C. E. Kiehoff & Co.

Text (OCR of the scan at left; may contain errors)

Ix THE MATTER m' C. E. KIEHOFF & CO.

()RDER Ol'IXlOK , ETC.: IX REGARD TO THE ALLEGED YlOL.\TJOX Dr ;me (J) OF THE CL-\YTQX ,\CT ,\6 . IEXDED Docket ;JiIJS. Complaint, JJuy 1950-Dccision, J/(f.11''i. IDS;) Order requiring a manufacturer in Chicago, Ill. of antomotiyc products and supplies, to cease se1!ng its products of like gr"acle :1lc! quality at hig-hcl' anclless favorable pdcf's to numerous small businessmen purchaset' s than it sold them to various larger purchasers competing with those less f:wol'ed, in viola Lion of sec. 2 (a) of the Clayton Act as amCllded, Before 3Ir. Abner E. Lip8coTnb hearing examiner' 3h. Eldon P. Schml', ilr. James E. COTh,e'! and MI'. Fmnci. O. 3/ aye?' for the Commission.

Ta.yloi' , 31Ulei' , Busch Jl' f(jhpi' of Chic.ago Ill. , fur re.3pondent. IXITL\L 1)E('1,o10)\ BY FR. \XK IJlF.n HE,\lux(; J':X \)IT\Elt The complaint in thii) proceeding charges respondent with violation of Section 2 (a) of the Clayton Ad (1511 S. C. 1:) hv selling in e011lleI'Ce its automotive products at diiIere,nt prices to purchasers \vha compete with each other in the resale thereof, so that the died may be to substantially lessen competition and tend to create a monopoly in both the seller s and buycl' s lines of commerce, or to injure, destroy or prevent competition with the respondent, with those of its pureha-sers buying at respondent's lower prices or with the customers of either.

Respondent's amended an3\';e1' admits its corporate status that it is engaged in interstate commerce and in competition \"ith othcl's .sPlEllg compclra.ble automotive products, that iT, charges clifi'erent C'llstOJ1cjs different prices for the same products based on the quantity thereof purchased. It denies that many of its customers compete in the resale of products sold them by it; denies that it discriminates in the price be,t, een cnstolIers; alleges that lnost of its customers resell II holly in intrastate commerce; alleges that its price clitterellt1als make only due allowances for differences in the cost. of sale 01' delivery resulting from the cliffering methods 01' quantities in ,yhic.h its products are sold or delivered; and finally alleges that any such price differential:. were granted in good faith to meet an equally low price 0:E a competitor, or the equally low prices of various of its competitors. The pleadings therefore raise t.he follmying issues: . $; . C, E, XIEHOFF ,\: co. 1115 1114 Decision 1. Do those 'I'Iho pnrehase from respondent at different prices compete Tdth each other in the resale thereof? 2. If such competition is wholly 01' partially in intrastate, commerce is iUl'isdiction clefeatecl1 3, Do the pri,:e djfIerentinls at ,,,which respondcnfs products are sold by it have any or an of the prescribed competit.ive eflects on either line of eOlTlmercp? 4. Are. these price diifcrentinls made in good faith to meet the equnl1y lo\y prices of one or more of respondent's competitors within the meaning of Section 2 (b) of the Clayton Act? D. ..\.rE' these price differentials cost justified under the first proviso of Section 2 (a) ofthe Chyton Act? The facts are found as follows:

1. Hesponclent C. E. Niehoil & Co. is, since 1923, an Illinois corporation with its principal offce and place of business located at 4DZ5 Lawre:nce Avenue, Chicago, Illinois, at which place it manufactures and from ",,,which place it sells, admittedly in interstate commerce, three general classes of automotive products-the hydraulic line, consisting of automobile wheel cylinders, Hydraulic brake fluid, bleeder tanks master cylinders, brake hoses and their respective parts; the ignition line, consisting of distributor, generator, starter and switch parts, contact points, condensers, brushes, and coils; and the testing equipment line, such as voltmeters, current indicators, timers, and compression and vaCUUln gauges. These products, when sold, are shipped by respondent to purchasers located throughout the United States and a constant COluse of trade and commerce exists therein. Respondent mnnnfaC'llres about ();'5 percent of alj the items which it sells. 2. In 1D4D, respondent's sales volume in alj products amounted to $2.08(; 499- 90 percent of which ,yas in its ignition line; 2 percent, in its tp t ing equipment; 3-6 percent" in its hydraulic line; and 2 percent in rebnilt items. These products reach the user through the usual distribntiv8 hierarchy-respondent to jobber, jobber to dealer, dealer to COllSnn1Cr, except the testing equipment, which stops with the dealer ",YIIO is the user. Respondent suggests resale prices for each distributi ye Jeve 1 and the record sho\ys these are generally maintained. These prjces result from varying discounts of 33113-40 percent to dealer, and 50-60 percent off list j 0 jobber from ,'respondent' s list prices and are il1u trated as follows:

IG"ITIOX LINE 1949 List Dealer Joliuei' \LS3 - - - $3. $2.Padma7U ____nnnn -- 4. 2.40 FF.142 n_ ---------___--__n______u 3. 1.52 \). ___.. __ ___ __ ),) Decision 51 F. T. C.

HYDRAI:LIC BRAKE LINE 1945 List Dealer Jobber K3615 - -- - - -- n - --- --- _$2. $1.Part3707 -- - - - __--------n - 1. TESTIKG EQI:IP IE"T 1949 List and dealer Jobber S n $12. $9.Part 3 ---- -- n - ---------- - ____n- 3. The above price differentials, l'cpl'esenting functional discounts from list, arc not challenged by the complaint in this proceeding and are llOted merely by way of illustration. In addition, respondent sells special accounts at special prices in very small volume but these transactions are likewise not challenged here. Respondent has no house accounts or private brand accounts.

3. Respondent sells nationally ' and only to jobbers (whether they be so called, or called wholesnlcrs or distributors) and classifies 11 OT them into foul' groups, for pricing purposes, largely according to annual cumulated purchase volume. To illustrate this with a view of preventing confusion by reason of the llOmencJatnre and changes therein, the following table shows respolldent:s classification, former a.nd present, its basis, prices pa,id by each class, number in each class percent.age of responclenfs total salcs volume bought by eac,h class and the average size order, c1011anyise, of each class: Respondent's ens/Dille I'closdfieaton Annw,l:

olunH' I A'.. ra,,1' Cbssification: :Basis lyjng- T'rice IXnmrlpl ppl fnt ' :\111111::1 GfH.('10talSTJ ' c 11nl"- Jobber (JJ---- AJ1n\W ses up ! Jnhbel"-- 1:0 diseo:1 )2- Jobber with Agrc8- , A1 lrc1,Ct"rS Jobh r 111n yol1:ml' re- 225 , 79 71'J IDCn(J, 1:10rL' ULan S1 2GO up 8ccte .'/i ' ou12UOto, Oi" 2100360:1, 111S GOO 7"00,1 3W1n-nlus (;lot on l1lCtke narts).

Distriblltor(DJ_ Annul) purcl",nsrs .J 0:)1:1l1" 1:1:15 st,':ligllt lO'; 25 2Jl o ver ;3, (jDI1 1)1';" :!ll pro(!'lcts. b\l\ e:ltire lim' Distribuj oI'w;tll A'l:1iH:llj; :,uses ' TJistri!)ltor s plus yo1- ,i.S 2.gr llent (D. oHr%,OOf1r,ilo n11: rebate," uf 5': (HI iI,g entil' li;"\ I)(I()O- :":i, I;S'C 01\ 8'100 I ;2,000, ,"' S U:1 ;::,rliOI plus all JJ!"(lll!tS.

1 In 195':clesi l:"tions were changprl by f'--Sror..rl',t s (oljo\,.s: Jo; her (J) ')r lne diouihllWI (D): Tuh!)") 'i:th agrre:TH'I'.t. (JA; bec Je cli nlburor wit.h a((rcer.;C1:t. (Dc\), l)..ribllt r (I)) bp(; i" cltsrount Ul::t 1"11ntor (1)D); Q 1U (h tnbutol WI!), a ede..1t (DA) Decame w::lretO:1sl'll:stJihlltor (D' '.'); b"s\s a Jri O:')' pri(' s rer:101ir'.ed :m1e fo:- pari, class. 2 I1 CJidl'S Cotton Statrs, Inc, the only ))UYI:"g glo:Jp to w1:om l'\'inO'ldcntl'ljo. 3 Dbcuunts in t.his Dr;;( kl' Llo Jlut apply on purchases u: sny;cp stocks, l'Qulpment and. h:'flke ii:;jrl 1 Bxcluding the Pacific Coast, the :\ew Englrtnd States :lnd r.metropolitan area of Xew York City wl1ere respondent distributes Unough manufacturer s agents, -This distribution is not inyolvedo jn this proceeding, c. E. NIEHOFF & CO. 1117 1114 Decision 1. Hespondents offcials testified tlmt these classific.ations are reviewed at the end of each eaiencbr year to ascertain if the year s purchase volume justifies the classification and its concomitant discount and that charges upward and downward are accordingly made. Howe.ver, examination of the 1949 purchase volumes and rebates of 153 of respondent's accounts (there are actually 200 such accounts in the record but 11 of these are members of Cotton States, Inc., of which more later, 15 do not have a. full year s purchase, and 21 arb or have branches whose purchase volmnes may be aggregated) located 144 cities in 1:2 southern states shows 39 instances of pricing at variance ,with respondent's stated basis, of which 28 received 11101'0 rebate and 11 reccjvml less c1iseollllt than they were entitled to on respondent's stated basis.

6. Hespondellt sells to one buying group) Cotton States, Inc., composed in IH49 01' 11 jobbers. HcspOJldent. treats this group as one pnrchascr and sells on its " diSlribntor ,,-ith agrf'cmenf' basis, in other words, at 10 percent plus 7 percent, less than to iis low volume jobbers. '1118 aggregate, pnrcJwses of the group members justify this under respondent's chssiflcatLon. but the classification is artificial and really 8, bookkeeping tim- ice, becfluse each jobber sends his order direct to respondent and receives th8 1i'wrchandise shipped bac! , direct from l'eSpJllLeut. The jcbber pays tllc invoice to the group headquarters and it in t,-Il'1 remits monthly for all its mernbcrs' purchases during that month. :Except for one monthly biJJing: instead of twelve, the operation XlYCS n:sl)oudent nothing. In 1949, the annual purchases of only one 111Cmb'O1' would have indiv-idual1y justified the discount gi\' n. The purch8ses of aile other ,, 01l1c1 haye justified n discount of 10 percent. pills (-j percent; '1 01he.1s, 10 percent and :5 perc.ent; one onler: :' perc.ent; three (Jth( l's, is percent: and the eleventh member no discount at all.

'I. It is t11e :four price cla-ssiiicaiions set out ill Paragraph 9, above which form the'. bn is 01 the charges in :l)c complaint. Thus, it .is claimed that the etrect of respondent's granting no cbSColmt to 209 jobber::\yas to le :sen substantially their aggregate competition with the JG7 other pl1rdlHsc.rs from respondent, or to tend to create monopoly in the :j(57: or to injure destroy or prevent competition by the 209 .with the 5Gi. Similar eHeets 8.re claimed for the 527 buying at EO clisconnt or at the volume discounts for $3 GOO annually or less as against the 33D bu:ying at higher discounts, i. e., the distributors and distribl1lots with agree,lIwni:s. The same is claimed between the first Cornmbsiun s Exhibit 47A-E. This exhibit was sf'alf'd by the Rxaminer to prevent the tlj' nccrs:::lry rei elution of sales vulun,es. ftc., to the pu!.Hc, hence the Dilmes, ilddrcsses and other 11cTfils of thf'se instances arc not identified Jucrein. 1118 FEDERAL TRADE COMllISSIOX DECISIONS Decision 51 F. T. C. three groups-jobbers, jobbers with agreements, and distributor'stts against the U8 distributors with agreements. FinnJly, it is claimed that these differing sales prices of respondent have the effect of subtantially lessening competition between respondent and its competitors in their attempts to sell to jobbers, tending to create a monopoly in respondent, and injuring, destroying 01' preyentiJJg competij- ioll with respondent.

S. Hesponclent:s annual volume discount plan, as set forth in Paragraph 4 S'upTa is available to all its cllstomers ancll'e pondent' s sale Inen are forbidden to deviate therefrom in quoting prices or making sales. All customers are treated equally in the granting of freight allowances and returned merchandise.

9. On the first issue of whether purchasers from respondent at whatever price are in competition in the resale with each other and with jobbers who buy from respondent' s competitors, the record is clear that they are when located in the same trading area. Respondent's president unequivocally so testified " and a chart' of 144 trading areas in 12 southern states shows, 200 of respondent' s 866 accounts buying from respondent at respondent's fOllr different prices. In addition, there is the testimony of 2 jobber customers in each of two of these trading areas that they compete in their scning area (which varies in extent with the size of the jobber s business, of course) with aJl other jobbers of aut.omotive parts located in the area.

10. On the second issue, respondent admittedly sells its products in interstate commerce and charges different prices, here alleged to be discriminatory, in the course of such commerce. Jurisdictionally, t.his is suffcient. The purchasers thereof need not be engaged in interstate commerce, in the use, consumption or resale thereof. See Oosmetic Shol'pe v. Elizabeth Arden Sales OOTl'omtion 178 Fed. 150; M eyeTS Shell Oil 00. 96 F. Supp. 670; Danko v. Shell Oil 00. 115 F. Supp. 886.

11. The third issue is whether respondent's price differentials haw had the statutorily prescribed effects as described in Paragraph 7 gupta. On this issue, the record shows that some of respondents jobber customers in particular, and automotive jobbers generally, operate all a very t.hin margin of profit-- percent of sales or less; that all of them must take the :2 percent discount for cash payment withiJi 10 days, usually extended by suppliers (this discount is not involved here. because it is uniform to all); that failure to take it in many instances wipes out profit, in others, cuts profit in half or less; that automotive jobbers must stock many lines of products ranging from L "Tl" 518- , 53i- , 542- . Cx. 4iA- __ , ! j. ()() . l. E. XIEIIOFF &. co. 1119 llu, Decision to 20 lor the small operator to more than 100 for the large jobber consisting of many thousands of individual items; that profit is made up of an aggregate of very small amounts on each, or as one la.rge jobber put it, 3e on lL S1.00 sale meant the difference between stlLying in business and failing. Although there is some testimony by respond- E'nt s president and sales manager that quality, missiona.ry "ork checking stock, advertising, etc., are a.ll factors in the competition to sell to jobbers, the record is clelLr thllt price is the most important llnd frequently the only factor considered. This is made quite cle,n by the testimony of one of the two respondent's salesmen in his statement that when he lost a.n account he deemed it suffcient only to report the loss ,,,without giving any reason since the home offce had the price sheets of its competitors.

12. This picture is confirmed in more interesting detail by a jobber buying fronl. respondent at its highest discount, or lowest price 10 percent plus 7 percent below the regular jobber price. This jobber Jocateel, in Chic.ago, shipped into seven or eight states, e.mployed salesl1wn and 3 merchandise trucks in 1951. Ilis records reveal1ec1 tile following volumes a.nd margins:

Year Yole!!"e ! Grossmargill l :'et proct la;;L 141\, ono . Perccn'HI' Percent075j(J3L I84 O()()i l.:. fjl 1(!4(L- , 0011 17. 1941 'i'?GOIJ 1851\)12 o. 000 ' 1.3: 1943. 314. 0(11), 25. 19H- , 000 ' 2:,. 1\1-5- 21. 46 1 2;1. HJ17 - 24. 1.7 1948-- : g6 . !i 477. 0001j94ii ':;i :J!Jnetloss1.00 OOo 27. 63lj1\15U- 1 This was:HI filmonT1ill year Oncr in fj lifetime yotl get 3. )'ear li;'c that " Tr. 79i. Gross and net margjns in t11e above are figured on sales volume, and gross margin represents the difference bet\\een net prices paid for merchandise after discounts! rebates and receipts from sales thereof before expenses and taxes. These figures, of course, show that although the witness s sales volume has shown a steady grmvth, his net profit percentage thereon has not, in fact, it ha.s deereasecl since 1946. From this respondent contends, of course that .its more favorable prjcc has had the opposite cfIect to that contended for by counsel for the complaint. 110"\over, ,,,hen these Ilet profit percenbges are COllverted into actual profit totals we find the. following: 6Tr. 131)2, 423783--58-- , 1120 FEDERAL TRADE COMMISSION DECISIOKS Decision 51 F. 'l. C.

Actual net profit 1938______- - --- $1, 1001939__Year ---- --- 6. 440 1940___- - - 2, 910 1941______-- - 5, 670 1942_- ---- -- 2, 875 1943- - 6. 280 1944__- --- - ---- - --- --- 10, 062 1945- ---- 11, 286 1946----- - - - 46 , 944 194 7 - - 12. 869 1948---- - - - - - 3, 250 1949____ - 18, 603--loss 1950_ - 6, 360 Excluding the three years 1D45, 1D46 and1D47, which the witness testified were a.bnormttlly profitable years for every automotive jobber these actual profit figures do not show the same pattern as his net profit percentages. The contrast bebyeen percentage and actual profit indicates what is generally known: that in a reselling operation, as volume increases, overhead does also and net. profit percentage of sales necessarily decreases, although actual profit mayor may not. The record also shots that in 1950 his discounts and rebates on all his pur- ('hases were S8 953. , contrasted with a net profit of 86 360.00; and in 1949 , $6,132. 00 of discounts Etnel rebates as against it 10::8 aT $18 603.00. To the above 111ust be added, also, that in 1945 the witness OOOl1acl an inventory of $67 OD() but this by J 950 hr,c1 grmyn to 81lJ j3 ",'Ias only $6 300. whereas in 1031and that his net 1\o1'th in IG this amounted(l to $113 000.00. The significance of discounts and rebates in this witness s profit picture 1S too npparellt to need hhoraion. As for his purchases Irom respondent only, he started out in 19:13 paying the fun jobber s price, apparently, and purchased in succeeding years at progressively lm,er prices from respondent until in 1\):19 and subsequent years, he ",vas buying at 10 perc.ent plus 7 percent lower than the johber s price. In 1D50, he bought 815 000.00 of respondents products, which marked up for resale amounted to 820 000.00 annual) sales out of a total of 8City 000.00 annual sales of all products handled.

13. Two other jobber-customers of respondent, cOTnpE'tin . with this large operator in the resale of 1',esponclent s products, testified that one ntercd business in 1D46, and has for some years been Imyinp: from 1'esponc1cnt on the basis of ft jobber with agreement (see Par. 4 ltJYta) nnd the other ent.e.red business in 1D49, in ,, which :\' (',11' he paid respondent full jobber s price, but in 1950, and since, h, s been buying on the It). Both testifiedbasis of a. jobher ""ith agreement (see Par. -:1: SUFi' \ C. E. XIElIOFF & co. 1121 1114 Decision t.hat they have progressively grown, have by reason of personal contacts and solicitation taken business away from the jobber whose testimony is summarized above in Paragraph 12; that his eompetitiol1 with them has not bothered them, because of their better service, more frequent calls, low overhead, and personal contacts. One thought the largevolume jobber referred to, was buying at the same price from respondent. as he \vas, the other knew that the large-volume jobber was getting a better price. On cross-examination they both admitted the obvious-that they were interested in growing; that a greater discount or lower price would help them do this; and that they wanted such lower price and would put the increased margin into their businesses to expand it. Both had some doubts that a lower cost of prod-. uet acquisition would pay for hiring extra salesmen, 01' otherwise expanding but both gave the impression that they "\vould like to try. 14. Responclenfs sales manager also testified that in his eighteen years with respondent he had seen many small jobber accounts grow and prosper upward into the more favorable discount brackets, idenifying three of them. One in 10 years had grown from less than 200 to S6 000 annually; another, from 81 800 to $2 400 in two years the thin1 from $1 128 to S2 07(- in one year. 1-Ie furt,her said that there "\7ere. 10 to 15 sHeh instances in each aT respondent.' s 15 sales clist-iets, a.nd tlutt the nmnber of potential jobber cllstomers-respondenfs potentiai market-was about 7 600 in 1949 , 8 200 in 1950, and G7o ia HU' , although no bre lkclC\vll a: to size is mentioned. 1;). Fronl the above and from other evidence in the record, respondent contellcls that its varying discounts have no adverse eiiect on the jobbing line because the jobber buying fl'cnn respondent at its lowest price. d lie to his size has proportionately 1101'e overhead than 111S Ttlaller: price- disla ,-ored competitor; that the latter by very reason ci his sllflJlness can and does tab:. business fl"\VflY from his favored large competi tor through low overhead, personal contacts, time for per30nn1 solicitation, and quick service; that the small-sized jobber Las gro\\ll in size .in spite 01 paying the higher pr.ice; and that the large md pri('e, favored :jobber has declined profih\. '." It s('eJns to this I-If',using Examiner, however, that Section 2(a) of the Clayton ;\.ct j concerned pI"imal'ily, if not exclusively :ith commanding Cllwlity of price among competitors nt the time of purchase, rather rhan wit)1 the myriad factors of a reselling operation which may clestI'o:\' the, effect of that equality, Ol' if there be no price equality, may "It i, \mf0rtUlJute that the record doeo; not show the 0,,,1':111 growth in tile ab'greg:1te of l1utOJ!lotin. ,iobbing bllsineo;s in this partjf'ular area, nor sflles volume figures for tbe two iobbE-r;: refcnerl tu in Par. 13 for comparison with cOllpa1'able figures set out in Pal' 12 nbol"' 1122 FEDEn.' L TRADE COMMISSION DECISIO Decision 51 J3'. '1. C. offset disadvantage. on t.he one hand or advantage on the other. Enforcement of the L1w would become ,yell-nigh futile if the number of salesmen, their respective salaries, commissions, and effciency, location of the bnssiness, rents paid truck rnaintenancc and the wisdom of employing this or that resale aiel or the eiJciency of any of them have to be gone into. If a price preference can be justified to one customer because the recipienfs location is poorer or his rent higher or his maintenance more expensive than those of a customer not receiving such pric.c prefet'ence it \yauld inevitably lead to an evaluation of the effciencies of hnnclreds of purchasers and to a probable subsidization by the seller of ineffciency itself. Pricing by resale effciency must inevitably lend t.o pricing by customer-the very practice at ihich the In w was aimed to prevent. The IIearing Examiner does not believe such \Tas the Congressional intention. I-Ie is of the opinion that the mandate regnires only equal price opportunity, that what the purchaser does thereafter in the resale of his Qlyn merchandise, if he then operates ineffciently or fritters away his equal price start is presently at least, no concern of the law.

16. From the fnds found in Paragraphs 11 and 12 supra it is obvious that a much smaller discount or price differential than respondent grants directly and markedly affects profit margin; that the price differentials which the jobber (whose sales volume anel profit margins, covering a period of years, are set out above, Paragraph 12) enjoyed, accounted for all or most of his actlUll net profit, at least ir; t\yO years R that although his tio smaller competitors, buying from respondent nt higher prices, testified that they could ascertain no injury to them from his competition, they both wanted a greater disenunt which they "would use to enlarge. their businesses and expand their operations; they bot.h wanted the opportunity to grow afforded by such price treatment, one of them believing he "'-as under no price disadvantage as compared with his large competitor. And, it is also evident from the record that this large, price-favored jobber did not maintain sugg.ested resale prices, as did a.ll the other jobbers who testifiecl, but cut prices on respondent s products to "meet cOllpetition as he put it. From his financial picture, it is doubtful if he could. afford to do this, without the discounts anclrebates he was receiving. The power to cut prices, thus vested, carries with it a direct poten- 'This idea of resale oprratioDal factor and effciency, as HfJf'ctiJlr; anrl . instifying- prilr dis(TiminatiollS, is pointeo;y ilustrated by the cross"examination of J'f'spondent"s pl'esidl'nt at Tl'. 519-31; 570- , :387-91.

