Source: https://law.justia.com/cases/federal/appellate-courts/F2/300/104/346492/
Timestamp: 2020-01-19 13:29:51
Document Index: 194544499

Matched Legal Cases: ['§ 5', '§ 45', '§ 2', '§ 5', '§ 2', '§ 13', '§ 2', '§ 2', '§ 2', '§ 2', '§ 2', '§ 5', '§ 2', '§ 5', '§ 5', '§ 2', '§ 2', '§ 2', '§ 2']

American News Company and the Union News Company, Petitioners, v. Federal Trade Commission, Respondent, 300 F.2d 104 (2d Cir. 1962) :: Justia
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American News Company and the Union News Company, Petitioners, v. Federal Trade Commission, Respondent, 300 F.2d 104 (2d Cir. 1962)
US Court of Appeals for the Second Circuit - 300 F.2d 104 (2d Cir. 1962) Argued October 10, 1961
COPYRIGHT MATERIAL OMITTED Lester Lewis Jay and Eugene Frederick Roth, New York City, for petitioners.
First. The Federal Trade Commission Act § 5(a) (1), 15 U.S.C. § 45 (a) (1), outlaws " [u]nfair 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).
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 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 the statute could be easily avoided by use of a "dummy" wholesaler. If there is no control the duty naturally ends, for the manufacturer has no power to protect the buyer's competitors. See Baim & Blank, Inc. v. Philco Corp., D.C. E.D.N.Y., 148 F. Supp. 541. Since the requirement is imposed not to punish sellers for their conduct, but to effectuate the purpose of giving protection to buyers' competitors, the "indirect customer" doctrine should apply whether the proceeding is brought against buyer or seller. If control is found, then Union is a "customer" under § 2(d). The Commission found that the seller "fixes the prices, terms, and conditions of sale and negotiates directly" with Union; therefore Union is a "customer" of the publishers.
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.
Sixth. We have examined petitioners' remaining substantive contentions and find them groundless in the light of our view of the major issues herein. Petitioners also state that the Commission's cease and desist order is "ambiguous, overreaching and oppressive." To the extent that the order extends beyond the actual inducement and receipt of display and promotional allowances — the specific practices involved in these proceedings — we agree that the order is too broadly drawn. Grand Union Co. v. F. T. C., supra. Moreover, the order forbids an attempt to induce, or inducement of, illegal payments without receipt thereof. Since petitioners both induced and received the payments here, for the reasons stated in Grand Union Co. v. F. T. C., supra, the order should be so limited. Neither the Commission nor the courts have held that an attempt to induce or inducement (if the two are distinguishable), without a concomitant receipt of illegal payments, violates § 5. In Grand Union Co. v. F. T. C., supra, we explicitly refused to pass on these questions, since the petitioner there had received payments which violated § 2(d); and we think we should do the same here, where the petitioner is in like case. Unless and until there is a definite ruling thereto, inducement or attempted inducement alone cannot be considered to be an "identical illegal practice" which the Commission may prohibit under the rule in Niresk Industries, Inc. v. F. T. C., 7 Cir., 278 F.2d 337, certiorari denied 364 U.S. 883, 81 S. Ct. 173, 5 L. Ed. 2d 104.7
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."
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," The Record, Association of the Bar, New York City, Vol. 17, No. 7, p. 403:
Union News Co. ......... 930 newsstands ABC Vending Corp. ...... 57 " Faber, Inc. ............ 35 " Commuter News Co., Inc. .................. 16 " Schermerhorn Cigar Stores, Inc. .......... 16 "
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 brought by Klein, a retailer, who purchased defendant Lionel's products through a wholesaler, while competing retailers were able to purchase directly from Lionel and thereby receive a greater discount. Klein alleged no direct dealings between himself and Lionel and did not show that Lionel controlled the terms set by the wholesaler; and on appeal he raised the point that Lionel's products were fair-traded at the wholesale level and that Lionel therefore did exercise "control" under the rule in Kraft-Phenix Cheese Corp., 25 F.T.C. 557. The Third Circuit rejected the claim, stating that the Kraft-Phenix doctrine was not applicable in such an action
We find nothing in the recent opinion in F. T. C. v. Henry Broch & Co., 368 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
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: