AMERICAN NEWS COMPANY and The Union News Company, Petitioners, v. FEDERAL TRADE COMMISSION, Respondent.
No. 89, Docket 26857.
United States Court of Appeals Second Circuit.
Decided Feb. 7, 1962.
300 F.2d 104
Argued Oct. 10, 1961.
Without evidence of specific Congressional intent, we should not be responsible for creating a per se violation. To do so is to ignore the policy conflict of the Robinson-Patman Act with the other antitrust laws, including the FTC Act. See Mr. Justice Frankfurter, dissenting in FTC v. Motion Picture Advertising Service Co., 344 U.S. 392, 405, 73 S.Ct. 361, 97 L.Ed. 426 (1953). To the extent that the Robinson-Patman Act inhibits price and service competition generally, it may often conflict with the objective of the antitrust laws of protecting and fostering vigorous competition for the benefit of the public (and not for the benefit of the individual competitors). The Supreme Court has indicated that, where Congress has left the courts free to make the determination, this conflict is to be resolved in favor of the “broader policies” of the antitrust laws. Automatic Canteen Co. v. F. T. C., 346 U.S. 61, 74, 73 S.Ct. 1017, 97 L.Ed. 1454 (1953). The narrow areas of per se illegality which Congress created in the Robinson-Patman Act should not be expanded by us. We should not make the buyer‘s inducement and receipt of a promotional allowance illegal in the absence of a showing of injury to competition when the only prohibition Congress directed to buyers allows the buyer this defense.
There is nothing incongruous about holding that the Commission must find injury to competition to enjoin the buyer when it need not so find to enjoin the seller. In the later case it is enforcing a specific Congressional prohibition; whereas, in the instant case, the majority, in effect, is allowing the Commission to legislate under its general grant of authority in Section 5.
I would set aside the Commission‘s order.
Miles J. Brown, Atty., Federal Trade Commission, Washington, D. C. (James McI. Henderson, Gen. Counsel, and J. B. Truly, Asst. Gen. Counsel, Federal Trade Commission, Washington, D. C., on the brief), for respondent.
Before CLARK, WATERMAN, and MOORE, Circuit Judges.
CLARK, Circuit Judge.
This case, like Grand Union Co. v. F. T. C., 2 Cir., 300 F.2d 92, also decided today, presents the question whether a buyer who knowingly induces and receives from his supplier disproportionate promotional allowances which
Petitioner Union News Company is wholly owned and controlled by petitioner American News Company. Union is the nation‘s largest retail newsstand operator, with stands in many important transportation terminals, hotels, and office buildings. The Commission found that it is in a position of near dominance in
There are two main channels of distribution in the national periodical industry. Magazines reach the ultimate consumer either directly from the publisher by subscription or by newsstand sales through a chain of distributors, wholesalers, and retailers. Those copies which are distributed through the latter route go from the publisher to national distributors, who redistribute to wholesalers, who in turn distribute to retailers such as Union. These arrangements are usually exclusive; each publisher uses only one national distributor, in some cases a subsidiary of the publisher itself, and the distributor in turn grants its several wholesalers exclusive territorial rights.3 The Federal Trade Commission found that in every instance the national publisher controls the prices and terms of sale throughout the distribution process, so that neither the national distributor nor the wholesaler has any power to set prices, terms or conditions of sale to retailers of the magazines. Moreover, since each publication bears a cover price chosen by the publisher, the publisher effectively sets the retail price as well. Reflecting these economic realities Union‘s negotiations for price adjustment—the subject of these proceedings—were carried on with the publisher or with a national distributor on behalf of the publisher, rather than with the wholesaler from whom Union actually received the magazines.
Petitioners do not deny that they induced and received substantial special payments from publishers; in 1958 these payments amounted to $890,000 an amount equal to almost 17 per cent of Union‘s total sales of magazines.4 During the period under review petitioners approached various publishers demanding what were generally called “display promotional allowances” or “promotional allowance rebates” and threatened to discontinue handling a publication if its publisher refused to comply. In the face of this pressure the publishers generally acceded. For example, on June 4, 1956, Mr. Milton Gorbulew, circulation manager of Modern Photography magazine, in response to a demand for a 10 per cent sales rebate on the retail price of the magazine, wrote to Union reluctantly agreeing to grant what Gorbulew called a “stiff rebate.” The letter stated: “I assume that if this new rate is unacceptable to us, our magazine would not be distributed on your outlets. In view of this situation we have no recourse but to say yes.”