8 This is confirmed find highlighted b;.' testimony of respondent s saJ!:s manager that ,vbl'1l in 1949 , because of Insuffcient volume he reclas ifif'd 82 " ' aCCOllnts to a "JA" basi" (see Par. 4 supra) many of them strenuousl;.- objected to the Jow!: dis!:count or Jjigher cost of product acquisition, Tr. 693--.

c. E. xn:HOFF & CO. 1123 1114 Decision tiality of substantially lessening competition and of injuring, destroying or preventing competition with -him. The record does not clearly shvw that either of these effects have as yet occurred. 17. The " fait accompli of actual injury, ho\vcver, need not be shown for a violation of Section 2( a) to occur, if the Morton Salt rloctl'ine " is to be followed. It is suffcient thereunder if there is a flsonable possibility (under' the majority opinion) or a reasonable prohability (under the minority opinion) that price differentials will result in these competitive effects. It was there held "It would greatly handicap effective enforcement of the Act to require testimony to slIo\\" that \\"which we believe to be self-evident, namely, that there is a; 1'e"sonaole possibility' that competition may be adversely lfIectecl by a practice under \\"which manufacturers and producers seu rheir gooch to some customers suostanhally cheaper than they sell like. goods to the competitors of these customers. This showing in itself is suffcient to justify Ollr conclusion that the Commission s iindings of injury to competition were adequately supp0l1-ed by evidence. The discounts and rebates here are more substantialJ comparatively, than those illyol\'ed in that CRse. The IIearing Examiner is certainly bound by this latest decision on t.his paint 11- if there is to be a reintcrpretation, it is for the rcviewing authorities to make it. The finding, therefore, is that respondent's price differentials constitute (liscriminatiolls in price, the efJ:ect \"hereof may be to substantially lesspn competition in the resale line of commerce, and to injure, clestroy or prevent competition with those who buy from respondent at its lower or discriminatory prices.

18. The J-Iearing Examiner, however, sees no potential Or actual tendency to'yard monopoly in those buying from respondent at these lower and discriminatory prices. It is true that the financial history of the only witness in this category is one of growth, but it also 5ho\"\8 tlint for sevend years that growth has been uncertain and vacillating, ,incl pro:ftwi e has been arrested and even retarded to the extent that profit existence rests on the discriminations received. Unfortunately, The economic picture of at least one other f:l yored diserim-inee for comparative purposes is not in the record. The record as a whole though, shmvs 110 substantial concentration in the co1fers of the few; it shows rat.her the pmn:r to lessen, injure or prevent:; competition with "F. 1'. c. v. JIorton Salt Compa.ny, 334 11. S. 37. :c' ee al Corn Proal/cta Ref. Co. v. F. T. 0., 324 r. s. 720 , 7S.s; F. T. C. Y. Staley Nlg. Co. :)240. S. TclG.

:j Tbe iIrjJlications o! the Jiorton Salt Jlolding are made uumistakaiJI;; clear iJr Jnstil:e Jackson " dissent . TJ1( Court uses olcrtones of hostiity o all quantity discounts, which I (Jo not find in the Act. bnt they are translated into a 1'1.1e whicll is fatal to any lliscount tlh' Commissioil sees I:t to attacJ, Decision 51F.

them, but as yet nothing to indicate that they may monopolize to the extent of substantially influencing or dictating the competition of the un favored.

19. The record is barren of anything substantial indicating that competition in respondenes Ene of commerce has been affected in its favor. "What little evidence there is, is to the contrary. Respondent has, and for many years has had, severe, even bitter, competition from other automotive parts manufacturers and suppliers, particularly the subsidiaries of Hlltornobile manufacturers who secure practically all of the replacement parts business done by automobile agency service garages through their corporate connections and the consumer advertising eampaign to get "genuine" parts when having an antomobile repnired. It is ric1iclllons to claim on this record that the. competition of respondcnfs competitors has been substantially les e:1C'c1 by reason of respondent's price differentials, or that the latter are tending to ve.st in respondent any monopoly. The financial growth or col1chtion or respondent over a period of years is not. 8hmYll. 7ho1'e 1 evidence that respondent's gross yoiume ,vns less in 18GO than in 1949 on the other hanclrc3pondent's sales manager said the, gross Y01Ul1l8 increased in 1030 over 19-19 , and in 1951 OITr 1830. \.tbOl:g:h Tiet truly indicative at a vohune trend, the record does show tlwJ respondent's jobber customers ((eelined in Tlumber from SG() i; U)49 to 821 in 1950 , and to EO;) in 193L while. iis market of pol:ential jobber custmners increased fmll 7 500 in H)-l:J to 8,2CO ill 1950, and B.Gin ill 1951. There is nothing subst8.nti l in the record either to :-ho\\- that , (lestloye(l 01' pre,re3pondcnfs price discl'imincltiom: have injured vented competition \\irh it. Thenncling is t.hat there i; 110 sub: :!;ltii,J evidence sho\Ylng, 01' Yl'Olll ,,,hi('h OEe (',:ll infer: an nlver e ccmlpctill' check On the selle,r ljnc, of commerce.

:20. The fcl rt.h issue is -whether reepondenfs price discriminations were mQc1e by it. in good faith to Tl1eet. the c.Clnall='v lov price 01' prices of a competitor or of competitors. In support of thie: l'Psponclc:lt's D:! : hadfounder and president testified that he incorporated in J 1\10(1el T orci parts, principally vibrator part2 p:wllufactun:ct for him by others, assembled nnd packaged them under his mnl brand and sold them to jobbers. This acti,,ity continnec1 until 18S(1 ,.-dwl1 he began his O1\n manufacturing and expanded to making also General J\lotcrs and Chrysler parts, and since 1939 has clone this jn his own fnctoTY built that year. Respondent has ne\"er sold automotive parts for origl1)al equipment.

21. lie further testified that. respondent's present volume discount plan goes back to the early 1930's. Before that in the 1 D20 s it ,vas an item quantity discount, but neither of these discount plans origi- C. E. IEHOFF & co. 1125 1114 Decision nated with the respondent, they were general in the industry. The present volume discount plan was adopted by respondent because it :felt that it was more equitable to allow small customers to get the advantage thereof because the previous discount plan was an item quan tity discount and only the larger buyers could obtain it. It was first adopted by respondent's competitors in the fields of ig11ition and automotive parts and this competition forced the issue on the respondent who we,nt ana volume discount basis in 1934 1935 or 1936. In that period, competition forced respondent to quote 10 percent to a majority of its accounts. The original parts manufacturers, such as General :Tlotors: Chrysler and Ford set the pattcrn for the industry, but respondent must also contend Tfith many replacement parts manufacturers: whose price schedules respondent must study to be competitive, along with the list prices of the original pftrts mnnuIact11Ters. Respondent knows the prices of its competitors because they an issue price lists and furnish these to TBspondent's jobbers. In ntOst cases compehtors\ discounts atc some,vhat longer (theiv prices somewhat Jower) than responacnt s. tTobbel's Trill not handle responclenfs line unless respondent gives 8- profit hlcenti'- e in its lines over other lines. It has al1yays been a. strenuous battle for respondent to get a jobbcr to buy respondent s line., and merclumc11se and resell it in competition with t.he original parts man11facturers and the.1l' outlets. Hesponclent has not. bccn able to ac.hieyc t.he lowest price ofi'erec1 by its competition-its prices 011 single items in somo instftnc( s ate 10\'- 01' th,tll its competitors bnt in either instances prices are the higher.st. The average of respondent' s lwiccs is higher thfln t.hose of its rank flHd file competitors. To achieY8 a 10\,,'0' price tl1Hll any othet competitor, respondent 'iyonlc1 have to sell bclol\ cost. Hespondenfs prices. !l' e fL'\:ccl somelyhere bet1;- een cest 0:1 production and the prices of Original parts milJ1Ulaetllrers. Responc1en1 s prcsident docs not. kl10w holt an)" concern cnn mainto.in ii-self in business if all volume discounts \Vero eliminate,c1 and a.lcsmell sold only at fl jobber s price: rcclncing such price only at the actual point of 8a1e ,,,hen necessfl'y to meet the equally low price or a competitor. In snc11 case' respondent 'Iould Jmve ns milny clifierent prices as jt has customers, and it ,yolllc1 be disastrous to respondent to operate that way. If respondent dealt in only one or two items, and then only in large quantities, pcrhaps it could do so. Operating from f1 single price and granting a roc1uctioll therefrom to meet the part.ic.ular price of an individual competitor would mean- that respondent's salesmen, in t11e field, would have to be competent to determine the bxtent to which respondent could go to meet the price of a competitor, whicl) respondent (loes not think they could. This "Would require more personnel; far gre.after expense; and 1126 FEDERAL TR/!..DE CO \nnSSIO DECISIOXS Decision :)1 1". '1. vtOuld preclude respondent from maintaining the business it now has particularly the large volume customers who account for nearly one. hah of respondent's volume. The result would be that respondent' cost would be higher due to lower volume. Selling on the basis of a single price from which deviations would be made only in particular instances would involve a great deal of extra detail and work. Sales men \vollld have to check with the customer and sales manager and determine the cost that would have to be met in the particular case. Two or three times the number of salesmen would be required to contact customers and to maintain close surveillance of prices offered by competitors. This \youlcl be impossible to follow through, and in view of the extent of respondent's line of products ' would be tremendously costly.12 The delay ensuing from the time that salesmen discovered a competitor s lo\v price until the home ofiice approved (as not being below cost) an equally low price, and the customer could be informed thereof, would mean that the respondent would be too late to get the business. It would not be feasible to give salesmen suffcient authority to reduce a price to meet a competitor s lower price without consulting the home offce, because the salesmen would have no means of determining the cost factors involved in the particular product. 22. He further testified that if respondent were ordered by the :Federal Trade Commission to discontinue its volume rebate. pbn and adopt a uniform price regardless of volume, while respondents competitors are not similarly enjoined, the effect ,,"ould be disast.rolls. Hespondent would have to give every purchaser its extreme discount 10 percent plus 7 percent to maintain its busine.ss, in which case, it would make no profit. If such price were set at any higher level, respondent would lose about 50 percent of its volume ,which in turn "ould skyrocket respondent's costs.

23. Respondents president further testified that jobbers: prices must. be competitive with Auto Lite and Delco Remis prices. Deleo Hemy is considered a prestige line because it is on the car ,vhen it comes from the manufacturer, it has a Jarger sales force, probably many times greater than responclenfs. Auto Lite operates in a slightly different manner, but is definitely a prestige line. l\respondent:s net price must be under Auto-Lite s and Deleo Hemy s prices, otherwise responc1enes jobbers \vill not handle its lines. These concerns have this advant8ge over respondent, inasmuch as they supply for replacement "original': parts, and there is a. definite preference on the part of the car owners t.o replace t worn out part with the same part made by the car mallU- 000 itl' Dls on tbe ignition line ranging in IJrice frolD 8.02 to :)2. 25; 1 200 in the l!:\:r:luli(' hrn1H' Jine mug-ing in 1Which' from . 02 to $-130. Tl'. GGS- 13 T1Je t'oreg"oin". testimony of respondents president is cl-'l'olJor ted il1 ,,11 !11atti:JI as. rects by that of respondent' s sales mllnng-er, '11'. f3();)- ;1, et nl. C. E. XIEH,OFf' & co. 1127 1114 Decision factnrm' as that which is worn ont. For this reason, respondent must sell more cheaply to many customers than either of these concerns, to overcome this disadvantage, Hesponclent's president has never known his ignition line to be handled by an authorized automobile dealer except during the war ,vhen the dealer ,vas unable to obtain parts :from car manufacturers. I espolldenfs president stated that there are other "ays (unspecified) than respondent's present pricing methods to meet competition, but think:; it.s present method is best because it gives the jobber the best opportunity of meeting the original part.s compet.ition.

24. Respondent has seven competitors on its hydraulic parts Jir,e and some thirty competitors on its other lines. It is obviously impossible for it to exactly meet the prices of all of these competitors. \ccording to respondent s president, smne of these competitors are lower on an lines than respondent; SOlne of them are lower on some ltems and higher on others; some of them are higher than respondent: nd others are appI'oximately in line with respondent. .l\.uto-Lite ane! Deleo Hemy set the price pattern for the entire industry with differential prices for different classes of their trade, and respondent tries to keep its prices slightly Jower than both of them. The Ford )101.01' COlnpany's distribution lIlethod is a little diiTerent and its price' competition is sometimes ImH'l' than respondent's. Respondent cannot sell the, Ford dealer and meet Ford s prices. Respondent mainwins its pricing system as is, UJ)c1er the 1'oln110 discounts establishec1 fllHl never (leparts therefrom l" gardless of specific pric.e cutting. 25. Of fourteen replacenv:mt parts competitors (as distinguished from original parts manufacturers anel sellers) on ignition parts, 1'E:spondent s president test.ified that with 3 , respondent hacl no competition: and of :2 other3, he djd noi: know ""whether their prices were .lower or higher than those of respondent.. Of the remaining nine were lo,vel' tlwn respondent. none "ere higher, and 4 ,Were about the :;me. Of his seven competitors on brake parts (not original pa.rts Wml1factlll'erS or pners). he testified he had no appreciable cmnpetition ,, th :j 1 'Y\-a3 higher in price than respondent, anc13 were lo"er. 2(;. I-e ponclent, s sales manager testified that of the sixteen ic1entifeed C'OJnpetitor of 1'E:spool(lent on ignition parts none had a net price To n, joblwr that iyas higher t!1nn respondent's similar price, and that none, of thr111 hfic1 fl jobber price classificat.ion such as respondenes (see Par. 4 8111'1'((. ). He further stated that the ignition pa.rts line which re pon cl('nt sells l'mks cventh in sales volume among all automotive pfirts. Hcsponc1ent Heyer llas find cannot afford to sell on a net price bnsls.

;, , j; j :;,!q 1128 FEDERAL TRADE COMMISSION DECISIOKS Decision 51 F. T. C. 27. One of respondent' s fifteen district salesmen (Arkansas, l\iississippi, Alaban1a, and parts of Tennessee and Louisiana) testified that a number of his customers had been oflerec1 ignition parts at lower prices than responclenfs prices; that 118 knew this from seeing proffered contracts, price sheets, and from \,hat his customers told him; that these competitors Iyere S8Y811 of the sixteen iclent.ifiec1 in the rec.ol'd; that he hacl10st ClH:tomc:rs to them (he ic1elltiiiecl 5 1;which he had lost and to which competitors he lost. thc.; , as y, ell FS one. "hieh he gained) bccaw:'12, of a 10\I'er price; (111Cl th.lt it is harder to regfLl11 a fanner customer takell fl,vay by a competitor, thrm to talm away one not pre.,riously sold from n, competitor.

2.8. A compo.ri on chart or If)c1D jobber (Tlithout any discount) prices of respondent with the jobber (without any discount) prices of ten of its principal rcphcement parts competitors on 57 of its 1110st popular P:111:s (representing SO percent of respondenes ignition line volume) "\with the same or comparable (interchangeable) parts of these, ten competitors shows:

jJo1\dent II Parto j- i 1- ;

" ;1 ns:'10 ctistl'jb 'ror C'ljJ 17 15 lDj7I't()i" -- u(i/)rw'h sct-- J I 3nwuL1tO! Yitch - 21 l2..\ 11 Any discrepancies betweell the lineal aggregates above and the total numoer of comparisons is due to one or more of the cOlnpeLitors not Inaking one or more of the parts se,lectec1 lor comparison, hence price comparisons ('ou1(1 not be made. The same comparison made by indiyidual competitors on all 57 parts shows: Corometit/Jl ome ,0 I 18 I - i 13 I '27 1 b :

;18 . TIle t\'lc cOEmelito1'3 8rr rpfnred tain the tra:lsel'ipt by number". \1;J1clllllIlll;ers are keye(l to thr r, lJme in fm l' :l1Iibit sen,ed by tile 1:ef\ring E:la:ninert rc poEcl811t' s rer C.e, Lo preH:lt llmecessary ( iscJo" aillentity.

;:\, ________ _. _.____ _ j C. E. lBHOFF & CO. 1129 1114 Decision On overall total; this sho\,\' 8 respondent higher in netpl'ice on 226 c.QTIparisons, lower on 152, and the same on 144. 20. Hesponclcnt has also shown the anllual volume rebates given by these same ten competitors. III .some instances, printed contract forms setting t.bese rebates out ate in the record, in others, it comes from the sales manager of responclent and is based on what he has gleaned jj\ t.he. inCLnstry, :From cnstolY18l'S, from his salesmen, or from his com- )WtitOl'6. Comparison of respondent' s annual volume rebates with tllO e or these ten competitors follows below; Respor;ilcn1 : PCi":'cnt rp Co S1 200_ --- 0 :'1 200-$2,400_ - 5 4()O- 600- --- 'I $:1,000 $6,O(J(L___ ----_. 10 OOO- 400- - 10 pins ;) 40C)-812 OOO- . lU pins 6 l:? O(JO add oye)' --- HI pln Comr t1tor o.

$1.800- 400_ ---- 3 400-$3 1)00__1:----- 5 600- OOO- __n_ 85,OOO- ;500- -- 8 ;:6,JOO-ff8,OOO---- ------ 11 000-$10, OOD- - 13 $10 000-$100 000., . 15 Oyer $10U OOO_ ------ 20 Competitor Xo. 2:

8200-$29\1-_-- ---- 10 $300-S39!L_ ---- 13 $400-820,000__--__ ---- 15 OOO and over__ - 20 Competltot. Xo. 3 :

Vp to $1,800- $1 ,SOO- :)DU- 10 pins 5 $3. GOO-f:G.399- 10 vlns 40o- , 000- 10 plus 10 S10,OOO and over-- COilp titor ")'0. 4:

1:p to $;), OOO_ - 10 $!J, OOO-S10,000--- ---- J;) 810,000 aIHl o\'ec._ n_--_ - 20 Competitor :\ o. 5 :

lip to 800- - 5 ;J ,801- $3 600_ . 10 G01- OOO--- ---- 15 Oyer $3 000____ -- 20 Competitor o. ():

Up to $1,000- - 10 001.- 000------ _. 15 ______) _.. ? 1130 FEDERAL TRADE. COM;\lISSIOX DECISIO Decisi()n ;)1 F. T. Competitor ::0. 6-Continued Pe1' ceipt $2,001- 00(L__--__ _------_. 20 Over $3,000__--__-- ---------- 25 Competitor o. 7:

Up to $3,600__--_--_ 600 and oveLn____ ----- 15 Competitor Ko. 8__--------------- 23 to a central distributor rescUing to jobbers at 10 percent off jobber s price.

Xo .volume discount.

Competitor NO.

Up to $3,600------___ $3,600- 80(L- - -- 8 pins 3 'Jll the full $1 200 in excess of first 400.

800-$6 000- - - - -- 8 pins 6 :m the full $1 200 in excess of first 83,600.

000-$7,200- 8 plus 12 on the full $1,200 in excess of first $4,800.

$7,200-89 600 - - - - - - - - - - - - - - - - S plus 15 on the full $1,200 in excess of first 000.

Over $9,GOOn_nnn_ 8 plus 15 on the full $2.400 in excess of first 200.

Competitor o. 10n_--n Straight 10 percent off invoice l'egardle5s of ,alume.

Some of the above discounts are ach-ancecl month1 ; some rebated yearly; some an' conditioned on carrying sto('k or carrying stock in certain amounts, others are not. Six other competitors of resp0l1Cle1l1 on ignition parts do not have any volume discount 3110\"ence, but Fell on net prices, fixed in accordance with volume-the net effect so ft as respondent is concerned being the same.

30. It is obvious from the above comparisons, ane! from the orhpr evidence in the record, including the testimony of respondent' s president, that there has not been, in fact, there could not be, a meeting (If t.he equally low. prices of all these competitors on all the hnndreds of parts involved. Section 2 (b) of the Act, under which this defen,e is ouered, has been twice construed by the SUpl'elne Court in the Staley 14 and Standard Oi1 cases. The I-Iearing Examiner construes the first of these as holding that the statute is inapplicable, or the defense thereunder not made out unless the seller's cliscrirninatiOl: was:

1. Temporary:

2. Localized;

::L Individualized as to a particular competitor; 4. Kat part of a pricing system;

5. Defensive rather than aggressive.

I4F. T. C. Y. A. E. Staley Mfg, Co. 324 U. S. 746. 1Fi Sf(mdv.rd OH Company 1". F. . C. 340 L. S. 231. C. E. XIEHOFF & CO. 1131 1114 Decision The facts set, out in Paragraphs 20 to 29 above do not meet these 1'8qnirements. Responclenfs price c1iH'erentials arc part or a nation- ,vide pricing system ,which i8 pernunent in essentials, with minor adjustments from time to time, is continuing in nature, prospective as well as for the present, c0l18tructed for all of its competition rather than any particular competitor: and not exactly meeting anyone or \11 competitive prices in the great majority or instances, undercutting nnrl overshooting out number matching. It is deliberately set to be 101'1('1' than responclenfs most powerful competition- the origina.l parts manufacturers. In ract., respondent's offcials impliedly admit they have never met these Staley requirements by oiIering cogent reasons why they cannot. They point out that they sell over 3 000 items instead or one homogeneous commodity; in comparatively minute quantities, rather than in carload or tank ear lots; that they cannot meet the diflerent prices of 30 or 40 competitors (in the Staley case, of course, all competition sold at a uniform price in every town and hamlet in the United States) ; and finally, based on more than :30 years experience in the industry, they say that to establish a uniform price to all and t.hen deviate therefrom only in inclividuallocallze.d instances would make it iri1possible for them to remain in business. These are indeed persuasive facts and make out a hardship case. But, unless the factual setting of the Staley case can he basically c1ifl'ercntiated from that in this proceeding, the defense must fail. The Hearing Examiner is merely a judicial delegate of the Commission and as the low man on the judicial totem pole, is bound to follmv the mandate or the highest body on that same pole. Any reassessment or exceptional reinterpretation of the statute must come from the courts or from that body of experts, the Commission. 31. The racts sho\v distinctions, but without basic differences, between this proceeding and the Staley case. In the latter, there was but one homogeneous commodity involved, sold in tank car lots for the most part, and there was but one price to meet. Here there are myriad products, prices and competitors. But the fundamental condemnation there is present here-a nationwide pricing, system which inevitably spawns systematic and continuing price discriminations. Any such system cannot he wholly defensivc. There was in the Staley case at least an exact meeting, here, there is not. It js believed accordingly, that no fundamental difference is shown and that the defense fails for that reason.

10 "Hardsbip cases make bad law," Rolfe, M. R. in Winterbottom Y. Wright 10 :.I .11 ' 109, 116.

Decision 51 F.

R.egard1ess of approach or criteria, respondent' s pricing system i3 one which favors, progressively upward, its financially powerful customers and as Justice Black said in the Morton Salt case supra the, retically these discounts are available to all, functionally they are not. 32. The finding, therefore, is that respondent has not met the equally low price or prices of a competitor or competitors. There is, the.refore, no necessity for any finding as to good faith or otherwise. The Hearing Examiner has no doubt on this record that what respondent has done, it has done 1n good faith, in an ordinary if not legal sense, but what it has done is not what the statute, as interpreted requires it to do.

