P. Sorensen Manufacturing Co., Inc.

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IN Tlie J\IATTER OF P. SORENSEN MA:NDFACTVRING CO., INC.

-DIllER, ETC., I REGARD TO THE ALLEGED VIOLATION OF SEC. 2 (a) OF THE CLAYTON ACT Docket 6052. Complaint, Oct. 1.952-Decision, June, 1956 Order requiring a manufacturer of automotive products and supplies, with factory at Woodside, N. Y., and warehouses in ten principal cities of the United States, to cease discriminating in price betweell t\'.o classes of wholesale customers competing with each other in three Texas cities through use (1) A "warehouse distributor s sales agreement" applying to some 50 customers accounting for 25% to 30% of respondent' s domestic sales based upon minimum annual purchases of $12 000 net, who were granted a 20% discount off the current distributor s prices on each factory purchase and 10% on each warehouse purchase; and 2) An "authorized distributor s agreement" made with some 450 to 500 other customers 'who purchased approximately (j0% of respondent's products, providing that the customer purchase a minimum of $1 200 of respondent' ignition parts line annually, in consideration of which he received a 10% discount from the current distributor price and a ';performance rebate" of 3% on annual purchases of OOO to $5 999, and 5% on $6 000 or more; Though tabulations made of respondent' s invoice data in the three cities showed no general controllng principle in respondent's aforesaid classification of customers whose individual purellases actually varied widely from the eontrfict requirements.

11r. Eldon P. Schrnp and 11r. Francis C. l1fayer for the Commission.

lift. J amcs W. Cassedy, of \Vashington, D. for respondent. INITIAL DECISlO BY tJ. EARL Cox, HEARING Ex. :\IIXER The respondent in this proceeding is charged with having violated subsection (a), Section 2 of the Clayton Act, as amended by the Robinson-Patman Act, approved June 19 , 1936 (V. Title 15 13) by discriminating in price between its customers competitively engaged in the resale of automotive products manufactured and sold by it. After the filing of an answer to the complaint, bearings were held at which testimony and other evidence in support of and in opposition to the anegations of the complaint were received, duly recorded and later filed in the offce of the Commission. Proposed findings of facts and conclusions have been submitted by counsel. , .

jndings 52 F.

Based upon the entire record, the following findings of fact and conclusions are made and order issued.

FINDINGS OF FACT 1. Respondent P. Sorensen J\ianufacturing Co. , Inc. (hereinafter referred to as Sorenspn), is a corporation organized, existing and doing business under and by virtue of the Jaws of the State of Nm, York, with principal offce and place of business located at 32- Fifty SCYenth Street, Woodside, Xew York.

2. Sorensen is now and fo;: sever,tl years last past has been engaged in the manufacture, sale and distribution of auto11mive products and supplies \which are onered by respondent in three c.assificatiollS- ((() ignition service. parts (b) earburetor parts ancl kits (c) cable \"j):c, and H(:eessories-ancl ate sold for use, consumption or re :ale 'i- within the United States and the District of Colmnbia. SOl'ellSpn ehr se.s saiel products and supplies so sold to be. shipped and tran port.ed from the State or State,s of locatlon of its places of bllsincss to the pl1rehasel's thereof located in St.ates other than the, State OJ' St.at s wherein said shipment or transportation originated. Sorensen maintains, and at all t.times mentioned herein hfls maint.ainpcl a :''lihsta.ntial c.onrse of trade and comnwrce in sai(1 pl'OChlCt.3 and supplies 8,nong and between the various States of the l 11ited Stal.es and in the District of Columbia.

3. Sorensen, in the course and conduct of its business, as aforesaid : now. and since June 10, 1936, ha.s been, engaged in ad:i,-e competit.ion -\,ith ot.her concerns manufacturillg, selling, and dist.rihutir:g eOlli)Hrable automotive products and supplies ill eommercc. )Inny l'e::pondent s Cllstomel' ; who pllrcha e respollt1elJ products for resale are eOllpetitin ly C'ngaged \with eac.h other in the resale of said products. \Within each classification or line, re,spolldent' produds are of li1(0 grade and flual1ty.

"1. Respondent mainblins 'IYfll'ehouse stocks of its products in the cities of Athmta, Georgia, Boston Massachusetts, Chicago, I1Enois Cleveland, Ohio, Dallas Texas, Kansas City, JIissouri, Los Angeles rllcl San Francisco, California, ::IinneapoEs, l\Iinnesota, and Seattle \'/ashington. It employs fifteen salesmen and uses six factory representatives. During 19:'51, which has been taken as a sample 01' te;:t year, its l)1odnets were sold to more than 500 wholesaler customers to the extent of $1 300 000, of which 75% represented sales of ignition elTice parts, the remaining 25% being about equally divided bebreen the ot1wl' two classifications.