Denominating this activity “a classic example of the misuse of the economic power possessed by large buyers,”5 the Commission found that petitioners had knowingly induced and received from their suppliers discriminatory payments as consideration for services or facilities
The many questions presented by this appeal from the Commission‘s opinion and order may be subsumed under five broad issues. First, are these transactions “in commerce” and thus within the scope of § 5 and the Commission‘s jurisdiction? Second, do the knowing inducement and receipt of payments which violate § 2(d) of the Robinson-Patman Act amendments to the Clayton Act constitute a violation of § 5 of the Federal Trade Commission Act? Third, were the payments in violation of § 2(d)? Fourth, did petitioners knowingly induce and receive such payments? Finally, would the fact that petitioners’ actions were motivated by a desire to resist illegal price-fixing by the publishers constitute a valid defense under § 5? Petitioners also raise subsidiary issues which will be discussed.
First. The
Second. In Grand Union Co. v. F. T. C., supra, we held that a buyer‘s knowing inducement and receipt of disproportionate payments for advertising services rendered for its suppliers violated § 5 of the Federal Trade Commission Act. Section 2(d) of the Clayton Act forbids sellers to make such payments, but does not extend its proscription to buyers. This omission, however, was not purposeful. The buyer‘s receipt of payments is an integral part of the very transaction § 2(d) forbids, and represents the very evil the Robinson-Patman Act was designed to cure. Since the buyer‘s action in Grand Union secured for it an advantage over competitors which Congress had declared to be per se contrary to public policy, we held that the Commission was justified in denominating the buyer‘s conduct an unfair method of competition in violation of § 5. Similarly, if the payments which Union and American admittedly induced and received were made in violation of § 2(d) and if this inducement and receipt are shown to be “knowing,” the FTC‘s conclusion that they were engaging in unfair methods of competition is correct.
Third. Petitioners contend, however, that the payments made by the publishers did not contravene § 2(d), because petitioners are not “customers” of the publishers, and because the allowances paid were price adjustments,
For a payment by a supplier to violate
Petitioners contend that these cases cited do not govern this proceeding, since, as we make out the argument, in those cases the finding that the “seller-customer” relation existed was based solely on the conduct of the seller in proceedings brought against the seller. It is error, petitioners contend, to wish the sins of the seller on the buyer in this wholly different action against the buyer. Petitioners’ argument suggests that the function of the “control” requirement is to punish sellers for illegal price control activity. We do not believe that the “indirect customer” doctrine is so grounded. Rather, it seems to stem from a fundamental aim of the Robinson-Patman Act to protect buyers’ competitors from the evil effects of direct or indirect price discrimination. See Grand Union Co. v. F. T. C., supra. The method chosen to reach this goal was to forbid sellers to make direct or indirect discriminations in price between one purchaser or customer and another, save in certain limited situations. The “customer” or “purchaser” requirement marks one of the outer limits of the seller‘s responsibility not to discriminate. As long as he exercises control over the terms of a transaction he is held to this duty;6 otherwise the requirement of
Fourth. Petitioners assert that there is insufficient evidence to support the Commission‘s finding that they knew that payments which they induced and received were not available to their competitors on a proportionally equal basis. They point out that the negotiations surrounding all attempts by retailers to secure price adjustments were carried on individually, in secret, and were marked by fraudulent representations by the publishers, so that petitioners were unable to learn what terms their competitors were receiving. The test of whether a buyer has knowledge that payments he induces and receives are illegal was laid down for cases brought under
Fifth. Petitioners claim that their attempts to secure rebates or promotional allowances were a reaction to illegal price-fixing by the publishers, and that for that reason they should not be found to have engaged in unfair methods of competition. But resort to practices outlawed by the antitrust laws cannot be justified by the fact that the practices were a defense to illegal activity. Fashion Originators’ Guild of America v. F. T. C., 312 U.S. 457, 668, 61 S.Ct. 703, 85 L.Ed. 949. Moreover, we have held today that inducement and receipt of payments which violate § 2(d) are a per se violation of § 5, so that there can be no question of the “reasonableness” of petitioners’ activity. Grand Union Co. v. F. T. C., supra.
Petitioners contend that the order places undue burdens on them by forbidding inducement and receipt of payments when they know, or should know, that proportional payments are not ”affirmatively offered or otherwise made available” to their competitors. They attack specifically the provisions we have italicized. There is nothing in the Supreme Court‘s opinion in Automatic Canteen Co. of America v. F. T. C., supra, 346 U.S. 61, 73 S.Ct. 1017, 97 L.Ed. 1454, which precludes the imposition of a duty of reasonable inquiry upon a buyer. Indeed, that opinion stated that the Commission might find knowledge under § 2(f) that payments induced and received were not cost-justified (the issue there) if it showed two things: first, that the buyer knew of a price differential, and second, that one familiar with the trade should know that such a differential could not be cost-justified. Automatic Canteen Co. of America v. F. T. C., supra, 346 U.S. 61, 81, 73 S.Ct. 1017. Nor can there be any objection to including the term “affirmatively offered.” Petitioners seem to feel that this provision makes the order more onerous and imposes a requirement on sellers not called for by § 2(d). Whatever may be the merits of petitioners’ contention that § 2(d) imposes no duty of affirmative offering on sellers, inclusion of this provision cannot prejudice the buyer. As the order now reads, this clause does not change what sellers must do, but simply defines the obligation of the buyer to learn whether payments are “proportionalized.” If he is apprised of sufficient information about payments which he induces and receives to create a duty of further inquiry, the buyer, under this order, must see first if the payments are affirmatively offered to his competitors on a proportionally equal basis; if not, the order indicates he may have a further duty to see whether they are “otherwise made available.”
