The Goodyear Tire & Rubber Company et al.

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form in ,,-hieh they have complied with the order to cease and desist. IN THE 11xrnou OF THE GOODYK\R TIRE & Runner C011P ANY ET AL. ORDER , ETC., I REGARD TO THE ALLEGED YIOLATIO OF THE FEDERAL TRADE CO)DUSSION ACT Docket 6486. Complaint, Jan. 11, 1956 Decision, Mar. 9, 1961 Order requiring the natiou s largest manufacturer of rubber goods, including tires and inner tubes, engaged also in the purchase and resale of batteries automotive parts and accessories, with net sales in 1954 in excess ot one bilion dollars, and a large integrated vroducer and distributor of petroleum produds sellng such products to over 10 000 service stations and with sales ill 1854 totaling more than one half bilion dollars, to cease entering into 3u(:b contracts as those under \which Goodyear paid Atlantic an oyerride" commission ranging from 711 % to 100/ on the net sales of TEA products (tires, batteries, and accessories) to service stations and distributors sellng its petroleum products in return for Atlantic s influence and aid in promoting such sales.

Peter J. Dicus for the Commission. Jlr. James S. f(eZahel' and Jlr. , by llfr. Cahill, G01'don, Reindel Old of ioe" York, X. Y. Decision GS F.T.

Thomas O. Jiason and ilr. lliathias Ji. Oorrea for respondents The Goodyear Tire & Rubber Company and The Goodyear Tire & Rubber Company, Inc.

Ballard, Spahr, Andrews dO Ingersoll of Philadelphia, Pa. , by Mr. Frederic L. Ballard, Jr. for respondent The Atlantic Refiing Company.

I:\ITIAL DECISIO BY E.i.RL J. I(OLB I-IEAllIXG EXAl\IINER This proceeding is based upon an amended complaint brought under Section 5 of the Federal Trade Commission Act, charging as unlawful certain contracts entered into b tween respondents The Goodyear Tire & Rubber Company, Inc., a wholly-owned subsidiary of respondent The Goodyear Tire & Rubber Company and the Atlantic Refining Company, whereby The Goodyear Tire & Rubber Company, Inc. agreed to pay The Atlantic Refining Company a sales commission ou all tires, bakeries and accessories sold by said The Goodyear Tire & Rubber Company, Inc., to service stations and other outlets of The A tlantie Refining Company. The amended complaint further charged that respondent The Goodyear Tire & Rubber Company, Inc., had entered into similar contracts with certain oil companies other than The Atlantic Refining Company, and that The Atlantic R.efilling Company had entered into a similar contract with The Firestone Tire & Rubber Company.

This proceeding is now before the headng examiner for final consideration upon the amended complaint, answers thereto, testimony and other evidence, proposed findings of fact and conclusions filed by all parties and briefs in support thereof, and reply briefs. The hearing examiner has f,.rven consideration to the proposed findings of fact and conclusions submitted by the parties and their briefs in support thereof, and all findings of fact and conclusions of law proposed by the parties, respectively, 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 of fact, conclusions drawn therefrom and order:

1. Respondent The Goodyear Tire & Rubber Company is a COt'poration organized, existing and doing business under the laws of the State of Ohio with its principal offce and place of business located at 1144 East :\Iarket Street, Akron, Ohio. The Goodyear Tire & Rubber Company is engaged in the manufacture and in the sale and c1i trjbution of rubber products including tires and inner tubes directly and through several whoHy-ownccl and controlled subsidi- THE GOODYEAR TIRE & RUBBER COMPANY ET AL. 311 309 Decision aries, including The Goodyear Tire & Rubber Company, Inc., which is primarily a marketing subsidiary.

2. Respondent The Goodyear Tire & Rubber Company, Inc., (hereinafter sometimes referred to as "Goodyear ) is a wholly-owned subsidiary corporation of The Goodyear Tire & Rubber Company, organized under the laws of the State of Delaware with its offce and principal place of business located at 1144 East Market Street Akron, Ohio. The Goodyear Tire & Rubber Company, Inc. , is engaged in the sale and distribution in interstate commerce of tires inner tubes, batteries, automotive parts and accessories which are known to the trade as TBA products and wil be hereinafter so referred to.

3. Respondent The Atlantic Refining Company (hereinafter sometimes referred to as "Atlantic ) 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 260 South Broad Street, Philadelphia, Pennsylvania. Said respondent is engaged in the production and in the sale and distribution in interstate commerce of petroleum products, including gasoline and lubricants sold to petroleum wholesalers (hereinafter referred to as "distributors and to service stations.

4. Respondent Atlantic markets its petroleum products in the :\fiddle Atlantic States (including parts of Ohio and West Virginia), Xew England (not including Maine) and the Southern Atlantic States. This marketing territory is divided into six marketing regions which are, in turn, subdivided into twenty-nine districts, consisting of a city 01' other marketing center and the surrounding territory. The marketing regions and districts are as follows: Region: District Xcw England__n Providence, R.I. Springfield, rvlass.

Hartford, Conn.

Boston, Mass.

New Haven, Conn.

ew York______----------- Syracuse, N Southern Tier, X.

Albany, K.

Rochester )T. Y.

Watertown, N.

Buffalo :r. y.

Philadelphia- iew Jersey-- Philadelphia-Suburban, Pa. South Jersey Newark (or North Jersey) _____ ___ 312 FEDERAL TRADE COM)dISSION DECISIONS Decision 5S F.

Region: District Eastern Pennsylvania. -- n- - -- - Reading, Fa. Allent.own, Pa.

Wilkes-Barre, Fa.

Harrisburg, Pa.

Williamsport, Pa.

Wilmington, Del.

'Vestern Pennsylvania______----------- Pittsburgh, Pa. Altoona, Fa.

Greensburg, Pa.

Erie, Fa.

Southero- u_----------------------u Charlotte, N. Baltimore, ::Jd.

Richmond, Va.

Jacksonvile, Fla.

:\fiami, Fla.

5. As of April 30 , 1956, there were approximately 394 salesmen calling on dealers and distributors of gasoline a.nd lubricants, including service. stations. These salesmen are divided into various classifications, dependent upon the functions which they perform as follows:

Function Type APprox!-mate Dilmber Promotable dealer salesmBD__- 133 \ Sells Atlantic products and promotes recommended TBA to promotable dealers, which term includes lessee dealers and contract dealers interested In complete service station operation Dealer sBlesmarL- h_------- 25 Sens Atlantic products and promotes recommended TEA to dealers not covered by promotable dealer salesmen (usually il areas 01 sparse distribution) or to special groups such as car deaJersin otberareas.

General salesmann----_----.- 54 Sells Atlantic products and promotes recommended TEA to dealers not covered by promotable dealer salesmen or dealer salesmen, and also sells Atlantic products to smaller CommcreJalnccounts.

,.",,, ",ceilen _mm- 147 Teaches deniers and their employees merchandising techniques and how to perform the services normally performed by first class service station operators. This teaching Involves both petroleum products and TBA. For teaching purposes the salesman uses the TEA on hand at the station. WholeSBlesBlesman Sells Atlantic products and promotes recommended TEA to dJstrlbutors and wholesale dealers.

6. AU of respondent Atlantic s salesmen are paid on a salary basis. Promotable dealer salesmen also receive extra compensation based upon percentage gains in purcha.ses of gasoline, motor oil and recommended TBA (and also for over-all gains) by those of their asslgnerl dealers ,ylJo have been in operation for a minimull of clve months.

7. Respondent Atlantic sells its petroleum products to more than 500 retail dealers, a substantial number of hom operate service stations (fls di.stinguishec1 from grocery stores, garages, and other _ __ _ . __ THE GOODYEAR TIRE & RUBBER COYrPAN ET AL. 313 309 Decision in turn, selllike outlets), and to more than 200 distributors who, said products to more than 2 800 retail outlets, a substantial number of whom operate service stations. These retail dealers and distributors are divided into the follmving classifications: Percentage o! total regional gasoline sales bJ.' each Present deslgna.tion customer class 1\151 percent 1955 percent 1. Company-opuated stat!oD.u__n_nn.

2. LcsseedeaIcr--_--_--_----- ----__n_n_ 39. 3. Contractdea!er_--___ o--_--n--_ u__n--__--_ 18. 4. Commercial account- 16.5. WhoJesaledcakr--___--_--_ n_--____- U_--------- 1.1 6. Distributor __------n__ _nnn----__--_ 24. 7 Jobberu------------. 1.0 100. Total---- 100 8. The usual form of lease entered into by respondent Atlantic and its lessee dealers \Vas for a term of one year, with automatic renewal from year to year unless written notice \Vas given prior to the expiration of any term. H.ental provided by any lease was usually a flat rental plus a cents-per-gallon charge, dependent upon location of station, financial condition of lessee and potentia.! income. Such lease contained provisions relating to the lise, maintenance and genera.! appearance of the station. In the event of breach of any of the terms, conditions or covenants of the lease by the lessee, it '"\as prm'ided that Atlantic may, at its option, terminate the lease. 9. On April 1 , 1958, respondent Atlantic adopted a long-term dealer lease policy under which any lessee dealer who has established a record of t\yO years of satisfactory operation became eligible for a three-year lease ,.dth rent.al remaining the same during t.he entire period.

10. Tires, batteries and accessories have become a necessary and integral part of the business operation of the Atlantic dealer. He cannot prof1tabJy and successfully operate his business without the added revenue from that portion of his business which also enables the dealet to give complete service to his customers. The service station is important to TEA manufacturers as an outlet for distributing 10 customers. It is to the interest of The Atlantic llefining Company to have its dealers engaged in the sale of TEA as this builds a stronger den1er orgr:mization and increases the sale gasoline.

11. Prior to March 1951 (except s to three districts in which the Sales Commission Plan '"\a8 tested be.ginning in 1050) respondent Decision 58 F.

Atlantic purchased TEA for resale either directly or indirectly to Atlantic dealers. This purchase for resale arrangement was first begun in 1932 when respondent Atlantic began the sale and distribution of tires manufactured by the Lee Rubber & Tire Corporation. In 1937 a contract was executed ,,-ith the Electric Storage Battery Company for the purchase and resale of Exide batteries in the Philadelphia region which was expanded to all marketing regions in 1945. Accessory items were added from time to time, including Dupont polishes, Thermoid fan belts, American Chain and Cable Company's weed chains and Fram oil filters. Distribution of such products to Atlantic dealers and distributors was made by respondent Atlantic either directly or through about forty-five warehouses located throughout its marketing area or through Atlantic supply dealers who distributed such products to other Atlantic dealers. 12. During the period that respondent Atlantic continued on the purchase and resale plan, Atlantic service stations were identified as sellers of such sponsored TEA products as Lee tires and Exide batteries, and to some extent of other TEA handled. 13. In 1951 after a test of the Sales Commission Plan of Goodyear and Firestone in three districts, Atlantic adopted the complete Sales Commission Plan of these companies in all six of its marketing regions. Atlantic assigned the entire marketing area by allocating the X ew York, K ew England and Philadel phi a- N' ew Jersey regions to Goodyear and the three remaining regions to Firestone. 14. The sales commission a,agreement entered into between The Atlantic Refining Company and The Goodyear Tire & Rubber Company, effective "March 1 , 1951, provided for the payment of commissions to Atlantic on the sales by Goodyear of its tires, batteries and accessories to Atlantic outlets, including service stations, distributors and consignees. The consideration of this agreement was the services to be rendered by the Atlantic sales organization in promoting the sale of Goodyear TEA products as outlined in said agreement. This agreement provided, among other things, for the payment. of a commission of 10 percent on all sales of TEA to Atlantic dealer out lets, and 7'1 percent on all sales of TEA to Atlantic franchise petroleum distributors. The Atlantic R,efining Company also entered into a similar sales commission agreement with The Firestone Tire & Rubber Company, effective as of :\Iarch 1 , 1951. 15. The services which were performed by The Atlantic Refining Company pursuant to its contract with Goodyear and Firestone in promoting the sale of TEA products consisted principally of the following:

_ ___ _ ____ _ . . . . ...................... ....... . THE GOODYEAR TIRE & RUBBER COMPAc'I ET AL. 315 309 Decision (a) Atlantic personnel, when interviewing prospective dealers for new or established service stations, advised them of thc importance of TEA and recommended the TEA products of Goodyear or Firestone, and when dealers were selected "would at times give advance notice of stat.ion openings or cha.nges to Goodyear or Firestone and introduce the new dealers to thc sales representative of Goodyear or Firestone, permitting such salesmen to complete any unfinished business with the outgoing dealer and enabling them to anticipate and to move promptly in handling the requirements of the new dealers. (b) Atlantic gave assistance to dealers in arranging Goodyear or Firestone TEA supplies; took TEA orders from Atlantic dealers for either Goodyear or Firestone; and recommended the minimum Goodyear or Firestone inventory to be carried by the Atlantic dealer. (c) Atlantic frequently conducted dealer meetings at which thc sale of TBA was discussed, in some instances with the active participation of Goodyear or Firestone.

(d) Atlantic operated training schools for dealers and prospective dealers which included suggestions for displaying and merchandising TEA. In the discussion of TEA, Goodyear or Firestone products were used exclusively during the training school course. e e) Atlantic incorporated suggestions on merchandising TEA in its dealer magazines and arranged for advertising and promotions which included TEA products of Goodyear or Firestone, and participated in promotions instituted by either Goodyear or Firestone. (f) Atlantic also conducted tire clinics jointly with the personnel of Goodyear or Firestone which were important in familiarizing dealers in the care and repair of Goodyear or Firestone tires. (g) Atlantic made TEA products available to credit card holders including merchandise sold on deferred payments without carrying charge, which served to augment the sale of Goodyear or Firestone TEA.

16. The sales of Goodyear TEA find commissions paid thereon under the Atlantic.Goodyear Sales Commission Plan were substantial as is shown by the following tabulation:

Total alcs Total commjssJow, J95L-- _n._____---- 44,'5 808 $239, 250 1952 175, 890 411 743 1953 06i ,;u. "00 437 )954 2R4, 743 523 048 1955_ 700 121 557, 5991/55-6/56-_ ..1 133 905, 29!; 9R8 Tot 25, 808 032 529, 065 ______. _ . _ , . Decision 58 F.'l.

17. The substantiality of the sales and commissions under the Atlantic-Firestone TBA Sales Commission Plan is shown by the following tabulation for the years 1951 to 1956: Total sales Tote.J commissions 195L'_--___ h+-------- --------------0--,,------------ 53, 243 350 $299, 624H152- n. - -.-- - nn_--_nu h- ---- h un - n. -.- - - n- - 349, 616 404 948 1953___ 050, 381 469, 784 1954______ 867, 689 452, 1955 562, 936 506, 109 1/56-5/56______---------------- 545 798 234 Total--- --_--n. - h----un _nn--------.------- n- -- . h_n- 25. 619, 770 366, 855 18. Under elate of :\Iarch 1 , 1951, Atlantic sent a form letter to all Atlantic dealers entitled "A Statement of Atlantic s TEA Policy This letter announced the adoption of the TEA Sales Commission Plan and included therein the statement that "Your acceptance or rejection of the program is a matter of your own c1lOice Under date of _\.august 28, 1952, respondent Atlantic addressed a similar form letter to alj its dealers entitled A Restatement of Atlantic TEA Policy . Under date of June 24, 1955, a similar letter entitled K 0 Forcing" was sent to all Atlantic dealers, and since that time has been given to new Atlantic dealers.

19. It is the contention of counsel supporting the. complaint that because of the relationship, contractual and otherwise, between Atlantic and its station operators, consignees and distributors, the adoption of the Sales Commission Plan of selling and promoting the sale of TB_-I entered into by Atlantic with Goodyear and Firestone has a tendency to lessen, restrain, prevent or eliminate competition in the sale of TEA, and has deprived other suppliers of TEA of a substantial portion of the TEA business of the Atlantic petroleum outlets.

20. Iu support of the charges of thc complaint, sixteen former Atlantic dealers were called to testify in this proceeding. 'With the exception of three of these dealers, they testified to various forms of coercion, adopted by Athmtic salesmen in an effort to induce them to purchase sponsored TEA. Some of these witnesses testified that they had re.ceived the so-ca.lccl non-foreing letter, hut that t.hey were told by Atlantic salesmen that these letters were not controlling insofar as purchases of non-sponsored TBA was concerned. The testimony of the witnesses ca11cel to support the complaint pertaining to coe.rcion is as follows:

(a) .John Chambers, an Atlantic lessee from Xm' member 1952 to N O\' member 1954, p\lrchascd the b\llk of his TEA from the Goodyear supplier. Atlantic salesmen were alvmys reminding him, that when THE GOODYEAR TIRE & RUBBER COMPANY ET AL. 317 309 Decision his lease expired or was cancelled Atlantic would only accept sponsored merchandise, and that outside merchandise would not be accepted atalJ. This witness also testified that it was pointed out to him on a number of Deca,sions that the acceptance or rejection of the Goodyear plan was up to the dealers. (b) James Matthews, an Atlantic lessee from 19-17 to 1957, was told at a meeting that dealers were free to buy wherever they saw fit, but whenever salesmen called they told him differently. At the time of the change- er from Lee to Goodyear, his Lee signs were removed from his station, and he 'was told to get rid of Lee tires and Auto-Lite batteries and handle Goodyear. Matthews testified that he discontinued the Lee tires because he did not want his lease cancelled because of non-sponsored TBA. He was requested by Atlantic salesmen in 195;3 to sign fl mutual cancellation, but he promised to follow the line and went 100 percent with Goodycar. I-Ie took ten Auto-Lite batteries in trade, to which objection was made. Atlantic also objected to his handling Dupont anti-freeze. Iatthews left the station in Iay 1957 due to bad health. He recalled receiving non-forcing letter dated :March 1 , 1951. (c) Aniello L. Jacono, an Atlantic lessee from 1952 to 1954, had diffculty with Parris, the authorized TBA supplier, and began buying non -sponsored tires ami batteries. He was asked by Atlantic salesmen to get rid of the tires and batteries and when he refused, the salesman made an inspection of his place and claimed he was using untrained personnel, improper uniform, improper display, and maintaining a dirt.y station. tris lease was not rene"Ted. (d) Isidore .Jock Pollock, an Atlantic lessee from 1940 to 1953 testified that Atlantic salesmen objected to his purchase of a number of Lee tire,s at a special price, however, the sales supervisor stated that this would be satisfactory because of the number of years that Pollock had been with Atlantic, and he continued to purchase Lee tires thereafter. lie purchased some Bowers batteries, and salesmen told him he ,,'as going to have his lease cancelled. Pollock left thc station to take over a tavern.