33. Discussion of the Standard Oil case construction of the Act is therefore probably academic, but since the Commission may reach a different conclusion as to the applicability of the Staley holding, a finding on this point may be necessary. The Supreme Court in the Standard Oil Case H interpreted the Act's phrase "equally low lawful price of a competitor" and counsel for the complaint contends that there is no shmving that the prices of respondent' s competitors were or are lawful, i. e., non-discriminatory. This is true. There is nothing in the record to show that such prices are ei1he,r lawful or unla,,ful as an absolute, unless one adopts the rigid contention that every quantity or volume discount is per Be discriminatory and therefore illegal, which this Hearing Examiner does not. 110weve1', this legality test or requirement has in effect been replaeed amplified or supplemented by the Commission to be "whether respondent s offcials knew. , as reasonably prudent businessrnen, hac1reason to believe that the prices of their competitors ,ve:'8 unlawful. 34-. As to this, the testimony of respondent's president and sale manager is that they had no knowledge of the lawfulness of competitor prices one way or another; that they assumed them- to be Ia wful: that although competitors had different prices to different purchasers whether net or by reason of quantity or volume discounts, respondent: offcials did not. know whether such differentials were cost justified or not, and could not find out; that they knew of no court or Commission decisions holding that such prices were discriminatory, although they knew complaints had been filed against some of them charging price discrimination, but that charges were not proof. Cross-examination indulged in legal1isms and technicalities .which were obviously beyond the scope of the witness8es' knmvledge. 1Vithont more detail the Heating Examiner is satisfied that respondent' s offcials did nor J, 3--O C S. 231.

18 Ruling on nppenl rny 21. 1853 . Docker Xo. 5770 E. Edflmann Com Pills. C. E, XIEHOFF &: CO. 1133 1114 Decision know of any illegality in their competitor s prices, and, without expert legal knowledge of the intricacies involved in the application of the Act, had no reason to believe so-a matter on which experts themselves disagree. Other holdings by the Commission condemning as illegal volume or quantity discounts must, of course, be assessed in the light of each individual record and these witnesses could hardly be expected to do that.. The "reasonable prudence" required must be interpreted through commercial, not expert or legal, eyes. 35. Counsel in support of the complaint contend that since respondcnt's prices have not been shown to be cost justified (hereinafter discussed), it follows that respondent' s offcials knew or must have suspected that their competitor s prices likewise coulr! not be so justified assuming that respondent has not, or cannot, cost justify its discounts. It has since the inception of this proceeding claimed that it can and does so justify and there has as yet been no holding that such cost justification is invalid. Counsel therefore imputes to respondent a rejection not so far ma, , and then upon this, further imputes a similar rejection of any cost justification which mayor may not exist of competitor s discounts. This is to pile inference upon imputation. It is further to impute to respondent that its competitors' discounts had the same prohibited competitive effects herein found to folJolY responc1ent:s pricing. The knowledge of illegality contended for by counsel b1 support of the c.complaint to be imputed to respondent can only be done by holding that any cumulative annual volume discount is per se ilegal. X 0 case yet so holds."

36. The finding on this point, therefore: is that respondent's offcials are reasonably prudent businessmen of lifelong experience in the industry; that they had no knowledge of any price of their competitors being ilegal, although they did know that different prices for the same merchandise were cha.rged by such competitors; that they had no knowledge and could obtain none, as to whether such competitors' price difference could be wholly or partially cost justified, nor whether such competitors' differing prices had the statutorily proscribed competitive ejlects; and that, there.fore, assuming as the I-Iearing Exmninel' n111st, that the standard recently set up by the Commission on this point is a defense, such defense has been made out, on thjs legality issue. BnHye S Juices Inc. v. AmfTican Cnn Co" Si F, Supp. 885; 187 Fed, 8HJ prp.scnts il fnr difff'front fnctuilJ pirtufe in that, in tJH1t casp, pooling of JJllfChasrs from other plants was counted toward tbe ljlHllifying: 'Volume, altlJOugl1 , of necessity, eO"'ts tlJen'at invoiced ilnd tl1(' volume' _brackets were so wide in sprp.nfl as to intentionall,\" p.xcludc fib percentlIf1. numberpU1.'c!m"ers.of comnwnts, ol1H r'Vations anrl rcasons IIf!(1e lJ ' 111is HcnriIlgs Examiner in his initi:11 dpcision in Docl,(' X0. 5770 , E. ErJelma!l! CO!JJpan;;, are apposite to tJ1e tllird "IH1 fourth issues in this pr0cecdillg, but their J'crwtiTion IJeJ'cin would nnnecessarily extend this opinion.

Decision 51 F.T.C.

37. The final issue is respondent’s defensive contention that its price differentials resulting from its cumulative annual volume discounts “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.” Since respondent sells to all by the same method, this defense is necessarily grounded on whether the different quantities in which it sells, justify the differing prices. To establish this, respondent has shown advertising expense, direct sales expense on a per account basis, and time and cost studies on a per order basis showing the cost of processing orders of various dollar size through the 21 steps each order must traverse from receipt to shipment.

38. To ascertain the latter, respondent employed in 1951, a qualified industrial engineer, who requested from, and was furnished by, respondent’s sales manager over a period of time 17 orders, selected to show a range of dollar amounts.

These orders were time studied through their filling process, and cost of each ascertained by multiplying the handler’s wage rate by the time consumed in each processing step with the following results: | | :

: Number of; Number of, Processing cost Sales order No. Net billing | packages items | per dollar of net invoice $12. 00 2 1; 30. 0992 37.66 23 6 0349 45.14 29 20 0431 56. 51 49 8 0366 125. 20 69 33 9211 134. 47 116 25 0233 206. 79 171 37 O174 208. 64 86 36 0159 223. 76 163 63 211 259. 80 110 49 147 305. 01 163 56 0177 341.79 236 49 0130 496. 98 391 68 0144 523, 22 334 81 9166 785. 80 623 101 0136 811. 57 598 94 0147 44993. 846. 66 | 469 389 0123 Graphs plotted from these figures, of course, show the obvious—the greater the net billing, the more packages per order, or the more items per order—the lower the total processing cost per dollar of net invoice. From this last graph it is then computed that, in even billing amounts, the processing cost per dollar and per order is as follows: __ , , .,. _._. . C. E. KIEHOFF &; co. 1135 1114 Decision l't biling rotaling costproccssper Totalcssingproc.cost dollar 01 net per order billing $20____._-- ---.H $0. 0660 $1.32 O- -- -- 00--__ U4.200500 2. 80_ 100_-- 0380 3. 150-- 0:j40 3, 200----- 0270. 'J.O, 250-- JOO_ 0225or90 4. :)50_---- 0170 5. 400----_ .500-- 015001450l25 , .',6, (ioo------ 700_ 0115 6. 800__ 000S,0 I 7. 1_.

39. Having thus arrived at the total processing cost per dollar of net bining-, respondent th n takes ally customer in any discount brack- , totals his year s net billings and divides by the number of orders to ascertain the average size order over the year, and multiplies this by the total processing cost per dollar of net billing applicable to that size order to obtain the actual processing cost of that customer s business. It is this latter computation which contains a basic fallacy. Respondent' s discounts are not granted on a qual'. tity per order basis but upon an annually cumulated volume basis. If each customer order was in exactly the same amount each time, this method might be accepta.ble, but a. customer buying 815 000 annually of respondent' products might well send in as a substantial part of that volume a number of small and high cost. orders, whereas contrariwise $500 of annual purchases could well be in two orders of $2,50 each. As was said in H. O. BTili 00., Inc. 26 F. T. C. 678: Purchasers of large annual amounts sometimes buy in larger individual shipments than do buyers whose purchases do not amount to as large a sum. Large buyers, however, also place numerous small orders and the average size of such orders is frequently less than the average size of orders pJacecl by buyers whose a.ggregate annual purchases are less in volume. Indeed under it discount plan based on aggregate volume purchases for it given period :: it may cost, the seller more per dollar of sales to serve a customer \\ho places a large number of small orders 'Thich are suffcient in the aggregate to earn the discounts, than to serve a, customer who places a few large orders whose total is not suffcient to obtain the discount.:' R.eference fa C01lmission s Exhibit 94 shows that the customer who sent in Sales Order 44093 21 in 1949 sent in 90 orders that year totaling 076. 08 for an average of only 845.29 per order; whereas, the cus- :n Par. 38. supra.

423783--58-- 1136 FEDERAL TRADE COM",nSSION DECISIONS Decision 51 F. T. C.

tomer who sent in Sales Order 46162" bought in 1949 $6 304.88 in only 30 orders for an average order 01 $210.16. There is no showing of the number of orders received over the year 1951 from. each of the 17 customers whose single orders were cost analyzed, nor any showing of their individual amounts, and hence it is impossible to tell how many orders varied precipitately from the average and hence how much actual cost variance there may have been. Respondent's actual records could have shown the exact processing cost of each and all orders from the 17 selected customers for 1951, but this was not done. 40. The point is made clcarer by the same exhibit which shows the total year s billings in 1949, 1950, and 8 months of 1951 of the 17 selected customers, together "dth dollar size range of all orders received during each period, the number of shipments, and the average dollar size of total year s shipments. From this it is seen, for example that the customer 'Nho in 1951 sent in Sales Order No. 44577 21 bought $378.63 worth of merchandise from respondent 1n 7 orders ranging in amow)t from $2. 00 to $160.00 for an average of $54.09 per order; whereas in 1950, the same customer bought $844. 68 worth of merchandise in only 3 orders rangiug in amount from $189. 00 to $445. for an average of $281.56 per order. This customer received no discount from jobber s list in either year, yet responde,nt's processing cost was obviously markedly different. The same is true of the customer who hl 1951 sent in Sales Order 44525 21 and received 10 percent oif list as a discount. His total net billing for 1949 was $1 786.30 on 17 orders ranging in dollar size from $1.00 to $322. 00 for an average of $105. G8; whereas in 1950, $2 696.08 was bought in 11 orders ranging from $4.00 to $645.00 for an average of $245.10. This nnreliability of averages as between customers in anyone year and a.s between averages between the same customer in different years, where cumulation is practiced, is further illustrated by the fact that Sales Order 44577 used as a sample or typical instance, was in the amount of $208. , far in excess of the average of $54.09 in 1949, and that in 1951 Sales Order 44525 \ likewise used as a typical sample, was for only $37.66; whereas this customer s average order in 1949 was $105. and in 1950, $245.10. The Jatter lends support also to the contention of counsel in support of the complaint that 17 orders out of thousands received and processed annually (10 008 during 1949) cannot be typical and are far too few to he relied upon either absolutely or as a basis for averaging.

41. T11e finding, accordingly, is that respondent ha,8 failed to show by reliable, probative, substantial, and the best available evidence any fi Par. 38 supra.

______ _ ___ ____ c. E. NIEHOFF &; CO. 1137 Decisionjustification1114for its price di.fferentials due to actual different processing costs applicable to the different quantities to which the different prices apply.

42. The. next item of cost offered as justification is respondent' advertising expense incurred in preparing, editing, and printing catalogs, price sheets, tuneMup charts, signs, displays, circulars and trade , thisluagazine insertions, samples and show expense. In 1949 amounted to $100 437.11 and by dividing this total by its 866 accounts, respondent mTives ftt a per account cost of $115. , and it argues therefrom that for advertising alone respondent spent $115.97 for $600. worth of business at ,its no discount level, but for the same expenditure: realized $12 000.00 worth of business at its 10-7 percent level. 43. Analysis of respondent's advertising expense, however, 8ho\"\8 that the great majority of it cannot be properly allocated on a customer basis because it is general advertising not geared to any particular customer, to any particular product or line of products or to any particular class, discount or otl1erwise, of customers. The breakdown is as follows:

Exeeuti ye salaries- - - - - - - -- 200, 00 Ad yertising offce- , 249. Gl Advertising traue papenL_ __n, 279. 45 Ad vertising catalogs-- -- , 389. 07 Advertisin g prin ted matter --- 15, 460. 93 Advm' tising miscellaneous___------- ---- 650. 76 Sho ' expense_____- --- , 390. 2:: Display - - 3, 531. SS Photo expense__-___------ 1, 169. 29 Samples 115. 87 Total ------ $100, 437. It is obvious that the effectiveness of trade paper advertisements broadcast generally throughout the trade, or show expense cannot be measured by any customer s volume it can only be measured by 1'espondents over-all sales volume. The same is true or every other item except catalog expense. Respondent's president admitted that averaging this total expe11se on a per customer basis was arbitrary. It ca.n only be alloe-ated on a per doDar or sales basis which, or course furnishes no cost justification for differing prices as between customers.

44. It is believed, however, that the catalog expense can properly be allocated on a customer basis because the record shows on the whole that these are distributed evenly, in fact, :i there is any varia,nee from this, it is in favor of the smaller-volume customer, inasmuch as rE'spondenrs salesman stated that the smaller the account volumewisc ::::::: ::::::::::::::::::::::::::::::::::: _ __ ___ _ . . ;.. ;, p _. Decision 51 F. 'l' , C. the gre,after the number of catalogs. It is from these catalogs, price sheets, tunc-up charts, etc., that each jobber directly makes his sales and his purchase volume can be directly attributed to this mf1terial furnished by respondent. On this basis a total expense of $32 389. gives an expense of $37.40 per customer. Taking the median figure of each volume discount bracket, the following resuHs obtain. J\ledian purchase volume for each discount Catalog, Percent of I'ercent Price bracket etc. I ofs81es difIerenccC05t1 difference price not expense jllstified $37.

37.GOO--m- -- :J40 1!! i- :::: ::: ::::: ::: :::: :::: :=: i 37. 37. 40- ~go 37. 37. 3137I .15 .9 . The above represent the amount of cost justification of the various discounts between each successive bracket, but therefrom can be ascertained also the amount of cost just.ification between non-successive brackets as, for instance, between the lowest and highest bracket 3600 $:Ji.10 6. 23% 000 3i. 10 0.31 % 5.92% 16.3% 10. 38% The net result is that the price differences are partially, but not ",hol1)', justii-ed by cost savings.

45. The finding on advertising cost therefore is that $68 0:18.04 of responclenfs advertising costs cannot be allocated on a. per customer basis, but can only be aJlocatec1 on a per clol1al' of sales basis, which furnishes no cost justification for the price diiIerentials charged: that $02 389.07 representing cost of catalogs, price sheets, tune-up eharts etc., can be allocated as urged and when so allocated partially justify, but do not wholly justify, the price differentials c.wrged. 46. The last record item of cost justification is that of direct selling expense totaling $159 433.59 in 1949 hroken dotfn as follm Salesmen s salaries-__ ------ $137 , GG2. 00 Salesmen s commissioDfL_-- ---- 11 217. Travel expense_ - 70, -133. 1.2 EntertaiTImcnt ------ ---- 4 632. Sales conferences__ 5, 4G8. ;54 This expense COY 81'S 12 districts embracing a1l of Ow. 1Jnitec1 SinJes except New York City, tl1C New England Sta.tes and Paeifie Canst Respondent in its proposed finding-s user a rnrdian figure for t11e lowest discount urac!;:,'t Ilno tile bottom or minimum figure for each other braeliet. It is believed a median figure for each bracket iO! more accurate.

, c. E. :\IEHOFF & co. 1139 1114 Decision States which are serviced by factory representatives \\'ho employ their own salesmen. There is one salesman to each of the 12 districts. Respondent' s president and sales manager testified that each such salesiilan caus on each account in rotation 5 or 6 times a year and makes an equal number of caus on each jobber, irrespective of size, but spends more time per call ,with the smaller-volume jobber than with the largervolume jobber because with the former it is necessary to physically check his inventory; whereas, the latter usually has a perpetual inventory system; ,lnc1 because it is often necessary for the salesman to wait around to see the smaller-sized jobber to get an order because the latter must make deliveries and cans himself and must himself wait on counter customers; whereas, the larger-sized jobber ha.s a purchasil1g agent who is readily available.

47. On this basis of the same number of calls per salesman, per customer, respondent then divides total direct selling cost by number of accounts and arrives at an average cost per flcc-count of $204.00 and contends that since that expenditure with a small jobber brings in only 200.00 or less, that same cost with the largest jobber brings in $12 000.0001' more and therefore the. price differential of 10- 7 percent in fn.Yor of the laJte1' is pro tanto cost justified. 48. This claimed result must stand or fall on the soundness of its basis-namely that respondent's salesmen make the same number of calls per year on each cllstomer regardless of size. This is supported by the eneralizntions of re ponc1ents president and saies manager, but is not corroborated by ally record of sllch ca.11s. Sa.lesmen mUE:t routineJy report itinerary, expense and time to responde.nt, but such records were not produced, it being stated that they had been destroyed. The testimony or the one typical district salesman who te.stified refutes the generalizations of his superiors. llis territory embraeed Alabama, Arkansas and :Mississippi and parts of Florida Kentucky, Louisiana and Tennessee, fmd customers of respondent called on therein were located in 43 towns,2;; The salesman testified he not only caned on respondent's jobber customers in these towns but also contacted 18 prospective customers located in other towns one or 11101'8 times during 1949, and caned on prospective dealer customers with jobbers' salesmen on an flvcrage of 15 or 2. 0 times a month. Time spent on such missionary ,york can obviously not be allocated on a per customer basis. Furthermore, this salesman s headquarters -\Were in femphis Tennessee; his trips therefrom ranged from one day to three weeks at a time. The number of his visits to towns where respondent' jobber customers 'Iere. located ranged from 1 to 7 cards 11 Tr. 1354: 1418 34.

1' RX 60A-L; RX 25; ex 47A- :::::. _ 1140 FEDERAL TRADE COM.'nSSION DECISIONS Decision 51 F.

except Memphis, during 1949, with the majority receiving only 2 or :, visits, He caHed on the 4 jobber customers in Memphis between 3'1 and 4 times during 1949. A comparison of the itinerary " of this salesman for 1949 , taken from his weekly expense books with the 26 shows the following:location of his customers in his area Number of jobbers Frequency of 1949 caus A 0 No cans- muuum_mum_m um_lcalL__ --n--2 calls.-- j I3caus- ----------_u_ 5 ,J' 4calls_ ------_u_- o 1,I, J:5calls_6calls-- 11 0'7calls-- o O The testimony of this salesman and the exhibit of his 1949 itinerary were apparently offered as typical of other salesmen of respondent and in corroboration of the general testimony of respondent' s offcials that salemen make the same number of visits to every account. Instead of corroboration, is the refutation, and since it is specific and in detail has greater weight than the aforementioned generalizations. It is concluded, therefore, that the asserted basis for allocation is not established by reliable and substantial proof and therefore that any computations or extensions or conclusions upon such basis are untenable and unacceptable.

49. The defense of cost justification to price discrimination is an affrmative one, and the burden is upon him ,vha asserts it to establish it by detailed specific evidence rather than by conjecture, speculation arbitrary allocation or broad averaging,27 because such costs arc peculiarly and solely in the possession of and under the control of respondent. Failure to keep detailed records cannot be accepted as an excuse for substituting generalizations for actual outlays. Respondent herein has largely failed to snstain this burden.

50. In summary, respondent has attempted to establish its defense of cost justification in much the same manner as its defense of meeting competition in good faith-generally, instead of specifically, with generalizations and opinion rather than with detailed records which are solely within its knowledge and ability to keep and maintain and under its control. Judicial interpretation of the statute involved is to the contrary.

21 RX 60A- S' ex 47 A 71 See RUl!seHvile Canning Co. v. American Oan Co., 191 F. 2d 38. C. E. NIEHOFF & CO. 1141 1114 Opinion CDNCLUSIO:S Respondent has violated the provisions of Section 2(a) of the Clayton Act (15 D. C. 13) by discriminating in price between its customers competitively engaged in the resale of products purchased by them from respondent at differing prices and has failed to establish either of the two asserted defenses which are provided in the statute by substantial, reliable and probative evidence. ORDER 1 t u; o1'dered That respondent C. E. Niehoff & Co., a corporation directly or through any corporate or other device, in, or in connection with, the sale for replacement purposes of automotive products in commerce, as "commerce" is defined in the Clayton Act, as amended, do forthwith cease and desist from discriminating, directly or in(1irectly, in t.he price of said automotive products of Eke grade and quality, by selling to any purchaser at net prices higher than the net prices charged any other purchaser, which purchasers compete, in fact in the resale of said products; except insofar as such price differences do not. exceed the ftffOunts thereof, under respondent's current pricing practices, herein found to be cost. justifmd. OPINION OF THE C01\DIISSION By SECREST, Commissioner:

Presented for our determination here are the cross appeals filed by Lhe respondent. and counsel supporting the complaint from the initial decision of the hearing examiner. The initial decision held that respondent had discriminated in price in violation of Section 2 (a) of the amended Clayton Act, and ordered respondent to cease and desist from:

'" * discriminating, directly or indirectly, in the price of (itsJ "automobile products of like grade and quality, by selling to any purchaser at net prices higher than the net prices charged any other purchasers, which purchasers compete, in fa, , in the resale of said products; except insofar as such price differences do not exceed the amounts thereof, under respondent's current pricing practices, herein found to be cost justified.

In urging under its appeal that the complaint instead should be dismissed, the respondent contends inter alia that the hearing examiner e.rrec1 in coneluding that the eiIects of Tespondent's price differ. 2' The phrase " offeers, representatiYCS, agents find employees " 1s omitted on the authority of R. J. Revnolds Tooacco Co. Y. F. T. C. 192 F. 2d ;;35, 510-4 which case the Hearing Examiner regards as apposite IlDd binuiD on himself and upon the Commission. Opinion 51 F. '1' , C. ent-ials may be to injure, destroy and prevent competition among and between purchasers ,vila pay respondent's higher prices and those a.ccorded its lower prices, and also in concluding that a violation of Section 2 (a) of the Act has been established by the record. Additionally urged as error under the appeal was the hearing examiner failure to find tlwt the respondent s price differentials were established in good faith to meet the equal1ly low prices of its competitors and his declining to rule that a. complete defense had been established by re spondent under Section 2 (b) of the Act. Also excepted to is the 6xmnlner s rejection of respondent's contentioll that the evidence subl11ittec1 in the course of its defense sho\ved its price differentials to be fully cost justified under the Act, rather than only partiall y so. Respondent, an Illinois corporation, with its offce and factory located in Chicago, is engaged in the 11l8l1ufactnre, sale, and distribution of a complete line of automotive replacement ignition parts (e.xcepting spark plugs and generators), a complete Jine of hydraulic brake parts for all makes of alltomobiles and trucks, as well as a line of testing equipment and a line of rebuilt items. Respondent 111anufactures about 6;3% of all the items it sells, Respondent's sales are limited to the replacement parts field commonly known as the ;;after market " making no sales to the original equipment market (automobile manufacturers); thus, except. for certain areflS in which it affects distribution through manufacturers agents, respondent sells its products almost exclnsiveJy through independent automotive jobbers who in turn resell to garages, fleet owncrs gasoline stations and over-the-counter.