,, P. SOREXSEN MA UFACTUHING CO' 1661 1659 FiDdtngs 5. During 1951, direct-buying ,v hole-sales' custOIlf'rs were permitted,d to proeure merchandise either from respondents: factory located "'V ooc1side, X ow York, or from one of respondent s warehonses. On all shipments from respondent's factory of purchases amounting to 100 pounds or more, respondent paid the freight charges. The evidence shows that m average shipment of 100 pounds eight had a purchase "value of approximately 8173. A11 customers ",were granted a cash disc-aunt of 2%, 10th prox. Otherwise responclenfs customers were chvided by contract arrangement into three groups. There were about fifty customr, , who purchased from 269"0 to 3070 of re;spond nfs domcstically marketed products, who operated under ft. "'VaJ'ehou e Dist.'ibntors: Sales agreement. This is a non-exclusive contract \yhieh provides that the purchaser will maintain an adequate stock of all Sorr.n en lines based upon minimum annual purchases or 812 000 net, and \\" ill dispose of more than 5090 of such purchases to Sorensen ApproH d .J jobbers. l'ncler this contract: the purchaser receives 20/.0 discollnt oft t.he enl'rent distributor price on each fad-ory purchase, and 1090 discount on each \va-rehouse pnrehflse. Some 4,50 oj' ;')00 ot1H-:l' cust.omers, 'Iyho purehn c(l approximately oO(i of respondent. s products operated under another lJOl1-exclusive eolltrnct lmown as the -,c\.uthorjzed Distributor .Agreement, \yhirh provi(:es t.hat the purcha rr \yin actively promote the SQ he.. of respondent s ignition-parts line and pUl'dwse $1 200 01' more' of these parts a.nnually. consideration the-I'eoi' he, 1S extended n. JO% discount from the current t1'ilmtor price, and is granted a performance rcbat.e 01' 3% if his aceml1ulated annual purchases total $3 000 to $5 8D8, and 5% if suell purchases amollnt to $G OOO or more" The 10% discount applies on all pnrehas, \vhether from factory or \yare110n8e; the nerformanc.e rebates apply only on purchases shipped from the factory, although fle,house shipments are counted in compnting total volume. Performa.Jl( e rebate.es are granted at the end of each year by the issuance of a mel'dw, lHlise-c.reclit flpplica ble to future purchases. There are about fifty other cllstomers who operate nndera Special DislTiblltor Sales Agreement, which provides for no minimum annual pUl'dwses, but requires that the distributor carry in stock and actively promot.e the sale of the entire line of respondent's ignition parts. He is allrnnd a performance l'chate of 10% on all purchases if the total volume' is $1 200 or more. This also is covered by issuance of a merchandise credit. at the year s end, applicable on future purchases. Although the agreement.s show that customers in this group were grant-c,d discounts and performance rebates less favorable than were 451524--5$1-106 HJ62 FEDERAL TRADE co:\nnSSIOK DECISIQKS Findings 52 F. T. C.

granted to the other two groups, little note of this fact was taken in the record, and the evidence as to respondent s transactions with members of this group is negligible.

6. There was also, 1n1951, another contract group known as authorized jobbers, who operated under an Authorized .Jobber Agreement supplied by respondent to its ,yarehouse distributors for their convenience in formalizing their understanding with the jobbers ,vho were their customers. The agreement is between the authorized jobber and a warehouse distributor! but requires responclenfs approval. It provides that the jobber will carry an adequate ,stock of respondent's items " to serve his trade or a minimum of 8300 net " will actively promote the sa.le of re,spondents merchandise, g,nd will permit the checking of his stock at any time by a Sorensen or distributor representative. I-Ie is permitted to buy mercha.ndise from the distributor \It respondent's current Distributor price, upon such terms of payment as conform to the warehouse distributor s established policy. Counsel supporting the complaint contend that sales under this agreement are actually sales made by responcle,nt rat.hei' tlum by the wn,rehouse distributors, and that authorized jobbers are purchasers from respondent -wit.hin the meaning of the Clayton Act. In support of this contention counsel cites the Commission s decision of April 1955 , in the matter of Whitaker Cable Corporation Docket 5722, in which the Commission refers to decisions in the matters of Ohampion Spark Plug Co. Docket 3977 (19;;3) and Kraft Phenix Cheese C01'p. 25 F. T. C. 537 (1937). In those three cases the facts were more fn1Jy developed in this respect than t.hey are in the instant proceeding. The present record is sketchy and inconclusive on this issue. )ioreover there arc other short.comings in the record-lack of substantial evidence of competition between the authorized jobbers and respondent' direct-buying customers, lack of substantial evidence of competitive injury, and other failures of proof of such an extent that no conclusion can be reached in this proceeding that any violation of Section 2 (a) of the Clayton Act arose out of the respondent-authorized jobber relationship.

