Elgin National Watch Company

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IN THE :MATTER OF ELG IN NATIONAL "\VATCI-I COl\fP ANY COl\IPLAIN~' , FINDINGS, AND ORDER IN REG.'l.RD TO THE ALLEGED VIOLATION Ol~ SUBSEC, (d) OF SEC. 2 OF AN ACT OF CONGRESS APl' ROVED OCT, 15, 1914 AS A;\:lENDED BY AN ACT APPROVED JUNE 19, 1936 Docket 5837, Compla.int, Jan, -1, 1951-Decision, JIar. 1'/', 1952 Under the provisions of subsec. (d) of See, 2 of the Clayton Act as amended by the Robinson-Patman Act the seller has the free choiee of making paynwnts. for advertising senices furnished by customers in t:onneetion with the sale. or offer of the seller s products, or not maldng such payments, and the further choice as to the basis on which any of such payments shall be loade,. subject simply to the statutory requirement that i:;uch payment if made shall be available on proportionally equal terms to all customers who compete ill the distribution of such products, Where a corporation 'which was engaged in the manufacture and interstate sale of men s and women s watches to some 15 000 customer:,; throughout the United States, which included single retail jewelry stores, clwin retail jewelry stores, mail order houses find premium houses, in competition \vitlt each other in the resale of its saiel \vatches to consumers; Paid 01' colltracted to pay money to some of its customers as collIpensatiun for allvertising ser,ices furnished by them in connection with the sale or offer' of its watches \vithout making such payments available on proportionally equal terms to all competing customers in that, no nd ,"ertising allowance \vas. available to customers classitied in the smallest annual purchase volume bracket, and customers in all of the otller volume brackets had available to them greater percentage allowances on their respective purchase volumes than were available to customers in the next lower bracket: Held That such acts and practices, under the circumstances set forth, violated subsec, (d) of Sec, 2 of the Clayton Act as amended. Before lii1" . F?'anJc Ilie?' hearing examiner. 11I1' . TVilliam 11, Snl/ith and l1IT. Peter J. Diets for the Commission. Oanlner, Carton Douglas of Chicago, Ill" for respondent. COMPLAINT The Federal Trade Commission, having reason to believe that the party respt'ndent named in the caption hereof, and hereinafter more particularly:y designated and described, has violated and is now violating the provisions of subsection (d) of section 2 of the Clayton Act (U, S, C, Title 15, see, 13) as amended by the Robinson-Patman Act, approved June IV, H)36, hereby issues its complaint, stating its charges with respect thereto as follows:

PARAGJL\PH 1. Respondent Elgin National ,Vatch Company, is a corporation organized, existing and doino' business under and. by vir- ELGJN NATIONAL 'WATCH CO. 991 990 Complain t tue of the hnvs of the State of Illinois, with its office and principal place of business located at Elgin, Illinois, PAn. 2, Respondent is now, and for many years has been engaged in the business of manufacturing and selling men s and women watches, and has come to occupy an important position in that industry, It manufactures said water)les in plants located in Illinois and Nebraska and sells them to approximately 15 000 customers with places of business located throughout the several States of the United States and in the District of Columbia for resale within the United States to consumers: Said customers are single-unit retail je\"\elry stores, multiple-unit or chain retail jewelry stores, mail order houses and premium houses, P..\R, 3, In the course and conduct of said business, respondent engaged in commerce, as commerce is defined in the Clayton Act as amended by the Robinson-Patman Act, having shipped said watches or caused them to be transported, from said States in which its said plants are located to said purchasers \with places of business located in the same and in other States and in the District of Columbia, P AU, 4. In the course of its said business in commerce respondent paid, 01' contracted to make payments to or ror the benefit of some or its customers as compensation and in consideration ror services and facilities furnished, or contracted to be furnished, by or through ~u('h customers, in connection with the sale, or offering for sale, of respondent's \vatches which it manufactures, and offers for sale; and respondent did not make, or contract to make, such payments available on proportionally equal terms to all other of its customers competing in the distribution or respondents said products, PAR. 5, Among the payments alleged in Paragraph Four were those for advertising services or facilities, or advertising allowances, Said advertising allowances were available from respondent, and respondent paid or contracted to pay them, upon the following proportionally unequal terms:

Respondent classified its customers by size, from smallest to largest into several groups on the basis of their respective volumes, volumes referring to the dollar amount of net purchases of respondent' watches during a specified twelve-month period, Each of said groups consisted of those customers having volumes within the range of volumes, or volume bracket, specified Tor it; and the several volume brackets, respectively, covered ranges of progressively larger volumes, No advertising allowance was available to those customers in the first or smallest volume bracket.

:?1 3~40-54- Complaint 48 F, T, C.

