Mishawaka Woolen Manufacturing Co.

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FEDERAL TRADE COMMISSION v. MISHAWAKA WOOLEN MANUFACTURING CO.

CO:\fi'LAINT IN THE JlfATTER OF THE ALLEGED VIOLATION OF SEC· 'lion II OF THE ACT OJ<' CONGRESS APPROVED SEPTEMBER 26, 1914, AND SECTION 2 OF THE ACT OJ<' CONGRESS APPROVED OCTO· BER 111, 1914, Docket No. 19.-June 30, 1919.

SYLLABUS.

Where a corporation engaged In the manufacture and sale of woolen ,and rubber footwear- I.

(a) Established minimum resale prices, below which purchasers of Its product were required not to sell, which prices were higher than necessary to afford the more ellklt>nt retallet·s a profit on its product, and in pursuance of the maintenance of said minimum resale prices;

(b) Procured a majority of Its customers when ordering goods to sign agreements specltlcnlly agrel'!ng uot to sell Its products at prices lower than the estubllshed resale prices fixed by It; (c) Solicited and obtained the coopemtlon of Its customers In reporting instances where Its products were being tulvertlsed ami suld below the resale prices fixed by it;

(d) Dlseontlnue<l the sale of Its products to those who failed to maintain such resale prlc!'s; and (e) 1\Ialntalneil a can! Index of what was termed undesirable cu~t­ tomers, this undesirability generally arising from the fact that the customer had persisted In selling the respondent's goods below Its fixed resale pt·lces:

II.

Discontlnueu the making of wt·ltten contracts with Its customers and of soliciting Its customers to report instances of price-cutting, but (a) Notlfteu customers of the price at which Its products must be resold and that it would refuse to sell to any customer who persisted In selling ut less than Its fixed resale prices; (b) Refused to sell, or dilwontlnueu selling to such customers as were found to have cut Its rtc>sale prktc>s; and (c) Constantly urged that the dealer tul{e the full profit suggested by it:

Held, That such systems of price maintenance, suhstnntlnlly as descrlbeu, constituted unfah· methods of competition in violation of section 6 of the act of September 26, 1914. FEDERAL TRADE COMMISSION DECISIONS. . 507 COMPLAINT.

I.

The Federal Trade Commission, having reason to believe from a preliminary investigation made by it that the Mishawaka ·woolen Manufacturing Co., hereinafter referred to as respondent, has been, and is, using unfair methods of competition in interstate commerce in violation of the provisions of section 3 of the act of Congress approved September 26, 1914, entitled "An act to create a Federal Trade Commission, to drline its powers nnd duties, and for other purposes," and it appearing that a proceeding by it in respect thereof would be to the interest of the public, issues this complaint, stating its charges in that respect on information and belief as fo], ·lows:

PARAGRAPH 1. That the above-named respondent, Mishawalm 'Voolen Manufacturing Co., is now and was at all the times hereinafter mentioned, a corporation organized and existing under and by virtue of the laws of the State of Indiana. having its principal office and place of business at the city of Mishawaka, in said State, and extensively engaged at said city in the manufacture of woolen and rubber goods, and in the sale and shipment of such commodities to persons, copartnerships, and corporations in other States and Territories of the United States and in the District of Columbia. PAR. 2. That the respondent, Mishawaka Woolen Manufactnring Co., a.<J a means of procuring the trn<le of dealers and of enlisting their active cooperation in enconraging the sale of its goods and for the purpose of eliminating competition in price among the deniers in its goods and thereby depriving dealers of their right to sell such goods at such prices as they may deem adequate and warranted by their selling etnci£>ncy, and for other purposes, has adopted and maintains a system of fixing a schedule of standard prices at which the goods mnnufactmed and sold by it shall be resold by the purchas£>rs thereof, and requires such purchasers to agree to maintain or resell such goods at such standard selling prices, and that for the purposes of maintaining such standard resale prices, and of inducing and coercing its customers to maintain such stnnd;trd prices, the respondent has 508. FEDERAL TRADE COMMISSION DECISIONS. for more than two years last past refused and still refu!';es to sell such goods to customers who will not agree to maintain such standard selling prices, or who do not resell such goods at the standard selling prices so fixed by the respondent.

