early in 1961 through its Kraft Foods Division in the Baltimore, Maryland Washington, D. , Richmond, Virginia and Xorfolk, Virginia trading areas, sold jellies and preserves "on a buy one get one or. : free basis * . . * in effect, ". a 509L discount in price " 'ivhich was "a substantially lower price than that price at which (it sold) said prooucts to purchasers in other trading areas throughout the l.united States.

In Count II , it is alleged that respondent' s Breakstone Foods Division sold yogurt to various outlets in the Kew York metropolitan area at prices Imver than the prices at which it sold that product in aJl other tnlde areas, both by lowering its prices in the New York metropolitan area beginning in May 1961 and by not increasing them in that area when, in November 1961 , it increased its prices in other trade areas.

In Count III it is alleged that Kational Dairy s Kraft Foods Division sold a 1118.rshmallow cream topping, :lVarshmallow Creme to its outlets in the Philadelphia, Pennsylvania and Boston, Massachusetts trading areas and in other ew England States at prices lower than those at which it sold 2Vlarshmallow Creme in other trade areas.

The theory of the complaint, in all its counts, is that these price differentials "have been 01' rna:,\ be substantially to lessen conlpetition Or tend to cl'eah a mm1ol1oly in the lines of commerce in Ivhieh said respondent is engaged, 01' to injure, destroy or :-ATIONAL DAIRY PRODUCTS CORP. 1345 1333 Initial Decision prevent competition between respondent and its competitors in the manufacture, processing, distribution, and sale of such products. " (Pretrial Order of October 25 1963, Part 1 , Issues of Law. This adaptation of the words of the statute, in plain English means that National Dairy s resort to these price differentials and their effect tended to injure or did injure competition with other jelly. jam and preserve manufacturers in the areas mentioned in the first count, with . other yogurt manufacturers in the areas mentioned in the second count, and with other marshmallO\v cream topping ll1anufacturers in the areas mentioned in the third count, and that this sort of conduct would tend to give Kational Dairy a monopoly position in those products in those areas.

RESPONDENT S POSITION National Dairy admits that the price differentials alleged actually were allowed, but denies that they had the necessary adverse effect on competition to result in a violation of the Act as charg' ed. Additionally, with respect to Count III, it invokes as a defense, one of the provisos quoted in Footnote 1 above, that some of the price changes were necessary by reason of "imminent deterioration of perishable goods.

INTERSTATE COM:VIERCE All the jurisdictional prerequisites concern cd with commerce are admitted.

C01:NT I INTRODUCTORY ational Dairy Products Corporation, as its name implies, was basically a dairy products corporation. It is included among Fortune JHagazine s 500 largest industrial corporations in the -Cnited States. According' to this survey, it ranked 20th in both 1960 and 1961 and it has annual sales of over l')lJ billion dollars (CX 1). In about 1955, it went into the jelly and jam business by acquiring a manufacturer known as Bedford Products, Inc. Bedford, although its products were distributed on the eastern seaboard and as far \vest as Chicago, was engaged mainly in the production of these products for sale under private labels. National Dairy continued the Bedford business for only a short period. In 1956 , it started distributing jellies and jams under the Kraft label. (Kraft is a major division of National Dairy. (Tr. pp. J637-1642. ) This distribution was national and was from the Bedford plant, located in Dunkirk, New York. By 1962, what , 1346 FEDERAL TRADE COM:IISSION DECISIONS Initial Decision 71 F.

had started as a five 01' six millon dollar business in Bedford sales in 1956 attained a national volume of $16 664 000 (Tr. p. 1644; CX 16).

This count is concerned with the Baltimore, :varyland, Washington Richmond and Xorfolk, Virginia areas, where respondent had had distribution for four years preceding 1961 (Tr. pp. 1551-1554). Apart from the competition given Kraft by chain store private label jellies and preserves, its major competitors in those areas were Old Virginia Packing Co. , Inc., and M. Polaner & Sons, Inc. , who, in this case, have been classified as regional producers (Tr. p. 1555). Other regional producers who competed with Kraft in these areas were Theresa Friedman & Sons, Inc. (Tr. pp. 393-394; CX 184- and B), T. W. Garner Food Company, and C. H. Musselman Company (now a division of Pet :\Iik Company) (Tr. pp. 392-395 , 600 , GIB; CXs 133- 146- H) .

THE COUNT I PRICE CUT On January 19 , 1961 , the Chicago general offce of the respondent sent an explanatory memorandum (CX 30) to the heads of its divisions other than the Eastern and Southern Divisions, to which it attached an annul1llCemc;lt of the promobonal deal which had taken effect in the Washingion and Norfolk districts of the Eastern and Southern Markets and the Baltimore district of the Eastern Market. The affected areas were described in the memorandUll1 as the "\Vashington, Baltimore and Norfolk areas. The memorandum stated:

I believe that most of you are aware that we have never been able to achieve adequate distl" ibution of Kraft .Jellies and Preserves in the Washington area. The attached program is put toget.her as an all out attempt to achieve that distribution. Due to chain overlaps, it was necessary to cover ihe adjoining Xorfolk area, as well as Baltimore. As appears from the memorandum, the objective of this promotion was "to achieve adequate distribution" in the \Vashington area. The problem with which Kraft was confronted was its alleged inability to obtain authorizations in Giant Food Stores, Safeway and Grand Union, the leading chain stores in the Washington area. Only the small size grape jelly had been authorized in the A & P. Respondent' s offcer at that time in charge of this area stated In \Vashington . , the chains run about 90)-0 of the volume and without the authorization in those, you don t have any business," The word "authorization " has H technical 11ean- :\ATIONAL DAIRY PRODUCTS CORP. 1347 1333 Initial Decision ing. No vendor can have his goods sold in a chain store unless the manager of that store is authorized in advance to stock the same by whatever authorizing offcial of the chain may have jurisdiction. Respondent places great reliance on this as demonstrating good business reason for taking the action which it did. It says that its national advertising as far as these areas were concerned was wasted. (Tr. pp. 127-128, 143 , 1507-1509 , 1518 1551-1554 , 1738.

Additionally, respondent asserts, not only with respect to this count but also with respect to the other counts involving yogurt and marshmallow cream, that promotions and deals are customary and the regular, usual way of doing business in the grocery business. I see no need to discuss this at length other than to say that I have concluded that there is merit to this assertion. The record is replete with evidence that the competitors upon whom Commission counsel relied for the purpose of making their case in all three counts frequently resorted to promotions or deals of one kind or another to push sales and get distribution. I believe also that, although respondent did have authorizations in alj the chains mentioned and in other chains in the areas involved in this count for many or most of its extensive line of products, it did not have authorizations to any material extent in any of the chains mentioned for jellies, jams and preserves and that resort to an attractive promotion or deal could be justified as good and reasonable business practice.

The issue in this count is whether the particular promotion or deal with which we are concerned ran afoul of the la\v. Ordinarily, the answer to this question would be found in the decision on remand in Anheuser-Busch, Inc. v. Federal T1'ade C01n1FL'iss'ion 289 F. 2d 835 (7th Cir., 1961). This is that there must be a finding that the differentials in price, in fact, have had an adverse effect on competition. Recently, in The BOTden Company, Docket ::o. 7474, February 7, 1964 (64 F. C. 534J, the Commission s majority opinion, while rejecting a contention that market share loss must be permanent, inclined to a recognition that there must be some adverse or probably adverse competitive effect of the price differential to support a conclusion that there has been a violation (opinion, pages 24 to 31) r64 F. C. 5:J4, 566- 571J. The dissenting Commissioner was not in disagreement in that respect.

The diffculty with this standard for ascertaining whether there was a violation by Kational Dairy in resorting to the promotion involved in this count is that the evidence upon which respondent 1348 FEDERAL TRADE COM:vISSION DECISIONS Initial Decision 71 F.

relies to support its claim ihat there was no adverse effect on competition is a set of cirCUD1stances 01' a result \"hieh developed not in the ordinary and usual course of business following the price promotion, but by unanticipated events which interrupted and altered the original plan OJ' scheme so that it did not progress to its contemplated and intended complebuH. This casts this count into an entirely diflerent format from that found in AnhellSe1' Busch and in Borden.

There remains no sound basis for saying that this count ll1USt be decided on whether what National Dairy did actually had an adverse effect on competition. On the contrary, it must be decided on the basis of what could have happened and \vhat reasonably might have been expected to happen had the plan or promotion as originally scheduled been permitted to run its full course. It seems irrelevant to argue that in this particular case there was no permanent adverse effect on COl11petition ,vhe11 the resulting conditions which we ftt€ asked to consider are conditions which transpired under circumstances different from those \which the plan, as originally conceived, probably would have caused. We must put ourselves back to the original plan and ask ourselves what would have been the probable effects on competition if it had been allowed to proceed to fruition, as originally conceived.

THE PRO:VIOTION AS ORIGINALLY CONCEIVED The promotion for Washington, Norfolk and Baltimore offereel many different sizes 01' flavors of jellies or preserves, each of which (whether by size or by type of jelly or preserve) \V lS regarded as R unit. Beginning January 16 , 1961 , and ending February 10 1961 , every purchaser (meaning l' cse11er) was entitled to get onc case free with every case of jellies or preserves that he purchased provided that he purchased at least "6 varieties and/or sizes. The purchases had to be made during the tin1e mentioned but the free goods were not to be delivered until the 30- e1ay period beginning February 10 , 1961 , the last day that the " one free for one purchased" offer was in effect (CXs 31 32). This is very important. The purchases and deliveries of the purchased goods were to be made in the period January 16 to February 10 , 1961, inclusive, but the free goods were not to be delivered until olter February 10, 1961. In effect, a dealer buying goods during the January Hi to February 10 , 1961 , period, although he \vas paying for such goods so purchased and delivered, was put into a position \\'here he was able to buy and receive NATIO"AL DAIRY PRODUCTS CORP. 1349 1333 Initial Dccision whatever jelly and preserve requirements he might have for that period and for such additional period after that as his funds would permit.

He obtained, in addition, the position that beginning Fehruary , 1961, he would be receiving free goods in identical quantities flavors and sizes, to stock hin1 for an indeterminate tilllC after his complete Jiquidation of thc goods for which he had paid. The promotion contemplated this.

The quantities ,'\'which might have been purchased under this deal were completely unlimited. It was to be supported by a whole bag of promotional devices (CXs 33 , 35- L). Two newspaper coupons were to be advertised and offered in the leading newspapers of Washington, Baltin1ore, Richmond, Staunton and Petersburg. These advertisements would be run during the weeks weeks foUowin,q the con-of February 13 and March 13 (both clusion of the purchasing period). One of the coupons was to be a Save 100 coupon. " The ultimate consumer or customer" would present this coupon to the dealer and get a 1 reduction on the price of a jar of Kraft jelly or preserve, but the dealer would not absorb this 106 reduction. There was no reduction of his benefit from the promotion because Kraft agreed to l'eimblln;c him a full 106 in cash, plus 20 for handling. The other coupon entitled the ultimate customer or consumer to get a free 10-ounce jar of Kraft grape jelly if he bought anyone of the various Kraft jellies or presel' ves. Again the dealer did not absorb this free deal because Kraft agreed to reimburse him the retail price of the jar of Kraft jelly and pay him a handling charge. I have concluded that these special consumer deals are not within the issues of this count. I cite them only as supporting efforts for the promotion itself. In addition, Kraft jellies and preserves were to be featured on the Kraft Music Hall (the Perry Como television national network show), and a full-page advertisement in Life l\Iagazine. This was not all. There were "two other plusses: A cooperative lncl'chandising (or display) agreement "vas to be in eflect fronl February 27 through April 28 under which an additional 506 on alj purchases of 10- and 12-ounce sizes and an additional 75(' on 2 j\c':ually the !JIOTnoti011 (lid no . go fo wal"d ,IS concriver), Two nHtin facto:' s '.v ponsible for this. One WAS that some w L'-phnusEs ar. tQ:' es gave eft' el' :.0 the "r:thmet:c,,) lTsul, \I)(i cnt the price ir: j'a,f, contra y to respondent s in ('nrion iCXs 81- 107 , inc..: "fr, pp. Z7- 1; 57, 681. The other wa t r: e demands grne:'ated were .'0 great tha . responuent could not suj:ply them ir. the form 0& free goods (CX 80). It made gooll it5 promise I1Y paying to !J\JV,-, S the cash qui\' lent of th gcd(is they Ehould have ," ecei"eu free under tlw ofTel'. (See pRg 135;) i)lfm.1 That tl ese events '.rrdlsT1it' cJ is :mmntel':.d i:l my opinion lwcfluse, as I have aid d ewhere, reoIJonclent, conduct must be :;udged by wha, was inte"ded nd not by the unexpecteu m:scarriage of the pl'omotior;. Initial Decision 71 F.

all purchases of 18- and 20-ounce sizes were to be paid during the contract period. This cooperative agreement was to be repeated from May 29 th1' ough July 28. The promotion literature added, Other promotions will occur to assure rapid turnover. Remenibet: Kraft is the largest producer of Jellies and Preserves in the United States.

Thus, the promotion as conceived originally was intended to provide free goods following the end of the purchase period, February 10 , 1961 , and was intended (and this, although an inference, I believe is a fair inference from the materials in evidence) to put the dealer into sufficient goods wh ther by original purchase or subsequent delivery of free goods to carry him through at least the end of July 1961. The deal was unlimited as to quantities available and its effectiveness was to be for more than half of the entire calendc.r year 1961. (Respondent made efforts to restrict 01' limit o :del's after the price break: but these were an afterthought and were not in the carrying out of the promotion as conceived. ) (Tr. pp. 1526-1542. ) The objective of the promotion and its probable effect must be the basis for determining its legality under the Act and not the circumstances which actually developed following the unintended miscarriages. This view does not change, in any manner, the theory of the complainl It is concerned only with respondent's argu111ents that Commission counsel failed to sustain their burden of proof and that the present health of primary-line competition is good. \Vhen originally put into effect, the promotion was unauthorized by respondent, but, once in effect, it \vas approved retroactively (Tr. p. 1741).

It was intended only for Washington and Richmond. The extension to Norfolk was necessary because the overlap with Richmond resulted in Coorfolk cancellatiolls (Tr. p. 1740). The extension to Baltimore was to avoid discrimination between competing customers (Tl'. pp. 1521-1522, 1781). THE NA'lTRE OF THE COU:-T I PRICE CUT Counsel supporting the complaint have characterized this promotion as a half-price sale since if one obtains a unit without cost for every unit purchased, in effect he is paying half price. Arithmetically, it works out this way. Respondent' s attorneys have acquiesced in this view.

"See Footnote 2 , jJ. 1349.

NATIONAL DAIRY PRODUCTS CORP. 1351 1333 Initial Dccision THE MARKET RECEPTION OF THIS OPFER The offer was received enthusiastically. In 1960 , respondent had sold 14 483 cases of consumer-size Kraft jellies and preserves in Washington, 116 446 cases in Baltimore, 10 682 cases in Richmond, and 27 366 cases in Norfolk. In 1961, it dehvered 156 876 cases in Washington, 301 083 cases in Baltimore, 120 603 cases in Richmond, and 121 845 cases in Norfolk. The totals for these years were 700,407 cases in all of 1961 as opposed to 168 977 cases in all of 1960. In the case figures for 1961 are included 153 909 cases of free goods. These free goods were included in a total of 554 712 cases delioend as part of the lJrornotion involved in this count. If we subtract the 153 909 cases (free goods) from the 554 712 cases total dehvered on the promotion, we find that 400 803 cases were bought and paid for at the regular price, more than twice as many in less than one month than had been purchased in the entire year of 1960. If we subtract the 554 712 cases (free goods plus paid goods) from the 1961 total of 700 407 cases, we have a remainder of 145 695 cases sold in more than months in 1961, nearly 14% less than the total sales for 1960. The dollar values of respondent's sales of consumer-size jellies and preserves in 1960 were $40 017 in Washington, $317 793 in Baltimore, $31 156 in Richmond, and $86 133 in :\orfolk; or a total of $475 129. The dollar sales for 1961 were $186 984 in Washington, D. , $163 748 in Baltimore, $116 241 in Richmond and $144 832 in Norfolk; or a total of 8911 805. Thus the dollar sales for 19G1 , $911 805, without counting payments in dollars in heu of free goods (which will be discussed later), approached twice those for 1960. However, we are informed that the free goods which the customers received as a result of the promotion were valued at $516 577 and that the cash paid in heu of free goods amounted to $829 005, which means that, had the promotion gone through as planned, the sales values for the year 1961 would have been the aggregate of these three or $2 257 387, almost 500 % of the 1960 sales.' The free goods alone, delivered as part of the prOTIlOtion, would have sold for $516 577, more than 8% increase in dollar amount over all the actual sales for 1960. If we combine the free goods . Counsel supporting the complaint, in their anaiysis of the \)61 dolls)" sales for these four areas, have inte:prcteu ex ,7 as including the 8,;16, 577 nd so have come up with fin aggregate figure of $1.740, 810 as opposed to 82 257 387. If this is correct, the 1961 dollar figure was .;.almost 40067(' iJlst 8d of 500% of the 1960 sales. Either way. the increase js most substantial. The reason for the differences in figu!' es :s the ambiguity of footnote (l.) to ex 17 but, if consideration 11( p;iven to ex 93 and ex 108, it is more likely that the analysis in the text i nearer correct.

, ! ... .p .... .........

1352 FEDERAL TRADE COMMISSJO:- DECISIONS Initial Decision 71 F.

with the cash in lieu of free goods, we get $1 345,582 as contemplated or intended free goods, more than 2 2 times the actual sales for all of 1960 The magnitude of the promotion is further ilustrated by a comparison of sales and deliveries (including cash paid in lieu of deliveries) in response to the promotion with the total 1959 and total 1960 sales of Old Virginia Packing Co. the largest brandname competitor in the areas:

Old Virginia Kraft 26-uay promot'lOn Entire 1050 sales Entire 1960 sales Cases bought 400 803 483 812 cases. 518 199 cases. Cases free ..._u..... 153 909 (CX 176) (CX 176) Cases for which dol1al's were substituted 246 894 Constrnctive total number of cases (eX 93) 801 606 Consequently, in any way that one looks at the operation of this promotion, it certainly did receive a tremendous response. (The schedules on which the foregoing analysis is based are CX , CX 93 and CX 108.

THE BELOW COST NATURE OF TIlS PROMOTION The actual prices resulting from this one-far-one promotion or 50S' ' price cut were belmv respondent' s costs. A glance at its cost data (CXs 88 , 89) and a comparison with its list prices to its customers (CXs 38 to 53 , inci.) , when these are cut in half, show that respondent's manufacturing costs, in general, for each of the jellies Jreserves and sizes, exceeded its real or constructive selling prices by approximately 357c to 50;1 of cost. This margin ,vas even greater because to manufacturing costs must be added shipping expenses since list prices included delivery (CX 90). (Counsel supporting the complaint assert that this promotion was financed out of respondent's other business activities. They so conclude because, since the value of the "free goods" was $516 577 and S829 005 was paid out in cash in lieu of "free goods " the promotion cost respondent nt least $1 345 582 (cf. CX 93). This is actually less than the total cost because counsel have disregarded the collateral aspects of the promotion such as cents off " coupons and cooperative (lisplay agreements. There is no doubt that a company without financial resources approach- , , NATIONAL DAIRY PRODCCTS CORP. 1353 1333 Initial Decision ing those of respondent could not have financed and survived a promotion like this one. J nst how disproportionate it was becomes apparent when reference is made to others of respondent' local promotional expenditures on jellies and preserves during the period January through :\'lay 1961 , excluding the areas involved in this case: Central Division $187 504 , Eastel' Division $289 264, Eastern part of Southel' Division $65 555 (CX 108). The public policy condemns the sale of "goods at unreasonably low prices for the purpose of destroying competition or eliminating a competitor. " (Robinson-Patman Antidiscrimination Act Section :J 19 Stat. 1526, 15 V. , Section 13 (a).J Sales below cost are not regarded invariably as a violation of the cited sedion of the Act. Justification, hmvever, must be found "in furtherance of a legitimate commercial objective, such as the liquidation of excess, obsolete 01' perishable merchandise, or the need to meet. a Imvful, equally low price of a competitor * * . . Sales belo\\' cost in these instances \vauld neither be ' unreasonably Jm'l' nor made with predatory intent. But sales made below cost without legitimate commerdal objective and with specific intent to destroy competition would clearly fall within the prohibitions of S 3. Uniteel States v. National Vail'y P,'oelucts CO'l)'. , 372 U. 29 at 36 (1962). As far us jellies, jams and preserves are concerned (Count I), respondent does not claim the defenses indicated. This is a temptation to assume the intent and to rule that this promotion, since it was a belmv cost promotion, violated Seetion 2 (a). I believe, however, that no such assumption need be made fur the respondent' s argument in defense actually provides the evidence of intent or of the promotion s tendency "substantially to lessen competition.

RESPONDE:\IT S ALLEGED PLTRPQSE OR REASON FOR THE PROMOTIOi' Assuming, as respondent urges so strongly, that it is a legitimate objective oJ a promotion to obtain authorizations in chain stores, this is not an exception for a price differential under Section 2 (a). Even though it be the policy of the Commission to require stricter proof of adverse effect on competition in the primary line, the statutory defenses afforded by Section 2 (a) do not provide for a price differential for the purpose here suggested. Moreover, 1 am troubled considerably by the stated objective and the manner in which it was sought to be accomplished. It must be clear that what respondent sought spec:ifically to avoid was a price break or reduced selling prices to :; ; Initial Decision 71 F.

the consumer by reason of this promotion. Its intention was that the primary-line customers were to be the sole beneficiaries of the promotion and its princi"al objective in the primary-line was the chain stores. Its objective was to induce j' major' accounts the Washington-Richmond area to give Kraft jellies and preserves shelf space on which they could be displayed and from which they could be sampled by consumers. " Section D, Part II, respondent' s Proposed Findings. This suggests that what is asserted as a legal defense or a legitimate commercial reason fact ,vas neither legal nor legitimately commercial. It is very much like a practice which has been condemned as unfair business. In substance, the chains, the principal target, were being paid "push money" 10 advance the sale of respondent's jellies and presei' ves over the sales of those of its competitors. (See statement on behalf of the Federal Trade Commission H. R. Report Kumber 631 , page 3 , 67th Congress, 2nd Session; American Distilling Co. v. Wisconsi" Liq"ol' Co. 104 F. 2d 582 , 585. (This is not the Sani€ as comn1crcial bribery where a store buyer is bribed in secret to purchase goods from a particular supplier and thereby betrays the trust placed in him by his employer (cf. Tr. p. 2307).J Respondent admittedly was buying shelf space (R.P.F. p. 50) and any shelf space it acquired had to be taken away from its competHors, This constituted injury to them since as respondent says in its Proposed Findings (p. 61), " (TJ here is a definite relationship between share of sales that a particular brand has and the share of shelf space that it has. " (See page 1355 below.

EFFECT OF THE PIW1JOTIQN ON II'ETlTION IN THE AREAS I VOLVF;D I have said above that respondent's intention had been to limit this promotion strictly to a one-free- with-one offer. I accept respondent' s position that it never intended that there be a retail After" the m"nllfactJte; gucus are i tho: bmri of thc )'etailet' , R 7n2nuJ'aeturer of beds or instHI;re, who 1-.2:' r.ont acted a Ilation-widf' r.advertising" campaign, has no IJow r to protect his ):oods f)'om lh clJ!duct o ' str. temenu of a Jr.an who has received from H rompeting TrH'nufHl'tuH')' a promise cf H commi ioll fot, tb sale of his product. Her in i the difference bet.\\e n mon )' expended for ..dvC 1:5inl; JJurpo d money pH:Li R5 commi 5iuns to sR:esrne d i,1 whirh thc ronsp,l\ or a'u,ence or consent on th!; PR t of the err_ployer plc.ys no J.)f,' The Hdvertiser ha eJ' ea\.ed the demand or has otimli)ated :( to tbe point wh re a purchase, seek to buy the g-ooj auveni,ed. At thi pair.t till.' (' ornrni, ion-g-i\"ir.g manufacturer reaches out R d (;ivelts the clonc.r.d into his own ehc:mlfl. It :5 .'s thougb one p rson hau cH efully ulUvated R fruit t and at the point of ripcning: some one else g-Rthen' tbe fru:t. Ag-r,in the jJractice of comm:s ion giving-, ",hethe,' with C' W:t;1out the Consent of the emp:",' C)', has a disastrous effect U Jon the spies force of p,'cdllcers who do not use the practice. " (67th Crmss, 2d Session, lI, R, ReIJOrt o. 63: , l' age NA'I'IONAL DAIRY PRODUCTS CORP. 1355 1333 Initial Decision price break and that the price break was financed by the dealers or distributors who relied on respondent's promise to deliver free goods to match goods purchased (Tr. pp. 127, 1021-1526 , 1567- 1568 , 1745). I accept also respondent's position that the response to the offer was so overwhelming that its production facilities were inadequate to supply the free goods and that it was forced thereby to make the offer good with cash payments instead of free goods (CX 80; Tr. p. 1749). However, as I have said above at p. 1347, I regard these unintended events as justification for viewing the competitive market as it probably would have been affected and not as it actually was. While, perhaps, under Anheuser-Bush 363 U. S. 536 , 289 F. 2d 835 , long-run effect on competition (; should be considered in appraising legality of a territorial price discrimination in the primary-line, the long-run effect contemplated is that resulting from the promotion or price differential as conceive.d and put into effect and not that which followed by reason of fortuitous occurrences resulting in a change from what was conceived and intended originally. Among the factors emphasized by respondent are its primary objective to attain shelf space in the chains which dominate the grocery business in vVashington and the importance of special promotions or deals in the industry, due, in large part, to the fact that many wholesale buyers concentrate their purchases on promotions.

The first of these factors, if attained, can have no effect other than adverse competitors. If respondent had not brought it out by the evidence, we would have knmvn, as a matter of COlllmon knowledge, that the modern grocery store hns a limited amount of shelf space which it can allocate to the commodities sold by it. AvailahiJity on the shelf and area permitted on it is the all-important stratagem in getting the shopper to buy any product. As a necessary consequence, increased stocking and display of Kraft jellies and preserves had to result either in a decre lse or in a complete elimination of shelf space for competing brands. The competing brands necessarily had to be those of the persons sought to be protected by the statute for the chain stores obviously would Eat have denied theil' shelf space to their own private brand goods. (The role of private brands is discussed in Section B of Part I of respondent's Proposed Findings. ) This is injury. The other of these factors, confinement of wholesale purchases to promotion or deal goods ipso facto eliminates purchases of U TIu': see The Bardelt ConijJunij, Docket No. 7474 , Fe\;ruary 7, l%,J (64 F. C. 534J. Initial Decision 71 F.

goods not promoted or not as favorably promoted. A combination of these factors sustained over a long period of time must have an adverse effect on competition. This is demonstrated by what actually transpired with respect to respondent's main competitors in the areas involved.

In the consideration of whether competition is or may be adversely affected, I have no sympathy for and do not condone any concept that a particular marketing area belongs to a particular company (Tr. p. 218). This is reminiscent of the days of the big rackets. A business concern established in an area should not adopt an attitude that a newcomer or a struggling competitor (however otherwise powerful) trying to build up sales in an area is "muscling in on his territory." Competition thrives on enterprise, whether the enterprise be that of a struggling competitor or of a newcomer trying to establish himself. (This does not authorize predatory price differentials directed against a company said to have a monopoly position in an area. Maryland Baking Company, C. Docket ",0. 6327, 52 F. C. 1679 , 1689; aff' sub 1201n lvlaryland Raking C01npany v. Federal Trade Corn missian 243 F. 2d 716. ) Consequently, any view that I take of what transpired here or of what might have transpired is not conditioned by an attitude that business concerns established in an area should be protected from competition by others not strongly entrenched or by newcomers.

",ow let us see what happened to the sales of the principal packers of jellies, jams and preserves in the areas involved. Old Vio' gin,:" P".cking Co. , Inc. In the January to June 1961 period, in the vVashington area, case sales declined about 23 tj; and dollar values of sales declined about 180/ from the same period in the prior year. The declines from the preceding half year were over 14 in both cases and dollar values. In the same area, in the July to December 1961 period, case sales declined about 5 ji, and dollar value of sales declined about 311 o/ from the same period in the prior year. In the second half of 1961, there was recovery from the first half of that year ll%% in cases and nearly 13 o/ in dollars. In the Baltimore area, for the first half of 1961 , case sales declined by more than 301c and dollar values declined by more than 27(/,c from the same period in the prior year and almost 841)0 in cases and more than 23% in dollar values from the preceding half year. In the second half of the same year, case sales declined by about 13 % and dollar sales declined by more than 10% from the same period in the prior year, but recovered 31'1% in cases and 1611% in dollars from the first half. For Richmond, NATIONAL DAIJY PRODCCTS CORP. 1357 1333 Initial Decision in the comparable periods, the case sales declined by about 4170 and the dollar sales values by about 40% in the first half and, in the second half there was a decrease of about 4. Sic in cases, but dollar sales values increased 4.3%. For Korfolk, in the comparable periods, both the case sales and dollar sales values declined by about 35% in the first half. There were recoveries of about 23% in case sales and 31 % in dollar sales values in the second half. The over-all totals of decreases for the comparable periods for the four cities Tan more than 30 /C' in cases and 27% /c in dollar sales values in the first half of 1961 (CXs 175-176, inclusive, as modified by inclusion of 4-pound sizes). While the sales decreases percentagewise for comparable periods were markedly lower in the second half of 1961 and the recoveries started in that half, we cannot ignore the fact that the promotion as conceived originally did not run its full course. If the 246 894 cases of Kraft jellies or preserves valued at $829 005 originally to be delivered as part of the promotion had been delivered, the arrest of the sales decrcases would not have been as marked.

I assmne that the case deliveries and sales would have been substantially less in the second half of 1961.' The assumption is supported by the fact that in the second half of 1961 Old Virginia was able to recover to some extent from the losses sustained in the first half. Sales of cases in each of the cities and dollar sales values increased as follows: \Vashingtol1 , cases more than 11 % and dollar sales values more than 12 )'C; Baltimore, cases more than 31 % and dollar sales values 1101'8 than 16;'0; Richmond cases more than 49 ( and dollar sales values more than 13%; Korfolk, cases 11101'e than and dollar sales values more than 75%. Overall, for the fOlll' cities the case sales increased about 35% and the dollar sales values about 30 d during the second half of 1961 over the first half of 1961 (CX 175). The substantial sales losses must have resulted both from cancellations of orders and substantially reduced sales to particular customers. The former is the subject of testimony by a food broker operating in Maryland, Delaware, the District of Columbia and a portion of Virginia adjacent to the District. He said that he had " quite a few cancellations due to the fact that (the customers) '''ere forced, more 01' less, forcer! to such attractive deal. that they could not ruu (his) promotion. " lie included among cancellations chainstores like the A & P Tefl Company ., In contnLst, th(, national stEtistic'i, Nr,\ionnl rr(' ''e!'s Aci5oc:ialioll Hq)o, RX 13\1d, how a rece sion in ' he seronrl half of JU60, a relJOlmd iYl the first half of JrJGJ, a! rl a falluack, bur not as much as in the prior year, for the stcond half 0: J061. Initial Decision 71 F.

and Jumbo Food Stores (Tr. pp. 468-469). Commission exhibits 180 A-M list particular customers, including chain stores, wholesale distributors and cooperative buying organizations, sales to which decreased substantially in the first half of 1961. These reductions were 44.9%, 50;'(" 38.4%, 51.6%, 42. !;h, 38.190, 52. 1%, 39%, 29.8%, 72.3%, 39.5%, 17. 8% and 22. 9:;i. Of course , contrary to what has been shown above, there had been no rebound of sales, it is conceivable that a question might be raised as to whether it was the promotion which caused these losses. Although the question might appear to be frivolous in view of the particular nature of the promotion, the direct testimony of cancellations and the rebound in the s eond half of 1961 satisfy me that the losses in the first half of 1961 were the causal effect of respondent' s promotion.

This is real and substantial injury and it would have been worse and more prolonged had the promotion run its full course as contemplated originally. Respondent, in its analysis of Old Virginia s sales losses in 1961 , argues that Old Virginia s sales fluctuations are characteristic over the years. It emphasizes that sales peaks are reached in response to promotions and it presents a chart to demonstrate all this graphically (p. 80, Proposed Findings). While the chart does portray a series of intermittently recurring peaks and sharp drops, if the horizontal lines of the graph are drawn into the chart (as they are in Charts 5 , 6, 7 , 8 , 9 , pages , 29, 30, 31, 32, Respondent' s Reply Brief), it becomes at once apparent that the prior pattern of peaks and drops is altered by the appearance of much lower drops during the first half of 1961. Theresa p,.iedman Sons, he. The staistical evidence for this competitor is less satisfactory than that for Old Virginia Packing Co. Inc., because the Friedman company is much smaller and its sales coverage of the areas involved was not as complete as that of Old Virginia. For example, in J m1Uary 1960, before the Kraft promotion, Friedman made no sales in Richn1ond, Virginia, although its sales had been $4 500 in the same month in 1959. In February of 1959, 1960 and 1961 , it made no sales at all in Richmond. Then, in :lIarch 1960, still before the Kraft promotion, it made no sales in Riehmond, although it had sold $4 860 in March of 1959. K 0 sales were made in 1959 01' 19GO in Richmond April, May, July, September and December. June 1960 sales were $135. , whereas there had been none in June of 1959. Similm'ly, August 1960 sales were 81 250 in Richmond, whereas there had been none in 1959. In October 1959, the Richmond sales were $313. , and in K ovember 1959 they were $571, whereas there NATIONAL DAIRY PRODUCTS CORP. 1359 1333 Initial Decision had been none in either of these months in the preceding year (exs 184-A 184-B). This sporadic picture can he expected for a small company which may not concentrate throughout a year in a particuiar area or may have limited distribution. Consequently, the summary figures for the four areas involved here, although presenting a general picture, may be regarded as one more accurate of what transpired. During the period of promotion, from January through June 1961, Friedman sustained an average 33%% loss of sales in dollars from those in 1960, the year immediately prior. Although there had been a growth of 42.8 % from 1959 to 1960, the dollar sales for this January-June 1961 period were only $236 791.45 , almost $12 000 less than those in 1959 , and over $118 000 less than those in 1960. In the second half of 1961, there was a partial recovery. The sales loss in that period was only 17.8% of the sales in the same period in 1960, and the dollar value of sales exceeded those of the same period of 1959 by more than $4 000. The figure was $51 554. 22 less than that for 1960 and almost as much as the 1960 increase over the 1959 sales. For the entire year of 1961, there was a percentage loss of 26. from the dollar sales of 1960, and that year s total was even less than the total for 1959. In dollars, the 1961 reduction of sales was $169 607 as opposed to the 1960 increase over the prior year of $162 341. 27. (See reference to N. A. Report, RX 139- , footnote 7, page 1357 , this decision. ) All the Joregoing figures are for the Baltimore, Washington, Richmond and Norfolk areas combined (CX 184- CX 184-B). While Friedman testified that sales to Capital Wholesale Grocers of Baltimore amounted only to $3 575 in 1961 as opposed to sales exceeding $10 000 in both 1959 and 1960, and that no sales were made to that account in :I'larch, May, June, July, August, and September of 1961 (Tr. p. 457; CX 185-F), there is no direct evidence that this was due to Capital' s purchase of Kraft goods on the promotion. The only evidence is Friedman s testimony that he saw the Kraft merchandise listed in Capital's catalog.

The evidence is more direct to the effect that Giant Food Stores reduced its purchases in the first six months of 1961 by 35.8%. Its Director of Grocery Purchasing told Friedman that Giant just wouldn t be able to promote any Aunt Nellie preserves for a period of time" because Friedman had told him that he couldn offer any promotion comparable to Kraft' s (Tr. 1'1'. 420 , 422). The significance of Giant s reduction of purchase becomes greater when one recalls that Aunt Xellie was the private trade name of the preserves sold by Friedman to Giant (Tr. p. 395). The failure Initial Decision 71 F.

of Friedman to resort to promotions during the first half of 1961 is a dominant then1€ of respondent's effort to minin1ize the sales losses during that period (Proposed Findings, pp. 97 et seq. However, here, as in all other situations confronted with a promotion like respondent's, a competitor reaches a point \V"here it is futile or impractical to attempt to counter the attack. The percentage decreases for the first half of 1961 from that of 1960 custained by Friedman in chain stores and group or wholesale buying organizations ran 6. 1 35.8%, 66.4%, 43. 6%, 20%, 67.8%, 49.970 as far as the Baltimore and Washington areas ,were concerned. For the second half of that year, with the exception of Giant Food and Potomac Cooperators, the loss percentages involving the same customers and areas \were about the same as those in the first half (CXs 185- G). That for Giant (for whom the private label, Aunt Nellie, was packed) was almost erased in the second half of 1961 and that for Potomac Cooperators was about 33% % greater than it had been in the prior half year.

The various decreases found show injury, and the decreases or losses would have been greater and would have had a more permanent or lasting effect had the promotion run its full course. Respondent points to RX 225, RX 226, RX 227, as proof of the fact that Friedman s sales increased in 1960 from 1959 and in J 961 from 1960. This, however, does not minimize or alter the losses sustained in the four areas involved. The figures alluded to are total figures for all areas in which Friedman operated. The fact that Friedman grew on an over-all basis in these years serves only to emphasize its competitive injuries in the particular areas with which \ve are concerned.

M. Palane?' Son. This company also ,vas a relatively small competitor. Its sales figures are complicated by a special promotion package, a decorated drinking glass (Tr. p. 499) caned ":,Jr. IVlagoo" aimed at children and their influence in persuading parents to make a purchase. If the Mr. Magoo sales are included in total sales figures for Polaner, it may be argued that its sales '\were not injured as much as contended. For this reason I give percentages excluding :Mr. Magoo and percentages including it. Also, the exhibit on which the percentages are based, CX 885 includes pickles and relishes. CX 886 shows that the proportion of pickle and relish sales to total sales is practically constant except for the first half of 1961, the perioe! of the Kraft promotion, when it jumped by several percentage points and also for the second half of 1961 , when it was stil up, if not as much. These NATIONAL DAIRY PRODUCTS CORP. 1361 1333 Initial Decision dislocations of the relationship support a conclusion that the jelly and preserves sales were adversely affected in those periods. Consequently, the inclusion of pickles and relishes in CX 885, in my opinion, does not impair its statistical value as an index of the effects on Polaner of the Kraft promotion. In January 1961, the first month of the advance publicized Kraft promotion, there were no Mr. Magoo sales and total sales dropped 29.2% from the January 1960 sales. The February 1961 sales, excluding Mr. Magoo, dropped 20.9% from February 1960, but Mr. Magoo was introduced. The result was that, instead of having a loss in February, the total, including Mr. Magoo, resulted in a 5.2% increase over the same month in 1960. Except for this introductory month of February 1961 for Mr. Magoo Polaner sales kept going down for succeeding months in 1961. In March, the loss was 37.3% without :\iagoo and 34.6% with Magoo. In April the loss was 26.4% without Magoo and 17.7% with :Vlagoo. In May, the loss was 30.2% without :VIagoo and 15. with :Vlagoo. In June, the loss was 20.1 % without Magoo and 2% with Magoo. Thus Magoo did help Polaner substantially but not suffciently to even up its sales losses in the months of the first half of 1961 from those in the first half of 1960. The averages for the first half of 1961 show a 27.5% drop from the first half of 1960 if Mr. Magoo is excluded, and a 16% drop if it is included. For the second half of 1961 , as opposed to the second half of 1960 (a recession period, N. A. Report, RX 139- , footnote 7 , above), there is a 12. 1c decrease excluding Mr. Magoo but, if Magoo is included, there is an increase of 8.2 %. (The same A. Report shows a rebound in the first half of 1961 and the second half of 1961 , although lower than the first half, is higher than the second half of 1960. ) Overall, for the entire year, without Nlagoo, there is a decrease of 20. 59+) and, \with ?dagoo, there is a decrease of 4. 8%. It appears that the Jlagoo promotion helped O a certain extent to reduce Polaner s losses, but even with it, the losses were substantial and they would have been greater without it.

Here are my summary reflections on these three competitors Old Virginia, Friedman and Polaner:

These firms, the latter two being relatively small and the first I110derately large and dominant in the area, were aggressive, informed merchandisers. There \vas nothing critically wrong or inept about their activities. They had well-established positions in the affected areas. j\ ot only is their failure to meet respond- Initial Dccision 71 F.

ent's promotion with a counter attack irrelevant, but it is demonstrative of the serious anti-competitive character of respondent' promotion. There is testimony of the futiliy of any effort to meet this plo111otion, and even if there ,were no such testimony, a glance at the financial statistics of these three companies and a comparison of them with the CGst of respond'2nt' s promotion strongly suggests that if Polanel' and Friedman had engaged in a similar promotion, they 111ight well have been out of business by the end of 1961, and if Old Virginia had engaged in a similar promotion, it ,vauld have been seriously and permanently injured. Jt needs litte imagination to conclude that similar promotions by these well-established brands in these areas would have been met with much greater j'response than that with which the Kraft promotion was met, Kraft not having had that degree of retailer and consumer acceptance in the area which the others had. To paraphrase Borden (F. C. Docket No. 7474), page 29 , opinion (64 F. C. 534, 5701, " (TJhe conclusion is inescapable that respondent' s price reduction was made (presumably) with full knowledge that its competitors would not and, in fact, could not meet that price and remain in business." (The word 'I presumably " inserted by me.

Although there is some e\"idence of impact on T. \V. Garner and other regional sellers. I do not regard it as necessary to go into that in vie,v of the detailed showing of injury to the three sellers discussed above. (Tr. pp. 610-615; CXs 133- 145- , and 115-1Yl-Q; RXs 31- The following is a quotation from respondent' s brief in support of its Proposed Findings of Fact:

Finally, Kraft's unexpectedly la!xe "ales wcrc caused not by Kraft' s promotion itself but by the totally unusual and unexpected decision by certain wholcsalers and retailers to finance their resales below their then existing costs (RPF 52-54). But fol' this decision, Kraft s products, in acconlance with usual practice in the trade, would have been resold at regular retail prices ane! woule! have moved out of stores at a normal rate; such retail movement would have generated no unusually large demand at the warehouse level for Kraft' s products. To the extent that competitors' sales declined as the result of thjs movement of Kraft s proctucts, this, not Kraft s promotion was the cause.

