Frank G. Shattuck Company

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ill which they have complied with this order. h' 'Tile Matrer OF FRANK G. SHATTUCK COMPANY ET AL.

ORDE OPINION , ETC., IN REGARD TO TII .'\LGED VIOLATIOK OF SEC. 2 (a) OF THE CLAYTON ACT Docket 7743. Complaint, Jan. 1'2 1960-Decision, Apr. 22, 1964 Order dismissing complaint which charged four afflia ted firms in the candy and confectionery business with price discrimination in violation of Sec. 2(a) of tbe Clayton Act. As to three of the respondents there was insuffcient eyidence to support the allegations of the complaint; as to the fourth respondent the record supported the defense of good faith meeting of competitors' prices. COMPLAINT The Federal Trade C01T1111ssion, ha.ving reason to believe that the above-named respondents have violated a.nd are now violating Sectiol1 JMISSION DECISIOXS316 FEDERAL TRADE Complaint 65 F.

2(a) of the amended Clayton Act (U. C. Title 15, Sec. 13), hereby sues its complaint as follows:

PARAGRAH 1. Respondent Frank G. Shattuck Company is a corporation organized, existing and doing business under and by virtue of the laws of the State of Massachusetts with its principal offce and place of business located at 50 IV est 23rd Street, N ew York, N ew York. This respondent also maintains an offce at 18 Wes Street, in Boston Massachusetts.

Respondent W. F. Schrafft & Sons Corporation is a corporation organized, existing and doing business under and by virtue of the laws of the State of Massachusetts with its principal offce and place of business located at 529 Main Street, Charlestown, Boston, Massachusetts. This respondent is a wholly owned subsidiary of the Frank G. Shattuck Company.

Respondent Schrafft's Sales Corporation is a corporation organized, existing and doing business under and by virtue of the laws of the State of Delaware with its principal offce and place of business located at 133-34 36th Road, Flushing, New York. This respondent is also a wholly owned subsidiary of the Frank G. Shattuck Company. Respondent Wallace & Co. is a corporation organized, existing and doing business under and by virtue of the laws of the State of New Jersey with its principal offce and place of business located at 460 Smith Street, Brooklyn, New York. This respondent is also a wholly owned subsidiary of the Frank G. Shattuck Company. PAR. 2. Respondents are engaged in the business of manufacturing, distributing and selling candy and confectionery products. Respondents' total sales for the year 1958 were approximately $56 000 000. PAR. 3. These products were sold by respondents for use, consumption, or resale within the United States and respondents caused them to be shipped and transportd from the state of location of their principal places of business to purchasers located in States other than the State in which the shipment or transportation originated. PAR. 4. Respondents maintain a course of trade in commerce, as commerce" is defined in the amended Clayton Act, in such products described, among and between the States of the United States. Respondent W. F. Schrafft & Sons Corporation maintains and operates a manufacturing plant located in Charlestown near Boston Massachusetts. From this plant it ships and sells throughout the United States to various purchasers located in the several States of the United States, including New York.

&:

FRANK G. SHATTUCK CO. ET AL. 317 315 Complaint Respondent Wallace & Co. maintains and operate a manufacturing plant located in Brooklyn, New York. Through its jobbers, includig respondent Schrafft's Sales Corporation, respondent Wallace & Co. ships and sells its candy products throughout ,the United States to various purchasers located in the several States of the United States. PAR. 5. In the course and conduct of their business in commerce, respondents are discriminating in price between different purchasers of their products of like grade and quality by selling to some purchasers at higher and less favorably prices than they sell to other purchasers competitively engaged in the resale of their products with the non-favored purchasers.

For example, in the distribution and sale of their candy products, respondents have consistently charged independent retailers list price and have granted the variety and drug chains list price less 10%. To iInstrate, in Niagara Falls, New York, the following customers receive a 10% discount plus a 2% cash terms discount: Walgreen Drug and F. W. Woolworth Co. The following customers receive a 10% allowance but did not receive a 2% cash terms discount: Saraceni Drug, Mario De Gregari, People s Drug, Pine Drug, and Thriftway Five and Ten. The following customers receive a 2% cash terms discount but did not receive the special 10% allowance: Brittman, St. Francis Gift Shop, Tony and Lil' s, Lo Tempio, Catatano Bros., La Salle Pharmacy Sarkus, Blue s Drug, Girard Pharmacy and Albert Amico.

PAR. 6. In the course and conduct of their business in commerce, respondents are competitively engaged with other corporwtions, individuals, partnerships and firms in the manufacture, distribution and sale of their products.

PAR. 7. The effect of respondents' discriminations in price, as alleged may be substantially to lessen, injure, destroy or prevent such competition as alleged or tend to create a monopoly in the lines of commerce in which respondents and their purchasers are engaged. PAR. 8. The foregoing acts and practices of the respondents as alleged violate Section 2(a) of the amended Clayton Act (U. C. Title , Sec. 13).

Mr. Thomas A. 8tC1"net for the Comnlission. White Case by ;Vh' . Edgar E. Barton and M,' . Scott E. Bohon of New York, ?I. , for respondents.

)_ _ _ __)___ _ __ 318 FEDERAL 'trade COMMISSION DECISIONS Initial Decision 65 F, INITIAL DECISION BY LEON R. GROSS, HEARING EXAMIKER- - - SEPTE1:IBER 20 , 1962 I:-DEX Page PRELl MINAR Y STA TE11E:-T n_--____- -h --n n _n __huu -_u 318 FINDINGS OF FACTS A:-D CONCLUSION:-S-uuuunu__u_uu 321 1. The Product Involved------__ ____n_____---__nnn___ 321 II. The Case Against Shattuck and Schrafft Sales, Description of the Respondents and their Business Relationships--__- - - -- -- -- - - -- -- 321 A. Frank G. Shattuck Company-__n--n--n_h___----_-_h 321 B. Schrafft Sales Corporation--_nnn--_---- 323 C. Wallace & CO_--nu_u nuuuu_ __u_n_u_ 325 D. W. F. Schrafft & Sons Corporatioll_----_- _nnnn--- 326 III. The Case Against Schrafft-h_--- nn--_h_--_h- _--n- 328 The "Indirect Purchaser" Theory - - - - -- -- - -- - - -- - -- - - - - - - 328 A. Schrafft' s Participation in "Listing" its Products with Chain Stores and Governmental Agencies unn--- 329 B. Activities of Schratft Wholesalers- - 331 1. The Wholesaler Attca in Buffalo_ -----nn- 331 2. The Wholesaler Zutes in Rochester, N. h_n- 332 3. The Wholesaler Costello in Syracuse___ 333 C. Activities of the Schrafft Salesman in the Buffalo and Roch ester Areas 334 1. Theodore Zymanek_- n----n_u--- 334 2, E. P. Costello, Jr--u__ ----_n--------_nn- 335 D. Corporate Chains' Purchasing Practices ---n_--- 336 1. United Vilhelan Company------ 337 2. F. W. Woolworth CO_ _u_n----n--_u_n_ 337 3. W. T. Grant Company-_____n_--_--__- 338 4. J. C. Penney------- 339 5. Walgreen Drug Stores_____ 340 6. S. S. Kresge CO----------_--_----n----____n--_- 340 Discussion of Previous " Indirect Purchaser Decisions (paragraphs 64-80 inc. _nn --- --- -- -- - 341 IV. The Case Against Wallace_ n_-- 346 If' Additional Findings of Fact (paragraphs 81-90 inc. 346 1. Wallace s Defense of No Injury to Competition--___n- 349 2. Wallace s Meeting Competition Defense--nn--_nn- 351 C01\CL USIONS - - uuu__u_uuu_- _uu_unun___uuu_u- 353 o RDER- - - - - - 354 PRELIMINARY STATEMENT The complaint in this proceeding charges respondents Frank G. Shattuck Company, a Massachusetts corporation (hereinafter "Shattuck") and its wholly owned subsidiaries W. F. Schrafft & Sons Corporation, a Massachusetts corporation (hereinafter "Schrafft" FRAN G. Shattuck CO. ET. AL. 319 315 Initial Decision Schrafft' s Sales Corporation, a Delaware corporation (hereinaftr Schraff Sales ) and Wallace & Co., a New Jersey corporation (hereinafter "Wallace ) with violating 2 (a) of the amended Clayton Act (15 U. C. 13)' by "discriminating in price between different purchasers of their products of like grade and quality by selling to some purchasers at higher and less favorable prices than they sell to other purchasers competitively engaged in the resale of their products with the non-favored purchasers In this record counsel supporting the complaint (hereinafter "complaint counsel") has limited his proof of competitive injury, if any is proved, to competition rut the retail level, to "secondary line" or "third line" competition.

Original coll1plaint counsel, at the time complaint issued and until he was replaced by the present counsel on September 29, 1961, sought to prove that the parent company, Shattuck, although not a seller of the product line involved in the alleged price discrimination, exercised such degree of direction and control over the sales of its subsidiaries the other corporate respondents, as to be liable for such 92 (a) violations as 111ight be proven against any or all of such corporate subsidiary respondents in their sales of the product line. The original complaint counsel also stated his intention to prove that Schrafft Sales was and is engaged in interstate commerce, and can be held under 9 2 (a) of the Clayton Act for any price discrimnations proven against it. In his proposed findings iiled on August 17, 1962, present complaint counsel has admitted that the record ,viii not support findings of fact and conclusions of law which would justify a cease-and-desist order against Shattuck and Schrafft Sales and in his oral argument on August 23, 1962, complaint counsel stated that this proceeding should be dismissed as to Shattuck and Sc1mdft Sales for failure of proof. The hearing examiner had arrived at the same conclusion by his independent examination of the record and sllch dismissal order as to Shattuck and Schrafft Sales will be entered. However, a proper valuation of the record for initial decision does involve some minimal findings as to both these companies. These will be made later. 1 ". . . That it shall he unlawful for any person engaged 1n commerce, in the course of such commerce, either directly or indirectly, to discriminate in price between dlflerent purchasers of commodities of Eke grade and quality, where either or any of the purchn.,es involved in such discrimination Rre in commerce, where such commodities are sold for use consumption; or resale within the United States or any Territory thereof or the District of Columbia or any insular posse!'sion or other place under the jurisdiction of the T;united States, and where the eflect of such discrimination may be substantially to lessen competition or tend to create a monopoly in any line of commerce, or to injure, destroy, or prevent competition with any person who either grants or knowingly receives the benefit of such discrimination, or with customers of either of them: Pro'!ided That nothing herein contained shall prevent diferentials which make only due allowance for diflerences in the cost of manufacture, sale, or delivery resulting from the dlflering methods quantities in which such commodities are to sllch purchasers !'old or delivered. . . ...... .. .... .. .. .. .. .. 320 FEDERAL TRADE COMMSSION DECISIONS Initial Decision 65 F.

In view of complaint counsel's admission that a case has not been made out in this record as to Shattuck and Schrafft Sales, the present posture of the case requires a determination only of: (1) whether W. F. Sehrafft & Sons Corporation ("Schrafft") has been proven to have violated 2(a) of the Clayton Act under an "indirect purchaser" theory; and (2) (a) whether Wallace s additional discounts to certain retail outlets and others constitute price discrimination under 2 (a) ; (b) if so, whether competitive injury resulting from such price discriation stands proven in this record; and (c) if so, whether such discrimination may be justified under the meeting competition" defense permitted under 2(b)' of the Clayhm Act, as amended.

