Thomasville Chair Company

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IN THE MATTER OF THOMASVILLE CHAIR COliPANY ORDER, ETC. , IX TIEGARD TO THE ALLEGED VIOLATION OF SEC. 2 (c) OF THE CLl\ YTOX ACT Docket 7273. Complaint. , Oct. 1.958-Decision lfar. , 1961 Order requiring a manufacturer of household furniture with factory at ThoruasYile, N. C. , with gross sales in 1956 exceeding $22 000 000, to cease violating Sec. 2(c) of the Clayton Act by passing on to some of its retail furniture dealer customers a discount or lower price in lieu of a commission or brokerage; specifically, dividing its dealer customers into two groups and charging those on its "Jobber" price list-presumably making annual purchases in excess of $50 000-five per cent less than the Carload" list, and paring a commission of 6% on sales to the latter group, while paying only 3% on ".Jobber" sales and unlawfully passing on the 3% difference to customers as part of their 5% lower price. Before illr. Frank H,te.r a.nd JI'l. lVilliam L. Pack hearing exa.m- Iners.

Jh. Willam W. Rogal for tbe Commission. lir. RaYlIwnd S. Sm.eth1u' of ,Yashington, D. C., for respondent. FINDINGS AS TO THE FACTS , COXCLUSIOXS AND ORDER Pursuant to the provisions of an Act of Congress, entitled " et to snpp1ement pxistini! laws against unlawful restra.ints and monopolies, and for other purposes" approved October 15, 1914 (the Clayton Act), as amended by the Robinson-Patman Act, approved June 19, 1936 (15 V. , Sec. 13), the Federal Trade Commission on October 7, ID5S issued and subsequently served upon the respondent named in the caption hereof its complaint. in this proceeding, charging said respondent with having violated subsection (c) of Section 2. of said Clayton as amended. The respondent's answer to the 442 FEDERAL TRADE COMMISSION DECISIOKS Findings 58 F, complaint was filed on November 20, 1958. Hearings were thereafter held before duly designated hearing examiners of the Commission and testimony and other evidence in support of and in opposition to the allegations of the complaint were received into the record. In an initial decision filed August 12, 1960, the hearing examiner found that the charge had not been sustained by the evidence and ordered that the complaint be dismissed.

The Commission having considered the appeal of counsel supporting the complaint from the initial decision and the entire record in this proceeding and having determined that the appeal should be granted and that the initial decision should be Y?eated and set aside now makes this its findings as to the facts, conclusions drawn therefrom and order to cease and desist which, together with the accompanying opinion, shan be in lieu of the findings, conclusions and order contained in the initial decision.

FINDINGS AS TO THE FACTS 1. Respondent, Thomasville Chair Company, is a corporation organized, existing and doing business under and by virtue of the State of North Carolina, with its principal offce and place of business located at Thomasville, North Carolina.. Respondent is engaged in the business of manufacturing and selling household furniture including bedroom and dining room furniture. 2. In the course and conduct of its business, respondent, in the sale of said furiture, has been and now is engaged in commerce, as commerce" is defined in the Clayton Act, as amended. 3. In the sale of its furniture to retail furniture dealer customers respondent utilizes the services of sales agents who are compensated by t.he payme,nt of a commission upon sales of such merchandise. 4. In selling its bedroom and dining room furniture, respondent utilizes two different price lists, known as the "Jobber" or "J" list and the "Carload" or "CL" list. The prices on the "Jobber" list are approximately 5% lower than the prices on the "Carload" Est. On sales to "Carload" or "CL" accounts, respondent pays its sales agents a commission of 6% of the amount of the sale and on sales to the " Tobber" or "J': accounts respondent pays its sales agents a c.ommission of 3% of the amount of the sale. 5. Respondent. chims that de" leis that purchase a.t least $50 000 worth of bedroom and dining room furniture per ye.ar are classed as Tobber:' accounts and that all other customers are "Carload" accounts. It further cla.ims that because the " Tobber aeeounts' annual volume of purchases is larger than that of the " Carload" accounts there is a difference in respondent's costs of at least 5%, not includ- TI-O:MASVILLE CHAIR COMPANY 443 441 Order ing the difference in sales commissions, in serving the two classes of customers. The purchases of many or the "Jobber" accounts, however, have amounted to substantially less than $50 000 per year. Consequently, it would appear that annual volume of purchases of at least $;,0 000 has not been the criterion used by respondent in deterlnining which customer will receive the 5% price reduction. 6. Cost data introduced by respondent establishes that any difler- PJlce that may exist in respondent's costs in serving the two classes or customers, aside from the difi'erencc in sales commissions, was less t.han the 5% reduction in respondent's price on sales to the Jobber" accounts. The lower price to these ravored customers was therefore based in part on a sfLving in the sales commission. 7. On the basis or the foregoing evidence, the Commission finds that respondent, in connection with its sale or bedroom and dining room furniture in interstate commerce, has passed on or granted to some or its rptail furniture customers a discount or lower price in lieu or a commission 01' brokerage.