This is the theme of respondent's defense, respondent's characterization of this promotion, respondent's entire argument and respondent's contention that even if a violation be found, no order should be entered. I cannot accept this reasoning and regard it as fallacious. The sales were large because of the pron10- NATIO:-AL DAIRY PRODUCTS CORP. 1363 1333 Initial Decision tion. Although there was testimony to the effect that the chains and distributors could not resist a promotion as good as this one it seen1S to me that such testimony ,vas quite unnecessary. Ko one engaged in business for the purpose of making 1110ney from the resale of goods could refuse rationally to take full advantage of an unlimited opportunity to buy a good, well-advertised brand name article at half price to the fullest extent of his financial ability and warehouse capacity. It was this half price and not the decision by certain wholesalers and retailers to finance their resales which resulted in the large sales. Kraft' s experienced executives should have been aware of the distinct probability that such large sales would follow an offer of this nature. COUNT II WHAT IS YOGCRT? Yogurt is a cultured or fermented milk product having a custard like consistency. It is a refinement of home-made sour or clabbered milk and is produced commercially by the addition to milk of what is called a yogurt culture for the purpose of fermentation. It is an " old world" product introduced comparatively recently into the United States as an article of commerce. The record suggests that it first was sold commercially in about 1930 (Tr. pp. 1245-1246, 1278 1280). Its sour milk nature is made more palatable by the addition of flavors, syrups, extracts or fruits. Its sale is promoted as a food, or as a health food, or as a dessert.

THE CHARGE This count is concerned with alleged price differentials at which respondent sold yogurt of like grade and quality to different purchasers in the New York mail'opolitan area. It, like the other counts, involves the dprimary line, Respondent' s Breakstone Foods Division processes yogurt in Youngsville, Kew York, and distributes it to purchasers located in States of the Eastern Seaboard of the United States, South Atlantic States and the District of Columbia. The price comparisons upon which this case is based are concerned with the New York metropolitan area (hereafter referred to as C\ew. York), Kew England States excluding Fairfield County, Connecticut, the areas served out of respondent' s Philadelphia, Pennsylvania branch, and the State of Florida and lower South Georgia. It is not denied that price differentials were in effect from May , 1961, until sometime past the middle of 1962. It is conceded 1364 FEDERAL TRADE COMMISSIO DECISIONS Initial Decision 71 F.

also that these resulted from reductions which became effective May 1 , 1961 , in New York, and a failure to increase prices there in November 1961 when respondent raised them in other areas (Supplement One to Pretrial Order dated February 15 , 1963 Supplement entered October 25, 1963).

THE YOGUHT MARKET A consideration of all the facts leads me to conclude that yogurt is a sectional product having its greatest sales and popularity in cosmopolitan areas and that :Le\v York is the primary sales area for yogurt in the United States. This is the area in which it is alleged the unlawful price differentials were maintained by respondent.

Apart from respondent, which vends its yogurt through its Breakstone Foods Division, there are only two other processors and vendors of yogurt with which we are concerned. As a 111atter of fact, apart from respondent, they appear to be the only substantial firms in this business in the cnited States. One is Dannon Milk Products, Inc., since 1959 a wholly owned division of Beatrice Foods, Inc. (Tr. pp. 1239-1241). Beatrice Foods, like respondent, is one of the 500 largest industrial corporations of the United States listed in The Fortune Directory (CX 1). Dannon was started in New York in October 1942 hy immigrants who had been in the business in Europe (Tr. pp. 1241- 1246) .

The other is Lacto Milk Products Company, a company relatively tiny \vhen compared to respondent and Beatrice Foods. It has been identified with the same family which started the business back in 1930 under the name Oxy-Gala. Oxy-Gala went into bankruptcy in 1937 hut the business was continued by Lacto. It is said to have been the first yogurt manufacturing firm in this country (Tr. pp. 1278-1280). Since 1958, it has received financial backing from a very wealthy food broker, one of the foremost in New York (Tr. pp. 1321 , 1341). He now owns 50% of the business (Tr. p. 1311).

I have said that yogurt appears to be a sectional product having its greatest acceptance in cosmopolitan areas. The sales statistics in this case emphasize this. Breakstone alone, of all three companies, sells it in any quantity in areas outside of New York. However, the bulk or concentration of its sales is in Kew York. These seem to have reached that proportion somewhat slowly in comparison with the growth of a1l sales. Kew York sales were 22.4% of all in 1959 33. 170 of all in 1960 , and 4770 of all in ..! .. , ..

NATIO!\AL DAIRY PRODUCTS CORP. 1365 1333 Initial Decision 1961. By 1962, more than half of all its sales, 51.4%, were made in that area. Proportionally, Breakstone s sales increases in the years 1960, 1961 and 1962 were greatest in New York (CX 868). On the other hand, Dannon, consistently since 1959 and presumably until the present time, has made more than 90 % and as high as 95.5% of all its sales in :\ew York (CX 869). With the exception of Baltimore, it seems that Lacto s sales are mainly in the boroughs of J\ ew York City other than Staten Island and, in addition, in Westchester County and Long Island, areas adjoining New York City (Tr. p. 1281).

THE AREA INVOLVED The price differential giving rise to the charge of violation confined to New Yark. It seems to me that we cannot disregard as a factor that this area in which the alleged violation is said to have been committed is the primary yogurt sales area in the United States. Indeed, it seems as though meaningful competition in yogurt exists oniy here (Tr. pp. 1242, 2097-2098). THE DETAILS OF THE PRICE DIFFERENTIAL The following is a comparison of respondent's yogurt prices to purchasers in the designated trading areas for the time periods set forth:

Prior to Effective Effective ::Iay 1, 1%1 !llay 1, 1961 November13 1!J61 : Scm' I Stm" I S:orc Arch Jobber Job 085New Yark metro- Plain -- 11 . .13 I . politan area. Flavored 14 .1G I .lJ5 115 .The XfOW England Plain .... 13 ; .15 .13 145 . 165 165 States-exclud- Flavored 13 ! .15 .13 i . 145 . ing Fairfield County, Conn.

(Also Albany, Y. after July 1961.) The area served Plain ......

out of the Flavored Philadelphia Pa., branch.State of Florida Plain - 135 16 I .135 .Hi .15 . and lower south Flavored 135 Georgia.

(Breakstone s "Jobber " and "vVal'chousc " prices are the same. All above prices are for the half-pint container size. Initial Decision 71 F.

The prices for Breakstone yogurt in half-pints in the New York metropolitan area were increased April 23 , 1962, and July , 1962:

Effective April 23 , 1962 "C; -;2 I E Tobbe!' Stm" DoOJ' i Johber Store-Door Plain. ... 115 I Flavored. 145 I These price differentials resulted from price reductions in New York in May 1961 and from a failure to incfease prices in November 1961 , when prices were increased elsewhere. There is no dispute about this. Respondent contends only that they did not have the required adverse or probably adverse effect upon competition within the meaning of Section 2 (a) of the Clayton Act, as , it ap-amended. In addition, not like in .iellies and preserves pears that Breakstone made sure that the reduced prices were not below cost and that a profit would (and did) result (Tr. Pl'. 2078, 2099-2102).

THE SUPPORTING EVIDENCE In support of the charge, Commission counsel rely mainly on a table of comparative prices of respondent' , Lacta s and Dannon yogurt in the area involved (CX 866) : a table of alleged " percentage increases" of Bl'cakstone yogurt sales in New York during the period of price differential (CX 868) ; a table of alleged percentage declines " of Dannon yogurt sales (CX 869); two tables of Lacto yogurt sales (CXs 870, 871) ; comparative sales by Dannan and Lacto to particular customers before and during the time when the differential was in effect (CXs 872- to 872- 873- to 873-J) ; a table of sales by respondent to .i jobbers for resale (CX 216-D) ; comparative sales of the three companies in 1961 and 1962 (CX 874) ; comparisons of Lacta s growth with that of Breakstone over a three or four year period (CXs 868 871 877 879) ; and a considerable amount of oral testimony originating with Lacto, tied into certain statistical material (Tr. Pl'. 1278-1449, 1898-2004).

TREND OF BREAKSTONE SALES The offending price differential, it is to be recalled, started May 1, 1961. Breakstone s New York share of its total yogurt NATIONAL DAIRY PRODUCTS CORP. 1367 1333 Initial Decision sales had been 22.4% in 1959. Its New York share of all sales increased to 33. 1 % in 1960, and continued to increase at percentage rates bet\veen 27.6% and 30.8% in January, February, March and April of 1961. A much sharper increase of the New York share of all sales started in May 1961 , the share leaping to 48.7%, and the generally proportionate share of just less than half or just more than half of all sales was maintained consistently during' all succeeding months in 1961 and 1962. (A word of caution is necessary here. The percentages are not mere sales increases; they are the ratios of N ew York sales to all Breakstone yogurt sales. ) Breakstone s 1960 sales in Xew York increased 138.6% over 1959. This sharp rate of increase was not maintained in 1961 , the year in which eight months of the price differential prevailed. The rate of increase for that year dropped to 123.9%. However, in the first four months of 1962, while the price differential still was in effect, percentage increases ran fyom 175. to 231.8%. Beginning' in May 1962 , the percentages dropped sharply: 44.5% in May, 14.4% in June and for the balance of that year decreases ranging from 7.1 % to 1.1 % were encountered. However, when we compare these movements in New York with the statistics for areas elsewhere, we find that although the percentages are greater in the :\ ew York area, the pattern of both increases and decreases runs very much the same (CX 868). These percentages 01' ratios do not represent adequately the trend of Breakstone s yogurt sales nor the effect of the price differential on them. If we examine the column for Xew York sales in CX 868, we find that, beginning with May 1961 , the first month of the price differential, there was a striking increase of Breakstone sales to $58 000 from 000 in the prior month which went to $91 000 in June (the best month for yogurt), but dropped back to $72 000 in July. Sales in succeeding months of 1961 were August, $67 500; September, $79 000; October, $58 700; November, $53 900; and Dec:member, $61 500. In 1962 , sales were January, $51 700; February, $57 300; :lIarch, $84 600; and April, $71 200. Following the April 23 price increase, sales increased to $84 500 in May; $104 000, in June (the best month for yogurt); but they dropped to $66 700 in July. Following the July 30 price increase, sales in August were $63 000; in September, $73 000; in October, $56 600; in November, $53,400; and in December, $60 800. Thus, initially, the price differential might appear to have been responsible for a sharp increase in sales in May 1961. This increase did not continue materially following the peak attained in June 1961 , the month following the price increase Initial Dccision 71 F.

and a normally high month anyway. Those June sales never were exceeded except in the same month in the following year and except for June in each year, making due allowance for overlappings between months, the position attained in May 1961 seems to have remained more or less constant until the end of 1962. TREND OF DANNON SALES CX 869, the chart concerned with Dannon yogurt sales, shows a 20.3% increase of sales in all areas in 1960 from 1959, but a much smaller percentage, 15.8%, in New York. Separating New York from the other areas, it appears that Dannon had a 63. increase in those athe" areas in 1960 over 1959. The significance of this is highlighted when one bears in mind that only 6.2% of all Dannon sales were in areas other than New York. Going on to 1961, we find that Dannon enjoyed percentage increases in and out of New York in January. But, beginning in February, which was before the effective price differential, it suffered sales decreases in every month not only in New York, but also in "all areas.

The prior sharp growth in sales in areas other than New York dropped from 63.9% in 1960 over 1959 to only 13.4% in January 1961 , and sales fluctuated between decreases and increases in the succeeding months of 1961, both before and during the time of the price differential in New York. These fluctuations ranged from decreases as low as .7% and as high as 10. 1 % to increases as low as .5 % and as high as 15.3 %, almost equally divided in 9 of the remaining 11 months of 1961. (The table does not show percentage increases or decreases for " all areas " and areas other than New York in the months beg-inning and following N ovembel' 1961. It does show, however, fluctuating or alternating percentage increases and decreases in New York following the month of October 1962.

DANl\ON S SALES AND BREAKSTONE S PRICE DIFFERENTIAL If we examine CX 869 for Dannon yogurt sales in the same manner that we examine CX 868 for Breakstone yogurt sales, we find that following' June 1960 , long before Breakstone s May 1961 price decrease, Dannon sales in N ew York started to decrease and continued to decrease until December 1960. In 1961 , until the end of April 1961 , just prior to when the Breakstone price differential became effective, sales continued to be lower than they had been in the months before July 1960. We find the following: July 1960, $112 500; August 1960 , $419 120; September 1960, $396 KATJONAL DAIRY PRODUCTS CORP. 13';8 1333 Initial Decision 000, a decrease from $419 120 in August; October 1960, a further decrease to $361 700; :-ovember 1960 , a further decrease to $350 200; December 1960 , a further decrease to $306 600; January 1961, a slight increase to $324 800; February 1961, a further increase to $334 600; March 1961 , a further increase to $401 000; all still much lower than the August 1960 figure of $419 000. In April 1961 , the month before the price differential, sales dropped to $372 700, but in May 1961, the month in which the Breakstone price differential started, the sales increClsed rather than decreased, to $430 900.' In succeeding months the sales were June $427,400; July, $341 900; August, $329 700; September $318 760; October, $307 200; .\ovember, $305 100; and December, $264 200. This pattern of Dannon s sales in New York ,vas not significantly different from that of its sales in other areas because, beginning in July 1960 there had been almost a progressive decline of sales from $31 300 in June to $20 800 in December. In 1961 , the sales in the other areas ran January, $24 000; February, $25 000; March, $32 000; April, $26 GOO; and in May there was a jump (as there had been in New York) to $33 300. This jump was not maintained and sales were considerably lower in the succeeding months of 1961. These patterns being what they were both in cmd out of N e," York it cannot be said with any positive assurance that such sales decreases as Dannon encountered in the i\ York area were attributed to the price differential. DANNON & BREAKSTONE SALES TO THE CHAINS The tables of comparative sales by Dannon to A & P, Bohack Acme and Grand union, while they do show uniform decreases of sales by Dannon to these chains, show that they actually started in about the middle of 1960, almost a year before the Breakstone price differential became effective. The comparatively large percentage increases for Breakstone, to the extent that they are shown in the tables, are not truly indicative of the trend. They are not month to month ratios but ratios of corresponding months in preceding years. The Breakstone sales to these chains had been relatively small in the prior years. Lnder such circumstances, a small dollar increase in sales could appear to be a very large percentage increase in sales. For example, in July 1961 , Breakstone sales to The Bronx A & P dropped from $7,400 in the prior month to $5 700, but the table makes it appear that there was a 8 One view of this increase in dollar saies may that Dannon s price increase had to incrCfJse the number of dollars; another view may be thrt Dannon s sales were either main" tained or increased despite its price increase and BrEflkstone s price decrease, Initial Decision 71 F.

502 )' increase of El'eakstone sales. In succeeding months Breakstone sales io ihat Division of A & P hovercd around 000 to $6,000. Similar pattel's are found in its sales to other divisions of A & P. The large "corresponding month" percentage increases result only from ihe fact that in thc months prior to lVTay 1961 , Bl'cakstone s sales to these divisions had been quite small and there had been none to either the Newark or Paterson divisions. (CXs 872- As far as Bl'cakstone sales to Bohack are concerned, \ve find them running February to December of 1960 from as 1m\' as about 100 to as high as $2 200. In 1961 , in January, February, l'larch April and May, they ran about $1,100 , $1 000 , $1 300 , Sl 300 500. In May, the beginning of the price differential, they hac! risen less t.han $300. In June (the good. '!og",t m. month), they alnlost doubled, but they started to fall back again during the remainder of that year with the excepiion of September. (CX 872- Sales to Acme during 19(10 , with the exception of June when they ran over $1 300, consistency were about 01' sharply below 000. They continued on the low side through January, February, 1\iarch and April of 1961. Beginning in lVlay, Brcakstone obtained relatively better representation thel' e, During the months following, while Dannon sales to l\Cme continued their more of less irregular drop and Breakstone s representation continued substantially higher than before, Dalmon s irregular dl' was only a continuation of the progressive drop which seems to have siarted in 1960. (CX 872- As far as Grand Union is concerned (CX 872-H), \\e find that what had been a wholly insignificant Breakstone representation during al1 of 1960 and until June of 1961 , was increased from $58:) sales in .June 1961 to $2 6:)0 in July; $2 JOO in Augusi: 500 in Sepiember; $1 700 i'l October; and Sl 500 in K ovembel' The fallacy of the peJ:centage n1cthod of argument by comparing corrcsponding months " in a situation of this sort (not like that in Count 1 of this proceeding) becomes npparent when we look at ex 872-H and find that Breakstonc sales, while they increased from $685 in June 1961 to ani)' $2 660 in July of 19G1 , arc portrayed as being an increase of 10 11.6S,. The doubt that the foregoing analysis casts on the alleged adverse effect of the Breakstone price differential on Dannon sales and the conviction that I have that such decreases of sales as Dannon might have encountered are ascribable probably to causes other than the price differeniial are fortified by a remark . .

NATIONAL DAIRY PRODUCTS CORP. 1371 1333 Initial Decision made by Dannon s Treasurer in a letter to the Federal Trade Commission, originally intended to he confidential (CX 338-A), transmitting various sales data: "Since Ive are not the original complainant, you must have other sources of inforn1ation." I infer from this that Dannon s Treasurer, who must have had a better internal perspective of the reasons for its sales declines, wanted to be very careful not to pin the responsibility for them on the Breakstone differential. At the hearing (Tr. p. 1253), he testified that on the basis of " Personal observations in the stores, letters fronl consumers, reports from: . drivers " the loss of business \vas due primarily to the fact that a competitive product was being sold at a much lower price than our producl" However, it was brought out later in his testimony tl12t price fluctuations Sllch as this are common (Tr. pp. 1262-1263) and that Dannon had just increased the price for its yogurt (Tr. p. 1263). Itestified also that Dannon lost no authorizations, that its product "was sold in substantially all food stores in the metropolitan area" after Breakstone s price cut, and that Dannon s market share in ew York was aboclt 01' higher than 859'0 in 1959 and all years following- (Tr. pp. 1271-1272).

mend OF LACTO SALES Lacto sales (CX 870) (10 not show a decrease in 1961 , the year in which eight months of the price differential prevailed. During that year, sales increased by nearly:r $71 000 from the preceding year. It is only in the calendar yeai' 1962, after the price differ- €ntial had been in effect for eig-ht months that we note a decrease in Lacto sales. While CX 870 shows a decrease of $74 200 in 1962 fronl 1961, this is only a neutralization of the sales increase during the year of price differential and merely a recession to just under the 1960 level of sales. (1960 sales had almost tripled those of 1959. ) CX 871, which goes into a month by month analysis of Lacto sales in the five years 1958-1962 , inclusive, shows "corresponding month" percentage increases for every month beginning' in 1958 and until and including October 1961. CThis was the period following the entrance into the finn of the wealthy New York food broker (p. 1364 , this decision). ) In May, June July, August, September and October 1961, when the greatest spread of Breakstone s price differential existed over the longest period of time, Lacto s sales were ;vIay, 827 200; June, 827 300; July, $23 000; August, $23 300; September, $21 300; October $22 100, all higher than all but two of the months in Lacto s history. It was only in ovember of 1961 that Lacto s sales started Initial Decision 71 F.

to decrease, hut, during the succeeding months and until September of 1962, the monthly sales did not vary precipitately. (CX 874) However, this declining pattern does not seem to be very sharply different from the declining pattern experienced by both Dannon and Breakstone in corresponding months. ALLEGED DECREASES OF LACTO SALES TO PARTICULAR CUSTOMERS Next, in support of Count II, counsel supporting the complaint present a number of briefing charts (CXs 873- J, inclusive) purporting to show percentage decreases of Lacta sales to particular customers in 1961 from those to the same customers in 1960. Kumerous customers are shown and the months dealt with in each of the years 1960 and 1961 are July, August, September October and November. Weare not informed of the sales trends in December 1960 and 1961 and in the months of January-June 1960-1961, inclusive. The customers are selected and, in general decreases in particular months in 1961 are cited to corresponding months in 1960. Isolated increases are shown, but these may be disregarded. The decreases run in various percentages and, in some instances, as much as 100 7c. This means that no sales had been made in particular months of 1961 whereas sales had been made in those months in 1960.

These exhibits do not present a complete statistical picture. The Breakstone price decrease started in May 1961, but the charts fail to show any figures for Mayor June in either 1960 or 1961. There is no substantial or credible evidence that the sales decreases experienced by Lacto in these stores in the months shown resulted from the substitution of Breakstone yogurt for Lacto yogurt. Lacto s Sales 1Ianager s glib and casual testimony that stores had been lost to Breakstone was fully discredited on cross-examination (Compare Tr. pp. 1374-1394 with 1401-1440 and 1899-1998). For a11 we kno\v, these stores substituted Dannon yogurt, not Breakstone, or perhaps just stopped selling Lacto yogurt or had decreased demands for iL Perhaps the shifting populations of New York had something to do with losses of particular stores. The exhibits show that Lacto started to sell to most of these stores in :Ylay of 1960. Two first were sold in April of 1960, fourteen in May 1960 , four in June 1960 , two in July 1960, two in August 1960, and one in September 1960. Six stores are not designated as to time of first sale. The testimony is that when stores first were opened as Lada accounts, they were given special promotions such as "one free with one " or "cents off" deals (Tr. pp. 1401 , 1409). Commission counsel have stipulated, with respect :-ATIO AL DAIRY PRODUCTS CORP. 1373 1333 Initial Decision to the underlying or source exhibits, that bulges in and prior to July 1960 "may be due to a one-free-for-one promotion and after that date, due to a five-cent-off labe)" (Tr. p. 1308). It may be that the 1960 sales were merely store entries induced by special promotions and lost when the promotions ended. These exhibits and an additional set, CXs 893- , C , purporting to show "Customers lost by Lacto " became the subject of extended testimony by Lacto s Sales Manager. As noted above his credihility was sorely discredited. It appears affrmatively that certain customers were lost because of personality differences disputes between Lacto s drivers and the customers, or just because Lacto did not sell (Tr. pp. 1426 , 1951 , 1996, 2011-2012 2023-2025, 2223-2225).

THE STOREKEEPER TESTIMONY Commission counsel deprecate the purport and meaning of testimony by certain individual storekeepers called on behalf of the respondent. They confuse also the untutored inaccuracies of untrained witnesses with the precision found in the testimony of those well coached. (Incidentally, these storekeepers were the only storekeeper witnesses called during the entire hearing on this count. Commission counsel did not call any. ) Proper interpretation of their testimony requires that allowances be made for their limited knowledge of the English language. The reporter s type'lvritten transcript of what they said is not enough. :VIy personal familiarity with this type of witness and the fact that I heard the inflections of tone and observed the gestures while the testimony was being given justifies my making the following interpretations, which I have concluded are credible: Storekeeper witness A testified that Dannon far outstripped all other yogurts in sales and that, for this reason, he discontinued selling both Lacto and Breakstone. As far as Lacto was concerned, it was discontinued because it just wasn t selling, had to be taken back and not because of Breakstone s price cut (Tr. pp. 2011-2012). Although Breakstone had been discontinued, it was restocked the week before he was called to testify (Tr. p. 2013). Breakstone does not sell well and it was stocked because a particular customer wanted it (Tr. p. 2015).

Storekeeper witness B testified that he is not selling Lacto now because Lacto stopped stocking him. This was because Lacto which did not sell, spoiled and too much of it had to be taken back. His original stocking of Lacto was prompted by a special sale (Tr. Pl'. 2023-2025). Although an attempt was made to im- Initial Decision 71 F.

pail' this witness s credibility by suggesting he was given a special deal to induce his testimony, it appears that he had not been called to testify by his jobber but by a representative directly connected with Breakstone. While he did get a deal, the deal was obtained from his jobber and not from Breakstone. Deals customarily are given to him when he asks for them (Tr. Pl'. 2026- 2029) .

Storekeeper witness C testified that he stocks only two brands of yogurt, Dannon and Lacto, and that the Lacto he stocks consists only of flavors or sizes not put out by Dannon. Dannon is by far the more popular brand. Lacto sold in quantity only when a half-price sale was in effect. He never di&Cntinued Lacto because of the Breakstone price cut. During cross-examination, it \vas brought out that he had not even known the Breakstone representative who had requested him to testify. As far as either Breakstone or Lacto sales were concerned, these were a factor only when specials were run. Other than that, the name for yogurt sales is Dannon and it sells over other products "ten to one (Tr. pp. 2031-2040).

Storekeeper witness D sells Dannon yogurt at this time. Some years ago, in response to a "five-cents off" special, he stocked some Lacto. lie stopped handling it because he couldn t sell enough of it. On two occasions he had stocked Breakstone, which he acquired from a jobber. He stopped selling that for thc same reason-it did not sell. He has an interest in another store in which Breakstone yogurt is sold and assumes that that store sells it because it has a demand for it. On cross-examination, he testified that his experience with Breakstone had been both prior and after his experience with Lacto (Tr. pp. 2117-2123). Storekeeper witness E testified that he sells only Dannon yogurt in his store. For short intervals he had sold Lacto and also Breakstone. He started to stock Lacto in response to a "buy-oneget-one-free" deal. He stopped handling it about three weeks after the deal stopped. This was because the product did not sell and too much of it had to be taken back by the Lacto representative. It was not because of a Breakstone price reduction. He did not sell any Breakstone in 1961. His experience with Breakstone was the same as with Lacto-it just did not sell and he discontinued carrying it. The demand for Dannon is so good that even when Lacto was being given away "one free .with one " Dannon lead in sales, although they might have dropped 20%, was maintained (Tr. Pl'. 2125-2130).

Storekeeper witness F testified that he handles no yogurt ex- NATIONAL DAIRY PRODUCTS CORP. 1375 1333 Initial Decision cept Dannon, which he has handled for the past twelve years. Some years ago in response to a one-free- with-one special, he had handled Lacto for about six months. Litte by little his sales decreased when finally "the driver just quit serving" him. There was no connection between his stopping the handling of Lacto and any Breakstone price cut (Tr. pp. 2223-2225). The principal family member of Lacto, at such times as he was effect of theasked to give any testimony with respect to the , invariably stated that hisBreakstone price cut on his sales Sales Manager (the one whose testimony was discredited) was better qualified to testify (Tr. pp. 1320, 1335 1336, 1345). LACTO S ALLEGED LOSS OF OPPORTU1'ITY TO EXPAND There is also a suggestion that an initial opportunity (in 1960) for Lacto to have an expanded yogurt production facility physicaHy tied into the plant of a large milk distributor which would pipe the milk into the Lacto premises was lost because of alleged differential. ThissaJes decreases due to the Breakstone price testimony is in extremely general terms as follows (Tr. pp. 1293- 1294) :

Well, everything was going good until Rreakstone cut the price on yogurt. Then we began dropping sales and we stopped negotiating, naturally, because our sales stopped and we didn t have to move. In fact we were getting ready to go out of business.

This is a most casu"j and unsatisfactory attempt to prove causal relationship between the Breakstone price cut and the cessation of negotiations for an expansion of facilities such as that claimed to have been envisioned. The statistics and the time sequence make the conclusion seem illogical. The same is true with respect to the statement, uin fact we were getting ready to go out of business " even though it was shicken on respondent s motion. Lactosales increased in 1961 over 1960; its sales in 1961 were more than $70 000 better than in 1960; 1962 sales were almost the same as 1960 sales; and 1960 sales were almost three times beg-inning of thethose of 1959 (CX 870). :YJay J961 was the Breakstone price cut. With sales increasing in 1961 , the stated reason for terminating the 1.960 expansion negotiations cannot be valid. And, assuming the decrease in 1962, if economies could have been effected by the expansion, it would see111 that the expansion would have been pushed, not dropped (Tr. 1'. 1314). Alternatively if long-run effect on Lacto s sales could be reached as a consideration in this connt, it may be observed that Lacto has Initial Dccision 71 F.

now made arrangements for a somewhat similar relocation of its business so that it wil be physically nearer to its supplier. The main difference is that the arrangements now being made are being made with a company which is the successor of the same supplier with \which the prior arrangements had been in the course of negotiation (Tr. p. 1313). The unfortunate part of the record with respect to these 1960 negotiations for a plant move and enlargement and their later termination is the striking paucity of details concerning them. The lack of such details suggests that any negotiations, later terminated, were terminated for a reason other than the Breakstone price differential. The evidence as far as Lacta is concerned, like that involving Dannon, is insuffcient to constitute substantial proof that the price cut instituted by Breakstone in :VIay 1961 had either the probability of an adverse effect or an actual, adverse effect on competition in the yogurt business in the metropolitan C'ew York sales area.

ADDITIONAL COMMEl\T ON THE YOGURT SALES STATISTICS FOR THE "iew YORK AREA On the basis of CXs 869 , 871 , 874 and 908- , I have prepared a graph which appears on the page following. 1t shows total sales of yogurt in the New York area for the years 1960 , 1961 and 1962. 1t has endorsed thereon the dates of Breakstone price changes so that they may be correlated to the graph lines. The three years depicted on the following graph show a gene 1''' ally uniform pattern which confirms, as "vas mentioned during the giving of oral testimony, that yogurt is a seasonal pro duel vVe have no evidence at all, hO\vev€l', as to what part, if any, of the sales growth in each of the years in the months of February, March, April and May was attributable to Lent. 1f Lent had a bearing on the Spring rise in sales, how many of the Lent customers 'were new yogurt consumers, wHhout old brand loyalties just buying for price and prior familiarity \with the Breakstone trademark? Could this also have been a factor in the rise of Breakstone sales? The graph lines show quite persuasively that sales reach their peak in :YIay and J line of each year and that after June they decline quite sharply. It is clear, also, that yogurt sales, in general during the three year period, went into a declining trend. The unconnected circles 01' rings showing 1960 sales are higher than the solid line showing 1961 sales. The 1962 sales, represented by the broken line, are lower than both 1961 and 1960 except for the 1377 "'ATIONAL DAIRY Products CORP. 1333 Initial Decision 400 a )oe period before June 1962. The patterns are more uniform in the periods beginning June of each year and the trend is uniformly down. In May, and in months prior to May, the pattern varies a little, and, as already mentioned, we do not know what effect, if any, the Lenten season had on yogurt sales during this period. The 1962 continuing downward trend is hroken in May of that Initial Decision 71 F.

year even though, only a week before, Breakstone s prices had increased. On the other hand, the July 30 , 1962, Breakstone price increase starts a prccipitate clowl1wall movement which is arrested for one month, October, and then continues until the end of the year all below 1961. The :vay J 961 Breakstone price decrease instead of resulting in a sharp IIp\\'(1l'd movement from ;day .Tune, as had been the case in the prior year, resulted only in a slight upward movement hardly better than a plateau from llay to June 1961. The Kovember 13 , 1961, Breakstone price increase seems to have had no effect on the uniformly downward pattern which is found for all three years beginning in October. These downward trends, 1962 from 1961 , and 1961 from 19(jO , cast additional doubts as to the meaning and weight to be given th.. alleged decreases of sales encountered by Dannon and Lacto. Also, as mentioned elsewhere, the record provides us "with no information as to possible population shifts which might have been responsible for sales decreases in particular neighborhood stores listed in the Lacto statistics. These are concerned with only a portion of the total of 700 stores sold by Lacto. These stores include not only the neighborhood stores, but the stores of chains (Tr. p. 1142- H43). Lacto s entire marketing operation must have changed following the leading New York food broker entry into its business, Lacto s sales, it "will be recalled, increased rapidly following' his entry, Assuming that they did decrease in particular neighborhood stores or even stopped in certain of them, we must not overlook the fad that these were included in the 700 stores, more 01' less, ,yh;c11 were Lado outlds. According to Commission Exhibit 807- , there ,\-ere 11 :Z07independent grocers and 337 independent supermc1.Jkets in Kew York City in 1962. These do not include 2, 136 stm'es in the h;ading chains and 699 in the voluntary and cooperative groups, This vast number of potential sales outlets for Lacto cannot be disregarded and the record is bare of any evidence as to what efforts, if any, Lacto made to extend its distribution in this \' Hst market 01' 8S to "what new outlets it served in replacement of outlets tel'min8tec1 or proved unprofitable.

Finally, we must not overlook the Jact that all this h' anspil'ed in an area where Dannon had and has H monopo):r or nem' monopoly position in yogurt (Tr. pp, 1271- "1272) and ihat this case bears no resemblance to .!11al'f!und Bukhl.0 Co", 52 F. 1679 13 F. 2d 716 (4th Cir. 1 J67).

All this makes it unnecessary to deal specifically with respondent' s arguments to the effect that the price differential was C0111- , :-ATJONAL DAIRY PRODUCTS CORP. 1379 1333 Initial Decision 111ercially proper and necessary to get authorizations in the chains and to acquaint the public with the better flavor attained for the Breakstone yogUlt, or that the price differential, instead of having had an adverse effect, actually had a beneficial effect on competition in the New York area.

CONCLUSION AS TO YOGURT I must conclude, therefore, that the evidence does not support a ruling that such price differentials as prevailed during and following c,1ay 1961 were of a nature to Jessen competition substantially or to tend to create a monopoly in the sale and distribution of yogurt or to injure, destroy or prevent competition in the sale and distribution of yogUlt.

COUNT II This count, like the others, charges a violation of Section 2 (a) of the Clayton Act, as amended, in the primary line. It is concerned with respondent's sale of a marshmallow cream topping in certain trading areas at prices different fl'0111 the prices Ivhichit sold the identical topping in other trade areas. To the extent that the actual selling prices in different areas are involved, respondent admits that there \were differences. It defends by cle.timing that the differing prices resulted from promotions to introduce a 11e'\" product and were not of such a nature as to have the requisite adverse effect 01' probable adverse effect on competition within the contenlplation of the law. It alleges further that certain of the difrering- prjce \were I' in response to changing conditions affecting the market for or the marketability " of marshmallow cream by reason of " imminent deterioration of perishable goods/' one of the defenses pro\'iclec1 by the statute. In its answer it alleged, also, that jn some cases " certain of its offerings were to meet the equally low price of a competitor " another defense which may be pleaded under' the law. Except to the extent that the gEmerHl practice of promotions, reduced price labels and coupons in the mcllshmallow cream business (and the grocery business generally) was brought into the case no substantial evidence was offered lO support this defense. The admissions that there were pricf; diffcrentials are hedg-crl b:y the assertion that they were, in fad, promotional devices to which Kraft rcsorted fol' the purpose of introducing into the market its new product marshmallow topping. The explanation for the time v riances of the promotions i that, because the product was new, all could not be made simultaneously. They had to be keyed to distribution and 1380 FEDERAL TRADE COM !ISSION DECISIONS Initial Decision 71 F.

had to vary in nature because of varying market reception in different geographical areas.

GENERAL MATTERS :varshmallow cream topping is a white, creamy, sticky, amorphous confection, generally in a more or less fluffy form. It is made by a blending of sirups, eggwhite and flavoring. It is used as a topping, as a cake or fudge ingredient and, popularly, as a sandwich spread along with peanut butter. Normally it is sold in wide-mouth bottles or jars, seven ounces, seven and one half ounces or eight ounces in size. It is sometimes, but rarely, distributed in larger sizes, some even as large as a gallon. The Kraft jar is seven ounces, the smallest retail size. Although marshmallow topping may be affected by varying temperatures, its normal shelf life is about six months from the date of manufacture.

It is a seasonal product having its highest sales in November and December wherever it is sold. In ::ew England, sales are greatest from September to April. Generally, sales begin to rise in September, but, as the weather tends to become milder after January, they begin to decline (Tr. pp. 930-935). It is not unique, yet it is not a conventional, everyday household product. Kraft, the division of thc respondent with which we are concerned here, is a comparative newcomer in the industry. It did not make or sell any marshmallow topping prior to 1960.

Only three manufacturers have been cited or called for the purpose of supporting the charge. They are Durkee-lVIO\ver, Inc., TVleet, Inc.) and Cremo l\lanufacturing Company, all engaged in the business for many years prior to Kraft' s entry. Durkee- MO\ver and Tweet have their plants in ew England but Tweet' most important areas of distribution are Harrisburg and Pittsburgh, Pennsylvania (Tr. p. 1046). Crema s plant is in Philadelphia. Its principal sales areas are Philadelphia, Harrisburg, Scranton and Wilkes-Barre in Pennsylvania. 1t sells small amounts in New Jersey and lVlarylanc1. An effort to sell in Ne\v England was completely unsuccessful. (11'. pp. 1074- 1075 , 110G. Durkee s dominant position in Ne\v England is the apparent reason for T\veet and Cremo not being there. Prior to Kraft' s entry, Durkee had 92ft, of that market (CX 852). In addition, there were and remain four 12rge manufacturers in the business- E. Staley l\lanufacturing Company, Union Starch & Refining Company, Inc. , Cracker Jack Company, and , NATIONAL DAIRY PRODUCTS CORP. 1381 1333 Initial Decision Kidds, Inc. If there are others, they are minor. o effect was made to prove that competition with any of these four companies was in any way affected by Kraft' s conduct. DlJRKEE-:YIOWER, INC. , T\VEET , IKC. , A;\D CREMO MANUFACTURING COMPANY, THE COMPANIES CLAIMED TO HAVE BEEN ADVERSELY AFFECTED Durkee-lVIower, Inc. , now a corporation, started its business in 1917 as a partnership. It introduced marshmallow cream topping in about 1920. It has been in the business continuously. At some time prior to 1935 , it successfully promoted a combination sandwich of marshmallow cream topping and peanut butter. Its interest in this \vas only the sale of the topping as a combination product. It sold no peanut butter and no sandwich. This was very successful but was not capitalized . imaginatively until after Kraft' s entry into the business. Then, in 1962, the sandwich was pushed under the tradename "Fluffel'llutter. " Durkee s product generally is sold in a seven and one half ounce jar, but it packs a negligible number of gallon jars as well. (Tr. pp. 937, 941.) Durkee s main marketing area is the ew England States. In 1959, it controlled 92% of that markel After ew England, it controlled 28ft of the :VIiddle Atlantic market (CX 852). Sales in :\laine, 'lermont, Xew Hampshire, lVlassachussetts, Rhode Island and Connecticut accounted for 55 % to 60 % of all its business. Passing from New England, Durkee s next most important areas are K ew York and Pennsylvania. It sells also in a belt along the northern part of the united States as far west as Wichita Kansas. Some sales are made in Los Angeles and San rr(l cisco. Durkee s only product is marshmallow cream. Its brand name is Marshmallow Fluff m1d it recently has introduced a sales gimmick, the Fluffernutter, which is only the tradename for the old sandwich combination of marshmallow cream and peanut butter. Tweet, Inc., seems to be a one-man firm, also '\with only the one product, marshmallo\v cream, sold in a seven ounce jar under the trade name Tweet." It packs no private labels. Although located in )'iassachusetts, T'iveet's most important sales areas are Ilarrisburg, Pennsylvania and Pittsburgh, Pennsylvania, where it does 50% of all its business. In 1959 and 1960, the entire business was conducted through a total of only five brokers who communicated with the owner only when there 'were problems such RS deals offered by competitors. (CX 837- . C; Tr. p. 1048. ) The testimony disclosed that Tweet regards Durkee as its principal competitor, next Hip- Lite and, after a nudge from counsel, there , Initial Decision 71 !C. was added as to Kraft Recently, since 1959. " (Tr. Pl'. 1045- 1049. ) (Hip- Lite is the Staley producl) Crema lVIanufacturing Company, a corporation since 1916, appears to have been a family venture since its beginning in 1927. It has about five employees, only two of whom are engaged in production. It is located in Philadelphia and most of its business is done in Eastem Pennsylvania. There is a litte in Baltimore less in New .Jersey, but the majority is in Harrisburg and other parts of Eastern Pennsylvania. Its trademark is Crema. In addition, it packs private labels for about seven concems. Its principal private label business is done with Acme (American Stores). In 1960, it packed its Cremo label in a seven and one half ounce jar. Now it is being sold in an eight ounce jar. Private labels also are packed in eight ounce ja,'s (Tr. p. 1078). In about 1959 or 1960 Cremo was packed also in a quart jar, possibly because of " gigantic jar" sold by Kidd, but it did not sell (Tr. Pl'. 1108- 1109). All Cremo s sales are exclusively through brokers (Tr. p. 1076), two being in Philadelphia and one in Williams port, Pennsylvania. .Most of its sales are to chains and wholesalers. KRAFT AND MARSHMALLOW CREA)I TOPPING In 1958 and for a few years prior thereto, Kraft had been producing the familar piece of candy or cooking ingredient known as a 'jmarshmal1o\v." A dictionary defines this qS a confection made from corn sirup, sug:1r, starch and gelatin, beaten to a creamy consistency. (Originally, it had been a sweetened paste made :from ihe root of a European herb known as a "marsh mallow. ) Kraft had marketed marshmallows successfully in a novel miniature size ,which made them easily adaptable for cooking, baking or candy making.

It has a "New Products Committee" which exists for the purpose of discovering and exploring the possibilities of new products to be manufactured and sold by Kraft. On Kovember 20 1958, this Committee reported that the Research Department had submitted a marshmallow cream product which, tastewise, had been found acceptable. The Marketing Department was instructed to make a survey and to compare leading brands with that submitted by the Research Depanment. It was decided to add this as a new product to Kraft's 10-ounce line of sauces and toppings, but the size would be smaller, approximately seven ounces, in line with that of the chief competitors (RX 44). Kraft offcials regarded this new business as being suitable to comple- NATIONAL DAIRY PRODUCTS CORP. 1383 1333 Initial Decision ment its marshmallO\v business, particularly because of the similarity of ingredients and manufacturing process (Tr. p. 891). A market survey report was procured from the Nielsen Company (Tr. Pl'. 993 , 1455; ex 853). This and other information obtained disclosed that coneumer acceptance of marshmallow topping varied widely in different geographic areas but that about 40% of ali sales were in the :\ew England area which coincided with Kraft's Eastern Division. Consumer acceptance was less as one moved westward. It was negligible in portions of the South and West (CX 853- V; Tr. pp. 866-878 , 907-908, 933-935 1753-1764) .

The seasonal nature of marshmallow cream sales also was disclosed. This meant that if Kraft was going to include this new product in its line, it would have to be able to market it by October, November or December in a coming year. Its original target was late August or early September 1958 (Tr. Pl'. 1755 , 1765). The seasonal nature of the product also prompted Kraft to engage in studies as to what could be done to stabilize demand throughout the year. The hope for attaining an evening out of sales peaks was based on Kraft' s prior experience with lnarshmallows which although also subject to seasonal peaks, did not fluctuate as sharply as did marshmallow topping ('11'. p. 1766). Production Viras undertaken first in Palmyra, Pennsylvania. The necessity for distributing in Kraft's Western Division prompted transfer of the marshmallow facilities from Palmyra to Kendallville, Indiana. The original plan, which included the startup at Palmyra, contemplated initial distribution in the Eastern, Central and Southern Divisions. This did not work out because of the large number of orders received by the Eastern Division at the very beginning (Tr. p. 906). The plan to have production start by late August or September of 1959 did not materialize. As a matter of fact, there was no initial production until the end of January 1960. Even this did not become effective until about two weeks later, February 11 (Tr. p. 1761; RX 112). Thus, Kraft missed the peak months for sales and went into production when the historical decline was due to begin.

