Bird & Son, Inc.

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IN THE MATTER OF BIRD & SON, INC., BIRD FLOOR COVERING SALES COR- PORATION, MONTGOMERY WARD & COMPANY, INC.

COMPLAINT, OPINION, AND ORDER OF DISMISSAL IN REGARD TO THE ALLEGED VIOLATION OF SEC. 2 OF AN ACT OF CONGRESS APPROVED OCT. 15, 1914, .A.S AMENDED BY AN ACT OF CONGRESS APPROVED JUNE 19, 1936 Docket 2937. Complaint, Sept. 30, 1936-Decision, July 17, 1937 DISCRIMINATING IN PRICE---CLAYTON ACT, SEC. 2, SUBSEO. (a)-SELECTION O't Customers-ACT's Scope The Act declares that nothing in it "shall prevent persons engaged in selling goods, wares, and merchandise in commerce from selecting their own customers in bona fide transactions and not in restraint of trade." So the Act does not purport to interfere with the right of 11 seller to select his customers. He may discriminate in the choice of his customers. :Not until there is a discrimination in price among those chosen does S(>ction 2 (a) of the Act have any application.

DISCRIMINATING IN PRICE-CLAYTON ACT, SEC. 2, SUBSECS, (a) AND (f)-SEL!W' TION OF CUSTOMER--{)HANOI!l OF POLICY AND TRANSITION PERIOD-WBEBII SUPPORTING COSTS FOB DIFFERING PRICES AND BUSINESS INVOLVED NEGLIGmxJ:. Where, on complaint charging respondent manufacturer of hard-surfaced fell base floor coverings sold as yard goods or in form of rugs under trade names "Neponset" and "Economy," and its sales subsidiary, with unlawfully discriminating in price in prices allowed to mail-order houses as compared with prices allowed to competitively engaged retailers, in violation of subsec. (a) of Sec. 2 of aforesaid act, and respondent mail-order bouse with violation of subsec. (f) of said Sec. 2, in knowingly receiving from said first described seller respondents such discrimination, it appeared that (1) at time of passage of aforesaid amending act only about 1 percent of all sales of said seller respondents was made to ordinary retailers direct, as a result of change in sales policy inaugurated about a year and a half prior to said time, and not long thereafter such seller respondents bad discontinued all their warehouses and sales agents, no goods were sold direct to retailers, and jobbers and mail-order houses were sold at same net prices; (2) difference between cost of selling direct to ordinary retailers during period of discrimination concerned and cost of selling to mail-order houses exceeded difference in alleged unlawful discriminatory prices involved; (3) new sales policy of seller respondents was not one of discrimination ill price between or among the two classes of customers which, exclusively, they had selected to sell to in order to reduce distribution costs; and ( 4) any discrimination involved was only during four months' period of transit1°0 of policy of selling ordinary retailers direct, to one of supplying tbe~ through sales made to jobbers, and was incidental thereto and mvol've negligible proportion and amount of seller respondents' business: Held, No violation by seller respondents und, case failing against them, so does case against buyer respondent, and entry of order for dismissal of cornplaint and termination of proceeding directed. BIRD & SON, INC., ET AL. 549 Complaint Before Mr. Oharles F. Diggs, trial examiner. Mr. William L. Pencke and Mr. Jam,es I. Rooney for the Commission.

Warner, Stackpole & Bradlee, of Boston, Mass., for Bird & Son, Inc., and Bird Floor Covering Sales Corp.

Mr. Stuart Ball, Scott, MacLei3h & FalJc and Winston, StrUIWn &; Shaw, of Chicago, Ill., for Montgomery Ward & Co., Inc. Complaint Pursuant to the provisions of an Act of Congress, approved June 19, 1936, Public 692 (the Robinson-Patman Act), amending Section 2 of an Act approved October 15, 1914 (the Clayton Act), the Federal Trade Commission hereby issues its complaint against Bird & Son, Inc., Bird Floor Covering Sales Corporation and Montgomery Ward & Co., Inc., stating its charges in that respect as follows: I PARAGRAPH 1. Respondent, Bird & Son, Inc., is a corporation o~ganized and existing under the laws of the State of Massachusetts, 'With its office and principal place of business in the city of East Walpole, Mass. It maintains branch offices in New York and Chicago.

Respondent, Bird Floor Covering Sales Corporation is a subsidiary Selling corporation wholly owned and operated by respondent Bird & Son, Inc., whose office and principal place of business is the same as that of respondent, Bird & Son, Inc.

Respondents, Bird & Son, Inc. and Bird Floor Covering Sales Cor- Poration, are now and for many years have been engaged in the business of manufacturing, selling and distributing a hard surfaced felt base floor covering sold as yard goods or in the form of rugs Under the trade names of "Neponset" and "Economy." . Respondent, Montgomery Ward & Co., Inc. is an Illinois corporaho~, with its office and principal place of business in the city of Ch~cago, State of Illinois, and is engaged in selling, among other ~rhcles of commerce, floor covering direct to consumers in the United t t_ates by means of mail orders and catalogs, and also through, reail stores owned or controlled by it.