7. There appears to have been one other group of customers who were not bound by any contract, but were permitted to make purchases from respondent. They are referred to in respondent' s invoices, as shown by the tabulation hereinafter set out, as "Net" buyers. Some of them received no discount from respondent's current distributor prices, others received 10% discount, and one received a discount . SORENSEX MANUFACTURING CO., INC. 1663 165D Findings which amounted to 2.70% of his total purchases. However, the record as to this group of purchasers is in all other respects inconclusive and no finding can be made that respondenes transactions with this group of buyers constitutes a violation of Section 2 (a) of the Clayton Act.

8. The competitive injury charged in this proceeding is at the secondary level, arising out of differences in respondent's selling prices to its wholcsaler customers, some of whom suffered competitively as a result of such price differen0cs. Substantial evidence was presented as to price differentials and resulting injury only as it affected the members of two groups of respondent' s contract purchasers, warehouse distributors and authorized distributors, who compete with each other in the trade arem in which they mutually operate. The trade areas in such instant8s include the cities in 'ivhich such vdlOlesaler customers are located and the surrounding cOllll11unities within l'acIi us of from 25 to 75 miles.

The differences in net purchasing prices at which members of these two groups may buy respondent' s products are inherent in the contrar.s hereinabove. described and are shown by tabulations and computations which were made by the Commission s economic staff from data t:1ken from respondent's invoice records of business transacted in 1D51. To conserve time and expense, testimony and other evidence , D.were taken in this proceeding only in New York, V? ashington Dallas, San Antonio and I-Iollston. For the same reason tabulations and computations .were limited to data pertaining to selected cities and only such portion of that data as relates to transactions in the trade areas of Dallas, San Antonio and Houston is shown herein. A comparison of sales, discounts and rebates to respondent' s customers in these three areas is shown as follows:

1 Included In the complete tabulation Ilre data of respondent's 1951 transactions with wholesaler customers in the follo wing other cities: Berkeley, Burbunk, North Hollywood, Long BCllCl!. Los Angcles, Lynwood, Oakland, Richmond, Sacramento, San Fernando, San Francisco and SaoLeandro, California; Portland, Oregon; Salt Lake City, Utah; and Seattle add Spokane, Washington.

\\ ( , \\ . . ) .. !: (;,) 15G4 FEDERAL TRADE CO:M IISSIO:N DECISIOKS Findings 52 I? T. C Comparison of sales, discounts and rebates granted by Sorensen to wholesa.lfw customers in specified localities dl!.ring the year 1951 Discounts and rebatrsallowed Shipments on sales ('nstmner \\\1\\ lo(' tiOIl I CJassili- Sales at I cation i list price 1 Ware.

mou FactOrv 1 house amJllTlt (2) (3) (6) I (7) DALLAS sj1b G?Jrett Auto Supply____ Net $13. 20!- ;l13, Z'. Antoilutiq, Ap\J!\ance CO. - 275, Carter .-\utr: upply_- - 51. DrlYC Cr',r\:ett 8uJ1ply COn H__ ?"ef lin49 3(i \71.07Gates &: Wruner Auto J'flrts COn n- . Olis93 111ij36 063\1 GreaterIJallas.\ntlimGtin1- 110H8 1O. 6f'l ;;;;C;!=: 11988 lI( nder nn .\uto Part.s- 842. 18213 \l8S 451, 651 1,391.05 jch ,lulu Supply- WI) r,!)534 611 1, 53ii.Le:W.\!'1l1, 1 Auto Parts_ 52539 52.1'.1 J(j6293!- , 1 L. D. l\fcCrrkJe Co Xet 104" 1\14" )ld\'!:l,en Auto PlIl'tSn W1' 1.59691 206H 1 70, l,U:,:; 3. l\'!iJ, )\, Supply CO-- Nt.t. 1688 L()\) 1 1681; Nnti':-JJ!l ,cuta l'flrts Exchangc-- \1) ';JO. 441.2\J E57 -i:ii\iii:j 121.21 Tely \.ulmDoti\'c Supply" :\t't fJ9! g(i llo\' 'TO .IJdil1e Auto Supply- -\lJ 49,1.1)1 18. 12:,li 3, 30\i63 18338 5 Aum Part,,_ 50874- )g 17 jf,!(. :,: , 1 t lla 11 S I\'I J t,cr 1'a rt. .1,' :11;7. 2,14,,; i 1 :.7, 60 \n\',.)r Aut 'm')t.ive Supply Co- \ 116 723(1' 981i' 21;0'131 462. !l(:er on Anl.(J Supply_ 3:J265 3:;"2i' w:illl 33265 CL'Hlet Auton101.i\' e Supp-1v C BO'-;!)1 279!H I. 97 2, II, 117 LrstH Datter::' &: Electric CII - \J0. :\-1arl!TI Automotive Suppl ' Co- ,\.D 12647 41 - n'-74! 1o. U:J250 3. (, l\'fil,uu Supply Company- 18, 03610 . II, E, J, quadl' .-uto Suppl .-1) & 1",' 177. 1 H 8 !U 3 SS ! g:Jflu 3churnan Auto f:l1apply. IT, Jr,40D algiJ, 2\)00 40+0iJ Tcy", Pan ,mtl.'UPi)I:: C ' EW9)( 3:H 82 19. ('1 :;6, 11' 52 O A:; AN'jON!f b6ilo, JI'1 1(j. 1.71)3. - Co -- A. A. ,\.lit.OSUPP _\J) .;:D: 22:;;17287, 6:11 845 !J OBO17287G3.-- 14". 1973 4 Alnm0 .-\uto Elt:ctric & Brd:r. Co i Bowen Auto Pa:.ts Cl Mal:hine Co 083881 UDj. 5iJ 10, 86. 08381): Chapman AlIi') Pall 114. 1, 147, 2(\ H O J 7 70ll "()! --435. 71.30 loco - 0:et il.3U C, Colbat!l .\uto 8tlpply Z9, H17'3 3 074. 80' 614. iVlotor AIaci1ine & Parts C,,- H. II. Ro\\er Auto P\1r(. , l 400') : 3 Stile Aut;) .such)ly 513B. 2f1574 I 2, 5 I Key L" C\l tomer C!:ssific:ltion.