From this time on, various problems of supply and distribution developed. The ones with \which \\T are concerned here are the price promotions. These varied frolll time to time and in different areas. The reason given for diterent types of promotions, uncontradicted, is that in different geographical areas, different types 1384 FEDERAL TRADE COMMISSIO:- DECISIONS Initial Decision 71 F.

of promotions have varying acceptance (Tr. Pl'. 1808-1809, 1861- 1862, 2249-2250; RX 205).

I %0 PROMOTIONS In the Eastern Division, initially for about a month, there had been 35 cents off per case promotions in six cities and one case free with two purchased in Boston and Washington, the latter being "test markets." There was none in 'Nilkes- Barre or Syracuse, and a one-free-case-with-two promotion came a little later in Hartford. Within a very short period, because, according to respondent, they did not get a good reception, the promotions for all of the Eastern Division (with the exception of Boston and Hartford which already had had it) were changed to one case free with every two. This time Wilkes-Barre and Syracuse were included. Pittsburgh later reverted to a 759 per case allowance. Toward the end of the year, a five cents oft. label 0 was promoted throughout the division. In summary, there were three different promotions in 1960 the first roughly in February and :varch with the exception of Boston, Hartford, Syracuse and Wilkes- Barre, having been either 359 per case allowances or one case free with two; the second roughly in April and :VIay, with the exception of Boston and Hartford, having been uniformly one case free with two; and the final one roughly in September and October having been a five cents off label in all the cities of the division. In the Central Division (still 1960), there were four promotions. These seem to have lagged somewhat in time sequence behind those in the Eastern Division. During the time between Eastern s first and second promotions, with slight overlaps, a 359 allowance per case promotion was run in all cities except St. Louis, which had been part of the test run of the one-case-freewith-two promotion in the Eastern Division. A second line of promotions was run at about the middle or shortly after the middle of 1960. This was a 509 per case allowance in every city. It was run between the time of the second and third general promotions in the Eastern Division, hut at the Same time that an odd per case promotion was running in Pittsburgh. Prior to the third line of promotions in the Central Division, there was a follow up of the promotions in Chicago, Cincinnati and Detroit this being an allowance of 759 per case. The fourth run of 1960 o Cents oit l:ibels and coupon rki\!s shou:rJ be distinguished from allowanres nd free gouds deals. The latter EIre direct inducement to stock the product whi:e the forme,' 81'1' inducements to the consumer to crealI' consumer dem81ld Rr, d acc(,ptal1ce. NATION AL DAIRY PRODUCTS CORP. 1385 1333 Initial Decision promotions in each of the cities of the Central Division was at the end of the year while none '\vas running in the other divisions. This ,,Vas an allowance of 301 per case. The Southern Division had only two main promotions in 1960. These coincided more with the first and third promotions in the Central Division. Roughly, however, its first promotion ran between the first and second in the Eastern Division and just ahead of the third there. Promotions were run in each of the cities in the Southern Division except Miami, all of them having been 351 off per case with the exception of Memphis and )Jew Orleans. These ,were offered one case free "'with two. The second main line of promotions coincided roughly with Central' s third line and Eastern s last line. Uniformly, with the exception of Miami, it was 300 off per case. There was a minor line of promotions in only 10 of the 31 cities of the Southern Division (one of which was Miami). This involved offerings of one case free with three, with an insignificant variation in one city. iVliami started with a on8case-free-with-five promotion at this time but was changed later to one case free with three for the greater part of the promotion. The major second line of promotions was stopped after an interval in all cities except Houston, in which the 301 off per case was continued until the end of the year. Lubbock, Texas, had a somewhat longer 300 off pel' case promotion in this line than the others. Memphis had the 301 off pel' case promotion renewed for a short time before the end of the year and, at the end of the year New Orleans ,vas allowed, in addition to the hvo prior prmllOtions, a one-case-free-with-ten promotion. During the entire year, possibly because of the slow progress of d.istribution across the country and the lesser market there, the Western Division had only one promotion in all of 1960. This was a 301 off per case promotion in about the third quarter. In essence, the differentials most relied on occur in this year of 1960 in the manners just depicted. During all times when promotions were not in effect, identical list prices, except for ,vestern freight adjustments, prevailed. This gives rise to the charge of unlawful price differentials.

The forgoing analysis has been taken from a chart submitted at page 226 of the Proposed Findings of Fact offered by Counsel Supporting the Complaint. It is reproduced on the page following. Respondent' s attorneys have prepared hvo charts, generally to the same effect, which are reproduced on the pages following Commission counsel' s chart.

,, : : ;::; ... , :::: .;, :. ;, ..: ,..; ,,,. ,.., . ,\ ::.,_ , j.. ;;j, ::_,_ ,: . :, ::; : .. : ,_ .::: . , , , Initial Decision 71 F.

NATIONAL DAIRY PRODUCTS, INC., DOCKET NO. 8548 KRAFT PRICE DISCRIMINATIONS IN SALES OF MARSHMALLOW CREME F."" ""''''0' 1960-1962 IICX-"IIA"'",(CX,"'IB'LU",O,"

iex !O I Bo","' 5") Bulf'"

lex '''I lex "'1 "'",..N.. -=1 rex:CkIB')P,"Wl.,o""'"'I PH"""'" ' z::

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'''I N.. 0'1'''' ICX,"'I",rlol' "'J OO"-ho",.C'., '''I''J'''" ' I" X "')""o'"'" ::;a 10"'1 '1 - t.:, 1960 1962 1961 " H".""'''",,,..0"'.' "-,,,,.i,,c..,,,,h....L" "'imU n-,G"(J""D.A," 0,. . i """"'''0''''''''''''''''''''''.''-'' "00".. " dJ"'''f.ll,.o=, """"","'",,,. !i "L I' '"" 0"0."",""" ""''''Ii',,,!C "",,J"''''''' '01".."". "1",,,,... Cr."'"OF.l.KI, I.1;0!!"""1 'loUJ&I Li ,!. ,,:,,: ,, ,,.: ;: ; g; . ( ,..:: p,::::: ; _, . :::, :... ATIONAL DAIRY PRODUCTS CORP. 1387 1333 Initial Decision Cll!J'I NO. 2 moanmum AI tJINQ DATI OP I1THODUCTOff Joj!3HMW CiiME PRO!-ION A.RE3CIIIl1.. IN!?.lCHSAISDIS'ICTCFKRAlS r,A.' r':hll, CI'THA.AlSOlJ-:RHDIVI::roNWITH30URCJiR.FER;UCEs TO ,;XIlBITS OR 1'L';'!M:/I (Il) l'iUJ HIJAi(' APln "'CD MAHCI!kJ f: .. """'r- "' r;;: 'f f;g;. ::rllwn:a"ll \1 L''''.'I " l,nl'-III, ex , :"'1'1'')'', tmI!1J II,cr WO: 1'. Ilcwy",'I( C'M I'I'hllo(I-,lri. l t" I " "' II . 4 ax vt' c"Qe ;'"hJ " .1.

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ATIONAL DAIRY PRODUCTS CORP. 1389 1333 Initial Decision 1961 AND 1962 pROMm'IONS Looking back at Commission counsel's chart, we find that in 1961 and 1962, with one exception in the Eastern Division and one exception in the Central Division, promotions uniformly were granted at the same time in all the cities of all the divisions. Thus, in August 1961 , prior to the seasonal rise in sales, we find that in the Central, Western and Southern Divisions, a 259 allowance .per case promotion was run in every city while a three cents off label was promoted in every city in the Eastern Division. 1n part of August or September 1962 , a one-case-free-with-five promotion was run in every city of the Central, Western and Southern Divisions while a three cents off label was run in every city in the Eastern Division. The only exceptions for 1961 and 1962 are the three cents off label in either April or llay 1962 in every city in the Eastern Division, and a 309 allowance per case for every city in the Central Division in March 1961. (This last was a non-seasonal promotion and Durkee admits that as far as is concerned, its St. Louis and Midwest markets would not have been affected by it (Tr. p. 1014). The April or May 1962 exception was run in the most important area and both this and the March 1961 Central Division promotion are consistent with respondent' s avowed purpose to even out demand and reduce sharp peaks. J There were, in addition, three isolated promotions in Novem bel' or December of 1961 consisting of a 259 per case allowance in Dallas, Fort Worth and Tyler, all almost adjacent to each other in the Southern Division, and not involved in this case. (See CX 818.

PRIOR PROMOTIONS OF yIARSHMALLOW CREAM TOPPING BY DURKEE, TWEET AND CRE Promotions seem to be the rule, not the exception, in the grocery business. As far as this count is concerned, because Kraft' promotions are in issue, I refer briefly to those of the three firms with whom competition is alleged to have been adversely affected by Kraft' , particularly those run prior to Kraft' s introduction of marshmallow topping.

Durkee had and has a practice of providing free goods to various consumers and consumer groups (Tr. p. 1000). It ran promotions involving 6,422 free cases in 1958 and 11 724 free cases in 1959 In general, Durkee agreed ihat promotions also had been run by its competitors before Kraft. These included Hip- Lite pp.

Initial Decision 71 F.

Pennant and others. Pennant had offered 1 000 free cases to First National stores prior to Kraft's entry in the business (Tr. p. 1014- 1016). RX 47- shows that in the third and fourth quarters of 1 J58, Durkee ran numerous one-case-free-with-ten-casespurchased promotions. In 1959 , it ran one-case-free-with-five and one-case-free-with-ten promotions in different areas and at various times. (RX 47- ) In 1960, the year of Kraft's entry, it ran numerous 'promotions. Significantly, in its Area No. , which included :vilwaukee, Missouri and Kansas, in the f.rst quarter apparently before Kraft became effective there, Durkee ran onefree-with-ten-cases- purchased promotions and 10if or 25if off per case promotions. Durkee s reasons for these promotions varied they were advertising allowances, or introductory allowances, or incentives for new brokers, or for the purpose of meeting promotions by other competitors such as Hip- Lite (Tr. pp. 1018- 1025, 1028-1032). It did not promote as freely or as frequently in New England because it had a dominant position there (Tr. 1025-1026). According to RX 50, furnished by Durkee, 90% of 422 cases of free goods involved promotions in 1958. The same percentage of 11 724 cases of free goods involved promotions in 1959. (Tr. p. 1036.

Tweet ran numerous free goods promotions during 1959, before Kraft' s entry into the market. Some of these concededly might have been run in response to similar promotions by Union Starch' s Pennant (Tr. pp. 1056-1059).

Crema also engaged in promotions prior to Kraft' s entry into the business. Although Cremo s owner had testified that he had never run into off-label deals in the marshmallow cream business before Kraft started them (Tr. p. 1116), he admitted that, in the fall of 1958 and 1959 , he had run one-case-free-with-ten promotions. lie admitted also that he gave free goods to stores on store openings (Tr. p. 1119).

THE CLI'.ATE OF MARSHMALLOW CREAlVI COMPETITION PRIOR TO KRAFT Everything was nice, sleepy and cozy until Kraft decided to get into the marshmallow cream topping business and seJl in the areas sold by Durkee, Tv..eet and Cremo. In I\ew England, Durkee had 92% of the market. Katmally, this strength provided no incentive (aI' it to become competitive. For an undisclosed time priG:' to June 30 , 1960 , its price was 32.3(; per dozen delivered east of the Rockies and $2.50 west of the Rockies. Apart from the isolated promotions already mentioned NATIONAL DAIRY PRODUCTS CORP. 1391 1333 Initial Decision more or less responsive to promotions by Hip- Lite, Pennant and others, Durkee s only device to promote sales was a $0.15 per case cooperative advertising program. Other than competitive promotions, there were those limited to opening a new market or offering a buyer an incentive to open a new market (Tr. Pl'. 998- 999) .

Durkee had a single advertising agency which presumably was doing nothing much for it. For five or six years prior to 1960 it would have liked to make a change. It did not do so because nothing had happened on the competitive scene to provide the motivation (Tr. p. 1001). Its advertising' seems to have been unimaginative and l\Tarshmallow Fluff was plugged routinely as a combination product for a marsh man ow and peanut butter sandwhich (Tr. Pl'. 1004- 1005).

In an New England, Durkee had one broker because, prior to Kraft' s entry, retail coverage \'i' HS unnecessary in the field. It was content because it had complete distribution and Fluff was on an the shelves. The broker used before Kraft' s entry was a twoman firm augmented by two or three salesmen at the most, to cover an New England. This sman brokerage firm had its work divided so that the wholesale men did no retail work. In Philadelphia, Durkee had one broker prior to 1960. This was a man whose primary business was the running of two restaurants. \Vhile he was loyal, his sales were only lias hard as he could" make them. .Just what sening effort a lone operator primarily interested in running two restaurants could make is open to question. He apparently considered that he had a good thing going and rarely caned on the buyers to push sales (Tr. Pl'. 1155- 1157). Durkee admitted that its brokers at Harrisburg, Pennsylvania, and Lexington (Kentucky?) and presumably an the others listed in RX 47- J B, C were " insignificant brokers, " It "had no advertising going into the area:' of those brokers (Tr. p. 1020). As far as Washington and BalUmore were concerned, Durkee was not much interested (Tr. Pl'. 1008-1010).

No market research had been done unti after Kraft eame on the scene. In areas west of New England, for example, St. Louis, Durkee relied on the utilization of marshmanow cream in the making of fudge during the Christmas holiday season (Tr. p. 1014) .

The only incentive for promoUons was in response to pron10tions of others such as Hip- Lite, for example (Tr. p. 1021). While the J 5if cooperative advertising allowance was available in areas other than New England, it did not prove effective. When , 1392 FEDERAL TRADE COM:IISSION DECISIONS Initial Decision 71 F.

Durkee eliminated this and went through the motion of reducing the price six cents a case, the real effect was a price increase of nine cents per case (Tr. p. 1024). When asked why a better than one-free-with-ten promotion had not been run in New England, its witness said " It would be economically impossible. " He subsequently impliedly admitted that a better promotion was not necessary there (Tr. p. 1025). He was not even aware of the fact that old promotion goods still were being offered at the time of the hearing by a cooperative buying group in the Washington area (Tr. p. 1028).

Durkee s philosophy seems to have been that it could get along with its sales of Marshmallow Fluff without regard to what the retail price might be because of consumer unawareness of Marshmallow Fluff pricing. "\Vell, the consumer is not as aware; she could probably quote you the prices, retail prices of tuna fish or " * * soup whereas if you asked her in Philadelphia what marshmallow fluff was sold for, she wouldn t know. " (Tr. p. 1043. Tweet' s owner is an aging man. Its only product is marshmallow topping sold under the trade name Tweet. " This nice man seemed to be uncertain, apart from the fact that his business was conducted through brokers, whether he made any direct sales to retail accounts. He indicated that any sales made by a broker would be to wholesale accounts and chain stores. He described his duties as "Looking at the sales end of it and the financial end of iL" The complacent nature of the business was such that, when he was asked if his brokers reported to him, he said N ot unless there is some, the only time they contact directly is when they have any business problems; otherwise we get the orders and ,ve ship them and send their commissions. " There \were never any \written reports. When, if ever, any contacts were made, the brokers just telephoned (Tr. pp. 1047-1048). The brokers were located at Harrisburg, Pennsylvania, Cambridge Massachusetts, Reading, Pennsylvania, Charlotte, Korth Carolina, and Pittsburgh, Pennsylvania. This was Tweet's selling force (Tr. pp. 1051-1052).

Cremo s Secretary-Treasurer, who apparently is in control of the business, throughout his testimony seemed to have only a superficial knowledge of it. As mentioned already, it consisted of four or five people of whom the work force were only two (Tr. pp. 1072-1074). Except for production and bookkeeping, he ran the whole business. While the house product sells under the trade name "Crema " the company seems to be more or less of a captive enterprise for various wholesalers and chains for which it packs , , NATIONAL DAIRY PRODUCTS CORP. 1393 1333 Initial Decision private brand marshmallow creams (Tr. pp. 1075-1076). Its principal customers are Acme Stores and Food Fair (Tr. p. 1095). treats "every private label as an individual agreen1ent and an individual deal" (Tr. p. 1121).

It relies exclusively on brokers to promote its sales. When asked as to communication with them, the answer was I wouldn t say that we have a great amount of contact." (Tr. p. 1076. ) Some years before Kraft entered the picture, Cremo had had a candy product in addition to Marshmallow Fluff, but it was discontinued (Tr. p. 1084).

Cremo s efforts to expand to more distant markets such as Pittsburgh were dropped because of freight-rate problems. Its only sales outside of the 100-mile radius of Philadelphia might have been an isolated sale maybe in Connecticut or something like that." Sporadic contacts with brokers for New England were not long lived (Tr. pp. 1104-1105). This was because Marshmallow Fluff (Durkee) was the big seller in New England, As far as Cremo s main market, the Philadelphia area, was concerned, the witness indicated no knowledge at all as to the relative sales positions of his product and Durkee s. He was hazy about Hip- Lite and Pennant penetration in the area. At one time during the testimony he said I wouldn t want to be quoted on anything. I just don t recall that" (Tr. pp. 1105-1108). Before Kraft's entry, Cremo lost two different A & P warehouses in the Scranton-Baltimore area (Tr. p. 1109). Cremo peak sales year was 1946. Ever since then, sales have been lower due to "a lot of extenuating circumstances," There was no elaboration of these or as to what might have caused Cremo s decline before Kraft' s entry. It has not advertised the Cremo lahel since 1953, has provided no point-of-sale material for the stores and has relied entirely on the brokers for store visitation. Of the brokers in Philadelphia, two of them " had no retail men " (Tr. pp. 1112-1114).

Despite the fact that the chain accounts and private labels are such an important factor in Cremo s business, its executive ofIc€r never called on them or communicated with them for business. He relied entirely on his brokers for this (Tr. p. 1126). While testimony was given that Crema, on numerous occasions, gave deals, it apparently never took the initiative. Any deal it gave ,vas always in answer to somebody else s deals. \Ve made no deals on our own. It was always in anslver to somebody else s deal" (Tr. p. 1135). An effort was made to justify this by referring to Initial Dpcision 71 r. the Robinson-Patman Act. This does not explain the letharg-y characterized by the failure to engage in such a general practice. Such deals can be and regularly are offered without violation of the Robinson-Patman Act.

This complacency in the marshmallow cream topping ll1arket suggests that it was ripe for a jolt and that it needed a little progressive competition.

SALES DECREASES SUFFERED BY DURKEE, TWEET AND CREMO Durkee, Tweet and Crema, prior to Kraft's entry, were riding a current or tide and they all appeared to he satisfied to let it carry them along- just as it lwd been for years. Almost anything new could have disrupted their established sales patterns. As a matter of fact, for all this record shows, some parts of it might have been disrupted by Hip- Lite and Pennant (CXs 853- , K, L 851- , OJ-competitive products with respect to which the record is practically silent.

Dllkee, Tweet and Cremo had to lose some sales to Kraft, the n€\VComer. Unless a market is expanded in an amount equivalent to that attained by a successful newcomer in that 111a1'ke1. and, by some bizarre quirk, the entire expansion goes to that newcomer, it is inevitable that established sellers will lose sales to the newcomer. This is the meaning of competition. It is also inevitable that established sellers, by reason of the accelerated competitive conditions, n1ay lose sales to each other. IvIidc1le We take Durkee .filst. The New England ancl the Atlantic areas are the primary market areas as far as this count is concerned. As a matter of fact the best understand1ing of the competitive elen1ents of the case can be obtained from an analysis of what happenec1 there.

Without using- the word "monopoly," it is suffcient to note that i; of the salesprior to Kraft' s entry, Durkee made more than 90 in the New England area and more than 28 % of the sales in the Middle Atlantic area. In wrap-up testimony, Durkee testifiec1 that it has lost no authorizations in any of the chains in :\e\v England and that its 1963 sales were as high 01' higher than they had been since 1958, before Kraft came into the area (Tr. pp. 1011- 1012) .

Considering that Kraft entered into the business in the spring of 1960, considering Durkee s dominant position in New England considering that all its business in 19G3 , after Kraft s promotions and competition in 1960 , 1961 , ancl 19li2 was as g-ood 01' better than it had been before Kraft entered the picture, it can hardly NATIONAL DAIRY PRODUCTS CORP. 1395 1333 Initial Decision be argued that Kraft' s promotions either tended to 01' did impair Durkee s effectiveness as a competitor.

A basic question is \vhether Durkee s sales losses '\were attributable to Kraft' s promotions, assuming that the promotions resulted in price differentials such as those contemplated by the Act. The burden of proving this is on Commission counsel. Without a consideration of sales statistics for Staley, Union Starch, Cracker Jack and Kidds (CXs 853- , K, L 854- 0), to say nothing of minor local distributors, there is no justification for pinning the responsibility for these sales losses on Kraft. If, however, it be suggested that these others were not factors in the areas with which we are concerned, then the follovi'ing chart prepared by respondent' s attorneys showing case sales by Durkee and Kraft to major Xew England accounts in the years 1958 to 1962, inclusive, ought to be instructive. (Page 1396.

This chart shows: (1) Despite Kraft's entry into this market it failed to make an entry into 14 outlets, including Stop and Shop, the maj 01' chain after the A & P and First National stores. (2) Although Durkee s case sales in the outlets where Kraft made an entry decreased with some exceptions in 1960 the year of Kraft' s entry, they generally have shown a consistent recovery thereafter. (3) Although Kraft made no entry in the HartfOld stores of First i\ational until 1961 , Dmkee sales to the stores in that city decreased in 1960 but increased in 1%1, after Kraft CHme in. (4) The same is true for the East Hartford stores of the A & P except that instead of an increase in 1961 , there was a very slight decrease. (5) For a smaller outlet Gael' Bros., sales decreased in 1%0 before Kraft, but increased in 1961, after Kraft. (6) Out of 14 outlets, including Stop and Shop, where Kraft made no entry, Durkee s 1960 sales dropped in 10. These drops, (3), (4), (5) and (6), cannot be assigned to a displacement of Durkee by Kraft.

The chart shows Kraft entry 01' penetration in all the A & P stores and First National stores and in seven other outlets. A comparison of the Durkee sales in all these shows: (1) After the initial impact of Kraft' s entry, Durkee s sales recovered in most instances. (2) Vlhat is more important, sales 01' consumption of marshmallow topping have been increasing consistently since Kraft's entry. Assuming that Kraft' s promotions and advertising were as effective as is he1'e contended, the present peak of 111arshmallow topping consumption in this area may be credited to Kraft. Durkee could not help being a beneficiary of generally wider acceptance of marshmallow topping. The chart proves this, ,, : :: ..,.. , , , :::. , ; ,_ .; \ .. ,.,,, .., , , Initial Decision 71 F.

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. 4 ill:. do- , NATIONAL DAIRY PRODUCTS CORP. 1397 1333 Initial Decision In each of 1960, 1961 and 1962, Durkee s sales to the Somerville, Providence and Hartford Divisions of First National stores increased to the point where they are now at their highest level. The same result has been reached in Stop and Shop, plus nine other outlets in which Kraft made no entry. The same result has been reached in seven outlets where Kraft did make an entry. Consequently, while, as was to be expected, Durkee lost some sales initially to the new product and, while it has not recovered all sales and has not increased sales in some instances, in general the competitive climate in ::ew England has been benefited by Kraft' s entry, and Durkee today is in as good or better position than prior to Kraft' s entry.

As far as the Philadelphia situation is concerned, the primary complaint seems to be that the Philadelphia Acme stores and Philadelphia Food Fair were lost permanently by Durkee because of Kraft's promotions. Of course, if they were not lost because of Kraft' s promotions, the fact that Kraft had promotions would be immaterial.

The correspondence between Durkee and Acme at the time involved (CXs 836 , 851; RXs 48- 49-A) shows that Acme did not discontinue Durkee because it had received either a promotion or a better promotion from Kraft than Durkee offered. The silnple reason for Acme s discontinuance of Durkee s Marshmallow Fluff is that Kraft had better consumer demand than Flnff. Acme had no room for a third brand. Fluff, being lowest in sales, was discontinued. Acme persisted in rejecting Fluff despite Durkee s reminder in its letter of Nov. 16, 1960 , RX 49- that it could have had Fluff on a one-free-with-five promotion. Commission counsel's chart (page 1386, above) does not show that Kraft was offering any promotion after the last week of October in 1960. Additionally, although in RX 48- Durkee said :Vlarshmallow Fluff has been discontinued by your Kearny and Philadelphia warehouses " whatever the reason for the Kearny discontinuance might have been, there is nothing in the record to show that Kraft ever sold its topping to that warehouse in 1960 and, according to ex 741- Kraft made no sales there in either 1961 or 1962. Also, as noted elsewhere, Durkee lost no other Acme accounts.

Whether Food Fair Philadelphia can be regarded as an account lost by Durkee is questionable. There is a difference between loss of a long-standing account and loss of a new account. Food Fair Philadelphia was a new account for Durkee in December 1958. It ha.d obtained this account in response to a free goods offer of , Initial Decision 71 F.

200 cases at a time when Cremo already had been established there. Durkee did not lose other Food Fair accounts (Tr. pp. 1031-1032). According to Food Fail', Durkee s Fluf!, which it had stocked for only about 20 months was discontinued in August of 1960 because of a continued decline in customer demand for this product. " Food Fair s primary reason for stocking Kraft Marshmallow Creme was the heavy consumer demand for , but this was not significant because the real obj ection to Durkee was " its decline in sales in" Food Fair stores (RX 53). If it is sought to be implied that Food Fail' stocked Kraft's Marshmallow Creme in response to a Kraft promotion to Durkee s detriment, the implication is not justified. If Food Fair were that responsive to promotions, it ,,,Quid not" have rejected Durkee one-free-with-five deal plus 259 a case merchandising allowance which Durkee held out as bait in RX 49-A. Durkee s broker effort to sell this deal to Food Fail' also was completely unsuccessful. He testified that they were "perfectly satisfied with what their decision had been, and that was just to have Kraft and Cremo; that there wasn t any reason for having a third marshmallow, as far as (Food Fair) could see. " (Tr. p. 1168. Vext, 'We consider- 7'1ueet' s sales. Tweet' s owner testified to an awareness that Tweet's sales had declined after Kraft's promotions but nothing he said can be regarded as demonstrating that the cause for these declines was the Kraft promotions. One of 1\veet's brokers was called to testify, the one who handled Tweet's sales in the Harrisburg area. Prior to Kraft, the principal marshmallow toppings in the area were Tweet, the leader, Cremo, Pennant, Hip- Lite, and a private brand like Buddy and possibly Aunt Nellie. In 1960, this array was augmented hy Kraft. He was unable to provide records for 1959, the year prior to Kraft's entry and a crucial year, the reason being given that they were destroyed.

A principal account was a chain, Weis lVarkets. According to his best judgment, sales to that chain in the years prior to Kraft' s entry were similar to those in the year when Kraft entered. He contradicted himself on whether the number of Tweet orders declined after Kraft' s entry, stated there had been no cancellations and that authorization was not lost in the major chain. He wid that Tweet's sales declined after Krnft's entry and that this was because shelf spacings had been lost, resulting in loss of sales, all due to Kraft s competition. He admitted that even though shelf spacing-s had been lost, the customers had not been lost.

NATIONAL DAIRY PRODUCTS CORP. 1399 1333 Initial Decision In summary, his entire testimony (Tr. pp. 1139-1152), construed most favorably in support of the charge, is that Tweet' sales went down because of Kraft competition. However, Kraft competition is not in issue here. The question is: Did Kraft' alleged price differentials cause T\veet's sales to go down? This has not been demonstrated by anything in the Tweet testimony. Moreover, here, like elsewhere throughout the record, there is no evidence from which we may conclude that competitive brands other than Kraft did not contribute to Tweet's sales losses. On the contrary, Tweet's owner admitted that in 1959 the Pennant brand had made an entry coupled with a free merchandise offer (Tr. p. 1059).

To the extent that Tweet sales figures are available, they suggest a continuing do\vn trend commencing with the calendar year 1953, in which sales had been $106 600, down to $57 623 in 1959, the year before Kraft' s entry. The down pattel' continues in 1960, 1961 and 1962 when it ultimately reached $22 800 (CX 843). CRespondent poses a question about the sharp drop in 1960 from 1959 , 1960 being the year of Kraft' s entry. It says that if the totals of Tweet's brokers' sales for these years are considered, the drop would not be from 357 623 to $33,730, but would be from 352 566 to $38 227 (CXs 837- , C , 857 , 858). This, however, is not of any great importance because, regardless of wh8J the drop might have been in 1960 from 1959 , the drop has not been linked to Kraft's promotions by any substantial evidence.

In summary, Tweet seems to be a lagging company. This has been a continuous process for many years. While losses are admitted or claimed for the years 1961 and 1962 , if the financial exhibits in evidence had included offcers' salaries and labor or wages, similar or greater losses probably \vould have shown up for years preceding Kraft's entry (CXs 838-842, inclusive). Nothing in the evidence justifies a conclusion that Kraft' s promotions had an adverse competitive effect or probably would have had such an effect on Tweet. On the contrary, the evidence affrmatively shows that whatever financial troubles Tweet may have today are only a continuation of troubles which started many years ago. Finnlly, we consider Crenw s alleged sales losses. Here again we have a company that has been experiencing a sales decline for many years. Its best year was in 1946, and sales have never been as high since because of "a lot of extenuating circumstances (Tr. p. 1113). In the three years before Kraft's entry, fiscals ending May 1958, 1959 and 1960, Cremo sales decreased from Initial Decision 71 F.

$153 679 to $J 26 375 , then to $118 918. Surprising as it may seem, although the decrease continued in the year ending May , 1961, that being the year of Kraft' s entry (disregarding a slight overlap in February, March and April of 1960), the continuing decrease over the years was halted. In fact, in the second full fiscal year after Kraft' s entry, Cremo had a slight increase in sales (CX 844-A).

Cremo s pattern of decreases is refleeted in the 1958, 1959 and 1960 sales figures io its five largest brand name customers. Its biggest loss, almost $10 000 , was its 1959 sales to Food Fair Philadelphia. That was before Kraft' s entry but in the year when Durkee started to sell Food Fair with a free goods promotion deaJ (CXs 883 844- B; RX 47-G). Cremo started to lose A & P accounts before Kraft came on the scene. It had lost the A & P Scranton and Baltimore warehouses and its loss of the Philadelphia warehouse, after Kraft' s entry, in 1962, was only because Cremo did not sell as well as other competitive brands (Tr. Pl'. 1108- 1109). An attempt to link Kraft to declining or lost sales in 16 particular accounts failed. There is no proof that Kraft sold to 10 of them and there is proof that Kraft did not sell an 11th (CXs 844- , C, 741-F). Food Fair in Baltimore, which was not lost until late 1963 or early 1964, seems to have been Jost because Hip- Lite was taken on there (Tr. p. 1108). Crema s relations with Acme, its principal private brand customer, show that sales Josses there started as far back as 1958, fully two years before Kraft' s entry, and that Cremo could and did meet the competition offered by Kraft in the Acme stores (RX 57; Tr. Pl'. 1187- 1188).

Thus, ,vhile the financial records do 8hmv decreasing sales in the year of Kraft' s entry and years following, this pattern of decreases is a continuing patten1 \vhieh had prevailed for some years before. While a sharp drop in sales coincident with a competitor s promotion but following a record of rising sales in the prior years is evidentiary of causal relntionship, a continuing drop over a long period of years antecedent the promotion in issue may be explained by 01' attributed to factors other than the promotion.

CHANGES IN THE COMPETITIVE PICTURE FOLLOWING KRAFT S ENTRY At pages 1:390 to J391. I have set forth the compJacent nature of the marshmallow cream business prior to Kraft' s entry and concluded that it needed a jolt. ,;nqllestionably, it g-ot that jolt , NATIONAL DAIRY PRODUCTS CORP. 1401 1333 Initial Decision when Kraft entered the business, but the jolt was not harmful. It was, on the contrary, beneficial in several respects. Durkee is the best example of this. Although it had never engaged in any market research, it contracted and paid 000 for this in the second half of 1960 (Tr. p. 991). Its sales for 1963 in New England were as high or higher than they had ever been. This was true also of its "Area 1 other than New England. " Total company sales for 1963 also were as high or higher than they had been ever since 1958.

, to Durkee had been wanting, for a period of five or six years rid itself of its advertising agency, but Kraft' s entry into the market provided it with the necessary motivation so to do. An auxiliary effect of this change in advertising agencies was a development of the catch name or sales gimmick Fluffernutter (Tr. pp. 1003-1005). An aggressive advertising campaign was announced in the October 22, 1962, issue of the "Yankee Grocer a trade paper. This advertisement featured the Fluffernulter and was entitled " Fall Offensive, " It announced "A barrage of live TV to kids " a "Blockbuster in ' Good Housekeeping,''' a fullscale drive including five advertisements in a home economics magazine " Directed at Home EconOll1ists, to win 1011101'1'ow young homemakers (and customers 1), " all to be supplemented with point-of-sale colorful display pieces. This advertisement, in addition to featuring a picture of a display card for Flufl'ernutter and a television depiction of Durkee s Fluff alongside the sandwhich using it also gave the impression that ads would be placed in at least four magazines other than the two mentioned (RX 46). There \vas a change of broker in New England because Durkee recognized that retail coverage, which had been regarded as not necessary because of prior complete distribution, now was necessary. The new broker was able to provide the necessary manpower for this, the former broker having had only two or three men.

The restaurant man in Philadelphia who moonlighted as Durkee s broker also was replaced because Durkee realized that he was not adequate to do the job. Several changes have been made in the \Vashington area and Hgenerally" since 196C. These changes in brokers and in the advertising agency resulted in Durkee becoming strong' er (Tl' pp. 1007-1010). :\o chain authorizations have been lost and sales to them are as high hig-her than they were since 1958 (Tr. p. 1012). In general, Kraft' s entry stimulated and provided competition Initial Decision 71 F.

when litte or none had prevailed before and, in many instances gave the consumer a second choice \vhe1'e previously she had had only one or, in others it gave her an additional choice. EXISTING MARKETS, NEW ENTRANTS AND PROMOTIONS INCIDENTAL THERETO We must not lose sight of the fact that where there had been three, Fluff, Tweet and Cremo, after Kraft there were four. (This of course, disregards the others as to whom no proof was ofiered. ) The entry of a newcomer into a market, accompanied by price differentials resulting from promotions, should not be a reason in and of itself for ruling that there has been a violation within the meaning and intent of Section 2 (a) of the Clayton Act as amended.

To market any product today, be it old or new, be it an estab. lished product or an old product introduced by a newcomer, a trilogy is necessary. There is always, of course, the producer or manufacturer. There must, after that, always be a user or consumer. But these two alone are not sufficient. There must be a distribution process, whether it be from the producer or manufacturer directly to the retailer or indirectly through wholesalers brokers or buying organizations. (Factory to consumer arrangements are the exception, not the rule. ) No matter how much the manufacturer or producer may do for the purpose of exciting or inducing in the consumer or user a desire or demand for the product, all is to no avail if the user or consumer is unable to buy the product. This is where the wholesalers, distributors buying organizations and retail stores come into the picture. They must be induced to stock the product and have it available in time to meet the demand or desire created in the U8e1' or consumer.

Throughout the hearing of this case, witness after witness, in all the counts, has made it quite clear that the prevailing, conventional, recognized and successful way to get a product on the shelves of the retail stores is to offer promotions of one kind or another. However necessary this may be for established products and old manufacturers of such products it is immeasurably more so for the ne\vcomer in an area or for a ne\\' product not previously on the markel Kraft, for the first time, went into production of marshmallow cream topping. As far as it was concerned this \vas a ne\\' product. As far as every area in which it might desire to sell this product it was a new entrant. It could have spent millions on television NATIONAL DAIRY PRODCCTS CORP. 1403 1333 Initial Decision and radio advertising, newspaper advertising, cents-off coupons five-cents-off labels, and all of it would have been wasted if it did not get its product on the shelves of the retail stores where the consumer targets of this advertising might buy it. All the cooking schools it might run, all the recipe books it might publish all the new uses it might invent would be to no avail. All that Kraft did in this case was to engage in normal, not unusual, promotions (not like that in Count I , an unlimited one-free-with-one offer). The promotions here \were "cents off" per case, or on8case-with-five, or one-case-with-ten offers, plus a few relatively more liberal free goods deals and direct consumer inducements such as three cents-off labels and five cents-off labels. The mere giving of these promotions, bearing in mind that they were incidental to the introduction of this new Kraft product in many different areas all over the country, even though they resulted in price differentials, is not a pet se violation. They cannot, without a substantial, not speculative, showing of predatory intent be regarded as a violation of Section 2 (a) of the Clayton Act as amended. Sales losses by complacent old timers are not enough. Commission counsel recognize that something more than just the sales losses is necessary to demonstrate that respondent' promotions here, undeniably made to introduce a new product, prevented competition, substantially lessened competition, or tended to do either or to create a monopoly. They assert that Kraft sales V'were below cost. The charge of sales below cost is based on figures disclosed in Commission Exhibits 523- and 524. Before looking at these exhibits, we should recall that sales below cost, in and of themselves, are not illegal and are not ahvays evidentiary of predatory intent (see pages 1353 and 1354 of this decision). Certainly, the introduction of a new product, even by an old company, is a legitimate commercial objective. If losses are incurred in that venture, as they most certainly are in almost every instance, the mere fact that they are incurred is not a demonstration of predatory intent to justify a conclusion that the conduct was of a nature tending to lessen competition, create a n10nopoly or to injure, destroy or prevent competition in any market.

Referring to these exhibits, counsel suporting the complaint says that in 1960 Kraft lost $0.4043 per dozen, in J 961 , $0.2495 and in 1962 , $0. 1854. These conclusions fly in the face of the exhibit on which they rely, for this exhibit shows gross profits of $0. 1979 per dozen in 1960, $0. 5435 per dozen in 1961 , and $0.4975 per dozen in 1962. If we do not overlook the fact that this was a Initial Decision 71 F.

new product, we must recognize that much of the allocated expenses, in fairness, have to be regarded as start-up costs and before making a determination that the ultimate loss figures shc)'wn actually are losses incurred for predatory purposes, we must ask oUlselves what the loss figures might have been if an entirely new company without any established plants or selling organizations or advertising organizations would have lost in the first three years while it was introducing its new product. As a matter of fact, Commission counsel's very last proposed finding, Entry in the Marshmallow Creme (sic) Business " seems to be a justification for any losses incurred by Kraft in connection with its entry into this business. Durkee was entrenched in and controlled :\ew England. Tweet had to go elsewhere for its business and Cremo did not dare enter there. Only a company like Kraft seemed to have been wiling to use the risk capital to make the entry. It did. Its successful entry, at the cost incUlred by it creating competition ,vhere none had existed effectively before should not be cause for saying that it violated Section 2 (a) of the Clayton Act, as amended.

SUMMAJiY COM:vents ON RULINGS, FINDINGS CONCLl.SIONS AND ORDER TO BE ENTERED HEREIN Both sides have submitted carefully prepared abstracts of the record, comments, arguments addressed thereto, and occasional ultimate findings and conclusions, all of which have been very helpful. In the foregoing analysis of the case, I have sought to give full consideration to all contentions of the respective parties. :\umerous facts which are not in dispute are set forth. For those no record citations have been given. Reeol'd citations have been given at many places throughout the analysis, but these are intended not to be all inclusive. The mere fact that a record citation has been given does not 111ean that the record does not support elsewhere any statement made.

Because of the manner in which the proposals have been submitted, I have found it most diffcult, if not impossible, to make specific rulings on proposed findings of fact as is contemplated by Section 8 (b) of the Administrative Procedure Act and Section 19 of the Federal Trade Commission s Rules of Practice for Adjudicative Proceedings. I have sought, however, wherever I have made a ruling, to set forth adequately my reasons therefor. To the extent that any proposal is not specifically the subject of comment or ruling, my failure to refer thereto is because I have regarded it as irrelevant, immaterial or merely repetitious or I\ATIONAL DAIRY PRODUCTS CORP. 1405 1333 Initial Dccision of a class similar to a proposition upon which I have ruled expressly. Any requests inconsistent with any rulings made are denied. Any open motion on the record is either denied or granted in accordance with the text of this decision. The findings of fact and conclusions of law which will follow this section are mere ultimates. They are to be read in connection with the analysis, and the analysis and recital of facts in the text of the decision, together with the ultimates, are to be regarded as the basis and reasons for the results attained. Counts II and III are being dismissed for the reasons set forth in the text. No affrmative findings of fact other than the facts set forth in the decision are necessary for the reason that remedial action is being taken :Jgainst the respondent as to them. While the order will run against the respondent, it is my considered opinion that it should not be as broad as that sought by Commission counsel. The nature of the food and grocery business is such th,\t an extremely broad order such as that requested would result in insurmountahle problems, both with respect to the economics of the industry and enforcement. J believe that an order is appropriate and necessary but that it should be tailored to the particular conduct which caused the bringing' of this proceeding.

There are numerous practices prevalent in the food and grocery business which have been brought out in the evidence presented. The fact that I make no comments with respect to such practices has no bearing on the 111€hts of this case.It should be understood quite clearly that whatever is said with respect to Counts IJ and IJI should not bc regarded as either condoning or approving any practices in the industry. It may be that these practices are more properly a matter for an industry-wide review. It may be, also, that some are the subject of pending legislation such as Senator IJart's "Truth in Packaging Bill S. 387, 88th Congress, Second Session. Nothing in this case suggests the desirability of a consideration of those practices in determining the merits involved herein.