Respondents sell and distribute their products in commerce to their customers located in the several States of the United States c~using said products when sold to be shipped from their respective P aces of business in the States of Massachusetts, New York, and Complaint 26F. T. C.

Illinois to purchasers thereof located in the several States o£ the United States other than said stores.

PAR. 2. In the course and conduct o£ their businesses as aforesaid, respondents are now and for many years have been in substantial competition with other corporations, individuals, partnerships, and firms engaged in the business of selling and distributing floor covering in commerce between and among the various States of the United States.

PAR. 3. In the course and conduct of their businesses, as described in paragraphs 1 and 2 hereof, respondents, Bird & Son, Inc. and Bird Floor Covering Sales Corporation, since June 19, 1936, have been and are now discriminating in price, between different purchasers of their said product of like grade and quality by giving and allowing certain purchasers o£ floor covering different prices than given or allowed other of their said purchasers, competitively engaged in the resale of their product within the United States, as is more specifically shown in the following price list, #.19-A dated July 1, 1936, issued by the respondent, Bird Floor Covering Sales Corporation. The prices shown below are net, after deducting rebates, cash allowances and handling allowances. The prices at which mail order house retail stores are sold refer to any quantity and are lower than the prices at which competing retailers are sold. Heav11 Wetoht Light Welgh>l (Neponset) (lilconom!l 911J12 Rug11 911JJ2RUQ8 Retailers-Purchasing less than 15 rolls _________ _ $ 4.85 Net $ 3.72 Net " " 15 to 29 rolls _____________ _ 4.54 " 3.42 " " " 30 to 49 rolls _____________ _ 4.42 .. 3.34 .. " " 50 to 74 rolls-------------- 4.33 " 3.28 .. " " 75 to 99 rolls _____________ _ 4.28 " 3.24 " 100 rolls or more _________ _ 3.21 " ... " 4.24 " 3.157 " 2.71 "lVholesalers ------------------------------------Mail Order Housea-(Warehouse & Carload .. " -(RetailShipments)Stores)---------------------------- 3.643.82 .." 2.712.85 "" " Heav11 Weight Light Weight (Neponset) (Economy) 8/.i Yard Goods 8/" Yard ooorll Retailera-Purchaslng less than 15 rolls----------- $0.337 Net $0.276 Net " " 15 to 29 rolls-------------- .316 " .254 " " " 30 to 49 rolls _____________ _ .247 ,, .309 " " '1 50 to 74 rolls-------------- .303 ,, ,242 " " " 7:S to 99 rolls-------------- .290 " .240 " .. .. 100 rolls or more __________ _ .296 " .238 " .254 .. .206 "lVholesalers ------------------------------------ Mall Order Housea-(Warehouse & Carload .204 41 Shipments) -------------- .257 " " " " -(Retai Stores) ------------- .271 " .219 " BIRD & SON, INC., ET AL. 551 548 Complaint PAR. 4. The effect of said discriminations in price made by respondents, Bird & Son, Inc. and Bird Floor Covering Sales Corporation, as set forth in paragraph 3 hereof, has been, or may be substantially to lessen competition, or to injure, destroy, or prevent competition, in the sale and distribution of the said floor covering between the said respondents and other manufacturers and distributors of floor covering, and also between the respondent, Montgomery "\Vard & Co., Inc. and other purchasers of said product in granting said discriminatory prices; and the effect of said discriminations has been, or may be, to tend to create a monopoly in the said favored customer receiving said discriminatory price from said respondents in the distribution of said product in the United States.

PAn. 5. The foregoing alleged acts of said respondents, Bird & Son, Inc. and Bird Floor Covering Sales Corporation are a violation of Section 2 (a) of said Act of Congress, approved June 19, 1936, entitled "An Act to amend Section 2 of the Act entitled 'An Act to supplement existing Jaws against unlawful restraints and monopolies, and for other purposes', approved October 15,1914, as amended (U.S. C., title 15, sec. 13), and for other purposes." II PARAGRAPH 1. Paragraphs 1 and 2 of the first charge hereof are hereby adopted and made a part of this charge as fully as if set out herewith verbatim.

PAR. 2. In the course and conduct of its business as described in Paragraphs 1 and 2 of charge 1 hereof, respondent, Montgomery :Ward & Co., Inc., since June 19, 1936, has knowingly received and ls now knowingly receiving from respondents Bird & Son, Inc., and Bird Floor Covering Sales Corporation, a discrimination in price as :more fully set forth in paragraph 3 of the first charge hereof, by receiving a lower price than given or allowed ot~er purchasers of like grade and quality of floor covering purchased from the aforesaid respondents. Respondent Montgomery Ward & Co., Inc. is enabled to purchase floor covering, by reason of, to wit, a certain contract entered into on or about June 10, 1936 with Bird Floor Covering ~aes Corporation, 9 x 12 rugs for $3.82 apiece, regardless of quanht~es purchased and by warehouse and carload lot shipments at a Pnce of $3.64 apiece, whereas rugs of like grade and quality are P~rchased by retailers from said respondents, Bird & Son, Inc. and n1:d Floor Covering Sales Corporation for from $4.85 to $4.24 ~Plece and similar differences in price exist on the other floor covertng, as more fully set forth in paragraph 3 of charge 1 hereof. Memorandum Opinion 25F.T.C. PAR. 3. The foregoing alleged acts of said respondent, Montgomery Ward & Co., Inc. are in violation of Section 2· (f) of said Act of Congress approved June 19, 1936 entitled "An Act to amend Section 2 of the Act entitled 'An Act to supplement existing laws against unlawful restraints and monopolies, and for other purposes', approved October 15, 1914, as amended (U. S. C., title 15, sec. 13), and for other purposes."

