The Firestone Tire & Rubber Company

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Ix THE MATTER OF THE FIRESTONE TIRE & RUBBER COMPANY ET AL. ORDER, ETC. , IX HEGAHD '10 'rub ALLEGED VIOLATION OF THE FEDERAL TRADE C01\DIISSION ACT Docket 6487. Complaint, Jan. 1956-Dec"sion, Mar. , 1961 Order requiring the nation s second largest manufacturer of rubber products, 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 of $900 000 000, and a large producer and distributor of petroleum products, with total sales and other revenue in 1954 exceeding 1%, bilion dollars, to cease entering into contracts with one another under which Firestone paid Shell au " errirle " ('ommiRi'ion ranging from 7V: % to 10 7t; on the net sales of TEA products to service stations and distributors sellng Shell' s petroleum products in return for the influence and aid given by Shell in promoting such sales.

Mr. Andrew C. Goodhope, M,.. FTe(l1,ic T. Suss, and lib. John Perechins1cy for the Commission.

Mr. Louis A. Gravelle and lib. Thomas S. lIIarl,ey, of washington, D. C. , and ilb. Joseph Thomas of Akron, Ohio, for respond- 372 FEDERAL TRADE CO:v:vISSIOK DECISIONS Decision 58 F.

ent The Firestone Tire & Rubber Company, and llfr. Wiliam Simon of 'Vashington, D. C. , and llfr. George S. Wolbert, Jr. New York, X. Y., for respondent Shell Oil Company. INITIAL DECISION BY EARL J. ICOLB HEARING EXA:iUNER This proceeding is baseclupon a complaint brought under Section 5 of the Federal Trade C01l1nission Act, charging as unlawful certain contracts entered into between respondents, The Firestone Tire & Rubber Company and SheJ! Oil Company, whereby The Firestone Tire & Rubber Company agreed to p"y the Shell Oil Company a sales commission on all tires, batteries and accessories sold by said The Firestone Tire & Hubber Company to service stations and other outlets of Shell Oil Company. The complaint further charged that the respondent, The Firestone Tire L Rubber Company, had entered into similar contracts with certain oil companies other than Shell Oil Company, and that Shell Oil Company had entered into a similar contract with The Goodyear Tire & Rubber Company.

This proceeding is now before the hearing examiner for final considerat.ion upon tho complaint; answers thereto; testimony and other evidence; proposed flllcling of fact, conclusions of law and briefs in support thereof filed by all parties; and reply fied by counsel supporting the complaint. The hearing examiner has given considerat.ion 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 hereina.after specifically found or concluded, are herewith rejected, and the hearing examiner having considered the record herein and being now duJy advised in t.he premises makes the following findings as to the facts, conclusions drawn therefrom and order:

1. Respondent, The Firestone Tire & Rubber Company (hereinafter sometimes referred to as "Firestone ), is a corporation organized, existing and doing business under the laws of the State of Ohio with its principal offce and place of business located at 1200 Firestone Parkway, Akron, Ohio. Said respondent, among other things, is engaged in the sale and distribution in interstate commerce of tires, batteries, accessories and BuppJies (hereinafter eferred to as "TEA"

2. Respondent, Shell Oil Company (hereinafter sometimes referred to as "Shell" ), is a corporation organized, existing and doing business under the laws of the State of Delaware with its principal offce and place of business located at 50 ' West 50th Street THE FIRESTO:'E TIRE & RUBBER COMPANY ET AL. 373 371 Decision .Kew York, New York. Said respondent is engaged in the production and in the sale and distribution in interstate eOD11nerce of petroleum products, including gasoline and lubricants sold to petroleum wholesalers and service stations. 3. Respondent Shell sells its petroleum products directly and through jobbers to approximately 20 000 service stations. These service stations, which purchase Shell products for resale at retail to the consuming public, are classified as "0" stations, "L" stations "DL" stations, and "OD" stations. A "c" station is one that is owned by Shell, where the operator is a commission manager who receives gasoline froln Shell on consignment and is paid a commission by Shell at an agreed rate 011 every gallon of gasoline sold. All sales by the commission manager, other than gasoline, and specifically including tires, batteries and accessories, arc wholly for his own account. An "L" station is one which is operated by a lcssee detLler ,vho leases the service station from Shell, generally for a one year term. A "DL" station is aile where the dealer owns his own service station and has leased the station to Shell for a period of years, Shell then leases the station back to the dealer for the same period of time and at the same rental. Thc purpose of the DL" agreement is to permit the dealer to finance the purchase or construction of his own service station by using the lease to Shell as collateral for a. construction or purchase loan. The " station is a designation for " other dealers" and includes dealers who either own their own stations or lease :from third parties, having no financial dealings with Shell other than payment for the petroleum they buy and having no contract with Shell other than an agreement for the purchase of petroleum products. Dealers in this category also include some restaurants, garages, and parking lots with gasoline pumps. Relatively few of these arc modern service stations.

4. As of July 1956, Shell distributed petroleum through 847 jobbers. The jobber performs the complete service of distribution in his area, selling to dealers with whom the Shell Oil Company has no direct relationship. The jobber either owns one or more bulk plants or leases them from Shell. In the year 1955 , Shell' direct accounts purchased 1 890 491 000 gallons of gasoline, and Shell' s jobbers purchased 1 390 344 000. Shell is reputed to be the second largest supplier of jobbers in the United States. 5. The usual form of lease entered into by respondent Shell and its lessee dealers was for a term of one year, and thereafter from year to year, subject to termination by either party at the end of the prior written notice.first or any subsequcnt year on thirty days' 374 FEDERAL TRADE CO:.\IISSION DECISIONS Decision 58 F.

Earlier leases carried provisions of ten days' written notice. Rental provided by the lease was usually a fiat rental, plus a cents-pergallon charge, dependent upon location of the station, financial condition of the lessee, and potential income. Such lease contained so.caIIed housekeeping provisions relating to the lise, maintenance and general appearance of the station, and breach of any of the terms, conditions or any of the covenants of the lease by the Jessee constituted grounds for immediate termination by Shell on fifteen days' notice to the lessee. In the case of death or abandonment of the premises, or closing of the service station for more than 72 hours the lease is subject to immediate termination with right to repossess pre1l1Scs.

6. In addition to the lease, Shell entered into an agreement of sale with its dealers. These agreements provide for the purchase of an annual minimum and maximum quantity of Shell gasoline, oils and greases at the current posted price at the time delivery was made. These agreenlcnts were HsnaBy for a period of one year and from year to year thereafter, subject to cancellation at the end of any year thereof by giving thirty days' written notice. 7. Tires, batteries and accessories have become a necessary and integral part of the business operation of the Shell dealer. He cannot profitably and successfully operate his business without the added revenue from TEA, which also enables the dealer to give complete service to his customers. The service station is important to TEA manufacturers as an outlet for distribution to customers. It is to the interest of the Shell Oil Company to have its dealers engaged in the sale of TEA as this builds a stronger dealer organization and increases the sale of gasoline. 8. The sales comnlission arrangement between Firestone and Shell commenced on a limited basis in 1940, and had its real beginnings in 1942 and 1943. Prior to 1943 , the sales commission dollars averaged approximately only $1 600 a year. .While the Sales Commission PIau was operative between Firestone and Shell, it was not until October 23 , 1951, that it was formulated by letter contract. This agreement provided that in consideration for the assistance to be given to Firestone by the Shell sales organization in promotiug the sale of Firestone TBA to Shell outlets, Firestone would pay a sales commission on net sales by Firestone of its TEA to Shell outlets accepted as customers by Firestone. This agrcement provided, among other things, for t.he payment of a commission of 10 percent on sales to Shell dealers, and 7-1/2 percent on sales to commercial distributors and jobbers who sell Shell's brands of THE FIRESTOI\E TIRE & RUBBER COMPA.'f ET AL. 375 371 Derision gasoline. The Shell company also entered into a similar sales commission agreement with The Goodyear Tire & Rubber Company, Ine. 9. As early as Deeember 22 , 1948, Shell sent out letters to its existing dealers, and also prepared a letter to be delivered to new dealers as they were selected. These letters informed dealers that there was nothing in their contracts with the Shell Oil Company obligating them to buy their requirements of TEA items from or through the Shell company. From year to year thereafter, a similar letter was addressed to new and present dealers. 10. The services performed by Shell in promoting the sale of Firestone and Goodyear TEA to resellers of Shell gasoline pursuant to the sales commission contracts were as follows: (a) Recommending that dealer carry TEA in order to obtain increased station revenue as well as petroleum sales and to furnish better service to their customers, and in so doing, recommending Firestone and Goodyear TEA.

(b) Notifying Fircstone and Goodyear in advance of the opening of stations, thereby giving them an opportunity to contact the new or prospective dealer relative to his initial stock of TEA. (c) Shell held sales meetings at which its dealers were invited and also provided training courses for its dealers, both of which included suggestions for displaying their TEA, and in some instances with the active participation of either Goodyear or Firestone.

(d) Shell sales personnel assisted in adjusting complaints of Shell dealers against Firestone and Goodyear and endeavored to remedy any dissatisfaction dealers might have with the service which these tire suppliers furnished to the dealer, and otherwise avoided customer dissatisfaction which, if not. alleviated, could result in loss of that customer s business.

(e) Shell assisted in TEA advertising and participated in promotional activities on behalf of sponsored TEA and provided merchandising assistance to service station dealers and oil jobbers to help the oil dealers and jobbers to sell more TEA. (f) Shell dealers were authorized to sell TEA to motorists on Shell credit cards on regular or six. months' cxtended credit without any ca.rrying charge to the dealer or the motorist. The credit card and deferred payment facilities were valuable in promoting the sale of TEA.

(g) Shell representatives at times conducted ioint solicitation of dealers with Firestone or Goodyear personnel for the purpose of introducing the TEA salesman at inception of the account; to adjust complamts of dealers and to see that their legitimate claims are _______________ ____._ . . 376 FEDERAL TRADE COl\\lISSIOK DECISIONS Decision 58 F.

met; and to fully inform the dealer, and the Shell salesman as well when a new product is being placed on the market. 11. Both Firestone and Goodyear have sold substantial quantities of their TBA products to Shell outlets. The sales of Firestone to Shell outlets and the commissions paid thereon to Shell were as follows:

Year! Tolal.mle. To/al com7li ions 1957-- - $21, 002, 825 N at available 1956______--------------- , 788, 937 Not available 1955- 17, 519 433 , 646, 621 1954______--------------- , 352, 956 I. 449, 966 1953______------- 14, 373, 85'1 347, 147 1952 13. 553, 957 271 170 1951______------- 11. 230. 684 049, 472 1950_ 064, 813 1. 144 072 1949______----------- . 236, 544 776, 369 1948______----------- , 242, 203 855. 792 1947 - ---------- 8. 668, 663 791 . 807 1946_ , 526, 205 807, 706 1945_ 101 159 386. 233 1944_ 412, 267 231 011 1943----------------------- 685. 336 681 1942_ , 697 180 Tbe sales of Goodyear to Shell outlets and the commissions paid thereon to Shell were as follows:

Year" TOlal,'ules Tolalcommissions 1946 , 771 , 000 $489. 701 1947 ------------- , 646, 000 550. 405 1948___ . 000, 000 619 249 1949______------- , 592, 000 780. 831 1950______--- , 305, 000 182 120 1951_ , 865, 000 , 138 076 1952______------- , 606, 000 422, 122 1953______- 17, 9S,I, 000 , 603, 786 1954_ IS, 455, 000 , 628, 175 1955______--- 21, 299 000 1, 8ti, 072 1956______----- , 822, 000 Not available 1957 , 838, 000 Not available 12. It is contended by counsel supporting the complaint that by reason of the control maintained by Shell over its dealers, resulting frolll the contractual arrangements, that Shell dealers constitute a captive market for the sale of TBA by Firestone and Goodyear and that competitors of Firestone and Goodyear are prevented from selling their TBA products to a substantial number of Shell distributors and service stations so as to constitute lmfa.ir methods of competition and unfair acts and practices in commerce within the intent and meaning of the Federal Trade Commission Act. THE FIRESTO'CE TIRE & RUBBER COMPANY ET AL. 377 371 Decision 13. EJeven former Shell dealers were called as witnesses in support of the charges of the complaint. Their testimony relative to coercion is summarized as follows:

(a) Wiliam E. Edwards, who was originally a sales representative for Shell. testified to efforts to induce certain Shell dealers to purchase Goodyear TBA, including threats of cancellation, while so employed. He later became a Shell dealer and handled Goodyear TBA. He did attempt to carry some U. S. retread tires, but Shell salesman objected and threatened cancellation of his lease if he did not do as he was told. On cross-examination an attempt was made to discredit this witness because of an alleged work tieket which he claimed to have signed at the request of the customer but which the customer refused to pay. After a considerable amount of questioning, it developed that this ticket was for $5.30. (b) Robert Mattson, former Shell lessee dealer from 1935 to 1955, testified that at the time he discussed taking over the station he was informed that he could handle either Firestone or Goodyear but that Shell would prefer that he handle Firestone. Put in Goodyear as he was more familiar with this line. The Shell representative objected to his buying Goodyear tires from a non-authorized supply point. When he left the Shell station he opened up a Goodyear store. After this, he called upon a Shell dealer, Switzer, and was present at a conversation held between this dealer and Shell representative, Thalman, in which the dealer informed the Shell representative that he proposed to buy his TBA from the witness and was told by Thalman that if he did not purchase from an authorized supply point he would be put out of the station.

(c) Victor C. Borowsky, who was a Shell commission dealer from August 1955 to .July 1956, bought some non-sponsored antifreeze and was told to take it out of his window and put it in the back room. He was also told by Shell salesman that he should get rid of nonsponsored fan belts which he then placed in the back room. This . witness testified that with the exception of a few chemicals and additives, he purchased all of his TBA from Firestone, as he felt doing otherwise would antagonize Shell. He gave up station because he could not keep open 24 hours a days.

(d) John N. Chycinski, who was a Shell station operator from 1950 to 1955, testified that when he took over the station he was told that he could display either Firestone or Goodyear. Later he handled some non-sponsored items, including wax, and was told by Shell salesman that he recommended that it be taken off his shelf which he did. Shell salesman also objected to his carrying certain non-sponsored tires and threatened him with lease cancellation if 378 FEDERAL TRADE COM.\1rSSION DECISIONS Decisioll 58 P.

he continued these purchases. Later the Shell salesman backed down and he continued purchasing non-sponsored tires. (e) ,'Varren L. Henderson, Shell lessee from 1953 to 1956, testified that he ,vas given a preference of either Goodyear or Firestone and as he preferred Goodyear, selected this line. Left the station of his own accord.