\1') - -\uthuri'led j)i trih\ltnr.

WD- l1eh"ljseDistrilJuror. et-Nml,C0!lfra(' CustODlt'fO. '$377. :; !'ebfltr fJllnw"d all redistribution tr AD :looon\lio, D. The tabulation shows that t.he bulk of purchfises \were factoryshipped,c1. This is as \vouJc1 be expect.ed. Respondent pays freight chnl'2' es 1yhen finy such shipment amounts to 100 pounds or more; \fare-holtst:. clistrilmtol's receiye. 20IJi:, discount on factory purchase:: only 10% discount. 011 wa.rphou e shipment,s: tLnthorizcc1 distributors IHu' hasillg sa O()() or more of respondents. products annually ree-eive performnncf' quantity I'ebate, on factory pnrchftses nonp on warehouse, pUI'chases.

The tabulation shows no general ('controlling prl11cip1P ill respondnt's ela.ssifjratioll of Cllstomers. -\1though the '\Varehol1se-Distributor P. SOREXSEN l\IAXUFACTURL'TG CO, ! INC. 1665 1659 Findings contracts require a cllstomer in that category to purchase $12 000 in parts annually, only one of eight warehouse distributors listed in the three cities mct that requirement; one purchased as little at $404 worth of merchandise. Among the fourteen authorized distributors eight excecded the required annual purchases of $1 200 or more, and had a higher volume of purchases than some of the warehouse distributors in the same area. In each of the three cities the secondlargest purchaser vms an authorized distributor. .10. Price differences ate determined by the differences in discounts and rebates a.11owed rcspondcnfs various customers, the net price of each customer being the distributor list price shown in column (3) or the tabulation minus thc discount.s and rebate.es shown in column (4). In Dallas the warehouse distributor who made the largest purchases received discounts amounting to 16.G20/; the authorized distributor who made the next largest purchases was given only 12.57% discount. In !Iouston a warehouse distributor whose total purchases amounted to only $1 809 enjoyed discOlmts of 19.61 %, while the largest-buying authorized distributor, who bought $3 508 worth of respondenes merchandise, received but. 12.52% discount. In San Antonio two cu tomeI'S purchased almost equal amounts-one, a warehouse distributor on purcha.ses or 88 083 , received 19. 86)"0 discount, while the other, all authorized dist.ributor whose purchases were received 14.09% discount. The differentials in these three inst.ances were 4- 05%, 7.09% and 5.77% respectively, all ravoring warchouse dist.ril)utoI's. Other comparisons readily present themselves. Considering purchases amounting to $1 000 or more, discounts varied from 9.88% to 16.62% in Dallas, from 9.92% to 19.89% in Houston, and from 9.96% to 19.86% in San Antonio- differentials of 6.H%, 971'0 anel 9.90% respectively.