To those customers in the second volume bracket advertising allowances were available, which amounted to the same percentage or an equal proportion of their respective volumes. To those customers in all of the other volume brackets, advertising allowances were available which amounted to greater percentages proportions of their respective volumes than the percentage or proportion which was available, as aforesaid, to customers in the second volume bracket, and which, as between and among said customers in said larger volume brackets purchasing different volumes, amounted to different percentages or unequal proportions of their respective volumes for the reason that the larger the volume the greater the percentage or proportion of volume which was available. The greatest percentage or proportion of volume which was thus available to the customer or customers with the largest volume in said larger volume brackets was not available to competing customers with smaller volumes in said larger volume brackets or in the second and first volume brackets and the same was true with regard to each successively smaller percentage or proportion available in said larger volume brackets. The percentage or proportion which was available to all customers in the second volume bracket was not available to customers in the first volume bracket.

Said advertising allowances were available as aforesaid to the extent that customers had made expenditures but not in excess of the proportion of volume offered by respondent and provided said advertising services were furnished through the media and in the manner specified by respondent.

PAR. 6. The said volume brackets and percentages or proportions of volume which respondent made available to its customers in July 1946 and which are still in effect, are shown in columns (1) and (2) respectively of the table herein set forth. As illustrative of the operating results or respondent's said advertising allowance program there are set forth below, for the fiscal year ending June 30, 1948, in column (3) the approximate number or customers in the various brackets, and in column (4) the approximate total dollar amount or said advertising allowances paid to all of the customers in' each of said volume brackets and the approximate total dollar amount of said advertising allowance paid to all of the customers in all of said volume brackets:

ELGIN NATIONAL WATCH CO. 993 990 Decision (1) (2) (3) (4) Volume Brackets Percentages Number of Cus- Allowances tomers Of Pur- Following chases in excess of Over ButOverNot SumLumpof PlusPercent 500 14, 300 500 500 500 256. 500 500 $30 500 107 , P02. 77 500 000 500 121 985. 000 500 145 000 383. 44 500 000 235 500 355. 000 000 340 000 18, 511.12 10, 000 000 500 000 877, 15, 000 20, 000 950 000 279. 20, 000 000 450 000 58, 571. 79 30, 000 40, 000 550 , 000 EO, 683. 53 40, 000 50, 000 750 000 134. 50, 000 60, 000 050 000 , 446. 02 60, 000 000 450 , 000 , 826. 86 70, 000 000 950 70, 000 , ('38. 58 000 100 000 350 000 940. 70 100, 000 125, 000 100, 000 , 131. 08 125 000 11:0, 000 17, 400 125 000 150, 000 , 150 150, 000 107 031. 61 ----n_hn- ---____--_h n_n____- _n_n_n- n___-n-_-- 938 511 955. The above table includes approximately all of respondent's customers during said year and many of said customers purchasing different volumes and receiving different or no percentages or proportions of volume as advertising allowances, were in competition with each other in the sale of respondent' s watches to consumers. PAR. 7. The acts and practices of the respondent as above alleged violate subsection (d) of section 2 of the Clayton Act as amended by the Robinson-Patman Act (D. S, C. Title 15, sec, 13). DECISION OF THE COl\:Il\IISSION AND ORDER TO FILE REPORT OF COMPLIANCE Pursuant to the provisions of an Act of Congress entitled "An Act to supplement existing laws against unlawful restraints and monopolies and for other purposes " approved October 15, 1914 (the Clayton Act), as amended by an Act of Congress approved June 19, 1936 (the Robinson-Patman Act), the Federal Trade Commission, on January 4, 1951 issued and subsequently served its complaint in this proceeding upon the respondent, Elgin National watch Company, a corporation, charging said respondent with having violated the provisions of subsection ( d) of section 2 of said Clayton Act, as amended, After the issuance of said complaint and the filing of the respondent' s answer thereto the respondent, pursuant to leave granted by the hearing examiner of Findings 4S F. T, C.

