The Eis Automotive Corporation

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IN THE MATTER OF THE EIS AUTOMOTIVE CORPORATION ORDER, ETC., IN REGARD TO THE Al"LEGED VlOLATION OF SEC. 2(a) OF THE CI,AYTON ACT Docket 6764. Complaint, Api" 4, 19S7-Declsion, Mu?' , 1959 Order requiring a Middletown, Conn. , manufacturer of automotive parts, including hydraulic brake parts and cables for automobiles, trucks, and trailers, to cease discriminating in price to the disadvantage of independent jobbers, by paying a so-railed redistributional discount or rebate to members of group buying organizations \which were in reality devices for the coJIection of rebates, aiiowances, etc., from sclJers on alj purchases made by the jobber members.

Mr. William W. Roya. for the Commission. Mr. Edward S. St. John of New York, N. for respondent. INITIAL DECISION BY EARL J. Kale, HEARING EXAMINER This proceeding is based upon a complaint charging the respondent The Eis A utomotive Corporation, a corporation, with having discriminated in price in connection with Hs sale of automotive parts to competing purchasers in violation of Section 2 (a) of the Clayton Act as amended by the Robinson- Patman Act (15 L. , Sec. 13). After the closing of the taking of testimony in support of the allegations of the complaint, the respondent closed its case without oHering an affrmative defense. This proceeding is now before the undersigned hearing examiner for final consideration on the complaint, anslver thereto testimony and other evidence, and proposed findings as to the facts and conclusions presented by counsel. The hearing examiner has given consideration to the proposed findings and conclusions submitted by both parties, and all findings of fact and conclusions of law not hereinafter specifically found or concluded are herewith rejected, and the hearing' examiner having considered the record herein, and being now duly advised in the premises, makes the following findings as to the facts, conclusions drawn therefrom, and order:

1. Respondent the F,is Automotive Corporation is a Connedicut corporation with its principal oftce and place of business located at North Main Street, Midclietown, Conn. For several years last past respondent has been engaged in the manufacture Decision 55 F.

and in the sale and distribution in interstate commerce or automotive parts, including hydraulic brake parts and cables for use on automobiles, trucks and trailers. Respondent sells its automotive parts to approximately 3 000 distributors located throughout the United States, who arc sometimes known and referred to in the trade as automotive parts jobbers. These jobbers resell respondent' s automotive parts to service or repair trade which is comprised of repair garages, automobile dealers, gas service stations and specialty brake shops and in some instances they resell to other jobbers. Respondent's total sales amount to approximately 6 milion dollars annually.

2. During the times mentioned herein, the respondent has sold its automotive parts to jobber members of various group buying organizations. During the year 1956 the respondent nlade sales to members of the following group buying organizations: Ark-Ia-Tex Warehouse Distributors, Tcxarkana, Tex. Associate Jobber Warehouses, Attalla, Ala. Automotive Co-operative Association, Melrose, l\fass. Automotive Jobbers, Inc. , Dallas, Tex.

Automotive Northern Warehouse, Minneapolis, Minn. Automotive Southwest, Inc., Dallas, Tex. Cornbelt Automotive Warehouses, Omaha, N cb. Middle Atlantic Warehouse, Buffalo, N.

Mid-South Distributors, Memphis, Tenn.

:vid-West Warehouse Distributors, Kansas City, Mo. National Parts Warehouse, Atlanta, Ga.

northeast Automotive Aesociates, Al1ston, Mass. l\orthern Distributors, Cleveland. Ohio. Six-States Associates, Boston, l\Jass.

Southern California Jobbers, Los Angeles, Calif. Southwest Automotive Distributors, Los Angeles, Calif. South\vestern \Varehouse Distributors, Dallas, Tex. Warehouse Distributors, Inc. , Atlanta, Ga. Wholesalers Auto Parts Warehouse, Charlotte, l". 3. The group buying organization ,vas in reality a bookkeeping device for the collection of rebates, discounts and allowances received from sellers on purchases made by its jobber members. The jobber-customer of respondent who ,vas a member of a group buying organization performed no service for the respondent other than that performed by respondent' s re;rular jobber customers ,:vllo are not members of group buying organizations. These jobber-members of group buying organizations like respondent' THE EIS AUTOMOTIVE CORP. 1475 1473 Decision regular jobber-customers resold respondent's automotive products to the service and repair trade with some sales to other jobbers. The jobber customers of respondent who are not members of group buying organizations wil hereinafter be referred to as independent jobbers or purchasers. 4. The issues in this proceeding are limited to price discriminations between purchasers who are members of group buyingorganizations and independent purchasers, generally, who arc in competition with such members of group buying organizations. These price discriminations arise out of the practice of respondent of allowing and paying a so-called redistributjon discount or rebate to those jobber customers who resell subjobbers subject to approval of respondent, in addition to sales made to the service and repair trade.