PAR. 3. That in furtherance of said system of the maintenance of the resale prices of the goods handled and sold by it, the respondent has systematically entered into, and does systematically enter into, an agreement or understanding with each of its customers that the customer shall report to it instances of "price cutting" on the part of any other customer, and that if the customer so reported be found by respondent to be in fact price cutting, the respondent will refuse to continue to· sell its goods to such "price cutter~," and that the respondent, acting and cooperating with re-. porting f'Customers, does thereupon, if it finds upon investigation by it that such report is true, refuses to continue to sell its goods to such" price cutter" and that as a matter of fact, the respondent, acting pursuant to such system and such arrangement or understanding with reporting customers, has during a period of at least two and one-half years last past refused, in many instances, and still does refuse, to contiuue to sell its goolls to customers who Violate such agreement to maintain the standard selling prices so fixed by the respondent.

II.

And the Federal Trade Commission, having reason to believe from a preliminary investigation made by it, that the Mishawaka ·woolen Manufacturing Co., hereinafter referred to ns respondent, has been and is violating the provisions of section 2 of the act of Congress, approved October 15, 1914, entitled "An act to supplement existing laws against unlawful restraints and monopolies, and for other purposes," issues this complaint, stating its charges in that respect, on information and belief, as follows:

PARAGUAPII 1. That the respondent, Mishawaka ·woolen Manufacturing Co., is a corporation organized and existing under and by virtue of the laws of the State of Indiana, having its principal office and place of business at the city of FEDERAL TRADE COMMISSION DECISIONS. 509 Mishawaka, in said State, and is now and was at all times hereinafter mentioned engaged in manufacturing and selling woolen and rubber goods in commerce among the several States awl Territories of the United States. PAR. 2. That the respondent, the Mishawaka Woolen Manufacturing Co., for several years last past, in the course of interstate commerce, has discriminated in price, and is now discriminating in price between different purchasers of the goods manufactured, handled, and sold by it, 'which goods are sold for use, consumption, or resale within the United States or the Territories thereof, or the District of Columbia, and that the effect of such discrimination may be to substantially lessen competition or tend to create a monopoly.

REPORT, FINDINGS AS TO THE FACTS, AND ORDER.

The Federal Trade Commission having issued and served its complaint herein, wherein it alleged that it had reason to believe that the above-named respondent, Mishawaka ·woolen Manufacturing Co., has been and now is using unfair methods of competition in interstate commerce in violation of the provisions of section 5 of an act of Congress, approved September 26, 1914, entitled, "An act to create a Federal Trade Commission, to define its powers and duties, and for other purposes," and that a proceeding by it in respect to such alleged violation would be to the interest of the public, and fully stating its charges in that respect, and the respondent having entered its appearance by Messrs. Angell, Bodman & Turner, its attorneys, and having filed its answer; and the attorneys for both parties having thereafter signed and filed nn fiO'reede statement of facts, with exhibits thereto attached,. and having stipulated that the same should for the purposes of this proceeding be considered and treated as testimony and evidence herein in all re~pects as fully as though testified to in a contested proceeding, and said agreed statement of facts and stipulation, together with said exhibits thereto attached, having been duly offered in evidence by the attorneys for the Commission in support of the charges in said complaint, and the respondent having offered evidence 510 FEDERAL TRADE COMMISSION DECISIONS. in support of its answer, and the attorneys for the Commission and for the respondent having submitted briefs as to the law and the facts in said proceeding, and the Commission having duly considered the record and being fully advised in the premises, now makes this its report and findings us to the facts and conclusions of law:

FINDINGS AS TO THE FACTS.

PARAGRAPH 1. That respondent, Mishawaka Woolen Manufacturing Co., was at all times hereinafter mentioned, and still is, a corporation organized and existing under the laws of the State of Indiana, having its principal office and place of business at Mishawaka in said State. PAR. 2. That at all of said times respondent was eng:tged at Mishawaka aforesaid in manufacturing articles of woolen and rubber footwear and in selling and shipping such articles in commerce among the se\·et·al States of the United States; that other persons and corporations were engaged in manufacturing similar products and in selling and shipping such products in interstate commerce in competition with respondent. PAR. 3. That at the time of the commencement of this proceeding and during a pe1·iod of more than two years prior thereto respondent's marketing policy was to distribute its products through retailers, and not through wholesale dealers or jobbers. That during said period substantially all of its products were sold by it directly to retail dealers throughout the United States; that the value of said products exceeded $10,000,000 annually; and that the number of respondent's said retail customers was approximately 43,000, some of whom were themselves engaged in interstate commerce. PAR. 4. That during a period of more than two years prior_r to January 1, 1918, respondent pursued a practice of establishing minimum resale prices, hereinafter known as the resale prices, below which all of its retail distributor customers were required not to sell the products manufactured by respondent. That a schedule or list of said resale prices was issued annually or more frequently and furnished by respondent to each of its distributors; that said distributors hnd notice from respondent and generally understood that respondent's practice was to sell only to those distributors maintaining the FEDERAL TRADE COMMISSION DECISIONS. 511 resale prices. That for the purpose of enforcing the maintenance of said minimum resale prices by its said distributors during the period aforesaid respondent employed the follow- • ing means, to wit:

(1) It procured a majority of its distributor customers to sig·n agreements in writing in connection with orders submitted by them to respondent for goods, whereby said customers expressly promised not to retail respondent's products either directly or indirectly at lower prices than the resale prices established by respondent. The signing of said agreement was in many instances a condition precedent to respondent's acceptance of an order for goods. And a large portion of respondent's total output of goods was sold subject to such agreements.

(2) It solicited und obtained the cooperation of its customers in rrporting instances wherein its products were being advertised or sold below the resale prices thereof. Such reported instances were systrmatically investigated, and where the report was verified, respondent's regular practice was to request assurances in the form of an agreement in writing or otherwise against repetition of the act complained of, and in the event that sufficient assurance was not furnished, respondent's reglllar practice was to discontinue selling goods to the party in question. Action taken in any reported instance of price cutting was usually communicated by respondent to the informant who had reported such instance. In this manner informants cooperating with respondent sncceeded in many cases in procuring the cutting off of their competitors' supply of respondent's products. (3) It carried on at its principal oflice a routine correspondence, based on form letters, with respect to all cases coming to its attention wherein its goods had been sold below the resale price thereof, and in each case notified the customer complained of that unless he maintained the resale prices upon respondent's goods, respondent would cease to supply him with goods; it maintained at said office a card index of all prrsons reported to haxe cut prices on its products, which intlicate<l the principal facts in each case, the substance of all correspondence relnting thereto, the final status of the case, and which served the purpose of a me- 512 Federal Tnade COMMISSION DECISIONS. chanieal aid in respondent's system of tabulating and for taking appropriate action in such cases. ( 4) It maintained at said office a town card index of all customers and of numerous dealers not customers, of whom , many were indicated to be "undesirable" customers. This " undesirability " in many cases arose from the fact that the dealer so designated had persisted in selling respondent's goods below the resale prices thereof. That respondent's said policy of price maintenance was generally acquiesced in by its customers, and its resale pr-ices were generally maintained.

PAR. 5. That at the time hereinbefore mentioned, retail dealers in respondent's products carried on business at costs ranging from 15 to 30 per cent of their gross sales; that the resale prices of respondent's products were adjusted so as to yield said retail dC>alers a gross profit margin ranging from 1\ minimum of 24 per cent to a mnximnm of 30 per cent, depending upon the character of the goods, and that these margins in comparison with the aforesaid costs of 15 to 30 per cent assured the said dealers handling the products manufactured by rpspondent net profits ranging from zero to 15 per cent of their gross sales, depending on the character of the goods. That dealers generally, and especially the higher cost and less efficient dealers, prefer to handle the price-maintained products of respondent and were and are in sympathy with the respondent's policy and system of resale price maintenance, and materially aided and cooperated with respondent in the execution thereof. PAR. 6. That at the times hereinbefore mentioned there were a number of competitors of respondent who did not adopt or pursue a policy of resale price maintemmce. PAR. 7. Tb.at on the lst day of January, 1918, and subsequent to the commencement of this proceeding, respondent modified its practice regarding the subject of price maintenance in certain respects, as follows: (1) It discontinued the use of written agreements with customers providing for the maintenance of resale prices, both in connection with orders for goods and otherwise, and instructed its salesmen to enter into no agreements with customers, oral or written, and to ask for no other assurance regarding price maintenance.

FEDERAL TRADE COMMISSION DECISIONS. 513 (2) It discontinued the practice of inviting or urging its customers to report instances wherein respondent's goods were being adverti1>ed or sold below the resale price thereof. (3) It discontinued the card index described above (par. 4), but later, as testified to by its president, resumed its use. PAR. 8. That since January 1, 1918, respondent has continued to notify customers selling its goods below the resale price thereof that if such action is persisted in respondent will furnish no further goods to such customers; that since said date, respondent has refused and still refuses to sell goods to practically all dealers failing to maintain the resale prices thereof.

PAR. 9. That the aforesaid gross profit margins were and are so adjusted as to induce a large number of retailers to handle the products of the respondent; and these margins Were and are greater than would be necessary to enable the relatively lower cost and more efficient retailers, as referred to in paragraph 5 above, to resell and make a profit. PAR. 10. That respondent constantly urges that retail distributors of its products shall take the full profit suggested by respondent, and publishes p:rice lists showing the suggested resale prices and the gross profit margins to said retail distributors under such prices.