(f) James H. Bradley, Shell station operator from 1954 to 1957, testified that when he discussed taking over the station he was told that he haid a choice of Firestone or Goodyear TBA. He selected Firestone. In about a year, changed over to Goodyear because of competition with Firestone dealers. Shell representative informed him that it was not the policy to handle competitive tires. I-lis departure from the station had nothing to do with TEA. (g) Otis T. Dennard was a Shell dealer for six years, beginning in 1942. He testified that nothing was said about the brand of TBA to be carried at the time he took over the station. He handled what he wanted to buy. In 19'!8, he began to have diffculty in regard to TEA. Every time a salesman called, non-sponsored TEA was discussed. .Witness refused to weal' a Shell uniform; handle Firestone products 100 percent; or fire two employees. He received notice of termination of his lease. Controversy with Shell also included payment of higher rent.

(h) George xiartin Eberenz was a Shell lessee from 1945 to 1957. ,'Vhen he took over the station, he was told he had a choice between Firestone and Goodyear. Chose Firestone. Carried some competitive items, principally Southern batteries, Prestone antifreeze, Simonize wax and some small shelf stock. Had several conferences with Shell salesman objecting to his Firestone purchases being too low. In 1954, Shell salesman asked him to remove Southern batteries from display shelf as a favor to him, as he did not know what a salesman Jmd to take when this was reported. As a result removed the batteries to a rear room. Retired of his own volition. (i) Fred C. Koenig was a Shell lessee from August 1956 to March 1957. Prior to taking over the station he was told that Shell handled Goodyear or Firestone. He told the Shell representatives that he would like to sell whatever his customers wanted, but they told him it wouldn t be a good idea, that he had better stick to Goodyear. Later, the Shell salesman called upon him and told him that since he had not gone among with stocking Goodyear products and was selling various other products, which was not to their liking, it might go rough with him. Every time the Shell salesmen called they suggested that he stock Goodyear products. Received 24-hour notice to vacate around March 11. No indication of lease cancellation (j) .

'II-IE FIRESTONE TIRl'J & RCBBER COMPA::Y ET AL. 379 371 Decision was given, although prior to terIllination there were repeated complaints of loss of gallonage. 'Witness was told Shell would either canceJ or he could sign a resignation, and he signed a resignation. James IV. !Leney was a Shell employee from 1933 to 1944 when he became a Shell service lessee. lie was told he would be expected to handle Goodyear products, which he did, but several months !ateI', at the request of the Shell salesman, he changed to Firestone because of competition with station close by. Thereafter he stocked Firestone. Haney put in some U. S. Royal white-wall tires because he could not get them frolll Firestone, and was told by the Shell salesman that it was not the company s policy to handle these tires. Ue also made a purchase of Exide batteries and was asked by the Shell salesman why he was handling Exide instead of Firestone. A short time !ateI', the Shell salesman called on him and mentioned that he was on his way out to see another dealer to tell him that unless he takes Exide batteries out of his stock that the sta60n would be taken away :from him. ,Vitness inferred from what the salesman, Johnson, said that he did not want him to handle Exide batteries, so he discontinued them. In 1950, Shell representati ve requested that he change back from Goodyear to Firestone, but he refused. After that, relations were somewhat strained, and in September 1054 he received a letter advising that when his lease expired it "ould not be rene1'ied. On cross- examination it was brought out that his gallonage had decreased from 21 500 gallons to 000 gaj10ns and that there were complaints about his keeping school buses parked on the property.

(k) James Hooper was a Shell lessee for a year and nine months beginning :NIay 27, 1952. IVhen he took over the station it was explained that SheJ1 had outlets for TEA through Firestone and Goodyear. Shortly after taking over the station began purchasing 8chenuitt tires, Bower batteries and some competitive accessories. shell salesnla.n told him that he was not cooperating. N ever threat ened to cancel his lease, but Inent.ioned to him that his lease was only good for year. Shell refused to ronew the lease at the end of the year, but he continued to operate the station until a new dealer was found. On cross-exnmillflt.ion it. was c1eve1oped that gallonage went clown from 10 500 gallons by " previous dealer to B OOO or 7 000 gallons a lllont-h.

14. Certain representatives of suppliers of TEA, who were selling in cOlllpetition with respondent Firestone were called as witnesses in thjs proceeding. These parties testified generally that they had diffculty in selling TBA to Shell stations, and testified specifically as to reasons given by certain Shell dealers for not buying or selling FEDERAL TRADE CO:vMISSIO DECISIONS 380 Decision 58 F.

their TBA products. This testimony as to reasons given by Shell dealers for not purchasing competitive TBA was allowed under the authority of L.awlor v. Loe1ue 235 U.S. 522. This latter testimony was received 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, however, is competent to show that dealers did not purchase a substantial amount of competitive non-sponsored TBA because of their feeling that they were required to purchase Firestone or Goodyear TBA.

15. In the course of the defense to this proceeding, the Shell company introduced the testimony of approximately 123 Shell dealers and ex-dealers in approximately twenty-five States of the United States and in the District of Columbia. Substantially all of these witnesses testified to displaying and selling non-sponsored TBA without objection or complaint by Shell.

16. The hearing examiner recognizes that present dealers appearing to test.ify 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 'yore no exclusive dealers in the sense that they confined themselves entirely to sponsored TBA as all dealers carry 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 financing to stock a complete line of tires and batteries, but instead purchase non sponsored items as ,veil as sponsored items on a pick-up basis to satisfy customer demand. Many of the doll1ers called maintained a high sales volume in gasoline gallonage and also oil, and it naturally follows that Shell would not jeopardize this gallonage by pressure tactics suffcient to irritate or alienate such dealers. 17. Many of the dealer witnesses called by Shell testified that they were familiar with, and knew, the Shell policy with reference to the sale of TEA and considered themselves independent businessmen free to purchase TBA as they might see fit. :\Iany testified that when they were interviewed as prospective dealers they were told they could purchase TEA wherever they might wish. The ex-dealers, called in support of the charges in the complaint, testified that when they were interviewed as prospective dealers they were told that they could purchase either Goodyear or Firestone with no indication that they might purchase from other suppliers. It would be unusual to expect that Shell salesmen would vigorously insist to a dealer that he had a right to buy wherever he might wish and thereby deprive Shell of the commission it would otherwise receive from the sale of sponsored TEA.

THE FIRESTOKE TIRE & RL'BBER CO:\PANY ET AL. 381 371 Conclusions 18. After giving considerat.ion to the testimony of the various rationwitnesses appearing in this proeeecling and giving consid their demeanor and credibility, it is the opinion of the heanng examiner that the record in this proceeding, as a whole, indicates that coercion and pressure ,ycre, in fact, brought on a substantial number of dealers to induce them to purchase sponsored TEA and to discontinue the purchase or display of non-sponsored items. CONCLUSIONS 1. The complaint does not charge, nor does the evidence introduced in this proceeding prove, the existence of a conspiracy between Firestone and Shell to restrict and restrain competition in the sale and distribution of TEA products.

2. There is no evidence that The Firestone Tire & Rubber Company engaged in, or participated in, any acts or practices designed to force dealers and distributOls of Shell Oil Company to purchase Firestone TEA products.

3. Neither the sales commission contract between Shell and Firestone, nor the contracts between Shell and its dealers and distributors contain ftny clause or provision requiring such dealers or distributors to purchase only Firestone or Goodyear TEA. 4. In making a determinat.ion as to whether the leases made by Shell with its dealers are used to suppress competition, the extent to which they arc in conformity Ivith reasonable requirements in the field of commerce in Ivhich they atc used will have a direct bearing on the legality. The housekeeping provisions of the leases are not unreasonable or oppre sivc. The renewal and cancellation provisions of the lease are in conformity with those which ordinarily appear iu many leases of property.

5. The consideration for the payment of a commission to Shell under the sales commission contract is based upon substantial services rendered by Shell in promoting the sale of Firestone TEA to Shell dealers and distributors.

6. So inference or implication can be drawn simply from the contractual relationship between Shell and its dealers that the degree of control by Shell over its dealers is suffcient to force dealers to purchase only sponsored TEA.

7. It is further concluded that for the purpose of inducing the purchase of sponsored TRA by Shell dealers, Shell representatives have, in fact, attempted to, and did, coerce and force Shell dealers to purchase substantial quantities of Goodyear and Firestone TEA and the respondent, Shell Oil Company, accepted the benefits of such acts and practices. The-se acts of coercion consisted of demands 382 FEDERAL 'TRADE COMMISSIO:- DECISIONS Order 58 F.

that dealers discontinue the purchase or display of non-sponsored TEA under threat of lea,se cancellation or other corrective action. Such coercion need not be 100 percent eiIective in order to constitute an unfair method of com peti tion or an unfair act or practice in violation of the Federal Trade Commission Act. S. The chafges of the complaint axe suffciently broad to sustain an order pool.libiting overt acts of coercion even though it be found that the contracts entered into between the parties are not illegal. 9. The Federal Tnule Commission has jurisdiction or the subject matter of this proceeding and of the respondents llamed herein. 10. The acts and practices of ShoJI Oil Company, as herein found which involve coercion of its elcaJers, are all to the prejudice or t.he public and have a, tende.ncy and capacity to restrict, restrain or lessen competition in the sale of TEA products and constitute unfair methods or competition a,ncl unrair acts and practices in commerce within the intent and meaning or Section 5 or the Federal Trade Commission Act.

OHDEn.

It is once,.ed That respondent Shell Oil Company, a corporation and ts otiice.rs, agents, representatives and employees, directly or through any corporate or other device, in connection with the promotion, offering ror sale, sale and distribution or tires, inner tubes, batteries and othet autOlTIotive parts, accessories and supplies (hereinafter referred to as "TBA products ) in commerce, as commerce is defined in the Federal Trade Commission Act, do forthwith cease and desist from, directly or indirectly: 1. Inducing, or attempting to iuduce, the purchase of TEA products of a particular supplier, hy Shell dealers, hy threatening to cancel or to not renew lease or dealer or to take other retaliatory actiou if said products are not purchased. 2. Threatening the cancellation or non renewal of any contract or 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-renewal of any contract or lease if the dealer displays or continues to display TBA products not sponsored, recommended or approved by the respondent, or the sale of which is not promoted by the respondent. 4. The performa,nce of any acts of intimidation or coercion, either t.through stat.ements, oral or written, made directly to dealers or by representatives of respondent, which are designed to, or have, the purpose or effect of intimidating or coercing respondent's dealers THE FIRESTONE TIRE & RUBBER COMPANY ET AL. 383 371 Opinion or other customers to purchase TEA products sold by any designated supplier sponsored, recommended or approved by respondent. 5. Compcl1ing, or attempting to c01npel, dealers by any means or method to sell and distribute only products supplied by a designated supplier sponsored, rccommcndeCl or approved by respondent. 6. Preventing, or attempting to prevent its dealers by means of threats, int.imidation or coercion, from ha,nclling or displaying 'IRA or other similar products which the respondent does not sponsor recommend or approve, or the sale of which is not promoted by the respondent.

It is f1irthe1' O1'dered That the complaint be, and it is hereby, dismissed as to respondent The Firestone Tjl'c &. Rubber Company. OPINION OF THE COl\BIlSSIOK By lCilltner, Chairman:

This proceeding commenced wit.h the issuanc.e of a complaint on January 11 , 1956, charging The Firestone Tire &; Rubber Company and Shell Oil Company with acts, practices, and agreements constituting a. violation of Section 5 of the Federal Trade Commission Act. 15 u. C. ~ 45 (1958). Both respondents answered on April 16 1956, admitting in part the 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 calling for thc payment by Firestone of a sales c01llnission to Shell in return for sales assistance in promoting automotive tires, batteries and accessories (hereinafter referred to as "'tba" or " TEA products ) of Firestone to retail and wholesale petroleum outlets of Shell. In addition, Shell is charged with having entered into a substantially identical agreement with The Goodyear Tire and Rubber Company, and Firestone is charged with having entered into such agreements vdth a number of oil companies other than shell, including The Atlantic Refining Company and The Texas Company. ' Although Shell and Firestone are the only respondents in the instant case, Goodyear and The Atlantic Refining Company are joined as responde,nt.s in a companion case Docket 6486 ' and in another companion case, Docket 6485, The 10ther 011 companies having sales commission arrangemcnts with Firestone are Union Oil Company, D.X. Sunray 011 Company, Contincntal Oil Company, Ashlann Oil and Refining Company. W. II. Barber Company, Jenney Ianllfacturing Company, Thiesen-ClemcDs Oil Company, Hancock Oil Company, QURker State 011 Comp,1ny, CI1:nnplin Re1lning- C()lTpan, Leonard Refineries, Inc. , and Lion on Company. "Other oil cod1panie. hilvin,C; ..ales commission contJ:actr with Goodyear, In addition to Shell ann Atlantic, orc Sinclair Refining;. Com!Jnny, Hichficl!l Oil C01\pan.', D, Sunray Oil ComJJim " Qnaki'r Stn Ie Refining C01lJ1nn~'. 1'n11 Am. Diy. of ,\!lH'l'ienn Oil Company, .Ael"cltn Petrofina. Inc., AIJdel'son-l'l'itchanl Oil Corp., Aslllflld Oil & Refining C'o., Cnrtel' OU Co., ftnd Shrunrocl, Oil & Gas COl'JJ. 384 FEDERAL TRADE CO'\ISSION DECISIONS Opinion 58 )!.