11. The economic effect of the price. clift'crences resulting from respondent' s pricing, discount and rebate practices has been and is to injure, destroy, preve.nt, and thus substllntia.lly to lessen competition. It was the testimoriy of many competing customers of respondent that their margin of profit is small, that they order rrom the factory whenever possible to save freight charges, and that they t,\ke advantage of the 2% cash discount as a matter of financial necessity because failure to do so \yould seriously impair profits. Obviously, if the taking or losing of a 2% ca::h discount is enough seriously to auect profits, cost differences varying up to 9.97% could be disastrOl1':. There is evidence in the record that jn some instances resale prices were reduced and custom gained because of such discounts. But the Commission and the eonrts have said that price reduction is but one use of addi-form of compet.ition. --\.additional services to customers: 1666 FEDERAL TRADE CO:nnSSIOX DECISIOKS Conclusions 32 F. T. C.

tional salesmen to call on customers, enlarged or improved facilities all made possible by larger profits, may enable favored distributors to stay in business and prosper, at the expense of less-favored competitors. Net cost of merchandise purchased for resa1c is a major factor in determining margin of profit, a.nd a,ny preferential discount that can be obtained by anyone of respondent:s ,,,h01e8a1e1' customers contributes materially to his ability to compete and to succeed in the resale of respondent's prod nets. This statement, supported by substantial, reliable, probabve evidence in this proceeding, seems to be so simple and reasonable as to be axiomatic, and remains true even though the lower cost of acquisition may not be reflected in Imvel" resale prices.

12. No cost justification for price 01' discount and rebate differentials 'vas offered in this proceeding, nor was there any attempt on the part of the respondent to show that the lower prices to some customers were made to meet an equally low price offered to such purchasers by a competitor of respondent.

CONCL USIONB 1. Respondent' s a,utomotive products and supplies purchased by its wholesaler customers for resale are of like grade and quality. 2. Respondent's differing discounts and rebates result in substm1tinIly higher.r net purchase prices being paid by some customers who purchase respondent's products for resale than are paid for such products by other.r competing Cllstomers.

3. Respondent's discriminatory prices, when reflected in the resale price of said products, enable favored distributors to attract business away frolll non-favored distributors, or force the non-favored distributors to resell at a substantia1Jy reduced profit; when respondent' suggested resale prices are used, these discriminatory prices enable the favored distributors t.o resell saiel products at a substantially higher profit margin than that obtainable by the non-favored distributors and thus render them financially able to compete more effectively than the non-fa\70recl distributors in such resale. 4. The higher net purchase prices paid by some of the wholesaler purchasers of responclenfs products are such as tend to, and do, injure destroy or prevent competition between said purchasers and other wholesaler purcha,sers who purchase and competitively resell such products.

5. The aforesaid discriminations in prjce constitute violations of subsection (a) of Section 2 of the Clayton Act, as amended. Therefore It is ordered That respondent P. Sorensen Manubcturing Co. Inc" a corporation, and its offcers, representatives, agents and em- P. SORENSEX ),MANUFACTURING CO. , INC. 1667 1659 Opinion ployees, directly or through any corporate or other device, in or in connection with the sale, for replacement purposes, of automotive products and supplies in commerce, as "commerce" is defined in the Clayton Act, do forthwith cease and desist from discriminating, directly or indirectly, in the price of such automotive products and supplies of like grade and quality, by selling to any purchaser at net prices higher than the net prices charged any other purchaser who in fact, competes in the resale and distribution of said products with the pnrehaser paying the higher price.

OPIXIOX OF THE CO::DIISSlOX By GWYNNE, Chairman:

This is an appeal by respondent from an initial decision and an order under Section 2 (a) of the amended Clayton Act. Respondent, a corporatiun, with its principal place of business in 'Voodside, New York, is engaged in the manufacture, sale and distribution of automotive products and supplies, which are classified as follows: (a) ignition service parts (b) carburetor parts and kit.s, and (0) cable, wire, and accessories. Shipments are made from the factory and also from ,,' warehouses located in various parts of the country including Dallas, Texas.

Respondent sells to customers who mat be classified in acccorclance with their contracts or arrangements with respondent as follows: (1) warehouse distributors, (2) authorized distributors, (3) customers operatmg under a special dist.ributors sales agreement, (4) customers operating under an anthori;;ec1 joubers agreement, and (5) customers known as "net" buyers.

For reasons set out in his initial decision, the hearing examiner found substantial evidence as to price differentials and resulting injury only as it affected,d the members of the first two groups. Evidence introduced related to responc1enes transactions for the year 1951 principally with wholesale customers in three Texas cities. The evidence shows that about 50 of respondent' s customers operated under a. warehouse distribut.or s sales agreement. Their total purchases amounted to from 25% to 30% of respondent' s products sold in the domestic market. Under t.he terms of this written contract, the customers agreed to (1) maintain adequate stock of all Sorensen lines based upon minimum11 annual purchase,s of 812 000 net, a,nd (2) to dispose of more than 500/ of such purchases to Sorensen approved jobbers. The contract bonn,) respondent to pay 20% discount off the 100/ on eachcurrent distributor s prices on each factory Pllrchase and warehouse purchase.

