Trade association code governing dealings with customers

No. 97. Trade association code governing dealings with customers. The Commission recently rendered an advisory opinion advising a trade association of suppliers that a number of serious questions would be likely to arise from an agrecment by its members as to a code or set of conditions governing the members dealing with their customers.

Among the conditions singled out by the Commission for question was one creating uniformity in the terms of delivery. The Commission stated its view to be that the method and manner of delivery can be an element of competition among the members of an industry which this provision would at least have a tendency to eliminate. The creation of uniformity in the terms of delivery may be convenient for the members of an industry but this factor is outweighed by the benefits to the public of competition among those members and it is this competition whieh the law seeks to protect and preserve. :vuch the same objection was raised to the sections which provided that by accepting goods the purchaser shall be deemed to have approved them and no action shall lie against the vendor except as regards hidden defects; that c1aims for defects must be made within thirty days; and that the purchaser shall not be entitled to any compensation for any consequential loss whatsoever. The Commission advised that while it may be that a unilateral agreement among the members eould not change the legal liabilities as between the parties when disputes arise entering into this agreement could result in the suppliers presenting a solid front to their customers. In the Commission view, such matters are best left to the business judgment of the individual suppliers.

The Commission then singled out the provision dealing with prices , which provided that the purchaser shall pay the prices current in the relative trade area at the time of delivery and that the vendor shall, if so requested , send to the purchaser a list stating the prices of goods and the period for which such prices are to apply. Noting that the section was ambiguously worded and suseeptible of more than one interpretation, the Commission concluded that the suppliers might well feel justified thereunder in agreeing among themselves to adhere to their published price lists until such are changed. Under well setted principles of antitrust law, such an agreement would clearly be mega!.

The Commission also expressed some coneern with the section dealing with payments, which provides that the purchaser shall pay the invoiced amounts within thirty days after date of delivery and if payment is made at a later date the vendor shall be entitled to interest. The Commission advised that it could not put its stamp of approval upon an agreement by the members of an industry as to thc length of time during which credit is to be extended, stating that it would seem such matters are best left to the independent judgment of each supplier and should not be determined adversely to the interests of the customers by agreement among those suppliers. Finally, the Commission took note of the provision dealing with contracts , which stated that all or part of the conditions could be declared applicable to a contract entered into for a specified period , which could be a calendar year unless otherwise agreed. Such eontraet shall imply that the purchaser agrees that during the period specified in the contract all and any goods specified or as customarily purchased from such suppliers will be obtained solely from the vendor. . . ." The Commission felt that this clearly sanctions full requirements contracts for periods of one year or more and that such contracts are nothing more than exclusive dealing agreements for limited periods of time. Whereas they are not per Be illegal, generally, the law may be stated to be that they are ilegal if they foreclose competition in a sub- ,

ADVISORY OPINION DIGEST 1881 stantial share of the market. This would natural1y require knowledge of a number of factors not known to the Commission and not likely to be known when dealing with a proposed course of action. In the case of any particular supplier, the Commission would need to know the duration of the agreements, the number of customers covered by such agreements and the pereentage of the total market which would thereby be foreclosed to competitors. In view of these uncertainties, the Commission felt the best it could do would be to advise that the problem exists but that no opinion could be expressed on a prospective basis because of lack of knowledge of the essential factors whieh would need to be known before an opinion could be rendered. (File No. 673 7016, released Oct. 26, 1966.