Source: http://openjurist.org/300/f2d/104
Timestamp: 2013-12-06 05:53:59
Document Index: 24607621

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

300 F2d 104 American News Company v. Federal Trade Commission | OpenJurist
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300 F2d 104 American News Company v. Federal Trade Commission 300 F.2d 104
AMERICAN NEWS COMPANY and The Union News Company, Petitioners,v.FEDERAL TRADE COMMISSION, Respondent.
Docket 26857.
Lester Lewis Jay and Eugene Frederick Roth, New York City, for petitioners.
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.
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 the field. In 1958, it operated 930 newsstands, while the next largest firm in the field operated 57 stands.1 While Union's stands sell candy, cigars, cigarettes, and other items in addition to newspapers and magazines, these proceedings are primarily concerned with practices in connection with sales of certain publications, including magazines, comic books, and pocket books.2
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 furnished by petitioners in connection with the sale of suppliers' goods. The Commission concluded that these payments were unlawful under § 2(d) of the Clayton Act as amended, 15 U.S.C. § 13(d), and held that inducement and receipt of such unlawful payments constituted an unfair method of competition which violated § 5 of the Federal Trade Commission Act, 15 U.S.C. § 45. The Commission ordered Union and American to cease and desist from the aforementioned practices.
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 "[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).
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, not true promotional allowances. The latter contention lacks any merit. In the first place the Commission found that special display rights were indeed often given to publishers who paid the promotional allowances. The publishers who acquiesced in petitioners' demands for promotional rebates expressed the hope that they would get better display service as a result. In their letters and bills petitioners frequently referred to these payments as "promotional allowances."