, 1668 FEDERAL TRADE COM:VIISSIO T DECISIONS Opinion 52 F. T. C. About 450 to 500 customers buying approximately 60% of respondent' s products operated under an authorized distributor s agreement. This contract required the purchaser to actively promote t.he sale of respondent' s ignition parts line and to buy at least $1 200 worth of these parts annually. Respondent allowed him a 10% discount and a "performance rebate:' of 3% if his accumulated annual purchases were between $3 000 and S6 OOO, and .1% jf such Plll'chases .were over 000. The 10% discount applies on all purchases, whether from factory or warehouse; t.he performmlce rebates apply only on purchases shipped from the factory although ware,house shiprnents are counted in computing total volume. Perfol'nmnee rebates were granted at the end of each year by the issuance of a merchandise credit applicable to future purchases.

On all shipments from respondents factory of purchases amounting to 100 pounds or more, respondent paid the freight charges. All customers were allowed a. eash discount of 2%, 10t.h prox. The two classes of customers involved here, namely, the warehouse distribut.ors and the authorized dist.ributors, compete wit.h each other in the trade areas in which they mutually operate, which trade areas include the cities in which such wholesaler customers are locat.ed and the surrounding communities within a radius of from 25 to itj miles.

The initial decision contains a Chi.lrt entitled Comparison or Sales Discounts and Hebates Granted by Sorensen to \Vholes 1le Cu: tomers in Specified Loellities During the Year 1951." The three cities are Dallas, 1Iou8ton, and San Antonio, all in Texas. These charts and Dthers appearing in the record '\\ere prepared by a Commission accountant from the books and records of the respondent. For our purposes, the results of these tabulations of figures are suffciently set out in the following statements in the initial decision: The tabulation shows no general controllng principle in respondent' s classification of customers. Although the \Yarehousc-Distributor contracts require a Cllstomer in that category to purchase 812 000 in parts annuall;y, only one of eig-ht warehouse distributors listed in the three cities met that requirement; one purchased as little as $404 worth of merchandise. Among the fourteen authorized distributors, eight eXl'needed the required allllual purchases of $1 200 or more and had a higher volume of purchases than Salle of the warehouse dh;tributors in the same area. In each of the tl1ree cities the sel'ond-largest purchaser was an authorized distributor.

Price differences are determined by the differences ill discounts and rebates allowed respondent's Tarious customers. the net price of each customer being the distributor I1st price shown in column (3) of the tabulation minus the discounts and rebates shown in column (4).

In Dallas the warehouse distributor who made the largest purchases received discounts amounting to 16.62%; the authorized distributor who made P. POHEJ\f\EX ::L\NUFACTURIKG CO, ! INC, 1669 1659 OpiuiOll the next largest purchases was given only 12.57% discount. In Honstoll a warehouse distributor whose total purchases amounted to only $1 809 enjoy;yed discounts of 19.Gl%, while the largest-buying authorized distributor, who bought 508 worth of respondent' s merchandise. received but 12.52% discount. In San Antonio two customers purchased almost equal amounts-one, a warehouse distributor, on purchases of SR 083, received 19.86% discount, while the other, an authorized distributor wbose purchases were $8 144 , received 14.09% discount. The differentials in these three iIlstances were 4.05%, 7.09% and 5.77% respectively, all favoring warehouse distributors. Other comparisons readily present themselves. Considering purchases amounting to $1 000 01' more, discounts varied from 9.88% to 1G.62% in Dallas, from 9.92% to 19.8% in Houston, and from D.96% to 19.86% in San Antonio--differentials of 6.74%, 9.97% and 9.90% respectively.

ponclent first. argues that "the record does not contain reliable probative and substantial evidence establishing the substantiality of injurious competitive effects, actual or reasoJUtbly probable, in the secondary line of commerce.

Specifically, it argues that the tfl,blllations and computations purporting to show the percentage c1jffen nce in net purchasing prices to the two groups are inadequa.te fol' such purpose. The reasoning on this point may be briefly sUllnnal'ized as follows: The products sold consisted o t.three distinct, different Jinm; of products comprising more thf\ll :')2 entirely c1ifl'erent types, with different designs and functional uses and intended for diffe.rent makes and models of motor vehicles; that many of the diflerent types do not compete with each other; that the evidence does not shmv the lutme. and locations of any two purchasers who purchased the same type of automotive products of like grade and quality at different prices; that some of the differences depended upon whether the products were shipped from the factory or from it ,yarehouse which was a choice at t.he option of the purchaser.