Upon the whole record and for the purpose of supplementing the text of this decision, and within the area noted, the following are my FINDINGS OF FACT 1. Respondent, National Dairy Products Corporation, is a COl'- Initial Dccision 71 F.

po ration organized and existing under the laws of the State of Delaware, with its principal offce and place of business located at 260 YIadison Avenue, ~ew York, New York. 2. Respondent is organized and operates under a division structure consisting of seven operating divisions, each with its own president and staff personnel. The seven operating divisions are Kraft, Sealtest, Breakstone, Sugar Creek Creamery, H umko Products, Metro Glass, and Researcn and Development 3. Respondent, through its Kraft Foods Division, for many years has been and is no\v extensively engaged in the business of manufacturing, processing, distributing, and selling a vast variety of food products, including cheese and cheese products margarine, mayonnaise, salad oil, salad dressing, and other salad products, caramels, marshmallows and other confections, Kraft Dinners, cooking oils and shortenings, fruit salads, sauces and dessert toppings, condiments, and a complete line of jellies and preserves. It sells these products throughout the United States and in Canada and many foreign countries. 4. In the course and conduct of its business, respondent is now and for many years past has been, engaged in commerce, as "commerce" is defined in the Clayton Act, in that it has sold and distributed and is now selling and distributing, its products to purchasers thereof located in States other than the State of origin and, either directly or indirectly, has caused such products. when sold, to be shipped and transported from the State of origin to purchasers located in other States and districts or territories of the lnited States. There is now, and has been, a constant course of or flow in trade and commerce in such products bet\veen respondent in the State of origin and purchasers thereof located in other States and in the District of Columbia. 5. Respondent's Kraft Foods Division maintains and operates branch sales offces in most, if not all, the principal cities of the United States from which it sells its products to purchasers. In 1961, respondent had 71 sales ollces in the United States through which jellies and preserves and other Kraft products were sold. 6. Respondent's Kraft Foods Division manufactures and processes jellies and preserves in plants located at Buena Park California; Garland, Texas; and Dunkirk, New York. It sells and distributes these jellies and preserves of like grade and quality to purchasers located throughout the various States of the United States and in the District of Columbia for sale, consumption or resale therein. The jellies and preserves when sold are for the most part distributed directly from its plants at Buena Park NATIONAL DAIRY PRODUCTS CORP. 1407 1333 Initial Decision Garland, or Dunkirk to distribution centers of retail outlets. In some cases smaller shipments are assembled in district branches and then delivered to customer warehouses. Very little business of the Kraft Division is done by store-door delivery sales. 7. The Dunkirk, Kew York, plant supplies jellies and preserves to sales districts serving all or part of 34 States and the District of Columbia from Maine to Florida and west to Montana. 8. The jellies and preserves manufactured and sold by respondent under its Kraft label are of like grade and quality. 9. The jellies and preserves sold by respondent under its Kraft label are sold for use, consumption, or resale in the various States of the United States and in the District of Columbia. 10. Respondent, in the sale of its consumer size jellies and preserves to retaHers, cooperatives, wholesalers, and other purchasers, is in substantial competition \'with other manufacturers processors, distributors, and sellers of jellies and preserves. Old Virginia Packing Company, Theresa Friedman & Sons, Inc., and M. Polaner and Son, Inc. , ale and at all times herein involved were, among others, respondent's major competitors in Baltimore Maryland, Washington Richmond, Virginia, and Korfolk Virginia. Their business \vas, in general, mainly in those areas. 11. Respondent entered the jelly and preserve industry in September, 1955 , when it acquired Bedford Products, Inc. , of Dunkirk, Sew York, a regional producer and distributor of jellies and preserves. Although it distributed all along the Eastern Seahoard to Florida and west to Chicago, Bedford's primary sales areas were the New England States ew York, and the Chicago area. Bedford was primarily a private label house and at the time of the acquisition was packing between 150 and 200 private labels and its own label with annual sales of from $5 000 000 to $6 000 000. The Kraft label was introduced in 1956. 12. Respondent continued to sell private label and Bedford label jellies and preserves for some years but it now has discontinued that practice. Since 1956, it has been selling jellies and preserves under the Kraft label in individual portions to the institutional trade. Except for one grape jelly producer, it is the only national manufacturer and distributor of jellies and preserves in the l.united States.

13. Its sales of consumer size jellies and preserves grew rapidly until by 1959 , if not earlier, it was the largest producer and seller of jellies and preserves in the l.united States. Its annual sales volumes under the Kraft label for the years 1959 , 1960 1961 . and 1962, were about or more than: j)) Initial Decision 71 F.

Sales of cowmmcr ize jellies and C1;eTVCS Cases Dol/ars 1959 . 926 874 SI0 814 140 1960 . 639 730 756,409 1961 . .n (" ) 5,408 216 (") 14 405,01l 1962 . 651 027 I 663 982 (a)(L) IncludesNet salesfreefiftergoods.pH.yments in lieu of free goolls. (See Footnote 4. 14. In 1956, respondent introduced its Kraft label consumer size jellies and preserves in the \Vashington Baltimore Maryland, Richmond and Norfolk, Virginia, trade areas. By the end of 1960, approximately four years later, its sales in these areas totalled 168 977 cases with a dollar volume of $475 129. This compared with Old Virginia s sales of 518 199 cases for 162 195 which had been promoting, selling, and merchandising its jellies and preserves jn these areas for Inore than 50 years. the Baltimore, Maryland trade area, respondent, after only four years, had 1960 sales of 116 446 cases for $317, 793 as compared with Old Virginia 1960 sales of 127 337 cases for $344 836 after more than 50 years.

Respondent' s 1960 sales in the four trade areas compared fa. vorably with those of the t \vo other leading regional manufacturers in the area, exceeding those of IVI. Polaner and Son, Inc. at $339 868 and approaching those of Theresa Friedman & Sons Inc. , at $644 568.

15. In the latter part of 1960, respondent, not satisfied with its sales to the leading supermarket chains in the Washington area (which, because of their size and competitive positions or situations, overlapped to Baltimore, Norfolk and Richmond) emharked upon a sales promotion which, in substance, provided for the unlimited giving of one case of jellies, jams or preserves free with every case purchased at regular list price by any chain, distributor, re. tailer, or buying organization in the four areas mentioned, conlmencing January 16, 1961 , and ending February 10, 1961. The free goods were to be delivered after February 10, 1961. 16. The net price per unit for goods sold on the basis of one unit given free of charge for each unit purchased at regular price is arrived at by dividing the regular or list price per unit by two. The net price so resulting (half of the regular or list price) is substantially below the manufacturing cost per case and, if the cost of delivery is taken into consideration, the actual cost is even greater.

NATION AL DAIRY PRODUCTS CORP. 1409 1333 Initial Decision 17. During the same time respondent sold its consumer size Kraft label jellies and preserves at substantially higher prices in its other trade areas in the United States. 18. Respondent, in lieu of delivering the free goods due to its customers in accordance with the terms of the sale, paid many such purchasers an amount in cash equal to the regular or list price per case of jellies and preserves purchased by such customers in response to the offer. The result of such cash payments was that the goods previously ordered and paid for became free goods. These cash payments had not been contemplated in the original plan. They became necessary because respondent was unable to supply all the free goods which, under the plan as intended, were to have been delivered beginning February 10, 1961. 19. During the months of January and February 1960 , respondent delivered a total of 27 994 cases to purchasers in the four trade areas. As a result of the 26 day sale from January 16 through February 10, 1961 , respondent sold and delivered 400 803 cases for $1 519 137 and delivered 153 909 cases at no charge. This resulted in a total of 554 712 cases delivered into the four trade areas. The effect of respondent's one with one below cost price cut can be visualized when it is compared with sales of Old Virginia Packing Company, Inc. . the regional manufacturer doing 50% of its total jelly and preserve business in the four areas. Old Virginia had annual sales in the four areas of 483 812 cases for $1 367 101 in 1959 and 518 199 cases for $1 462 195 in 1960. 20. Also indicative of market response to respondent's price cut is the following comparison of its sales in the four trade areas for the years 1960 and 1961:

1960 1961 Area Cases Dut/a,.s Washington, D. C. - 483 $ 40 047 1=- i76 - Baltimore, :Jd. 116,446 317 793 083' 463 I 301Richmond, Va. 682 : 156 120 603 I 116 241 Norfolk, Va. 366 133 121 , 5 144 832 Total 168 977 475 129 700 407 911 805 829 005 (") 1 740,810 (a) Net les after deduction of YJayrn ts made ;n 1i 11 of delivering f ee goou (b) The dollar amount fo . each 01 the four areas is tbe net sf!les volume ,,:ter dEuuction of the paymeIJt made 11Y respoIJdeIJt iij lieu of d !jvH'iIJg the fJ' e goods due customers . This amount, whjp.h is S82D OOS, has been added oack to show the total dollar VOLume of respondent s sales in the four ;;u'eas in 196:. (Sep. Footnote 1 , nbovc.) Initie.l Decision 71 F.

21. Respondent's sales for the 26 day period exceeded the annual sales of the regional seller for which the four trade areas comprise the primary market. Respondent actually delivered a case volume of jellies and preserves exceeding by 70 900 cases the 1959 annual volume and by 36 513 cases the 1960 annual volume of Old Virginia Packing Company, Inc. Had respondent not paid cash in lieu of free goods due, it would have delivered a total of 801 606 cases in the Washington-Baltimore-Richmond-Norfolk areas in 1961, by reason of this sale.

22. The response of purchasers in the Washington-Baltimore area to respondent's one free with one "helm,v cost" prices was as should have been expected. PUlchasers took advantage of the prices by buying uncommonly large quantities. 23. The direct result of respondent's sale at half price during the period involved and under the conditions provided in the areas involved was great and damaging losses to Old Virginia , and NI.Packing Company, Inc., Theresa Friedman & Sons, Inc. Polaner ,md Son, Inc., in those areas (all as set forth in greater detail in the text of this decision), which losses would have been greatcr and would have had an even more injurious and probably permanent effect on them had respondent's plan been completely effectuated in the manner originally contemplated. 24. Respondent either deliberately intended and was aware that such losses and results would eventuate or, if it did not so intend deliberately and was not so av,rare, in the exercise of ordinary business judgment, it should have had that awareness and for that reason I find that, in law, it did have that intent. 25. The price discrimination cost respondent in excess of SJ ,300 000. Its jelly and preserve product line represents only one of a vast number of different product lines sold by respondent' s various operating divisions throughout the United States and in other parts of the world. During the period January 16 through February 10, 1961, respondent sold its jellies and preserves at higher prices in the other trade areas of the Eastern and Southern Divisions of its Kraft Foods Division than in the foul trade areas of Washington Baltimore, :VIaryland, Richmond and Norfolk, Virginia, where the "below cost" prices had prevailed. The cost of this price difference was subsidized from income and profits earned by respondent in its operations elsewhere and its sales of other products in the areas involved. 26. Regional competitors of respondent in the sale of jellies and preserves in the Washington-Baltimore-Richmond-~orfolk areas lost sales and profits for a period of from six months to NATIONAL DAIRY PRODUCTS CORP. 1411 1333 Initial Decision more than a year following respondent' one-free-with-one price discrimination in those areas.

From all of which I make the following CONCLCSIONS A. The respondent is engaged in commerce within the meaning of Section 2 (a) of the Clayton Act as amended. B. All acts and practices which are the subject of the order to be enter"ed were committed in the course of such commerce. C. Although Kraft Foods Division is a division of the respondent, it is and was, at all times involved herein, respondent' agent and, for that reason, the respondent is responsible and liable for any of the acts or practices of Kraft Foods Division. D. The one-free-with-one promotion in the Washington, D. Baltimore, Maryland, Richmond, Virginia and C\orfolk, Virginia areas was a discrimination in price in favor of those areas as opposed to prices for the same goods in other areas, and was in commerce, and the goods involved were commodities sold for use consumption or resale within the L'united States. E. The effect of that discrimination could be and was substantially to lessen competition or tend to create a monopoly in the jellies, jams and preserves business in those areas. F. It tended to injure, destroy or prevent competition with other companies engaged in that business in those areas and did, in fact, injure such competition as might have been offered by such firms.

G. The respondent has failed to offer any evidence suffcient or of a nature substantial enough to support any defense for which pl'vision is made in the Act.

H. This proceeding is in the public interest. I have concluded that it is necessary and appropriate to effectuate proper enforcement of the law to enter the following ORDER It is ordered That respondent, i\ational Dairy Products Corporation, and its several divisions and its offcers, representatives, agents and employees, directly or through any corporate device do forthwith cease and desist from discriminating, directly OJ' indirectly, in the price of jellies, jams and preserves of like grade and quality by selling' such jellies, jams and preserves to any purchaser or purchasers in any trading area ,vhere respondent or any of its divisions is in competition with another seller or 1412 FEDERAL TRADE CO !:IISSIO). DECISIONS Opinion 71 F.

sellers, at a price which is lower than the price charged any purchaser at the same level of trade in another trading area: PTo'uided, howeve1' That the foregoing shall not be construed to prevent respondent from defending any alleged violation of this order by establishing any of the statutory defenses contained in any la\v applicable thereto; and It is fUTtheT ordered That Counts II and III of the complaint be and the same hereby are dismissed because there is a lack of reliable, probative and substantial evidence in support there.of. OPINION OF THE COMMISSION JUNE 28 , 1967 BY DrxOK Commissionel':

The amended complaint in this matter, in each of three counts charges respondent with price discriminations in violation of Sec tion 2 (a) of the Clayton Act, as amended. In Count I , it is alleged that respondent, through its Kraft Foods Division, sold its jellies and preserves in the VVashington, Baltimore, Richmond and N orfolk areas at prices 507c lower than it sold these items in other trade areas. Count II alleges that respondent, through its Breakstone Foods Division, sold its yogurt in the :"ew York metropolitan area at prices lower than the prices at which it sold that product in other trade areas. Count III alleges that the Kraft Foods Division sold marshmallow cream topping in the Philadelphia, Pennsylvania, and Boston, lVIassachusetts, trading areas, and in other X cw England states at prices lower than it sold that product in its other trade areas. In each of the three counts, it is alleged that the effect of the respective price discriminations has been or may be substantially to lessen competition or tend to create a monopoly in the line of commerce in which respondent is engaged, or to injure, destroy or prevent competition between respondent and its competitors in the 111manufacture, processing, distribution and sale of the respective products. The hearing examiner found that the charge under Count I ,vas sustained by the evidence. Hmvever, he concluded that complaint counsel had not sustained their burden of proof under Counts II and III and he ordered these counts dismissed. The case is before us on cross-appeals, and we will consider each count separately.

COt:NT I The price discrimination with which this count is concerned took place in 1961 , about five and a half years after respondent XATIONAL DAIRY PRODUCTS CORP. 1413 1333 Opinion entered the jelly and preserve business through the acquisition of Bedford Products, Inc. Bedford, which was primarily a private label packer, produced jellies and preserves at its plant in Dunkirk, Kew York, and distributed on a regional basis. In 1956, respondent began reducing the private label business and started selling jellies and preserves under the Kraft label on a national basis. By 1961 , respondent had doubled Bedford' s sales volume at the time of the acquisition and was the largest producer and seller of jellies and preserves in the United States. The price discrimination here involved resulted from an offer made by respondent to purchasers in Washington, Baltimore Richmond and Norfolk. Specifically, for the period from .January 16, 1961, through February 10, 1961 , respondent offered one case free with every case of jellies or preserves purchased. The free goods were to be delivered after February 10, the close of the promotion. In the Baltimore area the offer was announced by respondent on January 1 1961 and \vas limited to six sizes and varieties. There was no restriction on the product line in the announcement to the trade in the other areas on December 28 1960. In both of these announcements, respondent set forth additional promotional activities to follow after termination of its one-free-with-one offer. These included two newspaper coupon advertisements, one to be run the week of February 13 and the second to be run the week of March 13. In both of the offers respondent was to absorb the cost of redeeming the coupons as well as pay the retailer 2 cents for each coupon handled. Additionally, respondent oflered a cooperative merchandising agreement whereby, for the period of Fehruary 27 through April 28, it agreed to pay 50 cents per case on purchases of all 10 ounce and 12 ounce sizes of its jellies and preserves and 75 cents per case on the 18 ounce and 20 ounce sizes. This offer was to be repeated for the period May 29 through .July 28.

For the year 1960 , just prior to this offer, respondent's volume of sales of jellies and preserves in each of the four areas was as follows:

Cas Dollars Washington 483 S 40 047 Baltimore 116,446 317 793 Richmond G82 156 X orfolk 366 133 Total 168,977 470 129 Opinion 71 F.

Respondent states that it was not satisfied with its sales volume in the areas served by its Washington and Richmond branches and that the purpose of its one-free-with-one offer was to "achieve adequate distribution" in those areas (CX 30). More specifically, respondent states that it had no authorizations 1 in the major chains (Giant, Safe way and Grand Union) in the two areas, that these chains do a substantial percentage of the grocery business in. these areas, and that its purpose was to obtain such authorization (tr. 1507-1508). Respondent further states that it was necessary to extend the offer to Norfolk because the overlap with Richmond resulted in ,"orfolk cancellations. Also, it states that the offer was extended to I!altimore to avoid discrimination between competing customers. Respondent further states that early in 1960, it attempted to increase its sales volume in Washington by submitting a program to Giant and Safeway. Basically, this program provided for the payment of promotional allmvances on two occasions over about a 10-month period and was limited to the purchase of four varieties of jellies and preserves. Giant and Safeway rejected the plan and it was therefore not offered to the rest of the trade. In the fall of 1960 , respondent's Washington-Richmond district manager requested his sales supervisors to propose plans that would obtain authorizations. It was allegedly out of these proposals that the January 1961 offer developed.

This offer was unlimited as to the quantities that could be purchased during the 26-ciay period. However, the purchaser would not receive his free goods until after this period. The reason advanced by respondent for this delayed delivery of the free cases is that by so doing, retailers ' would maintain regular retail prices on Kraft jellies and preserves. However, on January 19 three days after the program was instituted, certain retailers began offering these Kraft products to the public at half price. With the exception of Safeway, Acme and Kroger, and Giant part of the time, all of the stores in the four market areas followed suit. About two weeks later, respondent cancelled the additional promotional activities which had been scheduled as part of the offer hut continued to sell on a one-free-with-one basis to the end of the offer period. Then, on April 18, 1961, it announced to the trade an alternative whereby purchasers could accept payment in cash for all undelivered free goods.

1 The term "authorization " as ll5t'd throughout this Ilrcwt'eding meuns that the headquarters of a chain group has approved a product so that the product may then be ordered by individual stores of the group.

NATIONAL DAIRY PRODGCTS CORP. 1415 1333 Opinion The examiner s conclusion that this offer was received "enthusiastical1y" is somewhat of an understatement. The head buyer for Giant, after characterizing the Kraft product as being highly promotable" under this offer, stated that "That is the best sale (of jellies and preservesJ that I have ever known . I have never seen one as good" (tr. 349). That this opinion was shared by the other buyers in the four areas is reflected in their purchases. Orders received during the 26-day period totaled 400,803 cases. Had the program been carried out as originally planned, the same number of cases would have been delivered free of charge. Thus, respondent would have delivered 801 606 cases as a result of this three week offer as compared to the 168 977 cases (for a total of $475 129) which it sold in these areas in the entire year of 1960.

Respondent actually delivered 153 909 free cases which, together with the number sold during the period of the offer, made a total of 554 712 cases delivered to purchasers as a direct result of its offer. Cash payments totaling S829 005 were made in lieu of delivery of the remaining 246 894 free cases. For the remaining 11 months of 1961 , respondent sold 145 695 cases for a total of 700 407 cases of jellies and preserves actually delivered by respondent in the four areas for the year 1961. The regular list price of the 153 909 cases that respondent delivered free of charge was S516 577. This, together with the $829 005 respondent paid in lieu of delivering free goods gives a total of $1 345 582 that this offer cost respondent. The examiner found that the net prices per unit of goods sold under the offer were substantially below respondent' s manufacturing costs and if the cost of delivery is taken into consideration, respondent' actual costs were even greater. This finding is not disputed. We next consider the competitive situation as it existed in the four areas at the time of respondent's offer. As is characteristic of the jelly and preserve industry, the manufacturers selling in these areas were all regional distributors, with their sales concentrated within a radius of about 250 miles of their plants. The three principal sellers in the complaint areas were Old Virginia Packing Company, Theresa Friedman & Sons, Inc., and M. Polaner and Son, Inc.

Old Virginia, which has been in business since J 906, has its plant in Front Royal, Virginia. About 50 percent of its sales are made through brokers in Maryland, District of Columbia and Virginia, with between 30 percent and 40 percent of these sales being made to chain stores and the rest to independent grocers. 1416 FEDERAL TRADE COM IISSIO:- DECISIONS Opinion 71 F.

Its total volume of sales of jellies and preserves in the four areas for the year 1960 was $1 462 195. The Friedman plant is located in Philadelphia and about 75 percent of the company s business is in the sale of jellies and preserves. About 95 percent of its sales are private label goods with the Giant and Food Fair chains being two of its accounts. The Washington and Baltimore areas are part of its primary market and its sales in these two areas in 1960 totaled $629 797. It also made some sporadic sales in Richmond and Xorfolk, totaling S11 772 in 1960. Polaner s plant is located in Newark, X ew Jersey. Its sales of j eJlies and preserves which accounted for about 75 percent of its business, were about $300 000 in the four complaint areas in 1960. As we consider the effect that respondent' s offer had on these its largest competitors in the :four areas, it is important to note that after only four years, respondent's sales volume exceeded that of Polanel', was closely approaching that of Friedman and was % of the annual volume of Old Virginia which had been selling in these areas for over 50 years. The uncontradicted evidence establishes that aJl three competitors sustained drastic sales losses in 1961. Old Virginia s dollar sales declined by over 27 percent in the first six months of 1961 as compared to the same period in 1960. By areas, the decline \vas 18 percent in \Vashington, 27 percent in Baltimore, 40 percent in Richmond and 35 percent in Norfolk. In the second half of 1961 , Old Virginia s sales declined by about 2 percent as compared to the second half of 1960 which, as shown hy the record, was a period of business recession. As has been noted, respondent actually delivered over 554 000 cases of jellies and preserves in the complaint areas as a result of its 26-day offer. This was more than Old Virginia s total sales of 518 199 cases in these areas in the entire year of 1960.

Friedman s losses were sustained principally in the \Vashington-Baltimore areas since these were the two complaint areas in which its sales were concentrated. The record establishes that in the four areas, Friedman s dollar volume of sales declined by 33% percent in the period of January through June 1961 as compared to the same six months in J 960. In the second half of 1961 , Friedman s dollar volume of sales was down 17. 8 percent as compared to the second half of 1960. For the year 1961 , its sales volume was down 26. 3 percent over 1960. Polaner s losses are complicated somewhat by the fact that February 19fj1 it introduced a special decorative drinking glass container for some of its jellies. This line, known as IVlr. l\Iagoo _.

NATIONAL DAIRY PRODL'CTS CORP. 1417 1333 Opinion was priced higher than Polaner s regular line. Complaint counsel maintain that sales of this line should not be included in determining Polaner s 1961 sales volume. However, as found by the examiner, even if the l\lagoo sales are included, Pol;;mer s sales declined each of the first six months of 1961, except February when lVagoo was introduced, as compared to the respective months in 1960. Without the lVagoo sales, Polaner s sales in the first half of 196 declined 27,5 percent from the first half of 1960, If lVagoo is included, the drop was 16 percent. There was a decrease of 12.4 percent in the second half of 1961 as compared to the same period in 1960 if :VIagoo is excluded and an increase 2 percent including Magna.

The hearing examiner found that the sales losses sustained by these companies constituted real and substantial injury which would have been greater and more prolonged if respondent had delivered all of the 400 803 free cases. Respondent does not dispute the size of these sales losses. It does, however, contend that its January 16, 1961, offer was not the cause of such losses. In the first place, it argues that the losses were the result of the fact that retailers did not maintain the usual retail price on Kraft jellies and preserves, but three days after the offer was initiated, purchasers began offering these Kraft products to the public at half price. The short answer to this argument is that at least a week before the offer period was to begin, respondent was aware of the intent of certain retailers to sell at half price (tr . 1531). Kevertheless, respondent continued to accept orders for immediate and future delivery and buyers who had cut prices reordered and received delivery under the terms of the offer. lVloreover, we fully agree with the examiner conclusion that "no one engaged in business for the purpose of making' money from the resale of goods could refuse rationally to take full advantage of an unlimited opportunity to buy a good well-advertised brand name article at half price to the fullest extent of his financial ability and warehouse capacity, '" Accordingly, respondent' s argument that it \vas the buyers' decisions to fmance their resale of the Kraft products, and not respondent' half price sale, which caused the competitors ' losses, is rejected. respondent next contends that the competitors' losses were due to their failure to conduct their usual promotional offers. In "lniiirli Deci ion, P. 136;,. This conclusion :5 fu!:y s\J;Jportcd DY the testimony of thJO buyers. As an example, thl' b\;yer for tr. ree groce y storrs doing SZZ rr.illioYl worth uf business in the Norfolk area stite.d thet it was my function to buy ':he commodities t the IOWE'3l price possible, the quality considered . \Vhr.n a prcse\.ve 0; that nature i offered at slich a price as that, a buyer cannot rduse it" (t1" 699), Opinion 71 F.

this regard, the evidence establishes that prior to 1961, each of the three principal competitors engaged in certain promotions and deals for specific periods each year in an effort to increase sales and gain distribution.

Representatives of each of respondent's three principal competitors testified as to the reason for their failure to conduct their usual promotions in the first half of 1961. It is clear from their testimony that the management of these regional companies which were experienced sellers in the complaint areas, determined that it would be futile for them to attempt to combat the below cost offer of this national company (tr. 341, 422, 531). The situation with which they were faced is well ilustrated when respondent' s offer is compared with the best promotional deal offered by Old Virginia, the principal independent seller in the area. Briefly, in its so-called "mix or match" offer, Old Virginia grants an allowance to purchasers who buy at least five designated varieties of its jellies and preserves. L'sing one such offer as an example (RX 10), the average list price per case of the five varieties \vas $2.37. The average per case allowance was $.37 as compared to respondent' s half price offer. The examiner found that respondent' s competitors were aggressive, informed merchandisers, that it \vas futile or impractical for them to attempt to counter respondent's offer, and that their failure to promote is demonstrative of the serious anticompetitive character of respondent' s promotion. This is borne out by the testimony of respondent's own \vitnesses that promotions are important competitive tools in the sale of grocery food products. The significance of the competitor s inability to promote in the face of respondent's price cut is emphasized in Friedman s experience with Giant. Friedman packed a private label jelly under the name Aunt Nellie, for this customer. In response to an inquiry from a Giant representative, Friedman advised Giant that anything he could do would be so small compared to the Kraft deal that it wouldn t pay. Friedman was then informed that Giant would not be able to promote its own private label goods for a period of time. Consequently, Friedman s sales to Giant declined 35 percent in the first six months of 1961 as compared to the same period in 1960.

The examiner s findings and conclusions concerning the com- 3lt is to be noted that Old Virginia s mix or match promotion vas usually offered on a count and recount basis (RX 3, 5 , 8, 10 and 121. tinder this system, a !)uyer s inventory is taken at the start of the promotion pel-iou and his \.lUrchases during the period are count and added to the opening :nvt'ntory, The c:osing inventory is subtracted from this total and the allowance is paid on the goods physically moved during the promotion period (t1'. 1. 74). Respondent had no such limitation.

, NATIONAL DAIRY PRODUCTS CORP. 1419 1333 Opinion petitors' failure to promote are fully supported on this record and respondent' s argument is re.i ected.

Respondent' s basic contention throughout t.his count is that its ob.iective in init.iating the one-free-with-one offer was to obtain chain store authorizations for its .iel1ies and preserves. To this end, it devotes considerable argument to the validity of the use of promotions by members of the food industry to obtain such authorizations. As used in this context, promotions involve discounts and allowances to grocery store purchasers as \vell as coupons, prizes cents off" labels, etc., to the consuming public. It is respondent' s position that promotions "are carried on usually with a view to getting people to try a product, and if they try it once perhaps they wil try it again; to get consumer acceptance and with that acceptance an extended period of purchase.'" In substance, respondent argues that with the change in the st.ructure of the food marketing system since World War II, resulting in a significant reduction in the number of retail buying points promotions have become one of the primary means by which food manufaeturers v,rage competition.

As the hearing examiner has properly stated, the statutory defenses afforded by Section 2 (a) do not provide .iustification for a price differential solely on the ground that it resulted from a promotion. :VIore to the point, however, it is our conviction that respondent' s offer was neither conceived nor conducted as a promotion " within respondent's own definition of that t.erm. our opinion, this record clearly establishes that respondent' s onefree-with-one offer was a price discrimination calculated and intended to destroy and prevent competition with respondent in the sale of .iellies and preserves in the complaint areas. The very nature of the offer indicates that it was devised for a predatory purpose. None of the buyers or competitors who testified in this proceeding had ever heard of an offer such as this in the sale of a regular brand of .iellies and preserves, even on an introductory basis.' And respondent was not attempting to intro- . Rl'sporJdent s Brief on Appeal, p. 8.

o The validity of this argument is somewhat weakened by a 1857 marketing study introdue:ed by respondent wherein it is st!Jted "\Vhile all of these things " ,; product Qua:ity, packag-i:ng, pricing, distribution, promotion and merchandising are ail vital paris of the successful mar- J(( tjng' pattern, yet perhaps the most important of all is Htising advertising that pre-sells the customer bdore she enters the store heips her with the many split-se(,ond buying decisions she must make inside ' advertising that implants a strong brand image and preferenc.e in hn mind ,. (emphasis in origill:lij. (RX 209, P. 52 6 The feature of this one-free-with-one promotion which distir. guished this from the other one- f,' ee-with-ont, promotions that were mentioned in this record is the fact that the Quantity of jellies that could he purchased under the deal WH.'; unlimited. Kraft. for example, had used a one.free.with-one deal on three other occ:lsions to introduce brand new jtem . On only one Opinion 71 F.

duce a new product in these areas, having sold Kraft jellies and preserves therein for four years.

It is unreasonable to assume, as respondent would have us do that it was necessary to cut the price of these Kraft products in half to a below cost price and permit delivery over an extended period of time simply to gain authorization to sell to chain stores. In this regard, to characterize this offer as a "three week" promotion is completely unrealistic. The offer on its face was set up to extend for a six month period. And the only limitation as to the amount a purchaser could buy at half price was the amount it chose to warehouse.

Another factor to be considered in establishing respondent' intent is the prices which existed in the four areas prior to respondent' s offer. The list prices of Old Virginia, the predominant independent seller in this area, were lower than respondent' Had respondent' s only purpose been to obtain authorizations, it could properly have reduced its prices to meet those of this regional competitor. The buyer for a three supermarket group specifically testified that he had not bought Kraft jellies and preserves prior to 1961 because respondent had a "price at an average of 15 to 20 cents a dozen higher than comparable grades. This buyer s purchases under respondent' s offer totaled about $35 000 (tr. 698-699). Thus, respondent's drastic price cut clearly indicates that it was not interested in attempting to obtain authorizations by fair price competition but was willng to sustain substantial losses on its sales of jellies and preserves to increase its market share Respondent further argues that it could not have reasonably foreseen the consequences of its offer. live disagree. Respondent is a knowledgeable and experienced marketer of food items, particularly through its Kraft division. It had had four years experience in marketing jellies and preserves in the complaint areas. The record establishes that it used the knowledge acquired in these four years by its marketing divisions as well as the experience of of these-ltalian Lo- Cal dressing-was the quantity unlimited (CX 117-;-), Ko Emit was placed on this j' €m bCl'cause Kraft h d had no " past experience in that tYfI€ of dressing" and they were. thel"€for. playing it " j,y c?," (t1'. j"H). The l"ecord indicates one instance when Old Virginia uti1Jzed a one-free-with-one promotion, It involved on.. relatively small whojes le!' in Scranton, PennsylvRni8, Rn Clear in which Old Virginia hRd not. sojd for the previous eight years. FIJrthel'nore, aid Virginia limited the free goods to be givl'!l to the initial order place,! " "y this CUHome!' (tr, 83). The value of the free goods thrt lnoved in the promotion WRS Suj4.6:; (RX lD). An unprecedented price. an establjshed 11,bc:, Rnd the opportunity to buy Hn unlimited Quantity rcsu;tpd in the extraordinarily large qu"entities of jellies that Eraft s dced moved into the market. It is apprd'ent that Kraft did 710t retr.:n f\1equate control- and under the circumstances, thrrefore, Jost control-uver the quantity suld. NATIONAL DAIRY PRODUCTS CORP. 1421 1333 Opinion its field personnel in devising this offer. Moreover, in the previous year, respondent' s Kraft division had instituted a one-free-withtwo promotion in the Boston area in the sale of marshmallo\v cream. Despite the fact that this product has primarily a seasonal demand and less storage capability than jellies and preserves, the Kraft division was forced to curtaii shipments to other areas because of the unprecedented demand for the product. Additionally, the testimony of Oid Virginia s president and vice president concerning conversations with a Kraft representative when this offer was initiated indicates that the consequences were readily apparent both to Old Virginia and to Kraft (tr. 177, 219). Respondent' s actions subsequent to the initiation of its offer fully support a finding that its purpose was to inj ure and prevent competition. Thus, respondent states that after retailers began selling Kraft jellies and preserves at half price on January 19 1961 , it began screening orders and made "strong " efforts to limit orders received during the period of the offer. However, the testimony relied upon by respondent is vague and inconclusive and is not supported by any documentary evidence. The only evidence as to the amount of orders that were cancelled is the testimony of respondent's Washington district manager that close to twelve truckloads \v€re turned do\vn. Accepting this as an approximate figure, the insignificance of respondent' s "strong effort is readily apparent when it is considered that a truckload consists of about 2 000 cases and respondent actually delivered over 554 000 cases under its ofter. Although certain customers were mentioned as having had orders curtailed, there is no evidence as to the specific amount cal1ceiled as to any customer. Respondent' s division products sales manager did testify that Food Fair, which was one of the large purchasers under the offer, attempted to place an order for ten carJoacls which was cut back. However, this order was placed just prior to tbe close of the deal. It is the testimony of resJJondent's Washington district manager that its purpose in cutting back orders was for purchasers to he out of deal merchandise within thirty to sixty days. The reliability of this testimony is best reflected in tbe experience of tlvo such customers, District Grocery Stores, a retailer-owned cooperative with lnembers lwincipal1:v in the \\fashington metropolitan area, reduced its prices in DecemlJe/' 1963 in order to move out of its warehouse about 500 cases of certain varieties of Kraft jeUies and preserves which it had purchased under the offer in 1961. Farm Fresh Supernwrket, in Norfolk, had purchased jellies and preserves primarily from Old Virginia in 1960. _ Opinion 71 F.

It purchased 13 180 cases from respondent under its half price offer and made no purchases from Old Virginia until March 1962. As we have previously noted, respondent, on April 18 , 1961 gave all purchasers under the offer the option of taking the free goods or receiving payment of the normal purchase price for aJl undelivered goods. The hearing examiner accepted respondent' position that this option was Provided because the response to the offer was so overwhelming that respondent' s production facilities were inadequate to supply the free goods. The examiner did not analyze the evidence on this point and we think he erred his conclusion.

The evidence not only indicates that respondent had adequate production facilities but that it had, in fact,"geared its production to provide for anticipated demands under the offer. Respondent rests its position on an allegedly low inventory and the fact that a third production line was to be added to the two existing lines in its Dunkirk plant. With respect to inventory, a comparison of the December 31 , 1959 , inventory of the three sizes involved in the offer with the amount on hand on December , 1960, just prior to tbe offer, shows the following: -::::lS 1.-- Dunkirk: Dec. 31, J959 Dec. , 1960 10 ounce - 503 108 057 12 ounce. 242 108 12620 ounce I 56 J- _ 1__ Source: RX 70.

Respondent has attempted to explain the substantial increase in the December 1960 inventory by claiming that it was due to increase in business and anticipated shutdown of production due to installation of the third line. The evidence wiJ not support either reason. Thus, respondent's business increased from $10 814 140 in 1959 to $12 756 409 in 1960. Yet its inventory at the end of 1959, prior to this increase, was somewhat less than its December 31 , 1958, inventory. Respondent could hardly have anticipated such an increase as that reflected in its 1960 inventory without some substantial inducement in sales. Rather than an anticipated slow-down in production, we think respondent specifically timed its offer to coincide with the added production from a third line.

Respondent' s plan to install a third production line was con- NATIONAL DAIRY PRODUCTS CORP. 1423 1333 Opinion ceived in mid-1960 (tr. 1611). A letter dated "'ovember 11, 1960 from the Dunkirk plant superintendent to Kraft' s Eastern Division manager discloses that at most, the only down time anticipated for installation of the third line was on weekends.' This letter further states that "it is very imperative that the third line be in operation by February first. " That it was not even necessary to use weekends for installation of the third line is disclosed in a subsequent weekly report dated January 31 , 1961 , wherein the plant superintendent advised that "it was necessary for us to operate two lines two eight-hour shifts on Saturday and one line two six-hour shifts on Sunday " (RX 75-A). He further reported on the progress of the new line, stating that he intended to put it into production on February 20th. :YIore importantly, however this report which is dated in the middle of the offer period, states that the Dunkirk plant has "been able to fulfill all the orders within the allotted time except in the case of some of the preserve items, which will be run next week." This report is dated twelve days after the retail price break on Kraft jellies and preserves at which time according to respondent, orders began to pile up.

The only reference to any production problem appears in a subsequent report dated February 7 , 1961. Therein, the plant superintendent states that he was encountering Hshort delays " on some Kraft items due to low inventory condition. This report and the previous report of January 31st are detailed statements concerning production at the Dunkirk plant. There is absolutely no reference to any production problems created by the one-freewith-one offer. :.'\101'eove1' , it is obvious that any "short delay experienced on February 4th could readily be compensated for two weeks later when production started on the third line. Finally, we note that respondent delivered over 554 000 cases under its offe;', principally through production from two lines. We cannot accept respondent's argument that jts facilities were inadequate to permit delivery of an additional 247 000 free cases particularly with the added production from a third line. In our opinion there are two related reasons why respondent offered cash in lieu of free goods. First, it had determined that the market was flooded with Kraft jellies and preserves which 7 This letter stEll'S in part;

Therefore I do not fec! we should depend upon our Satunlays during- JanUfHY nrl February as production days. It is also a possibility that they (Engineering) could require down time on produnion days, although we believe this shall1d be Kept to R very minimum. In view of all thi J recommend that we p;o to five line shifts a day beginning- in January and continuing unti the third line is put into operation, " (RX 72- 1424 FEDERAL TRADE COM !ISSION DECISIONS Opinion 71 F.

had already been delivered under the offer. Second, it was aware that its half price offer was under investigation by the Commission.

Kraft' s marketing manager for jellies and preserves took a trip into the four trade areas where he learned that some stores had tremendous" inventories of these Kraft products. However, this trip was not taken until late February or early March, after the close of the offer and well after the retail price cut of January 19th.

It was about the time the marketing manager returned from his trip, on March 10, 1961 , that respondent was notified of the Commission s investigation. Respondent' s notice of the cash offer was distributed to the trade on April 18, 1961. This was just five weeks after learning of the Commission s investigation and the purchasers' large inventories but more than two 1110nths after respondent was fully aware of the extensive purchases by customers throughout the four trade areas. The inference is clear that respondent's offer to pay cash in lieu of free goods was not motivated by a desire to curtail the effect of its half price sale. \ive turn next to respondent' s argument that its "short term territorial price difference could not have the required adverse competitive effect. In substance, respondent contents that any diversion of trade from its competitors as a result of its half price offer is insuffcient to establish the requisite degree of injury required by the statute to support a charge of violation. The statute makes it unlawful to discriminate in price " \vhe1'e 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 " 8person ,vho * , * grants * * ':' such discrimination * 'J' * In support of its position, respondent relies in part on the recent decision in the Em' den case " where the court stated that: It often has been pointed out that differences in Price .without competitive injury are not illegal. Federal T,,' ude Cmmnission v. Anheuser-Busch, Inc. 363 U. S. 536 , 550. Unless the adverse competitive effect may be "substantial" as required by the language of the Ad, the Commission s burden has not been met.

In considering respondent's argument, we start vlith the premise stated in the Commission s decision in the FTY Roofing case 10 that there is nothing inherently or pet se unlawful in territorial or area price differences. \Ve must add, however, that 849 Stat. 1526. 15 U. C. 13 (:1).

Borden Co. v. Federal Trade Commission 33G F. 2d 953 , 956 (ith Cir. HJ6".). )Q In the Matter of Llo!Jd A. Frv Roofing Co. Juiy 23. 1()65 ((;8 F. 2171. afj'd 371 F. 2d 277 (7th Cir. 1966).

NATIONAL DAIRY PRODUCTS CORP. 1-125 1333 Opinion there is no provision in the statute which makes the length of time of a territorial price discrimination a per se cyjterion in determining legaliy. As the court has stated in the Forster case 11 violation is shown if it is reasonably possible that a price discrimination may have the required adverse competitive effect.

The Supreme Court' s recent decision in Utah Pie Co. v. Continental Baking Co. 386 U.S. 685 (1967), is in point on this issue of the likelihood of competitive injury as a result of short term price discriminations. In that case, the market position of one of the defendants, Continental Baking Co. in the sale of frozen pies in the Salt Lake City market, was analogous to that of the Kraft Division in its sales of jellies and preserves in the areas here involved. Neither company was satisfied with its market share and both took steps to improve it, Kraft through its one-freewith-one offer and Continental through short-term price concessions in the Salt Lake City market.

Continental' s price cut, which was characterized as the heart of its competitor s complaint, was for a two week period and, as was true with respect to Kraft, reduced its prices to below cost. As a result of this two week price cut, one of the major buyers in the area, Safeway, purchased a five-week supply of frozen pies from Continental. This is far short of the supplies of jellies and preserves purchased by both chains and independents as a result of the Kraft offer.

In considering the effect on competition in Salt Lake City as a result of Continental's two week price cut, the Supreme Court stated that the jury was entitled to consider the potential impact of this price reduction absent any responsive price cut by its local competitor, Utah Pie Co. One of the factors relied upon by the Court on the issue of possible competitive injury was the fact that the purchase of a five-week supply by Safeway temporarily foreclosed the proprietary brands of Utah and other firms from the Salt Lake City market. The Court further held that the jury could rationally have concluded that Continental would have again repeated its offer, that Safeway would have continued to buy from Continental and that other buyers would have followed suit.

Additionally, the Court referred to the consequences to other sellers in the Salt Lake City market who lost market shares. Thus, in the case before us, complaint counsel adduced evidence with 11 Forster Mill. Co. v. Federal. Trade Commission 335 F, 2d 47 (1st Cir. 196-1), cert. denied 380 U. S. 906 (1965).

, 1426 FEDERAL TRADE CO:.MISSION DECISIONS Opinion 71 P.

respect to certain other sellers of jellies and preserves which establishes that they sustained sales losses as the result of Kraft' offer in the complaint area.

Considering these facts with respect to Continental's shortterm price reductions, the Court concluded that there was sufficient evidence from which the jury could find a violation of S 2 (a) by Continental. In reaching its conclusions, the Court expressed its view that the Act does not only come into play to regulate the conduct of price discriminators when their discriminatory prices consistently undercut other competitors. Of particular significance is the Court's statement that \",hen vie wed in the context of the Robinson-Patman Act radical price cuts themselves discriminatory" do not fall within the category of "only fierce competitive inst.incts " and the fact that a local competit.or has a maj or share of the market does not make him "fair game for discriminatory price cutting free of Robinson-Patman Act proscriptions. "

In the case before us, the facts establish that respondent, the only national seller of jellies and preserves, for three weeks in 1961, offered to sell these products at half price wit.h no limitation on thc amount that could be purchased aad with delivery over an extended period of time. Respondent's only compet.itors in the four areas in which this offer was made were regional sellers whose incomes were derived primarily from the sale of jellies and preserves. Respondent's prices undet this offer were below its cost of manufacture and were subsidized by its higher prices elsewhere as well as by its sales of many other diversified products on a national basis-a source of income not available to its competitors. In brief, respondent could not wait to develop a larger share of the market 12 by a legitimate means but used the power of its treasury to appropriate a share of its competitors business by a below cost offer which it knew these competitors could not meet.