In H149 respondent's whole:3ale customers, saiel to number 866, were di-vided into four classifications lor pricing purposes, namely, ,Tobber Jobber with Agreement, Distributor, and Distributor with Agreement. Classified as a " J obber" were those purchasers with an anticipated 2.annual volume in respondent's products of under $1200. Buyers this classification purchased respondent's products at its base prjcc and received no discount other than the 2% cash discount for prompt payment accorded all purchasers. .Tobbers with annual pl1rehases ranging from $1200 to $3600 were classified as " J jobbers with Agreemellt and as such received discount allowances ranging from 5% t.o 10%, depending on their volume. Distributors purchasing 83600 to $6000 from respondent, received a 10% discount off of the jobber base price on their purchases. Jobbers whose, annual purc11Hscs exceeded $6000 were classified as "Distributors with Agreement" and in addition to respondent's 10% discount, these purchasers received certain additional discounts ranging from 5% to 7% depending on C. E. XIEHGFF .. co, 1143 1114 Opinion their annual volume; hence, it appears that responclenfs prices differed between customers in its four classifications and as between inclividual merubers in these clas;;;ifications. All of respondent' s jobbe:::s were classiGec1 for discount purposes at the beginning of each year' using as a basis therefor their purchases for the preceding year. In addition to these jobber cbLssificatiolls, respondent also sells to one buying group, Coiton States, Inc., of Greenwood, :Mississippi, and respondent treats this group us one purchaser and sells it as a "Discributor with Agreement " using as its b lSis the aggregate purchases of the group. However, respondent admits, and the hearing examiner so found, that all individual members of this group could not qual-lfy under respondeufs stated basis for the individual discounts allowed. In objecting to the initial decision s conclusion that the eiTects of respondent's price discriminations may be to injure, destroy and prevent competition between purchasers receiving the benefits of the discriminations and those paying respondent's higher prices, respondent states that the record does not show that purchasers of its goods which are located in the same trading area. in fact compete with each other. In appraising this contention, we have consider.recl the testimony received, \\which expressly relates to the :.lemphis and Xew Orleans trading areas, and to Chicago and other areas as ,yell. The competitive situation prevailing anlong respondent's Chicago wholesalers "would appear to be broadly representati 7e of ot.her metropolitan areas, and we are of the view that the record conclusively shows that compet.ition both actual and potential, exists among and between many of respondenrs customers who are required to pay different prices for its merchandise. Respondent's contention that the cOlnpetitive situation prevailing among its Chicago wholesalers cannot be considered because this area represents a purely intrastate phase of respondent's business not subject to the Commission s jurisdiction, is without merit. The intra or inter state nature of respondent' s business in the Chicago area is not controlling to our conclusion that this area is broadly representa- 1'e- tive of other areas and that competi60n does, in fact, exist between spoIlclcnt s CU!:tomers.

The initial decision correctly held that a much smaller discount or price differential than respondent herein grants directly and markedly affects profit Inargins; that the price differentials \\hjch a jobber enjoyed accounted for aU or most all of his actual net profits, and that 20/0 the failure of respondent's jobbers to take advantage of the di.scount for cash, which respondent affords to all of its purchasers would, in instances, wi.pe out or materialy reduce small jobbers' net profits. Hejected is respondent's contention under the appeal that its 1144 FEDERAL TRADE CO 'lission DECISIONS Opinion 51 F. '1. C.

discounts are only important to its large jobbers. Consonant with the hearing examiner s findings, we believe the record clearly shows that respondent's discounts and rebates to its favored customers carried a direct potentiality of injuring, destroying and preventing competition among its purchasers.

Relevant to this conclusion is evidence in the Chicago area which indicates that one of the respondent's price-favored customers did not uniformly maintain respondent's suggested resale prices, but, in instances, cut prices in situations where it was believed others were offering reduced prices on respondent's merchandise. Objection is interposed under respondent's appeal to the initial decision s statement that it was dou!,tful that this particular purchaser could have made those price reductions in the absence of the additional discounts afforded him under respondent's pricing program. This particular purchaser sold over a Jarge territory into several states and he stated that his net margin of profit incident to his extensive operations was very low. It would be unrealistic to conclude that his decision to duee prices in the instances referred to 'vas not materially influenced by the greater gross profit margin afforded under the respondent's pricing program. The initial dedsion s views on this score are nowise refuted by the circumstance that the lead in reducing prices may have been taken by small volume purchasers who rejected to reduce their profit margins in the interests of increasing sales volume in their territories.

In further support of its contentions that no injurious competitive effects may result from its discriminations, the respondent states that its additional discounts and allowances do not entirely compensate wholesalers seJIng in larger volume for the additional sales efforts and expense incurred in obtaining sales, and that these extra expenses must be absorbed in part from regular margins afforded to all customers. This, however, does not signify, as also urged by respondent, that jobbers denied the additional discounts have a marked competitive advantage over their price-favored rivals. The jobber paying list prices likewise must canvass or otherwise maintain contact with the repair shops and other outlets for respondent' s merchandise; he, too, must incur expense in selling those customers on the merits of the Niehoff products and promptness of his service in filling their requirements and his necessity in those respects scarcely lessens when other Kiehoff dealers whether local or distantly situated, are ena!'Jed by respondent' s additional discounts to extend or intensify their efforts in those regards. 'Ve do not share respondent's view, therefore, that no ad- VBrse enects arc probable from respondent.:s pricing practices which c. E. NIEHOFF & CO. 1145 1114 Opinion accords greater profits to purchasers who resell in higher volume Responc1enes additional discounts and volume allowances clearlybrackets. are available for innumerable purposes which in this highly competitive resale field can he used to promote the commercial growth of jobbers !!ranted them. It is not controlling, therefore, that certain of the ,vitn;sses who competed with recipients or respondent' s larger discounts stated that they had observed no adverse effects from competitive seiling activities. Some unfavored jobbers testified that they ,yantell respondents lower prices for the purpose of expanding their businesses. It is true that no evidence was presented relating to any specific instances in which financial failure may have stemmed from respondent's pricing practices but this does not support the appeal' position that conclusions below respecting the illegality or respondenes pricing pl'ognnn are based on a doctrine that the differentials are iI1legal, pel' se. Contentions in this regard ignore other matters revealed in the record, including the fact that the diiIerentials are substant.ial and materially influence the competitive positions of purchasers ,dlo rosen respondent's merchandise in thjs hjghly competitive field.

Only brief reference is warranted with respect to the matters additionally raised by the respondent in connection with this aspect of its appeal. The fact that a number of respondent's larger volume jobbers began handling its lines originally as small jobbers and were not then eligible for discounts under its pricing program does not mean that its discounts are attainable by all of its jobbers. For example, in 1949, more than one-third or respondent's jobbers were in a volume bracket which entitled them to no extra allowance and only slightly less than 50% of its domestic volume was purchased by fewer than 100 jobbers who were in the highest discount brackets. As pointed out by appellant, the initial decision held there was no showing in the record that respondent's pricing practices had injured manufacturers competing with it in the sale of similar merchandise or that respondent's pricewise favored purchasers were achieving a monopolistic position in the resale of its merchandise. However, in opposHion to appellant s contention, these matters are nowise inconsistent with that dccjsion s rulings that the effects of respondent' s discrimination in 29 Observations on factors other than financial failure which may contribute to or ilatel' jally affect an unfavored purcbflser s ability to compete are discussed in our opinions in Docl,et 5770 E. Edelmann Co., Docket 5723, Moog Industries, Inc., and Docket 5722 , Whitakel" Cable Corporation. The testimony of the small jobbers in the present record 'Would support many of our comments and observations made in these decisions in this regurd.

.

1146 FEDERAL TRADE COMNnSSION DECISIONS Opinion 31 F. T. C.

price may be to injure, prevent and destroy competition among its purchasers competing 1n the re,sale of such merchandise. "\Ve consider now the respondent's contention that the initial decision erred in failing to find that respondent' s price differentials " ere made in good faith to meet the equally low price of a competitor or competitors "within thc meaning of Section 2 (b) of the Act." The evidence received indicates that the prices of many of respondent's rival independent replacement parts manufacturers are sommvhat lower than its prices. The average of respondent's prices is higher than those of its competitors in this category yet lower than the prices of original parts manufacturers such as Autabte and Delco-Remy, "\vho likewise sell into the replacement field. Respondent' s discount program is generally similar to SOlTe but is not ic1en6cal with the schedules adopted by ten of its principal independent competitors. The respondent lws on8 basic price schedule and it is from this that its various discounts ilnd rebates are grant.ed. Its accounts, as previously noted are classified for discount purposes at the beginning of each year on the basis of their purchases for the preceding year. The initial decision correctly found that respond nt' s pdce differentials are a part of a nationwide pricing system formulated to meet competition generally and not designed to meet exactly any competitor s prices. Respondent contends that the ruling rejecting its defense represents an erroneous application of the legal principles enunciated by the Supreme Court in the Staley and StandCl' d Oil cases. lye do not agree. Controlling in our evaluation of the examiner s findings is the circumstance tha.t it is individual competitive situations to which the exemptive provisions of the statute relate and not general systems of competition. This is not to say, however, as suggested in the initial decision, that evidence directed to sho\ving that the sellers' discriminations were temporary and localized in area is an indispensable prerequisite to establishing a defense under the subsection. e do find however, that a pricing program which provides for an inherent pattern of discrimination among competing customers and is geared generally to competing for business and not specifically for meeting competing prices is not within contemplation of this defense. Respondent has not 8ho\l'n by substantial, reliable and probative evidence on this 3() lri('e di criminations prohibiten by Section 2 (a) of the Cla toIJ .-'et ute ne1'0rt11eJess justHlalJle by virtue of Section 2 (b) which rleclarcs tl rtt notlling in the --\et " hall prevent a seller rebutting the prima facie case thus made hy 8hrnving- that his lower prke '" '" .. to any purchaser or purchasers was made in good faitll to meet an equally low price of a competitor 31 F. T. C. Y. A. E. Staley Mfg. Co. 324 U. S. i46. StondOTd Oil Company F. T. C.) 340 D. s. :!31.

&:

C, E. XIEHOFF CO. 1147 1114 Opinion record that its lower price or prices were made to meet an equally low price or prices of a competitor or competitors. The respondent introduced evidence which y,as the basis for its contention below that the price differentials resuiting from its volume cliscounts were justified by differences in costs incurred in selling and delivering merchandise to custOlners in the various discount classifica.tions. This evidence related to justification stemming from alleged differences between its four jobber classifications; (1) in the cost of processing and filling purchase orders, (2) in selling costs, and (3) in advertising expenditures. The initial decision rejected respondent's cont.ent.ions of justifi.cation for its differentials resulting from matters in the first t,\,"o categories and also rejected in patt but adopted insofar as they related to partial justification of catalogue expense those included in the third category. Respondent' s appeal chaJlengcs the initial decision s conclusions adverse to its position and the appeal of counsel supporting the complaint interposes objections to the holding relating to catalogne expense.

Among other e\'ic1ence received bearing on the first issue respondent offered data pertaining to tile lJUl'chases of t,YO cLlstomcrs in 011C city who were accorded different prices and to those of two others similarly buying at c1ifiorcnt prices in another city. This evidence was directed 10 showing that. approxllnate1y one-fourth of the price differentials between the cllstome :s in each of these respective areas ma.y have been justified in certain years by differences in cost of fining and processlng orders, Respondent' s price differentjals are not scaled on a quantity per shipme,nt or order basis but formulated instead on annual volume of rnu'chases, and, as previously stated, contemplate that the progressively high discounts afforded for each corresponding volume uracket. in respondent' s schedule be applied retroactively or cumulatively. '\Vhen weighed ,with the other evidence, the lnatters pointed to by respondent do not suffice 101' informed conclusions that particular average Tilnges of sizes of purchase orders are in fact representative OT typical for customers in each of respondents volume classifications. 1Ve concur in the initial deeision s conclusion that the respondent has failed to sho ' by reliable, probative and substantial evidence that its price difl'erentlals have been justified by actual differences in costs of filling and proeessing orders among purchasers in respondents various anllual volume brackets.

32 cr. ODinion of the Commi;;;;iull in Docket Xo. 5770 E. Eddman1L '" Compj?1p. See p. 1 000 o this YOlUDlf'.

&J Section 2 (11) provides that nothing In the Act "shah prevent differentials ,yh:ch mal;:e only due allowance for difl'erences in the cost of manufacture, sale or deljyery resulting from the diffedng methods 01' quantities in which such commodities are to sucll purchasers sold or delivered.

51 F. T. C. Opinion On the basis of evidence indicating that direct selling expense incurred in twelve sales districts totaled $159 433. 59 in 1949, and other evidence relied upon in support of its contentions that each customer large and small, was called on substantially the same number of times respondent states that this expense represents $204.00 per account, Its method of apportionment reIates to each $100.00 of sales: to ilustrate, respondent's sales cost for a jobber on a basis of annual purchases of $600.00 would be deemed $34.00 per $100.00 of sales; for a purchaser in the $6 000 bracket $3.40 on $100.00 of sales. When so allocated, salesman s cost affords complete cost justification at the first two volume classificaUons and Sllbstantial justification at all other Jevels. The initial decision held that the evidence relied upon by respondent in support of its contention that the' same number of visits ilre made on accounts large and small and was general and conjectural jn nature and that it was refuted by specific testimony and evidence showing details of the sales ac6vities engngecl in :l typical sales territory;y.

In contending that the initial decision erred in this respect, the respondent states that the testimony relating to- that particular.r tel'. rltoTY shown that in each trading area Iyhich he was able to visit, the :;lesman called on each jobber account an equal number of times. The contrary inferences drawn from the expense hook exhibits referred to in Paragraph 48 of the initial decision are nnwa,JTanted: respondent also argues, for the reason that the exhibits merely designate the towns where the witness stayed over night or heac1quarll'red for the )Jurpose of making calls in nearby towns rather than sho,ying the 10wns in whid1 the salesman actually made calls. Respondent also states that the exigenc.ies of its business, including the constant efforts cf its competitors to Jure away respondenes accounts, require its salesmen to make a substantially equal number of c.aI1s 011 :l\' ounts under a rotation plan pursuant to predetermined travel schedules- The desirability of frequent contacts with the jobber accounts by respondent's representatives is plainly apparent. This does not mean however that the evidence presented by the respondent fairly supports conclusions that accounts, large and amaH, are contacted n substantially equal number of times. Salesmen are not only expected to COlltact prospective jobber customers, but they also arc required to make missionary cans 011 prospective customers of dealers with jobbers salesmen. The salesman whose testimony was referred to in the initial decision Hkewise performed these duties. Responcknfs contentions to the contrary, an appraisal of the test1moll V and exhibits permits reasonable jnferences r-egarding sales contacts actually made. C. E. NIEHOFF & CO. 1149 OpinionIrrespective,1114however, of the accuracy of the tabulation of sales calls which appears in the initial decision, there can be no doubt but that this salesman s calls as between large and small customers were disproportionate. For example, an undisclosed number of his 59 jobber accounts, necessarily larger ones, maintained bntnches; but the witness, in addition to keeping regular contact with such accounts' main offces, followed an apparent policy of making calls on branch operations. The record, we believe, requires our denial of this aspect of the respondent' s appeal from the initial decision. The third item of cost pointed to by respondent as asserted justification for its price differentiah relates to advertising expense. Its expenditures in this cOllnection fall into ten categories, including those for salaries, advertising offce, trade papers, catalogues, other advertising printed matter, miscellaneous advertising, show expense, display, photo expense and samples. In 1949 they aggregflted $100 437. and by dividing this amount by its asserted total of 866 jobber accounts, respondent has arrived at a per account cost of 8115.97 and the respondent would allocate this in the same mallner as salesman expense.

The initial decision, however, ruled that the ci1'ectivcncss of trade. paper advertisements, show expense and the other items: except Jor catalogue expense, cannot be measured by an individual cllstomer volume but must be allocated only on the basis of responclellt's OVC'1'all sales volume. )With respect to catalogue expense, however, il1 which category the hearing examiner included expenses for price. sheets, and certain tune-up charts, th decision below expresserl views th:lt customers' purchases were directly attributable to this prol1otion:11 material as furnished by respondent, and it ruled that advertising expense of 837.40 per customer properly could be prorated equally as flgainst each $100.00 of purcl1fises in the various volume brackets. Under that holding, respondent' s price differentials were regarded as partially justified as outlined in the table set forth in Paragraph 44 of the initial decision.

In objecting in pflrt, respondent states that the primm'Y and over-a11 purpose of respondent' s advertising in trade publications and through direct mail is to gain new jobber accounts and to retain old ones, and that equal apportionment of an forms of advertising expenses among current accounts aceordingly is a practical and realistic business pro ceclure. Detailed evidence reInt.ing to the form and make-up of the advertising engaged in under each of the foregoing categorips was not submitted ror the record. ",Vo think, hO\"level', that the hearing examiner correctly held, in effect, that the foregoing items do not 1150 FEDERAL TRADE COM?vTISSION DECISIONS Opinion 51 F. T. C. furnish a proper basis aT cost justification for respondent's price differentials.

Counsel supporting the eompb,illt urge under their appeal that the initial decision erred in finding that the respondent hnd successfully carried its burden of showing the necessary proof relative to partial cost justification incident to catalogue expense; and in opposition thereto, respondent maintains that the hearing examiner limited the cost justification to Lhe catalogue expense through inachertence and really intended to include in that category additional expenses inetuTed for other printed matter and for photographic expense for a total additional outlay or S40 019.29.

In this connectjoll the initial decision stated that. the record as a whole shows that the catalogues are evenly distributed and that, aceorcling to the testimony 01 Olle of respondent's salesmen, any variance therefrom favors the smaller volume cnstOlnel' Although the record is lacking in clarity as to policies adopted and procedures followed in distributing catalogues and printed roatter, \Ve think that the initial decision s basic premise of substantially equal distribution to and utilization by, the stated 8GG jobber accounts is refuted by the record. Bearing on this is the, testimony of respondent's sa, les manager 1\'ho stated that, on original rnaiJings, respondent submits catalogues to the jobbers for all of thejr binders used at counters and carried by salesmen plus catalogues for buyers and for sales managers. The witnesses pointed out that t.he small jobber might require two or three others six or eight., a.nd that some jobbers have 18 salesmen out and use six counter binders. ,Yhen taking on a new account, respondent makes inquiry of the number of catalogues which it will require. Both small jobbers and large jobbers are encouraged to distribute any additional catalogues and other printed ltter furnished down through the trade purchasing from them, but smaller jobbers, according to the test.imony of responclent s represcntat.ives arc more active on this score. According to the test.imony also, an undisclosed percentage of the cata logues and price lists are llsed by the respondent in soliciting prospectiye jobbers to handle the Xiehofi' lines. Exact distribution figures ,\'ere not ma(1e available for the record for 19 19 or any other year. It appears, hot\c\"er that in J 9, respondent printed approximately 50 OOO catalogucs for its ignition line. and the run for the hydraulic catalogues "as beJje,ved by a company wjtness to be 10 000. In 1049 respondent compiled three types or catalogues, one for its ignition line and testing eqldpment, anot11er for its Jlydran1ic brake line, and a thirc1 and much smaller catalogue. which rclated to parts and testing equipment for ForeL 3Jercury and Lincoln \\ C. E. XIEHOFF & CO. 1J51 1114 Opinion automobiles. Distribution of respondent's catrlogues al1long' purchasers hnd to vary greatly inasmuch as some jobbing' accounts have handled only rcsponclenfs line of ignition parts, others only the hydraulic brake line, others limited their purchases to special items for the Ford line,s a.nd still others purchased all Enes. The number of customers in each cf these cate,gorips i, not (lisclosed by the record but the record suggests that the distributor.' ,with fI Teement. C11Stomarily handled both the ignition and hydnmlic lines and: accordingly, uti1ized1 those catalogues. Purchasers ill this catpgory received rp5pOEdent' s greatest disCOUJlts and rebates and it incll1d( (l customers who tra vel larger numbers of sale mcl1 and llwintain branches. Othm' facts appear in the record h(Jwing that an allocation of cataloguo costs equally among 866 direct jobbing accounts represents an inaccurate procedure. Data submitted by respondent is to the effect that in 18tJ9 it had SGG jobbing accollnt.s of which number 98 aSSf'rteelly received the greate:;t discounts and purchased us distributors with agreement. Testimony 'yas received ) however: indicating that these figures did not include the individual members of Cotton States lne. a cooperative buyer group. All of iis nine members find two of the branches of one of them submitted their purchase orders chred to respondent and were accorded its greatest discounts. Not all of respondent' s merchandise, moreove1\ is sold through its domestic jobber accounts, among whom respondent would eq ially apportion its advertising expenses. In addition to approximately $2 000 000 per annum of net sales through those ncc()1l11 : approximately $:100 000 is distributed annually to export customer' . The record: however, is silent as to whether these enstmners participate in respondents advertising programs.

Furt.hermore. some of respcHlclcnt\ accounts receiving the larger discounts have done a sllbj ohbing business and they, except in instances liere these accounts print house catalogues of their OI"n, lnanifestly require larger supplies of printed matter to assist slich jobbers in their resale of the Niehoff lines to garages and filling stations. Respondenes allocation takes no cognizi111ce ''whatsoever of catalogues and advertising ll.atter utilized in this manner. Xoted in this connection is the fact that L. C. Bigelow, reported by respondent to be its only custOiner in the :Kew York and ew Jersey Ietropohtan area purchased a suhstantial quantity;r of respondent's products in 1949; and according to t.he record, it sold only to other automotive part:; jobbers no sales be,ing made by it direct to garages and filling stations. 'Vc, accordingly, reject the initial decision s vie,,, that the record supports conclusions that respondent's catalogues are evenly distrib 423783--8-- 1152 FEDERAL TRADE COMMSSION DECISIONS Opinion 51 F.

uted or utilized by its accounts. The appeal of counsel supporting the complaint from the initial decision s ruling in reference to adver. tising expense is, therefore being granted. \Ve have considered the respondent's except.ions challenging the hearing examiner s rulings excluding certain evidence offered by it. Under one of such rulings, the hearing examiner declined to receive data relating to certain surveys conducted by National Standard Parts Association. These assertedly were offered in corroboration of other evidence directed to showing that larger jobbers incurred higher expenses in conducting their business operations which was ODe of the matte.rs urged in support of respondent's contention that its larger discounts and rebates could not be deemed to be injurious to smaller volume jobbers from whom they were withheld. The questionnaire forms which were the basis for these tabulations were disseminated among the Association s entire membership numbering between 1 100 and 1 200 and returns ordinarily are received from approximately 10% of the membership. Included among the members submitting the returns were some iehoff customers but their exact number and identity were not disclosed.

The reports prepared from the questionnaires represent industry averages relating to the financial operation of jobbers in small medium and large categories. The information furnished in the questionnaires include merchandise costs and receipts in the aggregate gross profit, expenses and net profit. In .rejecting the tabulations, the hearing examiner held that opportunity for full cross-exanrination respec6ng the accuracy of the surveys and supporting data was not afforded. The data fU1'ished conce1' all forms of automotive products and arc unsegregated as to any product category; hence, the lack of materiality of these industry studies as a basis for evaluating what may be the effects of the respondent's pricing practices between and among its competing customers is plainly apparent. In this situation therefore, it does not appear that the challenged ruling of the hearing examiner was unduly restrictive or in any way prejudicial to the respondent' s rights.

Somewhat similar considerations are applicable in appraising respondent' s exceptions to the hearing examiner s exclusion of the Crowell-Collier Survey in reference to cn1' owner repairs. This snrvey was offered to shmv that of the automotive repairing in this country, .14% was done in the shops of franchised automobile dealers. That proffered evidence manifestly was irrelevant and immaterial to the issues presented here and its conch1sion by the examiner was propel'. Considered also are the matters urged by respondent in support C. E. "IEHOFF &0 co. 1153 1114 Opinion of its except.ions to certain of the hearing examiner s findings of facts and his rejection of various of its proposed findings. V e think, however, that those challenged findings and rulings are free from substantial or prejudicial error and respondent's exceptions thereto are denied accordingly.