(e) Francis J. Ballaron, an Atlantic lessee from 1953 to 1957 carried Goodyear tires and batteries purchased through i\filler, an authorized distributor. He kept non-sponsored tires on oil rack where Atlantic would not see them. Ballaron testified that he left the station because of pressure every month for not buying TBA "T here he should.

(f) James ;\1. ;\1eyeI's, Jr. , an Atlantic dealer from 1950 to 1951 testified that he discussed non-forcing letter "Tith Atlantic salesmen \yho told him to try buying other merchandise and find out what the letter Ineant.

318 FEDERAL TRADE CO:\MISSION DECISIOKS Decision 58 F.

(g) Korris Stein, was an Atlantic lessee, beginning July 26 , 1954. About six months later he discontinued exclusive purchase of Firestone and was told by Atlantic salesmen that he would not long be received no-forcingan Atlantic operator. He stated that he had letter of June 22, 1955. Terminated his lease for reasons not involving TBA.

(h) Thomas J. Sullvan, Jr., an Atlantic lessee from 1953 to 1954 was told that Atlantic would like him to obtain all his products from Firestone. He bought some Bowers batteries and also Exide and was told by Atlantic salesman not to sell batteries as they were not as good as Firestone and that he didll t want them displayed in the station. He removed the batteries from display. Sullvan further testified that he returned the Exide batteries and discontinued the Bowers batteries as he felt that if he rubbed Atlantic he wrong way that he would be in their disfavor, and that his lease might not be renewed. He stated that the Atlantic representative made no direct threats, but always left the impression that if he did not operate the ,yay At bntic "\wanted him tO the chances were that his leasc would not be renewed. The Atlantic salesman always questioned him when he bought non-sponsored items and give him the impression that he was expected to buy Firestone products. The salesman would ask him from time to time why he did not buy Firestone, and he got the point \Vhere he bought all items from Firestone because he was afraid not be forcedof no lease renewal. It was put to him that he would to buy Firestone products, but Atlantic more or less expected him cancellation of lease because of priceto do so. Sullivan sent in controversy.

(i) John Galle, an Atlantic Jessee from 1954 to 1956 , discussed with Atlantic salesman an offer of batteries and tires at prices lower than Firestone, and salesman informed him that he had signed an agreement to purchase TEA from Firestone and should not go against this agreement, and in addition Atlantic would not like to see competitive brands to Firestone in the station. He did not purchase these items, but continued to purchase Firestone tires and batteries. He received the non-forcing letter on June 22, 1955, but did not discuss it with the Atlantic salesman. (j) Harry N. Hawes, an Atlantic lessee beginning in 1945, had three stations. In the first station he bought only Firestone TBA. In the second station ca-rried Lee tires, and Atlantic salesman wanted to know what they were doing there, but he continued to handle them. In the third station he sold only Lee tires and some accessories from Firestone without much comment from Atlantic. Lease 'vas not renewed on the second station, and the third station lease was THE GOODYEAR TIRE & RUBBER COMPANY ET AL. 319 309 Decision cancelled at his request. Atlantic salesman refused to let the new dealer take over the Lee tires and batteries on hand. (k) Richard Brown, Atlantic lessee from October 1055 lo April 1957, because of dissatisfaction with Firestone, began to purchase Goodrich tires. Atlantic salesman told him he did not like the purchase of non-sponsored items, as it was afi'acting his salary. Jessee from August 1, 1955, to "larch (1) James Parag, an Atlantic 1956, became dissatisfied -with Firestone and began purchasing Goodyear tires and accessories from different sources. 'Vhen Atlantic salesman saw the merchandise on his shelyes he told him that he could not handle them, that if he did not handle what Atlantic handled he would lose his lease, and also because it also affected the salesman s commission.

(m) James R. Kelly, an Atlantic lessee from September 1952 to l\farch 1953, began \with Firestone TBA. Later sold whatever tires customers wanted. Atlantic salesman would not let him change windo\v valances, he was told to leave them alone to keep the station uniform. Had some Goodyear and Goodrich tires which he kept in the back room. He felt he would get in trouble if he did not. 21. Certain representatives of suppliers of TBA who were selling in competition \with respondent Goodyear, were called as witnesses in this proceeding. This testimony was taken in three areas- Philadelphia, Pennsylvania, \Vilmington, Delaware, and Baltimore Maryland. These parties testified generally that they had diffculty in selling TBA to Atlantic stations lmd testified specifically as to reasons given by certain Atlantic dealers for not buying or selling t.their TEA items. This testimony as to reasons given by Atlantic dealers for not purchasing competitive TBA was allowed under the authority of Lawlm' YS. Loewe 235 U.S. 522. This latter testimony was recciyed not as proof of the truth of the facts recited, but for the purpose of showing the state of mind of the dealer. This testimony, ho\'-ever, is competent to show that dealers did not purchase a substantial amount of competitive non-sponsored TBA because of the feeJing that they were required to purchase Goodyear or Fil'est one.

2. In the course of its defense in this proceeding, The Atlantic TIefining Company introduced the testimony of thirty-six Atlantic dealers and two ex-dealers. Substantially all of these witnesses testiiied to selling non-sponsored TBA in varying amounts without objeciion by Atlantic. Most of them testified to having received the non-forcing letter issued by Atlantic similar to the letter of l\Iarch , 1051 , which this record shows was delivered to all its dealers and prospective dealers.

FE DE HAL TRADE CO:VIMISSION DECISIONS320 Decision ::s F. 23. The hearing examiner recognized that present dealers appearing to testify were under considerable pressure because they were naturally interested in not jeopardizing the renewal of their leases. The record as a whole shows that there were no exclusive dealers in the sense that they confined themselves entirely to sponsored TEA, as all dealers carried some non-sponsored TEA to satisfy demands of their customers either in varying amounts or on a pick-up basis. .:iany of the stations do not have the space or fiuances to stock a complete line of tires and batteries, but instead purchase non-sponsored as well as sponsored items on a pick-up basis to satisfy customer demand. There was also in some instances evidence of confusion as to the definition of accessories among the dealers, as some included as accessories items generally considered as repair parts, as distinguished from accessories, and some dealers nottestified to carrying non-sponsored items which were, in fact, supplied by Firestone or Goodyear. Many of the dealers called maintained a high sales volume in gasoline gallonage and also oil and Atlantic would not jeopardize this gallonage by pressure tactics suffcient to irritate or alienate such dealers. 24. It is clear from the record in this proceeding that the Atlantic dealers did not consider the non-forcing letter as giving to them free and unhampered authority and the blessing of Atlantic to handle whatever TEA they might see fit. Eoth the dealers and the Atlantic salesmen accepted this letter for what it said; namely, that the dealer at the time of the change-over and prospective dealers thereafter had the rig-ht to select or reject the TEA sales progmm offered by Atlantic. The prospective dealer making application for an Atlantic station would not likely reject offhand the program submitted by Atlantic, and such rejection could very well affect his selection as an Atlantic dealers. After a dealer selected a TEA prog-mm, the Atlantic salesmen insisted, and saw to it, that the dealer hewed to the line, insofar as the more important items of TEA were concerned. The salesman would be expected to insist upon the purchase of sponsored TEA, as such purchases were reflected in the commission which the salesman received. 25. After giving consideration to the testimony of the various wtinesses appearing in this proceeding, and giving consideration to their demeanor and credibility, it is the opinion of the hearing examiner that the record in this proceeding as a whole indicates that coercion and pressure were used on a substantial number of dealers to induce them to purchase sponsored TEA and to discontinue the purchase or display of non-sponsored items. THE GOODYEAR TIRE & RUBBER CO:\PAN ET AL. 321 309 Conclusions CONCLUSIONS 1. The complaint does not charge, nor does the evidence introduced in this proceeding prove, the existence of a conspiracy between Goodyear and Atlantic to restrict and restrain competition in the sale and distribution of TBA products. 2. There is no evidence that The Goodyear Tire & Rubber Company, or The Goodyear Tire & Rubber Company, Inc., engaged in or participated in, any facts or practices designed to force dealers and distributors of The Atlantic Refining Company to purchase Goodyear TEA products.

3. Neither the sales commission contract between Atlantic and Goodyear nor the contracts between Atlantic and its dealers and distributors contain any clauses or provision requi.ring such dealers or distributors to purchase only Goodyear TBA. l!, In making a determination as to "whether leases made by Atlantic with its dealers atc used to suppress competition, the extent to which they are in conformity with reasonable requirements in the field of commerce in which they are used will have a direct bearing on their legality. The housekeeping provisions of the leases are not unreasonable or oppressive, and the renewal and cancellation provisions of the leases are in conformity with those which ordinarily appear in many leases of property. 5. The consideration for the payment of commission to Atlantic under the sales commission contract is based upon substantial services rendered by Atlantic in promoting the sale of Goodyear TBA to Atlantic dealers and distributors. 6. No inference or implication can be drawn from the contractual relationship between Atlantic ancl its dealers, that the degree of control by Atlantic over its dealers is suffcient to force its dealers to purchase only sponsored TBA.

7. The evidence in this proceeding shows that leases have, on occasion, been cancelled because of TBA practices involving the purchase or display of non-sponsored TBA products. 8. It is further concluded that for the purpose of inducing the purchase of sponsored TBA by Atlantic dealers, Atlantic representatives did, in fact, coerce, and attempt to coerce, and force Atlantic dealers to purchase substantial quantities of Goodyear and Firestone TBA, and Atlantic accepted the benefits of such acts and practices. These acts of coercion consisted of demands that dealers discontinue the. purchasing and displaying of non sponsored TBA under threat of Icase cancellation, non-renewal of lease or other corrective action. Such coercion need not be 100 percent effective 6S1-237-- 322 FEDERAL TRADE CO ISSIOK DECISIONS Order 58 F.

in order to constitute an unfair method of competition or unfair act or practice in violation of the Federal Trade Commission Act. 9. The charges of the complaint are suffciently broad to sustain an order prohibiting overt acts of coercion even though it be found that the contracts entered into by the parties are not illegal. 10. The Federal Trade Commission has jurisdiction of the subject matter of this proceeding and of the respondents named herein. 11. The acts and practices of The Atlantic Refining Company, as herein found, which involve coercion of its dealers are all to the prejudice of the public and have a tendency and capacity to restrict restrain or lessen competition in the sale of TEA products and constitute unfair methods of competition and unfair acts and practices in commerce within the intent and meaning of Section 5 of the Federal Trade Commission Act.

ORDER It is ol'dn' That respondent The Atlantic Refining Company, a corporation, and its offcers, agents, representative,s and employees directly or through any corporate or other device, in connection with the promotion, offering for sale, sale and distribution of tires inner tubes, batteries and other automotive parts, accessories and supplies (hereinafter referred to as "TEA products ), in commerce as commerce is defined in t.he Federal Trade Commission Act, clo forthwith cease and desist from, directly or indirectly: 1. Inducing, or attempting to induce, the purchase of TEA products of a particular supplier by Atlantic dealers by threatpning to cancel or to not. renew lease of dealer or to take other retaliatory action if said product.s are not purchased. 2. Threatening the cancellation or noll- ne",nl of any contractor lease if the dealer purchases or continues to purchase TBA products not. sponsored, recommended or approved by the respondent or the sale of "which is not promoted by the respondent. 3. Threatening- the cancellation or non-rene\nll of any contract or lease if the dealer displays or continues to (1ispby TEA products not sponsored: recommended or approved by the respondent: or the sale of \'\hi('h is not promoted by the respondent. 4. The performance of any acts of intimidation or cae-rei on, either through statements, oral or written, made directly to dealers or by representntiyes of respondent, which are designed t.o or have, the purpose or enect of intimidating or coercing respondent"s dealers or other customers to purchase. TDA products sold by any designnJecl supplier sponsored, recommended or a,pproyed by respondent. , _ , THE GOODYEAR TIRE & RUBBER CO:\PANY ET AL. 323 309 Opinion 5. Compellng, or attempting to compel, dealers by any means or methods to sell and distribute only products supplied by a designated supplier sponsored, rccommended or approved by respondent.

6. Preventing, or attempting to prevent its dealers by means of threats, intimidation or coercion, from handling or displaying TEA or other similar products which the respondent does not sponsor recommend or approve, or the sale of viThich is not promoted by the respondent.

It is furthm' ordered That the complaint be, and it is hereby, dismissed as to respondents The Goodyear Tire & Rubber Company and The Goodyear Tire & Rubber Company, Inc. OPINION OF THE CO)IMISSION By KIN'rNER Chairman:

This proceeding is based upon an amended complaint charging The Goodyear Tire & Rubber Company and its wholly-owned selling subsidiary, The Goodycar Tire & Rubber Company, Inc., (hereinafter collcctively referred to as "Goodyear ), and The Atlantic Refining Company with acts, practices and agreements constituting a violation of Section 5 of the Federal Trade Commission Act. 15 U. C. ~ 45 (lg58). Respondents answered admitting in part thc allegations of the complaint but denying that Section 5 had been contravened. The principal issue framed by the pleadings is the legality of a contract between these respondents callng for thc payment of Goodyear of a sa.les commission to Atlantic in return for sales assistance in promoting automotive tires, batteries, and accessories (hereinafter referred to as "TBA" or "TBA products ) of Goodyear to retail and wholesale pctroleum outlets of Atlantic. In addition, Atlantic is charged with having entered into 8, substanti8,lly identical agreement. with The Firestone Tire and Rubber Company, and Goodyear is charged ''with having entered,d into such agreements with a number of oil companies other than Atlantic, including Shell Oil Company. Although Atlantic and Goodycar are the only respondents in the instant case, Shell and Firestone are joined as respondents in a companion case, Docket 6487, and in another companion case, Docket 6485, The Texas Company and The B. F. Goodrich Company ate paired as respondents.

The complaint charges, in substance, that the success enjoyed Goodyear and Firestone in selling to Atlantic outlets has been pur- 10ther 011 companies h:lvlng sales commission arrangements with Goodyear include Anderson-Pritchard Oil Corp. shlatld on and Retitling- Co. .rhe Carter on Co. , D. SUUrf:: OIJ Co. , Quuker State H.eflnlng Co. , Richfield 011 Co. (accessories only). The Shnmrocl. Oil flnel Gas Corv. , Shell Oil Co. , and Sinclair Refining Co. (accessories only). Opinion 58 F.

chased at the expense of competing TEA suppliers at the manufacturing and wholesale levels. Counsel supporting the complaint contend that the Atlantic-Goodyear and Atlantic-Fireslone sales commission contracts are unla wiuI because in conjunotion with Atlantic s economic power over its ostensibly independent wholesale and retail petroleum o7ltlets these contracts operate to stifle the free choice of Atlantic s retail and wholesale dealers insofar as their TEA purchases are concerned. Among the unlawful competitive effects stemming from Atlantic s sales commission contracts charged by the complaint are these: (1) That suppliers of TEA competing with Goodyear and Firestone at the wholesale level have been foreclosed from access to Atlantic s retail outlets on the same competitive terms as have been made available to Goodyear and Firestone; (2) That competing manufacturers of tires and other TEA items have been foreclosed from access to Atlantic s wholesale distributors on the same competitive terms as have been made available to Goodyear and Firestone; (3) That competition between Goodyear and Firestone in selling to ,,-wholesale and retail outlets of Atlantic has been destroyed; (4) That a substantial number of Atlantic s petroleum distributors and service station operators have been denied their right to act as independent businessmen in exercising freedom of choice as to TEA products which they may purchase and stock for resale; and (5) That the consuming public has been deprived of thc benefits of free competition at the wholesale and retail levels insofar as TEA distribution through service station outlets under the sales commission plan is concerned.

Respondents deny these allegations and assert that their sales commission contract is a. legitimate and competitive method of distributing TEA which benefits suppliers of TEA products, oil companies, dealers and distributors of petroleum products and the consuming public.

After hearings extending from the latter part of 1956 into November 1958, the hearing examiner .fled his initial decision on October , 1959, dismissing the complaint as to Goodyear but holding that Atlantic, by forcing a substantial number of its dealers to purchase sponsored TEA through threats of lease cancellation or other retaliatory action, has engaged in unfair methods of competition and unfair acts and prfLcticcs in commerce in violation of Section 5 of the Federal Trade Commission Act. Hc further held that the charges of t.he complaint are sufficiently broad to sustain an order prohibiting overt acts of coercion on the part of Atlantic even though the sales commission contracts themselves are not illegal1. An order was entered against Atlantic prohibiting future acts of coercion or intimidation : , THE GOODYEAR TIRE & RUBBER COMPANY ET AL. 325 309 Opinion designed to force Atlantic dealers to purchase TBA products sponsored by Atlantic.

Both sides have appealed from the initial decision. Counsel supporting the complaint contend that, while the order entered by the hearing examiner is well supported by the evidence of record, it "ill not be an effective means of remedying the unlawful effects on competition caused by the sales commission plan. They seek order rest.training respondents from continuing with their present sales commission agreement and enjoining them from entering into similar agreements in the future. They also contend that Atlantic should be enjoined from purchasing TBA products from any manufacturer or other vendor of such products for resale to any wholesalers or retailers of Atlantic petroleum products . . . or for distribution in any other manner, directly or indirectly, to any of the aforesaid wholesalers or retailers of Atlantic petroleum products. Reply briefs were filed by Atlantic and Goodyear to the appeal brief of counsel supporting the complaint, and by counsel supporting the complaint to the appeal brief of Atlantic. Oral argument "as heard by the Commission on .Tune 23, 1960, and the matter is now before the Commission for decision. IVe find that Atlantic has in fact coerced a substantial number of its dealers to purchase substantial amounts of sponsored TBA through threats of lease cancellation or other retaliatory action. IVe further fmd that Atlantic has suffcient economic power over its wholesale and retail distributors to cause them to purchase substantial amounts of sponsored TEA even without the use of ovcrt coercive tactics. For reasons set forth hereinafter, we conclude that the exercise of this power by Atlantic through the use of the sales commission plan in favor of Goodyear constitutes an unfair method of competition and an unfair act or practice in commerce wit.hin the meaning of Section 5 of the Federal Trade Commission Act.