Texas Comp'wy and The B. F. Goodrich Company are paired as respondents. 3 The compla.int charges, in substance, that the success enjoyed by Firestone and Goodyear in selling to Shell outlets has been purchased at the expense of compet.ing TEA suppliers at the manufacturing and wholesale levels. Counsel supporting the complaint allege that the Shell-Firestone and Shell-Goodyear sales commission contracts ate unlawful because in conjunction with Shell's economic power Oler its ostensibly independent wholesale and retail petroleum outlets these contracts operate to stifle the free choice of Shell' retail and wholesale dealers insofar as their TBA purchases arc concerned. Among the unlawful competitive effects stemming from Shell' s sales commission contracts charged by the c01nplaint are these: 1) That suppliers of TBA competing with Firestone and Goodyear at the wholesale level have been foreclosed from access to Shell' s retail outlets on the same competitive terms as have been made available to Firestone and Goodyear; 2) That competing manufacturers of tires and other TBA items have been foreclosed from access to Shell' wholesale distributors on the same competitive terms as have been made available to Firestone ami Goodyear; 3) That competition between Firestone and Goodyear in selling to wholesale and retail outlets of Shell has been destroyed; 4) That a substantial number of Shell' 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 the benefits of free competition at the wholesale and retail levels insofar as TBA distribution through service station outlets under the sales commission pla,n is concerned. Respondents deny these allegations and assert that their sales commission contract has strengthened competition in the distribution of TBA. Shell, moreover, denies that it has power to control the TBA buying habits of its wholesale and retail outlets and denies that its sales effort on behalf of Firestone and Goodyear have been or are in any respect improper or coercive. After hearings extending; from the latter part of 1956 through the early months of 1959, the hearing examiner filed his initial decision on October 23 , 1959, dismissing the complaint as to Firestone but holding that shell, by forcing a substantial number of its dealers to purcha,se sponsored TBA through use of threats of lease cancellation 3 on compflIies with which Goodrich has sales commission contracts, in addition to The Texas Company, include Continental Oil Company, Ohio Oil Company, Aetna Oil Company (Div . of Ashland Oil and Refining), Bay Petroleum Co., Crown Central Petroleum Corp., Emblem Oil Co., and Jenney :\lanufacturing Co, , THE FIRESTONE TIRE & RUBBER CO:MPA. Y ET AL. 385 371 Opinion or other retaliatory action, has engaged in unfair methods of competition and unfair acts and practices in commerce in violation of Section 5 of the Federal Trade Commission Act. He further held that the charges of the complaint are sufficiently broad to sustain an order prohibiting overt acts of coercion on the part of Shell even though the sales commission contracts themselves are not illegal. order was entered against Shell prohibiting future acts of coercion or intimidation desig11ed to force Shell dealers to purchase TBA products sponsored by Shell.

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 will not be an effective means or remedying the unlawful effects on competition caused by the sales commission plan. They seek an order restraining respondents from continuing with their present sales commission agreement and enjoining thelma from entering into similar agreements in the future. They also contend that Shell should be enjoined from purchasing TEA products from any manufacturer or other vendor of such products for resale to any wholesalers or retailers of Shell petroleum products . . . or for distribution in any other manner, directly or indirectly, to any of the aforesaid wholesalers or retailers of Shell Petroleum products. Shell appeals claiming, among other things, that the hearing examiner erred as a matter of fact in finding that Shell has coerced its dealers to purchase substantial amounts of sponsored TEA and as a matter of law in concluding that such action by Shell constituted an unfair method of competition and an unfair act and practice in commerce within the meaning of Section 5 of the Federal Trade Commission Act.

Reply briefs were filed by Shell and Firestone to the appeal brief of counsel supporting the complaint, and by counsel supporting the complaint to the appeal brief of Shell. Oral argument was heard by the Commission on June 21 , 1960, and the matter is now before the Commission for decision. 1Ve find that Shell 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 fid that Shell has suffcient economic power over its wholesale a,nd retail distributors to cause t,hem to purchase substan6al amounts of sponsored TEA even without the use of overt coercive tactics. For reasons set forth hereinafter, we conc:nde that the exercise of this power by Shell through the use of the sales commission plan in favor of Firestone constitutes an unfair method of competition and an unfair act 2S1-2::7-G3-- Opinion 58 :E' practice in commerce within the meaning of Section 5 of the Fecler1t1 Trade C01nmission Act.

CHARACTERISTICS OF THE SALES co nIISSION PLA )10to1'ists may purchase replacement TEA items from several major classes of distributors. J\fanufacturers of these items, for example Firestone and Goodyear, maintain either comprmy-owned or franchised wholesale and retail distribution facilities throughout t.he entire 1Tnitec1 Sl:aies. The large mail, Sears Roebuck and :;Uontgomcryorder houses,Yard, purchase their own brands of TEA from original manufacturers 01 these comnlOclitics and resell them, either by mail or through Sears Roebuck or JHontgomery ,Yard retail stores in many parts of the United States. Gasoline service stations comprise a third major category of TB1'- outlets. The complaint in this case alleges that "Service stations, by the nature of their business, are particularly ,yell adapted to ue outlets for the sale of TEA products to the motorist eonsmner. They constitute a large and increasingly important market for TEA products. Shell concedes the truth of this statement in its answer and, in fact, introduced evidence in the course of the hearings tending to show that almost 45 percent of all replacement TBA sold to motorists is accounted for by service stations. Service station ope.rators may purchase their requirements of TBA from two principal sources: (1) Local wholesale TBA dealers representing Firestone, or Goodyear, or some other TEA manufacturer; or (2) oil companies chiefly engaged in refining and distributing petroleum products, but which also purchase private brands of TEA , just as do the mail, and resen suchorderprivately brandedhousesTBA along with thc refinery products such oil companies distribute through their respective marketing organizations. :x 0 particular term is used in the industry to describe service station purchases of TBA from independent local wholesalers, but the term "purchase-resale" is custOlnarily used t.o characterize the marketing technique whereby oil companies purchase privatelybranded TBA and resell such TBA to their respective service station dealers. The sales commission pbn is a hybrid deriving certain of its attributes from the first and other attributes from the second of these marketing methods. However, both the purchaseresale plan and the sales commission plan make use of the marketing facilities of marketing oil companies, but in different ways and ,with differing competitive effects.

The Sales Cmnmission Plan. Firestone and Goodyear mainta.in eit.her company-owned or franchised wholesale and retail TEA THE FIRESTOXE TIRE & RUBBER COMPANY ET AL. 387 371 Opinion outlets in most principal cities of the United States. Shell distributes its petroleum products throughout the continental United States with the exception of Oklahoma, Kansas, Nebraska, North Dakota South Dakota, and parts of Texas, Arkansas, and llIissouri. In cities and towns where Shell retail stations are located, such stations are assigned to either the local Firestone or the local Goodyear dealer, or occasionally to both. The assigned distributor is intended to be the supply point from which the Shell dealer wil purchase a substantial percentage of his requirements of TBA. The overwhelming majorit.y of Shell's retail se.rvice stations are operated by independent businessmen who either own or lease their stations. These dealers not only buy and sell Shell petroleum products, bnt also offer TEA at their stations: and in addition perform various automotive services and repairs. Shell maintains sale,s offces throughout its entire marketing area and employs salesmen whose duty it is to solicit orders for Shell petroleum products from Shell dealers and to perform other functions in connection with the oil company s relationship to such dealers. When orders for petroleum products are obtained, the salesmen cause these products to be delivered to the Shell service station dealers, who pay for them at time of delivery or at other specific times. The same Shell salesmen also act as agents for Firestone and Goodyear, soliciting TEA orders from Shell dealers, frequently accompanied on their rmUlds by salesmen employed by the local Firestone or Goodyear distributors. If TEA orders are obtained they are turned in to the appropriate TBA suppliers-the local distributors of either Firestone or Gooc1year who deliver the merchandise and are paid by the Shell dealers. The TEA suppliers, in turn, make reports of such sales to the District Sales Offces of their respective companies.

Under the terms of the sales cOImnission contracts between Firestone and Shell and Goodyear and Shell, Shell is entitle,l to a commission amounting to 10% of the net sales value of all sponsored (i. , Firestone or Goodyear) merchandise sold to Shell retail dealers, as consideration for the assistance given by the Shell sales organization in obtaining TEA orders from Shell dealers. ' These payments are made by Firestone and Goodyear directly to Shell each month. SheJI incurs no expense in connection with the fmancing, warehousing, or delivery of the TEA so supplied, and the 'Shell has some 847 wholesale distributors ("jobbers ). Shell Is entitled to R commission of 7-1/2% on pUrCIU\BCS of sponsored TBA by these jobbers, compared with10% OIJ Illlrrhn es hy rf'tn.il dealers, ___ )...__ ) ._...._.. .. . . :\___,(. _ ___ __ ._ : . : __ , \ 388 FEDERAL TRADE CO:vMISSION DECISIONS Opinion 58 ,' sales commissions have been described by a Shell offcial as "almost all net profit.

The Purchase-Resale Plan. This method of distributing TEA through service station outlets differs from the sales commission method in many significant respects. under the purchase-resale plan a particular oil company purchases its TBA directly from the manufacturer, and usually at mil prices. The oil company then undertakes responsibility for financing, shipping, warehousing, and selling the TEA to its service station and its wholesale (jobbcr) distributors. Moreover, as indicated by Table I below, tires distributed under purchase-resale arrangements are usually marketed under the brand name of the marketing oil company (Amoco, Flying "A"), or under a private brand controlled by the oil company (Atlas), or under a secondary brand controlled by the TEA supplier (Fisk by U. S. Rubber Company, Brunswick by Goodrich).

TABLE Oil companies marketing private-brand tires under the purchase-resale plan on company TlresuppJJer Tire brand AmericaTJ 011 00 \ "Mansfield Tire & Rubber Co_---- AmOCDCities Service Oil Co. (Del.)_ _--m 8. Ru?1;er 00 1 Cities Scnlce Cities Service Oil Co. (Pa' Dayton. lne CoBillups Petroleum 00._ ---- U, . H.rubber 00____ \ BilupsEsso Stanrbrd Oil Co_------ , Atlas Humble on, & Reflniog 00 - G('ner l Tire 90Standard 011 00. at OaIJLn--t. Rubber Co;

Standard OJl Co. (Ind. _.---- U. . Rubber Standard Oil 00. (KY. m-- do_ Standard Oil 00. (Ohio)__n_ - Cooper Tire &: Rubber Co. ; Seiberling Tire Co.

10l 1li 3g;Philips Petroleum 00----__ -------- Lee Rubber & Tire Corp--_ I 1-hiJips Pure Oil CO--- --u Mansfield 'TIre & Rubber 00--__ -1 Pure l'dewater 011 00 ---- U . Rubber Co i FlyL'lg "Blakely Oil CO_ _--_----n ------ :Wansfield Tire & Rubber 00. Pharis The B. F. Goodrich 00. BJ11lswick Century Oil 00_____------- , U. S, Rubber 00_____--- -------- Fisk In contrast to the purchase-resale phln, in which private or secondary brand llWles are used, under the sales commission plan the tire supplier distributes its tires through oil company outlets under the principal brand of the tire manufacturer, i. Goodyear or "Firestone." In similar fashion, batteries distributed under the sales commission plan are branded with the name of the TEA supplier, "lr irestone" or "Goodyear," ,,"whereas batteries moving along purchase-resale channels are usually marked with the private label of the marketing oil company, i. Atlas. " I-Iowever, Firestone does not manufacture the batteries it distributes but rather purchases THE FIRESTONE TIRE & RUBBER COMPANY ET AL. 389 371 Opinion such batteries from various battery manufacturers, including the Willard Division of the Electric Storage Battery Company and the Delco Division of General Motors Corp. " These "Firestone" batteries are then distributed through Firest.one s regular marketing organization.

The term "accessories" comprehends a wide variety of automotive products. Firestone produces several of the more important categories of automotive accessories, including tire retread and recap material fan belts, and radiator hose, and distributes these products under the Firestone label. Other accessories are purchased from such manufacturers as Du Pont, S. C. Johnson & Son, Inc., and Fram Corporation and resold under the Firestone label, and stil a third class of accessories are purchflsed for resale under the original manufacturers own brands. Among the last-named class of accessories are Auto- Lite spark plugs, Du Pont Simonize and Mae s brands of cleaners, polishes, and waxes, and Trico wiper blades. Tires and inner tubes comprise the most important of the three components of the TBA Jine, as is indicated by the fact that they represented almost 80 percent of total TBA sales by Firestone Shell outlets under the sales commission plan in 1955. Accessories accounted for an additional 12.5 percent of the total, and batteries for the remainder. Firestone s TBA sales to Texaco and Atlantic outlets during the same year were in approximately the same ratio. ORIGIN .AND DEVELOP::(ENT OP SHELL IS SALES COl\DfISSIOX CO:NTRACTS WITH FIHESTONE .AND GOODYEAR Shell first began to merchandise TBA products through its service station outlets about 1930. During the succeeding decade, a variety of brands of tires were purchased for resale through these stations, including Goodrich, Goodyear, U.S. Rubber and General tires. Sometime in 19+0, Shell commenced the sales commission plan with Firestone on a Jimited basis, and the following year with Goodyear as well. By 1943 Fi,"estone and Goodyear TBA were being sold throughout Shell's entire marketing area, although it was not until 1951 that The record does not show the source of' " Goodyear" batteries. However, witness MacGowan of Firestone testified that batteries fire not manufactured by any Ure manufacturer. It may be inferred, therefore, that Goodyear purchases Ilnd resells batteries in the snme manner as Il'jrestone. In Commission E:xhlb1t No, 360 A , a Goodyear offcial wrote to :Mr. George L. Switzer of Shell in 1953:

Dear George: We all recognize that in your T. B.A. sales tires and tubes represent the preponderance of doJiar volume-somewhere between 70 to 80% Ils B. ma.tter of fact.

Opinion 58 F.

written contracts were executed between the two rubber companies and Shell.' Prior to 1943, Firestone paid a sales commission of only 7Y2 % on sales to Shell retail dealers as well as wholesale distributors. Then in 1943, during 'W orld "lear II when demand for tires far exceeded available supplies, the commission rate was raised to 10% on purchases by Shell retail dealers. During the course of the hearings in this case, Mr. L. R. Jackson, Vice-Chairman of Firestone, explained the reasons for this increase:

Well, in 1943 we increased our sales commissions two and a half percent. At that time onr study and knowledge of the situation bore out the fact that the oil companies were becoming much more interested and enthusiastic about the TBA. business.

'l' hey were making plans to expand their organization, their staffs, they were going to become more aggressive in the promotion of this business and their help to us, and we felt that they earned and deserved a larger sales commission for that reaSOD.

There were some other factors, ho\vever, that entered into the change that was made. We were doing business with Texas and Shell at that time, and some of our major competitive companies a.pproached both of these important customers with a program and a proposal to make a private-brand tire for them on the purchase and resale basis.

\Ve also were doing business with Gulf and Socony at that time, and both Gulf and So cony approached us requesting that we make a private-brand tire for them. So we felt, with the increased efforts of tbe oil companies behind tbe sales commission program, and the inroads that competition were trying to make \with our customers, we had to make our sales commission roore attractive and desirable to them, and that was the reason we increased in two and a half percent at that time.