Both Schrafft and Wallace sell the product line here involved. Hearings have been conducted in Washington, D. , and in Rochester, Buffalo, Syracuse and New York, New York. During the course of the hearings when the transcript consisted of 815 pages and there were over 700 Commission exhibits, the original complaint counsel resigned from the Commission to accept employment elsewhere. The new complaint counsel was given a generous extension of time "within which to acquaint himself with the record, and particularly to decide whether he would use stipulations which had previously been negotiated by his predecessor. The present complaint COW1Se! renegotiated the stipulations, which are now 57 pages in length, contain the testimony of 44 witnesses, and were admitted on March 15, 1962, as CX- 737. The renegotiation by counsel and acceptance of the stipulat.ions by the examiner obviated additional hearings in Buffalo, Rochester Syracnse, and Niagara Falls, N ew York.

Proposed findings, conclusions, and briefs have been submitted and argued by the parties. Based upon the entire record, including the exhibits and' stipulations, the examiner makes the findings and conclusions hereinaftr set forth. Any finding proposed by the parties which is not hereinaftr made in the form proposed, or in substantially that form, hereby is rejected. The fact that no finding summarizes the evidence in the exact manner which the panies have requeste does not mean that such evidence has not been considered. It means merely that thc examiner deems the evidence as summarized in his findings to be suffciently relevant, probative, substantial and J". on prod:! being made that there has been discrimination in price the burden of rebutting the prima facie case shah be upon the person charged with a violation of this section Provided, however, that nothing herein contained shan prevent a seller rebutting the prima facie case thus made by showing that his lower price to any purchaser" waB made in good faith to meet an equally low price or n competitor.

, FRAN G. . SHATTUCK CO. ET AL. 321 315 Initial. Decision material to dispose of the issues presented. All motions which have not previously been ruled upon, and which are not herein specifically rued upon, are hereby overred and denied.

Based upon the entire record, the hearing examiner makes the followi :

FINDINGS OF FACT AND CONCLUSIONS I. The Product Involved 1. The product line involved in this proceeding is the type of candy or confectionery known as "packaged gift chocolates" or "boxed candy" or "fancy packages factory-packaged boxes of candy, such as miniature chocolates which are usually sold at retail in onepOlmd or two-pound boxes at prices ranging from about $1.35 to $2. a pound, with an average price of about $1.60 a pound (or sold at somewhat higher prices per pound in the case of certain special packaging such as Valentine hearts with corsages, etc.). With respect to the respondent Wallace, the product line involved in this proceeding is the type of packaged candy or confectionery described on the Wallace price lists as: "Fancy Packages, intended to retail at prices ranging from about $1.59 to $1.89 a pound Specialty Packages" intended to retail at prices ranging from about $0.29 to $1.50 per package, and "Jelly Treat Paks" intended to retail at about $0.39 per package.

II. The Oase Agaimt Shatt1tc1c and Schrafft Sales. Description of the Respondents and their Business and Relationships A. Frank G. Slwtt,tCk Oompany 2. Respondent Frank G. Shattuck Company, a Massachusetts corporation, has its principal offce at 50 "IV est 23rd Street, New York Ciry. It also has an offce at 18 West Street, Boston, Massachusetts. Its shares of corporate stock are listed for trading on the New York Stock Exchange. Its net sales, including those of alj wholly owned subsidiaries, were $61 650 076 in 1959; $66 869 769 in 1960; and $70 276 887 iu 1961. Shattuck operates approximately 50 restaurants which are located in more than one State of the Union, a catering service, business food services, eofl'ee services, and retail shops in K ew York City, which sell at retaij the produot Jine here involved and other food and food line products. Shattuck sells some of its products through supermarket "Quality Isles . It has franchised restaurants in States other than New York which are operated under the Schraff name. Shattuck sells ice cream and ice cream toppings fudges and fruit syrups at wholesale. At its bakery and plant in New York City, Shattuck prepares or manufactures bakery goods, some _______ . _ Initial Decision G5 P.

types of hard candy, and kitchen-type confections. Sh"ttuck does not manufacture the type of boxed candy constituting the product line here involved. It purchases such boxed candy for resale at retail from its wholly owned subsidiary, respondent SchrafI. Shattuck resells this boxed candy at retail through its restaurants and retail stores. Shattuck is engaged in commerce .as "commerce" is defined in the Clayton Act, as amended.

3. During the time relevant to this proceeding Shattuck owned all of the issued and outstanding capital stock of the corporate respondents Schrafft, Schrafft Sales and ' Wallace. As such sole stockholder Shattuck normally would elect the directors of its wholly owned subsidiaries. The offcers and directors of the four corporate respondents for the years 1957, 1958, and 1959 were: Offcers and directors of Frank G. Shattuck Co. and wholly owned subsidiaries 1957-195.9) incl.

Frank G. Scbrafft Wallace & Co. Scllrafft,sall5s Shattuck Co. & Sone Gerald Shattuckn_n__ __oup o 1957 P, D 1957D 1958P 19,s9P, Harold D. Sbattuck . l(J57YP , D 1958VP, 19S9Vp, Razen W. Jones--_ u_- - 1957VP, C1, D 1958VP Cl, 19S9VP, Charles F. Oesterekh____ __----- 1957 VI', Sec. 1957 Sec. 1957 Sec. , D 1958VP, Sec. 1958 See. 1958 Sec., D 19S9VP, Sec. 19S9Sec. 1959 Sec. , D H. Morgan Sbattuck--u--u_ _-- 1957VP 1957D 1955VP, 1958D 1958D 19S9VP 1959 D 1959D Henry B. Kennedy----___- ----- 1957VP 1958VP 1959VP Francis C. Raethle__ - 19;7VP 1'J58VP 1959VP Wesley W. Lang_ - 1957 T 1U58T 1958Asst. 19.'i8Asst. 1959T 19.'j) Asst. T 1959Asst ChrlstopherJ. Kelly__ - 1957 Asst, 1958 Asst.

1909 Asst. VP Leroy R. Stnrn - 1057 Asst. T 1958Asst.

1959Asst.

HeurJetta H. Gunstcn - 1957 Asst. See. 1958 Asst. See.

1959 Asst. See.

Allen J. SebnetzeL- - 1\J57Comp.

1958Comp.

195nComp.

AlanR. 1\orsen_ - 1957D 1958D 1050D John G. Shattuek -- dU HJ57D 1%7D IsidoreJ. Silverman - - 1957n 1958D 1958D 1959D 19S'JD, Carroll D. I'.eal'Oll__ _un__ - lU58VP 19S9VP Robnd !lL Howev1-- uu 1958VP 19S9VP Frank :t1. Folsom-- _u_ - 1US8 D 19S9 D _______. _ ..

FRANK G. SHATTUCK CO. ET. AL. 323 315 Initial Decision Offers and directors of Frank G. Shattuck ao. and wholly ownd subsidiaries 1957-1959, ind. Continued Frank G. W. F. Schratr Wallace & Co. Schrafft Sales Shattuek Co. & Sons Walter A. McNell..-- --------- 1957 D 19S7P 1957D 1957D 1958D 1958 P 19,58D 1958D Wiliam O. Wallburg--.-.._n_-- 19S7VP, CI. 1958VP, C1., 1959VP Cl., Wiliam V. Wallburg_ 1957D 1958D 19S9D Willam A. SHverman-- 1957VP, 19S8VP, HI59 Exec. VP. D Earle Erlckson_n----__ 1957VP 19S8VP Ernest H. Scburian 1957 T 1958 T 1959 T Edgar H. Savagen-- 1957D 1958 VP, Samuel Siddn_ 1957D 1958 D, 1959 D, Thomas E. Kueeland__--_------ 1958 VP 19S9VP George F. ScbrafiL- 19S8D mi9DEdward J. J\furrman_ a---- 1959 VP Gerard R. J\fulrahann--n 1059 VP Herbert L. Bebal' 1957 P , G , D 1958 P, 1959 P. Q)1 Edward *"". Terry-- 1957VP, 1958 VP, 1959VP, John P. Joyce_ n_--n------u 1957VP, 1958VP, 1959 VP, George B. Xewman 1957T 1958 T 1969 T Lawrence West___ 1957 P, GM 1958 p, GM 1969 P Louis G. Best 1957 T 1958 T 1959 T Tbomas L. Shattuckmoou__ 1959 D 1959 D NOTE: Abbreviations used:

Presldent=P Vice Presldent=VP Treaswcr=T Secretary=Sec.

Comptroller=Comp.

Director= Clerk= B. Schmfft's Sales Oorporation 4. Schraff's Sales Corporation, a Delaware corporation, (hereinafter Sehrafft's Sales), with its principal offce at 133-34 36th Road Flushing, New York, is not a manufacturer of the product line here involved, but sells the product line at wholesale, exclusively within the State of K ew York. In addition it sells toys, fountain specialties and novelties. Schrafft Sales sells to approxima,tely 7 000 retail ae, counts located within the seven Kew York counties of Westchester Nassau, Suffolk, New York, Bronx, Kings and Queens. Schrafft Sales 324 FEDERAL TRADE COCoMISSION DECISIOXS Initial Decision 65 F.

total volume of business is about $1 600 000 per year. It purchases and resells candy manufactured by Schrafft and 'Wallace, a.s well as other types of candy including Gardini chocolates, Phoenix candies, Minter bars, Callard & Bowser toffy and Greylock marslunallows. Approximately 80% of its sales volume is represented by candy manufactured by Schrafft.

5. Sehrafft Sales, organized in 1939 (under the name Kantiko Inc.), is a wholly owned subsidiary of Shattuck and is successor to the wholesale jobbing business of the J. C. Schriner Co., a general confectionery jobber in New York City which went out of business in 1930. Its name was later changed from Kantiko Inc. to Shattuck Sales Company, and then to Schrafft' s Sales Corporation. 6. Thc President, General Manager and operating head of Schrafft' s Sales is Lawrence '\Vest, who has held that position for five years, and who has been employed by the Corporation since its incorporation in 1930. Prior to 1930, Mr. West had been employed by the preceding jobber, the J. C. Schriner Co. (p. 25). Mr. West, as the operating head of Schrafft's Sales, in fact runs SchrafIt's Sales acts a.s sales manager, and determines its sales policies, and the prices and terms upon which it sells its merchandise. Mr. '\Vest is not an offcer of Shattuck but he keeps thc president of Shattuck informed as to the overall financial situation of SchrafIt's Sales, and consults with the Shattuck president about any capital requirements for refnrbishing or plant improvement. No individual in Shattuck acts as liaison between Shattuck and SchraiJt's Sales (1'. 757). There is no evidence that Shattuck, or any of its offcers or employees, either control or attempt to control the business operations or the sales policies or prices of SchrafI' s Sales Corporation.

7. SchrafI Sales sells to all of the chain retail stores in its area which purchase Schrafft candy, including approximately eight or nine Walgreen drug stores, fifty 'Whelan drug stores, three Rexall drug stores, fifteen Grant variety stores, 150 '\Vool,yorth variety stores and four liewberry variety stores, at prices equivalent to 40% ofi the suggcsted relail price, plus 2% cash discount for prompt payment. The company has found it necessary to grant the 40% and 2% discounts to t,lw.se retail outlets in order to meet the competition ,,,hieh it faces hl selling candy and other products. The facts regarding the necessity for Schrafft Sales, SchrafIt's and Wallace mecting thc competitive prices in order to obtain and keep their cD,ndy business 'were testified to by the chain store candy buyers, called as TIitnesses by complaint counsel.

8. Some retail customers purchase Schrafft candy from SchrafIt's Sales at a discount of 33113 % from the suggested retail price, and a 2% cash discount for prompt payment.