Stating that an order requirjug the respondent to terminate its Ullla"dul discriminations will destroy the Kichoff business when its competitors are not likewise enjoined, appellant requests that this proceeding be held in abeyance unt.il the Commission can place all industry members under idcntic,l1 restrictions. The pricing practices used by the respondent, hmvcver, have been found to be in violation of la,,,. Since their continuance by the respondent is likew,ise unlawful the Commission s duty, under the applicable statute, is to require their termination forthwith. That respondent's business may be adversely affected by the requirement to cease its unlawful conduct does not counter-balance the precedent which would be set by the requested action which. if follmvecl, would mean that Commission orders would be forever pending and unla\vful practices rarely, if ever, correctecl. Also considered are respondent s objections to the substance and form of the order contained in Lhe initial decision. The provisions of the order are reasonably related to the unlawful general course of conduct found to have been engaged in by the respondent, and the order therefore, cannot be regarded as unduly lacking in specificity. The fact that. the order forbids respondent from discriminating "directly or indirectly in the. respects there designated does not ruean, more. over, that. the proscriptions of the order exceed the authority of the Commission under the Act. Inclusion of the word "indirectly " is designed to prevent evasion of its orders and similar provisions have been included in other orders of the Commission, including the modified orders issued in the Standard Oil and 3f orton Salt" cases. Nor is there any sound basis for respondent's contention that the record requires that a distinction be made in the order as between respondent' sales to its regular jobber accounts and sales made to or through its manufacturer s agents. 'Ve regard the various objections interposed by the respondent to the initial decision s order to be without merit. In further reference to the order, we have, as previously noted rejected the. initial decision s holding that the respondent's price dif- 3- Helevllnt to our consideration here is the opinion of the Second Circuit Court in DictorJraph P1' (/IICtR v. . T. C. 217 F. 2d 821. 826. Judge Medina, for the Court, therein stnt!-;d th:\t: "Preliminarily, it should be noted that potential or even probable adverse effects upon lwtitioner s business alone is not a suffcient basis for withholding injunctive 1'1'lief. ""' ere wc to hold otherwise, ""'1' would quite effectively draw the teeth of SI'CtiOll '1 and of the untitrust laws generally.

3G Sta-nrl.ard on Company v. F. , supra. 3a F. T. C. llo/"on Sa. 1t Company, 334 e. S. 37. 1154 FEDERAL TRADE COM"f!SSION DECISIONS Final Orclel' 51 F. T. C. ferentials are partiany justified by savings or considerations related to catalogue expense. Our order, therefore, makes appropriate provision for modifying the initial decision s order in this respect. For reasons cxpla.ined in our decision in the Edel'lwnn matter, Docket K o. 5770, we like,dse are JIlOdifying the order below in the instant proceeding (1) by striking the phrase "for replacement purposes"" and (2) by inserting \words to the end that the proscriptions of the order be additionally directed to the respondent's oificers, l'eprcsentabves agents and employees.

,Vc have grantedlhat part of the appeal of counsel supporting the complaint objecting to certain of the initial decision s rulings with reference to catalogue expense, but an additional point is urged under the appeal. The initial decision in effect held that the status of the price of respondent's competitiors as lawful or unlawful \Vas not controlling to decision here" but additionally ruled tha.t knowledge could not be imputed to the respondent that its competitors' prices were ill fact illegal. Counsel's a.appeal primarily interposes objection to the latter and related conclusions and states that implicit in them is the erroneous holding that tl1C respondent has suecessi'ully carried the burden of showing necessary proof relatiyc to the la"\Tfulness of competitors' prices. As previously observed, however, the hearing examiner ruled that the Imycl' prices afforded its purchasers under respondent's continuous nationwide pricing program did not represent prices made to meet an equally low prlce or prices of competitors as contemplated by t.he language of Section 2(b). The la,\vfulness or un LL,;,fulness of its competitors' prices are therefore not in issue ina.smuch as respondent's defense has been found legally insuffcient on other grounds. ,Ve are therefore denyiilg this phase of the appeal of counsel supporting the complaint and are denying the respondent's appeal but are granting the appeal of counsel supporting the complaint to the extent previously described in this opinion. ,Vitll the order to cea.se and desist modified in the manner previously discussed, the initial cicci sian is affrmed.

PI N AL Order Counsel for respondent C. E. Niehoff & Co. and counsel supporting the complaint, having respectively filed on November 18, 1954 and November 19, 1954, their cross appeals from the initial decision of the hearing exanlincT in this proceeding: and the Inatter having been 11eard by the Commission on briefs and oral argument; and the The record re-eals that respondent's discriminatory practices rcJate to its testing: equipment and. tools as well as it,; products designed for replacement purposes. C. E. NIEHOFF & CO. 1155 1114 Final Order Commission having rendered its decision denying the respondent' appeal and granting in part the appeal of counsel supporting the complaint and affrming the initial decision as. modified: It is ordered That the order contained in the initial decision be and it hereby is, modified to reae! as follows: It is ordered That respondent C. E. ieholl & Co., a corporation and its offcers, representatives, agents and employees, directly or through any corporate or other device, in, or in connection ,with, the sale of automotive products in commerce, as "commerce" is defined in the Clayt.on Act., as amended, do forthwith cease and desist from discriminating, directly or indirectly, in the price of saiel automotive products of like grade and quality, by selling to any purchaser at net prices higher than the net prices charged any other purchaser, which purchasers compete, in fact, in the resale of saiel products. It is fu.rther ordered That the respondent herein shah, within sixty (60) clays after service upon it of this order, file with the Commission a report in \\Titing setting forth in detail the manner and form in which it has eomp1iec1 wit.h the order to cease and desist.. Decision 31 I" . '1'. C. I" THE MATTER OF THE VIRGINIA-CAROLINA PEASUT ASSOCIATION ET AL.

Docket 6198. Complaint, Oct. 1953-order, May Ft, 1955 Order dismissing, for failure of proof, complaint charging a trade association and its members, constituting substantially all the cleaners and shellers of peanuts in the Virginia-Carolina area, with entering into an agreement or understanding to fix the prices at Vi"which they would purchase farmer s stock peanuts during the 1952. crop season.

INITIAL DECISION OF IIEARIKG EXAMINER Before John Lewis hearing examiner.

M,.. Paul R. Dixon counsel supporting the complaint, ami Jh- William A. Mulvey with him on the brief; Sanden, Gra-velle, Whitlock Jia,.lcey, by Mr. L01ds A. Gravelle and Mr. Harold F. Balcer of "Washington, D. C. , and Godwin c0 Godwin by ifr. Oharles B. God,vin, J,.. of Suffolk, Virginia, for all respondents except The Columbian Peanut Company and the Edcnton Peanut Company; llir. Oharles L. I(aulrnan of Norfolk, Virginia, for respondent The Columbian Peanut Company; and Battle, Winslow & Merrell by lift. Francis E. Winslow of Rocky Monnt, North Carolina, for respondent The Edenton Pe-annt Comp lly. STATEMENT OF THE CASE The Federal Trade Commission issued its complaint against the above-named respondents on October 29, 1953, charging them with the use of unfair methods of competition and unfair acts and practices in commerce in violation of the Federal Trade Commission Act. Copies of said complaint and notice of hearing were duly served upon respondents. Said complaint charges, in substance, that the respondents entered into an agreement and understanding to fix, and did fix, the prices of peanuts purchased by them during the 1952 crop season from the growers thereof, thereby tending to limit price competition mnong themselves and create a monopoly. Respondents appeared by counsel and filed answers to the complaint in which they denied, in substance having ngaged in any of the illegal practices alleged in the complaint. After the holding of a pre- trial conference on tJ anuary 6, 1954 which was attended by counsel for all respondents except The Eclenton Peanut. Company, hearings on the charges alleged in the c.complaint THE VIRGINIA-CAROLIKA PEANUT ASSN, ET AL. 1157 1156 Findings were held before the undersigned hearing examiner, theretofore duly designated by the Commission to hear this proceeding. Said hearings were conducted at Suffolk, Virginia, on various dates between January , 1954, and February 10, 1954. At such hearings testimony and other evidence were offered in support of the allegations of the complaint, which testilllony and other evidence were duly recorded and filed in the oilce of the Commission. All parties were represented by counsel, participated in the hearings, and were afforded full opportunity to be heard and to examine and cross examine witnesses. At the close of the evidence ofiered in support of the complaint further hearings were suspended, pending the filing by respondents of motions to dismiss the complaint herein for failure of proof. Motions to dismiss and supporting briers were thereafter filed by counsel for The Edenton Pcanut Company on March 16, 1954, and by counsel for the other respondents on March 24, 1954. An answer and brief in opposition to said motions was filed by counsel supporting the complaint on :NIay 5, 1954. Pursuant to leave granted, a joint reply brief on behalf of all rcspondcnts was iiled on May 20, 1$)54. Said motions to dismiss arc disposed of in accordance with the findings, conclusions and order hereinafter made.

Upon consideration of the entire record herein and from his observation of the witnesses, the hearing examiner makes the following: FINDINGS OF FACT I, The Business of Respondents A. Identity of the Parties8 Respondent The Virginia-Carolina Peanut Association, Inc., hereinafter referred to as respondent Association, is a corporation organized, existing and doing business under the laws of the State of Virginia with its principal offce and place of business located in the American Bauk and Trust Company Building, Suffolk, Virginia. Said respondent is a trade association to which all the respondents herein belong. Respondents James ,V. Jordan, M. C. Jordan and Robert W. .Winborne (erroneously spelled Win bone in the complaint), are partners trading under the firm na,me a.nd style of Ver1ina Peanut Company, erroneollsly named in the complaint as Virginia Peanut Company. Respondents James I. Beale III, Margaret Beale KejJcr ' and Ann E. Beale, are partners, trading under the firm name and style of 1 Thf! complaint erroneously names John Keller as a partner in the above firm. HowevcI' , the answer fied on belJalf of said firm denies that said .Tohn Kf'ller is a partner in tllc finn, alleges that largaret Beale Keller Is the tbird partner in the firm, and waives service of process upon said persall. 1158 FEDERAL TRADE CO:NMISSION DECISIONS Findings 51 F.

Franklin Peanut Company, with their principal offce and place of business located at Factory Street, Suf!'olk, Virginia. Hespondents Binford E. Parker, Margaret Parker Pond and Sarah Parker Pond, are partners trading under the firn1 name and style of Parker Peanut Company, with their principal offce and place of business located at Factory Street, Suffolk, Virginia. Respondent The Suffolk Peanut Company is a corporation organized exis6ng and doing business under the laws of the State of Virginia, with its principal offce and place of business located at 303 S. Saratoga Street, Suffolk, Virginia.

Respondent Planters Nut and Chocolate Company is a corporation organized, existing and doing business under the laws of the State of Pennsylvania, ,with its principal offce and place of business located at. 212 J oh11son Avenue, Suffolk, Virginia. Respondent The Columbia,n Peanut Company is a corporation organized, existing and doing business under the laws of the State of Virginia, with its principal offce and place of business located at Wainright Building, 229 W. Bute Street, Norfolk, Virginia, Respondent Old Dominion Xut Corporation is a corporation organ ized, existing and doing business under the la\'' s of the State of Virginia, with its principal offce and place of business located at Factory Street, Suffolk, Virginia.

Hesponc1cnt LUll1nis & Company is a corporation ol'gal1_1zed existing and doing business under the laws of t.he State or Nmv tTersey, with its principal office and place of business located at 444 JD. "Washington Street, Suffolk, Virginia.

Respondent Severn Peanut Company is it corporation orga.nized existing and doing business tinder the lu"\vs of the State of Xorth Carolina with its principal oi1ice and place of business locat.ed at Severn North Carolina..

Respondent Pond Brothers Peanut Company is a. corporation organized, existing ancl doing brisiness under the laws of the State of Virginia, with its principal offce and place of business located at County Street, Sl1H'olk, Virginia.

Respondents Robert L. Hancock III, Hobert L. Hancock, Jr., G. S. IIancod;; and H. L. Hancock, arc partners trading under the firm and sty name of IIancoc.k Peanut Company, ,with their offce and p1-incipal place of business locate(1 at Conrthtncl, Virginia- Hesp mc1ent The Edenton PeaJlut Company is a corporation organized, existing and doing business under the laws of the State of North Carolina, with _its principal oIRce and place of business located at Edenton, North Carolina.

THE VIRGINIA-CAROLINA PEANUT ASSN, ET AL. 1159 1156 Findings Respondent Birdsong Storage Company, lnc., is a corporation organized, existing and doing business under the laws of the State of Virginia, with its principal office and place of business located at Suffolk, Virginia.

Respondent Farmers Cottoll & Peanut Company, Inc., is a corporation organized, existing and doing business under the laws of the State of Korth Carolina, with it, principal offce and place of business located at Plymouth, North Carolina.

Respondent The vVilliamston Peanut Company is a corporation organized, existing, and doing business under the laws of the State of :Korth Carolina, with its principal offce and place of business located at vViliamston, Korth Carolina.

Respondent. Pretlow Peanut Company is a corporation organized existing, and doing business under the laws of the State of Virginia with its principal offce and place of business located at Franklin Virginia.

Respondent John H. 1aclin Peanut Company (erroneously named in the complaint as lUaclin Peanut Company) is a corporatjon organized, existing, and doing business under the laws of the State of Virginia, with its principal offce and place of business located at 103 J\fadison Street, Petersburg, Virginia.

B. The Peanut Industry The peanut industry is composed of three main levels. The first consists of the farmer who grows or produces t.he peanuts. The second is the cleaner and she,ller, sometimes known as the miller, who performs intermediate processing operations on the peanuts before they are sold to the manufacturer or end-user. A few of the firms in this category merely perform cleaning operat.ions and sell the peanuts in the shell. The bu 1k of the firms, however, also perform shelling operations. The cle,aners and shellers purchase the peanuts directly from the grOlver or through interrnec1iate independent buyers who receive a commission on purchases made for the account of the sheller. TIle third main category in the industry consists of the manufacturers or end-users who process the peanuts before their :introduction into normal trade channels for sale to the consurning public. These consist of roasters, who roast and package the larger un shelled peanuts salters who salt and package the shellecl pea,nuts, and manufacturers of peanut blltter, candy, and similar products, who use the peanuts in the manufacture of some product for sale to the public. 2 For purposes of con"enience. the respondent corporations and partnerships are sometime hereinafter referred to by the first portion of the firm name, e. g., Columbian for The Columbian Peanut ComplllY, and Parker for the partnership, Parker Peanut COlDpfiny. 1160 FEDERAL TRADE COMMISSIO DECISIONS Findings 51 F. T. C.

Peanuts atc grown in t.three main areas: the Virginia-Carolina area consisting mainly of the States of Virginia and Korth Carolina and portions of certain joining States, the Southeastern area, and the Southwestern area. There are four main types of peanuts grown in the United States: Runner, Spanish, Valencia, and Virginia. The Virginia type, which is raised in the Virginia-Carolina area, is larger in size than the other types and is most frequently sold in the shell after being roasted, and as large salted peanuts. The smaller type Virginia peanut is generally used in the manufacture of candy and peanut butter. The Spanish type, which is raised in the Southeastern and Southwestern areas, is a sman round peanut, is generally used in the manufacture of peanut butter and candy, and also in salting processes. The R.unner type, which is grown mainly in the Southeastern area, is a somewhat larger peanut than the Spanish peanut but smaller than the Virginia type, and is generally used in the manufacture of peanut butter and candy. The Valenci. type, which is generally raised in the Southwestern area, is used in salting processes and for the manufacture of candy and peanut butter. )fost of the above types particularly those of the smaller variety, are also used for crushing into peanut oil.

C. The Position of the Parties in the Indust1'Y With the exception of the respondent Association, all the other respondents are cleaners and shellers of peanuts in the Virginia-Carolina area. Two of the companies, Lummis & Company, and Planters Nut and Chocolate Company, are also end-users performing manufacturing operations at plants located in other parts of the country. The larger of the respondent shellers, including Birdsong, Pond, Lummis Planters and Columbian, own or lease warehouses in a nwnber of different sections in the Virginia-Carolina area and buy their peanuts generally throughout the area. The balance of the shellers operate within a more or less limited radius in the country-side adjacent to their mills. In the aggregate, the respondent shellers constitute substantially all of the cleaning and shelling section of the industry in the Virginia-Carolina area. During the 1952 marketing season, these respondents purchased approximately 440 million pounds of peanuts prior to March of 1953, out of a total yield of approximately ,n6 million pounds.

D. The lntemtate Commerce The respondent shellers sell, ship, and distribute or deliver, or cause to be shipped, distributed or delivered, peanuts in the various States THE VIRGINIA-CAROLIKA PEANUT ASSN, ET AL, 1161 1156 Findings of the United States and in the District of Columbia, and said respondents maintain, and at all times mentioned herein have maintained, a regular course and current of trade in commerce, as "commerce" is defined in the Federal Trade Commission Act, in said peanuts, between and among the various States of the United States and the District of Col umbia.

II. The Alleged Unlawful Practices A. Background and Issues 1. The Government support program During the period from 1933 to 1952 (with the exception of the years 1936 and 1937), the prices received by growers of peanuts were supported by the Federal Government pursuant to various Acts of Congress, beginning with the Agricultural Adjustment Act of 1933, The prices of farmers stock peanuts, i. e., peanuts which had not been ,helled, crushed or cleaned (except for the removal of foreign matter), were supported through a program of acreage allotment, diversion of acreage to other crops, diversion to crushing for oil loans to growers and purchases through designated cooperative associations. For some years prior to 1952, the peanut support program also involved the execution of marketing agreements between Commodity Credit Corporation and the cleaners and shellers. These agreements, which were commonly called "shellers contracts " provided for the purchase of farmers stock peanuts by the cleaners and shellers at a price not less than the existing support price for such peanuts. In return for such undertaking on the part of the sheller, the Commodity Credit Corporation agreed to reimburse them in an amount equal to the support price thereof for any unshelled peanuts which the sheller was unable to resell. For several years prior to 1951, the contracts also provided for reimbursement to the shellers, at a stipulated price: for certain shelled peanuts designated as o. 2 size, which were diverted for crushing to oil. The provision in the contract for reimbursement of the sheller was commonly referred to as the "bail-out clause. During the latter part of 1951 and early 1952, meetings were held in 'Vashington, D. C., under the auspices of the Production and Marketing Administration of the Department of Agriculture, which were attended by representatives of shellers, growers, and end-users of peanuts from vm:ious parts of the country to consider a change in the Government support program for peanuts. During the period from 1947 to 1951, the Government had sustained rather substantial financiallosses in its peanut support program as a result of large crop sur- 1162 FEDERAL TRADE COMlvIISSION DECISIONS Findings 51 F.

pluses in the post-war years. In an efl'ort to cut down on these losses and also with thc hopc of giving the producers an opportunity to take advantage of any increase in price which might result frolll a proposed cut in t.he acreage d1otment, it was suggested that the existing direct support program based on thc shellers contracts he dropped and that there he suhstituted in lieu thereof a program providing for loans to farmers which ",vauld enable them to hold their peanuts for a possible rise in market.!! Despite the opposition of farn1 groups who expressed concern that the change in the program would result in 11 decrease in the price of peanuts, and of sheller representatives who opposed thc dropping of the shellers contracts, a new program was announced by the Department of Agriculture under the provisions of Public Law 285 (signed March 28, 1952), whjch provided for the elimination of the cleaners and shelle.rs agreements. -en dci' the new' program the growe.rs could procure a. storage loan on their peanuts, either directly or through a growers cooperative, and could also enter into an agreement with the COllTIodity Credit Corporation, providing for the purchase of the peanuts hy that agency on :May 31 , 1953 at the support price, j. e., 90 percent of parity, Jess certajn deductions. The loan advance which the grower could receive under the program amounted to approxjm"tely 10 percent less than the support price. 2. The disposition of the HJ52 Crop The harvesting of the peanut crop in the Virginia -Carolina area usually begins around the end of October each year and the main part of the crop is harvested during November and December. The farmers endeavor to dispose of their crop as soon after harvesting as possible, since TIl0St of them do not have adequate storage facilities and it would expose the crop to deterioration through moisture and 3 The;;e losses were as follo\vs :

Crop year Losses (milion doUar8) 1947 3. 5 194 8 -- 25. 1949 -- ------------- -------- ----------- - 39. 19GO ---- ----- --- 11. 1951 ------ "'1. 9 "'Through Dec. 31, 1951.

"Vbile counsel supporting the complaint prefers to stress the factor of giving the growers a chance at higher prices as the basic reason for tbe change in program, tbe evi. dence indicates that it was the financial burden of the program whiclJ was a moving" factor behind the calling of the meetings and the proposed change. Since peanuts ere tbe only basic crop on a direct support program, a change to a lOfln support program was sugg-ested lest the whole support program be lost. .Although it was hoped that the loan program would afford the growers an opportunity for higher prices, this was not the overriding consideration which precipitated a re-examination of the existing program (R. 1132, 446 , 525; ex 53G, p. 5).

THE VIRGINIA-CAROLINA PEANUT ASSN. ET AL. 1163 1156 Findings ra.t.age to permit the crop to lie in the field. The bulk of the purchases made by the shellers u:mally occur during K ovember and Dember, although there may be some purchases in October, \-,hen the ('rop matures early, and there IS also smne purchasing on a lesser scale after the first of the year.