CONCLUSIONS The Federal Trade Commission has jurisdiction or the subject matter or this proceeding and or the respondent. The aroresaid acts and practices or respondent, a.s herein found, constitute violations of subsection (c) of Section 2 of the Clayton Act, as amended. ORDER It ;8 ordered That respondent, Thomasville Chair Company, a corporation, and its oilcers, agents and employees, directly or indir ectly, or through any corporate or other device in connection with the sale or household rurniture in commerce, a.s "commerce" is defined in the Clayton Act, as amended, do forthwith cease and desist from: Paying, granting or allowing, directly or indirectly, to any buyer or to anyone acting for or on behalf of or who is subject to the direct or indirect control of such buyer, anything or value as a commission, brokerage or other compensation, or any allowance or dis- COllnt in lieu thereof, by sening house,hold furniture t.o any buyer at prices lower than the prices at which such rurniture is sold to any ot,her buyer, where such reduction in price reflects any saving in any sales commission or ree, or any part or percentage thereof. I t is further ordei' That respondent, TholTfLsviJle Chair Company, shall, within sixty (60) days after service upon it of this order, file with the Commission a report, in writing, setting forth in detail the mauneI' and form in which it has complied with the order to cease and desist.

444 FEDERAL TRADE C01rThlISSION DECISIONS Opinion 58 F.

Alon OF TEE COMMISSION By Secrest, Commissioner:

The complaint herein charges respondent with violating subsection (c) of Section 2 of the Clayton Act, as amended by the Robinson-Patman Act. The hearing examiner held in his initial decision that the charge was not sustained by the evidence and ordered that the complaint be dismissed. The matter is now before the Commission upon the appeal of counsel supporting the complaint from this decision.

The following facts are not in dispute: Respondent is a manufacturer of bedroom, dining room, and upholstered furniture which it se.lls to retail stores throughout the United States. The bedroom and dining room furniture, sold under the name "Thomasville accounts for approximately 87% of respondent' s total sales, and the upholstercd furniture, sold under the name "Finch Furniture Company, accounts for the remainder. In selling the bedroom and dining room furniture, respondent utilizes two different price lists known as the "Jobber" or "J" list and thc "Carload" or "CL" list. The prices on the " Tobber" list are approximately 5% lower than those, on the "Carload" list. On sales to "Carload" or "CL" accounts respondent pays its salesmen a commission of 60/0 of the amount of the sale and on sales to the "Jobber" or "J" accounts respondent pays its salesmen a 3% commission. The Finch furniture is sold at the same price to all customers and a 6% commission is paid the snJcsmcn on an sales.

The complaint alleges, in substance, that the difference between the 6% commission on sales made to " CL" customers and the :10/0 commission on sales made to "J" customers is withheld by respondent and is passed on to the "J" customet as part of that customer 50/0 lower price.

At the conclusion of the case in chief, respondent moved the hearing examiner to dismiss the complaint on the ground that a primal facie case had not been established, and further argued that the hearing exa,miner had erred iil refusing to admit certain cost data proffered hy respondent. The heating examiner denie.c this motion reaffrmed the exclusionary rulings to which respondent had taken exce-ption and held that a prima facie Cflse had been made. ,Ve denied fln appeal taken by respondent from the rulings, ancl in an opinion, issue-d l\lay 11, 1959, we stated that respondent could not as a matter of law cost justify a discount or allowance granted to a buyer in lieu of brokerage, but indicated that respondent should be permitted to introduec any evidence which would tend to rebut the THOMASVILLE CHAIR CO:\IPAl\TY 445 441 Opinion prima facie case, including evidence that respondent claimed would show that the lower prices charged certain buyers did not result from a passing on of a part of the salesmen s commissions. The matter was then remanded to afforu respondent an opportunity to present its defense.