CHARACTERISTICS OF THE SALES nIISSIO PLAN Motorists may purchase replacement TBA items from several major classes of distributors. :\1anufacturers of these items, for example, Goodyear and Firestone, maintain either company-owned or franchisee! wholesale and retail distribution outlets in all of the marketing areas for TBA products considered in the course of the hearings in this case. Gasoline service stations constitute a second major class of outlets for TBA products. According to a 1947 market survey re1iecl upon by Goodyear in implementing its sales commission program with The Shamrock Oil and Gas Corporation of Ama" " Texas, motorists purchase approximately 37 percent of , , Opinion 58 F.

their replacement tires and tubes, 44 percent of their replacement batteries, and 20 percent of their automotive accessories from gasoline service stations.

The complaint in this case alleges that "service stations by the nature of their business, are particularly well adapted to be outlets for the sale of TBA products to the motorist consumer. They constitute a large and increasingly Important market for TBA products." The truth of this allegation Is conceded by both Goodyear and Atlantic, and Goodyear also admits that it ". . . sells TBA products dierctly and through wholesalers to many customers, including service stations who purchase for resale to consumers for replacement use in their automobiles.

Service station operators may purcJlase their requirenlcnts of TBA from two principal sources: (1) Local wholesale TBA dealers representing Firestone, or Goodyear, or some other refining and distributing petroleum products which also purchase TBA products from manufacturers of these items, for resale long with the refinery products such oil companies distribute through their respective marketing organizations. TBA purchased by oil companies for resale may either be branded with a particular oil company principal brand, for example Gulf " or with a private brand controlled by an oil company but used exclusively for TBA and not for refinery products, for example "Atlas " or with the supplying manufacturer s 0\\11 brand, for example Lee" (tires) or "Exide (batteries) .

No particular term is used In the industry to describe the marketing techinque whereby service station operators purchase TBA from independent local wholesalers, but the term "purchase-resale Is customarily used to characterize the marketing technique whereby oil companies purchase and resell TBA to their respective service station dealers. The sales commission method of distributing TBA is a hybrid deriving certain of its attributes from the first and other attributes from the second of these marketing techniques. Both the purchase-resale plan and the sales commission plan make use of the marketing facilities of marketing oil companies, but In doiferent ways and with differing competitive effects. This may be illustrated by contrasting the purchase-resale method of distributing TBA used by Atlantic prior to 1951 with the sales commission method adopted by Atlantic In 1951 and used by the company since that time.

Atlantic e tjmnted In 1948 thftt approximately 21 percent of all replacement passenger tire" are oI(1 by service statIonf'. AHboug-b AtJantlc s estimate is comdderabJy lower than GoodrelJr s, Jt is nevertheJesi' clear that service stations account tor substantial percentflge of totoJ TEA replacement items sold to motorists. . .

THE GOODYEAR TIRE & RUBBER COMPfu'I ET AL. 327 309 Opinion Atlantic s Purchae and Resale Plan. Sometime in 1932, Atlantic commenced to purchase "Lee" tires from the Lee Rubber and Tire Corporation and to resell such tires to its wholesale and retail petroleum distributors. Later, in 1937, Atlantic commenced to purchase "Exide" batteries from the Electric Storage Battery ' Company (hereinafter referred to as "Exide ) and resell such batteries, along with "Lee " tires, to Atlantic dealers. Thereafter, Atlantic began to purchase and resell the following automative accessories: Produc' Supplier Dupont polishes and chemicalsn E. 1. du Pont de Nemours and Company Wilmington, Del.

Thermoid fan belts and radiator hose_huh Thermoid Corporation Trenton, N.

Fram oil filters- Fram Corporation Providence, R.

Schrader valves- A. Schrader Sons Brooklyn, N.

Weed chainsu American Chain and Cable Company York, Pa.

Among the duties undertaken by Atlantic in connection with this program were the purchasing, financing, shipping, warehousing and selling of TEA items to jts various classes of retail and wholesale petroleum dealers. Commenting on his companies TEA program in 1950, :Mr. S. J. Heideman, TEA Manager for Atlantic, commented that "We receive a good gross margin in keeping with the duties left to us . . " :lforeover, the overall satishction of Atlantic s dealers with the Lec- E:,ide arrangement was evidenced by the results of a TEA brand preference survey undertaken by Atlantic s Sales Research Section in 1948 and 1949. More than 1 000 service station dealers representing seven major oil companies including Atlantic, located in 47 cities from :lIassachusetts to Florida ,were intervie"\ved during the course of this survey. Of the Atlantic dealers interviewed, 67 percent preferred Lee tires and 79 percent preferred Exide batteries over competing brands of tires and batteries. Eleven percent of Atlantic s dealers stated a preference for Goodyear tires\ 4 percent for Firestone tires\ and the remainder announced a preference for various other tire brands. K 0 preference for any par6cular brands of accessory items was found to exist, although "A definitely unsatisfactory supplier-dealer relationship on accessories was observed. Sixty-seven percent of the Atlantic dealers contacted indicated that they would rather obtain their TBA requirements from several sources rather than a Opinion 58 F.

single sonTce, the principal reasons given therefor being price advanta.ges and the variety of brands. Of the remaining 83 percent of Atlantic dealers, who preferred a single source of supply for TEA products, less than 4 percent gate as a reason the fact that the single supplier could provide them with a complete line of TBAbetter service was given as a reason by 35 percent of the Atlantic dealers preferring a single source of supply, and price was given as a reason by an additional 32 percent.

Atlantic s Changeover to the Sales COll1'nission Plan. Contemporaneollsly "ith the TBA brand preference survey of service station dealers described above, Atlantic management vms actively considering possible alternatives to their purchase-resale arrangenlent with Lee. On January 19, 1948, exploratory letters were sent to five major tire manufacturers, The Goodyear Tire & Rubber Company, United States Rubber Company, The B. F. Goodrich Company, The Firestone Tire &, Rubber Company, and General Tire & Rubber Company, inquiring ;; . . . v.hat interest you may have in the sale of your tires and rubes through ATLANTIC outlets. The. tire eorl1panies were informed of Atlantic's desire ;' . . . to consider your propositions on first line, second line, and private brand, or as many of these lines as you merchandise.

To assist the tire companies in preparing their quotations, Atlantic estimated it ould require approximately 300 000 passenger tires and 40 000 truck tires annually, with tube requiremcnts approxi- Inating 70 percent of tire requirements. Proposals ,,,ere requested not only as to principal brands of the tire companies ("Goodyear Firestone :' etc. ) but also as to secondary brands controlled by these companies (Kelly-Springfield " "Fisk Federal 11iler" and Hood" ) and as to private brands as well. Mansfield Tire and Rubber Company and Lee were also contacted and requested to submit proposals on a private brand tire. A detailed analysis of responses received from the various tire companies was presented to Mr. D. T. Colley, Vice President in Charge of Domestic Sales of Atlantic, in a memorandum of June 22 1948 , from the company s TBA 1fanager, .:Ir. Heideman. This memorandum concluded with the statement:

This pres.entation and Atlantic s benefits with the several companies haa been disrussed at length with the members of the T.B.A. Products Committee. It was their unanimous opinion that lice appeared to be the best choice for our company. To their approval. I would like to add my own, since it is my opinion after' careful analysis that the Lee franchise is the best available at the present time for Atlantic.

THE GOODYEAR TIRE & RUBBER COMPAL"\'" ET AL. 329 309 Opinion In a subsequent memorandum of August 24, 1948, Mr. Heideman set forth several reasons why a proposed experiment then under consideration involving the sale of Firestone tires in one sales district of Atlantic should not be adopted: It is apparent. . . that It would be unreasonable to expect too great an expansion of our present sales by the addition of a better known tire. As a matter of fact, it is our opinion that there is a very real possibilty ot a smaller market with Firestone due to their presently established company stores and distributors. Volume purchase requirements would leave a great number of our dealers in a poor competitive position. . . . neither Firestone batteries nor accessories have the national acceptance of the lines we presently handle. . . (TJhere is certainly an indication that consumer acceptance of the Firestone brand in batteries is very limited. evertheless, negotiations with the tire companies continued throughout the remainder of 1948, and in May 1949, Goodyear expressed its willingness to offer a TEA program to Atlantic. However, it was Firestone which was seleeted for Atlantic s first experiment with the sales commission plan. In a letter of January , 1950, to the Regional Manager of its M ew York Region, an Atlantic offcial explained:

As you know, tor the past year we have been studying T. A. as to tts profitabilty to the Company. Our most recent findings indicate that it questionable whether this venture is paying us to the degree that the efrort expended warrants.

In our approaches to the subject, we have had discussions with various major tire manufacturers who, as you know, are interested in handling the entire T,RA. line, paying ns a commission. The proposition that seems most acceptable to us Is one offered by Firestone. I wi1 not attempt to go into detail covering this proposition, but when you come to Philadelphia for the Regional Manager s Meeting next week, Mr. ReirlernanIl (sje) plans to sit down with you and go over the proposition with thought in mind that yon wil elect to have Y011r Region bc the guinea pig. As it turned out \ however, the Firestone plan was not introduced into the New York area. Instead, operations under the Firestone commission plan began in Atlantic s Erie, Pennsylvania, district on farch 30, 1D50, and in the Wilmington, Delaware, district on April , 1050. Operations under a sales commission plan with Goodyear C'ommeneecl on an experimental basis in Atlantic s Newark, New Jersey, sales dist.rict on June 12, 1950. After these programs were instituted, Athntic s Sales He search Section conducted a secret poll in .July an,l c august, 1950 among 600 of the 750 Atlantic dealers and distributors in the three TEA test districts. The purpose of this poll was to determine the preference of Atlantic dealers as between the Lee Exide program and the sales commission program. Of the , Opinion 58 F.

123 dealers responding to the poll, 45 percent preferred the new sales commission plan, 40 percent preferred the former Lee- Exide arrangement, and 15 percent showed no preference for either plan. In December, 1950, Atlantic contacted seven manufacturers of batteries, including Exide and Gould-National Batteries, Inc. . . . in an attempt to discover whether they had at present or contemplated in the future a battery program for direct dealer merchandising similar to the commission plan olTered by certain tire companies. This suggests that Atlantic was considering limiting the sales commission contracts with Firestone and Goodyear to tires and tubes only, or perhaps to tires, tubes and automotive accessories only, with a separate sales commission arrangement for batteries with a supplier who could furnish a more widely-known battery than the ":Firestone" and "Goodyear" brands. (Actually, Goodyear does not manufacture batteries, but instead purchases batteries marked with the "Goodyear" label from Electric Auto-Lite Company and Gould- National Batteries, Inc.

Favorable replies were received from several of the battery manufacturers, with Exide showing particular interest in such a program. This company s manager for automotive replacement sales responded to the Atlantic inquiry on December 22, 1950: Currently all Exide automotive replacement battery sales to dealers are made througb onr Wholesale Distributors, thus affording prompt delivery through many warehouses.

Your letter of December 15 inquires as to our plans for a commission arrangement to be offered national oil accounts on direct sales to dealers. "\Ve believe that OUI experience with this type of operation in past years should be of great value to you. Therefore. I suggest that immediately after the first of January you arrange for a meeting with interested members of your organization for a complete discussion of the many phases of this subject. Negotiations between Atlantic and Exic1e were never consummated however, and on February 14, 1951 a sales offcial of Exide reported to his superior as follows:

Mr. S. J. Heidman (sic), T. A. manager of the Atlantic Refining Company called today to give me advance confidential information regarding a decision made this morning by top management of the Atlantic Refining Company regarding future handling of T. A. sales to Atlantic dealers. Effective as quickly as the changeover can be made, all T, A. sales to Atlantic dealers wil be handled on a commission arrangement. . . . Eoth Firestone and Good:'ear had pre"\ionsly been approached regarding a plan whereby they would sell tires only to the Atlantic Refining Company accounts on a commission arrangement and had flatly refused such a plan insisting that either the complete program or IlOne be sold by them. ,, . . . : THE GOODYEAR TIRE & RUBBER COMPA1'T ET AL. 331 309 Opinion TEA Manager Heideman submitted a memorandum entitled B.A. Conversion to Firestone & Goodyear Programs" to Vice President Col1ey of Atlantic on March 21, 1951, summarizing the changeover to the sales commission program: On February 14th, the decision was made to swing over to the Commission Plan of T.B.A. marketing effective :\Iarch 1st. It was arranged for three regions (Philadelphia-New Jersey, New England and New York) to market the program of the Goodyear Tire and Rubber Company, and the other three (Eastern Pennsylvania, Western Pennsylvania, and the South) were to market the program of the Firestone Tire and Rubber Company. The split was largely a 1'natter oj regional selection, decided upon by local advantages enjoyed by the respective rllbber companies8 but influenced by staff determinations to have the two rubber companies competlng in different localities for an equal share in the development of the Atlantic dealer s T. A. business. Although this move was sudden, events leading np to it were developed in an orderly fashion over a period of years.

It wil be interesting to review some of the advantages that we enjoy under the Commission Plan. We are relieved of the purchasing function, . . We do not warehouse or deliver any merchandise; we are not involved in the handling of accounts, such as invoicing or credit and collection work; we do not issue catalogs or price books nor do we have to provide point of-sale promotional helps. All of these responsibilities as well as sales training help are assumed by the rubber manufacturers. We assist in the sellng job as well as in the dealer training and merchandising task, and for this effort receive a commission which varies according to class of account and type of merchandise, but has been averaging well over 9%.

We are indeed fortunate in having these two companies competing against One another for a more secure or favorable position with Atlantic. We stand to gain from this arrangement whether we are in a buyer s or seller s market.

We have tried to estimate how onr 1950 actual experience on T.B.A. \vould have compared with the same 'Volume of performance if it were accomplisbed under the Commission Plan. Om T. A. 'Volume excluding the three test (f' istricts amounted to seven and a half milion dollars. Our gross profit ranging from 20 to 30% on the different products amounted to approximately $1 664 000. Estimated expenses chargeable to this operation total $2 071 000. This would indicate a loss of about $407 000. rEmJlhasis added. l\IAP I, below, shows the manner in which Atlantic s marketing area was finally divided behyeen Goodyear and Firestone. Although 3 Whether Atlantic s purcha:-e- ale program was as unprofitable in reality as apPcftred from the accounting procedures used by the 011 company was quegtloned In Ii memorandum from the sale manager of Exlde to the vice.president of thiscompany in February, 1951: The accounting procedure set up by the Atlantic Refining Company was such that expenses charged against T.B.A. sales appeared to make this operation unprofitable. As a rf!sult of this and because the top malJagement of the Atlantic Refining Company believed that their OWII men should pnrticipate oilly in tue sales of lletrolel1ll products, it was decided early In 1950 to tryout the Firestone and Goodyear- sales commission plan. . .

. ......

332 FEDERAL TRADE CO :L\IISSION DECISIONS Opinion 58 F.

the three regions assigned to Firestone constitute a much greater geographical area than do the regions assigned to Goodyear, the TBA sales volume by the two rubber companies to Atlantic dealers and distributors within their respective assigned areas has generally been very nearly the same in every year since 1951, as indicated by TABLE I, below. This table shows that during the first 6 years of Atlantic s operation under the sales commission plan, Firestone sales volume to Atlantic accounts totalled $26,078 095 and exceeded the sales volume of Goodyear by only $105 000. TABLE I.- TEA sales volume by Firestone and Goodyear to Atlantic accounts. and commissions paid thereon, June 1950 through June 1956 Firestone sales Goodyear Firestone I Goodyearvolumesales ' volume commissions commissions 6-50/12-50______ $16. 578 1$458 325 $15, 447 1$43, 8\)41961___.._-------..-----------..-- 445, 808 243, 350 239 250 299, 524 175 890 349, 616 411, 743 404 118 067, 565 050, 381 500 437 469, 784 284 743 867 689 523, 048 452, 083 I!ljjlj :mmm 700,133, 905121 545,562, 936798 296,557 988599 234506 317199 Total______--- 973, 610 26, 078, 095' 544 512 410 749 1 Includes period from April 1950 tbrougb December 1950. NOTE: In 1950, the sales co=ission plan was u.d In only 3 of Atlantic's 34 sales districts. The sales com. mission plan was not Introduced In a1134 Atlantic sales districts until Mar. 1, 1951. In 1952, the first full year in which the sales commission plan was operative in an Atlantic sales districts, combined sales of Goodyear and Firestone TBA to Atlantic dea1crs and distributors amounted to $8 525 506, and the two rubber companies paid a total of $816 691 in sales commissions t.o Atlantic. The success with which Atlantic transferred its O"\"n former TEA sales volume under the purchaseresale plan to Goodyear and Firestone under the sales commission plan may be ganged from the fact that Atlantic s TBA sales volume in 1949, the last fun year of operation under,r the purchase-resale plan, amounted to $6 697 471. In 1950 Atlantic continued the purchase-resale plan in all except 3 of its 29 sales districts, and in that year the oil company s TBA sales volume 'ms $7 581 760. The sale.s gains accruing to Goodyeflr and Firestone as a consequence of their sall's commission contracts with Atlantic were accompanied by a corresponding loss in sales by Lee and Exide even though both companies made vigorous efforts to reta.in the business of Atlantic dealers and distributors after Atlantic s,,'itched to the sales commission plan. Lee opened new factory branches in Hartford, Connecticut: Provide.nce, Rhode Island; and Syracuse, Kew Yark for this specific purpose. All branches of Exide were instructed to make it "their number one job" to solicit the business or Atlantic THE GOODYEAR TIRE & RUBBER COMPANY ET AL. 333 309 Opinion MAP I THE ATLANTIC REFINING CO. .