The success or Shell's sales commission arrangements with Firestone and Goodyear was summarized in an intracompany memorandum in the late 1940' . . . It has been stated earlier herein that the Service Station share of the total TEA replacement market (at consumer level) for the year has been estimated at $553,700 000. '(sing a mark-up of 33% %, SheU's 1947 sales, adjusted to consumer level, would amount to $19,125,000. This represents an attainment by Shclt-East of Rockies-of three and four-tenths percent (3.4%) of the ?latinna1 senire station TEA potential. To attain such a suh"jantinl share of tlle nati(inal pnfential. at a ross profit of 9. 1 % (which in reality is practically aJlt/.et profit), and without any burden. some details such as warehousing, delivery, ana accounting, should convince 7 On Febr1Jnry 2, 1\)49, :olr. O. E. Scholz 01' Sbel1 wrote to the company s Division Retai Mrmagel's: " As yon know, written ag-reements covering these programs between Shell and Goodyear add Firestone do not e::lst and we. therefore, strongly feel that the attached information should not bc dlsscminated beyond D1'Vislon Offce people, in written form THE FIRESTONE TIUE & RUBBER COMPA Y ET AL. 391 371 Opinion the most skeptical that the Shell-East of Rockies TEA program is sound, both from a sales, profit, and economic point of view. Both Firestone and Goodyear, on the one hand, and Shell on the other, have continued to benefit from their sales commission arrangements. Firestone s sales to Shell outlets jumped from about $12 million in 1950 to $21 million in 1957 while Goodyear s rose from $13 million in the earlier year to $26 million in the latter. Thus, by 1957, combined sales of the two rubber companies to Shell outlets were running about $47 milion pe.r year, and they were paying more than $3.5 million in sales commissions to Shell annually. In order to understand how Shell's marketing organization has ben integrated into the distributive mechanisms of Firestone and Goodyear, however, a more detailed familiarity with the operations of these companies is necessary.

DISTIUllUTIOX SYSTE3f OF SHBLL OIL COMPA:KY Shell is a major integrated producer, ref mer, and distributor of petroleum products. In 1957 the company s assets were in excess of $1 billion and its total revenue exceeded $1.7 bilion. More than 3. bilion gallons of Shell gasoline were sold in 1955, and this volume represented over 5% 01 national gasoline sales in that year. Shell markets its refinery products to two major classes of customers: (1) wholesalers ("jobbers ) and (2) retailers (chiefly service stations but including also garages, grocery stores, restaurants with outside gasoline pumps, taverns, etc. ). Some 847 jobbers purchase from Shell and, in turn, supply about 13 000 retail outlets. Shell has no direct dealings with these retailers, who purchased over 1 billion gallons of Shell gasoline in 1955. Shell also sells petroleum products directly to some 10 062 additional retail outlets, mainly SMr. R. E. Atkinson of Dilmar Tire Company, Inc., a FIrestone distributor In Latta, S. C. wrote to Firestone s Vice-President Tomkins on October 7, 1955, complaining that 'Tnder the present set-up Shell is getting more out of our operations than we are O1Jrselvcs. " Mr. Atkinson subsequently sent a copy of this letter to the Federal Trade Commission with the following comment: We ",-ere told by Mr. 'l' ompkins that he refl1fzcd that there was considerable Question as to whether or not Shell would be entitled to an overrlre commission on this aCCDunt, but if they did not pay the override on this particular account that he was afraid Shell Oil Company would demand same. You Cfin realize that 7-1/2% paid to Shell on Company ' on this volume would reflect !1 greater earning to Shell all Company than It .would be to Dllm::r Tire Company, which hils produced all sales. !\ndy tire distributors and service station operators use the term "override COttmission " or " overriding commission " rather than " sales commission . However, as SheJI and Firestone normnJly use "sales commission " in their correspondence, and as most of their witnesses in this proceeding also did so, we are using tbl" term in the present opinion. In In"t n('es where the term " override " or "overriding" appears in quot.ed document" or testimony 11creJn, it sllould be under"food to mean "sales commission ...

Opinion 58 F.

service stations. These direct dealers purchased about 1.9 billion gallons of gasoline from Shell in 1955.

Shell' s principal market areas are the IV est Coast, the East Coast the Middle West and the Deep South. The company has 17 marketing divisions subdivided into 84 districts, each district consisting of a city or other marketing center and surrounding territory. Direct Retail Customers. There were some 10 062 direct retail customers of Shell in 1955 comprising four distinct sub-groups, as shown by Table II:

TABLE Types of Shell direct dealers, 1955 type of dealer Kllmber Percent of I Percent tot,,) gallonage C Stfltlons 999 14. 38. 4n, 19. 20. gtt 231 32. 18. 'Iotal...___--.-------- 052 WOo 100. Stations are owned by Shell and operated by managers appointed by the company under the terms of a Service Stations :AIrma.ger s Agreement. Gasoline stocks are consigned to these st.ations and the managers are required to sell at pri;es fixed by Shell. Although C managers are employees of Shell insofar as their sales of consigned gasolb1es a.re concerned, and are paid therefor on a commission basis, in other respects they are independent businessmen and are authorized to purchase and sell TBA for their own account. A manager s employment may be terminated by either Shell or the manager by giving 24 hours notice.

The 999 C stations of Shell represented slightly less than 10 percent of the total number of directly-supplied Shell outlets in 1955; however, they accounted for almost 15 percent of the total volume of Shell gasoline distributed through direct retail outlets that year. L stations are owned by Shell and leased to station operators usually for a one-year term, although there are some three-year leases and perhaps a few for longer terms. The leasehold instrument does not require the lesseee to handle Shell products, but does provide that the premises shall be used for an automotive service station. The lease further provides that the lcssee is to have entire control of his business free from any control or direction by Shell. At the time he signs his lease, each L dealer also signs a Dealer Sales Contract with Shell, providing that the latter wiJ furnish and the former will purchase such (juantities as he may order of automotive gasoline, oil, and grease offered by Shell. (Prior to July, THE FIRESTONE TIRE & RUBBER COMPANY ET AL. 393 371 Opinion 1951, the dealer agreed to purchase his requirements of Shell refinery products. ) Each contract contains an "excuse for nonperformance clause providing that "Shell shall be excused from performance of its obligations under this contract when and to the extent that such performance is delayed or prevented by any cause reasonably beyond' Shell' s control. If Shell's supply of any products covered hereby at the place at which deliveries thereof are usually made hereunder, is or will be insuffcient at any time for Shell to fill all orders which normally are or would be filled from such place, then Shell i7'espectivc of the cause of such insffciency, may discontinue deliveries of such products hereundcr or apportion deliveries thereof among orders received from dealers and from other purchasers, in such manner as Shell in its sole d1.scretion may determine. (Emphasis added.

Notwithstanding 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 ". . . satidly J all the requirements of an independent enterprise. United States v. Richfield Oil Corp. 99 F. Supp. 280 288 (1951), affrmed 377 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 bis own acts upon the premises and those of his employees in their 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 no 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 Dot 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 any auxilary repair work upon the premises. The lessee Is solely responsible for his own conduct and that of his employees which may cause damage to tbe persons or property of others. L dealers accounted for about 39 percent of Shell's total number of direct dealers in 1955 and purchased about 46.8 percent of the 1. bilion gallons of gasoline distributed by this company to its direct dealers in that year.

DL dealers have substantially the same relationship with Shell as do L dealers, including both a leasehold agreement and a salee contract, except that the DL dealer owns a reversionary int.erest in the service station property which he occupies as a lessee of Shell. This results from the fact that the DL dealer owns outright the service station he occupies; hmvever, he leases it to Shell for a term DERAL TRADE COl\IMISSION DECISIONS394 Opinion 58 F.

of years, and Shell re-Ieases it back to the dealer. One of the chief reasons for this type of arrangement is to enable the operator who owns his station to obtain outside financing for purposes of modernization, securing such a loan with a lease to the Shell company. Shell had lease and re-lease relationships wit.h 1 922 DL dealers in 1955, or approximately 19 percent of total direct Shell dealers, accounting for 20.2 percent of Shell gasoline sales to direct dealers in that year. The initials OD refer to a class of Shell dealers known as "open dealers, An OD is a retail dealer who either owns his service station property, or leases it from someone other than Shell. Although he has no landlord-t.enant relationship with Shell, he purchases petroleum products from the oil company under the terms of the same Dealer Sales Contract referred to above in connection with L and DL dealers.

Actually about 75 percent of Shell' s 3 231 OD dealers in 1955 were not service stations ftt all, but were merely gasoline dispensaries in conjunction with other establishments such as barbecue stands garages, grocery stores and taverns, located lor the most part in rural areas. According to Shell, non-service station OD outlets have no TBA potential, and therefore only some 800 OD outlets can be regarded as potential purchasers under Shell'8 sales commission agreements with Firestone and Goodyear.

Jobber Customers. Shell' s jobbers maintain ,md operate bulk storage plants cft.pable of receiving direct deliveries of gasoline and ot.her refinery products. These products are then resold to ret.ail dealers who have no direct relationship with Shell. In many cases jobbers own their own retail outlets and lease them to service station operators much the same as Shell with its own directly-supplied stations. Shell' s jobbers supplied almost 1.4 bilion gallons of gasoline to approximately 13 000 retail outlets in 1955, compared with the 1. billion gallons sold by Shell to its 10 062 direct dealers in the same year.

Some jobbers own their own bulk plants and some lease them from Shell. Those who lease are subject to both a leasehold agreement and a sales contract while those who own their plants are parties only to a sales contract with Shell. Among Shell' s jobber customers there is no counterpart to either the C or the OD retailer. THE ISSUE OF COERCIOX The complaint in this case charges that Shell has caused its various classes of dealers to purchase substantial quantities of Firestone and Goodyear TBA through the use of threats to terminate either their employment (if C dealers), their tenure of lessees (if L or DL P A.'ly ET AL. 395 THE FIRESTONE TIRE & RUBBER CO 371 Opinion dealers) or their petroleum supply contracts (if L, DL, or dealers). This charge is supported by the testimony of former Shell dealers who appeared as witnesses on behalf of the Commission and further reinforced by intra-company documents taken from the fies of Shell. In addition, rcpresentatives of many suppliers of TBA engaged in compet.ition with Firestone and Goodyear testified that they had diffculty selling TBA to Shell dealers because the latter required to purchase Firestone andgroup felt that they were Goodyear TEA and feared reprisal by Shell if they purchased nonsponsored TBA. Testimony of these competing TEA suppliers as to reasons given by Shell dealers for not purchasing competitive Lawlor v. Loewe 235 U. TEA was allowed under the authority of 522 (1915). This testimony was received not as proof of the facts mind of therecited, but for the purpose of showing the state of however, that Shelldealers. Such testimony is competent to show, dealers did not purchase a substantial amount of competitive nonsponsored TBA because of their feeling that they were required to purchase Firestone or Goodyear TBA.

Among the former Shell dealers who testified in support of the complaint, several recountcd specific instn,nces in which either express or implied threats of lease cancellation were made. Other ex-Shell dealers testified to incidents occuring during their tenure as Shell lessees or station managers which made it apparent to them that they were expected to handle oi ther Firestone or Goodyear TEA and that if they failed to purchase suffcient quantities of such TBA that their relationship with Shell might be terminated. This evidence must be assessed in the light of subpoened correspondence taken from the files of Shell relating to the TEA sales objectives of the Shell company. A memorandum entitled " Situation " written by a Division Department lanager of Shell and addressed to his District Managers contains this statement: . . . Presently our dealers are lmfchasing far too many mongrel brands. Profits on batteries arc very attractive to the dealers and the battery buying season is just ahead. Let's keep these lowpriced and troublesome batteries out of our stations. Both our suppliers arc \yell-stocked, and both Goodyear and irestone !lave just recently announced attractive. . . terms on batteries. WE NEED THIS BAT1'ERY BUSINESS' A memorandum from the Retail Manager of Shell's Chicago Division to thc District Sales Supcrvisor of the Rockford District states: When tbe ',"Titer was in the Rockford District and we rode the service stations in the Joliet area, I was some,vhat surprised to learn that both Firestone and Goodyear have been callng on all the Shell dealers in Joliet and in some instances, Firestone is sellng the dealer merchandise and Goodyear is likewise sellng the same dealer merchandise. Opinion 58 F.

As you know, we have tried to sell the dealer on a 100% program either to be a Firestone outlet or to be a Goodyear outlet, because over a period of time, we have found that the supplier gives 1000/ outlets better attention, and of course the dealer in turn qualifies for better buying prices and gets greater attention. These are factors that should be pointed out to the dealer and we believe that the Shell District Salesman in that area should be cognizant of the importance of having a uniform program throughout the area and Dot have a Dumber of exceptions in the Town of Joliet. We believe that it is timely to start cleaning house insofar as our 'rBA. program is concerned and to work Qut a program whereby the Shell District Salesmen definitely spend time with the Firestone and Goodyear salesmen in callng on Shell dealers. If it is necessary the writer believes it would be a good idea for you together with the salesman and the Firestone or Goodyearman to call on Shell dealers to find out why it is necessary in Joliet to have a number of split accounts and also to find out why there is so much competitive TBA merchandise in Shell stations throughout the Rockford area. In still another subpoened document, Shell's District Salesman in Greenville, S. C. writes to his Sales Supervisor in Columbia as follows, . . . regarding the firm known as Carolina Colorwall (a wholesale tire dealer in Greenvile) I would like to say that if something cannot be done about this firm sellng Firestone and Goodyear tires at cutrate prices, it will be necessary for me to replace the rShell) dealer at Augusta and Woodfin d/b/a Dean Brothers.

It seems thn t Carolina Colorwall has been using him as an example of satisfied Shell dealer as I have discussed the TRA situation with several Dealers and they always come back with the statement that "Tom Dean buys his tires from Carolina Colorwall and when he stops buying from them, we wil too," Among the dealers making this statement are Riley Davenport and John Linvile.

I then discussed this matter with T. Dean and he says that he wil continue to buy from them as long as they are cheaper as a man bas to look out for himself.

Would appreciate anything that cnn he done to stop this unfair trade practice by Carolina Colorwal1 . . .

It is significant that .:fr. Dean was to be replaced, not because he insisted upon purchasing mongrel brands of TBA, but because he purchased approved brands at cut-rate prices from the wrong supplier.

The record of this case is filled with internal Shell correspondence exhorting ever-greater p1'e88111' on Shell ouj1ds 1-0 cause tlwm to purchase increased amounts of sponsored TBA. In our opinion these documents lend credence to the testimony of the ex-Shell dealers. Moreover, representatives of competing suppliers of TBA gave testimony suggesting a general belief on the part of Shell dealers that if they were to purchase competitive TBA, their continued status as lessees or dealers would be in jeopardy.

HE FIRESTONE TIRE & RUBBER COMPANY ET AL. 397 371 Opinion It is true that since 1948, Shell has notified its dealers by form Jetter that they are not obligated to purchase their requirements of petroleum products nor of TBA from or through Shell. However apart from the fact that this notice strongly implies that Shell dealers should purchase at least a substantial portion of their requirements of petroleum products and TBA from or through Shell, the hearing examiner ' found and the evidence in this ease establishes that agents of Shell have in fact coerced a substantial number of Shell dealers to purchase substantial quantities of FirestoIl:\ and Goodyear TBA, and that Shell has accepted the benefits of such coercion in the for;m of sales commissions. These acts of oppression are compounded by the fact that Shell, for its own business purposes, and in order to avoid responsibility for such outlets under numerous state and federal laws (for example, state chain store tax legislation and federal social security legislation) has consistently sought to create and maintain for its retail dealers the status of independent businessmen.