PAR, 11. That the effect of the said price maintenance system enforced as aforesaid has been and is- (1) To secure for respondent, Mishawaka Woolen Manufacturing Co., on the sales of the pr_oducts manufactured by it, th.e trade of retailers, and especially the relatively higher cost and more inefficient retailers as heretofore set out, by affording such dealers the assurance that said resale prices Were and are universally maintained, and to enlist their active support and cooperation in enlarging the sale of its price maintained products to the prejudice of competing manufacturers who do not fix, require or enforce the maintenance of resale prices upon their products. (2) To eliminate competition in prices among retailers handling the products manufactured by respondent, thus interfering with such retailers, and especially the relatively lower cost and more efficient establishments, in their sales of 147430°--2o----33 514 FEDERAL TRADE COl\Il\IISSION DECISIONS. respondent's products at prices which they may deem adequate and which are warranted by their costs and selling efliciency as heretofore set out, whereby such portions of the public as require the products of the respondent are compelled to pay enhanced prices therefor. (3) To tend to force manufacturers who do not fix, require, or enforce the maintenance of resale prices and who compete with the respondent also to inaugurate, maintain, and enforce a system of resale prices upon their products in order to offset the preference of retailers for the price-maintained products of respondent, thus enabling such manufacturers as do not now maintain such resale prices to compete upon more equal terms with respondent and thereby tending to compel the public generally to pay enhanced prices for the products of such competing manufacturers also. PAn. 12. That the allegation contttined in Part II of the complaint in this proceeding that the respondent has violated section 2 of the Clayton Act is not sustained by the evidence. CONCLUSION.

That the methods of competition described in the foregoing findings of fact in paragraphs 4, 5, 8, 9, and 10 constitute, under the circumstances set forth therein, unfair methods of competition in interstate commerce, in violation of the· provisions of section 5 of an act of Congt·ess approved September 26, 1914, entitled "An act to create a Federal Trade Commission, to define its powers und duties, and for other purposes." · ORDER TO CEASE AND DESIST.

The Federal Trade Commission having issued and served its complaint herein, wherein it is alleged that it had reason to believe that the above-named respondent, Mishawaka Woolen Manufacturing Co., has been and now is using unfair methods of competition in interstate commerce in violation of the provisions of section 5 of an act of Congress approved September 26, 1914, entitled "An act to create a Federal Trade Commission, to define its powers and duties, and for other purposes," and that a proceeding by it in respect to such FEDERAL TRADE COMMISSION DECISIONS. 515 alleged violation would be to the interest of the public, and fully stating its charges in that respect, and the respondent having enter<'d its appearance by :Messrs. Angell, Bodman & Turner, its attorneys, and having filed its answer; and the attorneys for both parties having thereafter signed and filed an agreed statement of facts, with exhibits thereto attached, and having stipulated that the same should for the purposes of this proceeding be considered and treated as testimony and evidence herein in all respects as fully as though testified to in a contested proceeding, and said agre<'d statement of facts and stipul:ition~ together with said exhibits thereto attached, having lwen duly offered in evidence by the attorneys for the Commission in support of the charges in said complaint, and the respondent having oflered evidence in support of its answer, and the attorneys for the Commission and for the respondent having submitted their briefs as to the law and facts in said proceeding, and the Commission on the date hereof having made and filed its report cor..taining its findings us to the facts and its conclusion that respondent has violated section 5 of an act of Congress approved September 26, 1914, entitled, "An act to create a Federal Trade Commission, to define its powers and duties, and for other purposes," which said report is hereby referred to and made a part hereof: Now, therefore, It is ordered that the respondent, Mishawaka 'Voolen Manufacturing Co., its officers, directors, agents, servants, and employees, cease and desist from fixing or controlling, or attempting to fix or control, the prices at '' which or in accordance with which its products shall be resold, by- (1) Entering into contracts, agreements, or understandings with dealers requiring or providing for the maintenance of such prices;

(2) Cooperating with dealers in obtaining information for the purpose of enforcing the maintenance of such prices; (3) Refusing or threatening to refuse to sell to dealers because of their failure to maintain such prices; (4) Employing any other means directly or indirectly to bring about or enforce the resale of its products at such prices.

516 FEDERAL TRADE COMMISSION DECISIONS. l!'EDERAL TRADE COMMISSION v. BEECH-NUT PACKING CO.