5. The practice of paying rebates differed as between jobbers vi'ho \were members of group buying organizations and independent jobbers. From 1948 to 1954 no rebate was paid to independent jobbers, except for a small number who were engaged in the resale of automotive parts to jobbers. During the period 1954 to 1956 the independent jobbers rere paid a redistribution rebate on approved accounts of 5 percent off recommended jobber resale price Jist on sales to subjobbers but nut to exceed 50 percent of all purchases of each independent jobber, provided said independent jobber purchases a minimum of $1 200 per annum. 1n January 1956 the redistribution schedule ,vas modified to provide for a rebaie to indepei,dent jobbers of 7 percent of! recommended jobber resale price Jist on sales to approved subjobbers not to exceed 50 percent of a1l purchases ,with a minimum of $2 000 per annum.

6. The practice of the respondent as applied to jobbers who "were member:; of group buying organizations "vas to allow such jobbers a discount or rebate without reference to redistribution on all purchases without any qualification. From 1948 to 1954 this rebate was 5 percent on brake cylinders and brake fluid, and 10 percent off distributors price Jist on all other items. In 195,1 this rebate was changed to 5.5 percent off distributors price list on alj products, and in January J 956 was increased to 7.8 percent off distributors price list on all products. 7. The rebate was granted to all members of the buying groups upon all purchases made by then1. The group members who received this rebate "were not required to sen to any other distributor, jobber or wholesaler, but were granted this rebate on \\ g j ! :\y, ,,\ \ . :(;:;,_, 1476 FEDERAL TRADE COMMISSION DECISIO Decision 55 F.

their entire purchases, including parts resold to the service and repair trade in competition with the independent jobbers. The amount of (ljscrimination in price is substantial as indicated by the following tabulation which lists the rebates granted to five typical gTOUpS, during 1954 and 1955.

Gro' ujJ 1954 Rebate 195.; Rel)tI(c Six-States Associates -- -- $2,328. 001.9 v\larehouse Distributors, Inc.n - - - 170. 196. Midwest Warehouse Distributors- 1,425. 401.07 Southern California J obbcrs-- 713. 905. Southwest Automotive Distributors- 453. 2:1 881.97 8. illustrative of the monetary benefits deri,ved by the group jobbers as opposed to the independent jobbers is the following tabulation compiled from figures found on Commission Exhibits , and 37:

Comparison of sales mid 1' cbalcs tu cu,stomers in speclficd met1'Jpolitan tnLdiJlg areas dw inu ?lear ipso.

;c" -=t ilr"llhe,- uf :lle b\lyj!1 ' gl'Olil'S I Indel"' Jllknt rli..,trihLi\.""" _ ;:o - i - 1 - 7" I I I , 1;j! I"t-.\lnr'1'Lardti.::, t,,)) ..\lll-urJ;Jti, c ('(HI' I .\ I 0 d lrr \ li 1 () 1'" :. . i 1 7 I \Yn\n\o" 1f) l' 71., J. i'. ,\ lito . II'I,Jy ,I-, ll nin \rillial11 T. .\r:llnil 1\! -17 ;'!, :1. t s . t" ,-. 111.'1 ) 710 a"ILingtrjll, D- 1'1,cll' nul1ct.\' Corl'- 2(; 127 100 :.\;I!ljt, \Y!i,.e! ii.- Brake Sli ";ec tL"",'11 --\llto, ,'rn\'e 10. 0-5, ;"ILI. -\111." 1-,\, ,::0 \11\' 1 Pell ' :'Ir\,-",i,,, " SG:2 1 :vember of :;ix- States A (Jri"tes.