Respondent She!! cites United States v. J. I. Oase Co. 101 F. Supp. 556 (D.C. .:Enn. 1951) as authority for the proposition that the hearing examiner ' erred in concluding that Shell has coerced its dealers in violation of Section 5 of the Federal Trade Commission Act. Counsel supporting the complaint described the Case decision f1S a "strange and lonely District Court opinion. . . unfollo\ved uncited and ignored for nine years. " "lve need not dwell on the Case decision, however, since the subject of coercive practices has received careful scrutiny from the Seventh Circuit and from the Supreme Court in a line of cases in the field of automo6ve financing. United States v. General lI motors Oorporation 121 F.2d 376, (7th 'Cir. 1941), General Motors and its affliates, General Motors Sales Corporation, General Motors Acceptance Corporation and General :\lotors Acceptance Corporation of Indiana, Inc., appealed from a conviction of criminal conspiracy in violation of the Sherman Act. The indictment.chflrged that these defendants had conspired to coerce franchised dealers of General Motors Corporation to fiance their purchases and sales of automobiles through General Motors Acceptance Corporation. In affrming the criminal convictions, the court stated:

The record leaves no doubt that the dealer body as a whole was made Rcntely aware, andh!ldknowledge of the set policy of the appellants with rrspcct to use ,of Gl\IAC financing facilties. The fear of cancellation refusal to renew contract:sw'as great, so much so that the dealer was reluctant to refuse the terms, and policies dictated by the appellants. 398 FEDERAL TRADE COMMISSIO DECISIONS Opinion 58 F.

Approving the trial judge s instructions to the jury in the General Motors case, the Supreme Court stated in Ford lI0tor 00. v. United States 335 U.S. 303 at 316-317 (1948):

. . . Their plain effect is to draw a Hne 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 fall within the common understanding of "coercion " and other practices for which "persuasion exposition" or "argument" are fair characterizations.

,Ve are of the opinion that the record contains ample evidence to support the hearing examiner s finding that Shell has coerced and forced a substantial number of its dealers to purchase sponsored TBA. However, we regard these overt acts of coercion as mere symptoms of a more fundamental restraint of trade inherent in t.he sales commission itself. The more dramatic and immediate impact of this system, to be sure, is upon retail service station dealers or Shell and other oil company dealers similarly situated. Their freedom to buy and sell as independent merchants is shown to be. le.ss complete in practice than in theory. Yet from the point of view of the antit.rust laws, it is the devastating competitive effects of the'. Sll1es commission system on competitors of Firest.one and Goodyear which raise the most grave questions in this proceeding. lve turn, therefore, rrom an examination or the restrictive e,iIects or the sales commission system upon service stations as buyers of 'IDA to an assessment of this system s impact upon wholesale and retail dist.ributors of TEA engaged in c.ompetition with \vholesalc and retail distributors of Firestone and Goodyear. Preliminary to this inquiry, however, a more detailed understanding of the sales commission plan and the manner in which it has been int.egrated inj' Firestone s nation-wide distribution system will be helpful. THE SALES CObBnSSION PLAN IN FIHESTOXE S STSTE:)! OF DISTRIBUTION Firestone is the second largest manufacturer of rubber products in the united States (Goodyear is the largest), with net sales of $916 047 000 during the fiscal year ending October 31 , 1954. The company has five tire factories located respectively in Ohio, Iowa California, Tennessee, and Pennsylvania, with warehouses maintained at each factory. There ate 75 additional tire warehouses, 12 large auto-supply warehouses, and 770 company-owned and operated retail stores throughout the United States. Apart from these company stores, Firestone assert.s that". . . there are about 50 000 independent Firestone dealers including service station dealers in the United States. (Emphasis added.

.

AL. 399 THE FIRESTONE TIRE & RUBBER COMPANY ET 371 Opinion These 50 000 independent dealers are classified by Firestone as dealers . Direct dealers buyeither "direct dealers" or "associate directly from the Firestone district sales offee and usually execute a Dealer Franchise Agreement the parties to which are Firestone involved. Associate dealers do not buyand the particular dealer from the district sales offce, but instead make their purchases from either the company-owned stores or from Firestone s direct dealers. Moreover associate dealers do not execute a Dealer Franchise Agreement with Firestone, but rather sign a Firestone Dealer Agreement storewith the particular Firestone direct dealer or company-owned to which they have been assigned.

Normally, associate dealers purchase smaller quantities of TEA than direct dealers, and hence usually pay higher prices for their merchandise than do direct dealers. Most service station customers including Shell stations, are classified as associate dealers by Firestone, although some Shell stations are direct dealers Rnd function supply points to other Shell stations which are merely RssociRte dealers. " (The term "supply point" is used by respondents to refer to the 10crl TEA supplier to which indivichml Shell stations have been assignee!. ) A number of Shell jobbers also function RS supply points for Firestone, and distribute TEA to the same retail stations which the jobbers supply with Shell petroleum products. A supply point, then, is a local wholesaler of Firestone TBA, although it mry be primarily a retail dealer of Firestone, a retail dealer of Shell, or R jobber of Shell as well.

An integral part of the Firestone- Shell and Goodyear-Shell sales commission plans is the assignment or allocation of each Shell outlet to a specific supply point designated by Firestone or Goodyear. When a new Shell station is opened, or when a new dealer replaces a retiring operator, Shell reports to Firestone (or Goodyear, as the case mry be) the name Rnd address of the new Shell outlet on the appropriate Firestone (or Goodyear) form. The Firestone (or Goodyear) District Manager then assigns this outlet to a specific supply point, and notifies the supply point and the Shell outlet of the assignment which has been made. No sales commission is paid to Shell unless the Shell outlet purchases from the designated supply point to ,,,hieh it has been assigned. In other words, even though a Shell dealer purchases Firestone or Goodvear TEA exclusivelv unless he buys from his assigned supply point, the Shell company receives no sales commission. According to Firestone, this arrange- 9 A Sbe)J service station ma:.' become a supply point It' there are no Firestone company-owned stores nor franchised FJrestone dealers In the ared- to perform this function. or if for some other reason Firestone wishes sucb station to be a supply point ill preference to franchised dealers 01' company-owned stores in the area. 400 FEDERAL TRADE CQ:MISSION DECISIONS Opinion 58 F. T.

ment is necessary "For effciency of record keeping, and for orderly payment of commissions.

Although in some cases the Shell dealers may be assigned to two or more Firestone supply points, in the majority of cases, each Shell .outlet is assigned to but one. The testimony is conflicting as to the extent to which Shell retailers arc assigned to supply points of both Fircstone and Goodyear. :\Ir. J. G. Jordan, Vice-Prcsident of Marketing for Shell stated at page 2971 of the record that " It is not infrequcnt that the dealers (meaning Shell dealersJ are nominated to both rubber companies, at their request of course. .\t page 6074 110\vever, Firestone s witness IacGowan contradicts 1\11'. Jordan: Our understanding with Shell is that there wil Dot be dual nominations with ours Isupply points) and Goodyear. There are not supposed to be such Dominations. It i:o ab,ious, I think, why an arrangement of that kind would be in existence. The reason why the arrangement exists is another question but it is not intended that there should be dual nominations, and it is not intended by irestone that there should be, and our underst.anding with 811811 is that there are not dual nominations. , any element of dual nominations, according to everything I have ever known about this particular business, any element of dual nominations is very small. . . Despite these conflicting statements, on the basis of various statistical data introduced into evidence in the C011rse of this proceeding, it seems reasonable to conclude that approximately 10 percent of Shee' 062 direct retailers and 847 jobbers have been assigned to both Firestone and Goodyear. The remaining 90 percent of these direct dealers and jobbers have, apparently, been assigned to either Firestone or Goodyear, but not to both. W A reporting technique, has been established whereby Shell may determine the exact amount of Firestone and Goodyear TEA purchased by each Shell outlet from its assigned supply point or points each month. As both rubber companies use substantially the same reporting procedure, only the one used by Firestone need be described in deblil here.

Once a month Shell sends to Firestone a form known as a "Report of Firestone Purchases by Outlets." This form lists Shell's current Tetail outlets, showing both proprietor and trade name, with a separate page for each supply point. These forms are sent to the Firestone srdes offce in each sales district, and from there to the appropriate supply points. Upon receipt of these forms the supply points insert their sales t.o the various Shell dealers assigned to them during the current month and return the completed forms to the JO As noted previously, 'Some of SheJ1s OD "tations have no TBA potential find :prob:Jbl v have not been as"ilgned to either Firestone or Goodyear. THE FIHEsrrONE TIRE & RUBBER COMPAYY ET AL. 401 371 Opinion Firestone district offces. From there the forms are forwarded to Firest.one s home offce, with copies going to Shell. "\Vhile these forms provide the basis for computat.ion of sales commission accruing to Shell each month, they also afford Shell a means of determining the volume of sponsored TBA purchases by individual Shell dealers during the same period of time.

A different procedure is followed with respect to TEA purchases by Shell jobbers. These jobbers purchase directly from the Firestone or Goodyear district oiIices, and t.hen resell such TEA to their own retail dealers. About 13 000 Shell outlets are supplied by jobbers. Shall receives a 1f2o/0 sales commission on the net sales value of all sponsored TEA purchased by these jobbers, but no additional sales commission is paid when the jobbers resell such TEA to their respecti ve retail dealers.

Firestone, of course, has sales commission contracts with a number of other marketing oil companies and these agreements are in all material respects identical with the Firestone-Shell contract. A total of about 25 000 retail outlets and some 2 200 jobber outlets of aU such oil companies were assigned to Firestone in 1957, vlith Shell accounting for approximately 6 000 at the retail level and probably about 450 at the jobber level. Firestone s total sales under its sales commission contracts amounted to about $91 million in 1957. :Many advantages accrue t.o Firestone, and Goodyear as well, as a consequence of their sales commission contracts with oil companies. A prime advantage is participation with each oil company s sales force in a number of joint merchandising programs. This advantage commences with the selection of persons to operate newly-opened service stations or to replace outgoing dealers in previously-operated stations. continuing responsibility of Shell salesmen is to help such new dertlers get established. Through these salesmen, the local Firestone or Goodyear supply points are notified of the names and addresses of new dealers before they actually take over operation of their stations and, consequently, before local competitors of Firestone and Goodyear in llny community become ltTfltre of a new dealer identity. The importance of such flclvance notification may be gauged from the fact tlmt the initial stocking order of TEA by a llew dealer may amount to as much as $3 000. And Shell'8 turnover of dealers is high-in the, Chicago area in 1951, 39 percent of the total number of ShelI dealers were replaced, and in 1955, in Milwaukee, there was n 45 percent t.urnover of dcrtlers. Frequently such new dealers have recently completed Shell training schools in which Firestone ftnd Goodyear TBA were used in c1emonstrations and have already G81-2:-:7- 63- 402 FEDERAL TRADE COMMISSIO DECISIONS Opinion 58 F.

formed biases in favor of one or the other brands of TEA. Also, the Shell salesmen may inform new dealers that the Shell company sponsors or carries the Firestone and Goodyear lines, and ask them which they prefer to offer in their new stations, thereby implying that they must handle one or the other. Even as between authorized supply points of Firestone and Goodyear, however, the Shell dealer is sometimes given no choice, although he might obtain superior service from one of the two, as illustrated by the following interoffce memorandum taken from the fies of Shell: rankly, in installng Firestone in our recently opened service station at South Boulevard and Shuman Avenue, the decision was rigged. We never gave Goodyear a chance to solicit the business, knowing full well that if we did they would end up with the account. Having gone out of our way to establish irestone in the location, we are particularly upset with the developments which have since transpired.

Numerous other examples of joint merchandising programs favorable to the rubber companies having sales commission programs with Shell could be cited. For instance, at periodic intervals Shell participates on it cost-sharing basis with Firestone in "Banner Day promotions, at which times Firestone products are extensively promoted at Shell stations. Then, too, sponsored as well as non-sponsored TEA may be sold on Shell credit cards, including up to six HlOnths extended credit without any cha.rge to the mot.orist or the dealer. 'Vithout doubt, howcyer, the most effective joint merchandising tactic is joint solicitation, or "double-teaming . This refers to the practice of a Shell salesman accompanying a Firestone or Goodyear salesman in calls upon service stations to urged them to purchase sponsored TEA. A Firestone District lanager expressed his confidence in the effectiveness of joint solicitation in a 1954 memorandum to a Shell Sales Supervisor as follows:

DIl'. J. L. :\IcDonald, OUT Greensboro, N. C. Store Manager, was in Charlutte yesterday, at which time I reviewed some matters with him, particularly our TBA business in Greensboro, and more specifically the amount of business that we have been getting from Sbell accounts and where we are showing some losses.

As you and I know, when we run into a situation like this, the best remedy is the organization of joint solicitation, because then the problem can be pretty well bandIed. 'We are approaching the heavy tire buying season and we are awfull;y anxious to do an outstanding job in Greensboro through the Shell dealers. I would appreciate it if you would arrange for your salesman to meet with Mr. McDonald and our store salesman Hayes and set up a joint solicitation program to cover each and every account. We can get some more business from the ones who are active, and certainly reactivate the ones who have gotten a.way from us.

THE FIRESTONE TIRE & RUBBER COMPAc'lY ET AL. 403 371 Opinion In another internal Firestone document, a company offcial wrote in part, in reference to a meeting scheduled in the Shell Dearborn area:

At this meeting the Shell and Firestone salesmen wil agree on the dating quota for each individual dealer and the Shcll men wil be given assignments to "vork \with our men on joint solicitation. . . Our past experience has proven that we cannot do a good job. . . in this area unless we bring the Shell salesmen actively into the campaign.