DIVISION OF MARKETING REGIONS BY TBA SALES COMMISSION PLANS EFFECTIVE MARCH I , 1951 KEY The Goodyear Tire a Rubber Co.

The Firestone Tire a Rubber Co.

334 FEDERAL TRADE COMMJSSIOI\ DECISIONS Opinion 58 F.

dealers and distributors. evertheless, within nine months after Atlantic began sponsoring Goodyear TEA on March 1 , 1951 , Lee concluded that "approximately 25% of the Atlantic Refining Company business will be salvaged this year." Sevcn months after thc changeover, Exide found that it had retained all or part of the business of 22.5 percent of the better Atlantic accounts and all or part of the business of 24.7 percent of the total number of Atlantic accounts. Thus, some 75 percent of Lee-Exide sales to Atlantic distributors and dealers were lost within a nine-month period in 1951 , even though a market survey conducted by the Atlantic Sales Research Section in 1949 had shown that 67 percent of "\tlantic dealers and distributors preferred Lee tires and 79 percent preferred Exide batteries.

Lee s Vice President in Charge of Sales, ylr. W. F. Hinderschei,L complained bitterly to Atlantic about the wholesale replacement of Lee advertising signs at Atlantic stations with Goodyear advertising signs shortly after the sales commission plan was undertaken on a test basis by Atlantic in 1950:

I was under the impression, also, where dealers "anted to continue to bandle Lee Tires throug-h us it would be allright for them to do so and we could stil have our identification on those Jocations, however, I find that even though the dealers continue to handle our tires their stations are identified with competitive signs. For instance, in the Newark District our identification is being taken down and Goodyear wil be erected e,en though the c1eQlel' !:til wants to handle Lee Tires.

TEA sales by Firestone and Goodyear to Atlantic outlets continued to grow, and by 1955, the last full year for which data are available, combined sales of the two rubber companies under their sales commission contracts with Atlantic amounted to $11 263 05i. In order to fully understand the devastating cOlnpetitive effects on manufacturers and wholesalers of TB1 products competing with Firestone and Goodyear which have resulted from the latter t\rO companies' sales commission contracts with Atlantic, however, some further understanding of the functioning of the sales commission system is neccsssary.

lIfechanics of the Sales C01nll ision System. Goodyear and Firestone maintain either company:y owned or franchised wholesale outlets in most of the principal.l cities and in many smaller communities throughout the entire marketing area of Atlantic Refining Company. Atlantic 111markets its petroleum products in the Middle Atlantic States (including parts of Ohio and 'Nest Virginia. ), K ew England (not including Iaine) and the Southern Atlanlie States. As has been sho, this mnrketing territory is subdivided THE GOODYEAR TIRE & RUBBER COMPANY ET AL. 335 309 Opinion into six sales regions, three of which have been assigned to Goodyear and three to Firestone. (See MAP I, supra. In cities and towns where Atlantic retail stations are located such stations are assigned to a local Goodyear distributor (if in Atlantic s New England, New York or Philadelphia-New Jersey sales regions) or to a local Firestone distributor (if in Atlantic Eastern Pennsylvania, Western Pennsylvania or Southern sales regions). The assigned TBA distributor is intended to be the supply point from which the Atlantic dealer will purchase a substantial percentage of his requirements of TEA.

The vast majority of Atlantic s retail service stations are operated by independent businessmen who either own or lease their stations. These dealers not only buy and sell Atlantic petroleum products but also offer TBA at their stations, and in addition perform various automotive services and repairs. Atlantic maintains sales offces throughout its marketing area and elnploys salesmen whose duty it is to solicit orders for Atlantic petroleum products from Atlantie dealers, and to perform other functions for the oil company in its dealings with its service station operators. When orders for petroleum products are obtained, the salesmen cause such products to be delivered to the Atlantic dealers, who pay tor them at time at delivery or at other specified times. The same Atlantic salesmen also act as sales agents for Goodyear or Firestone soliciting TBA orders from Atlantic dealers, frequently accompanier) on their rounds by salesmen employed by either the local Goodyear or Firestone distributors. If TEA orders are obta.ined, such orders are turned in to the appropriate TBA suppliers-the local distributors of either Goodyear or Firestone-who deliver the merchandise and are paid by thc Atlantic dealers. The TBA suppliers, in turn make reports of such sales to the District Sales Offces of their respective companies, either Goodyear or Firestone. Under the terms of the sales contracts between Goodyear and Athlltic and Firestone and Atlantic, Atlantic is entitled to a commission amounting to 10 percent of the net sales value of all sponsored (i. , Goodyear or Firestone) merchandise sold by Atlantic retail dealers, as consideration for the assistance given by the Atlantic. sales organization in obtaining TEA orders from Atlantic dealers. These payments ate made by Goodyear and Firestone directly to Atlantic each month. Atlantic incurs no expense in connection with the purchasing, financing or warehousing of the TBA so supf Atlnntic hru; some 236 ,vholesale distributors, and Is entitled to a commission of 7'/2 percent on purchases of sponsored TEA by these jobbers, compared with 10 percent on purchases by Atlantic s retail dealers. \ ___ ________ __ _ Opinion ;,8 F. plied and has received sales commissions from Goodyear and Firest.one oyer the years equivalent t.o more than percent of the net sales value of all TBA products sold by these rubber companies to Atlantic dealers and distributors.

Tires and tubes comprise the most important of the three companies of the TBA line, accounting for about 70 percent of total TBA sales to Atlantic outlets, with batteries and accessories representing about 15 percent each. Goodyear produces its own tires and tubes, and the more important categories of automotive accessories including tire retread and repair materials, fan belts and radiator hose. Batteries marked with the "Goodyear" label are purchased for resale from Electric Auto-Lite Company and Gould-:Kational Batteries, Inc. , while the following accessories are purchased by Goodyear for resale under' the original manufacturer s own brands: Acceuory Brand. Alanufactarer Spark plugs ACu_-uu_u AC Spark Plug Div. , General Motors Corp.

Oil filters_ ACuuuu Do. Do- Purolator --- Purolator Products, .Inc. Cleaners, polishes, and waxes- du Pont E. 1. du Pont de l\ emours & Co. , Inc.

Cleaners, polishcs J ohmon S. C. Johnson & Son, Inc. Cleaners,Do-polishes- and \\3'\CS- Simoniz_i\Iac Simoniz::Iac s SuperCo. GIos;:, Inc. Radiator chemicals__ du Pont-- -- n- E. 1. du Pont de :!Temours & Co. , Inc.

Do__- - arner - warner- Patterson Co. Auto lamps and bulbs- Westinghouse_ Lamp Division, "\Vestinghouse Electric Corp.

Wiper blades_-- Anco- The Anderson Co. Goodvear s re!lsons for entering Into its sales commission agreement with Atlantic were set forth in a "Confidential" memorandum of Febru:u, 1951 , written by rr. S. A. Gaylor(1, Goodyear s ::bnnger of Sales to oil COlUp:lll ' outl('t \s you know we ha,e recogniz d the desirability of Atlantic distribution for man ears and tbe need for more on company distribution in tbe new territory now assigned to us, which represents more than 50% of the Atlantic T.ll.A. sale and potential.

Earl - last ear when supplies were plentiful and signs for the future pointed to over-production and increased competition, we mutually agreed on the marketing experiment with Atlantic In our respective Newark District territories with 11 commitment for expanded territory 1f' the Goodyear Commission Plan proved successfulwhicb it did.

It Is true that. even at a lat.e date we could have withdrawn from our commitment to Atlantic, however, we would have been out of' the account for keeps and our cOlljJetition (Firestone), which pJaeed no restrictions on moving in, would ha,e the account 100 percent.

. . . The decision of our ::fanagement was made aft.er consideration of aU factors flnd particularly ' because It gale Goodyear the opportunity of entering into a long- term relationship with Atlllltic providing our performance is mtlsfactory. THE GOODYEAR TIRE & RUBBER COMPANY ET AL. 337 309 Opinion The sales commission method of distributing TEA products thus affects competitive relationships among producers and distributors of various products, all linked by but one common factor: the motor vehicle. As a consequence, in order to show the network of unlawful trade restraints and inhibitions permeating the sales cOlnmission system of distributing TEA, it is necessary first to describe the marketing structure of Atlantic and to define the manner in which this company exercises control over its wholesale and retail petroleum distributors, and next to describe how the sales commission plan enables Goodyear to integrate such market control into its own system of distribution.

DISTHlBUTION SYSTEl\I OF ATLANTIC HEFINING COMPANY Atlantic is a major integrated producer, refiner, and distributor of petroleum products. The company was organized in 18f50, and was acquired by Standard Oil Company in 1874. Since the dissolution of the StanchLrd Oil Trust in 1911 , Atlantic has been operated as a separate corporate entity.

In 1948, Mr. S. J. Heideman of Atlantic stated that "Atlantic percent.age of the national gasoline market is 21/2% . . . ; and since the oil company markets its gasoline along the Atla,ntic Coast states and in parts of Ohio and west Virginia only, it may be inferred that Atlantic s share of gasoline sales in its own marketing area is substantially in excess of 2112 percent. Sales and operating revenue of this oil company totalled more than one.half bilion dollars in 1954.

Atlantic markets its refinery products to three major classes of customers: (1) wholesale distributors; (2) retailers (chiefly service stations but including also garages, grocery stores, restaurants with outside gasoline pumps, etc. ); and (3) commercial accounts. This opinion is not concerned with the last-named group, which accounted for 16.6 percent of total gasoline sales by Atlantic in 1\)54, as these accounts arc customers who purchase for their own consumption and not for resale.

Atlantic sold gasoline and other petroleum products directly to some 5 537 retail customers in 1956, and these direct retail dealers accounted for 57.2 percent of total gasoline sales by Atlantic in 1955. Atlantic s direct dealers are of two classes: (1) Lessee dealers who accounted for 39.1 percent of total Atlantic gasoline sales in 1955; and (2) Contract dealers, who accounted for 18. 1 percent of gasoline sales by Atlantic in the same year. Shown below in TABLE II are the numbers of lessee and contract dealers pur- 6R1-2B7--63- , : ___( ___.._.., ....______. _. ......._., ....__.. . _),____ _.. +. ...... . ,_. .. j, , 338 FEDERAL TRADE CO:\fMISSION DECISIONS Opinion 58 F.

chasing petroleum products directly from Atlantic in each of its marketing regions in June, 1956:

TABLE Numbers of dirert le.\see and contract dealers of AU(.niic Refining Co. in June 956 by marketing regions Region Lessee i Contract dealers dealers New England. - .. .......-n-.. ----------- ---------------- ---- 495 220 New York__.--__----------- b'_ 321 263Philadelphia-New Jersey .--_--_un --_--n- --h---- h hA- A- _no. --un 481 640 Eastern Pennsylvanla___ 480 075 Western pennsyl van1!L. - _.-----.------------ ---- ______n 317 725 Southern._.___------------ 399 121 Grand total -- -----_____ --'- - --- ---- -------- i 493 044 Lessee Dealer. The principal characteristic distinguishing lessee dealers from contract dealers is that the former do not own their own business properties, but instead lease them from Atlantic. Lease terms range from three months to three years; most lesseedealers operate under one-year leases, however. The leasehold instrument does not require the lessee to handle Atlantic products but does provide that the prcmiscs shall be used for the operation of a "first-class automotive service station retailing petroleum products and TEA merchandise normally handled at competitive service station outlets." Rental payments by lessees are based on specified percentages of gross monthly sales of all types of merchandise including TBA. These percentagcs arc as follows: o percentn__ ----------- First $500 monthly. 6 percentn_nnn_nn_nn---- - Next $2 000 monthly. 5 percentn h__n_--nn--nnn- Next $2 000 monthly. 4 pcrcentnn_nnn--- n-- ----__n- Xext $2 000 monthly. 3 percentn_nn_n_------------ --- Over S6,fiOO monthly At the time he executes his lease with Atlantic, each lessee. dealer is required to sign a separate document known as an "Eleven Point Lease Letter . This letter defines standards of operation for Atlantic :le,ssee-dealers. Illustrative of these is the standard for " ollsekeeping 1. I-:ousckeeping-Clcan, sanitary pre.mises, inside and out. Other standards set forth in the "Eleven Point Lease Letter" are Use and 1Jpkeep Display Illumination Personnel" Hours of Operation Uniform daily operating schedule based on buying habits of potential trade in the area Services Adequate Inventory Sales Promotion, "Prices, and "Accounting . These standards of operation are implemented by Atlantic not only through the THE GOODYEAR TIRE & m::BBER COMPA)/Y ET AL. 339 309 Opinion surveillance of its sales force, but also by the employment of . 6 Phantonl Customer Inspectors Since its adoption on April 1 , 1958 , the " Eleven Point Lease Letter" has been used by Atlantic to interpret and enforce Paragraph Three of dealer leases which, as noted, provides that". . . the sole purpose and use of the leased premises shall be the lawful diligent and businesslike operation of a first-class automotive service station. . . , thus the "Lease Letter" is an integral part of the lease itself. This is shown by the regularity with which Atlantic warns lessee-dealers in writing that their leases wil be terminated if stated defaults with respect to the provisions of the "Eleven Point Lease Letter" are not remedied within fifteen days. Prior to about August 1958, Atlantic s written agreements with its lessee-Dealers also included an "Atlantic Franchise Agreement" providing for their purchase of motor fuels and automotive lubricants from their oil company lessor under stated terms and conditions. In recent years, only automotive lubricants have been covered by wriUen purchase agreements between Atlantic and it lessees. eVBl'theless, the facts of record clearly establish that Atlantic lessees purchase and resell Atlantic motor fuels exclusively. X otwithstancling the economic power possessed by an oil company as a consequence of being both landlord and supplier to its lesseedealer customers, the powers and responsibilities of an oil company lessee-dealer" . . . satisfCy J all the requirements of an independent enterprise. United States v. gichfield Oil Corp. 99 F. Supp. 280 288 (1951) aff' 387 U.S. 922 (1952). Judge Yankwich' s comments in the Richfield case as to the relationship of an oil company to its lessee-dealers apply with equal force to the instant case: Implicit in the contract is the lessee s assumption of obligation and responsibilty for his own acts upon the premises and those of his employees in their 6 Witness John Chambers, former Atlanttc lessee.dealer who testified in support of the complrLlnt in this proceeding, received the following letter from his former Atlantic District Sales Manager on October 14, H154: Dear John: Our Phftntom Customer Inspector has jm:;t reported to us that you received 11 290 out of a possible 300 on a recent Inspection. This 1s the kind of job which makes us 1111 very happy and certainly Is an important factor in running a profitable service station. Witness Chambers ' lease was subsequently terminated because he refused to go along with Atlantic s pricing policy and because he did not purchase suffcient quantities of sponsored 'l' BA.

7 Here, for example, is a letter dated December 8, 1953 to dealer Michael J. Clifford Baltimore. ::laryland:

1. From observations, we note that your regular hours of operation are such that we believe your market arra is not being properly supplied. 2. We also note from observations that inventories maintained in your station are Dot adequate to serve nonnal customer needs ,vithollt delay. (This dealer s lease was terminated January 4 , 1954, for noncompliance with the above defaults.

340 FEDERAL TRADE CO:M1vIISSIO DECISIONS Opinion 58 P.

relation to the public, who come in contact with them during the time of his dominion. The lessee is not the employee of Richfield. Richfield pays him wages or other remuneration. He must carry his own workmen s compensation. He is not carried on their books as an employee for the purpose of social security taxes or any of the withholding taxes, state or federal, incidental to the employer-employee relationship. Richfield is not required to withhold any moneys from him for income tax purposes. Neither are they required to perform any of the duties just mentioned as to any of the employees who may assist the lessee in the conduct of the station or of any auxilary responsible for his own conduct and that of his employees which may cause damage to the persons or property of others. (99 . Supp. at 288) Contract Dealers. There were 3 044 contract dealers of Atlantic as of ,Tune 1956, and of this number about 50 percent operated service stations (as distinguished from grocery stores, garages, and similar outlets with gasoline pumps on the premises). Non-service station outlets generally do not purchase and resell TEA products; all service station outlets, however, are regarded as potential purchasers of TBA under Atlantic s agreements with Goodyear and Firestone. Although contract dealers either own their own service station theseproperties, or lease them from parties other than Atlantic, dealers are subject to the control of Atlantic as a consequence of various contractual agreements between such dealers and Atlantic. Chief .among these is an agreement having the following principal nrOVlSlOns:

1. EQUIPj\lent LOAN". Atlantic, reserving the right of addition change, substitution. and maintenance, lends to BUYER (the contract dealer) for the purpose of storage and sale of motor fuel purchased solely from ATLANTIC and for no other purpose, equipment that has been installed or which ATLANTIC may install, which shall remain personalty and the property but shall repair andof ATLA TIC, and which BUYER shall not remove, maintain as follows. (Lists equipment.

2. SALE AND DELIVERY. Provides that the contract dealer shall buy a specified number of gallons of motor fuel annually from Atlantic; that deliveries wil not exceed one-eighth of such gallonage monthly; that the contract dealer ' shall order and accept not less than one-twentieth ot such annual gallonage in any calendar month' ; and that the times, roanner and quantities of delivery shall be in accordance with Atlantic s current practice. The agreement further provides that all petroleum products delivered thereunder shall be paid for at prices established by Atlantic. The term of such agreement is generally for one year, and may be terminated by either party at the end of the original or any subse- Atlanticquent term by giving 60 days notice. Upon termination, is entitled to repossess any equipment loaned to the dealer, with or without legal process. If the agreement is cancelled by Atlantic because of breach by the delLler, the dealer must pay a fixed sum to Atlantic as reimllbursement for cost of installation and removal of _ _ __ _ , . . THE GOODYEAR TIRE & RUBBER COMPANY ET AL. 341 309 Opinion the equipment or at its option Atlantic may leave the equipment in place and require the dealer to pay a fixed sum for the value of the equipment and improvements. The equipment most frequently loaned (without charge) by Atlantic to contract dealers includes gasoline pumps, underground storage tanks, compressors, air towers lifts, signs, outside lighting and poster frames. Both lessee-dealers and contract dealers have agreements with Atlantic relating to annual purchases of specified quantities of automotive lubricants, and to the terms upon which credit may be extended by these dealers 10 the approximately 160 000 holders of Atlantic credit cards.