&, F'R-L SHAT'.truck co. ET AL. 325 315 Initial Decision Schrafft Sales' total sales to drug chains were as follows: 1957 1958 United VVhelan Drug C.orp_____---- ------------- $23, 295 $22, 672 VValeen JDrug Co_-------------------------------------- 13, 568 15, 560 Rexall Drug CO.__n__----n_--__n_____n___n______----- 5, 515 5, 579 Jaynet Drug 00------------------- -- 3 184 5, 724 Crown Drug Co_------------------------------------ -- 1, 608 2. 356 9. Schrafft's Sales employs about 57 persons, including nineteen salesmen. Two of th sc salesmen cover all of the chain store accounts to which Schrafft's Sales sells. The two salesmen who cover the chain store accounts are paid on a salary basis, while the other seventsen salesmen are paid on a commission of 7% of their sa.les. In most instances, Schafft's Sales delivers directly to the individual retail store of a chain. However, deliveries to the Crown Drug Company are made to that company's central warehouse in Brooklyn, N ew York. 10. On page 28 of his proposed findings, complaint counsel admits and the hearing examiner hereby finds and concludes, that the record does not support a fillding that Schrafft Sales is engaged in commerce as "commerce" is defined in the amended Clayton Act. o. Wallace 00.

11. Wallace, founded in 1870, is engaged in manufacturing, at its plant in Brooklyn, Xew York, and selling certain types of candy and confectionery products, including boxed candy, directly to retail outlets such as candy stores and department stores through its own sta ff of nine salesmen. "lVallace sells to about 4 000 retail accounts throughout the United States. During the period from 1957 through 1959 Wallace also sold a small volume of boxed candy to about 20 to 25 jobbers, including Schraff Sales. In 1960 Wallace sold to about 35 jobbers, including Schrafft Sales.

12. Herbert L. Bebar, president of Wallace for approximately 5'1 years, was vice president and general manager for the preceding four years. The business operations of IVallace are conducted by Mr. Bebar and the two vice presidents, Edward Terry in charge of production and John Joyce in charge of sales. None of these mcn are offcers of Shattuck. Mr. Bebar keeps the president of Shattuck informed as to the overall financial condition of Wallace, and consults with the president of Shattuck concerning any capital requirements for refurbishing and plant improvement. No individual in Shattuck acts as liaison between Shattuck and 'V all ace.

13. There is no evidence that Shattuck, or any of its offcers or employees, either control or attempt to control the business operations the sales policies. , or the pricilg practices of Wallace. &, Initial Decision 63 14. .Wallace sells boxed candy to certain of its retail customers principally department stores, at a 10% discount from its regular price to retailer (or the equivalent of n. discount of 40% off the suggested retail price) because it has found it necesary to grant the additional 10% discount to meet the prices offered by its competitiors (pp. 193- 198 881-900). Wallace sells hoxed candy to its other retail customers at a 331/% discount off tho suggested retail price. Wallace doe not grant the additional 10% discouut with respect to purchases of bulk candy.

15. In the regular course of business Wallace distribute to its retailer purchasers price lists for its products which include suggested resale prices to retail customers for its line of packaged candies allace also attaches to its packaged candy printed tickets with suggested retail prices. During certain holiday seasons such retail price tickets may he omitted.

D. W. F. Schrafft Sons Corporation ("Schrafft" 1G. Schrafft manufactures, at its plant in Charlestown, Mass., and sells certain types of candy and confectionery products, including hoxed candy, the product here involved. Other than the sales to Shattuck, all of the boxed candy sold by Schrafft is sold by a staff of from 40 to 50 territorial managers or salesmen, to approximately GOO wholesalers located throughout most of the United States. Almost all of these wholesalers are engaged in the wholesaling of tobacco products cigarettes, cigars, and fountain syrups and appliances to retail out- Jets such as drug stores, tobacco shops, department stores, and similar retail purveyors. Four wholesalers who purchase and resell Schrafft' boxed candy testiied in this case: Milhem Attea & Bros. (hereafter "Attea ) in Buffalo, New York; Zutes, Inc. (hereafter "Zute" ), in Rochester, New York; Costello Bros. (hereafter "Costello ) in Syracuse, New York; and Schrafft Sales in New York City. 17. In accordance with a Jong-standing policy of loyalty to its wholesalers, Schrafft has traditionally refused and stiU refuses to a1low any retailers of its candy to by-pass the local wholesalers by buying boxed candy direct from the factory. Schrafft refers all inquiries or orders from retailers to the appropriate local wholesaler. IS. Schrafft distributes to its wholesalers printeel price lists showing prices to the wholesalers, a recommended wholesale price from wholesalers to retailers, and a suggested retail price for sales of its boxed candy by retailers to consumers. In many, if not most, instances the retail price is preticketed on the package. The prices suggested for FRANK G. SHATTUCK CO. ET AL. 327 315 Initial Decision sales by "Wholesalers to retailers represent a 33Va % discount off the suggested retail price. SchraiIt does not "fair trade" its products at any level of distribution.

10. Schrafft does not control the prices charged by its wholesalers to their retailer customers for Schrafft candy. The prices are quoted by the wholesaler, usuaUy, as a percentage discount from the suggested retail price ,,- which Schrafft does publish. 20. I. J. Silverman, president of Schraff since 1058, is the principal offcer of the corporation. 1-Ie carries on the business operations of Schrafft with the other Schrafft offcers, none of whom are offcers of Shattuck. Mr. Silverman keeps the president and the hoard of directors of Shattuck infor1ned as to the oyeraU financial condition of Scin-afft (p. 23) and consults with the president and/or the board of directors of Shattuck concerning any extraordinary requirenlcnts for capital funds in excess of the amounts generated by ordinary depreciation allo\vances. No individual in Shattuck acts as liaison between Shattuck and SchraiT. Neither Shattuck nor any of its offcers or employees either control or attempt t.o control the business operations or the sales policies or prices of Schrafft. 21. There is no eyjdence in this record of such control by Shattuck oyer its suhsidiaries, Schram, SchrafI Sales and vVallace, as to indicate that the subsidiaries were mere tools of Shattuck. This record does not support a finding that the corporate identities of the Shattuck subsidiaries is a 11181'e fiction, so as to hold Shattuck for any violation of subsection 2 (a) of the Clayton Act, as amended, that may be proven against its subsidiaries. Sce NaNonal Lead Oompany Federal Trade Oommission 227 F. 2d 825, 828-829 (7their 1055) reversed in part as to other issues in 352 U. S. 410 (1957) ; II. J. Heinz 00. , et al. 52 F. C. 1607 (1956); Stokely- Van Oamp, et al. v. FTO 246 F. 2d 458 (7th Cir. 1957); Druggists S"apply Oorporation, 52 C. 699 , at 704,705 (1956); Wat)'en Pet' ole"m Oorporation, 53 C. 268, 271-272 , 282 (1956), and Gummed Ind"stries Assn. , 55 C. 1409, 1411-1412 (1959).

22. In his proposed findings and conclusions complaint counsel admits and the hearing Bxaminer hereby finds and concludes that the record "does not support a finding that respondent Frank G. Shattuck Company determines, directs, or controls the prices, terms and other policies upon which respondents VV. F. Schraff & Sons and Wallace & Co. deal with their customers" (see proposed conclusion No. :iO on page 28 or complaint counsel). The examiner finds and concludes that tho. complaint should be dismissed as to Shattuck. 328 FEDERAL TRADE COMMISSION DECISIO:\S Initial Decision 65 F.

III. The Case Agaiwt Schrafft 23. Complaint counsel seeks a cease-and-desist order against Schrafft on the "indirect purchaser" theory, even though the original complaint counsel did not draft his complaint on that theory. Paragraph Five of the complaint alleges:

In the course and conduct of their business in commerce, respondents are discriminating in price between different purchasers of their products of like grade and quality by sellng to some purchasers at higher and less favorable prices than they sell to other purchasers competitively engaged in the resale of their products with the nanfa \'ored purchasers.

24. This allegation in the complaint is not substantiated as to responde-nt Schrafft by reliable, probative and substantial evidence in this record. Schraff sells its candy products only to wholesalers who in turn resell to retailers. Complaint counsel has not proven nor attempted to prove any price discrimination by Schrafft in fttvor of any of its wholesalers. Complaint counsel does not contend for price discrinlination at the wholesale level but only at the retail level. 25. In order to prove price discrimination by Schrafl't at the retail level, complaint counsel Books to have the hearing examiner find that the retail sellers of Schraff candy who purchase Schraii candy from its wholesalers are indirect purchasers from Schrafft even though none buy their candy directly from SchraiYt.

26. The "indirect purchaser" theory postulates: If a manufacturer (Schraff), even though not ostensibly, does in fact direct and control the sales and pricing practices of its wholesalers (Attea, Zutes and Costeno), then the retail purchasers ("Woolworth, 'VaJgreen Drug, LoTempio Pharmacy, Stewart Drug, SaraCBni Drug, Lasalle Pharmacy, Neisner Bros., McCrory, Sarkus, Girard Pharmacy, united .Whelan Drug, etc. , etc. ) from such wholesalers are indirect purchasers of Schrafft for the purpose of determinig whether there has been a price discrimination in violation of 2(a) of the Clayton Act. A retailer is nonetheless a purchaser because he buys indirectly, if the manufacturer deals with him directly in promoting the sale of his products and exercises control over the terms upon which he buys.

JJ(lft Pheniz Cheese Corp. 25 F. C. 537 (1937); Ohampion Spark P/.11,g 00 50 F. 30 (1953) ; General Motors Corp., 50 F. C. 54 (1953) ; Elect7-ic Auto-Ute Co. 50 F. C. 7B (1053); Wh.j.taker Cable Corp. 51 F. C. 958 (1955); Iltr'd 239 F. 2d 253 (7th Cir. 19(6), oert. den. 3G3 S. 938 (1957) ; E. EdeZm.ann 00., 51 F. C. 978 (1955), aff' d 239 F. 2d 152 (Tth Cir. 1V56), cert. den. 355 U. S. 941 (11158) : Thompson Products, Inc., 55 F. 1252 (1959); Dentists' Supply Co. oj N. 37 F. C. 345 (1943); Generu-l Foods Corp. 52 F. C. 798 (195G); Mus su,chusetts Brewers Ass v. P. BaHa'ltine 80118 Co., 119 F. Supp. 736 (D. Mass. 1955) ; KZein v. Lionel Corp. 237 F. 2d 13 (3rd Clr. 1(56) ; American News v. F'l' C, 300 F. 2d 104 (C.A. 2 ) (1962); Lwcor Ltd. 31 F. C. 658 (1940) ; Liggett Myers Tobacco COll panll, Inc., 56 F, C. 221 (19159). FRANK G. SHA'rTDCK CO. ET AL. 329 815 Initial Dccision 27. Complaint coullsel seeks to establish Schraftt retailers as indirect purchasers because of (1) Schraftt' s active participation in getting its products listed with the corporate dlains, (2) the active participation of Schrafft salesmen in promoting the retail sales of Schrafft' candies, (3) the "domination" of the wholesaler s sales policies by Schrafft, and (4) Schraff's rendition of other services to the retailer as well as the wholesaler in the marketing of its products. A. Schratt'ts Participation in "listing " its Products with Ohain Stores and Goverrwnental Agencies 28. A number of chain retailers such as F. ,V. ,V oolworth & Co. W. T. Grant Co., S. S. Kresge Co. and J. C. Peney Co., and a number of governmental agencies and instrumentalities such as the Veterans Administration, the Army & Air Force Exchange Service and the Navy Exchange Service do not permit their local outlets or buyers to stock or sell any merchandise or brands which have not first been "listed" with and approved for handling by the head offce or chief buyer of the retailer or governmental agency. In order to secure a "listing" of its products with the retailers and agencies having such a requirement a manufacturer must satisfy the chief buyer that the brand or product is adequate with respect to quality and salability, and must file with the chief buyer a detailed descriptive list of the various items comprising the manufacturer s line showing specifications, sizes, packaging, cost and suggested selling price. Samples are also submitted. If the chief buyer finds the product acceptable, the retailer or governmental agency then publishes and distributes to its various outlets, managers or local buyers a "listing" of the various items in the manufacturer line which they are authorized to purchase and stock. Such a listing does not, however, require a local store manager to stock and sell the items listed, but merely authorizes him to do so. Schrafft seeks a listing by chain retailers and governmental agencies, in order to make this business available to the Schraff candy wholesalers. Schrafft has not sought "listings" by Liggett Drug Co., United Whelan Drug Corp. Gray Drug Stores, Walgreen Drug Stores, Cunningham Drug Stores Marshall Drugs, Read Drug & Chemical Co., Gallagher Drugs Thrifty Drug Stores, Owl Drug Co., Dngan Drug Stores, Standard Drug Co. or Broward Drug & Surgical Supply Co., even though some of these retailers do in fact buy Schrafft's candy from Schrafft wholesalers.