This correspondence indicates that Shell salesmen, whose principal function is the sale of petroleum products, are considered almost indispensable by Firestone salesmen selling TEA to Shell dealers. Perhaps one reason is that the evaluation by Shell salesmen of their various lessee-dealers carries substantial weight with the District Managers of Shell when the latter group make decisions as to extensions of the dealers' leases for another year. Although respondent Shell has made vigorous efforts to create a record image of the typical Shelliessee-dealer as a stoutly independent businessman, able to close up shop as a Shclllessee on Saturday night and reopen down thc street in an Amoco or Esso station the following Monday morning, the record as H, whole suggests that this is a romanticized picture of a small businessman who is, more often than not, in a woefully weak bargaining position vis-a-vis his oil company lessor. One of Shell' s own defense witnesses, :Mr. James Purser, former Shell station operator and past president of an association of retail service station dealers in Korth Carolina, made this response on crossexamination:

.lir. GOOD HOPE : Didn t yon tell ::Ir. Suss (an FTC investigator) that YOll believed that most of the dealers were afraid to speak up while they were stil lessees from an oil company with regard to any complaints that they might have? MR. PGRSFJR: I would have to say that I think that there is a certainthere would be some of that with a dealer that has built up a business. Now I am not speaking of a Shell dealer. I think any lease dealer would have certain amount of fear. Just for instance, if I were renting a house from you and I felt like you wanted me to take care of the house, you had certain policies you used in renting, if I didn t go along and abide with it there would be a certain amount of fear in me even though I could move into another house.

The typical lessee-dealer s dependence upon his lessor-supplier is cXplaincd by the following facts: The cost of constructing a modern service station, including land, averages about $90 000. Few men \vho become service station operators have this amount of moneya majority have between $5 000 and $15 000, and some as little as 000. Most marketing oil companies, therefore, bnild a substantial portion of their own stations and lease them to operators. The lessee- 404 FEDEfiAL TRADE C011MISSION DECISIONS Opinion 58 Jj :l'. dealer uses his o\Yll capital to purchase an initial inventory of petroh'.l1 products, TEA, small tools, and for other expenses incurred in commencing operations.

lost service station opcrators never In an age to purchase the stations they lease. Perhaps Olle reason for this is the fact that if an operator iinds that he has a favorable location, and if he is a good businessman and builds goodwill, thus increasing the monthly gallonage of his station beyond the amount contemplated by the oil company in establishing his original monthly rental, his rent is likely to be raised to take account of the increased value of his lea,sed station. But no matter how long an operator may ren1ain as lessee and no matter how much effort he may make to establish goodwill in his community, the time may come when his lease is not renewedfor anyone of a number of reasons or for no reason at all except that the lessor would prefer to lmvc someone else operate that particuhlT service station.

Iany of the control devices available to Shell in its relationship with L dealers are also applicable to DL dealers. Many of the latter are heavily indebted, and grant leases to Shell as security for their financial obligations. .When they then become lessees of Shell they place themselves in precisely the same position as the L dealers. 1.ndcr some of the leases to Shell the oil company is given an option to purc.hase the premises at any time during the original term of the lease or any extension thereof. The weakest group of Shell dealers however, are the C dealers who may be replaced upon 24 hours notice.

Service station operators are understandably susceptible to the urgings and rec.ommendations of their oil company suppliers and Jessors in the matter of TEA. The Firestone salesmen enc.counter less buyer resistance on the part of such a customer when an oil company salesman is st.a,nding nearby adding his endorsement to the sales presentation of the Firestone representative. The technique of joint solicitation thus symbolizes in microcosm the competitive effects of thc sales commission plan of a national TBA supplier when introduced throughout the entire marketing area, of a major oil company. It js to these macrocosmic effects that we now turn. C01lIPETITIVE EFFECTS OF THE SALES COl\DfISSIOX rla AT 'THE IAXUFACT'CRING , WHOLESALE, AND RETAIL I.JEVELS On April 15, 1051, Mr. E. B. Hathaway of Firestone wrote to the Firestone District l\lanager in il1ilwaukee as follows: During the 1950 calendar year we suffered a substantial loss in our sales position with Shell as compared with our competitor who shares Shcll with us. (Emplwsis HeWed.

! HE FIRESTONE TIRE & RUBBER COMPA Y ET AL. 405 371 Opinion Trouble spots remained as late as 1954, as is shown by this excerpt from a letter from Mr. Hathaway to Firestone s ,Vest Coast Division: 1 ha,e just been reviewing our sales performance ,with Shell nationally with :\r. .Addison, and it is evident to me that one of our major problems is in this important division of the Shell Company. . . :\Iore important. . . 01/1' competitor bas a substantial increase with this division, amounting to approximately 11% . . . We are determined to recapture Ollr original position and improve it to the point where we would enjoy at least 50% of the Shell Company s business in the coast area. (Emphasis added.

Steps were being taken in other Firestone divisions to increase the sales volume to Shell, as is indicated by these instructions sent out to all Firestone District )I llagers in the company's Central Division in :\farch, 1855:

I want you to gh"e me a list of all Texas and Shell accounts bandling competitive prorlucts, (other than Goodrich with Texas and Goodyear with Shell), ShowilJg the tire brands handled, estimated T.B.A. annual volume, and the territory salesmen or store assigned to sell the account. . . Then set up a definite follow through on these assig-nments to close these accounts on a FirestolJo contract.

Apparently Shell remained dissatisfied with Firestone s showing, hm,ever, for on April 29, 1955, the rubber company s Vice-President for sales, ::\'11'. H. D. Tompkins, made this comment in a Jetter to .Firestone s District M manager in Albany, Nev,,' York: I was in New York last week with Mr. Hathaway, and we called on the Home Offce offcials of the Slwll Oil Company. We were very much disturbed to learn that our sales performance with Shell for the first three months of this calendar year compares very unfavorably with Goodyear, in fact, we were tolrl that Goodyear have an increase in their sales through Shell outlets which is about double our increase for the first . quarter. The Shell manap;ement were quite critical of Firestone in this situation and it was impossible for either Mr. Hathaway or myself to explain it satisfactorily.

. . . i\1r. Hathaway and I told the Shell offcials in New York we would he back with greatly improved results. So, please don t let us down. These quotations pose two paradoxical questions: 1-Iow can Good year be Firestone s "competitor" if Goodycar s TBA products are not regarded as "competitive procll1ds ? And why is ShoJI critteal of Firestone s sales performance ,vhen it. is Firestone that is paying Shell for sftles assistance? Some light is shed on the first question by recalling that only about 10% of Shell's retltil outlets are ltssigned to supply points of both Firestone and Goodyear. The remaining 800/0 ate assigned to supply points of either one or the other, and the "competitive" efforts of Firestone are thus directed tmyard sening a greater volume or TEA to t.hose Shell accounts assigned to Fire- Opinion 58 F.

stone than Goodyear is able to sell to its own assigned Shell outlets. One possible answer to the second question is that Shell is urging Firestone on to greater sales efforts in ordcr that the sales commission paid to Shell may be greater.

Whatever the cxplanation for these paradoxes may be, it is apparent from the record that both Firestone and Goodyear have had considerable success in selling their TEA to Shell outlets. As will be recalled, in 1957 Firestone s sales to its Shell customers amounted to about $21 million while those of Goodyear were nearly $26 million.

"lVc find that Shell has used its economic power as a major wholesale and retail distributor of gasoline and as a lessor of Ilumerous wholesale and retail gasoline distributing facilities to cause its dealers to purchase substantial amounts of a different class of products, TBA, as a condition to their continuance as Shell lessees and dealers. This finding, in conjunction "\with Shell' s ma,rket position and the volume of TEA afi'ected, would a.appear to bring this case within the Supreme Conrfs ruling in N01'them Pac. Ry. 00. United States 356 U. S. 1 (1958) ancl the more recent decision by the Fourth Circuit in Osbom v. Sinclair Refining Co. 286 F.2d 832 (4th Cir. 1960).

The Court held in the N orthem Pacific case that tying arrangements arc per se violative of Section 1 of the Sherman Act ".. . whenever a party has suffcient economic power with respect to the tying product to appreciably restrain free competition in the tied product and a 'not insubstantial' amount of intcrsbtte commerce is affected. (356 U.S. at 6) The content of the phrase "suffcient economic power with respect to the tying product was defmed by the Fourth Circuit recently in the Osborn case. Osborn was a lessee of Sinclair Refiing Company from 1936 to 1948, 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 of its subsidiary, Sherwood Bros., Inc. , wa. party to a sales commission contract with Goodyear in all material respects identical to the Firestone-Shell and the Goodyear-Shell agreements in the instant case. Osborn filed suit for treble damages under the Sherman Act, claiming that the sale of Goodyear TEA to Sinclair dealers in lIfaryJand 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 ca.rry substantial quant.ities of Goodyear TEA if they wished to continue selling Sinclair gasoline under their lease and sales agreements THE FIRESTONE TIRE & Rubber CO:vPA. Y ET AL. 407 371 Opinion with Sinclair.ll As phrased by the court, quoting its own earlier decision in ilcElhenny v. Western A,do Supply Co. 268 F.2d 332 338 (4th Cii'. 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 Ad through a series of 1:1r/'plied tie-in agreements with its dealers in Iarylancl. :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 llon such exclusivity in a tie-in would be inconsistent with the trend of decisions in this area, If a substantial amount of commerce is restricted by such arrangements, the standard 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 J\larylancl 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 THA. Koone questioned that Goodyear TEA purchased by Sinclair dealers in :J\aryJand comprised it substantial amount of commerce. Accordingly, the implied tie-in agreements between Sinclair and its dealers were held to constitute a per se violation of the Sherman Act. Here we find that Shell sold 3.2 billion gallons of gasoline nationally in 1D55 through some 10 000 directly-supplied outlets and 847 jobbers "ho, in turn, supplied an additional 13poo retail stations. In the same year Shell accounted for at least 5% of the total volume of gasoline sold at retail in the lTnited States." But 've do not rest our decision on a mechanical application of the rule of the NOTthern Pacific and Osborn cases. The issue here is the legality of a particular method of distributing TEA products used by the respondents. Shell has suffcient economic power with respect. to its wholesale and retail petroleum distributors to cause them to purchase substantial quantities of sponsored TEA even without t.he use of overt coercive tactics or of written or oral t.ying agreements a,nel this power is a fact existing independently of the 11 Sinclrlir did not have a sales commission plan in effect throughout its entire marketing anm, but only In 1\arylrmd and, to some extent, In adjacent states. 286 F. 2d at- 12 Actually, as Shell does not market gasoline in many of the mid-continent states the company s mf1rket slnlre in its own marketing area Is undoubtedly greater than 5 percent.

408 FEDERAL TRADE COMl\IISSIO!\T DECISIONS Opinion 58 F.

particular method of distributing or sponsoring TEA used by Shell. Determination of illegal1ity in this context requires an evahmtion of competitive e,ffects resulting from respondents' use of the sales commission method of distributing TEA.

The record of this case conclusively establishes, in QUI' minds that the sales commission eon tracts between Shell and Firestone and Shell and Goodyear have unla,, fully injured competition in the clistl'ihl1hon of TBA at the manufacturing, wholesale and retail levels.

There are at least 18 manufacturers of automotive tires in the' uniterl States, 10 of which a.la offer lines of batteries and accessories. Those seDing batteries and accessories in addition to producing and selling tires are:

(1) The Goodyear Tire & Rubber Company (2) The Fireslone Tire & HuLLer Company (3) enited Stlttes Rubber Company (4) The B. F. Goodrich Company (5) Cooper Tire ,'i Rubber Co.

(6) Dunlop Rubber Co.

(7) Gates Rubber Co.

(8) General Tire & Hubber Co.

(\1) Lee Rubber & Tire Corp.

(10) Seiberling RubLe I' Co.

Those companies which produce and seh only tires are: (11) Armstrong Rubber Co.

(12) Corduroy Hubber Co.

(13) Dayton Rubber Co.

(14) Denlnnll Hnhber Innufactul'ing Co. (15) Mansfield Tire & Hubber Co.

(16) McCreary Tire & Rubber Co.

(17) Moh,nvk Rubber Co.

(18) Schenuit Rubber Co.

As shown by Table I, supra, some of the companies named above sell private brand tircs t.o oil companies under the purchase-resale plan. Ot.hers, such as Goodyear and Goodrich l:; have both purchaseresale a.nd sales commission contracts, while Firest.one, with a single exceptiml, avoids purchase-resale arrangements but is heavily committed to the sales commission plan.

TBA products are distributed to ultimate consumers by a number of methods other than through service stations, as has been shown. 13 Darton. Dunlop, General and Lee each hfls a sales commission arrangement with one r:flll marketing oil company.-v, and 'C. S. Rubber has such agreements with s1x small marketing oil companies and, to a limited extent, with two larg-e oil companies. _____________________ _ . . THE FIRESTONE TIRE & RUBBER COMPAJ\TY ET AL. 409 371 Opinion- - - Sears Roebuck, Montgomery \'1 ard, and \'1 estern Auto Stores all oirer their own brands of TBA to consumers, although as to tires at least, these companies obtain private brands from one or more of the 18 companies named above. Sears Roebuck, for example, purehases "A11-State" tires from Goodrich, Dayton, Dunlop, and Armstrong, while :Montgomc.ry 'Yard is supplied with "Riverside " tires by U. S. Hubber and Mansfield. These two nation-wide mass distributors alone accounted for almost 15% of all new (as opposed to recappecl) replacement tires purchased by automobile owners in 19M: TABLE Ill-Replacement tire purchases by automobile owners in 1954 Percent Brand of tire of total Goodyear - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 21. Firestonc- - - 15. Sears Roebuck (All- State)- - - -- -- -- 10. 7 United States- - -- - --- B. F. Goodrich Atlas_____------------------- Montgomery Ward (River::ide)-- General- - - - Western Auto Armstrong_ 1. 0 Lee___ Ou1f 1. 3 Seiberling_ 1. 5 Mobil 1. 6 elly_ 1. 2 Fisk____ 1. 0 Dunlop_ 1. 6 All others Total - - ---- -- - - - -- --- -- - - - -- --- -- -- -- - -- -- --- -- -- -- --- -- - - 100. 0 This table shows that Firestone accounted for 15. 3 percent and Goodyear 21.4 percent of total replacement tire sales at consumer level in 1954. while the bulk of Firestone s retail volume may have resulted from sales by the 770 company-owned stores and the many thousands of franchised Firestone dealers Jocated throughout the United States, it is clear that a substantial portion of t.his retail volume was accounted for by the more than 25 000 service station outlets supplied by Firestone under its sa-les commission contracts wit.h oil companies. 14 H FIrestone paid sales ('omm\!:siolls all about SOl millioll of sales to all company ol1tlets in 1957, which was probably about 10% of Firestone s total 'Sales volume III that year.

