Source: https://m.openjurist.org/352/us/419
Timestamp: 2020-06-05 10:31:55
Document Index: 747659702

Matched Legal Cases: ['§ 5', '§ 2', '§ 2', '§ 2', '§ 45', '§ 45']

352 US 419 Federal Trade Commission v. National Lead Company | OpenJurist
352 U.S. 419 - Federal Trade Commission v. National Lead Company
352 US 419 Federal Trade Commission v. National Lead Company
77 S.Ct. 502
1 L.Ed.2d 438
NATIONAL LEAD COMPANY et al.
Mr. Earl W. Kintner, Washington, D.C., for the petitioner.
The sole question involved in this proceeding under § 5 of the Federal Trade Commission Act1 concerns the power of the Commission in framing an order pursuant to its finding that respondents had conspired to adopt and use a zone delivered pricing system in their sale of lead pigments.2 In its general cease and desist order prohibiting concert of action among respondents in the further use of such system, the Commission inserted a provision directing each respondent individually to cease and desist from adopting the same or a similar system of pricing for the purpose or with the effect of 'matching' the prices of competitors. The respondents assert that this is beyond the power of the Commission, and the Court of Appeals agreed, 7 Cir., 227 F.2d 825, striking that provision from the Commission's order. We granted certiorari, 351 U.S. 961, 76 S.Ct. 1026, 100 L.Ed. 1482, because of the importance of the question in the administration of the Act. We restore the stricken provision of the Commission order, permitting it to stand with the interpretations placed upon it in this opinion.
Beginning in July 1933, the industry held a series of meetings in Chicago for the ostensible purpose of drafting a code of fair competition to govern it under the National Industrial Recovery Act, 48 Stat. 195. These meetings resulted in an understanding and agreement among those attending, including respondents, to sell lead pigments 'on the basis of flat delivered prices to customers within designated zones, with uniform differentials applicable as between such zones . . ..' 49 F.T.C. 840. Four zoning systems were established covering the various lead pigments. As an example, the system for white lead in oil and 'keg' products consisted of 12 geographical zones, one known as a par zone. The remaining zones in this system were known as premium zones, the price in each being determined by adding a set premium to the par zone price. These premiums varied from $.125 per cwt. in two of the zones to a high of $1 per cwt. in the premium zone covering the State of New Mexico.3 The zones were highly artificial and zone boundaries led to bizarre results at times, with purchasers located near the plants of respondents being charged higher prices than those located at a distance from the plants. The industry, including respondents, not only agreed to sell at the same zone delivered prices in identical geographical zones but also adopted uniform discounts, terms of sale, and differentials with respect to certain of their products. A further agreement was to sell white lead in oil on the basis of consignment contracts.
'quoting or selling lead pigments at prices calculated or determined in whole or in part pursuant to or in accordance with a zone delivered price system for the purpose or with the effect of systematically matching the delivered price quotations or the delivered prices of other sellers of lead pigments and thereby preventing purchasers from finding any advantage in price in dealing with one or more sellers as against another.' Id., at 873—874.
The Commission, in an accompanying opinion, stated that in all cases where it found violations of the law, 'it is the Commission's duty to determine to the best of its ability the remedy necessary to suppress such activity and to take every precaution to preclude its revival.' Id., at 884. In this case, the opinion pointed out, the respondents cooperatively revised the pricing practices in the industry by establishing a 'uniform zone pricing system.' Detailed discussions were carried on which resulted not only in an agreement, but 'maps showing the boundaries of the zones to be observed * * * were distributed' by the individual respondents. Id., at 884, Each respondent has 'since that time * * * followed the pricing system and adhered to the zone boundaries so discussed and shown on these maps.' Ibid. Discussing the complaint, the Commission in its opinion further noted that charges were included against each respondent as to its individual use of and adherence to the zone system of selling 'for the purpose and with the effect of enabling the respondents to match exactly their offers to sell lead pigments to any prospective purchaser at any destination, thereby eliminating competition between and among themselves.' * * * It was the adherence by each of them to this system of pricing that made the combination work. * * * Unless and until each of the respondents is prohibited from so adhering to the system and from so using the zones, the evils springing from the combination, one of which is to eliminate price competition, may well continue indefinitely. Unless the respondents, representing practically the entire economic power in the industry, are deprived of the device which made their combination effective, an order merely prohibiting the combination may well be a useless gesture.' Id., at 884—885. In its view, the Commission added, the 'prohibition is necessary, not because it is unlawful in all circumstances for an individual seller, acting independently, to sell its products on a delivered price basis in specified territories, but to make the order fully effective against the trade restraining conspiracy in which each of the respondents (defendants) participated.' Id., at 884. When and if competition is restored and the individual prohibition is no longer necessary, the Commission expressed its intention, upon application, to vacate the latter provision of its order.