Wholesale Distributo1'. This class of customers purchases refinery products from Atlantie for resale under the oil company s brand munes. Vholesale distributors maintain bulk storage tanks capable of receiving truck deliveries of gasoline from Atlantic, and maintain their own delivery equipment for transporting such gasoline from their bulk storage tanks to retail customers, including service stations. There were 236 wholesale distributors of Atlantic products in 1956, who resold to 2 897 service stations, as shown by TABLE III:

TABLE TII. Numbers of 1.l'holesnlr distrilJlltors of Atlantic Refining Co. , and service sialions wllpplierl by I.hem in June 1956 by ?1wTkeling regions Region Distrib- ServirR. utors stations I\ew EngJanrL 151 ___m 238 Yad ?;l ieis Eastern PennsylvanhL - --- -v.' estern Pennsylvania- - - - - - 410 Suuthern__ 173 GranG total 236 897 Atlantic had wholesale distributors in each of its six principal marketing regions in 1956 with the exception of t.he Philadelphia- "ew Jersey region. (There were 1 121 Atlantic service station outlets in the Philadelphia- ew .Tersey region in 1956, but all were supplied directly by the oil company. ) These distributors accounted for 24 percent of total gasoline sales by Atlantic in each of the years 1951 807 service stat.ions suppliedanc11954. Eight.y-seven percent of the by wholesale distributors of Atlantic in 1956 were in the Eastern Pennsylvania, 'Vestern Pennsylvania, and Southern regions; the remaining 13 percent were in the New England and New York reglOns.

Vholesale distributors are parties to the same type of sales contracts for automotive fuels and lubricants with Atlantic as are , \ 342 FEDERAL TRADE COMMISSIOK DECISIO:-S Opinion 58 F.

Atlal1tic s contract service staJioll dealers. :JIoreover Atlantic has the po"\\'er to change the sources of supply for service station dealers from Atlantic itself to wholesale distributors. During the period from April 1950 to June 30, 1956 \.tlantic reassigned 53 contract service station dealers in the \Vilmington, Dela. are and Baltimore ln.ry1anc1 sales districts from itself to pariieular ,yholesale distributors ill those districts. Atlantic s us of the power to expand a "\\'wholesale clistl'iblltor s retail market by adding to the number of service stations supplied by such distributor in order to induce such distributor to purchase and resell sponsored TDA to his service station customers ,,'as described by ,,,itness Lingenfelser, a salesman for Reading Batteries, Inc. (now the Reading Battery Division of the Electric \uto-Li(B Comp'llY), who testified in support of the complaint.

THE ISSUE OF COEHCION The complaint in this ease chaqres that Atlantic h lS caused it;; various classes of dealers to purchase substantial quantities of Goodyear or Firestone TB;\. through the use of threats to terminate e.ither t.their tenure as lessees (if Jessee- dealers) or their petroleum supply nncl eqni;)ment loan contracts (if contract de:llers). It is concedecl by counsel supporting the complaint. that when \.Jlantic adopted the sales commission system on larch 1 , JD51, all its dealers were informecl by letter entitled "A- Statement of Atlantic s TEA Policy " as follows:

Our sales organization bas been instructed to explain and demonstrate to you tbe many advantages of the new TEA plau. They wil do so with enthusinsm and conviction because they are confident that it wil be nclnlBtng"pons for ou to accept it. HOE'C?:er, you?" acr.eptance or rejection 01 tile pro(!ram is a. mauer ot '!OIl? 01cn choice. (Emphasis added. Kotwithstanc1ing this initial statement of policy by Atlantic repeatt:rl periodically thereafter in form letters sent to its dealers e011n8el supporting the complaint conte,nd that in practice this oiIcially-pl'ocbimed policy has been ignored by Atlantic and that in fact, At1 lntic deniers have been orany advised by sales offcials of the oil company that their continue.d status as At.la.ntic dealers and lessees ,,,ill be in jeopardy if they do not purchase suffcient quantities of sponsored TEA. This contention is supported by the testimony of former At1 lTltic dealers VdlO appeared as witnesses and furthpr reinforced by the testimony of witnesses representing many suppliers of TBA Emgaged in competition wit.h Firestone and Goodyear, who testified that they encountered diffculty in selling TEA to Atlantic deniers beea,use the latter group felt that they were required 10 purchase sponsored TEA ,me! feared reprisal by Atlantic if they THE GOODYEAR TIRE & RUBBER COMP -Y ET AL. 343 309 Opinion purchased non-sponsored items. Testimony of the competing TEA suppbers as to reasons given by Atlantic dealers for not purchasing Lawlorcompebtive TEA ,,- as allowed under the authority of Loewe 235 U.S. 522 (1915). This testimony was received not as proof of the facts 1'ecited, but for the purpose of showing the state of mind of the Athntic dealers. Such testimony is competent to show that Atlantic delders did not purchase a substantial amount of cOlnpct.iUve non-sponsored TEA because of their feeling t.hat they ,,,ere required to purchase Goodyear or Firestone THA. Among the former Atlanbc dealers who testified in support of the complaint, several recounted specific instances in which either express or implied threats of lease cancellation were. made. Other ex-Atlantic dealers testified to incidents occurring during their tenure as Atlantic lessees which made it apparent to them that they were expected to handle either Goodyear or Firestone TEA, and that if they failed t.o purchase suffcient quantities of such TEA, that their relationship wi1,h shell might be terminated.

Typical of the former Atlantic dealers testifying in support of the conlplaint '\as "itncss, r ohn Chambers, who operated an Atlantic station in the Phlhcitdphia area from 1945 1111ti1 :Non'mlJcr 28. 1954. lie gavo this account of the events occurring ,yhen Atlantic changed er from t lip Lee. Exic1e program to the sales commission plan in 1951 :

Q. Mr. Chflnlwrs. referring. . . to the dealer meeting when the switch-over to the Goodyear TIL\. line was announced, were you given any choice as to the brand of 'rra 111rtt w(11l1d be carried by Atlantic? A. No, there m:H: no choice; I mean the company said that they were going from one Vl'nrlllrt which would be Lee and Exide, over to full Goodyear. Thereafte.r, ,witness Chambers commenced purchasing Goodyear TDA from the local Goodyear distributor to whom he had been assigned, a Ir. Parris. From time to time, however: he also purchased TEA products from other suppliers in his area. Among these were the following.

Chester Auto Parts axes and other accessories Chester, Pennsylvania , aV. J. Auto Parts Accessories, including- "Barsleak" Sharon Hil, Pennsylvania radiator sealer C. A. Powers Chester. Pennsylvania Recapped tires, and also some DC\\' (A Goodyear tire distributor) Goodyear tires and tubes 1Vitness Chambers te,tifiec1 that he was criticized by Atlantic salesmen for purchasing accessories fronl wholesalers other than :l\r. Pa.rris, his assigned supplier:

Q. \Were any comments ever made by Atlantic representatives concerning your purchases of accessories from other than Ed Parris? , , , Opinion 5S F. T.

A. Yes.

Q. Would you please state some instances? A. ... the one that is greatest in my memory right now was the Earsleak . . . Joe Connelly was Atlantic (salesmanJ at that time, and Joe would pick it up and say, "What are you doing with this " and he would set it back down. Q. 'Were any comments other than the one referred to made by Atlantic representatives concerning the purchase of TEA from local jobbers other than Ed Parris? A. 'Vhy yes, there was great criticism, shall I say, in reference to outside (i.e., non-sponsoredJ merchandise, Q. Who made these criticisms? THE WITNESS: Why salesmen who represented the company. Q.A. WhichAtlantic.company? Q. Where did these conversations take place between the Atlantic salesmen anda.you?lVIany times over a cup of coffee and sometimes out in the driveway. Q. 'Vould it g-enerally be a private conversation? A. If it was to be of that private nature, yes. Q. .Well, when it was a criticism, was it generally of a private nature? A. It was never done openly.

Subsequently, in November 1054, witness Chambers was notified tlmt his lease w0111d not be extended beyond December 31 , 1954. He discussed this with :\ir. Parris, his TEA supplier, "ho was also a former employer of witness Chambers:

Q. . . what was the substance of your conversation with Mr. Parris? A. I asked, "what in the world happened, what could I do." He said Jack yon have been turned ill by three (Atlantic) . . . salesmen for buying outside merchandise," I said ",Vho?" He said Connelly, J\fuldoon, and Petrison turned me in for buying outside merchandise, The above tes6mony must be assessed in the light of that given by Mr. Glenn L. .Wetzel, President of Chester Auto Parts, Inc., of Chester, Pennsylvania. I-lis company sells automotive parts, batteries and accessories (bljt no tires) at wholesale. Witness 'Vetzel .!;ave this account of his conversation with witness Chambers: Q. Do you recall any other conversations with other Atlantic dealers or Sinclair dealers, along similar lines? A. Yes. ,Tohn Chambers.

Q. Please state the time as nearly as you can, the place, and what was stated.

A, I would approximate the time as about 1953, possibly 1954. I wouldn know exactly any more. But it was to the effect that he had to stop buying a Atlantic regarded witness Chf1mbers as an excellent service station operator, as is shown by the Jetter to him of October 14 , 1954 , quoted supra, note 6. This letter commendation was received by witness Chambers just one month before he received notification that his lease would be terminated. , . . , THE GOODYEAR TIRE & RUBBER COMPANY ET AL. 345 309 Opinion from me. He was told that he was buying too much on the outside from outside distributors, meaning V. J. Auto Parts and myself, which were specifically named.

Q. JSow wil you please state what the conversation was? A. Jack said to me: "Glen, I am going to have to stop buying from you. I ha,e been 'yarned that if I don, I aIQ going to be rcmovcd from this station. They are goinj; to ive me the ax." And two months later be got the ax. Further testimony as to the state of mind of witness Chambers in 1953 and 1954 was given by witness .Joseph Marabella, a partner in the firm of V. .J. Auto Parts Company, Folcroft, Pennsylvania. Mr. MarabeJla testified as follows:

Q. ADd did you solicit Bars Leak (sic) business from Mr. Chambers when he was an Atlantic lessee-dealer? A. Yes sir.

Q. And what ,,as your experience with respect to the sale of Bars I eak to ':1 r. Cham bel's? A. 11y, well, business relations and experience with Mr. Chambers had been the same as with other gentlemen I have mentioned, enjoying good business relations, good sales on Bars Leak, up until the time he was told to remove it from his shelf Later, witness Marabella tried to sell Mansfield tires and tubes to witness Chambers and to another Atlantic dealer named Booz: A. 'Veil, in the latter part of 1954 with r. Booz, Elmer Booz, Wycombe Avenue and IcDade Boulevard in Darby, I along with a Mansfield tire representative went in to solicit some of Mr. Bozz' tire business, He said Joe I'd be glad to buy ihem on a fill-in basis, but you know I cannot put anything in here but Goodyear tires and Goodyear tubes." And that was the extent of the conversation.

Q. Do you recall any other conversations with Atlantic dealers along similar lines? A. Jack Chambers, we solicited him the same day at his station which was Clifton A venue and Chester Pike in Sharon Hil, in his offce, told he was sorry to waste our time hut more or less the same answer, that he couldn t put anything hut Goodyear in there. Documcntary evidence taken from the fies of Atlantic reveals the vigor with which Atlantic carried out its campaign to replace Lee tires and Exide batterics with Goodyear and Firestone TEA products. The minutes of a meeting of Atlantic s Regional TEA coordinators held on October 21 , 1951, reveal that as of that date New England reported that approximately 98% of their accounts have been signed all a Goodyear program and that they are getting nbollt 75% of the tire business they formerly enjoyed from these accounts. cw York reported that they had about 96% of their accounts signed on a Goodyear program and that they were getting 346 FEDERAL TRADE COMMISSION DECISIO Opinion 58 F.

about 65% of their former tire business. . . . " By December 24 1951 , an Atlantic report showecl that virtually a1l Atlantic dealers in Goodyear s assigned territory who were potential purchasers of TBA had signed contracts agreeing to handle Goodyear products. Accompanying the campaign to sign Atlantic dealers to Goodyear contracts was a drive to install Goodyear signs and advertising materials in Atlantic stations throughout Goodyear s assigned marketing areas. This is an excerpt from a letter of July 30, 195L from At.a,ntic s TEA sales manager. 1\11'. I-Ieidemrm. to anotllf':T Atlantic oflicial:

I asl\:ed 1\r. O'Neil of the Goodyear Tire & Rubber Company to supply rr, with a list of the Atlantic dealers in the Philadelphia Region who refused to be identified on the Goodyear Program. Attached is a list of 46 dealers who for reasons, indicated, have refused this service. You wil probably wish to review the respective portions of this list with the Distrid :\Ianagers concerned. Undoubtedly, facilties for identification are not the best at some of these locations, but with the others it is apparent that the proprietors have not been sold to the Goodyear program. In such instances. I beheve that additional sales effort is caned for, In any event, would you be kind enough to advise me at your convenience what action you have taken ,with regard to this list.

Mr. Heideman followed this letter up himself on August 21, 1951 with a letter to Mr. S. A. Gaylord, Manager, Petroleum Sales Department, of Goodyear:

I wonder if you can furnish me promptly with a report on the progress of the subject program. I should like to have this information broken down by our regional territories. As I understand it, the signs are being erected by Goodyear crews, but the decals are being erected by outside agencies. Furthermore, at the present time when we locate an Atlantic dealer who is \vithout any Goodyear identification or without one or the other signs or decals, we do not know whether an unsuccessful attempt has been made to complete the assignment or \1'whether all or part of the job, whatever the case may be, is scheduled for attention.

\Ve should like to interest ourselves in the cases where an unsuccessful attempt has been made to provide the Goodyear identification. Perhaps this information could be made available to us in simplest form by stating the Atlantic District areas that have been covered by either sign crews or agencies that are applying the decals, and by supplying us a list of the dealers where attempts to erect decals or signs were unsuccessful. I have already received a list of this type for the Philadelphia and Sonth Jersey areas, and this has been referred to ani' District Managers for further attent.ion. However, I do not know if this is a partial or complete list of the dealers in that territory who could not be identified \with Goodyear signs. Atlantic s " sales efforts" met with complete success, for the entire I'roup of 46 recalcitrant dealers referred to ;n Mr. Heideman letter of ,July 30 was thereafter signed to Goodyear contracts and THE GOODYEAR TIRE & RVBBER COMPA1-Y ET AL. 347 309 Opinion Goodyear advertising signs "ere installed at their stations. The letter of complaint from Lee Rubber and Tire Corporation to Atlantic over the question of removal of Lee advertising signs frOlTI Atlantic stations has already been referred to, supra at page 15. And on March 5 , 1951, Mr. E. "IV. McCreery, another Lee vice president, stated in an intracompany memorandum referring to the Atlantic sales regions assigned to Firestone: In anal:-zing sales.men s reports on their calls on Atlantic accounts and with other information that we have, we are doubtful that many of the #2 type stations wil stay on Lee tires. Because these stations are leased from Atlantic, some on a mOllth-to-month basis, others on 90 days or longer basis, they are not in a position to take an independent stand and as a result will probably find it expedite,t to handle Firestone tires. In onr opinion, the documentary evidence in this record only a fraction of "\\'which is referred to above- nnd the testilllony of the various representatives of suppliers of TEA competing with Goodyear and Firestone previously advcrted to lend crede,nce to the testimony of the ex-Atlantic dealers who gave evidence in support of the complaint in this proceeding. 'Ve affrm the heating exa.miner finding that agents of At1rmtic have in fact coerced a substantial Hnmber of Atlantic dealers to purchase substantial quantities of Goodyear and Firestone TBA, and that Atlantic has accepted the benefits of such coercion in the form of sales commissions. Respondent Atlantic cites United States v. J. I. Case Co. 101 F. Supp. 856 (D.C. Minn. 1951) as authority for the proposition that the hearing examiner erred in concluding that Atlantic has coerced a substantial number of its dea.lers in violation of Section 5 of the Federal Trade Commission Act.. This District Court opinion is commonly regarded as a notable exception to the trend of decisions dealing with the subject of exclusive dealing. 9 But we need not dwell on theOase decision, since the subject of coercive practices has received careful scrutiny from the Sevcnth Circuit and from the Supreme Court in a line of cases in the field of automotive financing. In United States v. General Motors Corp. 121 F. 2d 376 (7th Cir. 1941), General Motors and its affliates, General Motors Sales Corporation, General :VIotors Acceptance Corporation, and General :\Iotors Acceptance Corporation of Indiana, Inc. , appealed from a conviction of criminal conspiracy in violation of the Sherman Act. The indictment charged that these defendants had conspired to coerce franchisecl dealers of General :\Iotors Corporation to fmance their purchases and sales of automobiles through Generall\Iotors Accept- 9 Robfmon Prrn;irlil1 Q jor Orderly Marketing of Goods 15 A. A. Antitrust See. 282 308 (1959).

348 FEDERAL TRADE CO=ISSION DECISIONS Opinion 58 F.

ance Corporation. In affrming the criminal convictions, the court stated:

The record leaves no doubt that the dealer body as a whole was made acutely aware and had knowledge of the set policy of the appellants with respect to the use of G::IAC financing facilties. The fear of cancellation or refusal to renew contracts was great, so much so that the dealer was reluctant to refuse the terms and policies dictated by the appellants. Approving the trial judge s instruction to the jury in the General 11 motors case, the Supreme Court stated in Ford 11 motor 00. v. United States 335, U.S. 303 at 316-317 (1948):

. . . Their plain effect is to draw a line between such practices as cancellation of a dealer s contract, or refusal to renew it, or discrimination in the shipment of automobiles, as a means of influencing dealers to use GMAC. all, of which falls within the common understanding of "coercion " and other practices for which "persuasion exposition" or "argument" are fair characterizations. vVe are of the opinion that the record contains ample evidence to support the hearing examiner s finding that Atlantic has coerced a substantial number of its dealers to purchase sponsored TEA. However, we regard these overt acts of coercion as mere symptoms of a more fundamental restraint of trade inherent in the sales commission itself. The more dramatic and immediate impact of this system, to be sure, is upon retail service station dealers of Atlantic and other oil company dealers similarly situated. Their freedom to buy and sell as independent merchants is shown to be less complete in practice than in theory. Yet from the point of view of the antitrust laws it is the competitive effects of the sales commission system on competitors of Goodyear and Firestone which raise the most grave questions in this proceeding.