In 1052 the crop began to be harvesl-ec1 around the third \vcck of October. Some of the respondent shellers began purchasing peanuts about October 20. As usual, however, most of the crop was purchased during l\ovember and December. Aside from some variations at the be&rinnin(f and end of the season, the bulk of the peanuts .were purch;sed b; the respondent shellers at prices which were the equivalent of the GovernmelJt loml value of such paanuts. The prices paid varied according to the grade of the peanuts, as determined by Federal-State inspectors. III lnaking most of their purchases and computing the prices paid by them, the respondent shellers used an identical schedule designated as: " Price Schedule 1032 Crop Virginia. Type Farmers Stock." The schedule was a 16-page document, containing the prices of different grades of peanuts. The basic grade factor was the amollnt of " Sound )ieat Kernel" in a given lot of pe,anuts, designated as SThfK. " Each page of the schedule reflected the prices of peanut containing a different percentage of SJ\IK, the first page containing the prices of peanuts with 58 percent S , and the last page showing the prices of peanuts with 73 per cent 8j\f1\::. Each page of the schedule also reflected variations in price within a given grade of 81\11( depending upon the amount or foreign material in a given lot or peanuts and the percentage or extra large peanuts. Each page or the schedule contained approximately 400 separate prices, on a per pound basis, earried to the third dee-imal point. By paying the eqnivnlent of loan value for the bulk of their peanuts, the respondent shellers \Yel' able to purcha.se. a.approximately 440 minion pounds of pe;muts prior to :March 1953: out or a. total crop of about 306 million pounds. During the Slll1C period only about 18 million pounds oJ peanuts were pledged by farmers with the Grmvers Peanut Cooperative: a Gm'ernmenr.-rccognizec1 marketing agency, as security -for loan advances made under the terms of the loan program. 3. The contentions It is the contention of counsel in support or the complaint that. the Tml'chaso by- tbe respondent shellers of the bulk of the 1$),'52 peanut. crop at prices \\which \\"-:1'e the equivalent or GovenllnenL loan values and the use h)' tlwm of an identical schedule of prices were tho result of an agreement 01' undcrsullcling on their part to fix the prices of 1164 FEDERAL TRADE COM:vnSSION DECISIONS Findings 51 F. T. C. such peanuts. . The case of counselsuJ)porting t.he complaint rests largely on the circumstantial cvidenc2, adduced through witnesses coined from among the responclents that the respondent shellers used the same price schedule and purchased the bulk of their peanuts at these prices. The respondent witnesses, while conceding the truth of these basic facts, denied that their conduct 'vas the result of any agreement or understanding on their part to fix prices, and they sought to give an explanation for the coineidencc of their actions. Aecorc1ing to respondents, the fact that each company purchased most of its peanuts at loan value was due solely to economic conditions and was based on the individual decision of eacl) company. 'With respect to the use of the same price schedule, respondents contended that the schedule was merely a replica of one issued by the Department of by theAgriculture for another crop area and that it 'iYilS prepared bookkeepers employed by several of the shellers in oreler to facilitate the othenvise cumbersome process of computing the prices of peanuts which resulted from the change in the support program. Since there is no dispute as to the basic facts presented by counsel in support of the complaint with respect to the prices at which most of the peanuts were purchased in 1952 by the respondent shellers and as to the use by them of an identical price schedule, the basic issue in the case resolves itself 1nainly into one of whether the explanations offered by respondents are suffciently plausible and acceptable to overcome any inference which might otherwise arise from their common and parallel actions. To a consideration and evaluation of the evidence in this respect, the hearing examiner now turns. B. The Evidence 1. The decision to pay loan value It was the testimony of most of the respondent shclJers that their decision to buy the bulk of their peanuts in 1952 at prices equivalent to the loan value thereof was based solely on economic factors and considerations. '\Vhile there ere some variations in emphasis and data. the testilnony of these witnesses was substantially similar with regard to the factors 'i,which caused them to conclude that loan value \VflS the price at which they should bid for, and at which they could reasonably expect to purchase, farmers stock peanuts during the 1052 crop season. Boiled down to its essentjals, the gravamen of their testimony was that due to a peanut surplus, both existing and prospective, and a stringency in the c.rec1it situation, they conc111rlec1 it 'iyoulc1 be necessary for them to buy their peanuts at the cheapest possible price in order to stay in business. Since any pr1('8 lo er than loan value wo1l1r1 encourage ,, THE VIRGr: aA- CAROLINA PEANUT ASSK. ET AL. 1165 115G Findings farmers to place their peanuts under Govermnent loan, most of the respondent shellers concluded that loan value was the cheapest price at which they could expect to purchase farmers stock peanuts. l\lost of them oflered the farmer the added inducement of paying him the cost of hauling the peanuts from the farm to the mill, \vhereas, under the Government loan program the farmer would have to pay the cost of hauling himself. :.More,over ' the quotation of prices, f. o. b. the farm, was traditional in the Virginia- Carolina area. It was the contention of the sheller witnesses that the coincidence of their substantially panlllel actions resulted not from any understanding or agreelnent on their1' part, but from the fact that they were confronted with parallel economic factors \\'which were widely knmvn in the trade. The tes6mony given by the shellers as to the economic factors which affected their respective judgments impressed the hearing examiner as being plausible and not unreasonable on the whole. \With respect to the matter of the peanut surplus, a number of the witnesses referred to the fact that there were appro:xinmtely 114 million unsold bags of Government-owned peanuts hanging over the market from the 1951 crop which could be clumped on the market at prices below parity in the event they were found to be deteriorating. 1Iost of the sheller witnesses also testified that surveys which they customarily made in the fields prior to the harvesting of the crop convinced them that there ould be another large peanut crop in 1952. Despite the fact that there had been a cut in acreage in 1952, it was their testimony that the farmers ha.c usually managed by more effcient methods of cu1tivation to produce as great, if not a greater, yield on the reduced acreage. They further claimed that the eut in acreage was offset by the fact that in 1951 the Government had ceased its program of diverting shelled peanuts to crushing for oil, thus augmenting the supply available for the edible trade. Another factor mentioned by some of the she))ers as contributing to the surplus was the fact that the Southeastern crop area, in which harvesting had begun prior to the Virginia Carolina area, was giving indications of an unexpectedly large crop, pa.rticularly in the Rumler-type peanuts, ..which were competitive to the Ko. 2 Virginia-type peanut and were sold at substantially lower prices. The crop surplus situation was, according to the sheller witnesses, reflected in the Imver prices which were being offered by enclusers for the cleaned and shelled peanuts and this, in turll, affected the shellers' judg 11ent as to "what they could afford to pay for farmers stock peanuts.

The testimony of the shellers regarding the 1952 crop and market situation was corroborated to a cons.iderable degree by the \veekly , 1166 FEDERAL TRADE COMldISSIO:N DECISIONS Findings 51 F. T. C. peanut reports of the Production and )farketing Administration of the Department of Agriculture, covering the period in question, which were offered in evidence by could1seJ supporting the complaint. Thus the report of October 1, 1052, refers to the fact that the supply of peanuts .in commercial positions" as 01 August 31, 1952, was about on8third more than the hoJdjngs on tha"t date in 1951, and that the holdings of farmers stock peanuts were three 6rnes as large as in the previous year principally due to large holdings of Government-owned farm stock peanuts in the Virginia-Carolina area. Concerning the matter of the demand for peanuts by end-users, the weekly report of October 8, 1052, states:

, with the trade en- There \vas little demand for ncw crop future shipments erally follo\ving a wait and see attitude.

The report of October 15, contains the following statement regarding the prospective s.ize of the 19;52 crop: Indicated production ill the Firginia- Cal'otiila area increased about 2 percent during the month due to higber anticipated yields in Virginia. * * .,. Gencl'aJly, a ,ery good crop is in prospect in this area. The report of October n refers to the fact that the yield of the 1052 " rrhe Sflme, report a1socrop "should be a little better than a year ago. refers to the fact that buying by end-users :' is still light." The report of Kovcmber 5 also emphasizes the lightness of the demand from end-users, stat.ing:

Demand for dea,led and 811€11c(1 goods for dose np hipment hns been only fair, \with most buying for current ncclls. (1e- The report of ovember 12 again refers to the "rather light' mand for cleaned and shened peanuts ancl ('contains quotations of price futures on such pe,anuts ,,,which are generally belmv the 1 \);")1 average. In addition to the above crop and market factors which affected their judgment! the shelle1' witnesses placed considerable emphasis on the matter of the credit stringency ,,,which confronted them in 1D52. j)lost of the shellers have resources to finance only a small part. of their crop purchases, the greater portion thereof being financed tl1rough bank loans. According to the testimony of the shener ,ritnesses, they were confronted in 1832, by a reluctance on the part of the banks to loan money as freely as in the past due! not only to the softening of the market, but to the fact that the shellc,l's had lost the protection of the shellcrs contracts containing the bail-out clause. In past years the bail-out clause in their contracts hnd assured the shellers against Josses on unso1c1 farmers stock pea,nuts anll, until 1961 also limited their losses on smne of the shelled peanuts. ,Vhile this clause was THE VIRGINA-CAROLINA PEA.'rT ASSN, ET AL. 1167 1156 Findings not frequently used in actual practice,' it facilitated their obtaining credit from the banks since it, in effect, gave them collateral for their loans. In 1952, w.ith the collateral of the bail-out clause gone, the banks were more cautious in their loans to the shellers. The money was doled out on a gradual basis with instructions that the money was to be usee! to buy peanuts as cheaply as possible. At least one sheller Farmers Cotton & Peanut Company, Inc., was instructed by its bank to pay no more than loan value for the peanuts. Another sheller, The Edenton Peanut Company, was required under its loan from the Reconstruction Finance Corporation not to expend the monies loaned for more than 80 percent "of the loan value" of the peanuts purchased. Several of the shellers testified that they had to go off the market prior to the end of the season due to a. lack of funds with which to make further purchases.

Another factor which influenced the thinking of a number of the shellers was the vie\v that the new program established loan value rather than the so-called support price, 9S the effective support level for farmers stock peanuts eluring the active buying season. "'Vhile a farmer could, if he chose, hold his peanuts until )Iay 31, 1953, and obtain the support price under his purchase agreement with the Commodity Credit Corporation, the actual difference between loan and support was 11101'8 apparent than real since the deductions which11 would have to be made from the support prioe after :Ma:y 31 (including allowance for shrinkage in weight, storage charges, interest on loan and other charges) \yonld reduce the net amount receivell by the farmer substantially to the amount of the loan. Although it was possible that the farmer might still realize a profit if the Government resold the peanuts after )Iay for more than support, this was a. somewhat uncertain and speculative prospect when weighed aga.inst the natural inclination of the farmer to dispose of the crop as soon as possible and with a minimnn1 of reel tape. For this reason ma.ny of the shellers felt that in offering to pay a price equivalent to loan value during the active buying seas all, they were offering the farmer a pricl: equal to the effective support price.

In his brief counsel supporting the complaint cites statements made by the Department of Agriculture, in announcing the new program to the effect that they regarded it as offering growers an opportunity to fj'The testimoI.:' reveals that the clause was taken advantage of for 1951 by respor;dei.t Co1nmblan and tllat several other shellers gave serious eonsideratiOl1 to availing them. selves of their rigbts of resale undf'r t1Jis dause at yurious times, o This includes rcspOJlc1(nts Pond Brothers, Farmers Cotton, find Virlinll. In obtaining its last loan L1Uri1Jg the seaSOIl, respondent Pond nrothers was required to show that it had actual contracts of sale with reliable end-users, 423783--58-- 1168 FEDERAL TRADE CO:MlISSIOR DECISIONS Findings 51 . T. C. secure prices a.bove support. Counsel apparently regards these statements as belying the testimony of some of the respondent shellers that they considered loan value to be the effective support price. However the minutes of the meetings in "\Vashington which preceded the adoption of the 1952 loan program reveal the widely held view by many segments of the industry t.hat the practical result of the proposed new program would be to establish loan yal11C as the effective support price. Thus, a farm representative from the Southeastern area stated that the proposal to establish a loan program providing for deduc60ns of approximately 10 percent below support would establisJl loan value as the efiective support price, since 90 percent of the farmers in his area would not avail themselves of farm Joans. A farm representative from the Virginia-Carolina area stated that ,with the large carryover :from 1951 facing the market any proposal for e,stablishing a system of deductions below the support price ,yould have the practical effect of reducing the price, and he suggested that the Government should stop "beating around the bush" and should ten the farmer it wa.s going to cut the support price by the amount of the deduction. Similar sentiments Iyere voiced by others ",-110 ,were present at the meet.ings. It should also be noted that great concern was voiccd at the meetings both by farmer representatives and shellers, that the shellers' diffculty in financing t.their purchases without the collateral of the shellers contracts would affect their ability to buy the crop. Recognition of the realistic nature of the views expressed at these meetings, as wen as corroboration of the testimony of the respondent shellers, appears in the following prediction mftde by a county fa.rm agent ,which appeared in a local newspaper just as the crop was beginning to move to market:

Weather permitting, peanut picking wil IJ1O,e into high gear shortly and rjght now it's impossible to predict how much of the crop wil be stored under Govern. ment loan either on the farm or with the Growers Coop and how much wil move directly into regular trade channels. It' s my gu.ess that 1/ buyers pay prices Une with the loan schedule a si,zable portion of the crop 1l:ilmOI'e directly from the pickel' to the mills. ll rEmphasis Supplied. Although, as claimed by the respondent shellers, the laws of economic necessity naturally impelled them to the decision to pay loan value for their peanuts, it should be noted that there was no immediate and simultaneous unanimity in this decision. Thus, one of the 7 RX 9. pp-, 13-14.

SHX r) , p. 35.

I See, for example, RX 9, pp. 4, 6, 25.

:10 ex 536, pp. 49-51; RX 9, pp. 21 , 25, 26. 11 The abo1"e article appeared in the Suffolk News-Herald under dllte of Octoher 26, 1952.

THE VIRGINIA-CAROLI:\A PEAKUT ASSN. ET AL. 1169 1156 Findings largest shellers, respondent ColumbiaJl, stnTtecl out buying at a price midway between loan value and support value, but came down to loan value when it found it was able to buy all the peanuts it wanted to at the latter price. Another large sheller, respondent Birdsong, decided to pay loan value f. o. b. its mill, with the farmer bearing the cost of hauling the peanuts, but soon changed to loan value f. o. b. the farm when it found that the shellel's generally were paying for the hauling of the peanuts. The experience of respondent. \Villiamston was similar to that of Birdsong. In the case of several of the smaner of the re spomlent shellers, who entered the market rather late, the decision to pay Joan appears to have beon based not merely on the economic factors above related, which caused them to proceed cautiously, but also on the fact that when they entered the market they found that loan value had already been established as the going rate. Since most of the shellers bought through independent buyers, \\ho purchased peanuts on behalf of more than one company, it would not be diffcult for these latecomers to fid out what prices \\ere being paid without receiving such information from other s11e11e1'8.

It should also be noted that despite the fact the bulk of the peanuts handled by the respondent shellers 'were purchftsed at loan value there were, nevertheless, significant variations from this pricl:. in addition to those already mentioned of shellers ,yho chang-eel their price after entering the market. Thus respondent Eclenton purchase(l at least 20 per cent of its peanuts at prices other than loan value. The figures covering purchases by respondent \Villiamston during the period from ovember 1 to December 6 , 1952 show that approximately 42 per cent of its purchases were made at prices other than loan. 'Vhile figures are not available for the other responde,nts, most of them testijied that after January 1, 1953, they paid above 10Hn for peanuts, despite the fact that from J "nuary 31 to May 31 , 1953, there was no price support under the Government program. Given the economic factors with which the re,sponclent shellers were confronted in 1952, it does not tax credulity to accept their claim that the decision to pay loan value resulted from the, individual action of each sheller, impelled by economic necessity.y: and not from any agreement or understanding among them. There is nothing about their tesbmony or about their demeanor jn testifying which suggests that the examiner should not give credence to their claims. In considering the probabilities inherent in the situation, it should be noted that in 1951 , when they were operating under the shellers contracts J. J.'IHmers who desired to enter into a loan and purchase agreement with the Gon,rnment were required to do so before January 31. 1953. 1170 FEDERAL TRADE CO ISSION DECISIONS Finding' 51 F. T. C.

all the respondent sheners purchased the bulk of their peanuts at exactly the minimum price required under' the conirflds to 'wit, at the support price. No claim is her made that such unanimity of action resulted from anything other than the o!)(Tntion of normal market factors, inelucling a crop surplus which ,vas aggravated by the dropping of a portion of the protection of the 3he1101':; contracts with respect to No. 2 size shelled peanuts. It is not nnreasonable therefore, to believe that confronted with a worsenillg of the market situation in 1952, including the complete dropping of the shellers contracts, the shellers should once again cicci rle to pay no more than was required by what they considered to be the effective support level under the new program, to wit, loan value.

Accordingly, the hearing examiner callnot conclude that, il)sofHr as the respondent shellers decided to pay t.he equivalent of loan value for farmers stock peanuts in 1952 flnd proceedpcl to buy the bulk of their peanuts at such price, their decision and action were based on anything other than the individual juc1grnent of each sheller taking into consideration the economic factors which WE'J'e common to them all. 2. The use of the loan-value price schedule The case of counsel in support of the complaint rests not J1Wl'eJy on the fact that the respondent shellers bought the bulk of their peanuts at prices equivalent to the Government loan values thereof but, even more important, on the fact that the shellers llsed an identical 16-page price schedule in the preparation of "\which the bookkee.pers of some of the respondents cooperated. The respondent shellers, while admitting that they all used the loan-value schedule during the course of the 1952 crop season, denied that it had Hny connection with an agreement or understanding on their part to fix prices. They sought to show that the schedule was merely an adaptation of one prepared by the Department of Agriculture, which CD,me into use because of the diffculties they had experienced in computing prices under the new loan program, and that they had used similar schedules in previous years. The explanation of respondents concerning the origin and distribution of the schedule, and the contentions of counsel supporting the complaint in connection there\With, are considered in greater detail below.

a. The expla'i1Qtion During the period when the shellers 'were obligated under the shellers contracts to pay not less than the support price for peanuts, the Department of Agriculture had issued a schedule reflecting the support THE VIRGINIA-CAROLINA PEAN ASSN, ET AL. 1171 1156 Findings prices of farmers stock peanuts on a per ton basis. Since peanuts in the Virginia-Carolina area were traditionally bought and sold on a per pound basis, it was necessary for the shellers to have a schedule translating the Govcrnment support prices to a pound basis. For number of years this need was supplied by the bookkeeper of the respondent Pond Brothers, one Al Elliott, who prepared a schedule substantially similar to that issued by the Department of Agriculture except that the prices were expressed on a per pound rather than a per ton basis. As to a private venture of his own, in which his employer did not participate, Elliott had copies of the schedule printed and sold them to other shellers at approximately five cents per copy, A similar schedule was prepared by Ellott in 1952 and distributed to the other shellers.

However, when it became apparent in the fall of that year that there was definitely going to be a loan program instead of the former direct support program " many of the shellers found it necessary to have some more convenient method of computing loan values, This was important, not only because many of them had decided to pay loan value for their peanuts, but also because the farmers themselves, in deciding whether or not to accept a buyer s offer, would frequently want to know what they could get if they placed their peanuts urider Government loan. In order to compute loan value, it was necessary to make a series of deductions from the support price, in accordance with a complicated formula prescribed in the Joan program. The Department of Agriculture had issued a bulletin showing how these deductions were to be made from the support price in order to arrive at loan value. By using the Government schedule of support prices expressed in a per ton basis, and making the deductions prescribed by the Government formula, it was possible to arrive at the loan value of farmer stock peanuts which could then be translated to a per pound basis. The same result could be achieved by using the Ellott schedule of support prices and making deductions therefrom in accordance with the Government formula. However, this procedure was cumbersome and 6me-consuming, requiring anywhere from 20 to 35 minutes to compute the loan value on a given lot of peanuts, and even longer where more than one grade of peanuts was involved in a transaction. As a result of this, the shellers found it necessary to have some more 13 Although the new program had gOlle into effect in the spring of the year, many of the shellers were hopeful that some change might be effected: which would restore tlle Sll('lJ('r8 contracts. .Kot unti the latc summer or early fall did it become definitely apparent that the loall program was going to control the 1D52 crop, and not until about GctobCl' 1 was detaned information received in the Virginia-Carolina area as to how the program was going to operate.

;;

Findings 51 F. '1' , C. convcnient method of computing peanut prices on a loan value basis lest their payment system become bogged down in a mathematical morass.

The lead in preparing a schedule to meet this need was taken by E. K. Thompson, bookkeeper of respondent Birdsong. According to Thompson, when he told the president of his company that it took approximately 27 minutes to eompute loan value on a given lot of peanuts, he was instructed by hjs employer to try to find some way of facilitating this task. Previous to this, Thompson and the bookkeepers of five or six other companies located in Suffolk had been to see a :VIr. Johnson, head of the Growers Peanut Cooperative in Franklin, for the purpose of obtaining information which would aid them in computing the loan values of pcanuts.14 Johnson "Was not then able to help them. However, he subsequently sent them a table of instructions as to the method of makjng deductions from the support price in order to arrive at loan value. ""while the Government had issued a complete 21-page schedule of loan values on all grades of rumler-type peanuts, it only issued a l-page table of instructions illustrating how to compute such values on Virginia-type peanuts. ,Vh811 Thompson realized that. the Govenunent was not going to issue detailed schedules for Virginia- type pcannts, he asked Elliott of Ponel Brothers, who had had experience with price schedules in the past, if he would be interested in helping hin1 prepare a schedule of loan values. Since Elliott also had need for snell a schedule, he 2greed to cooperate Iyith Thompson. Both of them worked out the :format for the schedule, based substantially on that which had already been prepared by the Department of Agriculture o1' Runner-type peanuts. The ' also made the nmthematjcal computations for the first two pages of the schedule. I-10"\ever, since there 'Yen: over 000 computations to be made in working out the entire schedule and the harvesting of the H);")2. crop 'Was at hanel, Thompson called in four of the other' boolikeepers in Suffolk, most of 'Whom had previously been with l:il1 on the visit to Franklin, to see if they ,vouIc1 be interested in making t.he mathemat.ical computations all the other pages of the schedule. Each of the bookkeepers agreed to make the computations H The Cooperative was the offcially rccognizerl marketing agency l1under the loan program and received copies ef releasrs from the Departmrnt of At;ricultnre pertaining to the program. It WHO; npli1:' entl ' cmtoilQry for thc sbc11('rs to contact offcials of the Coopcrntive froil time to time .for the purpose of ubtaining information rega.dillg tlle support- program.

15 Accord1illg to Elliott' employer, ElJott wonlrJ have prepared a complete loan scbed ule himself, except for the fact tllat the assistant 'Who had hdpr.d him in preparing the earlier scueLlules, bad left the company s employ and Ellott did not have the facilities to do the complete job by himself.

THE VIRGI IA-CAROLIXA PEAKUT ASSN. ET AL. 1173 11G6 Fjndings on two or three pages of the schedule." The work was begun around October 15 and was completed on Oct.ober 21, when the schedule was sent to a printer in Norfolk for printing. 'With one exception, Thompson did not request permission from any of the employers for their bookkeepers to work on the schedule, fond in most instances the employers Yi-' c.re not a"\\'are that their bookkeepers were so engaged until after work on the schedule had commenced or was completedY In the Ineantime, and prior to the preparation of this schedule, some of the respondent shellers were already buying peanuts at loan value. Several made the necessary computations by the longhand method of calculating the prescribed deductions for loan value, while others had prepared their own schedules using an Hyerage figure of deductions from support to arrive at JOi:n ndne. In some instances, COl11plaints had been received from farmers that these computations did not accurately reflect Government loan values. .As soon as the schedules prepared by Thompson and Elliott, with the coopcration of the four other bookkeepers were rceeivecl from the printer, copies were distributed to those firms "\hose bookkeepers had assisted in the prep- :nation thereof. \Vhen the other shellers learned about the echedulo they procured copies through Thompson or Elliott. A number of them learned kl about L1w ne,y sc.hedules from Elliott 1'1'om I', hom they had previously purchased a support. schedule and whom they had called in the hopes that he might be prepa.ring a loan schedule, after they had run into diffculty in paying for peanuts ithol1t all accurate clet.ailetl sc.hedulc 0-1 Joan values. One of j-he Jal':est of the slteJlers rc,,:pondcnt ColUlnbian lefu' J1ed about the sdwdnle quite by accident t.hrongh t1w printer who wns fl friend of its president, and was ablt to get copies from the p1'inter nftel' permission had been obtained Jrom Elliott or Thompson.

h. Tile COlltClltiOJlS of counsel supporting the complaint COlln el in support of tho cOlnplaint refers in his brief to several facts Rncl circumstanc.es "\which he apparently regards as reflecting unfavorably on the story of respondents conce.rning the preparation and distribution of the loan value "schcc1ule3. First of all he points G In addition to TboIIpSOll and Elliott, lJoold.eepers from t!1e following four cOlJlp,wlc' worked on the s('heduIe: Phmten, Lummis, Old Dominion, nnd Parker. 7 Only jn the ca e of Lllllllis' bookkeeper was permission reqlH'Sled for tile bookkeeper to flssist in the work.

lR ACCOl'Jillg r-o Colurllbbn s President, "\Villinm Woortley, when be first learnf:d of: tile schedule, he 1111(1(' no cjo)' t to obtain copies because he bad recdved the impression 1'1'011 Johnson of the I' eanut Growers Cooperatl\. tlwt tlJe Go\ ernment was going to iSSll(, its own sd1erlule. Eo""e,rl' , when he Iellroed that this was 110t so, be called tlJC l'dnteragain nnd the latter, after recehi!Jg permission from TJlOmpson or Ellott. gave \Your1Iey a numbrf of copies.

Findings 51 F. T. C.

out that, unlike the Ellott schedule which had been prepared as a private venture by Elliott and for which he received payment from the various shellers, none of the respondents, other than Birdsong, ever paid for the 1952 price schedule. Thompson, who took the lead in preparing the schedule, gave the following explanation as to why he had not been paid for the schedule:

At the time the schedules were printed, Thompson had contemplated charging for them, as had Elliott. He had 2 000 copies printed because E11ott had advised him that this was the number which he had customarily ordered, and because the printer had informed him the difference in price between printing 500 copies and 2 000 copies was very small. However, he had some diiIculty in deciding which companies to charge and how much to charge for the schedule. He felt that he could not charge the companies whose bookkeepers had helped him prepare the schedule. By the time the schedules came back from the printer, Thompson was so busy handling payments for the peanuts which were then moving to market in substantial quantities that he gave up the idea of charging for the schedules. Eventually, his employer paid the printing bill and no reimbursement "\vas received from any of the other shellers.