It is, of course, true that the tabulations do not show the exact differentials on any part.icular type of automotive product, any particular purchase, or any particular shipment. The figures show averages arrived at from an extensive examination of the books and records of the corporation and by the application of the usual rules of accounting. All of the purchasers were engaged in substantially the same line of endeavor, to wit, the buying and selling of such parts as the va.rying needs of their own customers might demand. This made necessary t.he stocking of mrmy different items. To require the discount, rebate or price history of each separate it.em or a showing of its individual1 effect would cftrry us beyond the limitations of pra,ctieal booh:keeping, The accountant: however, did make an examination of the respondent's invoic.es to determine the particular types of prochlcts sold to thf nll'iolls whole,salers in the three Texas cities, 1670 FEDERAL TRADE CO:lHnSSIOX DECISIONS Opinion 52 F.

The results indicate that a number of customers bought a substantial number of the same items.

The general situation here is similar to that considered in the matter of l\loog Industries, Inc. , Docket 5723 , where the Commission opinion said:

Respondent' s customers do not purchase respondent's products as individual items. They purchase them as part of a line designed to supply the needs of garages and others to whom the products are resold. The rebates 'were not granted on the basis of the individual items purchased but on the basis of the total dollar purchases of a particular line. The price differentials involved did not arise from 1m)' difference in the grade or quality of the products sold to different customers. Imtead they arose from varying- rebates on an entire line. Respondent next claims that even assuming that different net prices have been shown, the cvide,nce is not suffcient to establish the substantiality of injury, either actu l or reasonably probable, in the second line of commerce.

It seems to be respondent' s view that the hearing €',examiner presumed injury from the mere finding of price difl'ere.ntials-in other words that he applied a pm' 813 doctrine of injury flowing antomatically and certainly from price differences"

\Ve do not so construe the. initial de.cision. The i11.itial decision, and also that of the Commission, is based on the evidence in the record together "with the inferences and conclusions ,;"which may properly be drawn therefrom.

K 0 claim is made that (lie differences can be cost justified or that they \'"ere due to lrndul attempts to meet competition. The. sole question at this point has t.o do with the suffciency of the evidence to establish the reasonable probability of injury.

Considerable evidence was introduced showing the general situation under which the wholesalers in the three Texas cities operated. In general they were small businesses wholesaling auton10tive parts to garages, trucking companies, service stations, and sometimes to brokers. Their field of operation "as relatively small, being confined to the city of their business location and a surrounding area included within a radius of 23 t.o 75 lnilcs. They sold over the counter, by telephone with accompanying delivery, or through outside salesmen although, in some instances, not all of these methods of sale were utilized. A substantial proportion of the business consisted of over the counter transactions. They employed from one to seven sa,lesmcn and the volume of sales in 1051 for the different establishments varied from $7 000 to $250 000.

The situation here. is somewhat. simihlT to that. involved in the FTO v. il1orton Salt Company (1948), 334 S. 37. There, a number of stores, both small and large, were selling a single homogeneous prod- P. SOREKSEN MAXT;FACTL G co., I 1671 1659 Opinion uct, to wit, salt. They were competing in a relatively small area under substantially the same conditions. There appeared to be considerable evidence of actual injury in the record. Nevertheless, the competitive situation of the different retailers of salt was such as to lead Mr. Justice Black to make, in the majority opinion, the following statement:

It would greatly handicap effective enforcement of the Act to require testimony to show that which we believe to be self-evident, namely, that there is a asonable possibilty " that competition may be adversely affected by a practice under which manufactmers and producers sell their goods to some customers substantially cheaper than they sell like goods to the competitors of these customers. This showing in itself is suffcient to justify our conclusion that the Commission s findings of injl1Y to competition were adequately supported by evidence.

The late Ir. Justice Jackson dissented from the use of the word possibility " instead of "probability." Speaking of the general competitive situation, he said:

Even applying the stricter test of probabilty, I think the inference of adverse effect on competition is warranted by the facts as to the quota discounts. It is not merely probable but I think it is almost inevitable that the further ten-cent or fifteen-cent per case differential in net price of salt between the large number of small merclmnts and the small number of very large merchants, accelerates the t1'end of the former to\vards extinction and of the latter to\vards monopoly.

The validity of these observations is borne out by the experiences of the customers in this case a.s shown by their testimony. All were entitled to a 20/0 cash disCOlllt on purchases from respondent and substantially all agreed that it was an important item in the conduct or their businesses. They testified that wherever possible they arranged discOlmt. In regard to thetheir affairs to get the advantage of the substa,nce as follows:20/, various witnesses made statements in It is the difference of making a profit at tne end of the year and not making a profit at the end of the year; it amOlmts to quite a bit '" e take thatof my net profit at the cnd of the year; we need that 2%. thatin buying from all manufacturers where they allow 2%; 'With 2%, we can pay the rent of the building; I have to have that to operate.