We turn, therefore, from an examination of the restrictive effects of the sales commission system upon service stations as buyers of TEA to an assessment of this system s impact upon wholesale and retail distributors of TEA engaged in competition with wholesale and retail distributors of Goodyear and Firestone. Preliminary to this inquiry, however, it will be helpful to have a more detailed understanding of the manner in which the sales commission plan enables Goodyear to integrate its own nationwide distribution system the economic power possessed by Atlantic over its wholesale and retail petroleum outlets.

Tl-IE SALES CO)IMISSIOK PLAN IN GOODYEAR S SYSTEl\I OF DISTRIBUTION Goodyear is the largest manufacturer of rubber products in the United States, with net sales of more than one billion dollars in 1954. The company has tire and tube factories located respectively in THE GOODYEAR TIRE & RUBBER COMPANY ET AL. 349 309 Opinion the states of Ohio, Alabama, .:fichigan, California and Kansas. There arc 57 Goodyear warehouses across the land, and Goodyear tires tubes and accessories are distributed to wholesale and retail distributors through these warehouses. Batteries, because of the weight factor, are not warehoused by Goodyear except for emergency needs; all Goodyear wholesalers order "Goodyear" batteries directly from the factories of the two companies which produce "Goodyear" batteries under contract: Electric Auto-Lite Company and Gouldational Batteries, Inc.

Goodymlr has approximately 500 company-owned and operated retail stores throughout the United States, and these stores also sell at wholesale. Apart from such company stores, there are more than 000 independent franchised stores sellng Goodyear products at wholesale and retail and an unknown but very substantial number of firms not franchised by Goodyear but which purchase and resell Goodyear merchandise in the same lnanner as franchised Goodyear dealers. Franchised dealers arc sometimes referred to as "direct" accounts, and non-franchised dealers in Goodyear merchandise are sometimes referred to as "indirect" or "associate" accounts. All direct Goodyear accounts, which include independent franchised Goodyear dealers, wholesale petroleum distributors of Atlantic and some retail petroleum dealers of Atlantic, execute a franchise agreement with the Goodyear Company itself, and purchase Goodyear products from the nearest Goodyear District Sales Offce. Indirect, or associate Goodyear dealers do not have contracts with the Goodyear Company and do not purchase Goodyear TBA from the Goodyear District Sales Offce. Instead, they usually execute a Goodyear Associate Dealer Agreement" with the particular Goodyear wholesaler to which they are assigned. Such wholesalers may be either a company-owned store, a franchised independent dealer of Goodyear, an Atlantic wholesale petroleum distributor, or an Atlantic retail petroleum dealer. Indirect, or associate, dealers normally purchase from the wholesaler to which they have been assigned, and normally pay higher prices for merchandise than do direct dealers of Goodyear.

Jlost service station customers, including Atlantic stations, are classified as indirect or associate dealers by Goodyear, although, as noted, some Atlantic stations are direct dealers of Goodyear and function as supply points to other Atlantic stations which are merely associate dealers. (The term "supply point" is used by respondents to refer to the 10Clll TEA supplier to which local Atlantic stations have been assigned. ) A number of Atlantic wholesale distributors of petroleum products also function as supply points for Goodyear and distribute TEA to the same retail stations which the wholesale Opinion 58 P.

distributors supply with Atlantic petroleum products. A supply point, then, is local dlOlesaler of Goodyear TEA, although it may also be a retail dmller of Goodyear retail detaJer of Atlantic, or a wholesale distributor of At1alltic as well. In t.he three marketing regions of Atlantic assigned to Firestone, the same classification of Atlantic dealers into direct and indirect accounts of Firestone is found as is described above with respect to Goodyear, and in all other material respects the sales commission plan between Atlantic and Firestone functions in substantially the same manner as does the sales comnlission plan bet\\'een Atlantic and Goodyear described herein.

An integnd IJ'.rt of the Goodyear- Atlantic and Firestone-Atlantic sales commission plans is the assignment of allocation of each Atlantic retail outlet to specific supply point design ted by Goodyear or Firestone. ,Vhen a ne,,, Atlantic station is opened, or when a ne" dealer l'e,places fL retiring operrttor, Atlantic report.s to Goodyear (or to Firestone, as the case may be) the name fl1d address of the nm, Atlantic dealer or an appropriate Goodyear (or Firestone) form. The Goodyear (or Firestone) District :\Ia.nager then assigns this outlet to a specific supply point and notifies the supply point and the \Jlantic outlet of the a,ssignment which has been Inadc. No sales commission is paid to Atlantic unless Atla,ntic purchases from t.he designated supply point to v. which it has been assigned. In other words, even though an Atlantic dealer pure-hases Firestone or Goodyear TI3A exclusively, unless he buys from his assigned supply point Atlantic receives no sales commission. One rea,son ,,-hy Goodyear does not pay a, sales commission when TEA merchandise is purchased by an oil company dealer from someone other than his a.ssigned supply point \..as set forth in a letter related December 19 , 1951 addressed to an offcial of shell Oil Company, and signed by the Baltimore District :Manager of Goodyear:

I am returning to you, unsigned, two G-1209' s which request that G. D. Armstrong Co., Inc., of Laytonsvile, Md., be approved as a supplying dealer for Laurel Park Servicenter at Laurel Park, Md., and Bowie Shell Service at Howie, :Md.

My reason for taking this attitude is the fact that we very definitely discourage our dealers from sellng Goodyear tires outside of their authorized territory, and in servicing either Laurel or Bowie, the Armstrong Company are out of their territory.

A situation of this kind, of course, presents us with a seriollS problem for llatmally, we are not in a position to dictate to any good dealer exactly where he may sell the merchandise which he purchases from us-all we can do is asl;: that they remain within the boundaries which we establish. However. in the case of oil company stations where we have already authorized and THE GOODYEAR TIRE & RUBBER COMPANY ET AL. 351 309 Opinion 'itablished an ample number of supply points, all with good service, we cannot pay the oil company in question a commission on merchandise delivered by a dealer who is operating outside of his territorial boundaries. Although in some cases Atlantic dealers arc assigned to more than one supply point of Goodyear, in none of Atlantic s marketing regions are At.a.ntic dealers assigned to supply points of both rubber companies. For, as has been shown, Atlantic s sales commission contract ",ith Goodyear is confined to the company s New England, Nmv York a.ncl Philadelphia-New Jersey sales regions, whereas Atlantic sales commission contract with Firestone is operative only in the Eastern Pennsylvania, \Vestern Pennsylvania and Southern sales regions of the oil company.

A reporting technique has been established ",hereby Atlantic ITlay determine the exact amount of sponsored TEA purchased by each Atlantic outlet from its assigned supply point or points each month. As both rubber companies use substantia.lly the same reporting procedure, only the one used by Goodyear need be described in detail here. Once every month each Goodyear supply point submits a report to the Goodyear District Sales Offce for his district, showing his sales of TEA during the past month to each Atlantic outlet assigned to him. O The Goodyear District Sales Office then compiles these reports into a master list, showing TEA purchases by each individual Atlantic dealer from his assigned supply point during the past Inonth, and sends copies of this list to Atlantic and to Goodyear home offce in Akron, Ohio. Although these forms provide the basis for computation of sales commission accruing to Atlantic each month they also afford Atlantic a means of determining the volume of sponsorcd TBA purchases by individual Atlantic dealers during that time.

A different procedure is followed with respect to TBA purchases by wholcsaJe distributors of At.lantic (including, as indicated by footnote 10, supra, Athmtic retail dealers functioning as supply points). .Wholesale distributors purchase directly from thc Goodycar or Firestone district offces, and then resen such TEA to their retail dealers. Some 2 897 Atlantic retail outlets were supplied by wholesale distributors in 1956. Atlantic receives a 7V2 perce,nt sales commission on th( net sales value of all sponsored TEA purchased by wholesale distributors, but no additional sales commission is paid when such purchased TBA is resold to retail dealers supplied by the ",holesa.1e distributors.

10 One exception Is Atlantic service stations acting as supply points. A 7-1/2 percent commission is paid b ' Good ear to Atlantic on the net sales value of TBA pm.chases by these Atlantic supply point defilers, and, consequently, no further eomllis ion is prJid by Goodyeltr on the resale of merchandise by !'ueh Atlantic supply point;; to otbf'r Atlantic st;, tiOD!' supplied by them. 352 FEDERAL TRADE CO ISSION DECISIONS Opinion 5R F.

Goodyear has sales commission contracts with a number or other market.ing oil companies, and these agreements arc in all material respects identical with the Goodyear-Atlantic contract. Total sales by Goodyear under its salos cornrnission contracts with such other oil companies, including Shell Oil Company and D-X Sunray Oil Company, increased from about $16 700 000 in 1951 to about $36 105 000 in 1955, with sales commissions paid thereon by Goodyear increasing from approximately $1 600 000 in 1951 to approximately $3 300 000 in 1955. The evidence of record in this case shows that oil companies other than Atlantic have employed coercive tactics in requiring their dealers to purchase Goodyear TBA. "Witness S. K. Osborn, for example, was a Sinclair dealer for 20 years, from May 1936 until l\fay 1956. He WRS also a distributor of Firestone tires and could therefore purchase Firestone tires at lower prices than Goodyear tires. He testified that he stocked Firestone tires exclusively at his service station until 1948, at which time he was given a notice of lease cancellation:

A. It was a few days after I got the lease cancellation. I was disturbed about it, and I wanted to find out what it was all about. I called up the company and finally got an interview with Mr. Weller, and Mr. McCauley ISinclair offcialsJ . . . I asked them why I was getting a lease cancellation. They told me that I 'wasn t doing the right things by them, that Goodyear tires, batteries and accessories were just as much Sinclair products, just as important to the company, as Betholine gas, Sinclair Gas, whatever they were marketing, and Opaline uil. And I promised to go along with their wishes. I gave them an order for Guodyear merchandise. In a few days I had a new lease. Q. You say you gave them an order for Goodyear TEA merchandise. Do you recall the approximate amount of the order? A. A thousand or more dollars worth.

In order to keep his service station lerlse, therefore, this Firestone distributor was placed in t.he anomalous position of having to purchase Goodyear TBA a competing brand, in order to maintain his ::tat.us as lessee of a. Sinclair service station. witness 1:ac Iasters, who operated Another former lessee-c1dealer a Sinclair station from 1944 until 1954, testified that he purchased Bowers batteries for resale at his station up to sometime in 1947 or 1948. At that time he was sUlmnonecl to a conference with top- Jeve! Sinclair personnel at the oil company s offces: A. 'Vc went into a conference room, some sort of conference room that bad quite a large table. They put me on one side of the table, and the other three down the other side.

, to make the conversation short, Mr. ::lcCauley was in a hurry add he said We wil make this brief, Mac. You are not buying batteries from us. nln Osborn v. Sinclair Refining Co. 286 F. 2d 832 (4th Cir. 1960), the Court of Appeals held that the facts recited above by witness Osborn constituted an unlawful tying contract 'VIolative of Section 1 of the Sherman Act. , THE GOODYEAR TIRE & ReEBER COMPA-'! ET AL. 353 309 Opinion I said, "No, Mac, I can t buy batteries from you. I owe an allegiance to Bowers because they took care of me during the war and immediately after the war, and I promised them if they would help me so I could remain in business satisfactorily, that I would see that they maintained and kept the business, And his almost exact words \were We don t give a good God damn who you think you owe, you are going to buy our (Goodyear) batteries or else, And that was the end of the meeting, :Many other advantages accrue to Goodyea.r, and Firestone as well as a consequence of their sales commission contracts with oil companies. A prime advantage is participation with each oil company sales force in a number of joint merchandising programs. This advantage commences with the selection of persons to operate newlyopened service stations or to replace outgoing dealers in previouslyoperated stations. A continuing responsibility of Atlantic salesmen is to help newly-recruited dealers get established. Through these salesmen, the local Goodyear or Firestone supply points are notified of the names and addresses of new de"lers before they actually take over operation of their stations a, , as a result, before local competitors of Goodyear and Firestone in any community become aware of a new dealer s identity. This policy was implemented by a memorandum of April 25, 1952, by Atlantic s TBA Manager Heideman to Atlantic personnel:

Station Openings. 'Ve ask that you instruct your District to establish, as a regular practice, automatic and advance notice to the Goodyear District Offce of the openings of any De\V stations, or of change in proprietorship at any dealer location. Such notice wil be mutually beneficial to both Goodyear and ourselves. It wil enable Goodyear to complete any unfinished business with the outgoing dealer and, further, wil enable them to anticipate and to move promptly in handling the new dealer s requirements. The importance of advance notification is indicated by the fact that the initial stocking order of TBA costs approximately $1 000for large stations the amount may be much greater. And Atlantic turnover of dealers is high. During 1955, 720 lessees of Atlantic ceased operation and had to be replaced, representing a turnover of about 29 percent of the oil company s total number of lessee-dealers in that yea". Moreover, during the period March 1950 to Jnne 1956 389 new Atlantic st.ations commenced operations. Frequently these ne,\' or replacement dealers have recently completed Atlantic training schools in which Goodyear and Firestone TBA were used in demonstrations, and have already formed biases in favor of one or the other brand. I-Iowever, the new denver has no choice as to which of the two bmnds he will purchase and display-if this station is located in the three Sales Regions of the company in which Goodyear is sponsored, then he must take Goodyear TBA, and if his station is 681-237--63-- 354 FEDERAL TRADE COM:MISSION DECISIONS Opinion 58 F.

located in the three Sales Regions of Atlantic assigned to Firestone then he must take the Firestone program.

Numerous other examples of joint merchandising programs favorable to the rubber companies having sales COIDlTlission agreements with Atlantic could be cited. Although Atlantic offcials stated in an intra-company memorandum shortly before the inception of the sales commission program that "Practically all sales promotional expenses (wil beJ assumed by supplier (GoodyearJ," Atlantic aggressively assists in carrying out the Goodyear program in various ways. For example, Atlantic salesmen obtain TBA orders from dealers and send them to local Goodyear supply points, recom. mend minimum Goodyear TEA inventories to dealers, coordinate special Goodyear promotional programs with raelio, television, ann other forms of advertising by the Atlantic company and its dealers, and assist dealers in arranging Goodyear TEA displays. Atlantic credit card facilities are also available to motorists wishing to purchase Goodyear TEA products from Atlantic stations. 'Without doubt, hmycver, the most effective joint merchandising tactic is dual solicitation, or "double-teaming. " This refers to the practice of an Atlantic salesman accompanying a Goodyear or Firestone salesman in calls upon service station operators to urge thenl to purchase sponsored TEA.

Gooc1year s heavy reliance upon double-teaming to convert Atlantic dealers from the Lee-Exide program to Goodyear TEA was set forth in a "Confidential" memorandmll of February 27 1951, from ::11'. S. A. Gaylord manager of the rubber company sales commission programs 'with oil companies, to Goodyear District Thfanagers located within the three Atlantic Sales Regions assigned to Goodyear:

You ha,e been advised of the Sales Organization Meetings (between Goodyear and Atlantic sales personnelJ. 11r. )IcConky (Goodyear Xortheast Division lHanagel'J wil keynote for his Division. He wil welcome the opportunity and pledge strong support and cooperation. No doubt he wil stress the importance of Atlantic and Goodyear personnel getting acquainted and teaming up together ,,,hen I)resenting the Goodyear franchise to Atlantic dealers. Because the Atlantic salesman has the ' , bnt cannot be expected to know the Goodyear story at the start, so by team work the Goodyear Sales Representative wil make the presentation and also assist in training the Atlantic Representative. Two purposes wil be accomplished by this teaming activity-first the Atlantic salesman wil learn the basic details of our Franchise Presentation and, secondly-onr Goodyear salesman wil be very favorably introduced to the account through the sales influence of the Atlantic Representative, also bring up this point with your men.

THE GOODYEAR TIRE & RL BBER COMPANY ET AL. 355 309 Opinion Thereafter, on August, 1951 , a Goodyear offcial wrote to Atlantic s TEA Manager :\1r. Heideman:

Having reviewed your letter of July 30th, I am pleased to outline below for your consideration steps that I suggest be followed in the handling of a new Atlantic Dealer on the Goodyear T. A. Program: 1. Arrange for double team contact by the Goodyear and Atlantic salesman. Kine additional steps were outlined in this letter of August 7 Batteries and Acces-the fifth being to "Take stock order (Tires, , tiressories)" and the sixth being to "Furnish init.ial price lists batteries and accessories." Goodyear thus appeared coniident that the presence of an Atlantic salesman together with the Goodye"r representative would render unnecessary any higg1ing or haggling over price before obtaining an intitia.1 order for TEA from Atlantic dealers.

Simibr confidence in the effciency of double-teaming activity was expressed in a memorandum setting fort.h action to be taken introduce the sales commission plan to Atlantic outlets in the three Sales Regions assigned to Firest,one:

Double-teaming activity with Firestone and oil company salesmen in then S'hedulcd in order to sell the oil company s dealers on the Commission Plan. Atlantic s Vice President, :\Ir. D. T. Colley, inaugurated the sales commission program on 1Iarch 1 , 1931 , with the following letter to the oil company s sa.1es force:

I am sure tllat the new 'l'.B.A. program whicl1 we have carefully selected has so mall:! advantap;es that it wil not be diffcult to convince Atlantic dealers and distributors of its superior merit. This job is to be done with the use of all sales equipment and know1er1ge that we, or our suppliers, have at our respecti e commands. I e.'vTJect the results of our salesmanship to be highly ucces8!ul.

