Brown & Williamson Tobacco Corporation

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In the Marter or BROWN & WILLIAMSON TOBACCO CORPORATION CONSENT ORDER, ETC.. IN REGARD TO THE ALLEGED VIOLATION OF SEC. 2(D) OF THE CLAYTON ACT Docket 6908. Complaint, Oct. 7, 1957—Decision, Sept. 9, 1959 Consent order requiring a substantial manufacturer of cigarettes and other tobacco products to cease violating Sec. 2(d) of the Clayton Act by granting allowances to certain favored customers but not to their competitors in consideration for placement of floor, window, and counter displays and other advertising of its cigarettes in retail outlets and for newspaper and radio advertising, and by payments to operators of vending machines but not to their retailer competitors.

Complaint The Federal Trade Commission, having reason to believe that the Brown & Williamson Tobacco Corporation, a corporation, hereinafter designated as respondent, has violated and is now violating the provisions of subsection (d) of Section 2 of the Clayton Act, as amended by the Robingon-Patman Act (U.S.C. Title 15, Section 13), hereby issues its complaint stating its charges with respect. thereto as follows:

Paracrarn 1. Respondent, Brown & Williamson Tobacco Corporation. ig a corporation organized and doing business under and by virtue of the laws of the State of Delaware, with its executive offices located at 1600 West Hill Street, Louisville 1, Kentucky. Par. 2. Respondent is now and for a number of years has been engaged in the business of manufacturing, selling and distributing cigarettes, cigarette and pipe tobacco, snuff, plug chewing tobacco and tobacco sundries, hereinafter sometimes referred to as products. Said products are sold to customers with places of business located in the several States of the United States and in the District of Columbia, for resale to the purchasing public. Respondent is a substantia! factor in the tobacco industry. It has branch offices, Complaint 56 F.T.C.

factories, and warehouses located in a number of states. Its gross sales in 1956 exceeded $850.000,000.

Par. 8. In the course and conduct of its business, respondent has engaged in commerce, as “commerce” is defined in the Clayton Act, as amended, having shipped its products from the place where such products are manufactured in various States of the United States to its customers having places of business located in other States of the United States and in the District of Columbia. There is now and has been a constant stream of trade and commerce in respondent’s products among the various States of the United States and in the District of Columbia.

Pan. 4. In the course and conduct of its business in commerce, as aforesaid, respondent has paid, or contracted to pay, money. goods, or other things of value to or for the benefit. of some of its customers as compensation in consideration for services and facilities furnished, or contracted to be furnished, by or through such customers in connection with the processing. handling, sale or offering for sale of the products which respondent manufactures, sells, or offers for sale: and respondent has not made or contracted to make such payments or considerations (hereinafter referred to as allowances) available on proportionally equal terms to all its other customers competing in the sale and distribution of such products. Par. 5. Specifically, respondent during the past four years: 1. Paid allowances in varying amounts to some customers, but did not. do so or offer to do so, in anv amount, to other competing customers.

2. In paying such allowances to some competing customers, did so in amounts not equal to the same percentave of such competing customers’ net purchases and not proportionally equal by any other test: and did not offer or otherwise accord or make available such allowances to all such competing customers in aniounts equal to the largest of such percentages, or proportionally equal by any other test. 3. In offering such allowances to competing customers, conditioned such offers upon the use of advertising displavs which could only he used by a restricted number of said customers. 4. In determining allowances to be paid competing customers, did so on the basis of individual negotiations with each such customer. which resulted in proportionally unequal, different and arbitrary terms. Pan. 6. Allowances paid by respondent. in the manner alleged in paragraph 5, inelude those offered and granted to certain favored customers, but not to other competing customers, in consideration for the placement of posters, carton displays. signs, stickers, floor, window and counter displays. change travs, and other like items BROWN & WILLIAMSON TOBACCO CORP. 277 275 Complaint advertising respondent’s various brands of cigarettes in such customers’ retail outlets, as well as in consideration for newspaper and radio advertising placed by such customers. Examples of such allowances paid by respondent during 1956 may be listed as follows: Customer Allowance Thrifty Drug Stores, Inc. (Borun Bros.), $15,835 5051 Rodeo Road, Los Angeles, Calif.