1\fE:MORANDUl\[ OPINION This case involves a complaint charging respondents with un~ lawful discrimination in price contrary to the provisions of the so~ called Clayton Act of 1914, as amended by the so~called Robinson~ Patman Act approved June 19, 1936. Respondents, Bird & Son, Inc., and Bird Floor Covering Sales Corporation, are charged with selling at discriminatory prices in favor of respondent, Montgomery 'Vard & Company, Inc., in violation of Section 2 (a) of the act, and Montgomery 'Vard & Company is charged with knowingly re~ ceiving such prices, all to the injury of retail dealers competing with the latter concern. The commodity involved is hard surfaced. felt base floor covering.

The case was tried and a record of the evidence presented in support and in defense of the charges is before the Commission. The facts are that between the passage of the Robinson~Patman Act and issuance of the complaint on September 30, 1936, retailer~ competitors of Montgomery ·ward & Company, when purchasing from the seller-respondents, were subject to prices that were higher than those paid by Montgomery ·ward & Company and. other mail order houses by as much as 14 and. 18 per cent. At the time of passage of the Robinson-Patman Act, however, only about 1 percent of all the sales of seller-respondents was made to ordinary retailers direct. The remainder was being sold to jobbers for resale to re~ tailers and to mail order houses such as Montgomery Ward. This was the outcome of a change in sales policy inaugurated about a year and a half before the Robinson-Patman Act was passed. Under the new policy, direct sales to retailers were discontinued and their needs were supplied through jobbers. By the time the complaint could be tried, the seller-respondents had discontinued all their ware~ houses and sales agencies, and in fact, most of them had been dis~ continued before the act was passed. By the end of October 1936, no goods were being sold direct to retailers, while jobbers and mail order houses were being sold at the same net prices. 'With reference to the amount of the price discrimination which existed during the 4-month period following passage of the Act, BIRD & SON, INC., ET AL. 553 548 Order evidence was introduced by seller-respondents showing that the cost of selling to mail order houses was 18.6 percent as against a cost of selling direct to ordinary retailers at 47.1 percent. Thus, costs differed by over 28 percent while the difference in price was less than 20 percent. This evidence was corroborated by an accountant for the Commission. Since the Act specifically permits differentials in price that "make only due allowance for differences in the cost of manufacture, sale, or delivery resulting from the differing methods or quantities in which such commodities are to such purchasers sold or delivered," the amount of discrimination existing in this case was apparently within the terms of this proviso. These considerations Would appear to be controlling.

It also appears, however, that the present sales policy of sellerrespondents is not one of discrimination in price between or among the only two classes of customers they have chosen to sell. The Act declares that nothing in it "shall prevent persons engaged in selling goods, wares, and merchandise in commerce :from selecting their own customers in bona fide transaction and not in restraint of trade." So the act does not purport to interfere with the right of a seller to select his customers. He may discriminate in the choice of his customers. Not until there is a discrimination in price among those chosen does Section 2 (a) of the act have any application. There is no suggestion that the selection of customers here involved was the result of any combination in restraint of trade. Rather, it was in Order to reduce seller-respondents' costs of distribution. The courts have consistently upheld the right of individual traders to select their customers in the absence of such combination. The price discrimination alleged is to be found only during a 4-~month period of transition from a policy of selling ordinary retailers direct, to one of supplying them through sales made to jobbers. Any price discrimination during that period was incidental to that transition and involved a negligible proportion and amount of Seller-respondents' business.

Since the case against seller-respondents fails for the reasons above st~ted, the case against buyer-respondent, for receiving an unlawful Price discrimination, also fails .

.The Commission therefore directs the entry of an order for dislllissal of the complaint and termination of the proceeding herein. ORDER DISMISSING COMPLAINT .T~is matter coming on to be heard upon the complaint of the Comlllission, testimony and evidence in support of the allegations of the Order 25F.T.C.

complaint, and testimony and evidence in opposition thereto, and the Commission having duly considered the same, and being fully advised in the premises;

Now, therefore, it is hereby ordered, That the complaint in this proceeding be, and the same hereby is dismissed, for the reasons set forth in a memorandum opinion filed simultaneously herewith. HOLLYWOOD HAT CO., INC. 555 Complaint