29. These Schrafft wholesalers are not required by Schrafft to sell to the retailers or agencies with whom Schrafft's candy has been "listed". Several of the wholesalers choose not to sell to these retail outlets 313-121--70-- Ini Oal Decision G5 F.

in their area, with the result that Schrafft's candy is not carried in such stores.

30. Typical "listings" of SchrafI's candy with variety chain retailers are Commission s Exhibits 683 and 684, issued by the F. W. Woolworth Co. (p. 622, 633). These exhibits describe jhe approved iteil in the Schrafft line, and list the names and addresses of Scbrafft wholesalers throughout the United States by geographic areas in which the particular IV ooJworth stores are located. The prices set forth in the listing are equivalent to a 40% disc01mt from the suggested retail price of Schrafft candy, plus a 2% cash discount for prompt payment. 31. Most of the outlets of the variety chain stores which have "listed" Schraij't cancJy, actually buy Schrafft candy predominantly in "bulk" rather than the type of "boxed candy" which is involved in this proceeding. For example, in 1958 the three IV oolworth stores in Syracuse purchased Schrafft candy in the total amount of $7 385 from the wholesaler Costello, but only approximately 11% of this amOlmt\'ms "boxed candy . The three Grant stores in Syracuse purchased a total of $2 269 of Schrafft candy from Costello, but only about 7% of this amount was "boxed candy . The two Kresge stores in Syracuse purchased a total of $436 of Schrafft candy from Costello but only about 4% of this amount was "boxed candy . The McCrory store in Syracuse purchased a total of 839 of Sehrafft candy from Costello, hut only about 8% of this am01mt was "boxed candy" (CX 682B). A listing of Schrafft candy with the central buying offce of the drug and variety store and department store chain, IV 001 worth etc., etc., constitutes nothing more than offcial permission from the central buying offce for the local store managers to huy the items listed on the terms stated in the listing. In practically every instance of national retail chains, the local store manager cannot purchase an item unless it is listecJ. Although the prices stated on a listing may result in SOIne instances from negotiations between the central buying offce and a representative of the Schrafft company, the local Schraff jobber or wholesaler mayor may not adhere to the terms set forth on the listing. If the local Schrafft wholesaler repudiates the terms stated in the listing, the wholesaler may, or may not get the business. In any event, the local Schraff wholesaler is the person who ultimately determines the price at which he sells.

32. The practice of listing is a fact of life in modern corporate 1nultiple unit operations, and nothing sinister or derogatory can or should be imputed to the listing practice. Listing does not connote price-fixing, price-cutting, nor discriminatory pricing practices. Schraffs' listing of its boxed candy with the central buying ollces of corporfute multiple lmit chains does not make the individual units of THANK G. SHATT"GCK CO. ET AL. 331 .315 Initial Decision such chains, nor the chains themselves, the indirect customers of Schrafft. Without such listings Schraffts' real customers, its individual wholesalers, would not be able to sell to the individual units in the ,chain.

33. Complaint counsel suggested in his oral argument that Schrafft a void the rationale of the "indirect purchaser" theory, attaching to its listjng" practices, by abandoning its present marketing procedures used since before the amendment of the Clayton Act-liminating the wholesalers-and selling directly to the retailers. Enforcement of the Robinson Patman Act should not require abandonment of long-established marketing procedures unless a clear and undisputed case of illegality has been proven. Such is not proven in this record. And what of the 600 Schrafft wholesalers who make a profit from handlg its candy? Shall these small businessmen be cut off from this source of revenue because of some misapplied theory of "indirect purchaser B. Actimities of Schrafft Wholesalers 1. The Wholesaler Attea in Buffalo ;14. Milhen Attea & Bros. (hereafter referred to as Attea) is a general-line wholesaler of tobacco products, c,mdy, appliances and other items in the Buffalo, New York area. Attea sells approximately 2 000 different items. Approximately 70-75% of Attea s total annual volume of business of 12 to $6 milion is in cigarettes; approximately 10% is in cigars; and approximately 10%-15% is in candy, including candy manufactured by Schrafft. Attea s total purchases of Schrafft candy during the year 1958 amounted to $117 088, or approximately 2% of Attea s total business. Attea s total purchases of Schrafft candy amounted to $122 313.72 in 1957. Attea does not buy Wallace candy. Attea employs between 32 and 36 persons, including eight salesmen, and sells to approximately 1 500- 000 retail accounts within a fortymile radius of Buffalo. It is estimated that somewhere between 200 to 400 of these retail accounts purchase some Schrafft candy. Attea salesmen are authorized to quote prices up to 40% off the suggested retail price of Schrafft candy in order to meet competition. Approximately 60% of the retail customers who purchase Schrafft candy from Attea are allowed 40% off the suggestcd retail price, and the remainder are allowed a 33% % discount. The 40% discount is granted hy Attea to its retail customers without regard to whether they are part of a national or local chain, or are independent retailers. In addition to the 40% discount, Attea acquiesces in some customers, principally the chain stores, taking an additional 2% cash discount for prompt payment (pp. 365-368). All of the Kiagara Falls Sew York, retailers who 332 1"EDERAL TRADE COMMISSIOK DECISIONS Initial Decision 65 F.

are specifcally referred to in Paragraph Five of the complaint make all of their purchases of Schrafft candy from Attea; none of these retailers purchase Schrafft candy directly from Schrafft. Similarly, all of the other Buffalo, K ew York area retailers whose testimony has been stipulated in CX 737 purchase Schraff candy directly from Attea and not from Schrafft. Attea himself prices Schrafft candy to his customers without any indirect or direct influence or control by Schrafft. 35. Attea testified (p. 360), inte'/ alia: A. They could charge $8.00 less 33%, less 40%, less 45%. It' s up to my men how much discount he wants to give that retailer. And again (p. 370) : My man is on the road. They are privileged to meet competition and use their own judgment-:unless it is a real 'serious problem. Then they discuss it with me. But I give the salesmen a privilege to use their own judgment ,,,ben they see fit to make the prices as they see fit.

Q. Now can they give this 40% off retail price on the demand of a retailer? A. Yes, If they have good orders from them, yes. 12. The Wholesale'/ Z!ttes In Rochester, N. 36. Zutes Inc. (hereafter Zutes) is a general line wholesaler of tobacco products, candy, health and beauty aids, novelties, toys, appliances and other items, in the Rochester, K ew York area. The wide variety of items sold by Zutes is ilustrated by this wholesaler s extensive catalog. Approximately 35% of Zutes' total annual business of 800 000 is in cigarettes, approximately 20%-25% is in cigars, and approximately 20% is in confectionery products, including Schrafft candy and candy manufactured by approximately 150 other candy firms. Zutes' purchased $111 920 of Schrafft candy during 1958, approximately 4% of Zutes' total volume. A substantial portion of Zutes candy business is bulk candy which is not involved in tills proceeding. During the year 1957, Zutes' total purchases of Schrafft candy amounted to $97 631. Zutcs does not buy Wallace candy. 37. Zutes employs about 28 persons, including nine salesmen, and sells to approximately 1 500 retail accounts in the seven counties around Rochester, New York. It is admitted that about 800 of these retail accounted purchase some Schrafft candy, and that about 250-300 of these retail accolmte buy some Schrafft boxed candy. Zutes sells Schrafft candy to the Woolworth, Penney, Grant, Kresge, Newberry and N eisner stores and the Sibley-Lindsay & Curr department store in his area at prices equivalent to 40% off the suggested retail price, and an additional2% cash discount for prompt payment. Zutes has found it necessary to grant the 40% and 2% discounts to these retail outlets in order to meet the competition of candy manufacturers (such as Doran Confectioncry Co.) who sells directly to the retail outlets. Approximately , . FRANK G. SHATTVCK CO. ET AL. 333 31;: Initial Decision 1070 of the retail outlets which purchase Schraff candy from Zutes Inc. receive a 4070 discount from the suggested retail price, and the remainder of the retail customers receive a 33 1s70 discount, and an additional 270 trade discount if they purchase Schrafft candy in unbroken cartons. The expected testimony of J. T. Grnden, E. J. Cornell, W. C. Burke and S. S. Shapiro of Rochester, New York, stipulated in this record, indicates that upon occasion they purchase Schrafft candy from Zutes in less than carton lots and consequently do not take advantage of the 270 trade discount. None of these Rochester, New York retailers purchase candy directly from Schrafft. They all purchase from Zutes.

28. Zutes prices Schrafft candy to his customers without any direct or jndirect influence or control by Schrafft. Charles Zutes, Schmfft' Rochester wholesaler, testified (p. 457) :

Q. :Now, so far 'as your pricing is concerned, on all of the products which you handle, is it not a fact that yon yourself nnd your brothers determine the price wbkh you are going to charge? A. Ob yes.

Q. And that includes your Schrafft products that you handle? A. It includes everything. If you wil remember, I said, when Mr. Snyde-rasked me what my duties were l\ly duties are- to establish prices, and policies include price!:. I have- to determine the factors as to establishing our prices. 3. The Wholesale,' Oostello in Syracuse 38. Costello Bros. (hereinafter "Costello ) is a wholesaler of cigars, confectionery products and fountain syrnps in the Syracuse, New York area. It sells hundreds of different items, including- from 70 to 100 diflerents brands of candy. Approximately 6070-75% of Costello $500 000-$550 000 annual business is in cigars, and the remainder is in fountain syrups and confectionery products, including the candy manufactured by Schrafft. Isadore Hose, a 5070 owner of Costello, testified (Pl'. 317- , 581) that Costello purchased $87 524 of Schraff candy during 1958. This represented approximately 1670 of Costello s total business. During- the year 1957, Costello purchased $81 559 of Schrafft candy. Costello purchases a small amount of vVallaDe candy, but has only h o customers for this candy.

