300 F.2d 104 | 2d Cir. | 1962
Lead Opinion
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 § 2(d) of the Clayton Act, as amended by the Robinson-Patman Act, 15 U.S.C. § 13(d), forbids the supplier to make, thereby engages in unfair methods of competition in violation of § 5 of the Federal Trade Commission Act, 15 U.S. C. § 45. Many of the issues raised by this appeal were decided in Grand Union, supra. Petitioners make several contentions here, however, which were not presented in that case.
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.
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.
Denominating this activity “a classic example of the misuse of the economic power possessed by large buyers,”
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 Federal Trade Commission Act § 5(a)(1), 15 U.S.C. § 45 (a)(1), outlaws “[ujnfair methods of competition in commerce.” The gist of the offense charged here is the inducement and receipt of payments violating § 2(d) of the Clayton Act, which makes it unlawful for sellers engaged in commerce to make certain discriminatory payments “in the course of such commerce” to their customers. The publishers and national distributors are engaged in interstate commerce; the promotional allowances attacked here were paid in the course of such commerce. So, too, were the petitioners’ inducement and receipt of these payments in commerce. Petitioners contend, however, that their dealings in magazines are not in interstate commerce, since the interstate shipments of magazines are broken up and repacked by the wholesaler before being shipped to Union’s retail outlets. The concise answer to this contention is that it is irrelevant. There is no question of jurisdiction over the parties or over the sale of magazines per se. Jurisdiction is asserted over the questioned practices, namely the use of the bargaining power of an interstate chain of newsstands to secure promotional rebates from giant interstate publishing firms selling magazines nationally through this chain. These practices are within the jurisdictional scope of §§ 5 and 2(d).
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 § 2(d), 15 U.S.C. § 13(d), it must be paid to a “customer” of the supplier, and be made as compensation for services or facilities furnished “by or through such customer.” Petitioners, who purchase magazines not directly from the national publisher, but through the intermediary wholesalers and distributors, claim they are not “customers” of the publishers. We disagree. The term “customer” in § 2(d) should be given the same meaning as “purchaser” in § 2(a) and (e) in order to harmonize parallel sections of a statute aimed at a common purpose. K. S. Corp. v. Chemstrand Corp., D.C.S.D.N.Y., 198 F.Supp. 310; Report of the Attorney General’s National Committee to Study the Antitrust Laws, March 31, 1955, 189. The cases discussing this requirement under § 2(a), (d), and (e) indicate that there need not be privity of contract
between seller and an ultimate buyer to establish the buyer as a “customer” or “purchaser.” If the manufacturer deals with a retailer through the intermediary of wholesalers, dealers, or jobbers, the retailer may nevertheless be a “customer” or “purchaser” of the manufacturer if the latter deals directly with the retailers and controls the terms upon which he buys. K. S. Corp. v. Chemstrand Corp., supra; Champion Spark Plug Co., 50 F.T.C. 30; Dentists Supply Co. of New York, 37 F.T.C. 345; Kraft-Phenix Cheese Corp., 25 F.T.C. 557. Cf. Elizabeth Arden, Inc. v. F. T. C., 2 Cir., 156 F.2d 132, certiorari denied 331 U.S. 806, 67 S.Ct. 1189, 91 L.Ed. 1828.
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 RobinsonPatman 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;
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 § 2(f) by the Supreme Court in Automatic Canteen Co. of America v. F. T. C., 346 U.S. 61, 73 S.Ct. 1017, 97 L.Ed. 1454. By analogy this test is applicable in these § 5 proceedings. See Grand Union Co. v. F. T. C., supra. Although knowledge must be proved, it need not be by direct evidence; circumstantial evidence, permitting the inference that petitioners knew, or in the exercise of normal care would have known, of the disproportionality of the payments is sufficient. Automatic Canteen Co. of America v. F. T. C., supra, 346 U.S. 61, 80, 73 S.Ct. 1017. Here the record reveals a series of interrelated facts which, taken as a whole, indicate that the Commission’s findings are supported by substantial evidence. Petitioners have a position of near-dominance in the retail newsstand field. They insisted on receiving rebates which represented a steep increase over promotional allowances customarily paid. Publishers often resisted these requests on the ground that the allowances paid would exceed those granted to petitioners’ competitors. Finally, the Commission found that not one retailer competing with Union actually received a payment or allowance at a rate “proportionally equal to that paid to petitioners.”
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 m 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 differtial 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
. In 1958, tlie five principal retail newsstand operators were:
Union News Co........ 930 newsstands
ABO Vending Corp. ... 57 “
Faber, Inc............ 35 “
Commuter News Co., Inc................. 16
Schermerhorn Cigar Stores, Inc.......... 16 “
. The complaint charged a violation of § 5 in connection with the sale of cigars,as well as periodicals and pocket books. The Commission found, however, that the evidence did not support this allegation, and limited its findings to the publications area.
. AVhile this is the general pattern, it is not uniformly adhered to. Thus some publishers, such as Popular Publications, Inc., distribute directly to wholesalers.
. In 1958, Union’s total sales were approximately $23,940,000, of which approximately $5,280,000 were magazine sales.
. Union News Co., Trade Reg.Rep. (FTC Complaints, Orders, Stipulations 1960-1) 1129,335 (1961).
. But cf. Klein v. Lionel Corp,, D.C.Del., 138 F.Supp. 560, affirmed 3 Cir., 237 F.2d 13, affirming a summary judgment for defendant in a treble-damage action
. We find nothing in the recent opinion in F. T. C. v. Henry Broch & Co., 308 U.S. 360, 82 S.Ct. 431, 7 L.Ed.2d 353, which is inconsistent with our finding that the Commission’s orders are too broad. As that case suggests, in situations where agency orders are subject to automatic enforcement in civil suits brought by the Attorney General, these orders must be clear and specific.
Dissenting Opinion
(dissenting).
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, 15 U.S.C. § 13(d), so too does this decision resort to the generalities of Section 5 of the Federal Trade Commission Act, 15 U.S.C. § 45 (“unfair competition”) to make unlawful that which Congress, although afforded an opportunity to do so, has not forbidden. Under the guise of restraining threats to competition, the result reached by the majority here, in my opinion, has a diametrically opposite effect. The facts clearly support this conclusion.
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.
No prohibition against seeking or receiving promotional allowances even though they turn out to be disproportional 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.
. The Supreme Court made this point clear in Automatic Canteen Co. v. F. T. C., 346 U.S. 61, 73, 77, 73 S.Ct. 1017, 1024, 1953, when it said:
“Not only are the arguments of the Commission unsatisfying, but we think a fairer reading of the language and of what limited legislative elucidation we have points toward a reading of § 2(f) making it unlawful only to induce or receive prices known to be prohibited discriminations. For § 2(f) was explained in Congress as a provision under which a seller, by informing the buyer that a proposed discount was unlawful under the Act, could discourage undue pressure from the buyer. Of course, such devices for private enforcement of the Act through fear of prosecution could equally well have been achieved by providing that the buyer would be liable if, through the seller or otherwise, he learned that the price he sought or received was lower than that accorded competitors, but we are unable, in the light of congressional policy as expressed in other antitrust legislation, to read this ambiguous language as putting the buyer at his peril whenever he engages in price bargaining. Such a reading must be rejected in. view of the effect it might have on that sturdy bargaining between buyer and seller for which scope was presumably left in the areas of our economy not otherwise regulated. Although due consideration is to be accorded to administrative construction where alternative interpretation is fairly open, it is our duty to reconcile such interpretation, except where Congress has told us not to, with the broader antitrust policies that have been laid down by Congress.”