We have found that respondent' s regional competitors sustained drastic sales losses as the direct result of respondent' offer and that their ability to compete was greatly impairedY lJ It had taken Old Viyginia fifty years to neHloj) its lrl1siness in these four Rreas. Funhermore, this was the most successful inde1Jn,dent sel:er in the Rreas find :t did no, sell to Giant. one of two accounts which respondent named as essentia: for sw' ss. J" Respondent contends that the ev:dence in this respect is deficient in that it relates to on:y three of the numerous selle,' s in the foul' areas. This argument is rejected. In the first place the sales or the great majority of these competitors were so small as to be insigl,iticRnt (RX 200). Moreover. the three competitors to whom the evidence rclates we)"e the lan: est independent sellers in the arer.S, Clearly, if these three companies were unable to compete due to respondent' s below cost offer, the competitive ability of the smaLer sellers wouie. be even more impaired.

NATIOK AL DAIRY PRODUCTS CORP. 1427 1333 Opinion Furthermore, we have found that the evidence does not support respondent' s contention that the sole purpose of its drastic price cut was to obtain chain store authorizations. The facts in this record establish that respondent could reasonably foresee the consequences of its offer and that its purpose in selling at half price was to injure and prevent competition in the sale of jelles and preserves in the four complaint areas. It is, of course, not necessary to find predatory intent to establish a violation of Section 2 (a) for, as the Commission said in the Fry Roofing case The Act speaks of the effect of the it isdiscrimination, not the intent of the discriminator." However, now well settled that the existence of predatory intent is relevant in determining whether a price discrimination may have the effect of substantially lessening competition." The Supreme Court in commenting on predatory price discriminations in its decision in the Utah Pie case supm has stated that "On the question of injury to competition such cases present courts with no diffculty, for such pricing is clearly within the heart of the proscription of the Act. " Additional1ly, the court in the Fry case supra has pointed out that "An intent to harm competitors distinguishes anti competitive price cutting from competitive activity not meant to be prohibited fiber Be by the Robinson-Patman Act. An ilicit intent serves to show the substantiality and probability of the competitive effects that may result from the price reductions. * * * Since the Commission s finding of Fry s predatory intent is supported by the record, we conclude that it was unnecessary for the Commission to engage in an elaborate market study. Under the circumstances, respondent's argument that there is no likelihood of competitive injury because the sales losses of its competitors were temporary, is rejected. The evidence establishes that respondent, if not satisfied with its market share could and would engage in offers that not only substantially divert trade but are so designed that other sellers cannot compete. As so motivated, the probability of an adverse effect from respondent' s price cuts is established and a close study of the market is not required. Lloyd A. F?'V Roofing Co. v. Federal Trade Cornrnission 371 F. 2d 277 (7th Cir. 1966). Faced with such a competitor, there is no incentive on the part of other sellers to 10 N. 9 supra HI/,id. Federal Trade Commissi()n v. Anhel!ser-Rw;ch, Inc. 363 U. S. 53G (1060); POTto Rican American Tobacco Co. American Tobacco Co 30 F. 2d 234 (2d Cir. 1020), ceTt. denied, 279 U. S. 858 (1920); Moore v. Mead' s Fi'Y6 Hread Co. 348 U. S. 115 (1\)54); Atlas Building Products Co. v. Dianwnd Block GTuvet Co 269 F. 2d f)50 (loth Cir. 1(59), cert. denied, 363 U. S. 843 (1960): Utah Pie Co. v. Continental Baking Co. 386 V.S. 685 (1967). , Opinion 71 F.

compete for business if they will lose market shares at the wil of respondent. The test of competitive inj ury is "one that necessarily looks forward on the basis of proven conduct in the past. Utah Pie Co. v. Continent"l B((hn,g Co. , supra. Surely, respondent' belmv cost offer is an effective means of preventing and destroying competition within the meaning of Section 2 (a). As the Supreme Court has stated This section, when originally enacted as part of the Clayton Act in 1914, was born of a desire by Congress to curb the use of financially powerful corporations of localized price-cutting tactics which had gravely impaired the 16 In our opinion, the evi-competitive position of other sellers." dence fully supports the examiner s conclusion that respondent must be restrained from continuing the localized price-cutting tactic shown under this count of the complaint. Accordingly, respondent' s appeal under Count I is denied. COlTN'l' II This count charges that respondent, through its Breakstone Foods Division, discriminated in price in violation of Section 2(a) by selling yogurt at lower prices in the Kew York metropolitan area than in other trading areas. It is not disputed that on May 1 , 1961, respondent reduced its prices on yogurt in the Kevi' York metropolitan area while maintaining higher prices in other areas in which it sold this pro duel Then, on November 13 , 19()1, respondent raised its yogurt prices change the pricesoutside the New York area but did not effect in that area. On April 23 , 1962, respondent partially restored the price cut in New York and on July 30, 1962, it raised the New York prices to the level existing prior to :\!ay 1 , 1961. The following table sets forth respondent' s price changes. (Page 1429.

At the time of its price reduction, respondent had two competitors in the sale of yogurt in the ew York area, which the examiner found was the primary area for yogurt in the L'united States. One of these was Dannon :YIilk Products, Inc. , which started business in New York in 1942 and which became a wholly , Inc. , in 1959. In 1960 , this owned division of Beatrice Foods company s sales of yogurt in ~ew York totaled about $4 700 000, which constituted about 91 percent of al1 yogurt sold in that area. The other competitor was Lacto Milk Products Corporation which had been in business in ew York since early 1930. It had about 4 percent of the Kew Yark yogurt market in 1960, its 16 Federa! Trade Commission v. Anheuser-Busch, lnc" 363 U. S. 536 , 543 (1960). Storedoo $0._ _ , Joffedive 1411 "

J - - $0. ,. 1 r1 115 Store . $0.115 23 II , ril 1013 .$0. Effer.tive I! !", (16 10 Stored""J-"""',,,.1:,165.165.14.17.18 i- $0. Conlm:ncr. Effective u .115.145.145 .12.15.15 Pint- November- ,$0.085 , 1(; .13.15'.15.13 .16 Store "" 30.10 _16 :- I- :

, Effective 085 1:35135 .115 .13.13.11.11. for ,J-,"b' - $0.. Prices :: 18 1515 .16 .13.16. same Yogurt ;:tor" --0" 30. the May to are 14 11111:5135 Urca-kstone Prior Job,,' $0.11 I)fice Phila- sonth "Warehouse" area: the lower of and " States: and out Area -- branch: -- "Jobber metropolitan England servedPa., Florida torw"; of YorkPlainFlavoredNewPlainFlavoredarea PlainFlavored PlainFlavored Brf;ak delphia, Georgia: New The The State ,:: .

Opinion 71 Y.

sales totaling about $194 000. The remainder of this market (5 percent) was thus held by respondent, whose Kew York yogurt sales in 1960 totaled $281 000.

Prior to its price cut, respondent's wholesale Jist prices for yogurt in New York were lower than its competitors . Dannon wholesale price was the highest in this market. At the same time that respondent lowered its New York yogurt prices, Dannon raised its prices while Lacto maintained the same prices throughout the period of respondent's price reduction. The following table sets forth a comparison of the wholesale prices of the three companies in New York during the relevant(' period: Schedule of compnrative yogurt p1 ices in the New York nwtropolitan a1' (half pints) Amount 8rcakstone Bl' eak- I - Dannan ila-eto I-Dannon I Lacto 1. Prior to May 1 , 1961:

Store door:

Plain $0. 13 i $0.15 I $0. 135 : $0.02 i $0.005 Flavored ::5 1 .17 I .::5 I . Jobber:

Plain Flavored - 14 II. After May 1, 1961, .15 . Store door:

Plain.. _ 157 135 057 I 035 Flavored 192 062 Jabber :

Plain 085 045 I Flavored - ... 115 045 I III. After April 23, 1962, Store door:

Plain 115 157 135 I 042 025 Flavored .145 192 I 17 047 I Jobber:

03 Plain H"" 10 Flavored 03 . IV. After July 30 , 1962:

Store door:

Plain 157 135 i 027 I 005 Flavored 192 I 032 I Jobber:

Plain .....-- .13 Flavored :-ATIONAL DAIRY PRODUCTS CORP. 1431 1333 Opinion Statistical evidence introduced by complaint counsel establishes that in 1961 , respondent's yogurt sales in the New York area increased to about $629 000 and that its share of the market increased to 12 percent. In 1962, its sales volume of $827 000 represented about 16 percent of the New York yogurt market. Dannon s sales volume declined eluring these hvo years, going to 159 000 in 1961 and to $4 076 000 in 1962. This represented a drop in its market share to 83 percent and 80 percent in the respective years. Contrary to Dannon s experience, Lacto s sales in 1961 increased to $265 000 giving it 5 percent of the market. However, beginning in November 1961 , Lacto s sales began to declinc and by the end of 1962 its sales volume and market share were about the same as in 1960.

Complaint counsel relied on this evidence as to the volume of sales losses by respondent's two competitors to establish the adverse competitive effect required by Section 2 (a). The hearing examiner dismissed this count, holding in part that complaint counsel had failed to establish that the decreases in sales by Dannon and Lacto were attributable to respondent' s price differential.

With reference to Dannon, the examiner concluded that its sales losses in 1961 and 1962 were but a continuation of a decrease in sales in Kew York which began in July 1960. One of the factors relied upon by the examiner in support of this conclusion was a comparison of Dannon s sales volume by consecutive months in the last half of 1960. This comparison shows a steady decline in sales volume from $510 000 in June 1960 to $307 000 in December 1960. However, since the examiner found that yogurt is a seasonal product "with highest sales in the summer months and the peak month in June, complaint counsel contend that the examiner erred in comparing sales volume by consecutive ll1months. It is their contention that the only valid method of determining sales gains or losses is to compare the sales volume in any month with the volume in the corresponding month of the previous year. 'VVe agree with complaint counsel. However, using complaint counsel' s method of comparison ''Ire find that, in fact, Dannon did begin to sustain its sales losses prior to respondent's price cut. In each of the three months preceding respondent' s price cut Dannon s sales volume declined from the corresponding months in 1860, dropping almost $45 000 in April 1961 , as compared to April 1960. This was a loss of over 10 percent in the month before respondent's price reduction.

Another important factor in considering Dannon s sales de- 1432 FEDERAL TRADE COYIMISSION DECISIONS Opinion 71 F.

cline is that it raised its yogurt prices at the time respondent reduced its prices and maintained this price increase throughout the entire period of respondent's lower prices. While this increase was about two-thirds of a cent per half pint cup, at least one large chain retailer reflected this increase by raising its retail prices two cents per cup (CX 460).

In considering Lacto s sales losses, we note first that its sales decline did not begin until :\ovember 1961 and that, in fact, for the year 1961 when respondent's price cut was in effect for eight months, Lacto s sales increased by 36 percent over 1960. Its 1962 sales receded to about its 1960 level. Also, the evidence establishes that at the same time Lacto s sales began to decrease, Dannon by far the most popular bnmd on the market, had just introduced a coffee flavored yogurt to compete with that of Lacto which up to that time had enjoyed substantial market acceptance and had been the only brand of that flavor available on the market.

Complaint counsel introduced certain exhibits (CX 873Apurporting to show Lacto s loss of sales to particular customers in 1961 as compared to sales to the same customers in J 960. As the hearing examiner properly found, there is no substantial or credible evidence that the sales decreases experienced by Lacto in these accounts resulted from the substitution of Breakstone for Lacto yogurt. The only storekeepers who testified on this count, called on behalf of respondent, specifically denied that they had discontinued Lacto because of respondent's price cul Most of them carried only Dannon yogurt and testified that they discontinued Lacto because it didn t sell.

In an effort to tie Lacta s losses to respondent's pricing, complaint counsel introduced as an exhibit (CX 893A-C), a list of names of accounts allegedly lost by Lacto to Breakstone. However the examiner held, and we agree, that the testimony of Lacto representative concerning the loss of these accounts was fully discrediled on cross-examination. In brief, his testimony disclosed that of 122 stores listed, over 45 were lost by Lacto in 1960 and several were lost after respondent fully restored its price cut. As to the remaining accounts, the dates on which they \were allegedly lost was not supplied by the Lacto representative. As the examiner found with reference to this exhibit, the evidence affrmatively establishes that Lacto lost certain customers because of personality differences, disputes behveen Lacta s drivers and customers, or as we have previously noted, because Lacto didn t sell. Complaint counsel have advanced another argument in addi- NATIONAL DAIRY PRODUCTS CORP. 1433 1333 Opinion tion to their reliance on the percentage test of sales losses by respondent' s competitors. They contend that the examiner erred in failing to find that respondent reduced its prices with the intent of injuring its competitors. In support of this argument they rely on the fact that although respondent obtained authorizations for the sale of yogurt in the largest chain stores within about three weeks of its price reduction, it continued its low prices for about fifteen months.

The facts establish that in an effort to increase its yogurt sales, respondent substantially increased its advertising expenditures in Kew York in 1960. While respondent did gain additional sales in that year, the president of its Breakstone division testified that it obtained no new authorizations and, in fact, it lost money on its New York yogurt sales in 1960 (RX 217). In March and April of 1961 . its sales were below the corresponding months of J 960. Respondent was faced with a competitor whose product enjoyed tremendous popularity and who controlled 90 percent of the market. According to respondent, this competitor, Dannon had a stranglehold on the distribution of yogurt in this market" and respondent's purpose in reducing its prices \vas to gain distribution and consumer acceptance. At no time \\There respondent' reduced prjces below its costs and, as the examiner found, respondent made sure that a profit would result. On this record, we find that the fact that respondent maintained reduced prices for fiteen months under the competitive conditions with which it was faced in the Kew York yogurt market does not warrant a holding that respondent intended to injure its competitors.

As this record stands, complaint counsel rely on the percentage of sales losses by respondent' s competitors as proof that respondent' s price cuts in the sale of yogurt may have the required adverse effect on competition. It is undoubtedly true that respondent' s price reduction contributed to some extent to its competitors' losses, at least those of Dannon. However, we agree with the hearing examiner that complaint counsel have failed to establish that the volume of sales which they rely upon as having been lost by the respedive competitors, was lost due to respondent' s reduced prices. :Ylol'cover, it cannot be determined from the evidence whether any substantial loss of sales by competitors was attributable to respondent's price differentials. Since this is the test relied upon by complaint counsel, we cannot find on this record that respondent's price reduction on yogurt in the New 1434 FEDERAL TRADE COMMISSIOK DECISIONS Opinion 71 F.

York area may have the requisite adverse competitive elf ect. Accordingly, complaint counsel' s appeal is denied. COcNT II The third count, like the previous two, alleges possible injury to competition with respondent as a result of respondent's price discriminations. The product is a marshmallow cream topping sold by respondent through its Kraft Foods Division under the name " lVlarshmallow Creme.

Although marshmallow cream topping had been sold by other companies for a number of years, it was a new product in the Kraft line in 1960 , the year the alleged price discriminations were initiated. The Kraft division had developed its product in late 1958 at which time it caused a market SUlvey on this type of product to be conducted, including obtaining a report from the A. C. Xielsen Company.

As the hearing examiner found, information obtained by respondent disclosed the seasonal nature of marshmallow cream topping sales, v.,ith the largest volume of sales being made in the winter months. Additionally, respondent determined that of the marshmallow cream topping sold in the United States, about 40 percent was consumed in the geographic area coinciding with Kraft' s Eastern Division, and that the New England area accounted for almost 40 percent of the topping sold in that eastern area. In the Nevv' England area, topping is used in sandwiches and the season demand corresponds generally with the months of the school year. As in other geographical areas, the peak demand is in the months of November and December. However, in New England, the decline is not as sharp in the following months as it is in the remainder of the country.

Respondent had planned to begin production of its topping in August or September 1959 which would permit it to begin sales at the start of the seasonal demand. The evidence establishes that with sales to begin at that time, respondent would offer the product in its Eastern, Southern and Central Divisions with an allowance of 35 cents per case off the list prices it had set. However there were several delays in getting into production and, although respondent began soliciting orders in January, no product was available for shipment until February 11 , 1960. Respondent' s offcials testified that they received virtually no authorizations or orders as a result of their solicitations in mid- 17 Under a volume discount s hedule employ('d by respondent, the 1:8t price ranged from $2. 45 to $2. 25 per ase of a dozen 7 ounce jar NATIONAL DAIRY PRODUCTS CORP. 1435 1333 Opinion January which was after the period of peak demand. Respondent then decided to attempt a stronger introductory offer, one case free with two purchased, on a test market basis. The test markets selected were Boston and Washington in the Eastern Division St. Louis in the Central Division and Memphis and Nashvile in the Southern Division. The one-free-with-two offer was made in these markets for the period February 15 to March 11 , 1960 while the 35 cents per case allowance was continued throughout the remainder of the three divisions.

Orders were solicited in the test market cities prior to the offer period. Authorizations and orders received from Boston far exceeded respondent' s expectations to the point that it could not supply the demand from that market. Therefore, on February 11 1960, respondent directed all sales districts in its Eastern Division, other than Boston, to suspend sales of marshmallow cream topping. Also, respondent was unable to fill orders in its Central and Southern Divisions due to the demand on production in Boston. After the expiration of the offer period in Boston, respondent reopened the other districts in its Eastern Division on a one-freewith-two basis. It is respondent's position that this offer was necessary because its 35 cents allowance in the Eastern Division had been unsuccessful and because the area was then further into the season of declining sales. The offer period was thirty days in each district and the districts were reopened on a staggered basis in the months of February, March and April. In each district, the price reverted to respondent's standard list price at the close of the offer period. Throughout this time, respondent continued to of IeI' its product in the Central and Southern Divisions on the basis of a 35 cents per case a11o\vance, except for the test cities. After its above-described introductory offers, respondent engaged in various promotional offers for its topping in 1960, 1961 and 1962 in its Eastern, Central and Southern Divisions. These offers include case allo\vances of varying amounts off the list price, the granting of a free case with a varying number of cases purchased, and off-label price reductions. In several instances, the promotion period was the same in each of the Divisions and although the type of promotion varied, the resulting price difference was small.

The chart set forth on page 1386, prepared by complaint counsel and reproduced in the initial decision, sets forth respondent' 18 Thus, one of the two pJ"omotions offered by respondent in 1962 was ill tlw period from August 13 to August 24 ill all of its divisiolls. The Eastern Division offer was 3 cents oft label which amolmted to 36 cents per case. In all other divisiollS , the offer was olle case free with :fve which is a net reduction of 37. 5 cents per case. Opinion 71 F.

various promotional offers in each of Kraft' s divisions for the years 1960-1962.

In support of the charge that the effect of the price discriminations resulting from respondent's various offers may be substantially to lessen competition, complaint counsel introduced testimony and documentary evidence concerning three of respondent's competitors. The largest of these three is Durkee-Mower, Inc. This company began selling marshmallow cream topping in 1920 under the name "",iJarshma1low Fluff. " Its plant is located in Lynn Massachusetts, and its do1la,. volume of sales in 1959 was about 553 000. Durkee had over 92% of the marshmallow cream topping business in New England prior to respondent' s entry, which accounted for 55 percent to 60 percent of its total sales. Its second most important market area was the :VIiddle Atlantic region where it accounted for 28 percent of a1l sales in 1959. Durkee also made some sales in the midwest states and in two cities in California.

Tweet, Inc. , a second competitor, has been in business since 1945 and sells its topping under the "Tweet" label. Although its plant is located in Massachusetts, about 60 percent of its sales are in Pennsylvania, with Pittsburgh and Harrisburg being its primary markets. Its sales volume in 1959 was about $57,600. The third competitor, Cremo Manufacturing Company, in addition to selling topping under its Cremo brand, also sells under private labels to a number of customers. It began business in 1927 and its plant is located in Philadelphia, Pennsylvania. It sells some topping in ew Jersey and Maryland but its major area Df distribution is eastern Pennsylvania. Its sales volume in the year before respondent's entry was about $120,400. In their appeal, complaint counsel contend that in dismissing this count, the hearing examiner failed to consider statistical data showing declines in sales by these three competitors after respondent' s entry. While we think it obvious that the examiner gave full weight to this data (initial decision, pp. 1394-1400), we will consider these statistics.

As to Durkee, its total sales volume of Sl. 5 million in 1959 declined to $1.4 million in 1960 and to $1.2 in 1961. However, in 1962, its sales volume increased to $1.3 and its executive vice president testified that in 196:i, Durkee s sales volume was higher than it had been since 1958. In its most important trading area New England, Durkee s case sales dropped from 411 293 in 1959 to 334 647 in 1960. In the following year, this decline halted and case sales increased to 360 423. In 1962, Durkee sold 431 635 cases NATIONAL DAIRY PRODUCTS CORP. 1437 1333 Opinion of marshmallow topping in New England, some 20 000 cases more than the year before respondent's entry. Complaint counsel also introduced an exhibit showing Durkee experience with its major New England accounts. \Vhile its case sales to these accounts declined from an average of 296 940 in 1958-59 to 244 730 in 1960 , in 1962 these accounts purchased 332,466 cases from Durkee. Respondent's case sales of 83 268 in 1960 when it entered the market, dropped to 59 733 in 1962. Complaint counsel further contends that the examiner misinterpreted a chart (initial decision, p. 1396) purporting to show Durkee s and, where available, respondent's case sales to ma.ior New England accounts, from an average in 1958 and 1959 through 1962. We agree with complaint counsel that the examiner erred in concluding that where no sales are shown for respondent to specific accounts, respondent failed to enter these accounts. It is obvious from the exhibit upon which this chart is based that no sales are shown by respondent to certain accounts for the reason that information as to the volume sold was not available. However, it is likewise obvious that the examiner did not err in finding from this chart that in over three-fourths of these major accounts, Durkee s sales volume has increased since respondent entered the market.

In the remainder of the area covered by respondent's Eastern Division, Durkee s sales declined from 106 697 cases in 1959 to 204 in 1960 and to 78 152 cases in 1961. In 1962, its case sales increased to 91 533 and in the first quarter of 1963 , the latest figure available in the record, Durkee s sales were 6 000 cases higher than in the first quarter of 1959. It is to be noted that in the year in which Durkee s sales were lowest, 1961 , the principal decline took place in the first quarter when respondent had no promotion.

In Durkee's Area II , which corresponded to the area covered by respondent' s Central Division, Durkee s sales declined each year from 1960 through 1962. However, Durkee s sales in this area had declined from 1958 to 1959 , the year before respondent entered. Also, Durkee s sales were higher in each of the first three quarters of 1960 as compared to the same period in 1959 although respondent' s strongest 1960 promotions were in that period. The evidence also shows that at the same time that respondent was conducting two of its three promotions in its Central Division in 1961 and 1962, it was conducting other promotions in alj divisions. The chart set forth on page 1:365 shows that respondent' net price in its Central Division during these two promotions was Opinion 71 F.

its highest price. Respondent did grant a 50 cent per case allowance in its Central Division in March 1961 which was unmatched in other areas. However, Durkee s sales decline in 1961 was not confined to this period but extended to all four quarters of 1961 as compared to the previous year.

Although respondent offered no promotions in Durkee s Areas III and IV, the western states, Durkee s sales there declined continually from 1958 through 1962.

Turning next to the sales rec01d of Tweet, the evidence discloses that its sales declined in 1960 from 1959. However, the record is not clear as to the exact extent of this decline. In any event this decline continued each succeeding year .through 1962. However, as the examiner found, this company s sales began to decline in 1953 and within four years, it had lost half of its business. Although Tweet registered slight increases in sales in 1958 and 1959, it has not been established in this record that its subsequent losses were other than a continuation of the general trend beginning in 1953.

As to the third competitor, Cremo, complaint counsel rely on the fact that its sales declined from $118 918 for the year ending May 31, 1960 , to $89 475 for the year ending May 31 , 1962. However, as the examiner found, Cremo s best year was in 1946 and its sales have not been as high since then. The available statistical data on a fiscal year basis, ending on May 31 , shows Crema sales volume to be:

Year Sales 1958 $153,679 1959 126,375 1960 118 918 1961 239 1962 . . 89,475 Source: cx 844- Respondent' s strongest promotion, its one-free-with-two offer took place in fiscal year 1960. Cremo s sales decline in that year was less than one-third as great as in the previous year. Moreover, as the examiner found, Cremo reversed its declining sales trend the second fiscal year after respondent's entry and showed a slight dollar volume increase. The statistical data as to Cremo sales to its five largest customers follows its over-all sales pattern. In three of these five accounts, Cremo s losses were greater from 1958 to 1959 than they were in the year respondent entered. : ).

NATIO:-AL DAIRY PRODUCTS CORP. 1439 1333 Opinion Finally, there is an apparent lack of cor,'elation between Cremo monthly sales losses and respondent' s promotions. In our opinion, the foregoing statistical data is not suffcient evidence to support a finding that respondent' s alleged price difference may have the required adverse competitive effect. In the first place, this data relates to only three of respondent' competitors. The evidence establishes that there were other companies with substantial sales of marshmallow cream topping outside of the area covered by respondent's Eastern Division, HO\vever, complaint counsel made no effort to prove that competition with these other companies was in any way affected by respondent' s conduct in these other areas. While Durkee made some sales in the areas covered by respondent's Cents:al and Western Divisions, there is a lack of correlation between any losses sustained by Durkee in these areas and respondent's promotional offers." Accordingly, tbe statistical data relied upon by complaint coulle,el has relevance only to respondent's pricing practices in its Eastern Division.

Reviewing this statistical data, we find that two competitors Tweet and Cremo, lost sales each of the first two years after respondent entered the market. However, as the examiner found neither of these companies had exhibited any competitive vigor prior to respondent's entry. Moreover, these sales losses were but a continuation of a trend which started many years before respondent began selling marshmallow topping in their areas. Obviously, the entry of a new seller in their areas would divert some sales from these companies. However, considering the past sales history of these companies, we cannot determine the extent of such diversion nor is it possible to determine to what extent any sales losses were the result of respondent's special promotions.

Turning to Durkee, we find that it sustained a substantial sales loss in its primary market, New England, the year respondent entered. However, Durkee had a virtual monopoly in this area, controlling 92 percent of the sales in 1959. It had been effective in 19 Thus, in the months of June, July and August 1960 , anrl from February through :May 19G1 , when responl!.,nt had no promotions in C)"emo territory, Cremo honed a sales decline in each month (CX 845-A).

00 A. E. Staley Company, whose primary market for marshmallow tOJJPing is in the Southern and Y-lest Cua i State, and Union Starch & Refining Company, which sells top:ping tJrimarily in the east central, souiheas and west('rnareas, together account for about 88% of the national market for marshma.low topping (eX tJ. Jr. Thus, in each of the first three f)ual'ters of 1960 wheel respondent had its strongest promotional offers in its Central Division, Durkee s sa:e in that area were higher than in the corresponding quarters of 1%9. Durkee Jost sales ef.eh year from 1958 through 1862 on the west coast but respondent had lio promotional uffers in this area during that period. Opinion 71 F.

excluding other sellers, as witnessed by the fact that Tweet, with its plant in Massachusetts, had turned to Pennsylvania for its principal sales volume.

Any successful entrant into the marshmallow topping business in New England \vould of necessity take some business from Durkee. However, in the first year after respondent' s entry, and despite respondent's promotional offer. Durkee regained a substantial part of its sales losses. And, in 1962, when respondent conducted two promotional offers in New England, Durkee not only regained its entire 1960 losses, but its sales were higher than the year before respondent entered. In the Middle Atlantic area Durkee s second most important market, there is a lack of correlation between its sales losses in 1961 and respondent' s promotions. In any event, Durkee had regained most of its 1959 business in 1962 and its first quarter 1963 sales far exceeded any previous first quarter sales. Furthermore in response to respondent' s entry, Durkee made certain changes in its business operations, including replacing' its advertising agency and its brokerage firm, and its president testified that his company was stronger as a result of the changes.

As we have stated in our decision in the FFY case 8uprn Section 2 (a) is concerned with injury to the health 01' vigor of C0111petition, including injury to a single firm s abHity to compete. Considering the fact tbftt respondent was a new entrant into Durkee s market and viewing Durkee s subsequent sales experience, its initial sales losses, standing alone, will not support a finding that respondent's price diflerences substantially impaired Durkee s ability to compete, \within the meaning of Section 2 (a). Complaint counsel have also argued that the examiner erred in failing to find that respondent intended to injure its competitors by its promotional oflers on marshmallow topping. In support of this argument, complaint counsel contend that respondent sold its topping at a loss the first three years after it entered the market.

To the extent that the examiner held that respondent' s price differences could not be regarded as a violation of Section 2 (a) in the absence of a substantial showing of predatory intent, he was in error as a matter of law. Ho\vcver, we cannot agree that he erred in failing to find intent to injure on the facts of this count.

The facts relied upon hy complaint counsel show that, although respondent earned a gross profit in )fJ60 through 1962 , it sustained net losses for each of these three years. Respondent, how- ), NATIONAL DAIRY PRODUCTS CORP. 1441 1333 Opinion ever, points out that it earned a substantial net profit before advertising in 1961 and 1962, and its representative testified that the Kraft Division traditionally regards advertising on a new product for the first three to five years as part of its capital investment. In any event, it does not appear to be unusual for a company introducing a new product to sustain a net loss. Weare not convinced that the net losses sustained by respondent, particularly since it would have to employ extensive advertising in the primary marshmallow topping market, dominated by a competitor, in order to gain consumer acceptance, is suffcient to \varrant a finding of predatory intent.

We hold that there has been a failure of proof that respondent' price differences in the sale of marshmallow cream topping may have the required adverse competitive effect, and complaint counsel's appeal on this count is denied.

THE ORDER The hearing examiner has proposed an order which would require respondent to cease selling jellies and preserves to any purchasers in any trading area where respondent is in competition with another seller or sellers at a price which is lower than the price charged any purchaser at the same level of trade in another trading area. Both parties have appealed. Complaint counsel contend that the examiner erred in limiting the order to a single product line of respondent. They point out that there is no precedent in previous Commission cases for such a limitation and argue that the order should extend to all products sold by Kational Dairy Products Corporation. We agree with complaint counsel that an order limited to a single product is not an adequate remedy in this case. It is now \vell established that the Commission has a \vide discretion in its choice of a remedy and that it may frame its order broadly enough to prohibit a respondent from using identical ilegal practices in the sale of any and all products. Niles1c Industries Inc. v. Federal T1wle Commission 278 F. 2d 337 (7th Cir. ceTt. denied 364 U.S. 883 (1960). However, we do not believe that an extension of the order to cover the products sold by all of respondent' s divisions is justified. It appears from the record that respondent' s various divisions are separately managed, that they handle different products and that, in general, they employ different distribution systems. The pricing practice herein found to be ilegal is that of respondent's Kraft Foods Division whose food products are of such a nature, and distributed in such a manner Opinion 71 F.

as to be susceptible to the same type of illegal pricing. Accordingly, our order will extend to all of the products sold by the Kraft Foods Division.

In substance, respondent contends that the examiner s order would require uniform national pricing and would bar any promotional offers. In this latter connection, respondent places considerable emphasis on the use of promotional offers by other companies in the food industry. Be that as it may, a promotional offer which results in a price concession from regular prices in one area while regular prices are maintained in other areas is 2. price discrimination. And, as we have previously stated, the statute provides no exception for a discriminatory price on the grounds that it resulted from a promotional offer. On the facts of this case, respondent effected a drastic price discrimination amounting to 50 percent of its regular price for jellies and preserves by offering one case free with one purchased in the complaint areas. lVIoreover, it is obvious from this record that the type of promotional offer, and hence thc amount of a price discrimination, is limited only by the ingenuity of a company s marketing offcials, who are responsible for placing a product on the shelves of retailers. The fact that a company chooses some fornl of a price concession offer rather than an outright reduction from hs regular price in order to sell its product does not thereby remove that practice from the proscription of Section 2(a).

It is our responsibility to iltakc such reasonable action as is calculated to preclude the revival of the ilegal practices. " 22 However, despite respondent' s flagrant disregard for the 1mv as evidenced by its below cost price cut in the sale of .iellies and preserves, we do not believe that the broad prohibition of the hearing examiner s order is necessary to assure fair competition and prevent resumption of the illegal price cut shown in this record. Accordingly, we have included two provisions in the order ,vhieh \vill permit respondent to engage in pricing practices, including promot.ions, while at the same time assuring that these practices do not result in the likelihood of competitive injury. Finally, respondent argues that the order should extend only to the sales of products for resale. We agree, and the order wil be so limited.

On the basis of the foregoing, the initial decision as supplemented and modified herein will be adopted by the Commission. An appropriate order will be entered.

Federal Trade Commission v, I"lational Lead Co. 352 U, S. 410 (1957). NATION AL DAIRY PRODUCTS CORP. 1443 1333 Dissenting Opinion Commissioner Elman dissented and has filed a dissenting statement.

Commissioner MacIntyre concurred in part and dissented in part and has filed a separate statement. Commissioner Jones concurred in part and dissented in part and has filed a statement DISSENTING OPINION JUNE 28 1967 BY ELMAN Commissioner:

The Commission s decision in this case seems to me to turn the antitrust laws upside down. The fundamental policy of these laws is to preserve competition not to protect businessmen against the inevitable risks and losses resulting from competition. must not forget what competition is all about: it is a rivalry, a contest. If by substantially lowering his price or improving the quality of his product or advertising it effectively, draws business away from Band C, they will not be very happy about it and may even complain to the Federal Trade Commission about unfair" competition. But the test of whether competition is unfair is not whether it diverts business from competitors. All successful competition necessarily diverts business from rivals. The essence of competition, fair as well as unfair, is that some competitors wil win and some will lose. Competition is a turbulent sea, not a snug harbor. The notion that competition is "fair" only when everybody wins and nobody loses is patently absurd. At any rate, it finds no su.pport in any provision of the antitrust laws enacted by Congress.

What is most disturbing about the Commission s decision in this case is that it obliterates the line between (1) competition which is fair and legitimate, though successful in diverting business from rivals, and (2) what Brandeis called the "competition that kills." Where a seller systematically discriminates in price between competing customers in the same market, the injury to competition at the buyer s level is palpable. Federal Trade Commission v. MOTton Salt Co. 334 U. S. 37 (1948). But the relatively simple criteria applicable to secondary-line price discriminations are inappropriate in dealing \with geographic price differences or local promotions involving no discrimination among buyers in the same market. See dissenting and concurring opinions in Dean Milk Co. FTC Docket 8032 (decided October 22 , 1965) C68 C. 710). As to these, attention must be focused on the com- 1444 FEDERAL TRADE COCICIISSION DECISIONS Dissenting Opinion 71 F.

petitive character and significance, the fairness or unfairness of the practice-not on whether it has drawn business away from competitors.

The right to compete is the right to compete effectively. No competitive tactic is more effective than a reduction of price. If there is any area in which businessmen should not only be allowed but encouraged to compete vigorously, jt is in regard to price. A businessman may strike a hard blow at his competitors by making a substantial reduction in his price. But a hard blow is not necessarily a foul blow. ) It is true, as we stated in QUlLker OlLts Co. C. Docket 8112 (decided November 18 , 1964), p. 5 (66 C. 1131, 1193-1194J, that "In the hands of a powerful firm selling at unjustifiably low prices may be a potent weapon of pred- , es-atory and destructive economic warfare, and hence unfair pecially where such sales are subsidized out of profits made in other product lines where the seller is strong and his competition weak." On the other hand, there are circumstances in which even below-cost selling for a limited period is neither unfair nor destructive in nature or probable effect Suppose a firm that operates in a number of geographical markets desires to enter a market where it has not sold before and where one or a few firms are dominant. ;\ew entry into such a market would stimulate competition. But to gain a foothold in a market of well-entrenched sellers, a new competitor may be obliged to sell his brand at a low price, at least initially. !\on-discriminatory price reducbons or promotions aimed at prying open such markets surely are not forbidden by the antitrust laws.

Selective local price cutting may also be a necessary fhst stage in a general lowering of prices. A national seller is often reluctant to initiate a uniform price reduction, especially if he is so large a factor in the markets in which he sells that he can expect his competitors to match any such reduction. In such a situation where an across-the-board price reduction might be hard to reverse should it prove unwarranted, a national sener may want to experiment with a proj ected price reduction in one or several local markets before establishing it throughout his entire marketing area. Such experimentation or test marketing is not anti- '-It dol'\; no'. advance llna1ysis to discuss t: js JJ,"obl"m i:J term of "increa ing cor.center2tion or "changing- mar;u"t structure." \Vhenever fI busine sman f"i' s, fI:J(\ for wtate\'er H' llSU:J, there ici np ess"rily ' 0 that e:-ten: an " incrcflse in cor.centratio:l." Hut such R " chaJ ge in market structure" rray or mrr1O:y the result of vig-oruu" ani fail" mmpetitioJl; ar.d i'. i5 mrely a contradiction :1' terms las wrll HS fI rejectior. of the bas;e prcmi e5 of ou,' "economic "y tem) to ond('mn as " il1 uriou\; to competition " ('veJ; a ff\il' and r, on- ci: im:T)ato' ' I,r:ce cut, plomotiol1. or uther c.otYPetitive tflct;c which mly. if uressful . tlo)1(; to IJrodu('c fI " change in ma.rket \;lructure.

NATIONAL DAIRY PRODeCTS CORP. 1445 1333 Dissenting Opinion competitive. In addition, there are occasions when a local or regional firm may become dominant in its market area and set a high, monopoly price. Where local price cutting by a geographically diversified seller may pose the only real threat to the monopoly power of the entrenched local or regional competitor, plainly it is beneficial to competition. In general, when a firm sells in a , ab-number of different markets, there need be Jlothing unfair normal, or anticompetitive in the fact that its prices vary from market to market. Such lack oj' uniformity may simply reflect the seller s promptness and flexibility in adjusting his price to meet different competitive conditions in different markets, and insistence on price uniforn1ity in such situations could lead to high rigid, and unresponsive prices and thereby hurt competition. Thus, the fact that a seller does not charge the same price in every area in \which he does business does not ipso facto render him ,.uspect as a violator of the antitrust laws. That is why, in cases where competitive injury only at the seller s level is alleged to result from an area price difference, Section 2 (a) requires proof not merely of the discrimination but of its probable adverse effect on competition, and why actual or probable injury to competition does not inhere in, and cannot be presumed to flow automatically from, the mere existence of such price difference. In the present case the Commission holds under Count I that is Hpredatory " for a national seller to make a noll-discriminatory, limited 2G-day "free goods" offer to retailers as a promotion device for bringing its products into a new market. The only thing predatory " or even unusual about the " free goods " promotion involved in Count I is that it turned out to be far Inore succc:ssful than anyone had reason to anticipate, Had it proved less successful, like those involved in Counts II and III , the Commission would likewise have found it to be lawful. Because of its unexpected success, the Commission nmv finds the promotional offer to have been "devised for a predatory purpose. This seems to me to put national sellers in an impossible dilemma. In order to enter a new market and compete against other sellers already established there, may a national marJ(;eter make attractive and non-discriminatory promotional offers to retailers in that market') The holding in this case seems to be that it is safe for a national seller to engage in such competitive p1'o- J SN BaliaH Ice CI' eam Co. 1rden Fal"l'l.l Co. 2.31 F 2cl 356, :j(i7 (Ot!: Cj,. , 1 j5,'jI , H,'r:rierson The Federal Trade Comml sion 251 (H)2. ): E( !.ds The Pn ce Disnin,i'dLtion La./( 637 ( 950). Cj. Auto1Iat1c Canteen Co, 346 "C, S. G1 . 63 Dissenting Opinion 71 F.

motions, but only up to the point where they do not succeed in diverting sales from other competitors.

The record establishes, and the hearing examiner found, that the prevailing, conventional, recognized and successful way to get a product on the shelves of the retail (groceryJ stores is to offer promotions of one kind or another. " (I.D. 1402. ) The term promotion " empraces a variety of devices, including discounts and allowances to retailers, and special inducements to consumers in the form of coupons or prizes. All these devices are commonly used by suppliers in the food industry to obtain or expand retailstore shelf space and to stimulate consurrr purchases. The lowcost, high-turnover food products, such as are involved here require widespread supermarket distribution; and manufacturers must obtain adequate shelf space or "facings " in supermarkets in order to get their goods before the consumers. Ordinarily, many brands of the same product compete for the limited shelf space available. The struggle for shelf space is made more acute by the prevalence of chain store operations in food retailing. Generally, before a supplier can sell to any individual store in a chain, the chain s buying headquarters must Chainauthorize purchase of the product by store managers.3 buying offcers are often reluctant to authorize a new brand even if it has been the subject of considerable advertising and consumer promotion. It is not always sufficient for a manufacturer simply to create consumer demand; further steps in the form of promotions directed to the retailer must often be taken in order to obtain the authorizations. The hearing examiner summarized the evidence on this subject as follows: Throughout the hearing- of this case, witness after witness, in all the counts has made it quite clear that the prevailing, conventional, recognized and successful way to get a product on the shelves of the retail stores is to offer promotions of one kind or another. However necessary this may be for established products and old manufacturers of such products, it is immeasurably more so for the newcomer in an area 01' for a new l):rocluct not previously on the market. (1. D. 1402.