Memuer of \VardlOcse Di tribntGr . Inc 9. The substantiality of the c1iscrimin"lions in price are dearJ)' established b)' the record. All nonfavorecl jobb rs who testified on the point disclosed total annual Jlet profit percentages ,which were well under the percentage amount of the price discriminations enjoyed by their group jobber competitors. All of the nollfavored jobbers testified thClt the 2 percent cash discount. allmyed by their suppliers for prompt payrncIlt was of prime importance in the conduct of a successful bl1sjne ;s. THE EIS AUTOMOTIVE CORP. 1477 1473 Conclusions CONCLUSIONS 1. Respondent' s so-called redistributional rebates were not functional rebates as such. These rebates vI/ere allowed to independent jobbers only on 50 percent Ol less of their total purchases and then only if they purchased a minimum of from $1 200 to $2 000 yearly. These rebates were anowed purchasers who \were members of group buying organizations regardless of whether the purchaser resold to other jobbers. 2. Respondent did not classify its Jomers by following real functional differences. Both independent jobbers and jobbers who were members of group buying organizations resold respondent' products to the service and repair trade, and in some instances to other jobbers. Independent jobbers were in competition with each other and with jobbers who were members of group buying organizations in the irade areas where they sold. 3. In follo\ving the pricing practices hereinabove described respondent has discriminated in price by means of rebates allowed by it in the sale of its various automotive products an(1 related items as between resp(mdent's jubbcrs and competing group buying jobbers, and the ctred of sllch discrimination may be to substantially Jessen, injure cr p;:event competition behveen respondent' s customers receiving the benefit of such discrimination and the customers who did not receive such discriminations in violation of the provisions of subsection (a) of Section 2 of the Clayton Act, as amended by the Robinson-Patman Act. 4. The respondent in its propo ed finLlings of facts has raised no issue oJ fact or lav,' or made any defense of the price discriminations herein found, but instead has raised as an issue the scope of tht order that might be issued in this proceed1ing. It is contended by the respondent that since the issues in t.his proceeding "were limited to price discriminations arising from special rebates allo\ved purchasers who were members of group buying organizations any order issued should be so Jimitecl. 5. The right of the Commission to issue a broad order under the circumstances in this case has been fully adjudicated by the Supreme Court in 7'. C. v. Rubcmid Cu. (343 U.S. 470). On the question of the issllcs of a broad order, the Court stated as f'oJJows:

, Orders oJ the Federal Tnldc Commis.sion are not intended to impose criminal Pllnishme1li 0)" exad cGmrJ.;nsatol"Y damagps fol' past acts, but to prevent. illegal practices in the flJturc" 1n carrying out this function the Commission is not limited to prohibiting the i1eg' al practice in the precise form . , Decision 55 F.

in which it is found to have existed in the past. If the Commission is to attain the objectives Congress envisioned, it cannot be required to confine its road block to the narrow lane the transgressor has traveled; it must be allowed Effectively to close a11 roads to the prohibited gual, so that its order may not be by-passed with impunity. :' 6. The similarity of facts in the Ruberoid case (supra) with the facts in the present proceeding is readily apparent from the following excerpt from the opinion of the Court: The roofing material customers of Ruberoid may be classified as wholesalers retailers, and roofing' contractors or applicators. The discriminations found by the Commission were in sales to retailers and applicators. The Commission held that there was insuffcient. evidence in the record to establish discrimination among "\vholesalers, as sllch. Huberoid contends that the order should have been similarly limited to sales to retailers and applicators. But there was ample evidence that Ruberoid's classification of its customers did not follow real functional differences. Thus some purchasers which Rubcl'oid designated as "wholes a 1e1"5 " and to which H.uberoid allowed extra discounts in fact competed with other purchasers as applicators. And the Commission found that som'2 purchasers operated as both wholesalers and applicators, So finding, the Commiss on disregarded these ambiguous labels, which might be used to cloak disniminatory discounts to favored cu stOTIWl" and stated its order in terms of "purchasers who in fact compete." Thus stated, "\ve think the order understandable, reasonably related to the facts shown by the evidence, and within the broad discretion which the Commission possesses in determining cmedics.

ORDER It is onle1wl That respondent The Eis Automotive Corporation a corporation, and its offcers, representatives, agents and employees, directly or through any corporate or other device, in or in connection with the sale for replacement purposes, of automois defined in tive parts and supplies in commerce, as "commerce" the Clayton Act, do forthwith cease and desist from: Discriminating, directly or indirectly, in the price of such products and supplies of like grade and quality: J. By selling to anyone purchaser at net prices higher than the net prices charged to any other purchaser \\'ho, in fact, competes with the purchaser paying the higher price in the resale and distribution of responclent's products. DECISIO;- OF THE COMMISSION AND ORDER TO FILE REPORT OF COMPLIAl'CE Pursuant to Section 3. of the Commission s Rules of Prac- , on the tiee, the initial decision of the hearing examiner shall THE EIS AUTOMOTIVE CORP. 1479 1473 Decision 21st day of March 1959, become the decision of the Commission; and, accordingly;

It is ordered That the respondent herein shall, within sixty (60) days after service upon it of this order, file with the Commission a report in writing setting forth in detail the manner and form in which it has complied with the order to cease and desist.

Decision 55 F,