At the beginning we must understand the limits of the contested portion of the order. First, it is temporary. Though its life expectancy is not definite, it is clear that the Commission was creating a breathing spell during which independent pricing might be established without the hang-over of the long-existing pattern of collusion. Second, the order is directed solely at the use of a zone delivered pricing system4 and no other. This system is a pricing method based on geographic devisions or zones, the boundaries of which are entirely drawn by the seller. His delivered price is the same throughout a particular geographic zone so drawn up by him. Customarily the delivered price is different between zones, though as here, widely separated zones, geographically, might have the same delivered price. It is well to mention here that while this Court has passed upon the validity of basing point systems of sales, Corn Products Refining Co. v. Federal Trade Commission, 1945, 324 U.S. 726, 65 S.Ct. 961, 89 L.Ed. 1320, it has not decided the validity of the zone pricing plan used here. Third, zone delivered pricing per se is not banned by the order. The Commission might have made the order more specific by entering a flat prohibition of the use for a definite period of the device found to be 'the very cornerstone of the * * * conspiracy,' i.e., zone pricing. See Hartford-Empire Co. v. United States, 1945, 323 U.S. 386, 428, 65 S.Ct. 373, 394, 89 L.Ed. 322, where the corporate defendants were enjoined from 'forming or joining any such trade association' for a period of five years. But the Commission chose the more flexible sanction, i.e., the limited use of zone delivered pricing. However, it concluded that the future use should be temporarily restricted for the protection of the public. And so, delivered zone pricing violates the order only when two conditions are present: (1) identical prices with competitors, (2) resulting from zone delivered pricing. Considering these conditions with the mechanics of the zone plan, we see that the only way prices can be systematically identical is for the zones of competitors to be so drawn as to be in whole or in part identical and for zone prices to be the same in those zones which coincide or overlap.5
Respondents contend that the cease and desist order, as written, excludes the benefits of § 2(b) of the Clayton Act.6 While § 2(b) 'does not concern itself with pricing systems * * * (but) only (with) the seller's 'lower' price and (with) that only to the extent that it is made 'in good faith to meet an equally low price of a competitor," Federal Trade Commission v. A. E. Staley Mfg. Co., 1945, 324 U.S. 746, 753, 65 S.Ct. 971, 975, 89 L.Ed. 1338, this section is read into every Commission order. Federal Trade Commission v. Ruberoid Co., 1952, 343 U.S. 470, 476, 72 S.Ct. 800, 804, 96 L.Ed. 1081. Since § 2(b) must, therefore, be read into this order, the respondents are afforded all of the benefits of that section.
The respondents were found to have plainly disregarded the law. In this respect the Commission correctly considered the circumstances under which the illegal acts occurred. Those in utter disregard of law, as here, 'call for repression by sterner measures than where the steps could reasonably have been thought permissible.' United States v. United States Gypsum Co., 1950, 340 U.S. 76, 89—90, 71 S.Ct. 160, 170, 95 L.Ed. 89. Respondents made no appeal here from some of the findings as to their guilt. Having lost the battle on the facts, they hope to win the war on the type of decree. They fight for the right to continue to use individually the very same weapon with which they carried on their unlawful enterprise. The Commission concluded that this must not be permitted. It was 'not obliged to assume, contrary to common experience, that a violator of the antitrust laws will relinquish the fruits of his violation more completely than (it) requires * * *.' International Salt Co. v. United States, 1947, 332 U.S. 392, 400, 68 S.Ct. 12, 17, 92 L.Ed. 20. Although the zone plan might be used for some lawful purposes, decrees often suppress a lawful device when it is used to carry out an unlawful purpose. Ethyl Gasoline Corp. v. United States, 1940, 309 U.S. 436, 60 S.Ct. 618, 84 L.Ed. 852; United States v. Bausch & Lomb Optical Co., 1944, 321 U.S. 707, 64 S.Ct. 805, 88 L.Ed. 1024. In such instances the Court is obliged not only to suppress the unlawful practice but to take such reasonable action as is calculated to preclude the revival of the illegal practices. Ethyl Gasoline Corp. v. United States, supra, 309 U.S. at page 461, 60 S.Ct. at page 627; Local 167 of I.B.T. etc. v. United States, 1934, 291 U.S. 293, 54 S.Ct. 396, 78 L.Ed. 804. See also United States v. United States Gypsum Co., supra; United States v. Crescent Amusement Co., 1944, 323 U.S. 173, 188, 65 S.Ct. 254, 261, 89 L.Ed. 160.7 We therefore conclude that, under the circumstances here, the Commission was justified in its determination that it was necessary to include some restraint in its order against the individual corporations in order to prevent a continuance of the unfair competitive practices found to exist. Federal Trade Commission v. Standard Education Society, 1937, 302 U.S. 112, 120, 58 S.Ct. 113, 117, 82 L.Ed. 141. We shall now examine the restraint imposed.
38 Stat. 719, as amended, 15 U.S.C. § 45, 15 U.S.C.A. § 45.
The par zone includes a number of northeastern and midwestern States. However, some cities located within these States are excluded from the par zone. On the other hand, the San Francisco area is a par zone, as is the City of St. Louis, though both are located in States not included in par zone areas. For a detailed discussion and maps of the operation of the zone pricing system, see the findings, 49 F.T.C. 840—870.