40. Costello employs six persons, including four salesmen, and sells to a.approximately 800 retail accounts within a radius of 25 miles around Syracuse, New York. It is estimated that about 250 or 300 of these retail accounts purchase some Schrafft hoxed candy. Costello sells Schraff candy to Daw Drug, Day Bros., W. T. Grant, S. S. Kresge, Liggett & Co., Lincoln Stores, Murphy 5 and 10, McCrory, United Whelan, IVaI green and Woolworth stores, at a 40% discount from the 334 FEDERAL TRADE CO:\:LMISSION DECISIONS Initial Decision 0:) F. suggested retail price, and a 2% cash discount for prompt payment. The same 40 % and 2% discounts are given to the Syracuse department store E. vr. Edwards & Sons. The Neisner Bros. stores in Syracuse purchase Coca-Cola syrup from Costello, but do not purchase candy from Costello (p. 540). Costello grants these 40% and 2% discounts to meet the competition which it faces in sellng candy and other products. Other purchasers of Schrafft candy from Costello receive a 33%% discount and a 2% cash discount for prompt payment. Costello s prices are approximately 10% higher to its customers who purchase candy in quantities of less than a full carton. For example, Costello charges $8.00 for a carton of six one-pound boxes of Schr:1fft Gold Chest candy, or the equivalent of about $1.33 per box, but charges $1.50 per box for :1ny purchases of this candy in quantities of less than a full carton of six. The suggested retail price for e:1ch one. pound Gold Chest box of candy is 41. The expected testimony of Joseph G. Krassenbaum, Ephraim :\1. $2.00.Bodow, Bernard J. Carey, Pat Vitacolonna, Richard T. Byrnes, Abraham Meyerson, Alexander Edelman, Earl Rothschild, and Henry A. Pan asci has been stipulated (CX 737, pp. 20-31). AU ofthese are SJTacuse ow York area retailers who sell Schrafft candy. Schr:1fft does not have any direct or indirect influence or control over the prices these retailers P:1Y to Costello for Schrafft candy. All of these retailers purchase Schrafft candy directly from Costello. At least one (Krassenbaum) buys less than a cartn at a time, and consequently pays Costello the Jess-than-carton price. Schrafft neither directs, controls nor influences the prices which these or any other retailers pay Costello for Schraff candy.

42. Isadore Rose, one of the owners of Costello, testified (p. 575) : Q. ::Ir. Rose, you charge your customers what you ,vant to for the products you sell them, do you not? A, Ob. sure, I make exceptions every day in the week. Q. And that is true with regard to aU the products that you sell? A. Sure. A customer tells me "I can buy Coca-Cola for such.and-such a price, or Blackman Syrups . I'll either meet it or I'll lose the business. Consequently I'll meet it.

Q. And consequently that is tme with regard to Schraff products? A. Absolutely.

O. Actidties of the Schmfft Salesman in the B'lffalo and Rochester Areas 1. Theodore Zymanek 43. Theodore Zymanek has been for about five years Schrafft' s sole sales representative and "Territorial i\fanager" in Western New York FRA.'lK G. SHATTUCK CO. ET AL. 335 315 Initial Decision State including Rochester, Buffalo, Niagara Falls, and a small portion of Pennsylvania, including Bradford and St. Mary s. His job is to sell wholesalers in his territory. Mr. Zy- Schraff candy to the thirtn manek does not sell 1Vallace candy. He makes his headquartrs Buffalo, New York, and endeavors to spend Friday of each week calling upon the Buffalo wholesaler, Attea. He endeavors to call upon the Rochester wholesaler, Zutes, for one or two days every second week. He makes it a point to see the other eleven wholesalers in his territory at least once every four weeks, and plans to call on a jobber every day of the week.

44. Mr. Zymanek travels approximately 30 000 miles per year on business. When he calls upon a wholesaler he tries to make adjustment" for unsala,he goods; attends meetings of the wholesalers' salesmen to discuss nc'" items and advertising drives; takes inventory of the wholesaler s stock of Schrafft candy: confers with the wholesaler or the wholesaler s buyer concerning new orders for Schrafft candy; and writes np such orders. In such time as remains aftr calling upon wholesalers Mr. Zymanek observes retail market conditions for Schrafft candy by calling upon retailers. Sometimes he calls on retailers alone and at other times he is in the company of one of the wholesalers salesmen. Mr. Zymanek may call upon retailers who do not handle Schrafft candy (i. Lee Drugs) to observe the retailer s stock and displays of packaged candy. Occasionally, )lr. Zymanek may spend an entire day accompanying one of the wholesaler s salesmen in calls on the wholesaler s retail customers. ","henever Mr. Zymanek accompanies a wholesa.ler s salesman, the latter sells and takes orders on the entire general line of items which the wholesaler carries, which may include Schrafft candy, other brands of candy, tobacco products, etc. If Mr. Zymanek makes calls upon retailers alone hc later turns over to the wholesaler, or to the wholesaler s salesman who services that particular retail account, any order for Schrafft candy which he may have obtained.

93. E. P. Oostello, h.

45. E. P. Costello, Jr. (who has no connection with the Costello Bros. who are the Scbrafft wholesaler in Syracuse), has been the sale Schraff Syracuse area salesman and "Territorial :Manager" for about five years serving the area from Malone, New York, near the Canadian border to the southern part of New York State, including Elmiraand Binghamton, New York. Mr. Costello s job is to sell Schrafft candy to the sixteen wholesalers who are located within his territory. )fr. Costello resides and makes his headquarters in Syracuse, New York. Mr. Costel10 travels about the same mileage on business per year (30 000) as (p.

336 FEDERAL TRADE CQJ'I,l\,IISSION DECISIONS Initial Decision 65 F.

does Mr. Zymanek. He performs his duties for Schrafft in the Syracuse area in substantially the same manner that Mr. Zymanek performs his duties in the Buffalo area. Messrs. Zymanek and Costello Jr. were required to, and did send in to the SchraiJ main offce very detailed reports of all of their activities, including a listing of the wholesalers and retailers upon whom they called, and any orders which may have been given to them for retransmittal to the wholesaler. The preparation and making of such reports by salesmen is usual and customary in all well-run sales organizations. Such facts do not add any materially significant evidence to support complaint counsel' s charge that Schrafft retailers were indirect purchasers from Schraif, even though their prices to the retailer are fixed by the wholesaler. Although the evidence demonstrates and the examiner finds that Messrs. Zymanek and Costello employ all the usual and accepted techniques of promoting vigorously the sale of Schraif candy, the examiner also finds that neither Zymanek nor Oostello control or influence, either directly or indirectly, the prices at which the Schrafft wholesalers resell Schrafft boxed candy to the retailers. Evidence in this record shows, and the examiner finds, that representatives of other products which SchraiJ' wholesalers sell Tunction as salesmen for their products, in substantially the same way that Schrafft salesmen do-attending the wholesaler sales meetings-inventorying stock-writing up orders-making appointments-calling on the retail trade alone or with the wholesaler s salesmen-attempting to generate consumer interest in their products-surveying the market, etc. (see Zutes testimony p. 453), seg. This is what any alert and aggressive salesman for any product sold through wholesalers would do and he expected to do. evertheless as far as the pricing of Schrafft's boxed candy is concerned, each of the. wholesalers-Attea, Zutes and Rose, and Schrafft's offcers-testified, and the examiner finds, that the wholesaler is the final and sole authority in establishing: pricing policies gild carrying out pricing practices. either Mr. Zymanek nor ::fr. Costello influences the pricing directly or indirectly.

D. Corporate Ohains' P.urcha.sing Practices 46. Complaint counsel has introduced the testimony of Samuel Garrelick, the chief candy buyer for united Whelan Drug Stores (p. 594), Wiliam C. Strom, candy buyer for F. W. Woolworth (p. 621), Tudor Bradley, merchandise controller for "\'1. T. Gmnt Company 651), Alva EJliott, candy buyer for W. T. Grant Company (p. 662), nd Edwin Fox, candy buyer for J. C. Penney. "'hat these buyers testified is summarized below and constitutes a finding of fact. FRANK G. SHATTUCK CO. ET AL. 337 315 Initial Decision 41. The expected testimony of Joseph E. Wisniewski, the chief candy buyer for the Walgreen Drug Chain, is stipulated in CX 131, page 41.

48. The testimony of these candy buyers fails to prove or to supply a link in the chain of proof, that the retailer of Schrafft boxed candy is an indirect purchaser from Schrafft.

1. United Whelan Oompany 49. The United Whelan Company operates a chain of approximately 120 retail drug stores, and provides wholesale services for approximately 500 or 600 Whelan "agcncy" retail drug stores. The 120 United Whelan stores sell approximately $150 000-$160 000 worth of boxed candy per year. About $25 000 or 16% is Schrafft boxed candy, and the balance of the boxed candy sold is Whitman, anet Page & Shaw (p. 619). United Whelan retail drug stores do not sell bulk candy. On the purchase of all boxed candy they receive a discount of at least 33%% and 10% (or the equivalent of 40%) from the suggested retail price. Whelan store managers purchase Schrafft candy from the Schrafft wholesaler in their particular geographic location except that the sixty .Whelan stores in metropolitan New York purchase Schrafft candy from Schra1f' s Sales. Schraff Sales is paid directly for the candy purchased from it, and the local Schrafft jobber is likewise paid directly for candy purchased from him. The incevidual store handles its complaints about Schraff' s candy directly with the local wholesaler or jobber from whom it purchases. 2. F. W. Woo/;orth 00.

50. The F. .W. Woolworth Company (hereinafter ",Voolworth" operates a chain of approximately 2 000 retail variety stores in the United States which sell dry goods, hosiery, hardware, novelties, toys stationery, notions and candy, including both boxed candy and bulk candy. About 200 of these stores are within metropolitan N ew York. Woolworth' s total annual sales volume of candy is approximately $51 milion. Woolworth purchases candy from approximately 400 different candy manufacturers, and "listings" are issued by the Executive Offce of Woolworth with respect to each of tbcse manufacturers. All Woolworth candy is purchased directly from the manufacturer except Schrafft candy, which is purchased from wholesalers. The ,Voolworth witness could not determine with any degree of accuracy the amount of Schrafft candy sold by the Woolworth stores, since each individual store manager purchases it from the 600 separate Schrafft wholesalers. For the same reason, there appeared to be no way to determine accurately the number of Woolworth stores which actually 338 FEDERAL TRADE COMMISSION DECISIO Initial Decision 65 F.

do purchase Schrafft candy. It was cstimated that a majority of IVoolworth stores handle it. A comparison of the volume of Schrafft candy sold by Woolworth (CX 21, in camera), with Woolworth' s $51 milion total candy sales volume, makes it apparent, and the examiner finds, that Schrafft candy represents a very small proportion of the total IV oolworth candy sales. This includes Schrafft bulk candy as well as the boxed candy-the product here involved. Approximately 85% or 90% of the Schraff candy purchased by the II' ooIwOl'th stores is "bulk" candy, rather than the boxed candy involved in this proceeding. 51. Mr. vVil1iam C. Strom, the chief candy buyer for vYoolworth and the individual responsible for issuing "listings" on candy to the \V oohvorth stores, deals with approximately 400 manufacturers of candy who sell directly to IVoolworth. S01no of these 400 manufacturers have candy comparable to the Schrat1't line. They includc among others, Voneiff Drayer, Dewitt P. Henry, Derancl, E. .T. Brach Sisco, Hamilton, Page & Shaw, Brown & I-Iollis, and Cauely Cupboard. "'Voolworth purchases directly from all of these manufacturers, except Schrafft, at roughly comparable prices, with an average discount of around 4: 0% from the suggested retail price of Ow candy for the p1'eticketed boxed candy.

3. W. T. Omnl Company 52. The T. Grant Company operates a chain of approximately 850 retail stores in 44 States, selling general merchandise, including such items as enameled ware, hardware, appliances, notions and candy. Grant operates about six stores in New York City. The 850 Grant stores' total volume of candy sales is between $15 million and $lG million per year, of which it is estimated that roughly $150 000 to $200 000 or about 10%, is represented by candy manufactured by Schraf1't. 53. Alva Elliott, chief buyer of candy, cookies and tobacco for Grant is responsible for issuing "listings" on candy to the Grant stores. 54. Grant purchases c,mdy from about 300 or 400 different candy manufacturers, a,nel "listings" have been issued by the executive offce of Grant with respect to each of these manufacturers. Grant purchases it.s boxed candy directly frolll the manufacturer with the sale exception of Schraff boxed candy, which is purchased from Schrafft wholesalers.