Yon can appreciate the fact that under no circumstances are our dealers to be made to feel that they must buy this new program just because they are Atlantic dealers. The sales you make must be made on the merits of the program and your abilty to sell the dealer on its advantages to him. .Any evi.dence tha,t coercion or misrevrescntation were used in securing acceptance would be most embarrassinq to 01tr company. This program is a challenge to your sales abilty. I am confident that you wil do a fine sellng job. (Emphasis added. J as These quotations reflect the belief of Goodyear and Firestone, well as Atlantic, that the presence of an Atlantic salesman is the "almost indispens"ble ingredient needed to insure the success of the two rubber companies in sellng their TEA products to Atlantic clear.lers under the sales commission plan. Perhaps one reason for this is that the annual evalu"tion by Atbntic s"lesmen of their respective lessee-de"lers c"rries subst"ntial weight with District J\an- FEDERAL TRADE COMMISSIO DECISIONS356 Opinion 58 F.

agers of Atlantic when the latter group make decisions as to extensions of dealers' leases for another year. Although respondent Atlantic has made vigorous efforts to create a record image of the typical Atlantic lessee-dealer as a stoutly independent businessman able to close up shop as an Atlantic lessee on Saturday night and reopen down the street in a Sinclair or an Esso station the following Ionday morning, the record as a whole suggests that this is a roman6cizecl picture of a small businessman who is more often than not, in a woefully weak bargaining position vis-a-vis his oil company lessor.

The typical lessee-dealer s dependence upon his lessor-supplier is explained by the following facts: The cost of constructing an average Atlantic service station is about $50 000. Few men who becomo service station operators have this anlOlmt of money-many have aslitt1e as $1 000, and very few have as much as $15 000. Most marketing oil companies, therefore, build a substantial portion of their own stations and lease thenl to operators. The lessee-dealer uses his own capital to purchase an initial inventory of petroleum products, TBA and tools and for other expenses incurred in commencing operations. It is frequently necessary for incoming dealers to borrow several thousand dollars from Atlantic in order to purcha,se these initial stocks of goods. Kor is the income of the typical lessee-dealer suffcient to cnable him eventually to purchase his own station. Although an exceptional dea1cr with an unusually high-gallonage station may earn as much as $20 000 per year, the average annual net income of Atlantic dealers is in the range of 6 to 10 thousand dollars. But no matter how long an operator may remain as lessee, and no matter how much he strives to establish goodwill in his community, the time may come when his lease is not rcnewed Tor anyone oT a number aT reasons or ror no reason at all except that the lessor would prefer to have someone else operate that particular station. J\hny of the control devices available to Atlantic in its relationship with lessee-dealers are also applicable to contract dealers. Many of the latter are indebted to Atlantic, and most of them lease storage tanks, gasoline pumps and other equipment from their oil company supplier. These equipment leases specify that such equipment may !lot be used for storage or sale of petroleum products purchased from any supplier other than Atlantic. And serious inconveniences would be caused Tor any contract dealer whose petroleum supply contract was not renelved from year to year.

THE GOODYEAR TIRE & RUBBER CQ:\PANY ET AL. 357 309 Opinion Service station operators are understandably susceptible to the urgings and recommendations of their oil company suppliers and lessors in the matter of TEA. The Goodyear salesman encounters less buyer resistance on the part of such a customer when an oil company salesman is standing nearby adding his endorsement to the sales presentation of the Goodyear representative. The technique of dual solicitation ("double-teaming ) thus symbolizes in microcosm the competitive effects of the sales commission method of distributing TBA when introduced throughout the entire marketing area of a major oil company. It is to these ma,rocosmic effects that we now turn.

CO)IPETITIVE EFFECTS OF THE SALES COMMISSION PLAN AT THE l\IANUFACTURING, WHOLESALE AND RETAIL LEVELS A glance at MAP I, supra, suffces to show the competition between Firestone and Goodyear in selling to Atlantic oil company accounts has been wrecked by the operation of the sales commission system. But other evidence of record is available in abundance to illustrate the same point. The following is an exchange of correspondence between Atlantic and Goodyear concerning Republic Oil Company, a wholesale distributor of Atlantic products in Pittsburgh, Pennsylvania. (Atlantic s "\Vestern Pennsylvania sales region, it will be recalled, is assigned to Firestone.

On August 2, 1951, Mr. E. C. Sauter, District Manager of Goodyear in Pittsburgh, addressed the following letter to Mr. F. ,V. McConky, Jr., Manager of Goodyear s =,northeast Division: Republic Oil Co.

This is a Pittsburgh concern who are acting as distributor of Atlantic products in parts of Pennsylvania and Northern West Virginia. The retail division of this company operates about seventy five (75) service stations. 'they have never gODe into a TBA program and at present have no tire hook-ups. They are in process, however, of trying to get a deal with one of the major tire companies and would like to entertain a proposition from Goodyear whereby we would sell their stations direct or through supplying dealers at a price wbicb would be in line with each outlet' s volume with an override to the oil company.

12l\'fany service station operators and TEA dealers use the term "override commls. slon " or " overriding commission" in referring to payments by a. TBA manufa.eturer to an 011 company such as thosr. made by Goodyear and Firestone to Atlantic. However Its respondents and their witnesses usually use the term " sales commission" to refer to "ncb paymCllts, we are using " sales comIlisslon" in this opinion. 358 FEDERAL 'trade COMMISSIOK DECISIONS Opinion 58 F.

Possibly we could use this additional distribution in the Pittsburgh area particularly on passenger tires and tubes, so if you are interested possibly we ;.should take the matter up with Petroleum Sales for their comments. Thereafter, on August 3 , 1951 , the matter was referred by Mr. IcConky to Mr. S. A. Gaylord of Goodyear in Akron: Tlle attached from Eddie Sauter regarding Republic Oil and the possibilty of their handling our products is a matter, in my opinion, for Akron decision inasmuch as they (meaning Republic Oil) are distributors of Atlantic products. I don t \vant to spend any time lining up with these people if for example Atlantic Philadelphia would prefer they handle Firestone, since this is the tire being handled by Atlantic in that area.

Of course, I am not acquainted with the influence Atlantic might be able to bring to bear in forcing these people to a decision as to the line of tires that they-Atlantic-would like them to handle, At any rate, 'wil you explore this from a management standpoint and advise so we can proceed according to Atlantic s desires. On August 9, 1931, Mr. Gaylord addressed the following letter to Atlantic s TBA Manager, :Vir. Heideman:

Mr. Sauter, our District Manager at Pittsburgh, and Mr. McConky, advises that subject account is considering marketing T, A. products and have invited us to submit a proposal.

Before taking any action in the matter we felt that we should take the matter up with you for further guidance and 'our good counsel in the matter. \Vil appreciate hearing from you on this as soon as possible. On August 14, 1951, Mr. Heideman replied to Mr. Gaylord under the heading "Republic Oil Company Your note of August 9th bas been received. Any overtures on your company part to the subject could upset negotiations that we have underway at present. It ,vas thoughtful of you to consult us and needless to say we appreciate it a.8 'lI-'e whl also appreciate your rejection of the invitation. (Emphasis added. Not only has competition between Goodyear and Firestone been eliminated as a result of these companies' sales commission contracts within Atlantic s sales regions assigned towith Atlantic, but even Goodyear, competition among Goodyear \Vholesalers for the business of Atlantic accounts has been eliminated through the assignment of each Atlantic account to a desig11ated supply point. There are 1 155 independent franchisee! Goodyear dealers in the Atlantic marketing territories assigned to Goodyear, but only 128 of these dealers, or 11 pe?'oent arc supply points for Atlantic dealers. The remainder representing 89 percent of all Goodyear dealers in the three Atlantic : :

THE GOODYEAR TIRE & RUBBER CO PAN ET AL. 359 309 Opinion sales regions arc substantially foreclosed from access to Atlantic accounts.

X or is this anticompetitive allocation of customers by Goodyear among its wholesale distributors confined to Atlantic accounts alonenine other oil comp mies have sales c.ommission contracts with Goodyear, and as shown by TABLE IV, below, only a minute fraction of the total number of Goodyear dealers in any of these oil companies marketing areas have been nominated as supply points for local oil company outlets:

TABLE TV. Goodyear dealers acting as su.apply point.s jor oil company outlets comparker/ with total number of Goodyear dealers in each oil company s marketing area Name of all company Totalnuruberof Goodyear II ;\TumberofGoodvear ; d':;i:;:; supplypoints And""n P,it,b"d m m m -- Hi2 128Ii-' i :

The extent to ,,'which competition among Goodyear s own dea.lers at the wholesale level has been shattered by the operation of the sales commission plan may be inferred from the data in TABLE IV. In Shell's marketing area, for example, there are 10 756 Goodyear dealers; yet only 679 of these dealers have been appointed as supply points to Shell slations. In the marketing territory of D X Sunray Oil Company there are 6 772 Goodyear dealers, but only 162 have been granted the privilege of becoming a supply point. And in Atlantic s Kew England, Kew York, and Philadelphia-New Jersey sales regions, only 128 out of 1 155 Goodyear distributors have been named as supply points.

To illustrate the elimination of competition among TEA wholesale dealers ca.used1 by the sales comlnission plan, evidence adduced in the course of hearings in Atlantic s Philadelphia Suburban Sales District (onc of several sales districts comprising Atlantic s Phila dclphia Ncw Jersey Sales Region) may be considered. As of June , 1956, there were 226 lessee dealers and 291 contract dealers of Atlantic in this district. These dealers \"ere assigned to three Good- : : :: . . ____ _:: : . . Opinion 58 F.

year company stores and six independent franchised Goodyear distributors in the Philadelphia metropolitan area as follows: TABLE Goodyear supply points in Atlantic s Philadelphia-suburban sales dislrict and Atlantic dealers assigned lo them, 1956 1955 total :\umbcr I ).Tumbr Supply points sales lessee ! contract dlmlers deaJrrs ' I Qoodyear District OfflCEL-- -- 543. 845ITarvey W. Qeorge ------n----_------ -- 239, 91)6 (54 (ilalers)"

Ellwood E. Kieser -- 420 7RS 401 116 Edward P:orris-- - 160 lUO (fildealers)" Goodyear Store KoneGoodyear Store (Je,nkintownL.(:\rorri town)_ -- None ,)35 944 Includes some dupllcation due to ll1essee dealers and 5 contract dealers having two alternllte sources of supply, No breakdown is available as to the numbers of lessee and contract dealers, respectively, supplied by these 2 supply points. 1Ir. Hagan was supply point to a total of 4 lessee and contmct dEmlers of Atlantic, and J\:Ir. Parris to a total of 51 lessee and contract dealers of the oil company. Witness Elmer II. Booz, for example, an Atlantic lessee dealer from 1052 until 1956, testified that Mr. Edward Parris was the designated Goodyear TBA supply point for dealers in his area. He stated that although he could have purchased Goodyear t.ires from other dealers at lower prices than from 1:r. Parris, that he nevertheless obtained about 85 percent of his TBA requirements from Ir. Parris. One competing Goodyear dealer offered tires to Mr. Booz at a discount from list price of 10 percent plus 5 percent pluspIns:2 percent2 percentwhereas :Mr. discountParris gave only afor10 percentcash.discount As to competing brands of tires fr. Booz testified that he could make more profit on several such brands than he could on Goodyear tires. Lee tires were available at a discount from list price of 10 plus 10 plus 10 percent, plus 2 percent for cash. Moreover, the witness stated that he could never resell Goodyear tires at list price because "there is always someone from the Goodyear company or somebody else that is going to knock you down on it. "13 1Vitness Francis J. BalJoran commenced operating an Atlantic siation in ID53 and was a contract dealer for Atlantic at the time he testified in this proceeding. He stated that after becoming an )3 When Atlantic was considering adopting- the Goouycar TEA program an intra- company mcmoranrll1m recognized that Atlantic dealers would face ", . . a maximum amount of competition from cstabllshed dealers and company stores, because it is reportcd that every county, marketing town and shopping center now has fL Goodyear store or distributor, THE GOODYEAR TIRE & RUBBER COMPAc'I ET AL. 361 309 Opinion Atlantic dealer he purchased Goodyear TBA from his designated supplier, Mr. E. F. ;\filcr (TABLE V, supra) : Q. r- , you stated that the Goodyear TBA was furnished by :Mr. Miler? A. That' s right.

Q. ",Vby did you buy your Goodyear TEA from Mr. Miler? A. ",Vell, that was the setup by the Atlantic Refining Company when I first opera ted the business.

Q. Was it a matter of your own choice? A. No, sir.

Q. Did you want to purchase TEA from Mr. :\liler? A. Not truthfully, no.

Q. Why didn t you? A. Half the time when you called up you couldn t get it. Half the time you called np he didn t have it. If he did, you had to send a man with a truck and waste an hour and a half to go pick it up and bring it back. Q. Could you have purchased Goodyear tires at a cheaper price in the area? A. Yes, sir.

Q. \Vhat was the name of the supplier? A. Hires and Kocher.

Witness Balloran also testified that he occasionally purchased brands of tires other than Goodyear but did not display them openly:

Q. Did you purchase V.S tires from Harris and Leonard? A. That's right.

Q. 'Were such tires advertised, U.S. tires? A. Not out of my place they weren Q. Where did you keep sucb tires? A. Back on the racks, back on the oil racks where they couldn t be seen, Q. Seen by whom? A. Any of the Atlantic men that came in there, the bosses. Q. Did you purchase Lee tires? A. Yes, sir.

Q. And where did you keep them? A. On the racks, sir Nineteen witnesses representing eleven TEA wholesale suppliers in the Philadelphia-Suburban District engaged in competition with one or more of the six Goodyear supply points named in TABLE , supra, t.testified in support of the complaint. \Vit.hout exception these witnesses gave evidence that they were able to sell little or no TEA products to Atlantic dealers in their areas, and that such Atlantic dealers had stated that they must purchase their TBA Hecds from one or more of the designated Goodycar supply points listed in TABLE V.

Witness ;\1ichael T. Lanza, partner in the Philadelphia firm of La,nzft Tire Service, stated that his company sens Goodyear and 362 FEDEiRAL TRADE CO:VIMISSION DECISIO:-S Opinion 58 F.

Firestone tires and tubes, as well as other brands, and also Exide batteries. He further stated that there are from 45 to 60 Atlantic service stations in his sales area, and that all such stations stock and a(b ertise Goodyear tires and batteries. ,Vitness Lanza identified Messrs. Fred Glenn and Haryey George as Goodyear TBA suppliers to Atlantic service st.ations in the Korth Philadelphia marketing area of Lanza Tire Service.

1Vitness Glenn L. \Vetzel, President of Chester Auto Parts, Inc. of Chester, Pa., testified that his company sells 1Villard batteries Dayton Rubber Co. fan belts and radiator hose, AC, Purolator and Fram oil filters, and a wide assortment of automotive wttxes, polishes and cleaners in competition "ith other sellers of TBA in his eOIDpany s marketing area, including :JIr. Edward Parris. \Vitness '\Vetzel stated that. it is "rather futile" to attempt to sell automotive batteries to Atlantic dealers, and "very cliffculf' to sell automotive accessories to them. On cross-examination he was asked this question: Q. Did I understand you to say that you don t sell any TEA items to Atlantic stations now? A. Sellng and buying are two different categories. They buy from me one or two fiters to carry them over until Ed Parris can deliver them a case. They buy six or eight cans of merchandise to carry them over until Ed Parris can deliver a case or two cases or five cases, whatever the deal may be. \Vitness :.IY8r Duboff is an outside salesman for Lancaster Auto Supply Company of Philadelphia. This firm competes with Goodyear dealers Frank I-lagan, E. F. \Iiller and Ell\\"oocl Kieser, supra TABLE V. Witness Duboff testified that he had solicited the business of about 35 Atbntic stations jn his are.a, all of which,h acl,-ertise Goodyear products .; . . . right dOl'll the line. :: I-Ie stnJec1 that he had been told by a number of Atlantic dealers that they were unable to buy TBA items from him because they "must. buy from the CODlprmy." On cross-examination he ,vas queried as to state.l1ents made to him by one Atlantic dealer:

Q. lou mentioned one person, )'Ir. 1. Mann, of Haverford and Brookhaven Road? A. That is right.

Q. As badng said something to you about inabilty to buy from you. I not clear as to what he said.

A. no ;\on allt me to state ,,"hat he -said to me'! He said to lle. " I can buy from you.

Q. Had he been buying from you? A. He was buying odds and ends and every time I come into sell him, he would have to bide things, yon would think it was the Gestapo or something. I would go in to see him and talk to him and he would say "Mike, I can t buy from :,on " and I said "Wby not " and be says "They know what I am doing, and I didn t think that was right.

. . .

THE GOODYEAR TIRE & RUBBER COMPAl'iY ET AL. 363 309 Opinion ::Iany other examples of such testimony could be cited, not only by former Atlantic dealers and by TEA suppliers from the Philadelphia area, but from other marketing areas of Atlantic as well. These facts are clear: Atlantic has al10eated three of its six marketing regions to Firestone and the other three to Goodyear. Firestone sales to Atlantic outlets amounted to $5 562 936 in 1955, the last full year for which data are available, and in the same year the rubber company paid commissions amounting to $506 199 to . tlantic. Goodyear s s,des to Atlantic outlets amounted to $5 700 121 in 1955 and its sales commission payments to the oil company totalled $557 559. IVe find that Atlantic has used its power as a major wholesale and retail distributor of gasoline and as a lessor of numerous valuable re.ta.il gasoline distribution facilities to cause its dealers to purchase \Try substantial amounts of a different class of products, TEA. This finding, in conjunction with Atlantic s market position and the volume of TBA affected, , would appear to bring this case within v. Unitedthe Supreme Court's ruling in Northern Pac. Ry. Co. States 356 U.S. 1 (1958) and the more recent decision by the Fourth Circuit in osborn v. Sinclair Refining Co. 286 F. 2d 832 (4th Cir. 1960) .