This evidence having been received, the hearing examiner has now filed his initial decision, holding therein that the evidence ad(111Cecl by counsel supporting the complaint during the case in chief diu not support an inference that respondent's lower price to ' customers was based in part on the saving in sales commissions and further holding that even if such a,n inference had been warranted, it would have been rebutted by the evidence introduced by respondent in its defense.

TJ1C first question raised on the appeal is whether this . matter is cognizable under Section 2 (c), respondent having contended that its salesmen are employees rather than brokers and that its payment for their services is not brokerage within the meaning of the subsection. The hearing examiner found it unnecessary to rule on this question in view of his conclusion that there had been no passing on of the sales commission. Although the legislative history of the Robinson-Patman Act discloses that in enacting Section 2(c) Congress was concerned with the abuse of the brokerage function as a means of efl'ectin discrimination, the subsection as drafted does not relate solely to the payment or receipt of "brokerage . It provides in pertinent part "That it shall be unlawful for any person engaged in commerce, in the course of such commerce, to payor grant, or to receive or accept anything of value as a c01l1nis8ion: brokerage, or other?' com,jJe.nsation, 01' any aZlOll.HLTWe or discou,nt in lieu thereof, except for services renclere,cl in connection ,,,ith the sale or purchase of goods, wares or rnerchandise . . o ' (Emphasis supplied. ) In view of this broad language, there is no burden on counsel supporting the complaint to show that respondent's representatives are brokers" within the generally accepted meaning of that term. 'Vhatcvcr may be the characterization of their function, these representatives render services t.o respondent in connection with the sale of respondent's merchandise and they are compensated by a commission on sales of such merchandise. "'17 e are of the opinion therefore, that the payment made by respondent for the services of these representat.ives is a "commission, brokerage or other compensation " the payment or granting or which to a customers instead of to the representative is prohibited by Section 2 (c). The next question raised by the appeal is whether it may be inferred from the evidence adduced that the saving in sales eom- , 446 FEDERAL TRADE CO).\USSIOK DECISIONS Opinion 58 F.

mission has been passed on to the " J" customers. In holding that the circumstances of this case do not support this inference, the hearing examiner re.garded as highly significant the fact that there is a mathematical difference between the saving in sales commission and the amount of the price reduction. "While we do not attach the same importance to this fact, it is, of course, one which must be considered since it suggests that the price reduction to favored customers may be aUributed to some fact.or or factors having no connection whh the seller s saving in sales commissions. If it appears from the facts of record, however, that the lower price cannot be accounted for in whole or in part except by a saving in sales commissions, we think it may be inferred that the lower price is based in part on this saving even though such saving is not arithmetically commensurate with the price reduction. Respondent contends in this connection and its. offcials testified t.hat the lower prices to "J:' customers reflect cost savings to respondent., other than the saving in sales commission. According to this test.imony, the classification of respondent's customers as '' T'' or CL" accounts is made on the basis of the volume of the customers annual purchases. "J" accounts are those whose purchases amount to at least $50 000 per year, and "CL' accounts are those t.hat purchase less than that amount. Because of the " r' customer s larger volume of purchases, as distinguished from the quantity purchased individual orders, rcspondenes offcials assert that there is a difference in costs of at least 5%, not including saving in sales commission in serving the two classes of customers. This testimony, if accepted as true, would rebut any inference created by other evidence of record that the saving in sales commission is not retained by respond- , but is passed on to the "J" customers. In view of this testimony, therefore, it is important to determine whether respondent has adhered to the criterion of volume purchases in classifying its customers. The hearing examiner found that respondent has deviated from this criterion in only a few isolated instances and has, in good faith, sought to maintain the integrity of the " J" and " 01." classifications.