A number of the shellers testified that they had fully expected to be billed for the schedules, as (hey had in (he case of (he El1io(( support schedules, but that they had never received a bill. Some of them testified that they had been under the impression right along that their companies had paid for the schedules and did not learn to the contrary until they checked their files just prior to the commencement of this proceeding, at the request of a Commission investigator, and were surprised to find that they had never received a bill for the schedules.

In the opinion of the examiner, the fact that the schedules were or were not paid for is not a fact of any controlling significance. There is no showing that the cost of printing the schedules involved a,ny considerable sum of money. ThIoreover, the fact that no payment was made by the other shellers does not necessarily require the drawing of any inference adverse to the position urged by respondents. In fact, if the shellers had shared the cost of printing the schedules this might more logically be cited as a circumstance tending to show that the printing and distribution thereof was part of a common plan of action. - Another fact cited by counsel supporting the complaint as tending to impugn the explanation of the respondent shellers concerning the use of the schedule is the fact that the schedule was headed: Price sched- :.

THE VIRGINIA-CAROLU'A PEANUT ASSN. ET AL, 1175 1156 Findings ule 1952 Crop Virginia Type Farmers Stock (PeanutsJ." It is ap: parently the position of counsel that since the schedule was actually a schedule of loan values, it should have been called a "loan" schedule instead of a "price" schedule. Counsel in support of the complaint apparently regards the fact that the word "price" was used as tending to show that it was intended for use as part of a scheme to fix prices. In the opinion of the examiner, the designation of the schedule as a "price" schedule is not a fact from which any adverse inference can be drawn. As pointed out by Thompson, the Elliott schedule upon which the loan schedule was in part modeled, also used the description "price schedule " although it was actually a schedule of support values. The reason it had been so designated was to avoid any possible misrepresentation to the farmers as to what the offcial Government support values were in the event an error in computation was inadvertently made in the schedule. In addition, the offcial instructions for computing loan values issued by the Department of Agriculture which Thompson used as a model, also refer to the schedule as a "price table. Moreover, in view of the fact that respondent Birdsong had already decided to p"y loan value for its peanuts there is nothing unusual about its bookkeeper calling the schedule, which he took the lead in preparing, a "Price Schedule.

Counsel in support or the complaint also cites as being or some significance, the dissimilarity between the EJ1ott support schedule and Thompson loan schedule, insofar as the size or each document is concerned. He points out that whereas the former was only a one-page document, the latter consists of sixteen pages. Counsel apparently accepts the Elliott schedule as being merely a bona fide effort to translate Government support prices from a per ton to a per pound basis but regards any substantial deviation from the format of that schedule as having sinister implications.

In the opinion of the. Examiner, the argument or counsel in support of the complaint based on the physical dissimilarity of the two documents rests on a distinction without a diflerence. The reason why the Elliott schedule. was only one page was that the Government support schedule upon which it was patterned was also a one-page document. 1-iowever, as a result or the complicated formula ror deductions from support, set up under the 1\)52 loan program, it was necessary to have a separate schedule for each grade or peanuts according to the percentage or ow1d meat kernel (Sync). The Government instructions on how to compute loan value contain a separate table or base prices on a single grade of Virginia-type peanuts (65% Sl\K) and an additional table setting forth the formula for computing the loan 1176 FEDERAL TRADE COMlIISSIOX DECISIONS Findings 51 F. T. C. values on all grades of peanuts. The same document also contains a complete 1110del loan-value schedule for l'mner-type peanuts, consisting of 21 pages with a difi'e.rent schedule for each percentage of SMK. The Thompson schedule is patterned substantially after the format of the Governmcnt schedule for Hunner- Type peanuts except that it is applicable to Virgin a- type peanuts. Considering the fact that the Government schedules themselves became more complicated after the enactment of the loan program, the examiner cannot see anything sinister in the fact that the Thompson schedule consists of 16 pages, while the Elliott support sclwclulc was only one page. Viewed in the light of the record as a "hole, the explanation by respondent shellers as to how the lmll-value price schedule came to be prepared and as to how it came to be distributed among all the shellers impressed the examiner as plausible and as not unreasonable on its face. There is nothing in the facts and circumst.ances referred to by counsel supporting the complaint nor in any of the other facts presented in the record which requires the examiner to reje,ct this explanation.

3. The other nit1en('e In addition to the fact that the respondent she1Jers all useel the same price schedule and purchasec11:he bulk of their peanuts at loan value, counsel in support of the complaint relies llpon several other facts and circumstance,s as tending to support his claim that respondents entered into an agreement to fix prices. These matters ate separately discussed below a. Phe speech b') TVoodifY At a, meeting of the respondent Association all oyember, J D51 'Villi am P. 'Yaodley, Presic1e,nt of responc1e,nt Colmnbian made a talk to the members in which he stated, in part, as follows: \Ve kno\v there is nothing we can do to reduce the cost of our peanuts if we are operating under the Shellers Contract, and I think all of us should sign the contract. The price we vny is fixed by the contract, and although we cannot reduce our cost below this lCTel, we can limit our cost by buying peanuts srrictly on the vrice determined by the federal g,'J'ade. The only \Yay we can tlo this is not to price any lot of peaml1s until after' the grade has been determined by a Federal Gradel' at a gnHling point. This win take tlle guess work Ollt of buying and, as yon l;:ow, \yhenever we gUCs,s the value of a lot of peanuts, we have to pay additional if we !lave uli1el'-guessed, but if we over-guess. we l1ave tl' absorb our mistakes.

Tbe complaint states, and it was conceded by ('oun el SlJpporting' tbe complaint at tbe hearings herein, that the Thompson schedule reflects "ex8ctly the amounts of Government loan values.

THE VIRGINIA-CAROLDfA PEA::T ASS:s. ET AL, 1177 1156 Findings The peanuts being marketed in the Southeust are being sold in accordance with the grades established at receiving points, and already being overpriced in cOllpetiton with the Southeastern type, it would seem to me that it 1,: absolutely necessary that we fall.n\' their practice in buying at the minimum support price. This, of course, wiJ enable us to llove more peanuts into edible consumption than we would be able to move under a Program of careless buying, and 1 belicye ,vo ,,"ill be tIoing the farmers of this area a service in trying to move a gl'enter quantity of the crop illto edible consumption rather than into Commodity Credit, and by doing so, we may be able to eliminate the necessity of radical acreage reduction next year. Counsel in support of the complaint cities these remarks as indicating that the respondent shellers " ere cooperatively discussing the reasons why it would be in their best interest to purchase peanuts at the minimum support price " and he seeks to have the examiner infer that they took similar action iJl 1952. Aside from the fact that, as counsel recognizes, the speech wa,s made .in connection with the 1951 crop and there is no evidence that any action was ever taken by the Association based on IV oodleis suggestion, the speech itself contains no proposal that the shellers undertake any illegal a,dion. The grava.men of 'Voodley's remarks at the meeting was that economic conditions required that the shellers cut their cost of peanuts and that since they could not cut the price because they were obligated under the shellers contracts io pay not, less than the support price, they could at le.ast see 1:0 it, that the peanuts were properly graded before they mfl,c1e an of rei' as to price. 2IJ ,Vhen the full speech is read in context it tends, if anything, to confirm much of the testimony of respondents' witnesses. For example the speech quotes from an article written by a banker in which ref erence is made to the eeonomie problems eon fronting the industry and in which it was foreeasi that lonns to shellers would have to be ';very closely screened. IV oodley s own remarks regarding the problem of competition with the Southeastern-type peanuts confirm the testimony of some of the shellers I''garc1ing the effect of tile Southeastern crop on their o\\n urca. lie also refers to the problem of the large probable carryover of peanuts from the old crop, thus indicating that the shellers were confronted in ID51 ",.ith a problem similar to that which faced them in ID52. Viewing "\Yoodley s remarks as a whole there is nothing in them which suggests that illegal action on the part of the shellers was contempJatecl as a means of rectifying tha industry s problem.

"Insofar as the 1952 crop is concerned, the evidence show,; that offers by bu;.ers wetfJ usually !Jt il particular price, snb:iect to the proper gTRde lwing- estftblished by Federal- State inspectors. However, some buyers apparently made their own estimate of g-trade Itial bid on tllepeannts without a proper Federal- State inspection. This presumably is what Woodley was referring to.

1178 FEDERAL TRADE COMMISSIO" DECISIONS Findings 51 F.

b. The letter from Gilia.m to B. M. Birdsong E. F. Gilliam, the general manager and treasurer or respondent Pretlow, on June 24, 1952, addressed a letter to B. M. Birdsong, " Birdsong Storage Company, Inc. " in which the following statement appears :

I am reminded of the old proverb that goes something like this: " The mOUlltain strained and brought forth a IDGUSe " and it looks like that's about aU those fellows in Washington have done for us. I have about decided that it is useless ta look to .Washington for any help, so it looks like if we are going to buy this crop of peanuts to stay in business, the help is not coming from Washington but lies in what we can do. (Italics by counsel supporting complaint. Counsel in support or the complaint seeks to have the examiner inrer that this letter contemplated illegal action on the part or the shellers arguing that the letter "must have been taken to heart by respondent Birdsong, * * * as a hub about which the unlawful activities charged 1l the complaint revolved.

Although counsel supporting the complaint appears to take the positjon that this was a proposal made by one sheller to another, it should be noted that B. M. Birdsong was not only employed by respondent Birdsong Storage Company, Inc. (in what capacity it does not appear rrom the record) but he was also a stockholder and offcer or respondent PretJow Peanut Company, or which GilEam was an offcial. The letter may thererore be regarded as being one rrom one offcial or Pretlow to another offcial or the same company. Furthermore, it should be noted that GilEam had attended the meetings sponsored by the Department or Agriculture in 'Washington during early 1952, as a member of the Committee sent by the Virginia-Carolina shellers. At these meetings his group had taken the position that they wanted to have the shellers contracts continued in view of the protection which they were afforded thereunder. Viewed in thjs Eght, GiJliam s remarks in the letter to Birdsong may be regarded simply as an expression or his views that since 'Washington was not going to help the shellers (having definitely decided to drop the shellers contracts), the latter would have to rely entirely on thejr own resources to buy the crop if they wanted to stay in business.

There is no more reason for inferring that the " " mentioned in the letter means both respondents Pretlow and Birdsong or that it rerers to the shellers as a group, than there is in assuming that it has reference to Pretlow Peanut Company alone, or which both the sender and recipient or this letter were offcials. Reading the letter in its context and in relation to the events which preceded it, the examiner is convinced that there is no necessary connection between the sending or the THE VIRGINIA-CAROLINA PEANUT ASSN, ET AL. 1179 1150 Findings letter and any agreement or understanding between respondents Pretlow and Birdsong or any other group of shellers. c. The matter ot warehousc space At the hearings counsel in support of the complaint appeared to take the position that the respondent shellers had deliberately refused to make warehouse space ava.ilable to the Government or to the Growers Cooperative, so as to force the farmers to sell their peanuts to the shellers due to the unavailability of warehouse space for storiug peanuts placed under loan. It is not clear whether he has now abandoned this position since in the brief filed by him counsel merely refers to the lack of warehouse space as a factor which facilitated the plan of the shellers to fix prices. To the extent that counsel may stil be urging the position which he appeared to take at the hearing, it is the opinion of the examiner that this contention is lacking in any substantial merit. It is true that a number of the she1Jers declined to make warehouse space available to the Government or to the Co-op. However, according to the testimony of these she1Jers, the reason for this was that the Government never nmde any firm offer to use their warehouse space but merely wanted the sheners to give the Co-op the option to use the space without committing it to take and pay for any defiuite amount of space. Even on the basis of this indefinite offer several of the she1Jers, including Pretlow and Maclin, actual1Jy offered to lease warehouse space to the Government but the space was never actually used or paid for. Several of the other shellers, particularly the smaller ones, made no offer to lease space because they did not have enough warehouse space for their own needs.

Aside from the fact that there is no substantial evidence of any effort on the part of the shellers, deliberate or otherwise, not to make warehouse space available to the Government, it is the opinion of the Exa.miner that the matter of warehouse space was not a significant.. factor in persuading the growers to accept the shellers' offer to pay loan value rather than place their crops under' Government loan. .While there may have been a shortage of warehouse space at theopcn1ng of the season, 35 warehouses 'were built during the season with funds provided by the Commodity Credit Corporation, some of them becoming available around the middle of November, and the balance by December 1 1952. The testimony of the farmers who were called as witnesses in support of the complaint indicates that, generally speaking, the lack 21 It may be noted t1HJt the hA,1nnc(' of the Jetter, otller than th:: portion above quoted. deals with personal matter and with eertnin hll illess ilntters wliicb were obviol" ly being. called to Birdsong :: attention a an offcial of Pretlow. Findings 51 F. T. C. of warehouse space was not a factor which persuaded them to sell to the shellers instead of availing themselves of a Government loan, d. The alleged adtnissions of buym"

Counsel in support of the complaint called a number of farmers who testified rega.rding their conversations with various buyers for the respondent shellers. In ft number of instances the buyers had shown the farmers price schedules similar to those in general use a,among the respondent shellers, and had told them that they would be p"id "according to the sheet. " One 01 the farmers, Vernon IC Grizzard, testilied that a buyer told him: " (1VJ e alj h,ne the same price. "' * * We are buying on the same schedule as the Government price list." Another farmer, Joseph F. Tnrner, was also told by a buyer that the shellers \"ere " aU paying the Same thing for the peanuts, and buying on that particular sheet * * * If this testimony has any value, it must be as admissions by agents of the shellers that the Jatier had fixed the prices at which they were buying farmers stock peanuts. In the opinion of the examiner, the testimony of the farmers cannot be so regarded. Insofar as they testified about being shown copies of price schedules by buyers, their testimony is not of any particular.r significance. All of Lhe shellers admittedly gave their buyers eo pies of the schedules and so it was natural that the Jatter would show them to the farme.rs as reflecting the prices They were pay-ing. Insofar 3S any buyer may have made the statement that all the companies were paying the same. price, i. e., the price on the Government schedule, they were merely sta6ng a fact which had become generally known in the market but whicll, under the circumstances, did not necessarily mean tha.t there ,YUS any agreement or understanding on the part of the shellers with regard to this price. The examiner has a.already discussed the reasons why the shellers deeided to pay loan value nnd how t.Iley came to use the same schedule. The fact that the buyers made the statement that the shellers were paying loan value and using the same schedule does not add anything to the picture. :Most of the buyers bought for several companies and it m 1Y be assumed that as a result of the instructions reeeivecl fronl 2: Fllrwer Paul C, larks testified that he had warelJOusc space andJable Ileal' him but (Ji(l liot use it, although he was full - uware of what the Goyernmeut Joan prog"mm Wfl!'. Frf'rl Jones tf'stifie() that altbOIJgb 11e was fully a\YHre of the loan program, he made up IJis mind to seu his peanuts to one of tlle shellE'J"s because he had !levcr stored any peanuts hl- a warehouse and, moreover, there was so much publicity about the GOyernnH'nt losiug money on the pP11.uts tllat he lJ1eferred to dispose of tllem Ldmself, Fmnris c Simmons testified that there were GovernItf'IIt warehouses available Ileal' him and he Wns aware of the Joan program. Lil,ewise, Vf'rnOD K, Grizzard testified that he was familar with the loan program and that he put part of his (TOl) ill a warehouse on loud and oJtl the rest to shellers.

, ,, , )\ THE VIRGINIA-CAROLINA PEA);UT ASS . ET AL. 1181 11;16 Findings their various principals and the ",vide distribution of the schedules they became generally aware as to what the shellers were paying-not only their own principals but other companies as well. For this reason, the statements made by them cannot be regarded as admissions that their principals or employers had, in effect, fixed prices. c. SUJJJiU(, Y and Ooncludi-ng Fz'n(Ung8 1. Summar The contention of (,OlUlsel supporting the complaint that respondents entered into an illegal agreement to fix the prices of farmers stock peanuts rests almost entirely Oil the circumstantial evidence that the respondent shellers bought the bulk oi t.he 1952 peanut crop at prices which.h were the equivalent of Government loan values and that they allnsed an identical schedule emhoc1ying such values, in the prepa.rat:ion of which schedule the employees of some of the shellers participated. There is no substantial direct eviden e in the form of cor1'espondeuce mlllutes or reports of Association meetings, or otherwise t.hat the respondents entered into any agreement or understanding such as that charged in the complaint or, indeed, that the subject of prices to be paid during the 1952 crop season was even discussed among respondents at Assoeiation meetings 01' elsewhere. ,Vhile counsel in support of the complaint did seck to draw support for his position from certain statements made in a speec.h by one of the shellers at an Association meeting in 1951 and from a letter written by a sheller in 1952, as \yell as from statements made to farmers by peanut buyers this evidence which has been discussed above, is so ambiguous and inconclusive that it has 110 substantial probative value. It is clear therefore, that the case of counsel supporting the complaint must st.and or fail on the circumstantial evidence introduced with respect to the prepa.ratioll a,nel use by the respondent shellers of the same price schedule.

The. responde.nt shellers, 1\'hile admitting the. basic facts relied on by counsel in support of the complaint, sought to show that their decision to buy at loan v8.,lue and t.their use. of the same schedule were based on circumstances ha,ving no connection 1\ith any agreement to fix prices, They explained that the basic decision 1\11ich they made with respect to the 1052 crop, vjz. to pay loan value HS c.compelled by economic c.il'cnmsta.needs beyond their control and was not the result of any ullderstanding 01' agreement on their part. These economic circnmstance.s inelllc1ed a Jarge C.fllTYOyel' 01 peanuts from the pre\"ious erop, il, large prospective yield for the ensning year, and a large yield of the lower-priced competitive Runner-type pe lll1ts gro\\'11 in the 1182 FEDERAL TRADE COM.V!ISSION DECISIONS rindings 51 F.

Southeastern area, all of which factors spelled out a peanut crop surplus and were reflected in a softening of the prices quoted by end-users of peanuts. EquaJling these factors in importance was the fact that the banks, w hic.h financed the greater portion of their purchases, became very restrictive in their commitments to the shellers as a result of the dropping of the shellers contracts containing the so-called bailout clause. The amount of the loans were reduced and, in some instances, limitations were placed on the prices at which shellers could buy.

vvith these conditions iaeiug them, the shellers contended that it was natural, in fact that it \vas imperative, for them to try to buy farmers stock peanuts as cheaply as possible. Since the Government loan program had the eilect of establishing a tioor under peanut prices, it was inevitable that they would all eventually arrive at the same price as the cheapest price at which they believed pelmuts could be bought, viz. loan value. Since the farmers had to be offered some inducement for selling to the shellers rather than placing their peanuts under loan most of the shellers ofie.red to pay ille cost 01 hauling the peanuts from the farm to the mill, a practice '1'which I,as traditional in the area any \Yay. Even in this, there was no immediate unanimity since several 8he11e1'8 , including Birdsong Storage Company, one of the largest companies in the area, started out paying loan value f. b. their mill and another large she11er, Columbian Peanut Company, started out paying a price mid\1'ay bet\yccn loan value and the Support price. Insofar as the explanations given by the shellers for their decision to buy peanuts at loan value are concerned, they impressed the examiner as being plausible and \Yorthy of credit on the \whole. As previously indicated, t.their testimony regarding the economic conditions "which they claimed motivated their decision InlS corroborated to a considerable extent by documentary eviclenee in the record. ::o evidence was offered by counsel in support of the complaint to show that the conditions which the shellers claimed confronted them did not exist or that this was not ihe true reason why each of the shellers c1e( ided to, and bought, the bulk of its peanuts at loan value. '''while there may be ca.ses, sons of which will hereafter be discussed, where the fact that a given group of competitors buy or en at reci cly the snme price CHn haxe no rational cxplan:ltion either than that such action resulted from a common agreement or understanding among them, the circumstances of this case rlo not. require the drawing of any such inference. 11e1'e there is a. perfectly' 10g ('a1 and non-culpatory explanation, which docs not do violence to the laws of probability, as to how all the shellers came to pay the same THE VIRGINIA-CAROLINA PEANUT ASSN. ET AL. 1183 1156 Findings price for the bulk of their peanuts. Actually, the decision which prcceded their purchases was not so Inuch a decision to buy at a particular price, as it was a decision to buy as chcflply as possible. The price which each decided upon was not some arbitrary figure in which the coincidence of their decision wouh1 logically point to a combination of some kind, but was an amount predetermined to a large extent by the Government support program as tho minimum figure at which the farmers would have an incentive in selling to the trade rather than placing their pCfll1Uts under loan. The fact that the shellers ultimately all arrived at substantially the same decision does not, under the facts here present, require the drawing of any inference that their decision was the result of collusive action. Significantly, in the year 1951, when they were confronted with similar although not as acute, economic factors, they all arrived at substantially the same decision and bought the blllk of their peanuts at the cheapest price permitted under their contracts with the Government, to wit, the support price. No charge is here made that such action resulted froln any agreement or understanding among the sbellers.

The other significant fact upon which counsel in support of the complaint relies is that the shellers did not merely make a similar decision as to price but that they a11 used an identical price schedule in the prepare tion of which SOHle of their employees cooperated. How- , h(,1"e again the shellers gave a plausible anc110gical explanation which it does not tax credulity to accept. Thus the shellers shov, that in past years they had all used a similar schedule of support prices which they purchased from the bookkeeper of one of the shellers; that this schedule, the so-call cd Elliott schedule, translated Government support prices from it per ton to a per pound basis and was needed because support was the minimum11 price which could be paid under the shellers contracts \with tbe Government; that for the 1952 crop it was necessary to know what the loan value of the di:iferent grades of peanuts were: not only because mo t of the shellers had decided this Ivas the price at which they could and should purchase farmers stock peanuts, but because the farmers themselves wanted to know what the loan values \were; that it was burdensome and time consuming to compute such values without some schedule or other means of ready reference; that it number of the shellers had been led to believe that a schedule of loan values ,,'ould be issued by tbe Department of Agriculture but that when the schedule was issued it was for another type of peanuts grovi'll predominantly in the Southeastern area, with only a single table sho"\ving how to compute loan 423783--58-- 1184 FEDERAL TRADE Come"'ISSION DECISIONS Findings :)1 :B. values for Virginia-type peanuts; that when it became a.apparent t.hat the Govermnent was not going to issue a usable schedule some of the bookkeepers, because of their mutual need and in most cases without instructions from their employers, cooperatively assisted in preparing a schedule patterned substantially on the model supplied by the Government; and that in the normal course of evcnts other shellers who had previously purchased the Elliott schedule found oul about the new schedule and obtained copies. The shellers further showed that prior to the receipt of the schedule, a. llumuer of them were ah' eacl paying loan value and were computing payments either by the longhand method of deductions or by using a homema(lc schedule in which deductions were approximated.

\Vhile the fact that. a given group of competitors has used the same or a similar price list wit.h a "to the last penny" correlation has, as pointed out. by counsel supporting the complaint, been considered suffcicnt to support an inference that. the group was acting in conccrt no such inference is justified by the facts in this case. The '; to the last penny " correlation here can logically be expla.inec1 on a basis other than the existence of an agreement to fix prices, viz., t.hat the price list used by the compet.itors merely refle.cted the offcial Government loan va.lues reduced to a per pound basis. Accepting the apparently credible testimony of the shellers as to how each of them, acting independently, arrived at the basic decision to pay Joan value, there is not.hing unusual about the fact that they all began to use a. schedule reflecting such values. Had they all prepared separate seheclules containing the same amounts, based on the GOvernment figures, this would not give rise to an inference that they were acting in concert. The fad that sEweral of their bookkeepers, acting in most instance;es ,vithout the knowledge of their employers, collaborated in preparing such a schedule does not, in the opinion of the examiner, require any different conelusion concerning the bona. fldes of their action, particularly in the light of the fact that they had all used identical price schedules in the past originating from a common source.