Walgreen Company, 5,599 4300 Peterson Avenue, Chicago, 111.

United Cigar-Whelan Stores Corporation, 5,000 82 — 39th Street, Brooklyn, N.Y. .

Peoples Drug Stores, Ine., 3,790 77 “P” Street, N.E., Washington, D.C.

Katz Drug Company, Inc. (Lorber Mercantile Co.) 1130 Walnut, ‘ Ikansas City, Mo.

Cunningham Drug Stores, Ince., 1,506 1927 Twelfth Street, Detroit, Mich.

Food Fair Stores, Ine.. dO wor 4.252 Philadelphia, Pa.

The Union News Company, Inc., 1.606 131 Varick Street, New York, N.Y.

Par. 7. Allowances paid by respondent, in the manner alleged in paragraph 5, also include those granted to certain customers who operate vending or merchandising machines, m consideration for the distribution and promotion of respondent’s brands of cigarettes by such customers in their vending machines. Under this program which was initiated in September 1956, respondent paid vending machine operators in excess of $343,000 during the last quarter of 1956. Respondent made payments to such customers for the promotion and distribution of its Kool Filter and Viceroy cigarettes at the annual rate of either $5.00 or $12.00 per vending machine, depending on whether one or both of these brands of respondent’s cigarettes were placed in and distributed through said vending machine. The great. majority of respondent’s customers who have received, and are continuing to receive, allowances under this program compete, in the trading areas where their machines are located, with tobacco wholesalers and retailers who are likewise customers of respondent. Respondent has not made any allowances available to some of these other customers, and in instances where allowances Decision 56 F.T.C.

have been made available to some of these other customers, such allowances have not been offered nor paid on proportionally equal terms. Examples of allowances paid cigarette vending machine operators by respondent during 1956 are listed as follows: Customer Allowance Davidson Bros., $2,579 5950 W. Jefferson Bivd., Los Angeles, Calif.

Los Angeles Cigarette Service, 1,418 4506 W. Jefferson Blvd., Los Angeles, Calif.

Automatic Merchandising Co., 2.420 66 Page Street, San Francisco, Calif.

San Francisco Cigarette Service, 1,822 990 Columbus, San Francisco, Calif.

Automatic Merchants, 617 179 Sidney Street, Cambridge, Mass.

Metro Tobacco & Candy Co., 196 21 Station Street, Brookline, Mass.

Par. 8. The acts and practices of the respondent, as above alleged, violate subsection (d) of Section 2 of the Clayton Act, as amended by the Robinson-Patman Act. (U.S.C. Title 15, Section 138). . Mr. Willian J. Boyd, Ji, Mr. Jerome Garjinkel and Mr. Arthur J. Hessburg, for the Commission.

Mr. James N. Ravlin, of Louisville, Ky., for respondent. InirtaL Decision py J. Earn Cox. Hreanine ISXAMINER The complaint alleges that respondent has paid or contracted to pay money, goods, or other things of value to some of its customers as compensation for services and facilities furnished or contracted to be furnished by or through such customers. in connection with the sale and distribution in commerce of respondent's cigarettes and other tobacco products.

The complaint further alleges that respondent has also granted allowances to certain of its customers who operate vending machines. in consideration for the distribution and promotion by such eustomers of respondent’s brands of cigarettes. The complaint charges that such compensation and allowances were not made available on proportionally equal terms to all of respondent's other customers who compete with such favored customers in the sale and distribution of respondent’s said products, in BROWN & WILLIAMSON TOBACCO CORP. 279 275 Decision violation of §2(d) of the Clayton Act, as amended by the Robinson- Patman Act (U.S.C., Title 15, §18).

After the issuance of the complaint, respondent, its counsel, and counsel supporting the complaint entered into an agreement containing consent order to cease and desist, which was approved by the Director and an Assistant Director of the Commission’s Bureau of Litigation, and thereafter transmitted to the Hearing Examiner for consideration.

Respondent Brown & Williamson Tobacco Corporation is identified in the agreement as a Delaware corporation, with its office and principal place of business located at 1600 West Hill Street, Louisville, Kentucky.