\Ve do not agree with this finding. The record contains information with respect to salt'B by respondent in four trade areas: Philadelphia, Pennsylvania Washington, D. C. , Chicago, Ilinois, and New York City. In 1955, nine out of ten customers in the Philadelphia area who were charged the lower price purchased Jess than $50 000 worth of respondent's bedroom and dining room furniture. Four of these customers purchased less than $10 000 worth of furniture during that year. In 1956, only one " J" customer in Philadelphia THOMASVILLE CHAIR COMPANY 447 441 Opinion purchased in excess of $50 000. In the Washington, D. C., area, one customer received the lower price in 1956 and 1957 when its purchases amounted to $16 000 and $5 682. Another customer in that area received the lower price in 1955, 1956 and 1957 although its volume did not reach the $50 000 minimum during these years. Another customer was charged the "J" price although its purchases amounted to only $17 393 in 1954 and did not reach $50 000 in 1955 or 1956. In the four trade areas mentioned above, only 12 out of 28 " J" customers purchased in excess of $50 000 worth of respondent' s products during the year 1955 and, in 1956, only 12 out of 30 J" customers purchased in excess of the $50 000 minimum. Despite the testimony that respondent classified its customers on the basis of volume purchases, we t.think the record clearly demonstrates that the purchases of a large percentage of the favored customers have amounted to substantially less than $50 000 a year. Consequently, there would appear to be no valid basis for distinguishing between this group of "J" customers and the "CL" cust.omers. Applying respondent' s criterion of volume purchases, there would be no demonstrable savings in costs to respondent in dealing with the one as opposed to the other. As to these "J" customers, at least, the price reduction cannot be accounted for by any savings in costs other than the saving in the salesmen s commissions. 1Ve think it may be inferred, therefore, that the saving in commission on sales to such" J" customers was not retained by respondent, but was passed on to the customer.

In reaching the conclusion that a ease in support of the complaint hetd not been established, the hearing examiner was also influenced by testimony of respondent's offcials that respondent did not intend to grant an allowance or discount in lieu of brokerage. On the basis of this testimony, the hearing examiner found, in eflect that respondent. has always regarded its lower price as a volume price based upon lmver costs aside from sales commissions, and its sales commissions as representing rail' compensation to the salesmen for selling to the respective classes or purchasers, without regard to any difference in price.

Although Section 2(c) does not require a showing of knowledge or intent on the part or the person charged with violation thereof .evidence with respect to the intent of such person may be relevant in a proceeding under the subsection. where, as here, the case in chief rests upon an inference that part or the sales commission Ims been passed on, evidence that respondent intended to pass on SaVl.ilgs in costs other than in the sales commission would be relevant, but (July as a factor bearing on the issue of whether the price reduction Opinion 58 F.

,vas in fact based on the saving in the sfLies commission. ,Ve need not decide ,,'liethel' a showing that there \yas no intent to pass Oll the. saying in sa,lee) commission \yould hays bepll snflC1cnt to l'eOll the inference estllblishec1 by counsel supporting the compla.int, slllce we are of the opinion that the hearing examiner erred in finding that such a showing had been made.

Thetestimuny on which the hearing examiner s finding"s is based is undeniably self-serving. :Moreover, the statements by respondent's offc.ials that the Imyer price has al"ays been regarded as a volume price is weakened by other testimony to the effect that they were uncertain why the pricing system 'was established in the manner in,which it presently exists. The testimony relied on by the hearing examiner is further ,,-eakened by the showing that respondent has not. adhered to the critprion on ,,,which the 10W81' price was purpm.teeny based. But perhaps most damaging to respondent's position is the fact that respondent had not made any cost studies prior to the investigat.ion of this matter. CertainJy it would seem that if respondent had int.ended to pass on savings in cost other t.han the saving in the sales commission it would have ha,d SOlne a,ccurate information as to thp, amount or such savings. Considering the entire record at the conclusion or the case in chier, we are or the opiJlion th.lt the evidence adduced by counsel supporting the complaint at that point in the proceeding, if not rebutted, would be suffcient to susta.in the charge tht1t respondent had violated Section 2 (c) of the Clayton Act. The next question presented for our determination, the.refore, is whether the showing that respondent's lower prices reflect a saving in sales commission has been overcome or rebutted by evidence adduced by respondent in its defense. This evidence consists primarily or three studies whi('h had been made to determine respondent's costs in deflJing with the T" and "CL" Cllstomers. Two of the cost studies were, prepared by respondent itself and covered different periods of time, and a third was prepared by an inde pendent accounting firm. The hearing examiner consider.red only the latter cost study and respondenes own study covering the first six months of 1959. On the basis or this evide.llce, he found that there arc substantial differences in rcspondenfs costs in serving "J" and CL" customers, aside from the matter of sales commissions, and that the differences probably approximate the five percent difference in price." He also found as favorable to respondent that " was resognized by the Commission s accountant that the cost studies do show at least some difference, in cost, possibly 1.4 percent." THO:-ASVILLE CHAIR COMP A:'TY 449 441 Opinion It is apparent from a re.view of these findings that the hearing exmniner believed that the purpose of the east studies was merely to corroborate the testimony that respondent regarded its lower price as a volume price and that evidence shmving any savings accTIling to respondent by reason of the "J" customers' volume purchases ",'uid rule out the pm:;sibility that the price reduction was bilsed in pa.rt, on a saying in sales commission. 'Vhat he has overlooked, hO\veTcr, is that 1 sho\Ylng of savings in costs of less than 5% would conclusively establish that the price reduction was not in feLet based entirely on savings ill costs other than the saving in sales commission.