the Commission designated in the complaint, withdrew its original ans\yer and filed an amended answer to the complaint, in \which ans,,-el' the respondent, for the purposes of this proceeding, admitted all the material allegations of fact set forth in the cOlnplnint, waived all hearings as to said facts, and consented to the entry of findings as to the 4'1cts and the issllanceagainst it of an order to cease and desist Lased upon the complaint and said amended ans,,- , upon the condition, however, that no order to cease and desist should be issued or served upon it until the entry of orders disposing of pending complaints against Bulova 'Vatch Company, Inc" Federal Trade Commission Docket No, 5830, and the Gruen 'Vatch Company, Federal Trade Commission Docket No. 5836; and, on l\lay 25 , 19;jl, the hearing examiner filed his initial decision, within the time permitted by the Commission s Rules of Practice the respondent filed with the Commission an .appeal from said initial decision; and thereafter this proceeding regularly came on for final consideration by the Commission upon the reconl hereill, includillg the respondent's brief in support of its appeal and the brief in opposition thereto, filed by counsel in support of the complaint (oral argument not having been requested) ; and the Commission, having issuell its orller sustaining in part and denying in part the respondent's appeal awl being noy III lly ach- ised in the premises, makes the following fimlings as to the facts, conclusion drawn therefrom and order, the ~rUlle to be in lieu of the findings as to the facts, conclusion and order included in the initial decision of the hearing examiner: FINDINGS ...-\.S TO THE FACTS PARAGRAPH 1. Respondent Elgin National 'Vateh Company is a corporation organized, existing and doing business under and virtue of the la,yS of the State of Illinois, with its oflke and principal place of business located at Elgin, Illinois, PAR, 2, Respondent is now, and for many years has been, engaged in the business of manufacturing and selling men s and women watches, and has come to occupy an important position in that industry, It manufactures its watches in plants located in Illinois anll Xebraska and sells them to approximately 15 000 customers with places of business located throughout the several States of the United States and in the District of Columbia for resale \within the United States to con- S:lmel'S, Said customers are single-unit retail jewelry stores, multipleunit 01' chain retail je,velry stores, mail order houses and premium houses, PAR, 3, In the course and conduct of its business as aforesaid, and during all of the time mentioned herein, respondent has engaged in ELGlN NATIONAL WATCH CO. gas 'fI90 Findings ,commerce, as "commerce': is defined in the Clayton Act, having shipped its watches, or caused them to be transported, from the States in ,,-which Hs plants are located to the purchasers thereof with places of bllsiness located in the same and in other States and in the District of Colml1bia. PAR. 4. In the course of Hs said business in commerce, respondent has paid or contracted to pay money to some of its customers as coml)(~nsation and in consideration for advertising services furnished by .such customers in connection ,,-jth the sale or offering for sale of watches manufactured and sold by respondent in accordance with the advertising .allowance plan set out in Paragraphs Fiye and Six of these Findings as to the Facts, Such plan did not make or support to make ~uch payments available on proportionally equal terms to all of respond- 'enfs customers competing in the distribution of its said products, PAR, 5. Said advertising allowances were available from respondent and respondent paid or contracted to pay them, upon the following proportionally unequal terms:

Respondent classified its customers by size, from smallest to largest into several groups on the basis of their respective volumes, volumes referring to the dollar amount of net purchases of respondent' s watches during a specified twelve-month period, Each of said groups consisted of those customers having volumes within the range of volumes or volume bracket, speeified for it; and the several volume brackets respectively, covered ranges of progressively larger volumes. No advertising allowance was available to those customers in the first or smallest volume bracket, To those customers in the second volume bracket, acb-ertising allowances were available, which amounted to the same percentage or an eqmtl proportion of their respective volumes. To those customers in all of the other volume brackets, advertising allowances 'were available which amounted to greater percentages or proportions of their respective volumes than the percentage or proportion which was available, as aforesaid, to customers in the second volume braeket, and which, as between and among said customers in said large volume brackets purchasing different volumes amounted to different percentages or unequal proportions of their respective volumes for the reason that the larger the volume the greater the percentage or proportion of volume which was available, The greatest percentage or proportion of volume which was thus available to the customer or customers with the largest volume in said larger volume brackets was not available to cori1peting customers with smaller volumes in said larger volume brackets or in the second and first volume brackets and the same was true with regard to each successively smaller percentage or proportion available in said larger Findings 48 Ji'. T, C..

volume brackets. The percentage or proportion which was available to all customers in the second volume bracket was not available to' customers in the first volume bracket.

Said advertising allowances were available as aforesaid to the extent that customers had made expenditures but not in excess of the proportion of volume offered by respondent and provided said advertisingservices were furnished through the media and in the manner specified by respondent.

