Opinion ID: 2994508
Heading Depth: 2
Heading Rank: 5

Heading: For a period of five years, (1)

Text: announcing or communicating that respondent will or may discontinue purchasing or refuse to purchase toys and related products from any supplier because that supplier intends to sell or sells toys and related products to any toy discounter, or (2) refusing to purchase toys and related products from a supplier because, in whole or in part, that supplier offered to sell or sold toys and related products to any toy discounter. PROVIDED, however, that nothing in this order shall prevent respondent from seeking or entering into exclusive arrangements with suppliers with respect to particular toys. TRU makes a perfunctory, one-paragraph argument that paragraphs II(B), II(C), II(D), and II(E)(1) impose a gag order that contravenes the Supreme Court’s recognition in Monsanto Co. v. Spray-Rite Corp., supra, that manufacturers and distributors have a legitimate need for a free flow of information between them. This order, they claim, will create an irrational dislocation in the market to the detriment of toy suppliers, retailers, and consumers. With respect to paragraph II(E)(2), it argues that the five-year restriction on refusals to deal impermissibly cabins its Colgate rights to choose the suppliers with which it wants to deal. In effect, it claims, the decree will force it to purchase all toys that are offered to anyone, unless it can somehow prove that its refusal was because of a safety defect or other similar flaw. We consider first TRU’s challenges to parts II(B) through II(D) of the order. (It has not mentioned II(A) in its brief, and thus it has waived any challenge to that part of the order.) In general, if a retailer had some kind of restricted distribution arrangement with a manufacturer, Monsanto holds that it is permissible for the retailer to urge the manufacturer to respect the limits of that agreement. The retailer may communicate complaints about the provision of product to discounters, if that runs afoul of the promises in the distribution agreement. Colgate indicates that the retailer would also be within its rights to tell the manufacturer that it will no longer stock the manufacturer’s product, if it is unhappy with the company it is keeping (i.e. if the manufacturer is sending too many goods to discounters, stores with a reputation for rude and sloppy service, or other undesirables). Two facts distinguish these general rules from the situation in which TRU finds itself. First, unilateral actions of the sort protected by Monsanto and Colgate are not the same thing as a retailer’s request to the manufacturer to change the latter’s business practice. Under paragraph II(B) of the decree, TRU must not tell the manufacturer what to do; it is still permitted to decide which toys it wants to carry and which ones to drop, based on business considerations such as the expected popularity of the item. Second, to the extent paragraph II(B) might indirectly inhibit TRU from exercising its unilateral judgment, TRU must confront the fact that the FTC is not limited to restating the law in its remedial orders. Such orders can restrict the options for a company that has violated sec. 5, to ensure that the violation will cease and competition will be restored. See National Lead Co., supra, 352 U.S. at 430; FTC v. Cement Institute, 333 U.S. 683, 726-27 (1948); Corning Glass Works v. FTC, 509 F.2d 293, 303 (7th Cir. 1975). See also FTC v. Colgate-Palmolive Co., 380 U.S. 374, 392 (1965) (making the same point, in context of the Commission’s deceptive practices authority). The second point also applies to TRU’s objections to paragraphs II(C) and II(D). In addition, we note that the retailer should not have any reason to obtain its suppliers’ business records about shipments to the retailer’s competitors. That is the supplier’s concern. TRU is protected as long as it can ensure that it receives what was promised to it. Also, of course, the decree preserves TRU’s right to enter into exclusive arrangements with respect to particular toys. In so doing, it also implicitly allows TRU to engage in communications that are necessary for the implementation and enforcement of such agreements. Paragraph II(D) directly addresses the Commission’s finding of a horizontal agreement, and it orders TRU not to go out and create a new one. The Commission was certainly acting within the bounds of its discretion when it included these provisions. Paragraph II(E) appears to be the one that causes the greatest concern to TRU. This strikes us as a closer call, but in this connection the standard of review becomes important. The Commission has represented in its brief to this court that the decree leaves [TRU] free to make stocking decisions based on a wide range of business reasons; it must simply make those decisions--for a period of five years--independent of whether clubs or other discounters are carrying the same item. FTC Brief at 58. The attempt to use its market clout to harm the warehouse clubs lies at the heart of this case, and so it is easy to see why the Commission chose to prohibit reliance on the supplier’s practices vis e vis the clubs as a reason for TRU’s own purchasing decisions. At bottom, TRU is really just worried that it will be difficult to prove that any particular purchasing decision was free from the prohibited taint. It will be easy to refrain from announcements or communications about refusals to deal, which is what II(E)(1) prohibits. With respect to II(E)(2), if TRU implements adequate internal procedural safeguards, it should be possible to demonstrate that its buying decisions were not influenced by anything the manufacturers were doing with discounters like the clubs. These refusals to deal were the means TRU used to accomplish the unlawful result, and as such, they are subject to regulation by the Commission. See National Lead, 352 U.S. at 425. Under the abuse of discretion standard that governs our review of the Commission’s choice of remedy, see Siegel Co. v. FTC, 327 U.S. 608, 612-13 (1946), this does not appear to be a remedy that has no reasonable relation to the unlawful practices found to exist. We therefore have no warrant to set it aside. If, however, it becomes clear in practice that this provision is unworkable, TRU is free to return to the Commission to petition for a modification of the order.