2. Appli('atioll of the legal authorities Counsel supporting the complaint states in his brief that he does "not neeessn,rily rely on any express agl'eellwnt among respondent shellers respecting the, promulgation of the 1952 price schedule. and its use a.nd cites a number of legal authorities for the proposition that it is not necessary to show any actual 01' express agreement, simultaneously entered into, in order to establish a case under the Federal Trade Commission Act or the related Provisions of the Sherman Act. Counsel , y, THE VIRGmIA-CAROLllA PEANUT ASSN. ET AL. 1185 11;)6 Finc1ings then argues that. the "joint preparation" of the price schedule and the use thereof by the respondents in paying to the penny" prices for the bulk of their peanuts ;'constitutes such a set of cireumstunces that the respondent shellers would be per se in violation of the Federal Trade Commission Act.

,Vhile it may be that no express agreement, sirnultrmeously entered into, need be shown, the evidence must be such that it can reasonably be inferred that the parallelism of responclenfs conduct resulted frolll some concert of Hciton in which all of them deliberately and intentionally participated, albeit without., any formal agreement and without necessarily entering into t.he arrangement at precisely the same mo- 111cnt. It is clear frolll the various eases cited by counsel supporting the complaint that in order to susta.in a charge of illegal price-fixing under the Federal Trade Commission Act or the related Sherman Act something 1nOrp. than the fact that respondents, conseiously or otherwise, engaged in parallel action must be shown. Thus, in the Interstate Cite'tdt case Z3 while the court st.ated that. a "conspiracy may be * * * formed -.vit-hout simultaneous action or agre,ement on the part of the conspirators " it recognizes that there must be (aJeceptance by competitors 'I' * : of an iti/uitation to l)(U,ticipate in a plan even though there \Yf!,S no previous agreement. and it concluded t.hat the uniform action of respondents could not have occurred " without some 'tf,nde' l'standing that all were to join" (emphasis supplied). Similarly, in the Fort H O1ca.yl Paper Co. case/ the eonrt while stating that " formal agreement" was necessary and that the "essential combination or conspiracy may be found in a course of dealings or other circumstances as well as in any exchange of words " recognized that " (iJt is theagremnerd to fix prices in concert that renders the conspiracy illegal." (Emphasis supplied. J Any doubt on the subject of whether parallel business behuxior is ipso facto illegal was recently hlid at rest by t.he Supreme Court in Theater Enterprises, ITlc, v. Para11W1tnt 346 U. S. 537, where the court in jnterpreting the analogous provisions of the Sherman Aet, stated:

The crucial question is whether respondents' conduct to\vard petitioner stemmed from independent decision or froin an agreement, tacit or express. To be sure, business b2havior is admissible circumstantial evidence from wbkh the feet finder may infer agreement. ,. , " But this court has never held that proof of parallel busine"s behavior conclusively estabJisbes agreem( nt or, phrased differently, that such behavior itself constitutes a Sherman Act offense. Circumstantial cvicfence of consciously parallel behavior Inay have made heavy inroads into the traditional judicial attitude ton-ard conspiracy; but "conscious paralleJism " has not lia(1 conspiracy out of the Sherman Act entirely. Interstate CirwU , Inc., U. S ., 306 U. S. 208, 227. Fort lion:f1!' r/ Poprl Co. FTC, 156 F. 2c1 809, !:OG, (C. .\. 7), 1186 FEDERAL TRADE COM1lission DECISIONS Findings 51 F.

The examiner is not unmindful of the cases holding that a course of parallel conduct which falls short of a "combination" or "conspiracy " under the Sherman Act may, under some circumstances, constitute an unrair method or competition under the Federal Trade Commission ACt. However, these have involved situations where not only was the method or competition (use or basing point system) considered to be illegal, but there was evidence or actual collusion among the parties. 1,Vhatevcl' may be the validity of the argument that such cases support the doctrine of " conscious parallelism 6 the Commission has made it clear that it regards the "inherent evidence of collusion in these pricing systems as being the gravamen of the offense charged and that "mere uniformiti' of prices does not provide a basis for prosecution. In the instant case there is not involved any inherently illegal pricing system and, moreover, the complaint il: based on the alleged existence of an agreement or understanding among respondents to fix prices and not on any claim of mere parallel behavior.

Insofar as the cases cited by counsel supporting the complaint hold that a finding of agreemert or conspiracy Inay be baseel on a showing of conscious parallel action, they involve situations ,vhere the facts indicate that there 'vas no reasonable explanation for the unanimity of action among respondents other tha.n that it resulted from an agreement or conspiracy on their part. In such cases, the respondents either offered no explanation or their parallel conduct or the explanations olTered by them were patently unacceptable. Thus, in the Eugene Dietzgen 00. case " the court noted that respondents had made " (nJo rational or satisractory explanation" ror their identical bids on Government contracts and held that "concertcel action" may be inrerred rrom an "artificial price level not related to supply and demand * "* Similarly, in the Fort Howard Paper 00, case ,upm the court held that the "artificiality and arbitrariness or the zone structure (on which respondents' prices were basedJ is so appar- FTC v. Cement Institute 333 L. S. 1383 , 721 , fn. 19; Triangre Conduit Cable Co. v. Ji' C, IG8 F. 2d 175 (C. A. 7).

:J See Rabl, Conspiracy and the Antl.Trust Laws, 44 Ill. L. Rev. 743, 7131 (1!J50). 'l Commission POlicy Tou' d Geographic Ptic'ing Practices October 12, 1948, 3 CCH Trade Heg. Rep" par. 10,412.

:- The complaint here charges that the price list was circulated among respondents "for the purpose, and with the object and effect, of fixing (pricesJ" Ilnd that the prices therein set forth were adopted by respondents "in accordance with the agreement, unrlerstanding, desire, purpose Ilnd design of said respondents" to fix prices. In the 'l1"angie Conduit case su.pra the -complaint not only charged the existence of a conspiracy to use the basing point system, but also alleged in a separate count that respondents had adopted the basing point system "with knowledge that each did likewise, " thereby restricting competition. J! Eugene Dietzgen Co. v. FTC 142 F. 2d 321, 327, 332 (C. A. 'I). THE VIRGIXIA-CAROLINA PEANUT ASSN; ET AL. 1187 1156 Findings €nt that it cannot withstand the inference of agreement, " The court in the Alled Patel' Mills case 00 also cited the "artificiality and arbitrariness" of the price structure as supporting an "influence of agreement." In the Interstate Oil'cuit case supra the Court found that the unanimity of action among the defendants resulted in "such far-reaching changes in their business methods" that it taxed credulity to believe that such changes could have occurred without some understanding that all were to join" and, furthermore, that it was "beyond the range of probability that (thisJ was the result of mere chance. The instant case does not fall within this category. The prices reflected in respondents' price schedules were neither artificial nor arbitrary but were directly relate,d to the Government loan program. The respondents gave a rational and satisfactory explanation as to why they decided to pay such prices and also as to how the employees of some of thmTI happened to cooperate in the preparation of a price schedule reflecting these prices. The aclions of the respondent shellers do not represent any startling change from past industry practices under which the prices paid by the shellers appear to have borne a considerable degree of relationship to the minimum price guaranteed to the grower under the Government support program, and in which schedules reflecting such prices and based on Government-supplied data have been widely used.

It is clear from the foregoing that (1) in order to estlbJish the charge that respondents have engaged in illegal print.e-fixing, as alleged in the complaint, counsel supporting the complaint must establish that the action of the respondent shellers in adopting identical prices was the result of some agreement or understanding on their part, tacit or express; and (2) that proof of parallel business behavior does not ipso facto establish the existence of such an agreement or understanding, except insofar as agreement may be inferred fr01TI the context of such parallel action. The question here presented is whether the evidence that the respondent shellers engaged in substantially parallel business behavior is suffcient, in the face of the explanations given 80 Alled Paper Mils v. FTO 168 F. 2d 600, 608 (C. A. 7). 81 Counsel in support of the complaint has sought to analogize the position of respondents; based on past industry practices, to the position taken by their opposite numbers in cases such as the SoconJj Vacuum case (U. S. v. Socony Vacuum Oil Co. 333 'C. S. 150) where it was held that the fact certain ilegal cooperative practices had been initiated during the period of the 1\RA with the knowledge and acquiescence of offchlis of the Federal Government, did not immunize such practices from prosecution where they were continued after the - NRA period. However, the examiner docs not understand the position of respondents here to be based on any claim of immunity gained from Government acquiescence in megal practices engaged in during the period of the shellers contracts. Rather it is their position that the practices engaged in prior to UJ52 were entirely legal and, so far as appears from the record, there 1s no evidence to ti.e contrary. 1188 FEDERAL TRADE COM.viission DECISIONS Findings 51 F. T. O. by them, to justify the drawing of an inference that such parallelism of action resulted from a common understanding or agreement on their part. The criterion to be i'ollmyec1 in resolving this question i2 well stated in 1Vesson v. United State" 172 F. 2cl 931, 933 (C. A. 8), as follows:

Inferences must be based upon proven facts or facts of which judicial notice must be taken and one inference cannot be baf;ed upon another inference. To sustain a finding of fact the circumstances must lead to the conclusion with reasonable certainty ami must be of such probative force as to create the basis for a legal inference and not mere suspicion. Circumstantial evirLc'lIce is not suffcient to esta.blish a conclusion '!chere tlle cirCiUnstances a.re merely consistent '!eith Sitch (I, conclusion ar where they give eqlw1 support toincansU!tent concl,'isions. o: (gmpha is supplied. In the opinion of the examiner the explanation given by the respondent shellers for their use of the sa-me price schedule and their payment of similar prices for the bulk of their peanuts, if it docs not affrmatively establish the nonexistence of an agreement 01' understanding to fix prices, at least gives equal support to an inference that their parallel action ,vas noncollusive in nature as it does to one that such action was the result of agremnent or understanding among them. Gnder these circumstances, the examiner cannot draw any inference adverse to respondents from their parallel activities. 3. Conclnding findings It is concluded and found, for the reasons above stated that the evidence introduced by counsel in support of the c.complaint is insuffcient to establish a prima facie case that the respondent shellers entered into an agreement or understanding to fix the prices at which they would purchase farmer stock peanuts during the 1952 crop season. vvith respect to the respondent Association, it is found that there is a complete failure of proof that it participated in any illegal activities as charged in the complaint.

See also pevely Dairy Co. v. United Bta,tes 178 F. 2d ;:63 , 370, (C. A. 8), in which the rationale of the Wesson CRse was adopted by the eonrt, In reversing a eon"iction for engagement in a price-fixing conspiracy, where the evidence of conspil' flc;\ rested: largely on the Ilc10ption of parallel prices Hnd ille defendants gave a detailed plausitJlc esplnnation as to the economic reasons why each acloptecl tllese prices. 3'; In 111s brief counsel supporting the complainiurges that the eXjJlnllation of respondents not be accepted in the light of the holding in Ulliterl States U. B. GypS'lIm Co. 333 r. S, 364, 395, in which the Court stated that "little weight" could be given to the denials of witnesses that they had: acted in concert " (wJhere sucll testimony is in conflict with cOllteIl1JOraneons documents. " However, unlike the U. S. GYPl!1Im cflse. there ate no contemporaneous documents here which contradict the explanations or denjals of respondents. The primary documentar;y evidence is the price schedules theTUselyes, and there 1s no ncceSl'ary inconsistency between these docl1ments and the explanations of respondents. Cf, C. II. Mussel-man Co. Doel;:et ),TO. 6041 (Septembf'1' 23 , 1854), whf're the Commission declined to accept cxp1anations in clear variance with written reports, THE YIHGIXIA-CAROLIXA PEANUT ASSN. ET AL. 1189 1156 Order CLUSIOX OF LAW It is cOJlcluded that counsel in support of the complaint has failed to establish by reliable, probative and substantial evidence that respondents have engaged in any unlawful conduct in violation of Section 5 of the Federal Trade Commission Act. The motion of respondents to dismiss the complaint herein, on the ground that no violation of said Act has been established by the evidence, should, accordingly, be granted.

ORDER It is O''dered That the complaint herein be, and the same hereby is disndssed.

FIX AL ORDER OK APPEAL Counsel in support of the complaint having filed, on December 31 1954, their appeal from the initial decision of the hearing examiner in this proceeding; and the matter hav-ing been heard by the Com- 111ission on the whole record, including briefs and oral argument; and The Commission having concluded that the hearing examiner s initial decision is correct, both on the law and the facts, and that the appeal of counsel supporting the complaint in all respects is without n1eri t :

It is ordered That the initial decision of the hearing examiner dismissing the complaint be, and it hereby is, affrmed and that the appeal therefrom filed by counsel in support of the complaint be, and it hereby is, denied.

Commissioner I-Iowrey not participating, and Commissioner Mead dissenting.

;..

1190 FEDERAL TRADE COM:ISSION DECISIONS Complaint 51 F. T. C. IN THE MATTER OF DEAK ROSS PIANO STUDIOS INC. ET AL.

CONSENT ORDER, ETC. , IX REGARD TO TUE ALLEGED VIOLATION OF THE FEDERAL TRA.DE C01'DIISSION ACT Dockrf 622.'J. C01;I!J/ainf, June ;;0 , 19;)- J)e('ision, J!rllj i6. 1955 Consent order requiring a company in New York City to cease advertising falsely that by means of its home-stl1dy course of piano instruction consisting of a booklet and a device designated "Automatic Chord Selector " a person could play the piano with both hands the first day and, within a short time l'eatland play hymns, ballads, and sheet music. Before ilr. Loren H. Laughlin hearing examiner, lir. Frederick J. Mcllanus for the Commission. Mr. Benjamin E. Wiwton of New York City, for respondents. CO::\:IPLAINT Pursuant to the provisions of the Federal Trade Commission Act and by virtue of the authority vested in it by said Act, the Federal Trade Commission, having reason to believe that Dean Ross Piano Studios, Inc., a, corporation, and Leonard Greene, individually and as an offcer of said corporation, hereinafter referred to as respondents have violated the provisions of said Act, and it appearing to the Commission that a proceeding by it in respect thereof would be in the public interest, hereby issues its complaint stating its charges in that respect as follows:

P-iHAGRAPH 1. llespondent Dean Ross Piano Studios, Inc., is a corporation, organized, existing and doing business under and by virtue of the laws of the State of :New York with its offce and principal place of business at 45 west 45th Street, :New York, K ew York. is now, and for some time last pa,st has been, engaged in the sale of a home study course in piano instruction known as Dean Ross Piano Course. The course consists of a booklet and a device designated "Automatic Chord Selector. " Respondent, Leonard Greene, is prcsident of said corporation. He individually formulates, directs and controls the policies, acts and practices of said corporate respondent. His address is the same as that of the corporate respondent. PAR. 2. In the course and conduct of their business, respondents now cause, and for some time last past have caused, their home study course, when sold, to be transported from their place of business in the State of N ew York to purchasers thereof located in other States of the DEAN ROSS PIANO STUDIOS mc. ET AL. 1191 1190 Complaint United States and in the District of Columbia. Respondents maintain, and at all times mentioned herein have maintained, a substantial course of trade in commerce between and among the various States of the United States and the District of Columbia. PAR. 3. In the course and conduct of their business, and for the purpose of inducing the sale of their said course of instruction, respondents have made various statements with respect to the results that will follow the study and use of the materials furnished with said course, in advertisements published in various newspapers and other periodicals and by means of radio continuities. Among and typical, but not all inclusive, of said advertisements are the following: Pla r Piano with ROTH Hands the Fills'! Day-or Don t Pay! Amar,ing, , Patented Self-Teaching' Device Gives " Secret"

You, too, can play piano with BOTH hands at once! Thousands have learned to pia,j' this fast, easy A- C way with the amazing invention, the AUTO IATIC CHORD SELECTOR, there s nothing to it. '1'his is no trick method. You actual. ly read and play any sheet music. And, the Patented AUTO lATIC CHORD SELECTOR guides your fingers every note of the way. o scales, no exercises, no boring practice. You play the minute you 'sit at the piano. In no time at all you re playing Hit Parade numbers, or hymns, or beautiful old ballads. . . or all three! Send for this mnl'yelous Dean Ross Piano Course today. Consists of 80 ilustrated Jessons, 50 songs with words and music, special Dean Ross play-at-once arrangements, and the Patented A1JTOl\IATIC CHORD SELECTOR. Only $1. complete. You have nothing to lose and Popularity and fnn to gain, so mail the 10-day FHEE- TRIAL coupon now.

This is no trick method. You actually' read and play any sheet music, I can personally Guarantee to teach 3'ou to play any sheet music. Em. 4. Through the nse of the statements appearing in said advertisement, and others or the same import but not specifically set out herein, respondents represented, directly or by implication, that by means or their course or instruction a. person is able to play the piano with both hands the first day and, 1vithjn a short time, to read and play hymns and ballads as \yell as sheet music such as is featured on the Hit Parade.

PAR. 5. The aforesaid statements and representations are false, misleading and deceptive. In truth and in fact, the ability to play the piano gained by respondents' course of instruction is limited to the playing of simple, single note melodies with one hand and simple bass chord accompaniments with the other. The instruction provided wil not teach or enable a person to play hynn1s, ballads or sheet music unless they have been specially prepared so as to permit the nse of respondents' course of instruction and then only in the manner above set forth.

1192 FEDERAL TRADE COM::rSSION DECISIONS Decision 51 F. '1'. c. PA.n. 6. The use of the aforesaid false, misleading and deceptive statements and representations and the failure to disclose the limita. tions of the results that may be obtained through the purchase and use of respondents' course of instruction has had, and now has, r, capaeityand tendency to induce members of the purchasing public into the erroneous and mistaken belief that all or such statement.s ttnd representations are true and into the purchase of a substantial number of said courses of instruction as a result of such erroneous and mistaken belief.

PAR. 7. The aforesaid acts and practices of respondents, as herein alleged, are all to the prejudice and injury of the public and constitute unfair and deceptive acts and practices within the intent and Ineaning of the Federal Trade Commission Act. INITIAL DECISION nY LOREN II. LAUGHLIK, I-K\JUXG EXAl\IINJm The Federal Trade Commission (hereinafter referred to as the Comn118s10n) on June 30 ID54 issued its complaint herein under the Federal Trade Commission Act against the above-named respondents charging them in c.certain particl1lars with having violated t.he provisions of said Act. The respondents \'- ere duly served with process and thereafter fied their ans,ycr.

On J\Jarch 11, 1933, the respondents, ho\yever, stipubtec1 in \writing ith counsel supporting the complaint, therein \yithdl'a.wjng their answer and ,,- waiving the filing of another l1S\Ter and agreeing that a consent.. onler against the respondents be eniered herein in terms identical with those contained in the notice iss1H'd and served on respondents as a. pa.rt of the complaint herein except thfl,t in paragraph 2 of said proposed order in said notice the following words were stricken: has been specifically prepared so as to permit the. use of respondents course of instructioll ' and the following \words have been inseried in lieu thereof: "it is arranged for or is ac1aptab1e to re.spondents' course of instruction," Such writt211 stipulation was approved in writing by the Director and Assistant Director of the COllmission s Bureau or Litigation.

By said stipulation, amollg other things, respondents have a.rhnitted all the jurisdictional allegations of the complaint and agreed that the record herein may be bken as if the Conllllission had made findings of jurisdictional facts in accordance ith such allegations; that the parties expressly \waive a hearing before the Hearing Examiner or the Commission and all further and other procedure to which the respondents may be entitledl1nder the Federal Trade Commis'3ion Act or the Rules of Practice of the Commission; and that the order to c.easc DEAN ROSS PIA:'W STUDIOS , INC., ET AL. 1193 1100 Order and desist issued in accordance \"ith said stipulation shall have the same force and effect as if made after a fun hearing, the parties having waived specifically thcrein any and all right, power or privilege to challenge or contest the validity of said order. It was also stipulated and agreed therein that the complaint herein may be used in construing the terms of the order provided for in said stipulation \which may be altered, modified or set aside in the manner provided by the Statute for the orders of the Commission.

The aforesaid stipulation 1'01' consent order as so approved was sub. mitted on Jfareh 18 , 19;")5, to the above-named hearing examiner for his consideration in accordance with R.ule V of the Commission Rules of Practice. Anc1upon due consideration of the complaint and the stipulation for consent order, \1which is hereby accepted and ordered filed as part of the record herein, it ha.ving been stipulated they shall be the entire record herein on \1which such order may be entered, the hearing examiner finds that the Connnission has jurisdiction of the subject matter of this proceeding and of each of the parties respondent herein; that t.he complaint, which is not denied states a. legal cause for complaint under the Federal Trade Commission Act against respondents as an entirety and as to each of the particular advertisements alleged ns violations of law therein; that this proceeding is in the interest of the public; that the following order as proposed in said stipulation is appropriate 101' the dispositioll of this proceeding, the same not to become EnaJ unless 3nc1until it becomes the order ofthe8 Commission; and that. silid order therefore shah be, 'l1d hereby is, entered as follows: ORDER it is ordered That Dean Ross PimlO Studios, Inc., a corporation a.nd its offcers, Leonard Greene, indivic1unJly and as an offeer of said corporation, and respondents ' representat.ive,s, agents and employees in connection \\"ith the offering for sale, sale and distribution of their home study courses in piano instruction, kno\\"ll as Dean H03S Piano Course, or any other course of instruction of t.he same nat.ure" in commerce, as "commerce " is cleJ-ined in the Federal Trade Commission Act, do forth,with cease and desist from representing, directly or by implication:

1. That by employing said course of instruction persons are a.bk to play the pial1o, unless it is cle,1rly and conspicuously disclosed that such playing is limited to simple, single note melodies with one hanel and simple bass chord accompaniments \lith the other. Order 51 F.

2. That by employing said course of instruction persons are able to play hymns, ballads or sheet music unless it is clearly and conspicuously disclosed that such music cannot be played unless it is arranged for or is adaptable to respondents' course of instruction and is limited to simple, single note melodies with one hand and simple bass chord accompaniments with the other.

ORDERS AND DECISION OP THE :IMISSIOX Order modifying initial decision, adopting initial decision as modified as Commission s decision, and directing that report of compliance be fied, Docket 6229, May 19, 1955, follows: This matter having come on to be heard by the Commission upon its review of the hearing examiner s initial decision herein; and The Commission having duly considered the entire record herein and it appearing that the stipulation containing a consent order, upon which the hearing examiner s initial decision is based, provides no basis for the hearing examiner s finding that the allegations of the complaint, other than those admitted in the stipulation, are true, and that, therefore, the initial decision should be modified to eliminate said finding:

It i8 ordered That the hearing examiner s initial decision be, and it hereby is, modified by striking from the fourth paragraph thereof the words "and the allegations of which I therefore fid to be true, state and substituting therefor the word "states. It is further ordered That the initial decision of the hearing examiner as herein modified shall, on the 19th day of May 1955 , become the decision of the Commission.

It is further ordered That the respondents shall within sixty (60) days after service upon them of this order, fie with the Commission a report, in ,writing, setting forth in detail the manner and form in which they have complied with the order to cease and desist. &:

BORN ALUMIN & BRASS CORP. ET AL. 1195 Decision