Respondent initiated the promotion which is the subject of Count I of the complaint because its Kraft Foods Division had been unable, after four years of effort, to obtain any significant number of authorizations for its jellies and preserves in the 3 The producer s opponents in the efforl to obtain shelf waco' are not only competing marketers but include the private brands of the ch Ln superm,nkets themselves . For example, with reference to jeHies am\ THeserves . in Washington in 1063. Safew1lY s " Empress " brand comprised 38. !V'IQ of its iacin"s: A & p' s " Ann Page" a11d "Sultana" had a total of 63.6% of its facings: and " Krog-er " and " Embassy" had II total of 72.5% of Kroger s facings. (RX 200, :-ATJONAL DAIRY Products CORP. 1447 1333 Dissenting Opinion areas served by Kraft's Washington and Richmond branches. Kraft' s district manager for the Washington area testified that in 1960 it had no authorizations at all in Giant, Safeway, and Grand Union (Tr. 1508, 1551), and only insignificant authorizations in other chain stores. Realistically viewed, Kraft was stil very much a new entrant in 1960. Lacking these crucial authorizations, Kraft's total sales of j ellies and preserves in the Washington and Richmond sales areas in 1960 amounted to a miniscule $71 203 (I.D. 1351; CX 17). In contrast, for the same year, sales of Kraft' s major competitors in these markets, Old Virginia and Theresa Friedman, were $808 814 (CX 176) and $233 633 (CX 184B) respectively. Kraft' third principal competitor in the Washington and Richmond area, M. Polaner & Son, had total sales in the Washington- Baltimore-Richmond-Korfolk trade areas of over $300 000 (CX 885). Polaner, however, had only minor distribution in .\orfolk and Richmond (Tr. 491), and thus Polaner, too, had considerably greater sales than Kraft in the Washington and Richmond areas. In short, respondent was doing very poorly in the Washington and Richmond markets. If Kraft was to succeed, it had to find some way to get its jellies on supermarket shelves. Kraft sought the shelf space by means of a one-free- with-one promotion. Initially, the promotion was intended for the Washington and Richmond areas; it was subsequently extended to Korfolk because of distributional overlaps, and to Baltimore in order to avoid secondary-line discrimination. (I. D. 1350. The majority opinion concludes that respondent's competitors sustained ildrastic sales losses" as the direct result of respondent' three-week-long promotion and that their ability to compete was greatly impaired. " The facts in the record, however, demonstrate that, after the promotion, respondent's three major competitors showed little or no ill effects. In fact, respondent seems to have been unable to consolidate the brief gains obtained by its promotion, with the result that the long-term market effects were practically nil.

In terms of total sales, the record fails to reveal any injury to Old Virginia. In its fiscal year ending June 30 , 1960 , sales in aji areas amounted to $3 791 932; for the following year, its . A 1962 " Supermarket News" report on foo~ store sales stated thr,t the leading chains in the Washington area :'ccounted for 79% of sales, with an additional 9% accounteri fo!' by large f'ooperatives fol" Ii total of 88%. Giant, Safeway, and Grand Union accounted fO! 59% of total sales in the area. (CX 907.

A/lout 75 other jam and jelly manufacturer' s accounteu for about 67% of the total market (RX 200).

Dissenting' Opinion 71 F. sales dropped 12.12% to $3 332 126 (CX 895 , 897); its sales for the fiscal year ending June 30 , 1962, were $3 868 628 (CX 899), an increase over its sales in the fiscal years 1958-1961 (CX 895M). At the time of the hearings, sales for fiscal 1963 had increased to a rate which would amount to about $4 000 000 for the year (Tr. 213).

Old Virginia s sales in the four cities of the complaint area in 1959 amounted to $1 367 101; in 1960, $1 462 195; and in 1961 , $1 206 172 (CX 17b). Although there was a decline in sales in 1961, it falls far short of indicating that Old Virginia s viability or effectiveness as a competitor had at all been impaired. Although in 1961 Theresa Friedman & Son, Inc. , experienced a decline in sales from its 1960 level in the complaint areas- $474 960 in 1961 , and $644 569 in 1960 its 1961 sales approximated its 1959 sales of $482 227 (CX 184). The abrupt increase in sales in 1960 may be explained by the fact that Friedman engaged in a promotion in the first half of 1960 which boosted its sales considerably. (Tr. 432-33. ) In terms of overall sales Friedman sho\vs no sign of being less capable of competing after the Kraft promotion. Friedman s total sales in 1959 were $4 533 364; in 1960, $4 931 696; in 1961 , $5 178 569; and sales in 1963 were at a rate approaching $6 000 000 for the year. (I. D. 1360 RX 225- , Tr. 392, 429.

The record indicates that Kraft' s third major competitor, ;VI. Polaner & Son, experienced a very slight decline in sales in 1961. Polaner s total sales in the complaint areas in 1959 amounted to 8306,433; in 1960 to $339 868; in 1961 to $323, 550; in 1962 to $392 900; and through September in 1963 to $282 368 (CX 885 886) .

A shelf space survey of retail food stores in the relevant areas conducted by a market research organization in April 19n3, two years after the promotion, revealed that respondent' s competitors which were allegedly injured in their ability to compete, each held larger shares of shelf facings than Kraft. Old Virginia accounted for 15.8%, Theresa Friedman for 11.9%, Polaner for 170 and Kraft 5.9% (RX 200).

Although these facts do indicate that there was a temporary diversion of business from its competitors to Kraft during and shortly after the promotion, there is no evidence in this record of any injury to competition, and it is probable injury to competition, not mere temporary diversion of business from other individual competitors, which is the standard of ilegality. Borden Co. v. Feden!l Trode Cornmission 339 F. 2d 953 (7th Cir. 1964) , I'ATJO"'AL DAIRY PRODUCTS CORP. 1449 1333 Dissenting Opinion Lloyd A. Fry Roofing Co. C. Docket No. 7908 (decided July 23, 1965) (68 F. C. 217J, MJ'd 371 F. 2d. 227 (7th Cir. 1966) Ame1'icun Oil Co. v. Federal Trade Commission 325 F. 2d 101 (7th Cir. 1963). The fact that there were temporary shifts of sales among competing sellers does not show either that the promotion was unfair or that competition was injured. It was inevitable that respondent's competitors should have sold less jelly during and for some time after the promotion-it could scarcely have been otherwise. G But that is the essence of healthy competition.

:'lol'€over, even if this shift of business among competing sellers were permanent, instead of merely short-term, it would be insuffcient in itself to establish a JjTirrui fncie violation. See Anhense,. Bnsch, Inc. v. Federal Trade Commission 289 F. 2d 835 , 840 (7th Cir. 1961) ; Atlas Building Prods. Co. v. Diamond Block Gmvel Co. 269 F. 2d 950 (10th Cir. 1959). Changes of sales shares among competitors cannot, in themselves, be equated with the substantial lessening of competition required by the statute. The concern of Section 2 (a), as I wrote in dissent in BOlden Co. C. Docket No. 7474 (Feb. , 1964) (M F. C. 534 , 577J, 1ev 839 F. 2d 953 (7th Cir. 1964), " is not to freeze the competitive stntns qno and require complete pricing rigidity, but to preserve the capacity to compete. Price discriminations are therefore unlawful only if they impair that capacity. Neither the size of the discrimination nor its immediate impact upon the sales of the affected firms will ordinarily provide a sufficient answer to the question of whether their capacity to compete vigorously and effectively has been injured as the result of the discrimination. By the same token, as the Supreme Court pointed out in Utah Pie it is not correct to say that there "is no reasonably possible injury to competition as long as the volume of sales in a particular market is expanding and at least some of the competitors in the mayket continue to operate at a profit" (Slip opinion, p. 16. Thus, the possibility that there has been injury to competition is not precluded by evidence that the price cut was not deep, or that competitors enjoyed increasing sales; but neither is the converse true-evidence of reduced sales or a deep price cut, standing As the Commi 5iorl POi11ts nut n ;ts discussioTl of Count 111 Obvim.;sly, the entry of fI new 8eii l" in these are s would l i\,,, t some sf'lc frcrn these COJ'pilnics. " 11 . 143(' ) Am:. Any successful rntnmt j'1tO the m;nshmal:c,w top ')ir. g lJusiness in :tcw E"g lind wO'Jd or neff!; ;ty take some bUoiness from Durk",c. " (P, 1-40, :

Dissenting Opinion 71 F.

alone, is likewise insuffcient to establish that competition has been inj ured.

This reasoning is properly applied by the Commission to the facts in Count III , leading to the conclusion that no violation of Section 2 (a) was established under that count. According to the majority, "initial sales losses, standing alone, \vill not support a finding that respondent's price differences substantially impaired Durkee s ability to compete, within the meaning of Section 2 (a). " (P. 1440. ) The majority s failure to draw the same conclusion in Count I, in which the operative facts relating to injury to competition are the same, is baffing and unexplained. In finding that respondent's one-free-with-one offer resulted in injury to competition, the majority opinion tries hard to squeeze the facts here into Utah Pie. Its analysis completely ignores one of the most crucial facts in that case, relied upon by the Supreme Court and reiterated many times throughout its opinion: a general and drastic decline in price structure attributable to the respondent's price discrimination.

At the very outset of its discussion of competitive effects, the Court held that "there was ample evidence to show that each of the resjJondents contributed to what jJroved to be a deteriorating price structure over the period covered by this suit * (Slip opinion, p. 4.

In the section of its opinion dealing with the case against Continental, the Court emphasized that Continental' s drastic price discrimination caused Utah Pie to make comparable reductions of its price. The Supreme Court concluded that the jury could have found that a competitor "who is forced to reduce his price to a newall-time low in a market of declining prices will in time feel the financial pinch and will be a less effective competitive force. " (Slip opinion, p. 11.

Further, tho Court stressed the evidence of " a drastically declining price structure which the jury could have rationally attributed to continued or sporadic price discrimination" by each of the defendants. (Slip opinion, p. 17. The question before the Court in Utah Pic was essentially factual whether the evidence was suffcient to support the jury's finding of probable injury to competition. In answering the question in the affrmative, the Court' s opinion emphasized the presence of the following facts, all of which arc absent here: the predatory jntent" of each respondent; "jn an expandjng market where prjce proved to be a cruda1 factor each of the respondents contributed to what proved to be a deteriorating price struc- NATIONAL DAIRY PRODUCTS CORP. 1451 1333 Dissenting Opinion ture" ; respondents lllade "persistent unprofitable sales below cost" and " radical price cuts themselves discriminatory; their competitors were "damaged as a competitive force " because they were "forced to reduce (theirj price to a newall-time low in a market of declining prices; and evidence of "a drastically declining price structure which the jury could rationally attribute to continued or sporadic price discrimination. The importance of these evidentiary factors to the decision in Vtah Pie is emphasized in footnote 15 of the Court's opinion distinguishing the cases relied on by the defendants: In Anheuse?" Busch, Inc. v. C., 289 F. 2d 835 , 839, there was no general decline in price structure attributable to the defendant's price discrimination, nor was there any evidence that the price discriminations were " a single lethal weapon aimed at a victim for predatory purposes. hZ., at 812. In B01"den Co. v. C" 339 F. 2d 953, * * " the Commission s charge regarding the other market failed to show any lasting impact upon prices caused by the single, isolated incident of price discrimination proved. , , " "' In Ua1' , Inc. CCH Trade Reg. Hcp. Transfel' Bindel' , 1963-1965 116,807 (64 F. C. 924J, there was no evidence from which predatory intent could be inferred and no evidence of a long-term market price decline, Similar failure of proof and absence of sales below"w cost were evident .in Quake?' Oats Co. CCH Trade Reg. Rep. Transfer Binder, 1:163-1965 j34 (66 F. C. 1131J. Dean Milk Co" 3 Trade Reg', Rep. :17 357 (68 F. C. 711J, is not to the contrary. There in the one market "where the Commission found no primary line injury there was no evidence of a generally declining price structure. It is important to note that the Court's opinion in Vtah Pie by no means casts doubt upon the validity of any of the cases which it distinguished in footnote 15. Kor did the Court suggest that it Vlas dispensing \with the necessity for showing injury to competition as a prerequisite to finding a violation of Section 2(a). Vtah Pie then boils down to this: Persistent helow-cost price discriminations, evidencing predatory intent and damaging competitors as an effective competitive force by compelling them to reduce their prices radically in a drastically declining price structure, supporting a finding of probable injury to competition. The Supreme Court' s holding in Vt"h Pie is wholly inapplicable to the facts of this case. Kraft engaged in a special and limited promotion, offering its goods on a one-free-with-one basis. There is a big difference between this type of promotion and the outright price reduciions involved in Utah Pie. The significance lies in the fact that while a deep price cut will ordinarily lead to a declining price structure, a special and limited free goods offer will not. This is borne out by the record in the instant case Dissenting Opinion 71 F.

Most important is the fact that there was no price decline in the jams and jellies market involved here. (Tr. 688- , 1534-35. Although there was some price decline on Kraft jellies, the evidence is clear that this was not intended by respondent. (Tr. 129- , 1745. ) In fact, Kraft went to considerable effort to prevent or minimize any price break on its products. The free goods promotion was specifically designed to induce retailers sell the merchandise at normal retail prices. (See I.D. 1349, n. 2; I.D. 1353; Tr. 127; 1521-26. ) A number of the supermarket buyers, called as witnesses by complaint counsel, testified that it was their understanding that it was Kraft's desire that regular retail prices would prevail during the promotion. (Tr. 351-52; Tr. 668-69; cf. Tr. 734-35. ) When, contrary to respondent' s expectations, certain wholesalers and retailers financed the sale at halfprice of Kraft jellies, and orders began to pile up far beyond Kraft' s original estin1ates, the promotional program ,vas immediately cancelled. Obviously, cut-rate prices would be inimical to Kraft' s marketing plans for three reasons. The first is that lower prices, which would lead to faster turnover of the merchandise would not be consistent with Kraft' s purpose in undertaking the promotion, which was to get its product on supermarket shelves for as long a period of time as possible. Second, Kraft attempts to surround its jellies whh an image of high quality, and deep price cuts \vould tend to make its product appear as a cheap item. Third, the consumer resents an increase in price over the introductory price. (Tr. 1543-44.

The evidence in the record demonstrates that Kraft' s competitors in the market suffered no long-term economic injury as a result of Kraft's promotion. It also demonstrates that Kraft' promotion did not lead to a declining price structure in the market, from which competitive injury might be found, and, indeed, that the plo111otion was specifically designed not to generate a decline in the market price. The Commission s finding of competitive injury is thus completely unsupported by the evidence and cannot find any parallel in the Supreme Court' s decision in Utnh Pie.

The majority bases its "conviction (1'. 1419) that respondent' s promotion was "intended to destroy and prevent competition " on a few ephemeral "facts" which are also present in the other two counts of thjs case as to which the Commission found no violation. \?i/hy these "facts " are suffcient to show a violation as to Count I but not as to Counts II and HI is puzz1ing'. The fact that respondent engaged in this promotion fol' less than a , NATIONAL DAIRY PRODUCTS CORP. 1453 1333 Dissenting Opinion month, and for the purpose of getting a foothold in a market where it was ail but shut out, is completely ignored by the majority in finding a violation of Count J, although as to Count III the same fact that respondent was a new entrant struggling for a share of the market is the basis for finding no violation. explanation is offered for the difference in result. The Commission says that "the very nature of the offer indicates that it was devised for a predatory purpose," and that the "drastic price cut" on jellies indicates that Kraft did not simply want store authorizations, as it claims but was willing to take substantial Josses on its sales of jellies and preserves to increase its market share" (pp. 1419-1420)' The question of respondent' s motive is, after all, the heart of this case. Did Kraft engage in the promotion in order to get a foothold in the market or did it offer free goods in an effort to kill competition? The majority opinion gets off on the wrong foot by insisting that Kraft engaged in a "drastic price cnt, " To be sure, a free goods pron1otion l11ay be technically a price reduction for purposes of testing its legality under Section 2 (a) of the Clayton Act. But that does not change its nature as a special and limited promotion, having competitive effects far different from a " drastic price cut." Kraft's one-free-with-one promotion is not only wholly consistent with its asserted motive of l11€rely obtaining shelf-space authorizations, but is wholly inconsistent with an intent to destroy compeLtol's. A free goods promotion is designed specifically to reach retailers, especially chain store buyers, not the consumer. A price cut, which is likely to precipitate a general price break in the market, is much more likely to inj ure competition than a free goods promotion which can achieve its objective of obtaining shelf space without bringing down market prices.

The Commission adds nothing to the case hy its assertion that Respondent s prices under this offer 'were belmv its cost of manufacture and Ivere subsidized by its higher prices elsewhere as well as by its sales of many other diversified products on a national " (P.basis-a source of income not available to its competitors. 01'1426. ) Thel'o is Hbsolutely nothing in this record as to who what "subsidized" the free goods promotion involved in Count 1. 7 The COTfmissioY\ s S' '): 01' tr. is pain: as 10 Cour.t 1 i oY\tl"Hi:cted k' the view :t expresses in dismissing Count IJI of t: e comp:aint, As to that couY\t. tr. e majc ity o;;i"ion corr ctly jJoiY\s out that ;t i ot c:r.:!sua: fol . company i"c" oclucing; i\ new )Jlo\:uct ;0 s'.stfli" a net lo s and that losses i!1 themselves are insuffcient to wa,'rant a findir.g af )J,' oJintent (p. 14391.

Dissenting Opinion 71 F.

It is a moot question, wholly uni1lumined by the record, as to how respondent made up the losses sustained in the promotion. It is no more reasonable to assume that it drew on one part of its corporate treasury than another. The essential fact is that respondent' s financial resources were large enough to enable it to conduct such a promotion. But does the size of its "deep pocket" prove that respondent acted with a predatory motive? In any event, I fail to see the relevance of the Commission s speculations in this regard. Suppose, for example, a group of wealthy men organized a new corporation to sell jams and jellies in the Washington market, and that the corporation was so well-capitalized that it could afford to sell the product at a 'below-cost introductory price for a limited period, in order to gain a foothold in the mark€t. Would this be predatory? I cannot believe that the Commission would so hold. Should it make any difference-in determining the existence of predatory intent-whether the funds to sustain an initial, expensive promotion come from bank loans private savings, profits from sales of the same product in the same area, or profits from sales of the same or different products in other areas'? Standing by itself, such evidence of 'jsubsidization" from whatever source proves nothing in regard to predatoriness.

Further, the majority is incorrect in stating that none of the buyers or competitors who testified. had ever heard of an offer such as this, even on an introductory basis. The record shows that one-free-with-one promotions are common in the food industry (Tr. 643A 44; 659-60; 694; 738; 1070-71; 1744), and promotions are a characteristic of the jelly and preserves business (Tr. 692). In fact, at least one of respondent's competitors in the complaint areas had conducted a one-free-with-one jelles and preserves promotion in ar.other marketing area (Tr. 282-99; see Tr. 273-75).

Nor is the majority correct in maintaining that respondent was not introducing a new product in the complaint areas because it had sold there for four years. This ignores the fact that in 1960 Kraft was, for a1l practical purposes, out of the ball park when it came to selling jelly in Washington. A producer with only $70 000 in sales and no authorizations from the major chain stores is, in every real sense, an entrant who has not yet gained entry into the market.

Thus, in my view, there is insuffcient evidence in this record on which to base a finding of predatory intent, and there is considerable evidence showing that the challenged promotion was NATIONAL DAIRY PRODUCTS CORP. 1455 1333 Dissenting Opinion undertaken by respondent merely for the purpose of getting its product on retailers' shelves.

The net result of the Commission s decision is to force respondent to compete in the market with one hand tied behind its back. This, I suppose, is calculated to insure that respondent will patiently wait 50 years, as the majority opinion states its Washington area competitor did, to develop a significant share of the market. And this is ordered in the name of promoting competition.

Under the order, respondent is confined to promotional price cuts that are no lower than the promotional cuts offered by a competitor in the same trade area within the previous 12 months. In addition, respondent may engage in promotional price cuts, not prompted by a competitor s promotion, only to the extent of not undercutting the lowest price offered to the purchaser by any other competitor with smaller annual sales in that product than respondent.

In effect, under this order, respondent may only react to the promotions of its rivals-a far cry from being an active competitor. If respondent wishes to expand an insignificant market share in, let us say, an oligopolistic market in which its competitors are satisfied with the status quo and therefore reluctant to "rock the boat " it wi1 be handcuffed by the failUle of its competitors to engage in price-cutting promotions. And if no promotions take place in the market, respondent' s ability to promote is tied to the lowest price offered by any other seller with a smaller annual volume than respondent. It makes no difference that respondent may have the smallest volume in the area in which it wishes to promote-its ability to compete may be eliminated by the least effcient and least competitive seller in the market. Such a result is plainly anticompetitive. The order issued here would be unjustified even if the facts supported the Commission s conclusion. If the Commission is concerned here, as it asserts it is, with predatory, below-cost price cutting "so designed that other sellers cannot complete " the order should be tailored to avoid that danger, not to prohibit virtually all local promotions and geographical price differentials by a national marketer. C/. Lloyd A. F1Y Roofing Co. C. Docket No. 7908 (July 23 1965) (concurring opinion) (68 F. C. 217 266J; Foste?' Mfg. Co. , Inc. C. Docket No. 7207 (July 23, 1965) (concurring opinion) (68 F. C. 191 , 211J. While we should be alert to prevent a powerful and widely diversified seller from engaging in unfair or destructive com- 1456 FEDERAL TRADE COMMISSION DECISIOKS Dissenting Opinion 71 F.

petitive attacks on weaker competitors, we must carefully distinguish-as the Robinson-Patman Act requires us to do-fair and legitimate competitive tactics by which a seller may seek to enlarge its share of a market or expand into new markets. See , Utah Pie Co. v. Continental Baking Co. ; Anheuser-Busch, Inc. v. Fedeml Trade Commission 289 F. 2d 835 (7th Cir. 1961); Qualeer Oats Co. C. Docket :10. 8112 (decided C\ovember , 19601) (66 F. C. 1131). The antitrust laws are also designed to encourage free entry into new markets (see, Federal Trade Commission v. The Procter G",able Co. 386 U.S. 568 (1967)). And large, diversified firms are often the only firms able to overcome the barriers to entry created by modern conditions of marketing consumer products. See Beatrice Foods Co. C. Docket No. 6653 (decided April 26, 1965), Pl'. 38-39 (67 F. C. 473 723-724). While these firms should not be permitted to use their great strength selectively to smash smaller competitors in local markets, we are not warranted in adopting an interpretation of the price discrimination law that will as a practical matter make impossible new entry by large firms such as respondent. The long-run interest of the public would not be served by applying the antitrust laws so as to rob large firms of competitive initiative, for the sake of providing greater security to their smaller competitors. Such a policy would retard, not advance attainment of the basic goal of antitrust: the preservation and strengthening of the free competitive system. The Commission has heretofore recognized that the Robinson- Patman Act does not require national sellers to maintain uniform prices throughout the country, and that price differentials may be made in local markets to reflect differences in competitive conditions. Maryland Baking Company v. Fedeml Tmde Commission 243 F. 2d 716 (4th Cir. 1957). The Commission has also recognized that there is a crucial difference "between normal and legitimate pridng activities designed to obtain a larger share of business in a marketing area and those which represent a punitive or destructive attack on local competitors and impair the vitality and health of the processes of competition. " The Qualee,. Oats Company, C. Docket No. 8112 (decided Kovember 18, 1964), p. 5 (66 F. C. 1131 , 1193). The Commission should frame orders so as to prohibit anticompetitive price discriminations, not to forbid legitimate ane! necessary flexibility of pricing necessary for sellers to compete. If a respondent has been guilty of unlawful price discrilninations, and it is necessary to issue an order, we should not prescribe a remedy that is worse than NATIONAL DAIRY PRODUCTS CORP. 1457 1333 Separate Statement the disease. Pricing decisions are "the central nervous systen1 of the economy. (U. S. v. Socony-VcLCnnm Oil Co. 310 U. S. 150 224 , n. 59. ) It is one thing to "fence in " a respondent so as to prevent him from continuing to engage in unfair trade practices. It is quite another to put him in a straitjacket, crippling his ability to respond fairly and flexibly to the needs of competition. Our objective should be to promote fair competition, not restrict it.

SEPARATE STATE).ENT JUNE 28 , 19G7 BY MACINTYRE Commissioner:

I do not concur in the decision of the Commission to dismiss Count II and Count III of the complaint in this case. However I wish to make it clear that I join in and support the Commission s Findings of Fact that respondent's price discriminations violated Section 2 (a) of the Clayton Act, as amended. Therefore I join in and support the decision of the Commission to enter the order under Count I of the complaint. I cannot agree that the order framed by the ma.i ority adequately prohibits future discriminations of a nature similar to those documented by this record and which may be reasonably anticipated in the future. There are serious limitations in the reach of the order. For example, it has no application in any event to discriminations which may be practiced by the respondent and reflected regularly in its price list. ;vIoreover, even within those limitations, the order may prove diffcult to apply because by its terms defenses against the application of the order are accorded the respondent but not provided by law. For example, in the order it is stated: " PTovided, lwwe'ue?' That in addition to the defenses set forth in Sections 2(a) and 2(b) of the statute it shall be a defense in any enforcement proceeding instituted hereunder for respondent (1) to establish that its lower price was the result of a promotional offer involving a price concession which does not undercut the lowest net price and/or the terms and conditions resulting nom a promotional offer made to the purchaser receiving the lower price by any seller of a competitive product within the previous 12 months, or (2) to establish that such lower price does not undercut the lowest price concurrently offered generally throughout the same trading area by any other seller of a competitive product having' a substantially smallcl' annual volume of sales of such products than respondent's annual volume of sales of the product on which the discriminatOlY price was granted. In the recent case of UtClh Pie CompClny v. ContinentCll BCllcing Co. 386 U. S. 685 (decided April 24 , 1967), a case which arose Separate Statement 71 F.

under Section 2 (a) of the Clayton Act as amended by the Robinson-Patman Act, the Supreme Court stated that: Sellers may not sell like goods to different purchasers at different prices if the result may be to injure competition in either).' the sellers or the buyers market unless such discriminations are justified as permitted by the Act.

Courts and commentators alike have noted that the existence of predatory intent might bear on the likelihood of injury to competition. In this case there was some evidence of predatory intent with respect to each of these respondents. There was also other evidence upon .which the jury could rationally find the requisite injury to competition.

Here the Commission had before it a record of evidence showing an abundance of injury to other sellers in the market resulting from the respondent's discrimination in price. Indeed, the Commission made findings concerning the injury flowing from respondent' s discriminations. In doing so it stated: In the case before us, the facts establish that respondent, the only national seller of jellies and preserves, for three weeks in 19tH, offered to sell these products at half price with no limitation on the amount that could be pU1' chased and with delivery over an extended period of time. Respondent s only competitors in the four areas in \which this offer was made 'vvere regional sellers whose incomes were derived primarily from the sail: of jellies and presenres. Respondent's prices under this offer were below its cost of manufacture ane! were subsidized by its higher prices else\vhere as wel! as by its sales of many other diversified products on a national basis. a source of i11come not available to its competitors. In brief, respondent could not wait to develop a larger share of the markei by a legitimate means but used the power of its tn-'asury to appropriate a share of its competitors ' business by a below cost offer which it knew these competitm's could not meet. From the foregoing it is clear that the Commission had an adequate basis for an order which would have prohibited respondent flom continuing its unlawful discrimination in price but as I view it, the Commission s order is designed to prohibit only some of such discriminations.

In my opinion, what the Commission has done could .well be described as an incomplete job. If the task were one building' a bridge instead of formulating' an order, it could be described as a bridge built of substantial spans but only to midstream. Also it may be said that even though the Commission has bridged half of the stream to protect competition from the unfair and illegal discriminations of respondent, nevertheless those who must compete with respondent are left to do so beyond midstream through a maze of an obstacle course the Commission NATIONAL DAIRY PRODUCTS CORP. 1459 1333 Statement has created by writing into its order defenses not provided for by law.

Subsequent to the preparation of my separate statement commenting as above outlined upon the action of the Commission in this case, I have been afforded the opportunity of rcading the dissenting statement. The position of the dissenter is not surprising to me. \i\That does surprise me is the llse of the words in the dissenting statement that the Commission s decision turns the antitrust laws upside down. " It seems to me that these words are at war with the general argument and the position of the dissent which fails to take into account that Section 2 (a) of the Clayton Act, as amended, is part and parcel of not only our antitrust Jaws but also of our public policy against anticompetitive acts and practices. The Commission recognizes and has attempted to give effect to this public policy. Commentators and others have disagreed with this public policy and what it provides but we are taught that the Commission isn t free to disregard the Congressional mandates entrusted to it. STATEMEJ\T CONCURRING IN PARI' AND DISSENTI:-G IN PART JUNE 28 1967 BY JON1-:S Cmn?Fl-issioner:

A majority of the Commission has determined that respondent's discriminatory one-for-one promotion resulted in the proscribed injury. I agree.

Section 2 and Section 7 of the Clayton Act arc in a sense two sides of the same coin, both designed to prevent any substantial lessening of competition. The Courts have consistently taken note that competition is likely to be substantially lessened as concentration increases and that the antitrust laws are designed to prevent such increases in concentration in their incipiency whether the adverse change in market structure was generated directly by a merger or indirectly by discriminatory pricing activities. The only issue which the Commission must determine under the Robinson-Patman Act is whether the discriminatory pricing activity has the capacity to impair competition and whether under the circumstances characterizing the market affected by the discrimination such an impairment is likely to occur.

A promotion is of COl,,'se an indirect price concession (not requiring any general lowering of list prices) offered either to consumers or to retailers as an inducement to purchase. Promo- 1460 FEDERAL TRADE CO)!:vISSION DECISIONS Statement 71 F.'r.

tions are increasingly being used today by marketers, along \with advertising and other product differentiation techniques, in preference to overt price cuts. We would be derelict in our responsibility under the law to bold that promotions as such can never be within the compass of Section 2 (a). To do so would enable marketers to take short-range bites at the competitive apple vlhich could have just as injurious an effect on competition as overt price cuts. It is obvious that the seriatim use of promotions or the use of a single promotion whose impact or design extends over a significant period of brne can have as devastating an effect on market structure as any overt price cut which fre- Quently is also of a temporary nature and certainly has no inherent sustained duration. Indeed, in my opinion, there are differences in the competitive impact of an overt price cut and of a retailer-oriented promotion which if anything highlight the greater anticompetitive potential of a promotion over an overt cut in the retail price. :YIoreover, since overt price cuts can be precisely matched or even exceeded, their immediate impact on competitors can today be fairly accurately predicted even though their long-range costs and ultimate impact on price levels is far more uncertain. For this reason, the aggressive competitor desiring to increase its market share at the expense of its rivals is increasingly employing marketing strategies which cannot be so easily countered. Thus particularly in the consumer products industries where buyer sophistication and power are relatively weak, competition is more and more taking the form of promotions, advertising campaigns and other product differentiation tactics whose immediate cost and duration to the initiator, as well as the ability of his competitors in terms of their known resources to meet or match these tactics, can be almost exactly measured.

One other characteristic of retailer-oriented promotions must also be considered in any assessment of the competitive impact and ability of promotions to effect changes in market structure. Competition effected through promotions which are directed to retailers does not necessarily yield the same immediate benefit to the consumer in the traditional coml1etitive terms of improved quality, better services 01' lower prices. Retailer-oriented promotions are, as this one 'vas, frequently designed to secure position on the coveted and limited shelf space of the retailer. Because of the built-in limitations of available shelf space, a retaileroriented promotion must by definition eliminate or reduce the amount of shelf space allocated to a competitor. Thus it can NATIO:-AL DAIRY PRODUCTS CORP. 1461 1333 Statement produce a change in market structure which is not directly related either to consumer choice or to product quality. Indeed the instant case represents an excellent example of the use of promotions for this very purpose under circumstances which suggest that on the basis of price and quality alone, respondent' product, although nationally advertised and well known in the particular area, had been persistently rejected by the market. Thus retailer-oriented promotions may effectuate changes market structure which are unrelated in theh" origin to increases in effciency, or to improvements in quality or services and which come about not as a result of the consumer having been induced to select one product over another but because consumers were foreclosed or limited in the market choices available to them. Thus I suggest that promotions which are likely to cause products to disappear off the coveted shelf not because consumers failed to purchase but because retailers were induced to remove products of competitors of the promoter can have far more likely anticompetitive potential than other types of promotions. The use of these promotions by national, multi-product firms against their regional or local and frequently more specialized competitors increases their potentially antic0111petitive impact. The very structure of diversification which characterizes the national, multi-product firm enables it to move aggressively against its competitors by selecting a competitive target and concentrating all of its offensive or defensive capabilities upon it. The regional and specialized firms which do not have a c0111parable capacity either to subsidize losses or to distribute risks and withstand reduced profit margins over comparable periods of time find their own market position highly vulnerable to such concentrated attacks. At the same time these companies find it increasingly diffcult if not impossible to launch any affrmative attacks on the market position of their national, multi-product rivals either in their own markets OJ' in their efforts to penetrate new markets. It is this imbalance in the relative capabilities of the diversified national company and the more specialized regional firms to effect market entry or defend existing market positions which highlights the potential vulnerability of these latter companies to an impairment of their competitive abilities and : The longe:' a fHm t:- ies without succe to crack a pa:.ticuiar market the more likeb" it is that its failure ean be mtributed to understandable and Hdiri reason and the more prolnJ.ble it is that the market is rationally rcjecting the aspiring entrant. This would seem to be especially true where the firm is as wel! know.m and established in other lines as is Kational Dairy. 1462 FEDERAL TRADE COMMISSIO:- DECISIONS Statement 71 F.

potential by the competitive tactics of their larger and more diversified rivals.

It is obvious, therefore, that promotions, especially those directed to the retailer rather than to the consumer, have the capacity to change market structure. When wielded by national multi-product companies against their regional, more specialized competitors, they have thc capability of impairing their competitors' ability to compete and of effecting the proscribed statutory inj ury and to do so under circumstances which may yield no immediate benefi to the consumer or to the effective functioning of the competitive process. The u,se of retailer-oriented promotions may ultimately deprive the consumer of any opportunity to select or reject the product in question on the basis of his choice and preference by simply reducing the number of products available to him from which to choose. Moreover, the reduced ability of regional and more specialized companies to match or counter these types of marketing tactics is without reference either to their productive effciency or to the technological excellence of their products. Rather their survival in the marketplace in the face of these marketing practices can be totally dependent on their financial ability to withstand attacks by competitors upon their market position and to mount attacks of their own.

It is against the backg-round of these general observations about the nature of promotions and the competitive problems generated by the structural imbalances of consumer product industries that the criteria by which to determine the legality of a specific promotion must be considered. It is clear, of course that despite the anticompetitive potential of promotions, they can also play an important procompetitive role in stirring up and increasing competition. Accordingly, it is important to set out clearly the criteria by which I believe their impact on competition should be evaluated.

An important consideration in evaluating the potential anticompetitive impact of a promotion is the extent to which the promotional price is below cost. In the case of prices below outof- pocket costs particularly, it is reasonable to assume that the promotion is likely to result in competitive injury as a result of the sheer inability of companies to price theil' own products at or below\v costs in order to meet such a competitive promotion. Similarly, where the Ume required by the promoting company to recoup its own costs or losses occasioned by the promotion is KATIONAL DAIRY PRODUCTS CORP. 1463 1333 Statement relatively long, it is not unreasonable to assume that such promotions are more likely to injure competition than less costly promotions. The langer' the recoupment period required the more Jikely it is that the promoting company is in fact using its national, multi-lJl'odllct status to subsidize its losses to the competitive detriment of its regional and local competitors \vho again simply are unable to match the promotion solely because of their size and not because of any disparity in effciency or technological excellence. If there is evidence that even the promoting seJ1er could not in ajj probability have afforded to offer the promotion if he had been compelled to offer it throughout his entire market area, then in my judgment again it is reasonable to assume that his regional competitors wil not be able to counter the promotion and that their competitive abilities may be impaired as a result. Again, if the promotion is unlimited as to quantity and is designed for a relatively long-tenn period, its likelihood of causing competitive injury iE far greater than promotional offers of limited quantities of product for a short-term period. In the latter case, competitors can measure the impact of the competition and can determine their own marketing strategies by which to counter the attack. In the former case, they cannot and hence their ability to compete can be severely impaired. Where a seller has been attempting to expand its share of a particular geographic or product market for a relatively long period of time without success, it is reasonable to assume that t.he market is rationally rejecting the aspiring entrant. In this context, a reduction of market shares or profit margins, brought about as a result of a discriminatory promotion, is les" likely to be a reflection either of the operation of consumer choice beiween competing products on the basis of quality, price or product differentiation or of the play of competitive forces. On the other hand, if no such prior history of unsuccessful penetration existed and the 111arket into which entry ,vas sought via pl'01llotions had been characterized by relatively static patterns of conduct and competitive inactivity, any reduced market shares or profit margins resulting from a promotion would be far less likely to give rise to any inference of competitive impairment. In this situation, it ,v(mid be more reasonable to assume that in such oligopolistic or noncompetitive markets the entrenched market occupants have a heightened capability or potential to counter promotional activity by price or cost reductions \, Statement 71 F.

or increased effciency and that their failure to do so with a resultant loss of profits or market share was due to their O\vn ineffciencies or unwillingness to compete rather than to their inability to compete.

Finally I believe that the question of whether other competitive strategies were open to the promoting company to achieve its ends must also be taken into account in considering whether injury is likely to result.

The facts of this case offer a particularly dramatic ilustration of an abuse of these criteria. The record makes it clear that the promotion offered here by National Dairy had without any doubt the likelihood and indeed the probahility that it would substantially lessen competition.

National Dairy was a large national, multi-product company which had sought unsuccessfully for some five years to enlarge its share of the Washington market. It was not a new entrant in this market. On the contrary, it was already a significant factor in the four-city area that was affected by the promotion.' National The record sugg( ts €ve\'aJ :-easor.s why;:ational Dail Y was experiencing such diffculty. First, Qid V:' ginia had. established it j"wsit:on o\'rr 3. fif:y- y",ar period during which it f\p- "parentiy provided a sati fficto1' Y product at R )"(RsonaiJle rnic . National DRiry s whoiesale pJ' ice was higher than Old Virginia (1'1' . 68B- G88 , 1 5j, Second, privp.te labe:s were important in the mlU' , ,md it is dot1btful tl1lt Nationr. ) DRiry cau:d effect. jJernH\nent c!,Rnge$ in this marketing patten1 of the cr.a;ns. Th('1' ('s.1 F iedl1 n, the second largest SUlJpiier to the fou2' -city area, produced IJredorninantly for private labels (1'1" , 39-1J. And third, Polane!' which rnted fourth, was considered somewhat ,-f a liuali';y :tem, iig whoJe, ak pri"e wn higher the,n Nat:or,aI Dairy s (Tr, 4 J \Vhik it can be ftid that National DHiry occupied only H mini5cl11e position in the Jesser nshin!,"ton- H.icbmOll(1 area, it rannot really be said that it was aT, insignificant factor in the four- city are..--the area affected by Ow dca!. It t"8nJ.ed third in this aree- behind Old Virginia Hnd Theresa 'Friedman c.nd w"' the oniy n?,tiomu multi-product firm ir. tbe four-city area as wel as in the ).alio!1.

FUI.thermore, it. :;seems rele"'ant to I:o:e that Nationa: Dniry s preuccupation wa with the \Vashington market and, even more particu!HI'ly, \\ith the SHIewny and Giant a counts- It is fair to observe that the deal was aimed RIITo t e:-clu ively r,t the:;(' two arrounts lCX 30, Tr. 1518, 1, SlJ, Being: cOffpel)ed to extend t.r.c drftl tQ the three other citii?s, it was stil 3-pparentiy wiling to inrLJr ir, e enhar.ced cost of this " )i-out" effort in the four-city area in (Jnlfr to take Rim on the two major accounts i \Vash:n::ton This would HppCf\ ' to be i1 VatiRnt of "zeroing- ir. , Neltional Del:)'Y zeroed-in by designing a maxim1.lrn jnducement ;.med at two account.:; in OT'e city aJ (i eompounderJ the totrd impact hy its wilingnes$ to accept the necessity to offer it in the greatel' fO\Jr- lty Hrei"c. A firm that Wfl, an insign:ficant facto:' throughout the area affected 1JY H r1eal probably could not be $aio in this sense to \.c zC1'doing-in. A firm tl1it was f1 significnnt factor throughout the ..ffec.ed ,H' ei-; could ))J"oual;ly find no 1cgitin,2tr nrrd for fit: :'ii- out r))'omotiona: effort. Ar ri 1 lJc1ieve that li. 111m liJ'e :t' ationc.I Thiry with HI1 U! even liistri1.mtiQn ot' positions within 8n flrCr! in which it CHn be sa:d to be .i, sig:nif\cant fador should also lH under some l'estmint -w!wo) it conrent.rates its power on those SUbfJHrkets in which it is root siKnifica, Aithough it 1s a fJRtter of degree, I judge this aSj)'Oet of the signific""ec of n pt'omot:ng sclle1" s market position to be 10lh rcJevant find uhst"nti\'e ir. the determinR!io'1 of legfl!ity, SC(C "Competi:ive Jnj\J2Y Under the Ro1imon-Patman Act, " 74 L. Rev. 15f1 , 161lJ (1961), NATIONAL DAIRY PRODUCTS CORP. 1465 1333 Statement Dairy s competitors were successful regional and local companies offering quality products which apparently fully satisfied the needs of the market.' Although National Dairy had unsuccessfully experimented with a variety of promotional offers, it does not appear that the company had exhausted its alternatives short of the one-for-one deal.' Kevertheless, it offered the instant promotion which was unlimited as to quantity and was originally designated to have a continuing impact on the market in excess of six months. The magnitude of the promotion was such that N tional's competitors could only meet it if they reduced their own prices below their out-of-pocket costs.' Moreover, even Kational Dairy itself would have required five years to recoup the costs of ; See note 1 supra. Promotional deals have been defended where the promoting ejier is attempting: to enter or e;qJand into a rigidiy structuJ'€d and abno:"mnliy resistant market. Suffce it to say that National Dairy did not attribute its diffculties in the four-city market 01' in Washington to the fact that its competitors or even its reluctant customers reprei;ented a weJI-organizer: , entrenched. stable o:igopoloid situation in which its members bf\asked in the quiet life of recognized mutual interdependence. 5 National Dairy insisted aD charging a higher wholesale jJl"ice ,Hlde!" r1On-pl"ornotio:nai Cltcums1.ances than did its major l'm!1petitor, Old Virginia. Apparently Kational Dairy never attempted to bring its normal wholesftle price into line with 01d Virginia. Such a price policy may 01' may not have worked. But the reluctance to try such a price change mitigates against the necessity for or justific11tion of the drastic one-far-one deal. ati(jnal Dairy limited the pedal! during which plHchases could be noble to three we ks. No such Jimitation was placed on deHvery rcx 33 . 34. 3.'iC: ci. ex 31 3ZJ. The promotion was designed. however . to be a continuing influence on the mOirKet for more tb\n si months. In addition to two consumer coupon promotions that were plannnl, two succcss ve cooperative merchandising agreements were to run from FebruaJ'Y 27 to April 28 and from May 29 through July. National Dairy had pir,nned this further promotion 10 o"e all but about five wee;,s of the period from tr.e end of the one-for-one promotion to August 1. In addition National Dairy indicated if! its publicity to the trade that !\ter August 1: " Other promotions will occur to assure rapid turnover " (CX 33). And in another cireul"tior. :-ational Dairy noted: "Each month for the remainder of 1%1, (l'ationa. Dairy) will offer additional.J display.y allowance of 50 cents per case on 12 oz. items and 75 cents on 20 oz. items n addition to you!" regl1lar 30 percent mark-up " (eX 194). A National Dairy offcial testified that "it was a cor.tinuing program that would rnn through the year to continue tht' n\O' emt'nt " ('11" 1521). The far.t that Kationa! Dairy abandoned the consumer coupon promotion because the low retail prices rendered the ouJ)ons useless and never did activate the contract display promotions doICs not reduce the thrust of the fact that the design of this promotion was for a period oimore than si months to a year. The duration of the actual impact of this promotion was even Jonger. The magnitude of the amol1nt of Kraft jellies that entered the market is some measure of the dl1ration of the impact. National Dairy delivered :IS many C1\ses UJ;der the deal as 01d Virginia sold in 1960 and delivered in all of 1961 as many cases as both Old Virgtnia and National DRlry had sold in 1960 rex 93 , 17, 17(;J. As can be e p('cted, it took some time for this glut to move through the market to COnSnmeys. Prices of Kraft jeilies were deJncssed for over a year in some areas or stores (Tr. 689- 6901 And in or.e case, relateu in the majority opinion . the inventory was not fmally sold unt 1 Dec.member 19r;:;.-- almost three years after the promotjon (Tr. 360J. 1 CX 32. 3EA. 3SB, 39A and S8A indicate that for the si:- sizes and varieties covered by the deal tbe one-for-one price was beiow out-of-pocket costs (costs of raw materials, jJackagi:ng supplies, and direct iabor) in each instance. And for both sizes of s:rawberry preserves the one-far-one price was below raw materiai costs alone. ::r. Fr;edm!w of Thel'esa Friedman & Sons . Ine., tcstifierl th:lt to have met the Nationa! Dairy deal would have forced price "below (his) ac.tual cost of materials alone" ftr. 402-403J. Statement 71 E' this promotion from any reasonably anticipated return from sales in the four-city area.' And it is doubtful that National Dairy could have afforded this scale of a promotion over its total market area.

ender these circumstances, I have no trouble in agreeing with the majority s conclusions that National Dairy s promotion had the probability of substantially lessening competition and violated Section 2 (a) of the Robinson-Patman Act. Promotions can alter structure. And promotions of this magnitude have the probability of altering structure so as to injure the quality of competition and hence, to violate either the Robinson-Patman Act or the Federal Trade Commission Act.