55. Somewhere between 200 and 400 of the Grant stores carry some Schrrdft candy, but some stores with the largest candy sales volume do not handle any Schrafft candy.

5G. Individual Grant store managers order and purchase Schrafft candy from the Schrafft wholesaler in their particular merchandising areas.

;,.

FRA. G. SHATTUCK CO. ET AL. 339 315 Initial Decision ;;7. Approxinmtely 2% or 3% of total candy sales is boxed candy. The remainder consists of bulk candy, candy bars, nuts, chewing gnm etc. Most of Grant's purchases of Schrafft candy is of bulk candy. Manufacturers of hoxed candy who sell directly to Grant include a number which have lines comparable to Schraffts . Those manufacturm' s include 'Vhitman, New England Confectionery Co., Ihmte (before it went bankrupt), Hershey, and others. They sell boxed candy to Grant at 40% off the suggested retail price. This is the Sal1le price ' "which local Schrafft wholesalers sell to Grant. There are so many candy suppliers that Grant does not find it necessary to bargain or negotiate ,with respect to prices and terms. If a loenJ Grant manager is unable to purchase Schraff candy at the 40% discount price from the local wllOlesaler, he will not buy Schrafft merchandise (p. 688). Several different Schmfft wholesalers who refused the 40% diseOlmt lost the business. As a result of not getting the .:10% discount from some Schmfft "hoJesalers, Grant did not place any of its 1D61 Easter candy orders with Schraflt wholesalers.

J. O. Penney 58. The .r. C. Penney Co., Inc., operates approximately 1 6DO retail stores in the United States, of which approximately 80 have candy departments. None of its stores in the New York City metropolitan area have candy departments. Penney sells m-er $3.5 milion worth of candy a ye, of which less than 5% is boxed candy. 5D. Edwin Fox, chief candy hnyer for Penney, is responsible for issuing "listings" on candy to the Penney stores. Penney discontinued listing Schrafft candy on May 7, 1D59 and insofar as Mr. Fox was aware only one Penney store has continued to purchase SchrafI' candy since that chLte-the Buffalo, Now York store, which purchases Schrafft candy from Attm. Even when Penney did have a listing for Schraff ca.ndy the Penney stores did not purchase any significant amount of Schrafft boxed candy, according to Mr. Fox s best recollection. Penney purchases candy from about 75 or 80 different manufacturers, ancllistings ha.ve been issued to each of them (pp. 714-715). Boxed candy is purchased directly from the manufacturer (p. 717), with the sale exception of such Schrafft crLndy, if any, as an individual Penney store may purchase from Schraff wholesalers, even though Schrafft candy is no longer 1istcd Jiany manufacturers sell directly to Penney Jines of hoxed candy comparahle to the SchraiI line. These include Martha \Vashington 1:rs. Stevens, Cresca, and Brown &. Haley. Penney pays the.se manufacturers from 40% to 43 % off the suggested retail price. At the time of the hearing in this case, Penney had also received, but Initial Decision 65 F.

had not yet actednpon, an offer from Stephen F. Whitman Company to sell boxed candy at 40% off the suggested retail price. 5. Walgl' een Drug Stores 60. Walgreen Drug Stores operates approximately 451 retail drug stores in the United States. Joseph E. Wisniewski is the chief candy buyer for Walgreen. Representatives of Schraff do not seek to have Walgreen issue a "listing" on Schrafft candy. Walgreen s Chicago Illiois, warehouse has purchased Schrafft candy from P. J. Rubey Inc., the wholesaler handling Schrafft candy in the Chicago arc" in tlie following quantities:

1957 -- ----------------------------- $75 375. 1958 -------- --------------------------------- 100, 999. 1959 -- -- 57, 202. 1960 ---- ----- 93, 417. Most of the W'algreen Drug Stores handle Schrafft boxed candy. Sales of Schrafft candy to the Walgreen stores located outside the Chicago area are made to the individual ' Walgreen stores by local jobbers. The purchases by Walgreen s Chicago warehouse represent about 40% of the total volume of Schrafft candy handled by the vV' algrcen stores. Mr. Wisniewski' s offce lists Schraff boxed candy at "retail less 33% % and 10%". This discount was in effect prior to Mr. vVisnieski's becoming candy buyer. Mr. Wisniewski believes that the vV,tlgreen stores purchase Schrafft candy from the Schrafft wholesalers at the equivalent of 40% discount from the suggested retail price, plus a 2% cash discount for prompt pa.yment.

61. Walgreen purchases Sehraff boxed candy directly ham Sehrafft wholesalers. 1'0 significant legally operative fact about the "lValgreen handling of Schrafft boxed candy distinguishes the situation particularly from United Whelan, Woolworth, Grant and Penney handling of the Schrafft boxed candy line.

6. S. S. Kresge Co.

62. Ralph P. Horner (p. 723), assistant regional manager of S. S. Kresge Company, was subpoened by complaint counsel even though Earl Schmoyer was its chief candy buyer at the time. The S. S. Krcsge Company operates approximately 790 retail variety stores in the United States, including about 187 in the New York region. Earl Schnloyer is the child candy buyer for Kresge, and is the individual responsible for issuing "listings" on candy to the Kresgc stores (p. 725). The individual Kresge store managers are not authorized to purchase any candy or other merchandise which has not been listed (p. 725), FRA G. SHAT'fUCK CO. ET AL. 341 31fi Initial Decision and are not authorized to purchase on any terms other than those stated in a specific listing (p. 727). Nothing in Mr. Horner s testimony justifies a conclusion other than that the Kresge listing procedure does not vary in any legally significant material respect from the proce dures of the other chain stores whose chief candy buyers also testified. The testimony of these buyers in many respects was repetitious, cumulative, and nothing more than a rehash of the testimony of George Crouse (p. 137 et seq), Sales Control Manager for Schrafft and its assistant Sales Manager from 1948 until 1959. 63. The hearing examiner hereby finds and concludes that Schrafft has neither directly nor indirectly discriminated in price between different purchasers of its boxed candy of like grade and quality. It is undisputed that Schrafft's selling and pricing procedures under which it sells its boxed candy exclusively to jobbers or wholesalers has ben continuous use prior to the 1936 amendments to the Clayton Act. There is no discrimination in price hy Schrafft in sellng to these wholesalers or jobbers. Complaint counsel has not alleged, nor has he attempted to prove, that Schrafft does discriminate in the price at which it sells to wholesalers or jobbers. It further appears that Schrafft is the only manufacturer of boxed candy (the product line here involved) which still does sell its boxed candy to jobbers and wholesalers, and not directly to retailers. The Schrafft wholesalers and jobbers who testified in this record stated unequivocally that Schrafft does not, directly or indirectly, influence or control their pricing of Schrafft's candy to the retailer. The differences in the prices at which the wholesalers or jobbers sell to the retailers are dictated by many factors, which include among them (a) the necessity of meeting competition and the demands which must be met to keep the business, (b) the size of the account (c) the promptness with which the retailer pays his bils and (d) whether the retailer buys in carton lots, or less-than-carton lots. The wholesalers probably take into account also the retailer s purchases of the other products which the wholesaler sells, such as cigars, tobacco clgarettes, novelties, chewing gum, nuts, bulk candy, appliances etc. etc., and other factors related to the retailer s overall business relationship with the wholesaler.

64. There does not appear to be any S 2 (a) proceeding where a cea.se-and-desist ordcr has issued based upon a marketing system such as the one under attack here. In K raft-Phenirn 25 F. C. 37 (footnote 3) supra the complaint 1ca8 dismissed. In Ohampion Spark Plug 00. 50 C. 30, a S 2(a) case, the manufacturer had two marketing channels, sold a substantial number of its spark plugs through distributors, but at the same time made substantial sales to large fleets of motor trucks or buses; made a.greements with automobile manufac- &, , 342 FEDERAL TRADE CO:-IMISSION DECISIONS Initial Decision 65 F.

turers obligating the automakers to purchase from respondent their entire requirements of spark plugs for a specified term; used two types of agreements with its distributors; and otherwise directly con troll cd the details of several dilie.ring distribution systems, which resulted in competing sellers buying at different prices. 65. In Eleotric Auto-Lite Company, 50 F. C. 73, the manufacturer discriminated in the prices at which it sold spark plugs as between (a) direct purchasers, (b) direct purchasers and indirect purchasers and (c) between spark plugs sold as original equipment and spark plugs of like grade and quality sold for replacement. No discrimination by the manufacturer has been alleged or proven in the instant case. .In Auto-Lite as in Ohampion the manufacturer was operating more than one selling system, which also had separate pricing systems. The same is applicable to General Motors Corporation 50 F. 54. In Whitaker Cable 51 F. C. 958 (1955) aff'd. 239 F. 2d 253 7th Cir. (1956) court. den. 353 u.S. 938 (1957), another automotiveparts case, purchasers from the manufacturer were of more than Dne classification: W"rehouse Jobbers, Group Buying Jobbers Wholesale Distributor Jobbers, and Private Brand Customers. The opinion found inter alia (p. 962), "A11 of said private brand purchasers sold to jobbers and direct to retail dealers and to this extent were in competition with respondenes direct and indirect purchasers hereinabove described." In the instant case there is only one class of purchaser from the manufacturer-,the wholesaler or jobber. 66. E. Edelrnann Co. 51 F. C. 978; 239 F. 2d 152, another automotive-parts case, found that respondent sold its products to some 3500 to 4000 purchasers, of which approximately 40 were classified as warehouse distributors, 15 to 20 as private brand accounts six as cooperative buying groups, fifty as industrial accounts, and the remainder as automotive jobbers who either buy from petitioner distributors or from petitioner direct (239 F. 2d 153). "The price discriminations which were found to be unlawful discriminations resulted from the application of a 20% discount from a distributor net price on purchases of petitioner s brass line and 15 % on the glass and brake lines.

67. None of the features of Edelmann selling and pricing procedures which were found unlawful by the Commission and the court are present in Schrafft' s sellng and pricing procedures. 68. Thompson Produots Inc. 55 F. C. 1252, another automotiveparts case, also involved more than one seIJing and pricing procedure by the same manufacturer. Its distributors were automotivepart wholesalers who annually executed distributor franchise agremuents, and were served through respondent's repla,cement FRANK G. SHATTUCK CO. ET AL. 343 315 Initial Decision division. The jobbers were wholesalers signing jobber franchise agreements which required them, inter alia, to maintain an average minimum dollar inventory on certain lines of Thompson merchandise. The prices at which Thompson sold its automotive parts to various vehicle manufacturers were substantially lower than those recehby it for parts of like grade and quality purchased by Thompson independent distributors and jobbers. The Thompson s sellng and pricing procedures, like all the other automotive-parts cases, are so nnlike the Schrafft selling and pricing procedures as to furnish no factual basis for comparison.