The agreement provides, among other things, that respondent admits all the jurisdictional facts alleged in the complaint, and agrees that the record may be taken as if findings of jurisdictional facts had been duly made in accordance with such allegations; that the record on which the initial decision and the decision of the Commission shall be based shall consist solely of the complaint and this agreement; and that the order to cease and desist, as contained in the agreement, may be entered in this proceeding by the Commission, without further notice to respondent. All parties agree that the agreement shall not become a part of the official record unless and until it becomes a part of the decision of the Commission. The agreement is entered into subject to the condition that the effective date of the initial decision based thereon shall be stayed by the Commission, and that such initial decision shall not become the decision of the Commission in this matter unless and until the Commission issues an order to cease and desist in the Matter of Liggett & Myers Tobacco Company, Inc., Docket 6642. All parties further agree that in the event the order of the Commission to cease and desist in said Docket 6642 should be more favorable in any respect than the order herein is to respondent, as a result. of action by the Commission or a tinal order by the Courts, then, on application by respondent to the Commission, the order to cease and desist herein shall be modified or set aside in accordance with such order in said Docket 6642; and that if said order in Docket 6642 should be more favorable by reason of any findings of fact or conclusions of Jaw in that. proceeding, then the order herein shall likewise be construed in the light of such findings of fact or conclusions of Jaw. The agreement further provides that the complaint herein may be used in construing the terms of the order agreed upon, which may be altered, modified or set aside in the manner provided for other orders; that the agreement. is for settlement: purposes only and does 28() FEDERAL TRADE COMMISSION DECISIONS Decision 56 F.T.C.

not constitute an admission by respondent that it has violated the Jaw as alleged in the complaint; and that the order set forth in the agreement and hereinafter included in this decision shall have the same force and effect as if entered after a full hearing. Respondent waives any further procedural steps before the hearing exaniner and the Commission, except as hereinabove set forth; the making of findings of fact. or conclusions of Jaw; and all of the rights it may have to challenge or contest the validity of the order to cease and desist entered in accordance with the agreement, except the right to move for postponement of compliance with said order. The order agreed upon fully disposes of all the issues raised in the complaint, and adequately prohibits the acts and practices charged therein, as being in violation of §2(d) of the Clayton Act as amended by the Robinson-Patman Act (U.S.C., Title 15, $13). Accordingly, the hearing examiner finds this proceeding to be in the public interest, and accepts the agreemnt containing consent order to cease and desist as part of the record upon which this decision is based. Therefore, [t is ordered, That respondent, Brown & Williamson Tobacco Corporation, a corporation, its officers, agents, representatives, or employvees, directly or through any corporate or other device. in or in connection with the offering for sale, sale or distribution of its cigarettes (hereinafter called products) in commerce, as “commerce” is defined in the Clayton Act, as amended, do forthwith cease and desist from:

Paying or contracting for the payment of anything of value to, or for the benefit. of, any customer of respondent as compensation or im consideration for any services or facilities furnished by or through such customer in connection with the offering for sale, sale or distribution of any of respondent's products, unless such payment or consideration is made available on proportionally equal terms to all other customers competing in the distribution of such products. DECISION OF THE COMMISSION AND ORDER TO FILE REPORT OF COMPLIANCE The hearing examiner, on July 81, 1958. having filed his initial decision in this proceeding accepting an agreement containing a consent order to cease and desist. theretofore executed by respondent and by counsel supporting the complaint, which agreement specified among other things, that said initial decision was not to become the decision of the Commission until and unless the Commission issued an order to cease and desist in the matter of Liggett «& Myers Tobaeco Company, Inc., Docket. No. 6642; and YORKTOWN TEXTILE & TRIMMING CORP. ET AL. 281 275 Decision The Commission, on the 9th day of September, 1959, having adopted as its own the order to cease and desist contained in the initial decision of the hearing examiner in said matter of Liggett & Ifyers Tobacco Company. Inc.. Docket No. 6642: It ts ordered, That the initial decision of the hearing examiner be, and it hereby is, adopted as the decision of the Commission. lt is further ordered, That respondent, Brown & Williamson Tobacco Corporation, a corporation, 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 clesist. Chairman WKintner not participating.