While I concur with the majority in its opinion respecting the ilegality of this promotion under Section 2 (a) of the Rohinson- Patman Act, I am unable to agree to the order which the majority is entering here. Accordingly, I dissent from this portion of the majority s decision In my vie\v the basic vice in the order being entered is that it restricts National Dairy both as to the amount of the promotional expenditures it can make in the future as well as the timing these expenditures and keys the operation of the prohibition in the order to the promotional activities of its competitors. Thus 8 The' ecoupment perjod- the 1ipprOximflte time t takes ,0 recover the ros\. or i,1SS as eiated with a promotion out of earnings-must ue an ecitim1'te t'vrn After tbe fact. Any such timHt(' Uepe!H1S upon the Hssmnptions tllat ar(' Tnnde. It seems l"t':;sonablr to a sume th:\t National Dairy could not have expected to do mo)"c thlm clouUe its sales in the fOUT-city ea: to have triv:ed its sales :Jlltiona! Dairy wou,d ha\'(' had to t' lldc p ares with O!clVilginia, eliminate both Theresa Friedrnlln and Polarll' , 01' induce mldo!" chains to abandon pri\' Hte labels. Assuming, then, 1D6Z sales of . ooo IIr- d ;, mark-up bllsed on l:st price of 27''/ rex 3HA . :18B, 39A, BRA) National Da:1'Y could hfl\' p expeded HI' IInnu i let\nn of about S250 500. Reducj!lg" the (' ost of ihe promotion ($1, 345, 582J by the Shnw mark-Dp, NatjonR Dairy would )'(';une ? oout five yeHj" :0 re('oup the cost of thfo pl'omob(lJ . And br.M'd on j,s actual 1962 saies that were about S8 percent aoove HJ60 sa:es, it would have taken about six yNHS, Such a recoupment period would seem to require or ;ndie.He indirect 5ubsidiza:ion if not direct subsidizatiOl:.

U In th.: four-city area :-at:oral Dairy s locill promotior.r.l expenditures in ID6() on jeliic for the period JnraJRI"Y through May were S:lJ,4 . In 196 . a, a result of the or.e. onc promotion, they we e Sl, 3':5 582 . This was an inrrfase of 11 ROO'i(, In comp;'1'ison f orn ,January through )lay in 1961 HtioI1R1 Dniry spent on fly promotions :3288, 26,1 in its Eastern Division (this exclud", the cost of the one- one promotion), S:R7 504 j" its Centra: Div sion . and S6:;. 5 in the pastern part of its Southe,'r. Division rex lOii-lonl, The tota! Rmour. spent in the e three divisions that cover ali or part of 35 StHtl'S was le, tha!) one. half of the rost in the four-city atca of \VRshington-Bf. :t:mole- H;rhmond-Korfolk . Jf the expenr.itu es in these djvisior. had been j!lcrclls d by II, GOO ,,, RS were thm;e ;1' tbe f01E' rity ;\1"eH, National Dairy wfJu!d have expended over S60 OOO,OOO in promoting jellies jn th(' :-J5-!;tatcarea. This would have been more than four times their total sales of jellies in ,9CD and mon, than their total expenditures on all advertising. This is but I1nothe ' view of the sledgehc.mJr. er propoltions of this promotion, ,g.

NATIONAL DAIRY PRODUCTS CORP. 1467 1333 Statement the order prohibits i\ ational Dairy from ever exercising any initiative in offering promotions with respect to all products sold by respondent's Kraft Foods Division, and in my judgment could prevent National Dairy from competing effectively. To prevent Kational Dairy from ever initiating promotions might be defensible wit.h respect t.o jams and jellies, of which it is the sole nccti01ull and the largest. producer. On the basis of National Dairy s market position and the record in this case it. could be argued that any regional promotions or price reductions which it might initiate in the future, unless limited in some way, would be more likely to have anticompetitive than competitive effects, even taking into account t.he possibility that. National Dairy promotions with respect to these products might stir up competition in markets in which regional brands have been enjoying "the quiet life, " Ho\vever, absent any knmvlcdge of National Dairy s market position with respect to the other food products sold by its Kraft Foods Division, we cannot make this same assumption with respect to promotions and price reductions initiated for those other products where National Dairy s competitors may be equally large or larger (e. Borden s re cheeses etc. ) Indeed, the major impact of the present order might be to cuTta'il National Dairy s ability to compete rather than to prevent it from acting anticompetitively.

I believe that there are several alternative ways by which "\ve could impose essential limitations on the promotional activities of I\ational Dairy to prevent it from exploiting its market power so as to injure competition which would not limit it in its pricing init.iative by tying its actions to those of its competitors. Therefore, I am constrained to dissent to the order entered here. In my judgement the major objective of the order which should be entered here would be to prevent respondent in the future from ifzeroing- " on its competitors with promotions which in all likelihood cannot be countered by its competitors and which can be anticipated therefore to occasion the substantial lessening of competition prohibited by the statute. Following are some examples of various alternatives which could be included in an order so as to limit National Dairy s promotions rather than curtailing its initiative in offering promotions: 1. The order could limit the value of the promotion or price reduction to a percent of respondent's higher selling price to other purcbasers (for example, the net price reduction could be limited to 25%).

2. The order could limit the dollar per case value of any pro- Final Order 71 F.

motion or price reduction in anyone trade area to X percent above the respondent's national dollar per case average promotional expenditure. For example, if within a given 12-month period National Dairy spends an average throughout the United States of 60 cents per case on promotions, the order could limit respondent' s promotion in any area to 60 % above this figure, or 76 cents per case.

3. The order could prescribe a minimum geographical territory within which respondent must apply its promotions. Presumably, the smaller the area the more dollars per case the respondent could afford to spend and the greater the impact on local competitors. A minimum promotional area (such as an area encompassing at least 10% of the t:S. population) would prevent the respondent from "zeroing- " on smaller areas. This area could be described in terms of X ational Dairy s present regional sales divisions.

4. The order could prohibit promotions or price reductions which result in a net price below cost ("cost" should be defined in such a provision) for the product in the promotional area. 6. The order could limit the quantities of product which respondent could sell to anyone purchaser under a promotional offer. For example, if only a one-month supply of product could be sold under such an offer to anyone purchaser within a sixmonth period, the impact of the promotion would be relatively short-lived.

The instant promotion which gave rise to this case has long since been terminated. Hence, the delay in reaching this decision has not had any pre.i udicial effect on any competitor. Since an order limiting a company in its freedom to offer promotions is novel and of great significance, I believe that it would have been preferable for the Commission before entering any order here, to have invited the parties to submit comments and proposals for the type of order which should be entered here including' specific comments on the above alternative provisions. By this means the Commission would have had the benefit of the expertise of the respondent here and would have had an opportunity to devise an order which would have placed reasonable and effective restraints on respondent's power to offer promotions without limiting its initiative as to when and where it desired to compete by means of promotions.

FINAL ORDER This matter having' been heard by the Commission upon cross- NATIOJ\AL DAIRY FRODI;GTS CORP. 1469 1333 Order appeals from the initial decision; and the Commission, for the reasons stated in the accompanying opinion, having determined that the appeals should be denied, and having modified the initial decision to the extent necessary to conform to the views expressed in its opinion:

!t is o1'de1'ed That the following order be substituted for the order set forth in the initial decision: ORDER !tis ordered That respondent National Dairy Products Corporation, a corporation, and its offcers, representatives agents and employees, directly or through any corporate device, in connection ,with the sale or offering for sale of jellies preserves and any other food product in the product line of its Kraft Foods Division, in commerce, as "co1l1merce " is defined in the Clayton Acl, do forthwith cease and desisl from:

Discriminating, directly or indirectly, in the price of such products of like grade and quality by selling such products to any purchaser for resale at a price which is less than the price charged any other purchaser for resale at the same level of distribution when such lower price is either the result of a reduction from the regular list price of the products or is the result of a promotional offer involving a conce3sion from regular Jist price: PTo1.idul, hOICCiJe1' That in addition to the defenses set forth in Sections 2 (a) and 2 (b) of the statute it shall be a defense in any enforcen1ent proceeding instituted hereunder for respondent (1) to establish that its lower price 'vas the result of a promotional offer involving a price concession which does not undercut the lowest net price and/or the terms and conditions resulting from a promotional offer made to the purchaser receiving the lower price by any seller of a competitive product within the previous 12 months, or (2) to establish that such lower price does not undercut the lowest price concurrently offered generally throughout the same trading area by any. other seller of a competitive product having a substantially smaller annual volume of sales of such produds than respondent's annual volume of sales of the product on which the discriminatory price was granted.

1470 FEDERAL TRADE COMMISSION DECISIO:-S Complaint 71 F.

It is further ordered. That Count II and Count !II of the complaint be, and they hereby are, dismissed. It 'is further o?'dcred That the iJOitial decision of the hearing examiner, as modified, be, and it hereby is, adopted as the decision of the Commission.

Ii is fU1,ther ordend That respondent, N atianal 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. Commissioner l\1acIntyre concurred in part and dissented in part. Commissioner ,Jones concurred in part and dissented in part.

I" THE MATTER OF CROWK CENTRAL PETROLEL"M CORPORATION ORDER, ETC., Ii\ REGARD TO THE ALLEGED VIOLATION OF THE FEDERAL TRADE CO IMISSIO" ACT Docket 85.'9. C01nplaint, Oct. 1962-Decision, Jnne JO , 1967. Order dismissing complaint which charged a Baltimorc Md. pet!' oleum company with fixing prices of gasoline at rctajJ ane! suppressing competition by selling below cost to certain dealers. CO:lplaint Pursuant to the provisions of the Federal Trade Commission Act, (U.sC. , Title 15, Sec. 45), and by virtue of the authority vested in it by said Act, the Federal Trade Commission, having reason to believe that Crown Central Petroleum Corporation, a corporation, hereinafter sometimes referred to as respondent, has violated the provisions of Section 5 of said Act, and it appearing to the Commission that a proceeding by it in respect thereof woald be in the public: interest, hereby issues its complaint, stating its charges with respect thereto as follows: COUNT I PARAGRAPH 1. Respondent Crown Central Petroleum Corporation is a corporation organized, existing and doing business under and by virtue of the laws of the State of Maryland, with its 1470 FEDERAL TRADE COMMISSION DECISIO:-S Complaint 71 F.

It is further ordered. That Count II and Count !II of the complaint be, and they hereby are, dismissed. It 'is further o?'dcred That the iJOitial decision of the hearing examiner, as modified, be, and it hereby is, adopted as the decision of the Commission.

Ii is fU1,ther ordend That respondent, N atianal 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. Commissioner l\1acIntyre concurred in part and dissented in part. Commissioner ,Jones concurred in part and dissented in part.

I" THE MATTER OF CROWK CENTRAL PETROLEL"M CORPORATION ORDER, ETC., Ii\ REGARD TO THE ALLEGED VIOLATION OF THE FEDERAL TRADE CO IMISSIO" ACT Docket 85.'9. C01nplaint, Oct. 1962-Decision, Jnne JO , 1967. Order dismissing complaint which charged a Baltimorc Md. pet!' oleum company with fixing prices of gasoline at rctajJ ane! suppressing competition by selling below cost to certain dealers. CO:lplaint Pursuant to the provisions of the Federal Trade Commission Act, (U.sC. , Title 15, Sec. 45), and by virtue of the authority vested in it by said Act, the Federal Trade Commission, having reason to believe that Crown Central Petroleum Corporation, a corporation, hereinafter sometimes referred to as respondent, has violated the provisions of Section 5 of said Act, and it appearing to the Commission that a proceeding by it in respect thereof woald be in the public: interest, hereby issues its complaint, stating its charges with respect thereto as follows: COUNT I PARAGRAPH 1. Respondent Crown Central Petroleum Corporation is a corporation organized, existing and doing business under and by virtue of the laws of the State of Maryland, with its CROW" CE"TRAL PETROLEUYl CORPORA TIO:- 1471 1470 Complaint principal offce and place of business located at the American Building, Baltimore 3, Maryland.

PAR. 2. Respondent is now, and for several years last past, has been, among other things, engaged in the offering for sale, sale and distribution of gasoline and other petroleum products in a thirteen State area including the States of Connecticut, New York, Kew Jersey, Pennsylvania, Maryland, Virginia, West Virginia, North Carolina, South Carolina, Georgia, Alabama, Florida and Texas. Said gasoline is offered for sale, and sold under thfbrand names of "Crown Gold" and "Crown Silver, " Respondent comprises an integrated UTIit in the petroleum industry. It is engaged in the acquisition, development and exploitation of oil and other petroleum products as well as the purchase, sale and transportation of crude oil, and the refining of crude oil and its derivatives, and the subsequent marketing at wholesale and retail of the products of its refinery in the hereinabove named States of the United States. Respondent has a refinery in Houston, Texas. It also mvns and operates pipe lines, terminals and bulk plants for the transportation, distribution, offering for sale and sale of its gasoline and other products to service station dealers. In 1961 its gross sales of petroleum products totaled $66 410 463. PAE. 3. In the delivery and s .le of its gasoline to its various marketing outlets located in the aforementioned States, respondent ships or otherwise transports its gasoline and other petroleum products from its refinery located in Houston, Texas, to bulk stations and other distributing points across State lines, from \which said gasolines are distributed to service stations, dealers and other customers located in the various States in which it does business. Aceordingly, respondent is now, and has been at all times mentioned he1'ein, engaged in COmmel" , as "con1merce " is defined in the Federal Trade Commission Act, in the shipment and transportation of such gasoline between respondent's refinery, terminals and distribution points, its bulk storage plants and said wholesalers, jobbers and retail dealers purchasing said gasoline in the I3- State area. All of such purchases by wholesalers jobbers and retail dealers in these States are and have been in the course of such commerce.

PAR. 4. Respondent has been and is now marketing its refined petroleun1 products, including gasoline, through a number of retail outlets, located in Baltimol': , i\laryland, among other areas by the lYlec1ium or contracts or lease agreements under the terms of \which respondent agrees to sell and deliver and dealers agree to buy a1l of their requirements of gasoline from r"spondent. A Complaint 71 F, substantial number of these retail outlets are operated by independent businessmen, or those who would be such in the absence of the power and control exercised over them by respondent, who lease or sublease their service station properties from respondent and have entered into the aforementioned supply contracts for gasoline and certain other requirements ,vtih respondent. In addition, respondent owns or operates through agents or representatives a number of retail service station outlets in Baltimore, l\faryland, which are commonly known or referred to as commission" stabons.

PAR. 5. Except to the extent that competition has been hindered, frustrated, lessened and eliminated as set forth in this in substantial com-complaint, respondent has been and nm\' is petition with other corporations, firms, partnerships and individuals engaged in the sale and distribution of gasoline in commerce" as that term is defined in the Federal Trade Commission Act.

PAR. 6. It is now and has been for some time past the practice and policy of Crown Central Petroleum Corporation to eder into certain agreements, arrangements and understandings with various of its marketing outlets, located in the areas within which it does business including Baltimore, :Ylaryland, whereby respondent, under the guise and pretext of giving assistance to said outlets, can and does establish control, manipulate or fix the retail price at which its gBsolinc is sold to motorists and others of the consuming public.

For example, commencing on or about June 12 , 1962, Cro\vn Central Petroleum Corporation initiated, adopted and directed the placing into effect of a policy or plan under which all of its retail dealer outlets, including both its own commission stations and those operated by independent lessee-dealers, in Baltimore Maryland, would sell the "Crown Silver" brand of gasoline to consumers at a posted pump price of 17.99 per gallon. Under said pricing plan or policy, respondent offered to give and did grant price allowances of 12. per gallon to those of its said retail outlets selling " Crown Silver" gasoline to consumers at a posted retail pump price of 17.99 per gallon. By about 5: 30 p. of June 12, 1962, almost all stations in thc Baltimore City area were posting the said 17,')9 pel' gallon retail price. By 7 p.m. of area had beenthe same day all stations in the Baltimore City contacted by respondent and the 17.99 per gallon retail price was in effect.

By means of various provisions in the leases, subleases and CROWN CE:-TRAL PETROLEUM CORPORATION 1473 1470 Complaint supply contracts, including riders applicable thereto, and through a system of policing the business operations of the said independent lessee-dealers, the respondent is able to and does, to a substantial extent and degree, dominate and control the manner in which said lessee-dealers operate the service stations. The power resident in respondent through such domination and control is exercised, exerted and used by respondent to persuade influence, coerce and induce said independent lessee-dealers to abide by, agree to, adhere to, follow or acquiesce in, various plans policies or methods of doing business which may be suggested by respondent or which respondent may desire or elect to place in effect and operation, including the pricing policy or plan herein set forth. At all times the independent lessee-dealer is conscious and aware of the power of respondent and is influenced and persuaded by the presence of such power in the everyday decisions made by him in the conduct of his business. As a result of the exercise of such power or the threat of the use thereof, respondent has caused its independent lesseedealers to enter into or acquiesce in a course of dealing, cooperation, understanding, combination and planned common course of action, with respondent vi,rhereby the retail price at ,'iThich gasoline was sold or offered for sale to the purchasing public at retail stations operated by the said lessee-dealers was and is fixed and ll1uintained.

PAR. 7. This alleged unlawful planned common course of action combination, agreement, understanding or course of dealing is singularly unfair, oppressive and to the prejudice of the public and respondent's competitors and retailers of gasoline in the Baltimore, Maryland, area and other areas, and has a dangerous tendency to unduly restrain, hinder, suppress and eliminate competition between and among resjJondent' s retail dealers and others in the sale and distribution of gasoline in commerce within the meaning of the Federal Trade Commission Act, and constitutes an unfair method of competition and an unfair act and practice within the intent and meaning of Section 5 of the Federal Trade Commission Act.

COUNT II PAR. 8. All of the allegations of Paragraphs One through Five of Count I of this complaint are hereby adopted and incol'jJorated herein by reference and made a part of this Count II the same as if they were repeated herein verbatim, PAR. 9. In the course and condue! of its business in commerce Initial Decision 71 F.

respondent offered to scll and deliver and has delivered and sold its gasoline at below cost prices \vlth the intent and purpose, or 1;nder circumstances \VhCl Ie eHect may be, to injure, restrain suppress, or destroy compn: ion in the sale of gasoline \within the area of Baltimore Iaryland.

Pursuant to a policy or plan initiated, established and placed into effect on June 12, 1962, as alleged in Paragraph 6 of Count , respondent offered to deliver and sell and has delivered, offered for sale and sold its gasoline to retail outlets located in Baltimore Maryland, at a price of 3.41 per gallon while selling its gasoline of thc same grade to other retail outlets in other areas at substantially higher prices.

The 3.4 per gallon price was below respondent' s costs of producing, refining, distributing and selling such gasoline, and sales at such price were made for the purpose and with the intent or under circumstances where the effect may be as aforesaid. PAR. 10. The effect and result of the pricing practice of respondent, as alleged in Paragraph :\ine hereof, has been or may be to substantially lessen competition in the distribution and sale of gasoline, to the injury and prejudice of the public, and to the injury and prejudice of respondent's competitors, as aforesaid; and such pricing practice constitutes an unfair method of competition and an unfair act and practice in commerce within the intent and meaning of Section 5 of the Federal Trade Commission Act.

MI'. Anthony Z"biegalski and M?' . Harold Brandt for the Commission.

Bergson Borkland by Mr. Herbert BOTkland, MI'. Howard and J'v1l. Jomes H. Kelley of Washington, D. ; withIldlC)' , h. :'f", Richurd F, Cudigan of Baltimore, Md" for respondent. INITIAL DECISION BY ROBERT L. PIPER, HEARING EXAMINER MARCH 17 , 1964 Preliminary Stat.ement On October 19 , 1962, the Federal Trade Commission issued , aits complaint against Crown Central Petroleum Corporation corporation (hereinafter called respondent or Crown), charging it ,with price fixing and selling below cost in violation of Section 5 of the Federal Trade Commission Act (hereinafter called the Act), 15 U. C, 41 et ser). Copies of said complaint together with a notice of hearing were duly served on Crown. Count I CROWN CENTRAL PETROLEVM CORPORATION 1475 1470 11i.itial Decision of the complaint alleges in substance that Crown entered into a resale price fixing agreement and combination with its retail dealers in violation of Section 5. The second count charges Crown with selling below cost in violation of Section 5. Respondent appeared by counsel and filed answer admitting the corporate and certain other factual allegations of the complaint but denying the commerce allegations and all of the alleged violations. Pursuant to notice, prehearing conferences and hearings were held at various times and places before the undersigned hearing examiner duly designated by the Commission to hear this proceeding.

Both parties were represented by counsel, participated in the hearings and were afforded full opportunity to be heard, to examine and cross-examine vvitnesses, to introduce evidence pertinent to the issues, to argue orally upon the record and to file proposed findings of fact, conclusions of la,v and orders, together with reasons in support thereof and replies thereto. Both parties so filed. All such findings of fact and conclusions of law proposed by the parties, respectively, not hereinafter specifically found or concluded are herewith specifically rejected. Upon the entire record in the case and fl'0111 his observation of the witnesses, the undersigned makes the following' findings of fact, conclusions and order.

FINDINGS OF FACT T. Corporate OTuanization Crown is a Maryland corporation with its principal offce and place of business located at the American Building, Baltimore 3 :\larylanrl (Answer), II. Interstate Com/merce and C01npetition Cro\vn is now and for several years last past has been, among other things, engaged in the offering for sale, sale and distributioll of gasoline and other petroleum products in a 13-State area including the States of Connecticut, Kew York, New Jersey, Pennsylvania, Maryland, Virginia, West Virginia, North Carolina, South Carolina, Georgja, Alabama, Florida and Texas (Answer). Crown offers for sale, sells and has sold gasoline under the brand names of "Crown Gold" and " Crown Silver" in the States of Connectieut, "'ew Jersey, :-ew York, 'VIaryland lI. C. 1007 (b) .

1476 FEDERAL TRADE CO:\MISSION DECISIONS Initial Decision 71 F.

North Carolina, South Carolina, Pennsylvania, Texas, Virginia and West Virginia, and unbranded gasoline at wholesale in the above- mentioned thirteen States (Answer; CX 2A; RX 39). Crown is engaged in the acquisition and development of, and exploration for, oil producing properties and the production purchase, sale and transportation of Cl'huc oil, the refining of crude oil and its derivatives, and the subsequent marketing of such refinery products (Answer). Crown has a refinery at Houston, Texas (Answer). It also owns and operates pipelines, terminals and bulk plants for the transportation, distribution and sale of its gasoline and other products to purchasers thereof including service station dealers (Answer). An integrated unit in the petroleum industry consists of one engaged in the production, refining, transportation and marketing of petroleum products (Tr. 727; 1381). Thus Crown comprises an integrated unit in the petroleum industry (CX I B; CX 2A; CX 4 B-H; CX 1078). In 1961 Crown s gross operating income was $66 410,463 (Answer), with gross sales of petroleum products approximately $63 000 000 (CX 49).

In the delivery and sale of its gasoline to its various marketing outlets, Crown ships or otherwise transports its gasoline and other petroleum products from its Houston, Texas refinery across State lines to bulk stations and other distributing points, from which said gasolines are distributed to service stations, dealers or other customers (Answer). In the shipment, transportation and sale of gasoline from its refinery, terminals, bulk storage plants and other distribution points to said wholesalers, jobbers or retail dealers in the aforesaid States, Crown is now and at all times mentioned herein has been engaged in commerce within the meaning of the Act. Although Crown denies that it is engaged in commerce and that its sales to retail dealers (with which both counts of the complaint are concerned) are in commerce the contrary is too well established to require extended discussion In the course and conduct of such business, Crown has been and no\v is in substantial competition in commerce with others likewise engaged in the sale and distribution of gasoline in commerce within the meaning of the Act, including such fully integrated companies as Sun, Gulf, Humble, American, Shell, The fol,owing a1breviatior.s are used throughout this tlecis;oyl' ex (Commi" joel exhibit); RX (Respondent exh:bit): T,-. (trar.scyipt), CPF (Commission proposed finding), RPt' espond('nt propos d finding) 38tandard Oil Co. v. 340 U. S. 231 (1851): Sun Oil Company, 63 P. C. 1371 r.T. 6034 (1963). and cas€s cited therein. , , pp.

CROW" CE:-TRAL Petroleum CORPORATIO:- 1477 1470 Initial Decision Sinclair, Texaco and Cities Service (Answer; CX 1588; RX 38; 130-34; Xational Petroleum News Factbook, :YIid- ay, 1963 64-69 and 76- , of which pages offcial notice was taken). III. The Unla?cful Practices A. The Issues Count I of the complaint alleges (1 resale price fixing agreement or combination between Crown and its retail dealers in the Baltimore, Maryland area. Count II alleges sales by Crown to said dealers below cost with the intent and purpose, or where the effect may be, to injure, destroy or substantially lessen competition.

B. Resale Price Fixing Crown has been and 11O\V is marketing its refined petroleum products, including gasoline, in part through a Dumber of retail outlets located, among other areas, in Baltimore, :YIaryland, and has entered into contracts or lease agreements under the terms of which it agrees to sell and deliver and the dealers agree to buy all of their requirements oj' gasoline at said outlets from Crown, and which require the purchase of specified minimum annual quantities (Answer; CX 5 A; CX 13 A). A substantial number of these retail outlets are operated by independent business men who lease or sublease their service station properties from Crowd and have entered into such contracts to purchase gasoline motor oil and greases from CrmYI1 (Answer). In addition, Crown o\vns or operates through agents or representatives a number of retail service stations in Baltimore, commonly known or referred to as "commission" stations (Answer). Crown in Baltimore also marketed its gasoline through one unbranded retail service station outlet (Tr, 237-40; Tr. 1156-60), The complaint alleges a resale price fixing agreement 01' combination between Crown and its dealers, both as the result of actual agreements entered into with its dealers and, indcpendently thereof, as the result oj' the existence of the aforesaid lease and dealer supply contracts between Crown and its dealers and certain actions by Crmvn thereunder. The issues by agreement are limited to the Baltimore area, Crown s regular brand gasoline called Crown Silver, and February through June, 1962, Prior to 1962, the "usual" 01' " regular" retail pump price for house-brand or regular major brand gasoline had been 30. 9 cents per gallon, with the so-called "private" brands selling for 2if per 1478 FEDERAL TRADE CO:lMlSSION DECISIONS Initial Decision 71 F, galion less (Tr. 477 , 593 , 633 , 709, 832). During the first six months of 1962, the Baltimore area experienced a series of gasoline price wars, resulting in substantial declines in the retail price of gasoline (Answer). These price wars were triggered by the introduction in that market of new sub-regular branded gasolines, particularly Gulftane and Sun 190, by major brand operators at pump prices lower than their regular gasolines and equal to the private brands (Answer; Tr. 361 , 175, 594 , 633 , 704). Crown s tank \vagon price to its dealers for regular gasoline throughout this period was 25. 9 cents, resulting at " usual" prices in a margin to the dealer of five cents per gallon (CX 137-482). The dealers could not meet prices below 30.9 cents and retain such margin. As a result of the declining iiump prices, in order to protect the dealers' gallonage and margin of profit, Crown upon their request from time to time gn1nted them temporary tank wagon price allowances to enable then1 to meet competition (Answer). On sllch temporary allowances, to meet the first cent of a reduced pump price the dealer was given only 112 cent thus reducing his margin of profit to 1:/ cents, which margin thereaftel' remained the same throughout suceeeding price reductions (Tr. 336, 850).

Crown s policy and procedure with respect to granting such allowances required a dealer request, a survey of his competitors prices by a Crown salesman, a recommendation to the Division offce for an allowance to "protect" a specific pump price, the transmission thereof by telephone to rvlr. Garrison, Crown s Assistant Manag-er of Marketing, who granted or denied such requests, and his approval thereof. In addition to such oral transmission, the Division offce filled out n form, directed to Garrison listing the dealer s pump price (the price to be protected), his 5 cents margin, the prevailing competitive prices, and the recommended allowance, ,,,hieh always equaled the price to be protected less the dealer s margin, subtracted from 25. 9 cents, the tank wagon price (Tl'. 329-37; 835-17; CX 53-73). After approval, the Division offce notiJ-ed the salesman, ,v ho in turn advised the dealer that he was "protected" at a certain pun1p price (Tr. 329-31; 518; 514-5; 851). The record clearly establishes that the temporary price allowances were given to "protect" a specific pump price and that the salesmen so advised the dealers (CX 53-73; 46 B; Tr. 288; 331; 544-5; 518; 850), The dealers were paid the allo-,vances only upon the gasoline they actually sold rather than upon that bought, by means of the salesmen reading their pump meters at the time the allowance CROW;\ CENTRAL PETROLECM CORPORATION 1479 14'70 Initial Decision was granted and thereafter periodically. Such readi10gs were recorded on forms by the salesman with the appropriate computations, signed by him and the deaier, and credited by the Crown drivers against subsequent deliveries of gasoline (Tr. 347-9; CX 74-80; CX 586-685). A dealer could not receive any allowance unless he would aJJow Crown to read his pump meters (CX 47 Tr. 355-6). The record reveals that the dealers receiving aJJowances could post the protected price or a lower price, but not a higher price (Tr. 288; 324; 331; 518; 545; 550; 556-7). On June 12 , 1962, the prevailing retail price of major brand regular and Crown regular gasoline was 23.9 cents a gallon (Tr. 513; CX 44 D; CX 53-73; CX 89; CX 103; CX 133; RX 2). As a result of the price wars that year, Crown had expended substantial mnounts of money because of allowances granted to dealers to support a price and enable them to meet competition (RX 126; Tr. 1280), had lost substantial gallonage because Crown did not act until the prices of others had gone down (RX 129), and the number of closed Crown stations had increased from one in .January to five in June (CX 44 D; RX 60 B; RX 70 C). In addition Crown had experienced a substantial decline in overall gross income (RX 128).

On June 12, 1962, Crown s top management decided to post and protect a retail price of 17. 9 cents per gallon, 6 cents. below prevailing prices, by placing such price into effect at its C01l1mission stations, and giving its independent dealers a 12. 5 cent allowance to protect such p!:'ice, which \vould continue their margin at 4.5 cents (Answer; CX 46 B; RX 7). This price was substantially below Crown s costs (CX 1078; 1548- 49; 1587 A). The avowed purpose was to alleviate Crown s losses (Answer). Just how this action would accomplish such a result is not clear but apparently the contention is that it might have shocked competitors into realizing the futility of the price war and restoring more normal ptices (Tr. 714; 757-8).

About 2 p.m. Crown dropped its price at all commission stations to 17.9 cents and notified all of its dealers, through the salesmen, that a pump price of 17.9 cents would be protected (Answer; Tr. 341; CX 46 B; RX 7). Crown had 44 service stations in Baltimore, or which five were closed and or approximately 28% of those open, were commission stations (CX 34). By about 5: 30 p. , almost all of the dealers were posting 17. cents, and by 7 p.m. all dealers contacted were posting 17. 9 cents (CX 46 B; Tr. 346; 749). One dealer, who was not contacted and not given the allowance because he would not permit Crowd Initial Decision 71 F.

to read his meters, did not post the 17.9 price (CX 47; Tr. 335-6). The 12.5 cent allowance, ann the 17, 9 cent pump price, remained in effect until about 2 p,m" June 18 (CX 45 E). With respect to the June J 2 allowance, :'dr. Burke, Crown Baltimore division manager who supervised all of the salesmen testified that he instructed them to ofter each service station operator " a 12. 5 cent allowance ,in line with their going to a 17.. price (Tr. 359-60; emphasis added). :VIr. Newsom, Crown General Manager of IVlarketing, who conveyed management' s order to Burke on .Tune 12, told Burke to instruct all the salesmen to tell the dealers: "If you wil post or go to 17.91' a gallon at the pump we will protect that figure " (Tr. 283). Newsom testified that the dealers weJllld get the allowance if they posted 17. 9 or less, but not if they posted higher (Tr. 3J 8; 324). Several dealers testified they were required to post the protected price or lower (Tr. 519; 554-57; 5G7-8), and one said he did not know what the allowance was on .Tune 12 when he posted 17. 9 (Tr. 554). Burke said that Crow," wanted a 17.9 price sign at every station and if necessary the salesmen 'were to make the signs themselves on the spot and get them posted (Tr. 341).

It is clear that the allowance of 12.5 cents per gallon was given to dealers to " protect" the 17.9 price and upon condition that they post the 17.9 pric.e, or lower. As found above, the dealers were regularly and on this occasion advised that the allowances were to protect a price, or that a certain price was protected. The allowances were only granted on gasoline sold, and the dealers kne\v th is required the reading of their pump meters by Crown salesmen, which enabled them to ascertain the posted price. Crown, while admitting the granting of the 12. 5 cent allowance to protect a retail price of 17.9 cents and the '/recommending" of such price to its dealers, contends that this allowance was unconditional and the dealers were free to do as they chose. In addition to the facts found above demonstrating that this allowance was conditioned upon the dealers posting the 17. 9 price or lower, the surrounding circumstances likewise i1npel such a conclusion, l This allowance was not in accord with CyO\vn s established policy, which required a dealer request for help, a survey of his competitors ' prices, and an allo\vance based upon such facts. Here there was no request, no survey, and indeed a known I E is well es ablished that a pr:ce-fixjnp; ag-reernent or conspiracy may be infel'ed from CirCUYllstantia: evidence and does not h:'le to be proved by direct evidence. Interstate Circuit 1'n v. Umted State. 3G6 U. S. 208 (1938); Theah' e Enter)Jn'.ses, In v. Param01vnt 340 V. 537 (1954), CROWN CENTRAL PETROLEUM CORPORATION 1481 1470 Initial Decision prevailing higher price of 23. , \\'ith sub-regular and private brands slightly lower. With respect to prior allowances, even though the dealers were told the allowances were to "protect" a price or that they were "protected" at a price, and their 111eters \were read, nevertheless such allowances had been granted upon the dealers' request and a demonstrated need for help to meet competition, and it might be expected, without any conditions attached, that they would post such competitive prices. Here the expectation would be the contrary.

Given an unconditional 12. 5 cent allowance, with competitors generally posting- 23. 9if, and having been losing 112 cent of their normal margin for six months in order to meet lower prices, the dealers could easily have posted 18. 9 (or indeed higher), been substantially below all competition, logically expected a substantial increase in gallonage, and restored their margin to normal or better. Yet all of the dealers given the allowance posted 17. While the record establishes, as Crown points out, that the dealers welcomed this allowance with joy (Tr. 315; 345; 720; 862) this does not negate their singular lack of self-interest in failing to restore a normal margin under such fortuitous circumstances.

It is concluded and found that the above found facts, particularly with respect to the allowance of June 12 , 1962 , demonstrate that Crown and its dealers entered into an agreement arrangement, understanding, planned common course of action or conspiracy to fix, control and stabilize the retail price at which Crown gasoline was to be sold. That such agreements or arrangements are illegal pC?' se in violation of the Sherman Act, and unfair methods of competition under the Act is well settled. Counsel supporting thc complaint also contend, as the complaint alleges, that the dealers were coerced or caused to agree to fix their retail prices by reason of their lease and dealer equipment and supply contracts with Crown, independently of the above-found facts demonstrating an agreement to fix prices. In this connection, counsel contend such written contracts, coupled with Crown s "policing" of the dealers' operations, gave Cro\vn the power to dominate and control the dealers with such alleged effect. The leases and supply contracts are substantially the same as those used throughout the industry. The lease gives Cro\yn the right to inspect the premises. Either party may cancel upon 5 Eth)Jl Gasoline Co. United States, a00 L. S. 436 (1940); United States v. SOCO?11/- VaCUJOH Oil Co. ,no U. S. 150 (1940); C. v. Cement lnstitu. 333 U.S. 683, 691 (1948): C. v. Motif' Pictul' Advertisl:ng Service Co., 344 L. S. 392 (1953). Initial Decision 71 F.

days written notice (CX 6 A , B). These arc customary and usual provisions. As found above, the supply contracts required the dealer to buy his station requirements from Crown, vlith a specified annual minimum. They ran from year to year, with 90 days termination notice required of the dealer, although Crowd could terminate on 10 days notice at any time (CX 7 A and E). There is no evidence, aside from the method of handling allowances discussed above, which method is unrelated to any of the pl')Visions or requirements of the leases and supply contracts that Crown in any manner "policed the operations of the dealers. It was conceded that there was no evidence of actual or threatened coercion by Crown (Prehearing Conference Tr. 80; 90-6). In addition, the record establishes that Crown s dealers were frequently solicited by competing oil companies to transfer theh' allegiance (Tr. 244; 521).

It is concluded and found that the leases and dealer supply and equipment contracts between Crown and its dealers, and the operation thereof, have not coerced or caused the dealers to enter into price-fixing arrangements with Crown. independently of the actions and ag-reements with respect to the allowances hereinabove considered.

C. Selling Below Cost 1. The Facts The complaint alleges that the same sales by Crown from June 12 through June 18 , 1962 , when the dealers were given a 12. cent allowance, were below east with the intent and purpose, or where the effect may be, to injure or substantially lessen COll1petition in violation of the Act. Crown s net tank wagon price after deduction of the 12.0 cent allowance and the 10 cents Federal and state taxes, was 3.1 cents pel' gallon (Ans\ver). This was substantially below Crown s costs icx 1078; 1048-49; 1587 A). During the same period, Crown s net tank \vagon prices to dealers in other areas where it operated \were substantially higher (CX 45 A-J).

In addition to the major integrated companies above found Cro\vll was also in competition in Baltimore with a number of unbranded or private brand operators, including Cashin, Joe, Hudson, Midway, Savon, Scot, Thriftway, Thrifty, and Thompson (CX 53-63; 70; 89; Tr. 461-2; 581; 630-31). Crown, in addition to its sales to its dealers, also made wholesale sales at its Baltimore terminal to vm.ious such unbranded or private brand operators (Tr. 737). Crown s regular \vholesale price to such unbranded CROWN CENTRAL PETROLEUM CORPORATION 1483 1470 Initial Dccision operators was below its normal tank wagon price of 15.9 cents 3 cents (less taxes), and from June 12 to Jane 18, 1962, was II. per gallon (Tr. 737; CX 3). This was 7.9 cents higher than the 4 cent price to the dealers, and resulted in a net wholesale price with taxes but not including delivery from terminal costs, of 21.3 cents to such unbranded operators, substantially above the retail price of 17.9 cents being posted by Crown and its dealers. The drastic retail price reduction of June 12 to 17.9 cents was characterized by Crown offcials as "rocking" the market (Tr. 279-81), with the avowed purpose of trying to restore normal prices by shocking competitors into realizing the futility of continued price wars, as found hereinabove. The normal retail or pump price differential between major and unbranded regular gasolines in Baltimore was two cents, as found above, and of course Crown knew that the unbranded operators could not meet the 17.9 price, let alone two cents less, with a terminal wholesale cost of 21.3 cents from Crown or the 20.4 cents prevailing unbranded terminal wholesale price (CX 44 F; 45 F), or even the limited gallonage 17.4 cent terminal wholesale subsidy price of some competitors (CX 45 F). In deciding to adopt the 17.9 cent retail price, Crown offcials stated they were indifferent as to what might happen to their unbranded customers (Tr. 281). Although Crown contends that its action was purely "defensive" (hen,inafter considered in more detail), Crown also knew that such sales below cost and the resulting 17. 9 cent retail price would, unless met, result in substantially increased sales at its stations (CX 45 E), with a corresponding decline in sales by competitors, particularly private brand operators who traditionally sold at a price two cents lower, and whose operations \were geared almost exclusively to price (Tr. 477; 505; 593; 633; 809; 832). :VIr. Diwoky, Crown s president, in effect so testified (Tl' 721; 740-41).

Crown argues that it is not a "major" oil company. However as found above, it is an integrated unit in the petroleum industry, and markets as a major. Unquestionably it is much smaller than the major integrated companies.. hereinabove found, wlth which it competes in Baltimore (CX 1588 A-Z; RX 130-34). On the other hand, it is much larger than the unbranded operators with which it compet.es in Baltimore, a number of which are intrastate operations (Tr, 490; 578; 628; 640). Whether Crown is or is not a "major" does not appear relevant to the allegations of Count II.

It is undisputed that the sales of a1l Crown dealers posting the 1484 FEDERAL TRADE CO)d)dISSION DECISIO:-S Initial Dccision 71 F.