PAR. 6. The said volume brackets and percentages or proportions volume which respondent made available to its customers in July, 1946 are shown in columns (1) and (2) respectively of the table herein set forth, As illustrative of the operating results of respondent' said advertising allowance program there are set forth below, for the fiscal year ending June 30, 1948, in column (3) the approximate number of customers in the various brackets, and in column (4) the approximate total dollar amount of said advertising allowances paid to all of the customers in each of said volume brackets and the approximate total dollar amount of said advertising allowances paid to all of the customers in all of said volume brackets: (1) (2) (3) (4) Volume Brackets Percentages Number of Cus- Allowan ces Lump I Plus Fol- Of Pur- tamers Over But Not Sum of lowing chases in Over Percent excess of 500 , 300 500 500 500 , 25ft 500 500 $30 500 107 902. 500 000 500 121 985. 000 500 145 000 383. 500 000 235 500 355. 000 10, 000 340 000 511. 000 000 500 000 , '677. 000 20, 000 950 15, 000 41, 279. 20, 000 , 000 450 000 571. 000 000 li50 , 000 , 683. 000 , 000 750 , 000 134. 000 60, 000 050 , 000 40, 446. 60, 000 70, 000 450 000 826. 000 000 950 000 , 638. , 000 100 000 350 , 000 940. 100 000 125 000 900 100, 000 , 131. 125 000 150, 000 400 125 000 150 000 150 150 000 107 031. ~I----------~ ==I I---------- , !;68 511 955. The above table includes approximately all of respondent's customers during said year and many of said customers purchasing different volumes and receiving different or no percentages or propor- ELGIN NATIONAL WATCH CO. 997 990 Conclusion tions of volume as advertising allowances were in competition with each other in the sale of respondent' s watches to consumers. CONCLUSIONS 1. Subsection (d) of section 2 of the Clayton Act, as amended by the 110binson-Patman Act, gives the respondent the free choice of making payments for advertising services furnished by customers ill connection with the sale or offering for sale of products manufactured or s01d by the respondent or of not making such payments, and the further choice of the basis on which any such payments shall be made. The Gtatute simply requires that such payments, if made, shall be available on proportionally equal terms to all customers competing in the distribution of such products.

2, Respondent, as a matter of business policy, determined to make such payments and selected as a basis therefore the annual dollar volume of purchases by each customer and classified its customers accordingly.

3. In making payments on this basis respondent has, however ignored the injunction of the statute on the facts admitted and found in this proceeding in two particulars: First, payments ",ere not matle available by respondent to all of its customers competing in the sale of its products-those purchasing less than $1 500 annually who were in competition with those purchasing more than $1 500 annually; and Secondly, respondent paid the same percentage or proportion of each customer s annual dollar purchase volume in excess of $1 500 to each such customer within a given annual purchase bracket, but these. percentages or proportions varied with the bracket so that competing customers of respondent who received payments did not all receive the same percentage or proportion of their purchase-volumes. Thus 71 customers, each purchasing between ~~1 500 and $2 500 per year some of whom were in competition with other customers purchasing respondents products in other amounts, received 3 percent of their purchases; whereas 121 purchasers, purchasing between $3 500 and $5' 000 a year, some of whom. were. in competition with other customers purchasing respondent's products in other amounts, received 5 percent, and 3 customers purchasillg in excess of $150 000 a year, some of whom were in competition with other customers purchasing respondent's products in other amounts, received 20 percent of their purchas~s. Expressed dollar-wise, 121 purchasers in the 5 percent bracket, some of whom were in competition with other purchasers in other brackets in the sale of respondent' s products, received a total of $11 ,985.31 as payments from respondent; VI whereas only 3 customers in the 20 percent bracket, some of whom were in competition with 998 FEDERAL TRADE COMl\fISSION DECISIONS Order 48 F. T. C, other purchasers in other brackets in the sale of respondent's products received a total of $107 031.61. There was thus a lack of equal proportionality between customers competing in the sale of respondent' products who receivefl payments, and a complete absence of proportionality between those customers ,,'ho received something and those competing customers who received nothing, 4. The acts and practices of the respondent in the particulars mentioned above violate subsection (d) of section 2 of the aforesaid Clayton Act, as amended by the Robinson-Patman Act. ORDER It .is onle'j? That the respondent, Elgin Natjonal 'Vateh Company, a corporation, and its officers, representatives, agents and employees directly or through any corporate or other device, in connection with the ~ale or offering for sale of men s and women s watches in COlllmerc~, as "commerce" is defined in the aforesaid Clayton Act, do forthwith cease and desist from:

(1) Paying or allowing, or contracting to payor allow, anything of value to, or for the benefit of, any customer, for adve.rtising services or facilities furnished by or through such customer, unless such payment. or consideration is available on proportionally equal terms to nil other customers of respondent who in fact compete IV"ith the favored customer in the resale of respondent's said products, (2) Paying or allowing, or contracting to payor allow, anything of value to, or for the benefit of, any customer, for advertising services or facilities furnished by or through such customer, as a percentage or proportion of the dollar volume of purchases by such customer different from the percentage or proportion offered or granted any other customer where such customers compete in fact in the resale of said products and where such payments are based on the amount of purchases made.

(3) Paying or allowing, or contracting to payor allow, anything of value to, or for the benefit of, any customer as compensation or in consideration for any services or facilities furnished by or through such customer in connection with the processing, handling, sale, or offering for sale, of any products manufactured or sold by respondent unless such payment or consideration is available on proportionally equal terms to all other customers competing in the distribution of such products.

I t is f1lrther' ordeTerl Tha t the respondent shall, wi thin sixty (60) days after service upon it of this order, file with the Commission a report in writing setting forth in detail the manner and form in which it has complied with this order.

RONELL . FASHIONS, INC" ET AL, 999 Complaint