410 FEDERAL TRADE CO:yMISSION DECISIONS Opinion 58 F.

Three of Firestone s major competitors-Goodyear, United States Rubber, and Goodrich are a.la manufacturers of tires, while the t.three next largest competitors at retail Sears Roebuck, Atlas, and 1ontgomery IVard are not manufacturers at all, but merely purchase for resale from such companies as Dayton, Dunlop, 1J. Rubber hnsfield, Goodrich, Cooper, Seiberling, and Gene,,!. Among other manufacturing competitors of Firestone, Lee with 2. percent and General Tire ",ith 2.4 percent "-ere the only companies with more than 2.0 percent of the replacenlcnt tire market in 1954. These data indicate that the smaller tire companies 111ay wen be able to compete with the larger ones for the business of oil companies using the purchase- resale method of distributing TEA. I-Iowever the record demonstrates that the 811a11e1' tire companies are not able to compete effectively with larger manufacturers such as Firestone and Goodyear for the business of marketing oil companies using the sales commission plan because the smaller tire companies lack distribution facilities \\'which blanket t.he entire marketing area.s of major oil companies. This \yas made clear by the testimony of defense witness 1\lacto\fan of Firest.one:

'rile competition for sales commission contracts has tended to be more among the larger tire companies than it has among the smaller tire companies I would say for the reason that to be successful in the sales commission business, a tire company has to have in the first place a complete TBA line to be most useful to the dealer, because dealers need a complete TBA line. Second, of course, if a marketing oil company has wide spread distrilmtion itself, it needs to be doing business, if on a sales commission basis, with a company or companies that also have wide-spread distribution facilities and which have in particular1" suffcient and adequate number at supply points from u:htch to make deliveries, serve the dealer, and so on. (Emphasis added. The latter part of lr. MacGowan s statement, as to the need of a marketing oil company using the sales commission plan to do business wit.h a tire compa,ny hn,villg wide-spread distribution facilities is supported by the record evidence in this case relating to the Atlantic Refining Company s adopt.ion of the sales commission method of distributing TBA in 1950. Prior to 1950, Atlantic purchased Lee tires and Exide batteries for resale to the oil company s wholesale and retail petroleum distributors. \Within one year after Atlantic decided, in .January 19;)0, to shift to sales commission arrangements with Firestone and Goodyear, and in spite of the fact that Lee established new distribution centers from Florida. north Yard through Pennsylvania in an effort to maintain its former volume of distribu- THE FIHESTONE TIRE & RUBBER COMPANY ET AL. 411 371 Opinion bon to Atlantic outlets, Lee had lost approximately 75 percent of 1.5 its Atlantic business.

\Vitness JlacGoY\Tan s statement indicates that in order to make use of the sales commission method of distributing TBA, a tire company must not only have a widespread distribution syst.em with an adequat.e number of supply points, but must also offer a complete line of TBA; and this is no doubt true. But what the statement fails to take account of is thrtt independent 'IvholesaJers competing with Firestone s local \Yholesale distributors throughout the land do offer a complete Jine of TBA to service station customers. Such independent competing wholesalers do not have to obtain batteries and accessories from t.their tire, suppliers, since they can procure batteries and accessories directly from the original manufacturers of these items. (Fires/' one, it will be recalled does not manufacture any of the "Firestone batteries a.nd only certain of the "Firestone accessories it distributes. ) Seventee,n representatives of wholesale TRA suppliers in the cities of Jfil,va11ke, , Chicago, Charlotte, N. , Atlant.a, Jacksonville, Fla. and Baltimore testified in support of the cOlnp1aint in this proceed- 15 The evirJenee nI o "\lg- ests thflt hiJtter\' manufacturers mny be hard bit when a miJ ior oil compnnr decides to enter into ' sales commission n ;reements with one or more tire mnnufactlJrcrs. Prior to 1D50. AtJrmtfc Refining Company purchased Exlde (wttC'r!es from the Electric Storage Bntten" Company and resold such batteries to Atll1ntic def11ers. fllong- with tJJ(! Lee tires plirchaf'ed from Lee Rllbber & Tire Corp. 'VJlfTI Atin.ntic flecir1cd to f'pnnsor FIrestone rmd Good ear products under the sales commi-:sinn T11nns of tllese companies, Atllwtic wished to continue to IJurchase and (Jistribute Exide batteries. The reason wby Atlantic did not do so was set forth in tills memor:ln(lum from Bxjde s Sales Mannger Connell to his company s VicePre"-ident in Charg-e of Sales: . Colle . rV\ce-Pres!(lent and General lIIanng-er of AtlnnUc Refining Company) hns cle:lrl.\ indicated to lIIr. Hei(lemnn rTBA :\Janager for Atlantic Refining CompanYl that tile one TEA item he would prefer to retain Is Exide bntteries. Il likes our npnny, he lJke Ollr way of (Ioing business. and belieYt s ollr product is one of the best. Ho,,ever, as explained prev1ou Jy both tire companies hll"Ve refused to go along: with the TBA commlssiOIl plan unlesf. it Jncludes batteries and u11 other TRA items. Commenting on the p(1s Ibilit:v of his company shifting from the purchase-resale of Lee Tires tnd Exide br1tterles to the sales commission method of distributing Firestone TEA, 1\11'. Heideman of Atlantic stated as follows in III intracompany memorandum: It is probable that aile of the apparent major advantages to the Firestone prog-ram is that it offers some ::olutJon to our present warehOl1sing- problem. In other words batteries and iJf'cessories---- more than tires-nre contributing to this problem. If with this f'bange Ive present to onr dealer the viewpoint that he should handle these socjated lines of Firestone, we quickly find the tire national acceptance point reversed as neither Firestone batteries nor accessories have the national acceptance of tlJe lines we presently handle. A picture on Firestone batteries was secured from Exide which indicllted t.hrtt their production of Firestone batteries Is somewhere between 66-2/3 Ilnd 75% of the amount of hatteries that are purchased by the Atlaf! Corporation. When it Is considered that Atlas is a private brand bat.tery sold only in Stondard Oil !'en-ice stations and that Firestone has the entire national market open for their solicitation, there is certainly an Indication that consumer acceptunce of the Firestone brand in batteries is very limited. This becomes more obvious when we consider Firestone s tire position, where they nre either #1 or #2 in the industry in replacement sales.

412 FEDERAL TRADE COMMISSIO DECISIONS Opinion 58 F.

ing. Typical of these witnesses was :\1r. Raymond L. Berry, Jr. representing Berry Tire Company of Chicago. He testified that his company sells Dunlop and Miller tires, Auto Lile batteries and spark plugs, and various accessory items such as antifreeze, light bulbs\ etc. Among the classes of customers served by his company are service stations, car dealers, garages, and repair shops, and a few commercial trucking accounts. lie testHied to a number of instances in which Shell dealers told him they could not buy TBA from Berry Tire Company because, as ShelJ dealers, they felt that they must purchase Firestone TBA. The other sixteen representatives of wholesale supply companies competing with Firestone testified to the same effect.

T1yenty-one r, jrestone l\'hole8alc dealers appeared as witnesses for respondent Firestone and were practically unanimous in stating that if the sales commission plan "were to be discontinued, the effect on their businesses would be disastrous. ,Vitncss Brooks, for example a franchised Firestone wholesale dealer in the Chicago area engaged in competition with witness Berry, and wit.h two Goodyear distributors in his area, )I:aier and Jensen, testified that he is a supply point fo!' about 43 Shell, Texaco ancl DX Sunray service sbttions and that these stations account for the bulk of his company s wholesale TBA sales, which run about 8200 000 per year. On direct examination, in response to a que,shon from connse,l for Firestone, t.his information was developed:

MR. GRAVELLE: As a small businessman. . . what would be the effect on your business if there were no sales commission plan? ::fR. BROOKS: Well, I have thought about that, too. I have been at this about 12 years. I am 56 years old right now. And if there were no sales commission plan, I would Imye to start all over from scratch. My wholesale business would be gone.

On cross-examination the foJlowillg exchange took place, with reference to the testimony quoted above:

::IR. GOODHOPE: Are you saying that if Firestone didn t pay the ten percent override to Shell and Texas you wouldn t be able to sell to those Shell and Texas stations? MR. BROOKS: That is what I am saying, yes. I think that is true. ::IR. GOODHOPFJ: Do you have a further explanation? :\IR. BROOKS: Yes. I would like to say bow I reasoned that out in my own mind.

Tn the majority of oil companies doing business in my trading area, I figured this np once, too, and I don t remember tbe figures, but I would say about two-thirds of them operate with tbe oil company sellng TEA products directly to the gas station, with no middle man. And I assume if there were no agreements of this type, this commission type deal, that Shell and Texas, THE FIRESTONE TIRE & RUBBER CO),IPANY ET AL. 413 371 Opinion my two big accounts, would probably do like the majority do and sell directly. MR. GOODJIOPE: To the station l\IR BROOKS: '1'0 the stations, yes.

:\lH. GOODIIOPE: And that would cut you out? :'lR. BHOOKS: Yes sir.

l\1R. GOODI10PE: As far as the Shell stations which you have in your territory, I believe you stated that there were 21 of them to whom you sell TEA? l\R. BROOKS: Yes, sir.

lR. GOODIIOPE: Does your principal competition, as far as those stations are concerned, come from l\laier and Jensen (Jocal Goodyear dealers in the area)? l\lR. BROOKS: In the ones I am now sellng-do I understand you? MR. GOODHOPE: Yes.

l\IR. BROOKS: No. Our principal competition comes from outside sources what we call wagon peddlers, and things of that type. Pretty well .Tensen and :Maier stay out of the stations we are sellng and ,ve try to reciprocate because there is no use trying to start a first-class fight. ,Ve call on them fwd make ourselves available, and they do the same for ani' stations. MR. GOODHOPE: You are talking about the Shell stations? lR. BROOKS: Yes.

In short, sevcnteen wholesalers testified that they could not sell to Shell stations because of the sales commission plan, and twenty-one Firestone wholesale dealers testified that they could not be able to sell to Shell stations without the sales commission plan. The success of the one group is not due to the fact that its members are more able competitors, nor because they offer superior products and services, and the failure of the other group is not traceable solely to the possible inferiority of their products and services. The one outstanding fact is t.hat the group of Firestone dealers has been successful in selling to Shell stations because of the sales commission system and not because of either their own competitive abilities or because of the competitive advantages of their products. The Firestone dealers who testified in this proceeding almost without exception expressed apprehension that they would be unable to sell TEA to Shell's dealers if Shell were to adopt the purchase-resale plan. This, in itself, is eloquent testimony to Shell's economic power over its various classes of petroleum outlets. Nevertheless, the point deserves consideration since it implies that no useful purpose would be served by outlawing the sales commission plan between Firestone and Shell as Shell would merely shift to the purchase-resale method of distributing TEA, with the result that Firestone and Goodyear dealers would lose a substantial volume of sales, but without improving the lot of competing TEA suppliers as they would still be unable 414 :FEDERAL TRADE COMMISSIO:- DECISIOKS Opinion 58 11 to sell TEA to Shell dealers. vI' e believe this argument to be without merit for several rettsons.

First of all, what course of action Shell may follow with respect to TEA if the sales commission plan is outlawed is entirely speculative. Assuming for the moment, however, that Shell will adopt the purchase-resale plan and flont the antitrust laws by requiring its dealers to handle Shell TEA exclusively, or even substantially, it is obvious that local wholesalers of TEA competing with Firestone and Goodyear dealers in Shell' s marketing area will at least no longer be laboring under the handicap of their competitors representing Fire stone and Goodyear having already preempted a substantial share of the local wholesale TEA nmrket. As the situation stands under the sales commission plan, local dealers representing Firestone and Good year are assured of a substantial chunk of the market before the competitive mce at the wholesale level even begins. Abolition of the sales commission system will at least terminate the unjust advantage presently enjoyed by distributors of Firestone and Goodyear over local competitors representing other tire manufacturers and TEA suppliers.

However, this unfair competitive advantage is not confined to the wholesale level; many of the wholesalers who testified in this proceeding-both in support of and in opposition to the c01l1plailltalso sell at retail directly to motorists. To the extent, therefore that suppliers of TBA competing -with distributors of Firestone and Goodyear at the wholesale level are weakened by the operation of the sales commission system, these dealers are also ,veakened at the retail level, in instances where they are engaged in retail as well as wholcsa1e operations.

JIore(i\ , the competit.ve inequalities engendered by the sales commission plan extend backward to the manufacturing level as well as fonyard to the retail level. As has been shown, although the smaller tire manufacturers are able to compete with the larger ones in selling to oil companies using the purchase-resale 11lethod of distrinot able to compete with the bution, such smaller ma,nufacturers are larger ones for the business of oil companies using the sales commission plan. This is chiefly because the smaller manufacturers lack the widespread distributive facilities of Firestone, Goodyear, and other nation-wide tire manufacturers using the sales commissjon plan. In any particular or specific local market area, to be sure: one or more of the smaller manufacturers may have a wholesale and retail distributing organization which is every bit as effective as its larger competitors in that particular market. Throughout the entire mar- THE FIRESTO:0 E TIRE & RUBBER COMPANY ET AL. 415 371 Opinion keting area or any large oil company, however, no one or the smaller manufacturers may have as effective a distributive organization as do the larger manufacturers. But, a,s one or the chief characteristics of the sales commission plan is that it strengthens wholesale and ret.ail distributors of such companies as Firestone and Goodyear by pre-empting for their benefit a substantial segment or all of the various local wholesale markets throughout the land, the sales commission system stands as a bar to the expansion by smaller tire manuracturers or their dist.ributive organizations. For according to Shell, about '(5 percent of all replacement TEA items sold to motorists are accounted for by service stations. vVe think the fact that Firestone s dealers believe that they will lose a substantial segment of their sales to Shell outlets if the sales commission plan is discontinued in no way detracts from, but in ract supports, our conclusion that the sales commission method of distributing TBA used by Firestone and Goodyear in selling to Shell dealers is an unfa.ir method or competition and an unfair act or practice in COlnmerce in violation or Section 5 of the Federal Trade Commission Act. Furthermore, we reject the suggestioll by these Firestone witnesses that Shell will ignore the teaching or such landmark decisions as Standa1'd Oil Co. v. United States 337 U. 283 (1849) ; Northern Pew. Ry. Co. v. United States, supra; Osborn v. Sincla.ir Refining 00. , s'upJ' a/ and United States v. Sun Oil 00. 176 F. Supp. 715 (KD. Pa. 1858). Consequently, we believe that the abolition of the sales commission agreements between Firestone and Shell and Goodyear and Shell will unfetter the forces of competition in TEA distribution, not further restrain them. Other anticompetitive effects of the sales comnlission system are 50 obvious that they require no detailed consideration. Competition betvvccn Firestone and Goodyear in selling to individual service stations assigned to one or the other of these rubber companies has been wrecked by this system. The public is disadvantaged because it cannot rely upon the 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 the buying public. And ilnally, 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. For, as the Court of Appeals said in the recent Osborn case, in a situation identical.l in 10 In footnote 8 to this case the court st ted: "It may be noted In passing that the exchlsive supply provisions for tires, tubes, batteries. and other accessories which are 11 p rt of some of Stanr1:rd's contracts with dealers who hf\ve also agreed to purclJase tlwir rClJuit-cments of petroleum products si.ould perhaps be considered, as a mn.tter of classification, tying rather than requirements ligreements. 416 EDERAL TRADE COMMISSIO)1 DECISIONS Opinion 58 F.

insofar as the service stationits essentials with the present case, dealer is concerned:

Because of its financial interest in having its lessee-dealers sell Goodyear TEA rather than competing brands, Sinclair-Sherwood engaged in a course of conduct designed to bring about this result. The facts in this case utterly fail to reveal any other 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 no suggestion that Goodyear was superior benefit to the dealers into the other brands of TEA or that there was any handling Goodyear rather than one of the other lines. Hespondents contend, however, that ". . . aJl judicial (and legislative) authorities firmly uphold the right or a manufacturerdistributor of a basic product to sell or sponsor to its dealers complementary or related products, including spccifical1y the right of oil companies to sponsor TBA to their dealers." Among the cases cited in support of this proposition, those involving oil companies are v. Richfield StanclaTCl Oil 00. v. United States, supra, United States Oil Oorp. , sup-r, United States v. Snn Oil 00. 176 F. Supp. v. Since/ai?' Refinimg 00. 171 F. 715 (E.n. Pa. 1059), and Osborn the legality of a sales com- Supp. 37 (D. Md. 1059). Of these cases, mission contract between an oil company and a tire manufacturer \vas at issue in only one Osborn and that decision was reyersed on appeal.