17.9 cent price from June 12 to June 18 increased substantially, from three to five times the gallonage sold the previous week (CPF 13; RPF 123, RX 129 A-K; CX 45 E). Crown s Baltimore sales returned to normal or less during the following week, and the following month (RX 129 A-K). As found above, Crown sales in Baltimore in the first five months of 1962 had declined in comparison with 1961 (RX 129 A-K). Crown s 1962 Baltimore sales and Maryland share of the market also declined substantially compared with 1961 (RX 129 A-K; HX 41). The unbranded or private brand operators in competition with Crown s stations lost substantial gallonage during the six days Crown s 17.9 price remained in effect (Tr. 474; RX 3; Tr. 584; HX 4). As found above, their wholesale cost price, including delivery, exceeded Crown s 17. 9 retail price (Tr. 470; 582; 606; 631). Their retail pump prices varied from 20.9 to 21.9 cents per gallon during the period (RX 3; 4; Tr. 475; 610), These prices, 3 to 4 cents above instead of hvo cents below Crown s price, vlOuld necessarily cause a decline in sales. One private brand, Scot rejected to meet Crown s 17.9 price at two of its three stations, at which price it was selling below delivered costs, not including other operational costs (Tr. 631; CX 1544-46). It did so to prevent loss of customers to Crown (Tr. 631). Its gallonage increased (Tr. 632), which of course caused it to lose more money than if it bad not.

2. Intent Crown, while conceding that it intentionally sold below cost and posted the 17. 9 cent price, argues that its intention or purpose ,vas purely "defensive " in an effort to "rock" the market, shock competitors into restoring more normal prices and obviate its continued losses of both gallonage and income. Even assuming such intention as bona fide, ,which is subject to some doubt inasmuch as Crown had previously attempted a similar action in Houston with uncertain results (Tr. 279-80; 314), nevertheless as found above, Crown knew the adverse competitive effect it would have upon private brand competitors. Crown knew that they traditionally sold two cents below the majors and Crown because their operations were geared to price, that their wholesale costs were higher than Crown s intended retail price, that unless they maintained their normal differential or at least met such price Cro\vn s sales would increase and their sales would decline substantially, and that if, conversely, they maintained their ., , , CROW" CF,:-TRAL PETROLEI:M CORPORATION 1485 1470 Initial Decision normal differential or met Crown s price they would be selling below cost and at a substantial loss.

A person must be presumed to intend the known and necessary consequence of his actions. As the Supreme Court stated in the GTiffth C case:

" " And even if "we assume that a specific intent to accomplish that result Lthe elimination of competition by the use of monopoly powers is absent, he is chargeable in legal contemplation with that purpose since the end result is the necessary and direct consequence of what he did. United States v. Patten, snp1- fJ. 543. In addition, both the Supreme Court and the Commission have held that sales below cost warrant an inference of predatory intent. In Anheuser-Busch,' the Supreme Court said: " '" " For example, it might be argued that the existence of predatory intent bears upon the likelihood of injury to competition ) and that a price reduction below cost tends to establish such an intent. " * * EFootnote omjited.

In its oyster H decision, the Commission said: n Express declarations of predatory intent-such as respondent Hodgkins statement that "'we ,vill put y0a ont of business are of course the most convincing evidence of such an intent. Even without such direct evidence, however, IJreclatory intent could have been reasonably infened from responclcnts below-cost selling. Federal Trade Cmnmissinn v. A nheuse1' Bnsch, Inc. , 363 S. 536 , 552 (1900). It is said that such predatory pricing is "foreign to any leg;timate commercial competition Plwto Rican American Tobacco Co. v. A mC1'iwn Tobacco Co. 30 F. 2(1 , :2 (:2c1 Cir. 1929), cert-. denied 279 S. 868, and that it " inevitably fl'stl'ates COmlJetition by excluding competitors from the market or deliberately impairing their competitive strength. " RqJo'i. t rd the Attol'ueu Gencnt!'s Yc/.ional Cummittee to Study the 1ntit'i(st IJ(I, ws 165 (195,5).

It is concluded and found that Crown sold belmv cost with the intent and purpose to injure, restrain, suppress 01' destroy competition in violation of Section 5 of the Act, 3. Effect Count II of the complaint alternatively pleads predatory intent and probable adverse competitive effect, and, as found above, such intent has been eSlablished. However, it is well settled that intent is not a necessary element of a violation of Section 5, or for that matter, of the Clayton Act 01' Section 1 of the Sherman U,,1tcci SilLiesv. Griffith 3:14 U, S. 100 , 108 (HLS). Fcdual Trade COii1Jiss; O'l Y. .tnhellscl. Husch. hie. . 363 C. 536 'i52 (1('60) Fo,' ster Mj,q. Co., Inc. al. Docket (). n07 , 62 F. C. 852 (1963). y, )!, 1486 FEDERAL TRADE COMMISSION DECISWNS Initial Decision 71 F, T.C, Act. Proof that the sales below cost had a reasonable probability of substantially lessening competition, as alleged, would also, independently of intent, establish a violation of Section 5 of the Act for the reasons next discussed.

Section 3 of the Robinson-Patman Act" makes it a crime to sell at " unreasonably low prices for the purpose of destroying competition or eliminating a competitor." The Supreme Court has held that selling below cost is encompassed within the ''lords uunreasonably low prices. o Because Congress has declared such conlpetitive conduct against public policy and indeed a crime a f01tiol-i it would be an unfair method of competition, for the reasons expressed by the Supreme Court in its Motion PietvTe Advertising decision.ll Moreover, the same incipiency doctrine there relied upon by the Court would appeal' inapplicable. Because Section 3 requires 2. purpose to destroy competition Crown argues such intent or purpose is required to make selling below cost an unfair method of competition. However, it does not follow that intent is a necessary element under Section 5. It has long been established, even prior to the Federal Trade Commission Act, that sales below cost. absent acceptable business exigencies, are in violation of the Sherman Act." The Supreme Court has delineated the type of business exigency required. In Nat'Lonal 13Dairy, the Court said;

This opinion is not to be construed, however, as holding that every sale below cost constitutes a violation of 3. Such sales are not condemned whell made in furtherance of a legitim8,tc commercial objective, such as the liquidation of excess, obsolete or pt rishablc merchandise, or the need to meet a lawful equally lmv price of a com titor. 80 Congo Rp.c. 6;332 , 6334; see Ben Hw" Coal Co. v. Wells 242 . 2d 481 (C.A. 10th Cir. 1957). Sales IJ( low cost in these instances would neither be "unreasonably low" no)' made with predatory intent. But sales made below cost ,\"without legitimate com.mercial objective and with specific intent to destroy competition ,'lould clearly fall within the prohibitions of Of course violations of the Sherman Act are violations of Section 5. 14 Furthermore, incipient acts and practices which, when full blown, would violate the Sherman and Clayton Acts, are Ul1- J 15 e.se. l:,a.

"limteel S ates NrrUonal Da "'1 l',' odllds CU, S. 520 (loc;)). "F"T. C. Mc;tic;)I Picture Ad1.rrtislJlfl Serv,ce Cc;" 1 U. S. :-!I:, 39.' (1!:'53). see also Fnsh1()/I On ()i:nat();' G1/ild \" 312 u. S. 457 (1941), ar. C. Beech-NlIl " 257 S. 441 (1!)2 '"Standard Oil Co. Umted Staff:: 2:21 U. S. 1. 43 (1011); L'wtrd Staff.\ American. Toharcn Cc;, 221 'C. S. 106 l(;U . lb2 (1911), United Si.ate. v. NatioHLI fJa,i"If Products Corp. 372 U.S. 2n (1%3).

1; Footnote 12 silk))' lof. C. Cement lJ!stitute, 3C13 U. S, 683 , 691 (1948). , CROWN CE;'TRAL PETROLEUM CORPORATION 1487 1470 Initial Decision fair methods of competition in violation of Section 5. In addition, since incipient violations of the Clayton Act are violations of Section 5, it would seem that the requisite adverse competitive effect under Section 5 need be no greater than under the Clayton Act. a reasonable probabiiity of a substantial lessening of competition.

While predatory intent is not a requisite under Section 5 of the Act, where it is found, as here, it tends to make the injury to competition probable. The Supreme Court in AnhenseT-Busch 16 said:

For example, it might be argued that the existence of p1'edaiMY intent bears u.pon the likelihoud ofinJui'Y to cOlnpetition and that a price reduction below cost tends to establish such an intent. * * " (Footnote omitted. J (Emphasis added, In Balian an area price discri!Yination case, the Court held: * ,. Of course, intent is Bot an essential factor to a S 2 (a) violation although, jf the intent to destroy were found to exist, it might tend to render the injury probable.

lR And in F'oTster the Commission said: Howev, those events (selling below\;,' costs strongly suggest that responuents, in the formulation of their pricing policies were motivated by aJ; intent to destroy their competitor, Farmington- And, while such a predatory intent is not a necessary element in a price discrimination case, it is certainly relevant in determining \vhether or not the discriminations in question may have the effect of substantially injuring competition. Ji' ede1- Trade Commission v. Anheuse1' Busch, Inc. 363 U. S. 536, 552 (19GO); ,"vioore v. Mead' s :Fine B1'ead Co. 348 V. S. 115 , 120 (1954); Atlas Building Products Co. v. D'iamond Blocle G1" uel Co. 269 F. 2d 9GO, 956 (10th Cir. 1959), cert. denied, 363 L. S. 843 (1960); .!l1a1-ylnnd Bnleing Co. v. Federal tnule Comnl1:ssion 248 F. 2d 716 , 718 (4th Gir. 1957); Porto Rican Ame1-ican Tobacco Co. v. Ame1'ican Tobacco Co. 30 F. 2d 234, 237 (2d Cir. 1929), cert. denied, 279 U. S. 858.

Because of the relatively short duration (six days) of selling below cost, the fact that Crmvn s sales returned to normal or less thereafter, and the fact that competitors' gallonage and prices returned to normal, Crown argues that its selling below cost had no substantial adverse effect upon competition. While the period was of short duration and the gallonage and monetary losses did not permanently impair competition, this argument overlooks the obie, C, v. II-lotion I'ict1He Advertising Se,."ice Co. 3H U. S. 392 , 38 (1953). '" Footnot.. 7 supra.

17 Ra.ian Ice CnJam Co. Arden Farms Co. 231 F- 2d 356, 3(;9. See also Swift Co. Unded Statr.s, 1% u. S. 375, 3% (1905).

:8 Footnote 8 supra.

. .

1488 FEDERAL TRADE COMMISSIO" DECISIONS Initial Decision 71 F.

vious, namely, if continued, it IVQuld have driven the private brands out of business. Two private brand operators graphically described the inevitable result of continued selling below cost by Crown as follows:

Mr. Barton (Tr. 505):

Q. :Mr. Balton, if a branded operator wcnt below you, if you know, would you have lost business? A. Yes, If he kept it up long enough, I would probably go broke, bankrupt. Q. Do you consider Crown a branded operator? A. Yes.

Mr. Pickett (Tr. 605):

A. How can you stay in business and sell under cost? I haven t found out ho\v to do this yet.

As the Court of Appeals observed in Atlas Building Products: , surely there is no more effective n1cans of lessening coma conl-petition or creating 111onopolies than the debilitation of " lGpetitor.

Selling below cost cannot be equated with a price reduction which could be met, albeit with less profit, and thus prevent substantial shifts in market share, While Crown was much smaller 111GSt if notthan its ll1major competitors, it was much larger than all of its private brand C0111petitors. 1.nc1er some\vhat similar facts in the P01'tO I(icU'n Tobacco Co. case o in connection with a selling below cost charge brought under the price discrimination provisions of the original Clayton Act, where the smaller competitor met the belmv cost prices at substantial monetary losses but was still in business and did not suffer loss of market share the Court of Appeals held:

" '" If this competition, resulting in such loss, continued, it is fair to assume that the appellee could not continue in lmsincss, and its elimination as a competitor ,vas certain. Thus the allpellant' s discrimillatioTi ,vill substantially Jessen competition. .

Thus it may be seen that an actual effect, or elimination of a competitor, Vilas not a prerequisite there. That such an actual ffect on competition, as distinguished from a reasonable probaoilty thereof, is not required under a Section 5 selling below cost Appeals in the MulleTcharge was made clear by the Court of case 21 \vhere the Court stated:

'" Atlas Builrh11(1 P'.od. Co. Diamond Bind GnJ,vd Co. 26Q F. :Cd 050 (10th Cir. '-95\1). cI Porto Rican American To!'. Co. v. Amuican ToiJ. Co. 30 F. 2ct 23 (2d Cil" ,- 2l!). E. B ilhdler & Co., et al Federal Trade Commission 142 F. 2d 511 , 517 (6th Cir 19H). :

CROWN CENTRAL PETROLEUM CORPORATIO;' 1489 1470 Initial Decision * '" The fact that the sales were not greatly below cost does not aid the petitioners. It was not necessary that the evidence show that Schanzer suffered loss. Federal Trade C01nmission v. Rnladarn Co. 316 U. S. 149, 152. The purpose of the Federal Trade Commission Act is to prevent potential incipiency. Fashioninjury by stopping unfair methods of competition in their OTiginat01" ' Guild v. Federal T1 ade Commisslon 312 U. S. 457, 466. ':' * It is concluded and found that the effect of Crown s selling below cost may be substantially to lessen competition in violation of Section 5 of the Act.

CONCLUSIONS OF LAW 1. Respondent is engaged in commerce, and engaged in the above-found acts and practices in the course and conduct of its business in commerce, as "commerce" is defined in the Act. 2. The acts and practices of respondent hereinabove found in Section III B are all to the prejudice and injury of the public and competition, and constitute unfair methods of competition and unfair acts and practices in commerce within the intent and meaning of the Act.

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

4. The acts and practices of respondent hereinabove found in Section III C were with the intent and purpose, and under circumstances where the effect may be, substantially to lessen competition, and constitute unfair methods of competition and unfair acts and practices in commerce within the intent and meaning of the Act 5. This proceeding is in the public interest and an order cease and desist the above-found acts and practices should issue against respondent.

ORDER It is ordered That respondent, Crown Central Petroleum Corporation, a corporation, its offcers, directors, agents, representatives, or employees, directly or through any corporate or other device, in connecbon with the offering for sale, sale or distribu- " is defined in thebon of its gasoline in commerce, as "commerce Federal Trade Commission Act, do forthVi,rith cease and desist from:

, or carrying 1. Entering into, continuing, cooperating in out any planned common course of action, understanding, agreement, contract or conspiracy with any person or per- 1490 FEDERAL TRADE COMMISSIO" DECISIONS Syllabus II F, sons not parties hereto, to establish, fix, adopt, maintain, adhere to, or stabilize by any means or method, prices at which its gasoline is to be resold: Pi"' uided, however That nothing contained in this section shall be construed to limit or otherwise affect any resale price maintenance contracts which respondent may entcr into in conformity with Section i5 of the Federal Trade Commission Act, as amended by the McGuire Act (Public Law 542, 82nd Cong. , 2nd Session, approved July 14 1952).

2. Selling or offering to sell its gasoline at a price less than the cost thereof to respondent with the purpose or intent, or where the effect may be, substantially to lessen competition or tend to create a monopoly in the distribution or sale of gasoline.

ORDER VACATI:\G INITIAL DECISIO:- AND DISMISSING COMPLAI:-T This matter having come before the Commission on the appeal of respondents frolll the hearing examiner s initial dt:cision, and upon briefs and oral argument in support thereof and in opposition thereto; and The Commission having determined that the initial decision should be vacated and set aside and that the complaint be dismissed:

U is ordered That the initial decision in this proceeding be and it hereby is, vacated and set asidc. It is further' ordered, That the complaint herein be, and it hereby is, dismissed.

By the Commission, without the concurrence of COTI1missioner Ylac:ntyre. Commissioner Jones did not participate. I N THE MATTER OF snIO AND SCm;STER, INC., ET AL.

ORDER, ETC. , 1:' REGARD TO THE ALLEGED VIOLATION OF THE FEDERAL TRADE COM IISSION ACT Doclcet 8594. Complaint SqJ"- 6 1963-J)ecision, June 30 , 1.967. Order dismissing complaint which charged a book publishel' , advertising agency, and a physician with making false claims in advertising a book on dieting.

, SIMON AND SCHUSTER, INC. , ET AL. 1491 1490 Complaint COMPLAINT Pursuant to the provisions of the Federal Trade Commission Act, and by virtue of the authority vested in it by said Act, the Federal Trade Commission, having reason to believe that Simon and Schuster, Inc., a corporation, and Jason C. Berger, individually and as an offcer of said corporation, and Richard L. Grossman, individually, Schwab, Beatty and Porter, Inc., a corporation and IIerman Taller, an individual, hereinafter referred to as respondents, have violated the provisions of said Act, and it appearing to the Commission that a proceeding by it in respect thereof would be in the public interest, hereby issues its complaint, stating its charges in that respect as follows: PARAGRAPH 1. Respondent Simon and Schuster, Inc. , is a corporation organized, existing and doing business under and by virtue of the laws of the State of New York. This respondent has offces and its principal place of business at 630 Fifth Avenue, in the city of New York, State of ew York. Respondent Jason C. Berger, an offcer of Simon and Schuster Inc., actually participates in the formulation, direction and control of the policies, acts and practices of said corporation including the acts and practices hereinafter set forth. His address is 630 Fifth Avenue in the city of New York, State of New York. Respondent Richard L. Grossman was formerly an offcer of Simon and Schuster, Inc. , during which time he actively participated in the formulation, direction and control of the policies of said corporation in connection with the acts and practices set forth herein. His address is Valley Stream Road, in the city of Larchmont, State of New York.

Respondent Schwab, Beatty and Porter, Inc. , is a corporation organized and existing under and by virtue of the laws of the State of ew York. This respondent has offces and its principal place of business at 660 Madison Avenue, city of Kew York, State of Kew York.

Respondent Herman Taller is an individual, a licensed and practicing physician whose address is 410 East 57th Street, Ne\v York, New York.

PAR. 2. Respondents Simon and Schuster. Inc. , and Jason C. Berger are now, and for some time last past have been, engaged in the publication, promotion, sale and distribution of a book entitled " Calories Don t Count" by respondent Herman Taller. These respondents cause said book when sold to be transported from their place of business in the State of New York to pur- , , 1492 FEDERAL TRADE COMMISSION DECISIOXS Complaint 71 F.

chasers located in various other States of the United States and in the District of Columbia. These respondents maintain, and at all times mentioned herein have maintained, a substantial course of trade in said book in commerce, as "commerce" is defined in the Federal Trade Commission Act. Respondent Richard L. Grossman has engaged in the business described herein and has participated in the acts and practices herein described. Respondent Schwab, Beatty and Porter, Inc. , is now, and at all times mentioned herein has been, the advertising agency of respondent Simon and Schuster, Inc., and now prepares and places and has prepared and placed, for publication the advertising and promotional material, referred to herein, to induce the sale of the aforesaid book, and through such means has promoted the sale and distribution of Saffower Oil Capsules. PAR. 3. Cove Vitamin and Pharmaceutical, Inc. , is a corporation organized and existing under and by virtue of the laws of the State of New York.

Harry Bobley, Edward Bobley and Peter JVI. Bobley are offcers of Cove Vitamin and Pharmaceutical, Inc. They each participate in the formulation, diredion and control of the policies, acts and practices of said corporation, including the acts and practices hereinafter set forth.

CDC Pharmaceubcal Corporation is a corporation organized and existing under and by virtue of the laws of the State of New York. It is a subsidiary of Cove Vitamin and Pharmaceutical Inc.

Kenneth Beim is an individual who resides in the city of X York, State of New York.

Cove Vitamin and Pharmaceutical, Inc. , CDC Pharmaceutical Corporation, Harry Bobley, Edward Bobley and Peter JVI. Bobley have been engaged in the promotion, sale and distribution of saffmver oil capsules designated "CDC Capsules " and have participated in the acts and practices set forth below. They have caused said capsules when sold to be transported from the place of business in the State of New York to purchasers located in various other States of the United States and in the District of Columbia. They have maintained, at all times material to this complaint, a substantial course of trade in said capsules in commerce, as "commerce" is defined in the Federal Trade Commission Act.

Kenneth Beim participated in the promotion, sale and distribution of the book entitled " Calories Don t Count" and the , SIMOj\ D SCHl,TSTER, Ii\C. , ET AL. 1493 1490 Complaint saffower oil capsules designated "CDC Capsules" and has participated in the acts and practices herein described. PAR. 4. In the course and conduct of the business of jointly promoting, selling and distributing the book "Calories Don " all re-Count" and the saffower oil capsules CDC Capsules spondents named herein and the corporations and individuals referred to in Paragraph Three herein, at all times mentioned herein have been in substantial competition, in commerce, with other corporations, firms and individuals in the sale of books and saffower oil capsules.

PAR. 5. In the caUlse and conduct of their businesses, and for the purpose of inducing the purchase in commerce of said book and of saffower oil ca1)sules, respondents and the corporations and individuals named in Paragraph Three herein have made certain statements and representations with respect thereto in said book and in other advertisements inserted in newspapers and magazines, and jn other promotional material, having a general circulation throughout the various States of the l.;united States and in the District of Columbia.

PAR. 6. Among and typical, but not an inclusive, of the statements and representations made and appearing in said advertisements and other promotional material disseminated as herein set forth are the following:

ews about a revolutionary reducing plan, based on a new biochemical discovery - L'NBELIEVABLE- but true! You need to eat fat if you are to be slim. It isn t how many calories you consume that matters-but what kind of calories. The inclusion of polyunsaturated fatty acids in your diet is the essential step toward loosening the body s long- stored fat. It is the key to your losing only excess fat rather than vital body tissue. In this just-published book, CALORIES DON' T COL'NT , Dr. Herman Taller explains the principles behind this 1:ew understanding of the body chemistry-and tells you in full detail:

1. How to eat three full meals a day and lose ,,-eight in the safest way possible.

4. How this radical new way of losing weight is linked with a la,v cholesterol count, better skin condition, and resistance to colds. 5. Why you may cat fried foods every clay and keep slim what kind of fats to fry them in.

After painstaking research he put his program into practice on a group of 93 problem dieters with extraordinary success. Today patients from all over have won the country come to Dr. Taller for treatment. And his principles book he ever widening interest in the medical field. In the preface to the writes:

all I need The concept this iJOok advances is revolutionary. Perhaps .. , Complaint 71 F.

say in support of my nutrition principle is that it works. It has been tested in medical laboratories and among large !lumbers of patients. There have been no failures, nor can there be any when the principle is properly applied. For it is based on new knowledge-a medical breakthrough. How this radical way of losing- ,veight is linked to a low cholesterol count better skin condition and resistance to colds and sinus trouble. CALORIES DON'T COUNT In addition, you must supplement your diet further in unsaturated fats. In all, you should take three ounces of highly unsaturated vegetable oil and eat two ounces of margarine every day * * The key substance in vegetable oils is linoleic acid, an essential, unsaturated fatty acid. The oils ""ith the greatest quantity of linoleic acid are most valll able in conquering obesity and in keeping cholesterol level low Clearly, saffower oil is the most valuable by far. '' '" Saffower oil i3 bet:oming more easily available, both in liquid form and in capsules obtainable at drug and department stores or through such mail-order sources as Cove Pharmaceuticals, New York.

PAR. 7. Through the use of said advertisements, and others similar thereto not specifically set out herein, respondents and the corporations add individuals referred to in Paragraph Three herein, have represented, directly and by implication: 1. That the dietary principals expounded in said book are new that they are based on a new discovery, new knowledge and ne\\' understanding, and that they constitute a medical breakthrough; 2. That a person will be able to loosen long-stored fat by the inclusion of polyunsaturated fatty acids in his diet; 3. That the book truthfully reftects an established scientific fact that polyunsaturated fatty acids are essential to an effective reducing diet, and that polyunsaturated fatty acids are more effective in a reducing diet than are other fats; 4. That said book enables a person to improve the condition of his skin and increase his resistance to colds and sinus trouble; 5. That all other reducing- programs and principles will cause loss of vital body tissue or are less safe than those set forth in said book;

6. Th2.t the book truthfully reftects an established scientific fact that it is necessary for a person to eat fat in order to lose weight;

7. That calories are not important in relation to obesity, and that a person can reduce his body weight, regardless of the number SIMOl\T AND SCHUSTER, INC. , ET AL. 1495 1490 Complaint of calories consumed, by following the principles set forth in the book sold under the title "Calories Don t Count" ; 8. That Saffower oil capsules will be of substantial value as a part of diet in reducing body weight.

PAR. 8. In truth and in fact:

1. The dietary principles expounded in said book are not new. They are not based upon a new discovery, Dew knowledge or new understanding and do not constitute a medical breakthrough; 2. A person, by the inclusion of polyunsaturated fatty acids in his diet, will not be able thereby to loosen long-stored fat; 3. It is not an established scientific fact that polyunsaturated fatty acids are essential to an effective reducing diet, or that they are more effective in a reducing diet than are other fats; 4. Said book will not enable a person to improve the condition of his skin or increase his resistance to colds or sinus trouble; 5. any reducing programs and principles other than those of respondents' and the corporations and individuals referred to in Paragraph Three herein when properly administered, wil not cause loss of vital body tissue and are no less safe than the reducing programs and principles of the respondents and the corporations and individuals referred to in Paragraph Three herein.

6. It is not an established scientific fact that it is necessary for a person to eat fat in order to lose weight; 7. Calories are important in their relation to obesity, and the number of calories consumed by the individual is important to and directiy related to, the reduction of his body s weight. Contrary to representations of the respondehts and the corporations and individuals referred to in Paragraph Three herein, a person cannot, by following the principles set forth in the book "Calories Don t Count " reduce his body '\veight without regard to the number of calories consumed;

8. Saffower oil capsules are not of substantial value as a part of a diet in the reduction of body weight.

Therefore, the statements and representations as set forth in Paragraphs Five and Six were and are false, misleading and deceptive.

PAR. 9. In the course and conduct of their businesses, the respondents and the corporations and individuals referred to in Paragraph Three herein have entered into understandings agreements, and planned courses of action to mislead and deceive the public into believing that the reducing plans outlined in said book, including the use of saffower oil capsules, would produce the , Complaint 71 F, results in bringing about reduction in body weight specified and implied through the representations contained in said book. Thus, through their understandings, agreements and planned courses of action, respondents and the corporations and individuals referred to in Paragraph Three herein conceived the scheme to make the book entitled " Calories Don t Count" and advertising material which would promote the sale of saffower oil capsules. In doing so the respondents and the corporations and individuals referred to in Paragraph Three herein and each of them acted to induce members of the public to purchase said book and also to purchase saffower oil capsules in commerce. Pursuant to the said understandings, agreements, arrangements, planned courses of action, combination and conspiracy and in furtherance thereof respondents and the corporations and individuals referred to in Paragraph Three herein have acted in concert and in cooperation in the performance of the things hereinabove alleged and in order to assist them in the efjectuation of their scheme, respondents and the corporations and individuals referred to in Paragraph Three herein performed the following acts and practices:

1. Respondent Herman Taller, the nominal author of "Calories Don t Count " presented a draft of the manuscript of his original version of the aforesaid book to the respondent publisher Simon and Schuster, Inc. Respondent Berger and his associates concluded that in order to further the schemes of the respondents and the corporations and individuals, the book should be revised by some professional writer. Therefore, arrangements were made with Roger Kahn, a sports writer, to revise the manuscript. When the revision was completed, Mr. Kahn had made substantial contributions to the content of the book. Kahn also conceived the title for the book Calories Don t Count. 2. During the period of time that Kahn was rewriting the book, respondents and the corporations devised the scheme to make the book a piece of advertising material which would promote the sale of saffower oil capsules. That was done. Respondents and the corporations and individuals referred to in Paragraph Three herein thereupon embarked upon a joint sales campaign for advertising the book "Calories Don t Count" and of advertising through it the sale and distribution of saffower oil capsules. It was their hope that they would develop, through the advertising contained in the book a market for the saffower oil capsules. In this way it was intended that the owners of Cove Vitamin and SIMON AND SCHUSTER, IKC. , ET AL. 1497 1490 Complaint the offcials of Simon and Schuster would profit at the expense of deceiving and misleading the public through the misleading and false statements contained in the book.

3. By agreement and general understandings, respondents and the corporations and individuals referred to in Paragraph Three herein made it the primary responsibility of respondent Richard L. Grossman and the advertising agency of respondent Schwab Beatty and Porter, Inc., to prepare, disseminate and make effective various forms of advertising to induce the sale and distribution of the book "Calories Don t Count " and through it the advertising, sale and distribution of saffower oil capsules. 4. This scheme and planned course of action of respondents and the corporations and individuals referred to in Paragraph Three herein went so much further in deceiving and misleading the public than the original version of the manuscript prepared by respondent Taller that he took the position privately, but did not inform the public, that the portion of the book "Calories Don Count" which referred to saffower oil capsules was without justification.

5. By arrangement of respondents and the corporations and individuals referred to in Paragraph Three herein CDC Pharmaceutical Corporation planned to, and did, use the title of the book "Calories Don t Count " pictures of its cover, and abstracts from its pages for use in the promotion of saffower oil capsules. 6. Respondents and the corporations and individuals referred to in Paragraph Three herein carried out newspaper campaigns and other advertising and pr01l1otional activities promoting the sale of the book "Calories Don t Count" and the sale and distribution of saffower oil capsules.

PAR. 10. Each of the respondents and the corporations and individuals referred to in Paragraph Three herein have acted to promote the dissemination and circulabon of false and misleading advertising, including the publication, sale and distribution of the adverUsing material contained in the book "Calories Don t Count" and the advertising material appearing in newspapers, magazines counter displays and in other forms, to induce not only the sale and distribution of the book "Calories Don t Count" but also of saffower oil capsules. Among the acts thus committed were those involving the advertising hereinafter alleged. (1) Two advertisements side by side in Kew York Times Sunday, December 17, 1961.

, . .

Complaint 71 F.

(a) for the book "Calories Don t Count"

Read the book the whole country s talking about CALORIES DON' COUNT by Dr. Herman Taller.

(b) for "CDC Capsules Crash! Go Crash Diets Eat and lose weight" says Dr. Henm;,n Taller, prominent N. Y. Physician. A Revolutionary ne"w way to lose pounds, inch hy inch while eating and enjoying three square meals a day supplemented by CDC Capsules (2) Counter display pictures botte of "CDC Capsules " and cover of book "Calories Don t Count"

\V c ve Got It! CDC Capsules Calories Don t Count \Veight Control Program.

PAR. 11. The use by the respondents of the foregoing false misleading and deceptive statements has had, and now has, the tendency and capacity to mislead and deceive members of the purchasing public into the erroneous and mistaken belief that such statements were, and are, true and into the purchase of substantial quantities of the aforesaid book and saffower oil capsules by reason thereof.

PAR. 12. The aforesaid acts and practices of respondents, including the aforesaid understanding, agreement, and planned course of action, as herein alleged, were, and are, all to the prejudice and injury of the public and of respondents' competitors and cons.tituted, and no,,, constitute, unfair methods of competition in commerce and unfair and deceptive acts and practices, in commerce, in violation of Section R of the Federal Trade Commission Act.

1'1/1' . Cn,.land S. Ferguson and Mr. Richn,' d W. Whitlock supporting the complaint.

Mr. Selig J. Levitnn for respondents Simon and Schuster, Inc. and 1111'. JrLon C. Berger as an offcer of said corporate respondent; l11r. Jason C. Berger as an individual pro Sf; .M1' Charles Ren"ibar for respondent Vlr. RichEtrd L. Grossman; Paul, Weiss Rifkind, Whn,.ton Cn1'ison for respondent Schwab, Beatty and Porter, Inc. ; and Mr. Emil K. Ellis for respondent Mr. Herman Taller, all of Xew York, )I.

SIM01\ AND SCHUSTER, INC. , ET AL. 1499 1490 Initial Decision INITIAL DECISION BY JOHN LEWIS, HEARING EXAMINER MAY 27, 1966 STATE11ENT OF PROCEEDINGS The Federal Trade Commission issued its complaint against the above-named respondents on September 6, 1963 , charging them with engaging in unfair methods of competition and unfair and deceptive acts and practices, in con1merce, in violation of Section 5 of the Federal Trade Commission Act. Said complaint alleges, in substance, that respondents and certain other named corporations and individuals, (a) made false, misleading and deceptive statements and representations in advertisements and other promotional material used in connection with promoting the sale of the publication entitled "Calories Don t Count " and certain saffower oil capsules designated as j' CDC Capsules " and (b) entered into understandings, agreements and planned courses of action to mislead and deceive the public in connection with the sale of said publication and capsules. After being served with said complaint, respondents appeared by counsel (except for the individual respondent Berger), and thereafter filed their respective answers denying, in substance, having engaged in the illegal practices charged, and raising certain affrmative defenses in connection therewith, including the defenses that, (a) the activities engaged in by certain of the respondents are protected by the First Amendment to the Constitution of the United States and (b) this proceeding has become moot by reason of the cessation of the activities complained of prior to the issuance of the complaint herein.

Upon notice duly given, a prehearing conference was held on December 20 and 23 , 1963, at New York, New York, before a hearing examiner of the Commission, then assigned to this proceeding. Following said conference a stipulation as to certain the facts was entered into and signed by counsel supporting the complaint and counsel for all respondents, except respondent Herman Taller. Said stipulation was transmitted to the then hearing examiner on April 30, 1964. Said hearing exan1iner issued a prehearing order, dated May 4 , 1964 , defining the principal issues in the case and providing for a stay of all proceedings herein due to the pendency of a criminal proceeding in the Vnited States District Court for the Eastem District of New York against respondent Herman Taller. Such stay was made "subject to motion by any party that the case be set for trial." The undersigned hearing examiner was substituted as hearing Initial Decision 71 F.

examiner in this proceeding, in place and stead of the former hearing examiner, by order of the Director of Hearing Examiners dated December II, 1964. No hearings were scheduled by the present hearing examiner, based on his understanding that complaint counsel did not desire to proceed to hearing in this proceeding until after the disposition of the criminal proceeding because of the immunity that might be conferred on certain of the witnesses who were expected to testify herein. On :VI arch , 1966 , the undersigned hearing examiner issued an order to show cause why hearings should not be scheduled to begin in the above proceeding at an early date. In response to said order, a series of motions to dismiss the complaint were filed on March 15 and 18, 1966 , by all respondents, except respondent Herman Taller who submitted a statement opposing the resumption of hearings herein. Counsel supporting the complaint filed answer on March 18, 1966, to the order to show cause and to the motions of respondents to dismiss the complaint. The principal motion to dismiss was filed on behalf of respondent Simon and Schuster, Inc. Said motion requests that this proceeding be dismissed, without prejudice, for the following reasons: (1) Said respondent has neither printed nor advertised the book "Calories Don t Count" since :YIay 1962 , has removed said book from the backlist, as well as the current list, of respondeDt's catalogs since 1964, and said respondent has no intention of printing, advertising or promoting the sale of said book; (2) the exclusive grant to it in the publishing agreement is now subject to termination at will by the author; (3) certain corporations and individuals named in the complaint as being jointly involved with respondents in the sale and promotion of the book and saffower oil capsules have pleaded guilty to certain counts of a criminal indictment flied in the L"united States District Court for the Eastern District of K ew York, arising out of the sale and promotion of said capsules, and respondent Hern1an Taller awaits trial as the only other defendant named in the aforesaid criminal indictmcnt; (4) respondent Simon f,nd Schuster, Inc. , has entered into an agreement to merge \with another corporation, effective June 30, 1966; and (5) there is no public interest in the resumption of the instant proceeding in view of the foregoing facts and circumstances.

The motions to dismiss filed on behalf of the other respondents except Herman Tallel', adopt the grounds for dismissal sct forth in the motion of respondent Simon and Schuster, Inc., and set forth the following additional grounds: (I) Respondent Richard SIMON AND SCHUSTER, INC. , ET AL. 1501 1490 Initial Decision L. Grossman has not been employed by respondent Simon and Schuster, Inc., since June 1962, has no publishing rights in the book, and has no intention of publishing, promoting or advertising it; (2) respondent Jason C. Berger has not been connected with the sale, advertisement or promotion of the book "Calories andDon t Count" since service of a copy of the complaint herein, has no intention of engaging therein hereafter; and (3) respondent Schwab, Beatty and Porter, Inc. , has not caused the book " Calories Don t Count" to be advertised since May 1962 and has no intention of ever advertising such book again. Respondent Herman Taller has fied a statement requesting that this matter not be scheduled for hearing in view of the pendency of the criminal proceeding, in which similar issues are involved. In the answer filed by them to the order to show cause, complaint counsel state that respondent Herman Taller was indicted on March II, 1964, by a grand jury in the United States District Court for the Eastern District of N ew York, on charges of mail fraud, mislabeling in violation of the Federal Food, Drug and Cosmetic Act, and conspiracy in connection with the advertising and sale of the book "Calories Don t Count " and the sale of saffower oil capsules sold under the name of "CDC Capsules. Counsel also state that the three offcers of the corporation which manufactured said capsules and which is referred to in Paragraph 3 of the complaint herein, were indicted at the same time. Counsel supporting the complaint express the opinion that the action by the hearing examiner then in charge of this proceeding, in staying any further proceedings herein until the conclusion of the litigation against respondent Taller, was " well taken (since) any further proceeding by the Commission in regards to its litigation against Taller would have raised the grave question of his immunity to the criminal proceedings. " Counsel also point out that it was their intention to call as witnesses herein the three offcers of the corporations indicted with Taller, and state that such offcers would have been unavailable to testify in the Commission proceeding during the pendency of the criminal proceeding. Complaint counsel request that no hearings be scheduled herein while the proceeding against respondent Taller remains pending in the District Court. Counsel advise the examiner that on the basis of present information, the criminal proceeding against respondent Ta1Jer "may be tried sometime in April of 1966.

With respect to the motion to dismiss filed on behalf of respondents other than Taller, complaint counsel state: Initial Decision 71 F.

Because of the reasons set forth in said motions and in the supporting affdavits, as weil as the great lapse of time since the issuance of the complaint in this matter due to the fault oi no party to this proceeding, and because of all of the circumstances enumerated herein, counsel supporting the complaint do not oppose the dismissal of the complaint as to said respondents nor in its entirety. It is believed that in consideration of the circumstances, and of the nature of the complaint, if it is dismissed against the moving parties, it should be dismissed as to all respondents. It is further believed that any dismissal should be without prejudice to the Commission to take future corrective action if warranted by the facts. Ruling on the motions to dismiss was held in abeyance by the undersigned, pending possible disposition of the criminal proceeding against respondent Taller in April. However, the undersigned has been advised by complaint counsel that, according to information recently received from the Assistant United States Attorney for the Eastern District of Kew York, the criminal proceeding against respondent Taller was not brought to trial in April, and that it appears unlikely such trial will commence prior to the 1966 fall term of court. Accordingly, the examiner has concluded that ruling on said motions to dismiss should not be further deferred This matter is now before the examiner for final consideration on the complaint, the answers of respondents, the motions of respondents (other than Taller) to dismiss, and the answer thereto of complaint counsel. It appearing that there is no dispute as to the facts on which respondents base their motions to dismiss, and that complaint counsel do not oppose such motions because of the reasons therein set forth and because of the great lapse of time which has occurred since the issuance of the complaint herein, the undersigned makes the following findings with respect to the facts involved in respondents' motions to dismiss: FINDINGS 1. The complaint herein, which was issued September 6, 1963 challenges the activities of respondents and cedain other corporations and individuals in connection with the publication, promotion, sale and distribution of a book entitled "Calories Don Count " and the promotion, sale and distribution of certain safflower oil capsules designated as "CDC Capsules. 2. Respondent Simon and Schuster, Inc., has not printed nor advertised for sale the book "Calories Don t Count" since May 1962, * has removed the title of said book from its backlist and among th- f8-ctci stipulated to in the Stjpulntion of Facts entered into by all parties except J'respondent Taller, is the fret that said book was published \JY Simon and Schuster . Inc. , on or a.about September 27 , 1961 , and that said respondent has not advertised or promoted the sale of said book since :May 20 , 1962.

SIMO" AND SCHUSTER, INC. , ET AL. 1503 1490 Initial Dccision current list in catalogs since 1964. and has no intention of printing, advertising or promoting the sale of said book. The exclusive grant to said respondent in the publishing agreement with the autbor is now subject to termination at wi1, and said respondent' s corporate existence is expected to terminate June 30 1966.

3. Respondent Jason C. Berger, an offcer of respondent Simon and Schuster, Inc. , has not, since the service of the complaint herein, engaged in the sale, advertising or promotion of the book Calories Don t Count" and does not intend hereafter, in any way, directly or indirectly, to participate or engage therein. 4. Respondent Richard L. Grossman has not been employed by respondent Simon and Schuster, Inc., since June 1962 , has no publishing rights in the book "Calories Don t Count" nor any intention of publishing, advertising, 01' promoting the sale of said book, and has never engaged in the business of selling saffower oil capsules.

5. Respondent Schwab, Beatty and Porter, Inc., has not caused the book "Calories Don t Count" to be advertised since May 1962 and has no intention of ever advertising such book again. 6. The corporations, Cove Vitamin and Pharmaceutical, Inc. and CDC Pharmaceutical Corporation, and/or their offcers Harry Bobley, Edward Bobley and Peter :VI. Bobley, named in Paragraphs 3 and 4 of the complaint as having engaged in the promotion, sale and distribution of saffower oil capsules designated as "CDC Capsules " and as having participated with respondents in jointly promoting, selling and distributing said capsules and the book "Calories Don t Count, " have pleaded guilty to certain counts of an indictment filed in the United States District Court for the Eastern District of New York, relating to the sale, promotion and labeling of saffower oil capsules, and are awaiting sentence therein.

7. Respondent Herman Taller was also indicted in the aforesaid criminal proceeding and is nov,' awaiting trial. CONCLUSION:- In view of the facts above found, the great lapse of time which has occurred since the issuance of the complaint herein, the lack of opposition by counsel supporting the complaint to the motions to dismiss, and the request of counsel supporting complaint that if the complaint is dismissed as to the lTIoving parties, it should be dismissed as to all parties, it is concluded that there is no public interest in the continuance of this proceeding and that the Complaint 71 F.

complaint herein should be dismissed as to all parties, without prejudice to the right of the Commission to take such further corrective action as future events may warrant. ORDER It is O?'dered That the complaint in the above-entitled proceeding be, and the same hereby is, dismissed, without prejudice to the right of the Commission to take such further corrective action as future events may warrant.

FINAL ORDER No appeal from the initial decision of the hearing examiner dismissing th" complaint, having been filed, and the Commission having determined that the case should not be placed on its own docket for review and that pursuant to S 3.21 of the Commission Rules of Practice (effective August 1 , 1963), the initial decision should be adopted and issued as the decision of the Commission, It is ordered That the initial decision of the hearing examiner shall, on the 30th day of .June, 1967, become the decision of the Commission.