The decision of the Commission is affirmed. Pursuant to Rule 13(l), Rules of the United States Court of Appeals for the Second Circuit, the Commission shall enter an order “in conformity with the opinion,” to which petitioners may object by timely filing of a counter-proposal.
Just as the decision in Grand Union Co. v. F. T. C., decided today, subjected a buyer to sanctions not imposed by Congress under the Clayton Act, as amended by the Robinson-Patman Act,
Petitioners sell at retail newsstands books and magazines published by the publishers here involved. Dissatisfied with the terms of the purchase contracts, petitioners demanded better terms, primarily rebates and compensation for promotional allowances. Apparently, petitioners’ purchasing power was such that the publishers, although protesting in some instances, agreed. In any free and competitive economy, both buyer and seller should have the right to consummate the purchase transaction only if mutually satisfied as to terms. A buyer ought to be able to drive as hard a bargain as business expediency warrants; a seller should be able to exact the best terms as possible from his point of view. Freedom to agree or disagree, I trust, has not been legislated out of existence—by Congress at least. Congress, however, has, in the interest of protecting the buyer in a less advantageous bargaining position, declared that the benefits achieved by the strong shall also be accorded proportionally to the weak. But Congress has never said that a buyer can bargain for better terms only at his peril.1 Any such law would completely stifle the competitive system. By way of illustration, a buyer desirous of obtaining certain products for 10 cents a pound less might demand such a reduction either in price or in promotional allowances. The buyer may be one of 10,000 customers of the seller which customers may range from mass buyers to a country grocery store in a small hamlet. Yet the decision of the Commission and the majority for all practical purposes precludes the buyer from asking for better terms and, accepting them if granted, unless he first inquires of the seller whether the terms are being made available to others and then to verify any such assurance canvasses all the seller‘s customers to ascertain whether the seller has made the terms of his bargain available to them.
No prohibition against seeking or receiving promotional allowances even though they turn out to be disproportionate has been written into either Section 2(d) or 2(f). There was good reason for the seller-buyer differences in the two sections. Far from being “inadvertent,” a consideration of the unequal position of the parties must have led to the distinct treatment accorded to each in these sections. A seller is in a unique position to know whether he is giving proportionally equal allowances to his customers. The customers could not possibly have such facts available. Ascertainment of price discrimination would be comparatively simple in contrast to obtaining information as to a seller‘s proportionally equal treatment of buyers. Yet even as to price the Commission must come forward with proof that the effect of the discrimination may be substantially to lessen competition and cannot rely on a per se violation. In short, inducement and receipt by a buyer become a violation only after the Commission has sustained its burden and after the buyer has had an opportunity to avail itself unsuccessfully of permitted defenses. Automatic Canteen Co. v. F. T. C., 346 U.S. 61, 73 S.Ct. 1017 (1953). I cannot conceive that Congress intended that the Commission could escape these requirements by prosecuting specific violations of one law (the Clayton Act) under the terms of another (the FTC Act). As Professor Handler says in his “Review of Antitrust Developments,”
“Nowhere in the voluminous literature on the history and administration of the Federal Trade Commission Act nor in the comprehensive jurisprudence on unfair methods of competition will one find support for the view that the Commission can avoid limiting statutory language by resort to the broader contours of Section 5.”
He continues on p. 406:
“There is no suggestion in either statute that the provisions of the Clayton Act are to be merged with Section 5 and lose their identity as the careful expression of the legislative will on the legitimacy of the practices to which they relate.”
I would accept the Handler critique as a sound expression of proper scope of Commission and court powers expressed in his conclusion that (p. 408):
“Congress vested the Commission with a broad and flexible mandate. But it did not endow it with the power to legislate. In the final analysis a democracy cannot permit its laws to be rewritten by administrative agencies or the executive. Where administration discloses defects or limitations in the laws drafted by Congress with which the techniques of interpretation are unable to cope, the remedy is to request supplemental legislation from the elected representatives of the people who, under our system of government, are the final arbiters of national policy. This has been the settled practice in the antitrust field where numerous legislative changes have been made over the years.”
In my opinion, the Commission has rewritten sections 2(d) and 2(f), thus creating laws which Congress for good reason has not enacted. The petitioners have not violated those laws which Congress chose to enact and, hence, I would set aside the Commission‘s order.
LEONARD P. MOORE
UNITED STATES CIRCUIT JUDGE