Exclusive dealing agreements relating primarily to petroleum , bet,,-een Standard Oil of product, but including TEA as well California and its dealers, betwe,en lhchfield and its dealers, and between Sun Oil and its dealers were declared unlawful in the other the sales three cited cases. But those decisions did not "validate" commission method of distributing TEA by a ma.rketing oil company-no distinction wa.s made in those cases as to the legality or illegality of any particular method of distributing TEA. They held simply that it is unlawful for an oil company with a substantial share of the relevant market to enter into exclusive agreements with its dealers obligating them to purchase all their requirements of petroleum from the oil company or all their requirements of TBA from either the oil company or its nominee. In the instant case we are concerned primarily with the sales commission contracts between Firestone ,md Shell and between Goodyear and Shell, and with the fldverse effects of those contracts on competing manufacturers, wholesitlers, and retailers of TBA. Service stations represent a vitally important segment of all of the various local ",holesa1c J1Itrkets TBA throughout the Janel. In this decision, ,ye hold that it. is an unfair method of competition for a large manufacturer and clis- (;, THE FIRESTO)1E TIRE & RUBBER COMPANY ET AL. 417 371 Opinion tributor of TEA, engaged in competition with other tire companies and other manufacturers and distributors of TBA, to enter into contract with a major marketing oil company which has the effect of pre-empting for its own wholesale and retail TEA distributors substantial segment of the wholesale TEA market in local market areas before the competitive race has even begun at that level. Shell also contends that this Commission "has approved both the sales commission and the purchase-resale methods of marketing TRA by oil companics ' citing as authority therefor our decisions in United States Rubber Oompany, 28 FTC 1489 (1939) and Atlas Supply Oompany, 48 FTC 53 (1951). The former case involved price discrimination under Subsections 2(a) and (d) of the nobinson-Patman Act, and the issue of restraint of trade caused by particular method of distributing TEA was not even raised; respondent was required to cease and clesist discriminating in price among its customers no matter which of several district methods of distribution it used. The latter case does not seem relevant to this proceeding since Atlas Su_apply was concerned with the manner in which the five Standard Oil Companies exercised t.their purchasing powe?' through Atlas Supply Company-it had no connection at al1 with the sales commission method of distributing TBA. Council for respondents refer us to several cases dealing with business practices sOJ1e"\yhat analogous to the sales commission plan under consideration here. Those dealing with automobiles and autOlTIobile financing, United States v. Ford foto') Go. Civil o. 8 D. Ind., Nov. 15 , 1938; United States v. Chrysler Oorp. Civil No. , N.D. Ind., Nov. 15 , 1938; and United States v. Oenerailiotors Corp. Civil o. 2177, N. D. 111., Oct. 4, 1940, were subsequently set- 17 Each respondent agreed to an injunctiontled by consent c1ecrees. prohibiting, a.among other things, its recommending, endorsing or advertising any particular fina.nce company to its dealers and from engaging in joint solicitation of its dealers with representatives of any finance company or companies. We fail to see how these cases aid the respondents' contention that the sales commission method of cJistributing TEA is perfectly lawful and has been so rccognizecJ by the courts; to the contrary, any inference that may be drawn fronl them supports our position here. In the field of automobiles and automotive parts and accessories re.spondents cite this Commission s decision in General f motors Gorp. 17 The"e c1decree fife fepofted in full in CCR Trade Ca es fis follows: United States GClIcra/ Motors Corp. 1952 '1'1'8de C8ses Par. 67324 , at 6ii77 (K.D. Ill. July 28, 1952); UJlited State, 'V. PONt JfotOI" CO. 1953 Tr:1de Cases P:1r. G7437, at 68195 (X.D. Ind. Jnaunry 19, 1953) ; :1nd r:nitcd States Chry. Ir:r Corp. 1953 Trade Cases Pal'. 67438 at (j8 09 ( D. Ind. Jnnuan" 10 , 1\)53).

Ql- 237-GS- Opinion 58 F.

34 FTC 58 (1941) and the court case of ilfiller Motors v. Ford 11 motor 00. 149 F. Supp. 790 (J\I.D. , 1957), affrmed 252 F. 2d 441 (4th Cir. 1958). The issue in General ilfotors was the legality of General l\Iotors' practice of requiring its franchised automobile dealers to purchase automotive parts and accessories manufactured by General lUotors or its subsidiaries or, in some cases, purchased by General :Motors or its subsidiaries and resold to such dealers as a condition to renewal of their franchises. The COlnmission ordered respondents to cease and desist, among other things, using ". . . any system or practice, plan, or method of doing business, for the purposes, or having the effect, or coercing or intimidating automobile retail dealers who have contracts or selling agreements or franchises of the respondents for the sale of new motor vehicles into purchasing or dealing in accessories or supplies manufactured or supplied by the respondents, or by anyone designated by them, for use in and on automobiles sold by the resp(Jnclents. ' This remedy was considered adefJuate in General Jloto1'8 since, unlike Shell in the instant case, the respondents \were actually engaged in manufacturing and distributing many of the tied automotive parts and supplies. j\forcover, the evidence in that case showed that General j\IotoI's and its subsidiaries had actually discouraged their dealers from purchasing sponsored parts and supplies from local distributors represent-ing General Jfotors' parts and accessories manufacturing subsidiary, l:Tnited lotors Service, Inc.

There are thus at least two critical distinctions between the facts of the Generallllot01' case and this ca,se: (1) In General JJlot01' the automobile company was not using its economic power in the, automobile market to destroy competition among competing groups of sma.!l businesslnen at the wholesale levcl whereas Shell is using it.s economic power with this effect; and (2) unlike shell, GenernJ :Motors was actually engaged in manufacturing and distributing, or purchasing and reselling, the automotive parts and accessories di3tributed by the automobile company to its franchised automobile dealers. And, apart from these factors, as Shell's sales commission actually operates, it amounts to little more than a market allocation by thc oil company of its dealers between Firestonc and Goodyear.

Jlillel' JlotoT8 V. Fol'cl Jlotor Co. , supra was a treble uymge action for violation of the Sherman and Clayton Acts. The Clayton Act charge involved business practices identical with those considered by the Commission in the Ceneral j1/ motors case. However, as the court on appeal disposed of this question on the ground that plaintij!, had not shown that it susta,ined any damages in connection with THE FIRESTONE TIRE & RUBBER COMPANY ET AL. 419 371 Opinion parts and accessories as a result of anything done by Ford or its representatives, the Clayton Act count need not be considered here. The Sherman Act count in the 11Iiller 1110to1' case involved Ford' practice of levying upon each Lincoln-:Mercury dealer an assessment based upon the price of new automobiles delivered to the dealer and turning the funds thus collected over to Lincoln-JUercury Dealer Associations throughout the country. The various Lincoln-1\lercury Dealers Associations then used such funds for advertising purposes. Significantly, in ruling that this practice did not constitute a. Sherma,n ) ct violation the Court noted:

It is not shown that ord bad any interest in the Kenyon and Eckhardt adverOsing agency except to obtain effective service from it. Ford was not using its economic position as an automobile manufacturer to invade and dominate the advertising business.

Ey way of contrast, Shell does obtain substantial financial benefits from its sponsorship of Firestone and Goodyea.r TEA, and we have specifically found that Shell has been using its economic power as a petroleum marketer to destroy competition in the TEA business. t.he opinion in the llliller 31otm' caseFinaJly, it is noteworthy that was written by Judge Sobeloff of the Fourth Circuit, who also authored the recent decision by the same court in the Osborn case. A number of "additional points are raised by Shell and Firestone but we believe only one of these requires detailed consideration in this opinion. Respondents contend that it was error, depriving them of due process of law, for the same hearing examiner to have presided over and rendered initial decisions in all three of the TBA cases: this case, Docket 6487; and the cOlnpanion cases, Docket 6485 in which the respondents are The Texas Company and the B. F. Goodrich Company; and Docket 6486, in which the respondents are The Atlantic Refiing Company and The Goodyear Tire and Rubber Company. The crux of the contention seems to be that the hearing examiner could not possibly ha,ve rendered his initial decision in this case solely upon the basis of the record of the instant proceedings since he also heard testimony and received evidence involving Shell' sales commission contract with Goodyear in Docket 6486, and heard testimony and received evidence involving Firestone s sales commission contracts with The Texas Company and other oil companies in Docket 6485 and with Atlantic Refiing Company and other oij companies in Docket 6486. As Firestone puts it, respondents conclude that". . . the admixture of respondents and evidence in this and the companion cases, all heard by the same examiner, has resulted in a denial of due process so flagrant as to vitiate and make a nu1lty of the whole proceeding.

, Order 58 F.

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 fmdings of fact and conclusions of law. Substantial evidence is present in the record of this case to support every finding 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 findings of fact and conclusions of law set forth in this opinion.

CONCLUSION Other exceptions of respondents Shell and Firestone have been considered and rejected. The appeal of respondent Shell is denied. The appeal of counsel supporting the complaint is granted in part , to the extent that it is con-and denied in part. The initial decision trary to the views expressed in this opinion, will be modified to conform with such views. An appropriate order wil be entered. FIX AL ORDER Counsel supporting the complaint and respondent Shell Oil Coms initialpany having filed cross-appeals from the hearing examiner decision in this proceeding; and The Commission having considered said appeals including the briefs and oral arguments of counsel and the entire record, and having rendered its opinion denying the appeal of respondent Shell Oil 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 ordered 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 fUTthe1' ordered That the following be, and it hereby is substituted for the order contained in said initial decision: It i8 ordered That respondent Shell Oil Company, a corporation nd its offcers, agents, representatives and employees, directly or through any corporate or other device, in connection with the promotion, or oflering for sale, or sale and distribution of tires, inner tubes batteries, and automotive accessories and supplies (hereinafter referred to as "TEA products ) in comlnerce, as "commerce" is defined in the Federal Trade Commission Act, do forthwith cease and desist from, directly or indirectly:

O" in operation or effect any contract 1. Entering into or continuln agreement or combination, express or implied, with the Firestone THE FIRESTOKE TIRE & RUBBER COMPAJo'Y ET AL. 421 371 Order Tire and Rubber Company, or with any other rubber company or tire manufacturer, or any other supplier or tires, batteries, and/or accessories, whereby SheJ1 Oil Company receives anything of value in connection with the sale of TBA products to any wholesaler or retailer of Shell petroleum products by any marketer or distributor of TBA products other than Shell Oil Company; 2. Accepting or receiving anything of value from any manufacturer, distributor, wholesaler, or other vendor of TBA products, for acting as sales agent or for otherwise sponsoring, recommending, llqring, induejug, or promoting the sale of TEA products, directly or indirectly, by any such vendor to any wholesaler or retailer of Shell petroleum products;

3. Using or attempting to use any contractual or other device such as, but not Emit-ed 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 TBA products by any distributor or marketer of such products other than Shell Oil Company to or through any wholesaler or retailer of Shell petroleum products; 4. Employing any method of inspecting, reporting, or surveilance or using or attempting to use, in any manner, its relationship with Shell outlets to sponsor, recommend, urge, induce, or otherwise promote the sale of auy specified brand or brands of TBA products by any distributor or marketer of such products other than Shell Oil Company to any wholesaler or retailer of She1J petroleum products; :'5. Intimidating or coercing or attempting to intimidate or coerce any wholesaler or retailer of Shell petroleum products to purchase any brand or brands of TBA products;

6. Preventing or attempting to prevent any wholesaler or retailer of Shell petroleum products from purchasing and reselling, merchandising, or displaying TBA products of his own independent choice.

It is /1l,ther ordered That respondent, The Firestone Tire and R.rubber Company, a corporation, and its offcers, agents, 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 (hereinafter referred to as "TBA 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 combination, express or implied, with Shell Oil Company or with any other marketing oil company whereby The Fire- Syllabus 58 F.

stone Tire and R,nbbcr Company, directly or indirectly, pays or contributes anything of value to any such marketing oil company in connection with the sale of TBA products by The Firestone Tire and R.rubber Company or any distributor of Firestone products any wholesaler or retailer of petroleum products of such marketing oil company;

2. Paying, granting or allowing, or offering to pay, grant or a11o,, anything of value to Shell Oil Company or to any other marketing oil company for acting as sales agent or for otherwise sponsoring, recommending, urging, inducing or promoting the sale of TEA products, directly or indirectly, by The Firestone Tire and Rubber Company or any distributor of Firestone products to any wholesaler or retailer of petroleum products of such marketing oil company;

;-). Reporting or part.icipating in the reporting to Shell Oil Company or to any other marketing oil company concerning sales of TBA products to wholesalers or retailers of petroleum products individually or by groups, of any such marketing oil company. I t is f1uther oTdenxl. That the initial de,cision as so modified and snpplemented be, and it hereby is, adopted as the decision of the Commission.

It i8 fUTtheT onlered. That respondents Shell Oil Company and The Firestone Tire and Rubber Company, corporations, shall, within sixty (50) days after service upon them of this order, file Tfith the Commission a report, in -writing, setting forth in detail the manner and form in Tfhich they have complied with the aforesaid order to cease and desist.