The Court held in the IV oTthern Pacific case that tying arrangements are per se violative of Section 1 of the Sherman Act " wheneve.r a part.y has sufficient economic power with respect to the tying product to appreciably restrain free competition in the tied product an(l a 'not insubstantial' amount of interstate, commerce is affected. " (056 U.S. at 6) The content of the phrase "suffcient economic power" with respect to the tying product was defined by the Fourth Circuit recently in the osborn case. Osborn was a lcssce of Sinclair Refining Company from 1936 to 1048 at which time his lease was terminated and a new lease entered into which was continued until iay 1956, when it was finally cancelled by Sinclair. During the years of Osborn s tenure as a Sinclair dealer, the oil company or its subsidiary, Sherwood Bros., Inc., was party to a sales commission contract with Goodyear in all material respects identical to the Goodyear-Atlantic and the Firestone- Atlantic arrangements in the instant case. Osborn filed suit for treble damages under the Sherman Act, claiming that the sale of Goodyear TBA to Sinclair dealers in J\iaryland was in furtherance of an illegal restraint of trade. On appeal, the court held that Sinclair had gone beyond mere salesmanship in inducing its dealers to carry substantial quantities of Goodyear TEA if they wished to continue selling Sinclair gasoline under their lease and sales agree- Opinion fig F. ments with Sinclair. " As phrased by the court, quoting its own earlier decision in ilcElhenny v. Western Auto Supply 00. 268 F. 2d 332, 338 (4th Cir. 1959) :

Probably nothing is more firmly settled in our antitrust jurisprudence than that an ilegal contract may be inferred from all the circumstances. According to the court, Sinclair had violated Section 1 of the Sherman Act through a series of implied tie-in agreements with its dealers in Maryland. Moreover, the court did not regard it as significant that Sinclair had not required its dealers to purchase all their requirements of TEA from Goodyear:

To insist upon such exclusivity in Ii tie-in would be inconsistent ,yitll the trend of decisions in this area. If a substantial amount of commerce is restricted by such arrangements, the st.andard for ilegality would seem to have been met. As to the requirement of "suffcient economic power" in the tying commodity-Sinclair s position in the petroleum retail market-the court found that in 1956, Sinclair had operated about 300 out of some 2300 retail service stations in Maryland and that those stations had sold about 10 percent of the total sale of gasoline in the same state in that year. This was held to afford Sinclair suffcient economic power in the gasoline market appreciably to restrain commerce in TEA. X 0 one questioned the finding that Goodyear TEA purchased by Sinclair dealers in 1\iarylancl comprised a substantial amount of commerce. j\accordingly, the implied tie-in agreements betw( en Sinehtir flnd its dealers were held to constitute a per se violation of the Sherman Act.

Here we find that Atlantic, which describes itself as ". . . a large producer and distributor of petroleum products" whose operating revenue "totalled more than one half billion dollars" in 1954 distributes gasoline directly to n10re than 5 500 retail service stations and through wholesale distributors to more than 2 800 additional service stations in 17 states along the Atlantic Seaboard. Approximately 81 percent of Atlantic s total sales of gasoline in 1955 were accounted for by these approximately 8 300 retail service stations. But wc do not rest our decision on a mechanical application of the rulc of the Northern Pacific and Osborn cases. The issue here is the legality of respondents ' use of a particular method of distributing TEA products. Atlantic has suffcient economic power with respect to its wholesale and retail petroleum distributors to cause them to purchase substantial quantities of sponsored TEA 14 Sindal!" did not hfive a sflles commission ple.n in effect throughout its entire marketing area, but onl:v In ::Iar vIand and, to some extent, in adjacent states. 286 F. 2d 832, Osborn, plaintiff in the case discm:sed above, testified in the instant prOCf'f'd- Ing as a witness in Sl1pport of the complaint, , THE GOODYEAR TIRE & RUBBER COMPANY ET AL. 365 309 Opinion eve,n without the use of overt coercive tactics or of written or oral tying agreements, and this power is a fact existing independently of the particular method of distributing or sponsoring TEA used by Atlantic. Determination of illegality in this context requires evaluation of competitive effects resulting from the sales commission method of distributing TBA used by these respondents. The record of this conclusivcly establishes, in our minds, that the sales commission contracts between Atla,ntic and Goodyear and Firestone lmve unlawfully injured competition in the distribution of TBA at the ma,nufacturing, wholesale and retail levels. Firestone dealers are foreclosed from Atlantic outlets in regions assigned to Goodyear, and Goodyear dealers are foreclosed from Atlantic outlets in regions assigned to Firestone. Even within regions assigned to Goodyear, or to Firestone, only those Goodyear or Firestone dealers fort.unate enough to be nominated as "supply points" have any prospect of sales to Atlantic dealers. .Wholesale TBA dealers representing other tire manufacturers, for example United States Rubber Company, Lee nubber and Tire Corporation, and Mansfield Tire and Hubber Company testified to their inability to sell t.ires to Atlantic service station dealers, except upon an occasional "pick-up " basis \fhcn a motorist demands a, tire brand other than the locally-sponsored offering ava.ilable at the station. Battery manufacturers and certain accessory suppliers are, if possible, even lTIOre severely disadvantaged by the sales commission system than are tire companies competing with Firestone and Goodyear. Local wholesale distributors of Exide, 'Villard, Bowers and other brands of batteries testified to their inability to sell batteries (0 Atlantic stations except upon a pick-up basis. The most shocking feature of the srLles commission system as to batteries, however, is the fact that the sales commission contracts with Atlantic enable Goodyear and Firestone to exclude their own suppliers of batteries from the wholesale and retail markets represented by Atlantic service station outlets. For the evidence of record indicates that Goodyear and Firestone both refused to execute sales agreements relating only to tires and tubes, but insisted that it include all TEA items sold by them or none. A,n analogous si tuation exists as to certain accessory products, for example Mac " brand of polishes, waxes, and cleaners. Vr:moreover, as one of the chief characteristics of the sales commission plan is that it strengthens wholesale distributors of Goodyear and Firestone by pre-empting for their benefit a substantial segment of all of the various local wholesale TEA markets in Atlantic marketing a.rea, the sales commission system stands as a bar to the expansion of smaller TBA manufacturers of their own distributive Opinion 58 P.

organizations. As respondents concede, a substantial proportion of all replacement TBA items sold to motorists are accounted for by service stations and "service stations, . . . constitute a large and increasingly important market" for TBA products. Thus, the competitive dislocations engendered by the sales commission plan at the wholesale level extend backward to the manufacturing level. Finally, the unfair competition advantages resulting from the sales eommission plan arc not confined to the manufacturing and wholesale levels-they extend forward to the retail level as well. "!any of the wholesalers who testified in this proceeding also sell at retail directly to motorists. To the extent, therefore, that suppliers of TBA competing with distributors of Goodyear and Firestone at the wholesale level are weakened by the operation of the sales commission system, the dealers are also weakened at the retail level, in instances where they are engaged in retail as well as wholesale operations. Counsel for Atlantic contend, however, that no competitive consequences attend the sales commission plan which did not characterize the purchase-resale program employed by Atlantic prior to 1951. This point deserves consideration since it implies that no useful purpose would be served by outlawing the sales commission plan between Goodyear and Atlantic as Atlantic would merely return to the purchase-resale method of distributing TBA, with the result that Goodyear and Firestone dealers would lose a substantial volume of sales, but without improving the lot of competing TBA suppliers as they would still be unable to sell TBA to Atlantic dealers. We believe this argument to be without merit for several reasons. First of all, what course of action Atlantic may follow with respect to TBA if the sales commission plan is outlawed is entirely speculative. Assuming for the 111oment, however, that Atlantic will return to the purchase-resale plan and flout the antitrust laws by requiring its dealers to handle Atlantic TBA exclusively, or even substlmtially," it is obvious that local wholesalers of TBA competing with Firestone and Goodyear dealers in Atlantic s marketing ate will at least no longer be laboring under the handicap of their competitors representing Firestone and Goodyear having already preempted a substantial share of the local wholesale TBA market. As the situation stands under the sales commission plan, local dealers representing Firestone and Goodyear arc assured of a substantial chunk of the market before the competitive race at the wholesale level even begins. (See TABLE V. , supra) Abolition of the sales commission system will at least terminate the unjust advantage pres- 15 Cf. Standal.d Oil CO. Y. United States 337 U. S. 293 (1949) ; Northern Pa-c. Ry. Co. v. United States, s1lpra; Osborn v. Sinclair Refining Co., 8flpra ' United States v. Sun Oil Co. 176 F. Supp. 715 (E. D. Pa. 1959). . . .

THE GOODYEAR IRE & RUBBER COMPA -Y ET AL. 367 309 Opinion ently enjoyed by distributors of Firestone and Goodyear over local competitors representing other tire manufacturers and TBA suppliers. X ot only do the competitive effects of the sales commission plan differ from those of the purchase-resale plan at the wholesale level but at the manufacturing level as well. 1Vhen Atlantic was considering changing from the purchase and resale of Lee tires and Exide it contactedbatteries to some other method of merchandising TBA, several of the larger tire and rubber companies, including Goodyear Firestone, The B. F. Goodrich Company, United States Rubber Company and General Tire and Rubber Company inquiring " what interest you may have in the sale of your tires and tubes through Atlantic accounts. " Propositions were requested not only s to principal brands of these manufacturers, but as to secondary brands controlled by them and private brands as well. At the same time, Atlantic also contacted .:lansfield Tire and Rubber Company and Lee Rubber and Tire Corporation soliciting proposals from them to furnish a private brand tire to Atlantic. This suggests that the smaner tire companies atc able to compete with their smaller competitors in selling tires to oil company accounts on a purchase and resale basis. The evidence also shows, however, that the smaller tire companies ate unable to compete with larger tire manufacturers for the business of oil companies using the sales commission plan because the smaller tite companies lack distnblttion facilities which blanket the entire sales area of a major marketing oil company desiging to adopt the sales commission plan. This was established by the testimony of Vice-President Colley of Atlantic, who appeared as a wit.ness on behalf of this respondent.

A major oil company's decision to adopt the sales commission method of distributing TEA thus inaugurates a vicious cycle of injurious competitive effects: smaller tire and rubber companies are unable to compete in the first instance for the business of the oil company desiring to adopt a sales commission plan because they lack widespread distribution facilities at the wholesale and resale levels; and yet the operation of the sales commission plan stands as a bar to future expansion of the smaller tire companies' distributive systems since they are thereby foreclosed from a substantial segment of the wholesale and retail market aftet the oil company has adopted a sales commission plan offered by a larger tire company. IVe believe that the sales commission method of distributing TBA presents a classic example of the use of economic power in one market (here, gasoline distribution) to destroy competition in another market (TEA distribution). Other anticompetitive effects of the sales commission system are so obvious that they require no detailed , \\ Opinion 58 F.

consideration. The public suffers because it cannot rely upon competitive rivalry among local TEA wholesalers to insure that service station outlets will be able to obtain price savings which may be passed along to consumers. And, too, the system prevents the service station operator himself from using his buying power to further his own business advantage instead of that of his oil company supplier. As the Court of Appeals said in its recent Osborn decision, in a situation identical in its essentials with the present case, insofar as the service station dealer is concerned:

Because of its financial interest in having its lessee-dealers seh Goodyear TBA rather than competing brands, Sherwood-Sinclair engaged in a course of conduct designed to bring about this result. The facts in this case uttlerly fail to reveal any business motive for the defendant's policy that its dealers should handle Goodyear products instead of others. Admittedly, it was proper for Sinclair-Sherwood to desire its lessees to carry a complete, high-quality line of TEA. It is conceded, however, that there are other competing brands, and there is DO suggestion that Goodyear was superior to the other brands of TEA or that there was any benefit to the dealers in handling Goodyear rather than one of the other lines.

Several additiOlml points are raised by /ctlantic, but we believe detailed consideration in this opinion.only one of these requires Respondent contends that it was error, violatiye of clue process of law, for the same hearing examiner to have presided over and rendered initial decisions in both this case and in Docket 6487, The Firestone Tire & Rubber Company and Shell Oil Company. The crux of the contention seems t.o be that the hearing examiner could decision in this case solelynot possibly have rendered his initial upon the basis of the record of the instant proceeding, since he also heard testing10ny and received evidence involving Atlantic s sales commission plan with Firestone in Docket 6487. As respondent puts hile Atlantic has the utmost respect for the Hearing Examiner integrity and ability, Atlantic submits that he could not humanly exclude from consideration his impression of the witnesses' demeanor and credibility in the Firestone-Shell proceedings and that his decision against Atlantic based on impressions gained in those other proceedings is a violation of due process. Our study of the initial decision and of the record in this case indicates that there is no basis for the claim that the hearing examiner considered extra-record evidence in making his findings of fact and conclusions of law. Substantial evidence is present in the record of this case to support every linding of fact and conclusion of law by the hearing examiner. In any event, our own independent study of the record herein is the basis for the findine:s of fact and conclusions of law set forth in this opinion. THE GOODYEAR TIRE & RUBBER COMPANY ET AL. 369 309 Order CONCLUSION Other exceptions of respondents Atlantic and Goodyear have been considered and rejected. The appeal of respondent Atlantic is denied. The appeal of counsel supporting the complaint is granted in part and denied in part. The initial decision, to the extent that it is contrary to the views expressed in this opinion, will be modified to conform with such views. An appropriate order will be entered. FINAL orWEll Counsel supporting the complaint and respondent The Atlantic Refining Company having filed cross-appeals from the hearing examiner s initial decision in this proceeding; and The Commission having considered said appeals, including the briefs and oral a.rgu11cnts of counsel and the entire.e record, and having rendered its opinion denying the appeal of respondent The Atlantic Refining Company and granting in part and denying in part the appeal of counsel supporting the complaint, and having determined that the initial decision should be modified in certain respects:

It is o?'dered That the findings and conclusions of the initial decision be, and they hereby are, modified and supplemented to conform with the findings, conclusions and views set forth in the accompanying opinion of the Commission It is !ul,ther ordered That the following be, and it hereby is, substituted lor the order contained in said initial decision: It is ordered That respondent The Atlantic nefuling Company, a corporation, and its offcers a.gents, representatives and employees, directly or through any corporate or other device, in connection with the promotion, or offering for sale, or sale and distribution of tires, inner tubes, batteries, and automotive aCCMsOlies and supplies (hereinafter referred to as "TEA products ) in commerce, as "commerce" is defined in the Federal Trade Commission Act, do forthwith cease and desist from, directly or indirectly: 1. Entering or continuing in operation or enect any contract agreement or combination, express or implied, with The Goodyear Tire and Rubber Company, or The Goodyear Tire & Rubber Company, Inc., or with any other rubber company or tire manufacturer or any other supppIier of tires, batteries, and/or accessories, whereby The Atlantic Refining Company receives anything of value in connection with the sa.le of TEA products to any wholesaler or retailer of Atlantic petroleum products by any marketer or distributor of TEA products other than The Atlantic Refiling Company; 2. Accepting or receiving anything of value from any manufac- HSl-237-G3- 370 FEDERAL TRADE COM.'\SSION DECISIONS Order 58 F.'f.

turer distributor, wholesaler, or other vendor of TEA products, for actin as sales agent or for otherwise sponsoring, recomm nding, urging, inducing, or promoting the sale of TEA products, d:rectly or indirectly, by any such vendor to any wholesaler or retailer of Atlantic petroleum products;

3. Using or attempting to use any contractual or other device such as, but not limited to, agreements, leases, training programs promotions, dealer meetings, dealer discussions, service station identification, credit cards, and financial loans, to sponsor, recommend urge, induce, or otherwise promote the sale of TEA products by any distributor or marketer of such products other than The Atlantic Refining Company to or through any wholesaler or retailer of Atlantic petroleum products;

4. Employing any method of inspecting, reporting, or surveillance or using or attempting to use, in any manner, its relationship with Atlantic outlets to sponsor, recommend, urge, induce, or otherwise promote the sale of any specified brand or brands of TEA products by any distributor or marketer of such products other than The Atlantic Refining Company to any wholesaler or retailer of Atlantic petroleum products;

5. Intimidating or coercing or attempting to intimidate or coerce any wholesaler or retailer of Atlantic petroleum products to purchase any brand or brands of TBA products;

o. Preventing or attempting to prevent any wholesaler or retailer of Atlantic products from purchasing and reselling, Il1erchfUldising, or displaying TBA products of his own independent choice. It i8 j""the?' ordered That respondents The Goodyear Tire and Rubber Company, and The Goodyear Tire and Rubber Company, Inc. (hereinafter collectively referred to as "Goodyear ), corporatjons, and their offcers, a.gents, representatives and employees directly or through any corporate or other device, in connection with the promotion, offering for sale or sale and distribution of tires inner tubes, batteries and automotive accessories and supplies (herein after referred to as "TEA products ) in commerce, as "commerce is defined in the Federal Trade Commission Act, do forthwith cease and desist from, directly or indirectly:

1. Entering into or continuing in operation or effect any contract agreement or combinat.ion, express or implied with The Atlantic Refining Company or with any other marketing oil company whereby Goodyear, directly or indirectly, pftys or contributes anything o value to a.ny such marketing oil company in connection with the sale of TBA products by Goodyear or any distributor of Goodyear products to any wholesaler or retn-ilet of petroleum products of such marketing oil company;

THE FIRESTONE TIRE & RUBBER COMPANY ET AL. 371 309 Syllabus 2. Paying, granting or allowing, or offering to pay, grant 01" allow, anything of value to The Atlantic Refining Company or to any marketing oil ('company for acting as sales agent or for otherwise sponsoring, recommcnding, urging, inducing or promoting the sale of TBA products, directly or indirectly, by Goodyear or any distributor of Goodyear products to any wholesaler or retailer of petroleum products of such marketing oil company; 3. Reporting or participating in thc reporting to The Atlantic Refining Company or any other marketing oil company concerning sales of TBA products to wholesalers or retailers of petroleum products, individmLlly or by groups, of any such marketing oil company, It i8 fn-rther ordered That the initial decision as so modified and supplemented be, and it hereby is, adopted as the decision of the Commission.

It i8 fw.the)' ordered That respondents The Atlantic Refining Company, TJle Goo(lyear Tire and Rubber Company, and The GoodyectI' Tire and Rubber Company, Inc., corporations, shall, within sixty (60) days after service upon them of this order, file with the Commission a report in \\Titing, setting forth in detail the manner and form in which they have complied with the aforesaid order to cease and c1c;:ist.