The fact that the 2% involved a cash discount is not significant. Its importance lies in the opinion expressed by the witnesses that a whole- 20/ more for his productssaler, who for any reason is required to pay than his competitor, was at a disadvant.age which reflected itself in the margin of his profit and in his financial success. If a 2% difference wouldin the cost of a shipment is enough to create injury, then 9.97% create even more injury.

1672 FEDERAL TRADE COM).IISSIOX DECISIONS Opinion 32 F. T. C.

It also appears from the. testimony that shipments from the. factory required more time than shipments from a nearer warehouse. Nevertheless, the bulk or the purchases "ere ractory shipped. Most customers arranged their buying schedules to take advantage of the condition that respondent paid the rreight on shipments or 100 pounds or more. The average value of the loo-pound shipment was $173. As in the case of the. 2% cnsh discount, ffflny CU3t0llet \vitnesses testified that they considered the money saved on fre.ight charges ' was important to their business Success.

It also appears that respondent furnished sllgge,'3ted resale price lists. At least one wit.ness indicated some departure from these suggested prices. He testified: "There arc variat.ions, you make concessions to some of those prices at. times * * * . Depends on the customer purchaslng the product, you know, if you know the customer is buying that part somewhere else ror possibly a little lower price, you "iJl meet that price to try to keep his business: that happens. Speaking of this evidence, the initial dec.ision points out: But the Commission and tlle courts hwre said that price reduction i but oue form of competition. Additional senices to customers, use of additional salesmen to call on customers, enlarged or improved facilties, all made possibl.e by larger profits, may enable favored distributors to stay in business and prosper, at the expense of loss-favored competitors. Net cost of merchandise purchased for resale is a major factor ill determining margin of profit, and any preferential discount that can be obtained by anyone of respondent's wholesaler customets contributes materially to his abilty to compete and to succeed in tlle resale of respondent' products. This statement, supported by substantial, reliable probative evidence in this proceeding, seems to be so simple and reasonable as to be axiomatic, and remains true even though the lower cost of Hcqnisition may not be reflected in lower resale prices.

Finally, respondent urges that:

The provisions of the order to cea Be Hnd desist fail to meet the constitutional standards of definiteness and reasonableness required by due process of law under the Fifth Amendment to the Constitution of the United States Hnd the enforcement of the order wil con titute a denial of dne process of law under said Amendment.

The order is as roJlows:

It is ordered That respondent P. Sorensen Manufacturing Co., Inc., a cOi'poration, and its offcers, representatives, agents and employees, directly or through any corporate or other device, in or in connection with the sale, for repla('e llent purposes, of automotive products and suppUes in commerce, as "commerce" is defined in the Clayton Act, do forthwith cease and desist from discrim. nating, directly or indirectly, in the price of such automotive products and supplies of like grade find quality, by sellng to ally purchaser at net prices higher than the net prices charged any other pnTchaser who, in fact, competes in the resale and distribution of said products with the purchaser paying the higher price.

P. SOHENSL\ MA:\Uf;I,CTlmll\ G CO. , INC. 1673 J6M' Order The order is similar to the 011e c.ollsic1erecl by the court in Pl' Ruber01:d Company (1052), 343 U.S. 470, and to the orders in the matter of E. Edelman.n c& Oompany, Docket 5770, and in other similar 'c.ases recently decided by the Commission. The findings, conclusions and order or the hearing examiner are adoptpd as the findings, conclusions and order of the Commission. Respondent's appeal is denied nd it is directed that an order issue accordingly.

Commissioner :MaSOll dissented to the decision herein in accordance with Ills vip,ws expressed in Docket 6913.

FIN AI. onder Respondent P. Sorensen fanufact.lI.jng Co., Inc., having filed on April 16 , 1956, its appeal from the initial decision of the hearing examiner in this proceeding; and the matter, having been heard by the Commi;;sion on Griefs fUld oral argument; and the Commission having nmde.red its decision denying respondent's appeal and adopting t.he initial decision as the decision of the Commission. It iB o1'de1'd That respondent, P. Sorensen xIanufaeturing Co., Inc. shan, within sixty (60) d.ys after service upon it of this order, file with the Commis13ion a. report in writing, setting forth in detail the manner and form in which it has complied with the order to cease and desist contained in said initial decision.

Commissioner Iason dissenting in accordance with his views expressed in Docket 5913.

Decision 52 F. T. G.