69. In Dentists S,'apply 00. of New York 37F. C. 343, the supply company manufactured and sold artificia.! teeth to (a) wholesale dealers known as dental supply houses, (b) to dental laboratories and (c) to dentists. There again the manufacturer sold through three separate distribution channels, unlike Schraff, which sells only to wholesalers or jobbers. In Dentists Supply the Commission found that the respondent discriminated in price among different customers to whom it sold directly, and who were in competition with each other on the same level of distribution. A volume discount was also involved in this case. Neither the facts, nor the law enunciated by the Commission, in Dentists Supply are applicahle to the Schrafft situation. 70. In General Foods Oo"poration 52 F. C. 798, respondent was charged with violating 2(a), 2(d), and 2(e) of the Clayton Act, as amended. Respondent sold its products to institution wholesalers, to "Institution Contract Wagon Distributors, to wholesalers dealing exclusively in institution products, to wholesalers who dealt in both institution and grocery-pack products, and to numerous direct buying purchasers who operate for the feeding establishments. Its grocery-pack products were sold to wholesalers who resell to retail grocers, to chain stores, to company commissaries and others. General Foods marketing system in no way resembled nor can it be eqnated to Schrafft's marketing system. At page 813 the hearing examiner held:

Under the doctrine recognized in Commission cases and cepted by the courts, it is possible to consider a customer s customer as a "purchaser" within the meaning of 2(a) if in fact the original seller exercises such a degree of control over sales by its direct customer that the latter s .sales are essentinlly sales by the original seller. However, the decided cases disclose no common requirement, the absence of which would fail to establish an indirect customer of a manufacturer to be a "purchaser" from such seller. No case goes so far as to hold that solicitation of orders by a respondent manufacturer and turning over those orders to an intermediate Uistributor for biling and handling is sufficient to establish a seller-purchaser relationship between the manufacturer and the persons from whom sucb orders were procured. Tbe fact that respondent' Initial Decision 65 F.

representatives may have suggested biling prices in a few instances does not indicate a policy or practice on. the part of the respondent, and in the absence of further facts, there is no basis in the present record fora finding that the users who thus procure respondent's merchandise fau within the "purchaser category envisioned by fi 2 (a) of the Act. On the whole record, the conclusion is reached that there is insuffcient reliable, probative and substantial evidence to support the conclusion that .any of the users of respondent's 'products who procure those products indirectly through intermediate sources of supply are "purchasers" from respondent within the meaning of the Act.

71. LUrJor, Ltd. 31 F. C. 658 (1940), a 2(e) proceeding, involved the sale of toilet articles and cosmetics to retail dealers. Respondent sold its products to retail druggists and jobbers. Respondent by contracts, fixed the resale price of its products in every State of the Union where the law permitted it to do so. In that case respondent offered its popular "Junior Size" 101 package only to novelty, variety, syndicate and 5 and 101 stores and refused to furnish such "junior size to competing purchasers (retail druggistsJ of the identical products. In issuing its cease-and-desist order, the Commission relied upon its finding that Luxor s salesmen called on retail druggists who did not receive direct shipments from Luxor, and, Luxor s pricing policies Dll its products ,were 111aintainec1 as to retail druggists, who were not under contract, and who purchased indirectly through drug jobbers in the same manner in which the prices were maintained, as to druggists who ,were under contract to maintain prices and who received direct shipments from Luxor.

72. In his book The Price-Discrimination Law Corwin Edwards comments as follows (p. 627) :

The cases involving disproportionate services have included proceedings, such as that against Luxor, in which the Commission enforced the use of a channel Qf distrbution that the seller had vainly sought to employ before the case, the use of which was found to be undesirable by the distributors themselves after the order. The cases against disproportionate advertising allowances made it dif ficult if not impossible to engage in selective advertising whether or not there was a harmful competitive effect. The cases concerned with price discrimina tion included some, like the automobile parts cases, in which the Commission perceived injury in the secondary line of coroerce even though the disfavored customers were unanimous that they had not been injured; and some, like the rubber stamp cases, in which disorderly price competition among small sellers was held to be seriously damaging to competition among them. In policy toward discriination, the comprehensive sweep that was given to the concept of injury determined the impact 'of the statute; for cost justification was so diffcult that it could seldom be successfully invoked, and the statutory meaning of good faith in meeting competition was so far from ordinary business conceptions of such good faith that this type of defense held innumerable snares for the unwary. A considerable portion of the Commission s effort was spent in proceedings .. .. ..

FRANK G. Shattuck CO. ET AL. 345 315 Initial Decision among small concerns directed against injuries to competition that bad nothing to do with the big buyer or the predatory seller. Consequently, the statute has had an unnecessarily harassing effect on business conduct. Moreover, in applying the law in this way. the Commission was diverted from the substantial problems of power, which were the principal concern of the legislation. 73. In Liggett Myers Tobacco Oompany, Inc. 56 FTC 221 (1959), a S 2(d) proceedmg, the hearing examiner discussed at length the "indirect customer" concept, a.nd analyzed Dentists' Supply Company, Luxor Ltd., Kay Windsor Frocks, Inc., Kraft-Phenix, General Motors and Electric Auto-Lite. On appeal from that decision, Commissioner Tait inter alia stated:

The examiner additionally found, among other things, that 2(d) was not shown to have been violated through payments made to some customers such as vending-machine operators and not made on proportionately equal terms to certain retailers (the so-called "indirect customers J purchasing respondent' cigarettes from wholesalers or jobbers, for tbe reason that such retailers were not shown to be customers of the respondent within the meaning of 2(d). 74. Complaint counsel did not appeal from the hearing examiner finding concerning "indirect cllstomers, and the only reference to it in the COITnission s opinion is cited above.

75. In his opinion, in Liggett il ye the hearing examiner inter alia had stated (p. 233) :

The cases in which it has been decided that those who procured a respondent' products through an intermediate source \were actually customers of, or pur. chasers from, such respondent within the meaning of the Clayton Act are Dot numerous, and most .of them have involved 2(a) or 82(e) violations. All have been decided upon the principle that where such purchases were so made the respondent must have exe1'cised such a degree of control over the transaction tha, t the sales were aett.ally sales by respondent. (Emphasis supplied. 76. K. S. Oorp. v. Ohemstrand Oorporation 198 F. Supp. 310 (S. Y. 1961) cited by the court in American Ne""s, infra was a private action under S 2 of the Chtyton Act as amended. "Yhat was before the court was a motion to dismiss the cOlnplaint. In ruling on the 111otion the court said inter alia:

The ultmate determination as to whether suffcient control exists to make the plaintiff a purchaser within the meaning of the Act wil depend to a large extent on the proof adduced as to the number and quality of the contacts be. tween Chemstrand, the plaintiff, and Ifabrex. A reading of the above-cited cases indicates the vague line that separates a covered, indirect purchaser and one who is not. It \vould appeal' that each case must be decided on its own facts. (Emphasis supplied.

77. American News Oompany v. FTO 300 F. 2d 104, (CA 2 1962), was a proceeding by the Federal Trade Commission under S 5 of the Federal Trade Commission Act to reach practices allegedly viola- 313-121--70-- 346 FEDERAL TRADE COllfMISSION DECISIONS Initial Decision 65 F.

tive of S 2( d) of the Clayton Act as amended. In its opinion, the Second Circuit stated (p. 107) :

The Federal 'l' trade Commission found that in every instance the national publisher controls U1e prices and terms of sale throughout the distribution process, so that neither the national distributor nor the wholesaler has any power to set prices, terms, or conditions of sale to retailers of the magazi11e. :Moreover since each publication bears a cover price chosen by the publisher, the publisher effectively sets the retail price as well. . "" 78. Continuing (p. 109) :

If the manufacturer deals with the retailer through the intermediary of whole. salers, dealers, or jobbers, the retailer may nevertheless be a "customer" or purcllllser" of the manufacturer if the latter deals directly with the retai1crs and controls the terms ttpon which he buys (quoting cases). (Emphasis supplied. 79. The testimony of Schrafft employees, the testimony of the wholesalers themselves and all the other incidents of Schrafft's sales procedures specifically negate a finding that "the manufacturer * * * controls the terms upon which he (the retailer of Schrafft' s candy J buys 80. At the argument 011 the proposed findings, the examiner requested complaint counsel to specify the things which Schrafft presently doing which complaint counsel would have Schmfft cease doing. His response, in substance, \vas that he would have Schrafft sell directly to the retailer. A marketing practice which has been employed for more than fifty ymlrs, and which directly beneils the wholesnJers who are part of it, must not, of course, be lightly ordered cast aside. 2(a.) does not empower the Commission to order a manufacturer to desist fr01n any marketing procedure unless it is proven that the manufacturer, either directly or indirectly, discriminates in price between different purchasers of commodities of like grade and quality. Such proof being absent in this record as to the Schraff sales to its customers, it must be found that a violation of 2(a) does not stand proven in this record. 1:moreover, the proof in this case does not establish the fact that Schraff has exercised control over sales by its wholesalers to their retailers to such an extent as to justify a finding that Schrafft "controls the terms upon which he (the retailer) v. FTC, BupnL).buys (Ame1'icanNew8 Compa.ny IV. TheCaseAgainstWaZlace 81. IVallace, unlike Schrafft, sens its boxed candy directly to retailers by means of its own sales staff. IVallace does sell goods of like grade and quality at differing prices to different retailers for resale. 82. In Buffalo, vVaJlace granted an additional 10% discount on boxed candy to Adam Meldrum & Anderson Co. Inc., Hells & Kelly, FRANK G. SHATTUCK CO. ET AL. 347 815 Init.ial Decision and IVm. Hengerer department stoles. During the years 1958 and 1959 such discOlmts were:

1958 1959 Adam .:Ieldrum & Anderson Co. Inc----___--- $103. 20 $162. 98 Hens & Kelly ---------------------- 25. Wm. Hengerer 00-_____---- 40. 59. DO (OX 738).

83. IVallace did not grant the 10% discount on boxed candy to Gertrudc Shalala Candy Shoppe, Wiliam E. ::lathias Co., or Wm. A. Jepson Inc. These latter retailers' total purchases of IVallace packaged candy of the type purchased by the department stores were: 1168 1959 Gertrude $61. 52 Shalala______------------------------------------ 0 ln. E. 11athias_____-- ---------------------------------- $124. 00 187. Wm. A. JCIJson___--__- -------------------------------- 754. 32 840. . 10% discount on these purchases compara,ble to the discount granted to the department stores would ha.ve amounted to total addi tion"l discounts as follows:

1958 1959 Gertrude Shalala______-- ---- 0. 00 $6. m. E. Iathias-____--------- ----------- $12. 40 18. ll. \. Jepsoll--____---------- ---------------------------- 75. 43 84. 84. It has been stipulated (CX 737) that the proprietors or owners of Gertrude ShaJala Candy Shoppe, IVm. E. Mathias, and IVm. A. J cpson would, if called, testify (over a timely objection that the opinion portion of the testimony constitutes conclusions of fact and expressions of opinion) that:

They compete in tlle resale of Wallace boxed candy with tlle downtown department stores Adam Meldrum & Anderson Co., Inc., Hens & Kelly, and \\ Hel1gerer Co. ;

There is "keen competition in the Bale of candy products, and in their opinion if a competitor were able to purcllase "rallace boxed candy at a 10% 10lver price than they, this would adversely affect their business in that such competitor would llave a relativcly greater overall profit margin on such candy, which extra margin could be used to improve his facilties, advertise his proCIncts, or otherwi,:e improve his 'competitive position;

'1' he two Gertrude ShaIala Candy Shoppes "take advantage of all trade discounts because suell discounts are extremely important in the computation of net profit" ;

Tiley take advantoge of all cash discounts when possible, but no cash discounts ha..e been taken on Wallace products during the past year; The Wm. E. Mathias Co. Inc. 'store and cigar and candy stand have about $270,000 annual sales;

'1' he own€l" s average markup is about 23%, and is 33% on Wallace boxed candy;

'1'hc owner takes advantage of all t.trade discounts because such discounts are extremely important in the computation of net profit ; 348 FEDERAL TRADE COML\HSSION DECISIONS Initial Decision 65 F.