",Ve agree with cOllnsel supporting the complaint that the record does not support the finding that the difference in respondent' s costs in serving the diiTerent classes of el1stomers approximates the 5% llifference in pric.e. The two cost studies prepared by respondent are completely lacking in probative value. In making these studies respondent allocated its costs to the different customer classes on an in\"oice line basis. It computed its total cost over a period of time and di vieled this amount by the total number of lines on the invoices used during the same period. This figure was then mult.iplied by the. number of additional invoice, Jines which ,,"ould have been used if the, "J" cust.omers had purchased in the same quant.ities per invoice line as t.he "CL" customers. The resulting amount is claimed to be f:savings due t.o larger orders of the "J:' accounts. The results of such a procedure are unacceptable for several re,ason5. In the first phLce, they do not show actual savings to respondent but. merely an estimate of what. respondent's costs would have been if all Cllstomers had purchased in the same amounts as the '; Cl1stome,l's. :K 0 showing ,vas made, however, and we have no reason to believe, that under such conditions the additional.l invoice Jines would cost as much pel' line as the lines actually used. But more important., we believe, is that except for a few expense items, respondent has failed to shmv any relationship between its costs fid the IllmbeT of invoice lines used. CBrtainly, there is no reason to be.lieve that responclenfs Bxpenses for such items as insurance, pensions, advertising, plant depreciation and taxes would increase or decrease in direct proportion to the number of invoice lines used. These studies arb also defective in other respects, but since we are of the opinion that. they ate invalid for the reasons stated ahove, a discussion of the other deficieneies is not required. According- to the third cost study which has been prepared by a professional accountant, respondent's costs in serving its " J') customel's aside from the difference in sales commissions, are approxi- HBl-2:H-63'- :::O 450 FEDERAL TRADE COM;fISSION DECISIONS Opinion 58 F.

mately 4% less than its costs in serving the "CL" customers. This study, therefore, even when viewed in the light most favorable to respondent., demonstrates that part of the 5% price reduction reflects a saving in sales commission. A more critical examination of the study reveals that many of the major expense items involved nave been allocated in such a manner as to exaggerate whatever difference may exist in the costs to respondent in serving the two classes of customers. For example, one of the largest. of these "items is the expense incurred by respondent in exhibiting its merchandise to retailers at furniture shows held in various markets several times each year. Respondent's offcials have testified that these shows arc attended predominantly by "J" customers and that. most of the sales at these markets ate made to "J" customers. According to respondent' s own estimate, about three-fourths of the J" customers' total purchases in 1958 were made at these markets and purchases by this customer class represented approximately 80% of respondent' s total sales at the October, 1958, market. Despite the evidence that the shows arc primarily for the mutual benefit. of respondent and the "J" customers, 90.7% of the expense of these shows WHS assigned to the "CL" accounts.

Two other major expense items which were improperly allocated by customer class are the cost of designing- furniture and the cost of producing samples. Under the facts of this case, both of these expenses are part of respondent's cost of production and should have been allocated to each article of furniture produced. Respondent, however, allocated these items to the customer classes on the basis of estimated attendance at furniture shows and assigned DO. of both costs to the "CL" customers.

Counsel supporting the complaint has attacked other aspects of the cost study in question and while there is considerable merit to his arguments, we believe that further discussion of respondent' defense is unnecessary. The evidence introduced by respondent does not support its contention that the price reduction to "J" cust.omers can be accounted for by savings in costs other than the saving in sales commission. Not. only does the cost data placed in the record by respondent fail to rebut the case in support of the complaint but it substantiates the charge that the lower price to favored customers was in fact ba,sed, in part at least, on a saving in sales commission.

It is ani' conclusion, therefore, that respondent has violated subsection (c) of Section 2 of the amended Clayton Act by granting to its " obber accounts a discount or lower price based in patt on the saving resulting from the different rates of commission paid THE BALTLMORE LT;GGAGE COMP ET AL. 451 441 indings its sales representatives. Consequently, we are issuing our own fu1dings, conclusions and order to cease and desist in lieu of the initial decision of the hearing examiner which is vacated and set aside.