Cash discounts particularly are very important to him, and he always takes them;

During the past year he has taken advantage of the 2% cash discount for prompt payment offered by Wallace i Wrn. A. Jepson, Inc., a fancy food store, does about $140,000 annual business; The company s net profit is between 2% and 2:1%, excluding the owner s salary of $115.00 weekly;

Its markup on Wallace boxed candy is 331ja% and the markup on many of the grocery items carried varies from 25% to 10%; The owner takes advantage of all trade discounts when possible because such discounts are extremely important in the computation of net profit; He considers the 2% cash discount very important, but very often the unavailabilty of cash makes taking the 2% discount impossible; On occasion during the past year be has taken the 2% cash discount for prompt payment offered by Wallace;

During 1958-1959 Gertrude Shaiaia Candy Shoppes never took advantage of the 2% cash discount for payment witbin fifteen days from the date. of the invoice;

Upon a number of occasions Wm. A. Jepson Inc. did not take advantage of the 2% cash discount.

85. In the Hochester area, Wallace granted an additional 10% discount on purchases of boxed candy to E. ,V. Edwards & Son and Sibley Lindsay & Curr Co. department stores. Such discounts were : 1968 1959 E. VV. Ed",ards__ -------------------------------------- $107. 15 $13. Sibley Lindsay & Curl' Co--- 120. 84 167. 72 86. Wallace did not grant the additional 10% discount to Josephine Pcndleton (Hochester Nut Shop), nor to Jackson & Bailey, Inc. These retailers' purchases of ,Vallace packaged candy of the type purchased by the Hochester department stores were: 1958 1959 J. Pendleton (Rochester Nut Shop) -------------------------- $41. 84 $69. Jackson & Bailey-------------------------- ---- 322. 32 316. The adc1itionallO% disc01Ult on these purchases would have amounted to:

1958 1959 Rochester Kut Shop (J. Pendleton) - $4. $6. J acksoll & Bailey --------------------- 32, 31. 61 (See OX 737, OX 738.

87. It has been stipulated that the proprietors or owners of these retail stores in the Rochester trade area, if called, would testify (over a timely objection that the opinion portion of the testimony constitutes conclusions of fact and expressions of opinion), that they compete in the resale of 'Wallace & Co. boxed candy with the downtown Rochester department stores E. ,V. Edwards & Son and Sibley- Lindsay & Curr Co. that there is "keen competition in the sale of FRA."K G. SHATTUCK CO. ET AL. 349 315 Initial Decision candy products; .md that, in their opinion, if a competitor were able to purchase .Wallace boxed candy at a 10% lower price than they, this would adversely ai!'ect their business, in that such competitor ,,'ould have a relatively greater overall profit margin on such candy, which extra margin could be used to improve his facilities, advertise his products or otherwise ilnprovB his cOlnpetitive position. 88. Jackson-Bailey Inc., is a confectionery store located outside the downtown shopping area of Rochester. It sells ice cream, candy, nuts and greeting cards, and its total annual sales are between $50 000 and $60 000. The sale of ice cream accounts for slightly over 50% of its total business. Its "business has been getting progressively worse over the past three years, and, as a reslllt, the president of the company "has not been able to draw any salary from the business for the past two years . Overall markup on all its products is about 35%, and on 'Wallace boxed candy, 13%. The owner takes advantage of all trade discounts because such discounts are extremely important in the computation of net profit. During the past year he was unable to take any cash discounts because of the lack of available cash. 89. The Rochester Nut Shop (Josephine Pendleton) is a confectionery store located in the downtown shopping area. It sells only nuts and candy. Its total sales for 1960 wcrc about $36 000, with a net profit of slightly less than 15%, including owner s salary. Overall marlmp on all or most of its products is 33% %. The owner "takes advantage of all trade discounts because such discounts are extremely important in the computation of net profit". She takes advantage of the 2% cash discolUlt for prompt payment whenever possible, but sometimes she cannot take advantage of it beca.use of the lack of available cash.

90. During the yellrs 1958 and 1959 Jackson & Bailey Inc., and Josephie Pendleton (Rochester Nut Shop) usually did not take adva.ntage of the 2% cllsh discount for payment within fifteen dllYS of the dllte of the invoice.

1. Wallace 8 Defense of No Inju1'j to Competition 91. The Supreme Court held in FTC v. Anheuser Busch, Inc., 363 S. 536 (1960), that a price discrimination under g2(a) is merely a price difference. Applying the rationale of that decision tD this case, it wouldllppear that complllint counsel has, as to vVallace, made in Anheuser Busch the Supreme out a prima facie case. However, Court remanded the case to the Seventh Circuit for that circuit make a determination of whether the record would support the requisite finding of competitive injury. The Seventh Circuit found that Initial Decision 65 F.

the requisite competitive injury had not been proven, and dismissed the proceeding (289 F. 2d 835).

92. No evidence of actual or probable injury has been adduced in this record except the non-probative, speculative and conjectural stipulated evidence of retailers in Commission s Exhibit 737. However as this examiner reads the holdings of the Federal Trade Commission in Tri Valley Packing Association Dockets 7225 aud 7496 (Commissions' opinion dated May 10 , 1062) (60 F. C. 1134, 1168J, American Oil Oompany, Docket 8183 (opinion dated June 27, 1062) (60 C. 1786 , 1804J, and United Biscuit Oompany of America Docket 7817 (opinion of the Commission dated June 28, 1962) (60 F. 1893J, such proof of competitive injury is no longer required. The Commission has emmciated a per' 8e standard for judging probable injury to competition under 2(a) of the Robinson-Patman Act. 93. In Tri Valley, the Commission held (p. 1175) : '" .. . In view of our holding tbatreSIJOndent' s price discriminations may result in injury to competition regardless of whether there 1s actual competiton -in the resale a/uZ tl1stribution of the prod1lctsinvolvea 'in the discrindnat-ons we believe that the phrase '; in the resale and distribution of respondent's products" unduly limits the scope of the order und should be deleted therefrom. (Emphasis supplied. ) and on page 1171 :

In any case involving the effect of a price discrimination on competition between buyers, the requisite injury may be interred from a showing that a purcha er paid substantially less than its competitor for goods of like grade and qualv. Morton Salt Company,ity so1( by the l' cspondent (F'edera, l Trade Commission 81tpra) ; and it has been held that such an inference is permissible despite testi. many b r the nonfavored purchaser that he had not been injured by the discrimination. Moog Inaustrles, Inc. v. FrlleTal Traae Commission 238 F. 2d "13 (1956) ; E. Etlelmann cf Co. v. Federal Trade Commission 230 F. 2c1152 (HJ56). (Emphasis supplied.

94. In Aone1'ican Oil the Commission in its opinion (p. 1806) interpreted Mm.tonSalt 00. (334 U. 37 (10,18)) as holding: in price discrimination cases involving competition between buyers, the requisite injury to such competition may be i11fe1Ted from a showing that the seller ('charged ODe purchaser a higher price for like goods than he had charged one or more of the purchaser s competitors and that the amount of this discrimination was substantial. (Emphasis supplied.

95. Although A nheuse1' was remanded by the Supremc Court for the Seventh Circuit to determine whether there was proof of competitive injury in the record, it would appear that the opinions in Tri Val ley, A?1wr'ican Oil and United Bismdt eliminate the requirement or proof of competitive injury. In American Oil (page 3) the Commission stated: "Hence, it is unnecessary to determine whether the hearing examiner s finding of actual injury is supported by the record. FRA.'I G. SHATTUCK CO. ET AL. 351 815 Initial Decision 96. In United Biscnit Docket 7817 (60 FTC 1893, 1898J (opinion of Tune 28 1962), the Commission stated, in commenting on Tri Valley: in any case involving the effect of a price discrimination on competition between buyers, the requisite injury may be interred from a showing that a purchaser paid substantially less than its competitor for goods of like grade fmd quality sold by the respondent and that the question of substantiality must be determined from the facts in each case. (Emphasis supplied. 97. As the exam;iner reads the Commissioll s opinions in Tri Valley, American Oil and United Biscuit the absence of proof in this record of competitive injury resulting from vVanace s price differentials doe not compel a dismissal of this proceeding as to \Vallaee. 98. However, IVa.llace defends fnrtber on the grounds that its lower prices to some pure-hasers of its candy were made in good faith to meet an equally low price of a competitor. The evidence shows and the examiner further finds:

reo WaZZaoe s "Meeting Oompetition" Defense 99. The additional 10% discOlU1t ivas granted by IVallace to the department stores in Buffalo and Hochester because the offcers of 11'",1lace honestly and reasonably believed, in good faith, that they were meeting the equally low prices oi:1erecl and given to thm=e same department stores by a large number of ,Vallace s competitors, including, alTIOllg others, Russell Stover Candies e\V England Confectionery (Candy Cupboard), Cresca (Pascal), Stevens Candy Kitchens (Mrs. Stevens), Maple Grove, DeMet's, Loft, Jaret Imports Inc., Edward Sharp Sales Inc., J\Iaillard, Bonomo, Brown & Haley, VV'hitman, Este filer & Hollis, Delson, Goetz, Parkside, vYunderle, Peerless, Rosemary DeParke and Louis Sherry. The need of meeting this competition was confirmed by the testimony of wholesalers in Buffalo, Rochester and Syracuse: Attea, Zutes, and Rose who sell or attempt to sell candy to these same department stores; and by the testimony of the candy buyers for United vVhelan, F. IV. IVoolworth, VV. T. Grant, and J. C. Penney Co. These candy buyers testified that they purchase candy at prices equivalent to at least a 40% discount from the suggested retail price from many competing candy companies, including, among others: vVhitnmn, Page & Shaw, VoneiJ1 Drayer, DelVitt 1' Henry, Derand, E. J. Brach, Sisco, I-Iami1ton, Brown & Hollis, Candy Cupboard :\Iartha \Vashington, 1\1rs. Stevens, Cresea and Brown & Haley. 100. John P. Joyee, who had been associated with vVallace for a long time and had been vice president in charge of sales, left Wallaee on June 15, 1961, and was, at the time of his testimony, sales manager for the Loft Candy Corporation. His testimony appears at pages 880 et seq. of the record. At page 898 Mr. Joyce testified that in pricing 352 FEDERAL TRADE CQlI'MISSION DECISIQ:.S Initial Decision 65 F.

Wallace packaged candy to thc E. ,Y. Edwards department store and Sibley Lindsay & Curr stores in Rochester, and to the Adams Meldrum & Anderson Co. Inc. and "\Vil1irull Hengerer Co. dep Ttment stores in Buffalo, he actually believed in good faith that he was merely meeting the equally low price,s offered and given to these par- 0) ticular department stores by the competing sellers or candy Wallace had been granting thc additional 10% discount to all the departnlent stores, without excepUon, for as long as J ayee had been in the business. These same department stores took a higher markup on bulk caudy (not involved here) than on boxed candy becctuse of hag shrinkage . The Rochester and Buffalo department stores were receiving the additional 10% discount on 'Wallace package candy at the time Mr. Joyce went with 'Wallace. It was )fr. Joyce s "educated guess ' that the practice of the candy 11lanufacturers allowing the department stores the additional 10% discount on packaged candy began "some forty years ago . The ma,nufacturers who refused this additional discouut simply did not get the pieckaged-candy business. 101. Packaged candy has been sold to the department stores for many years past at a wholesale price which reflected a 40% markup, based upon the suggested retail sales price. 102. It is complaint counsel's position that "a seller who adopts ie system of pricing which results in routine and continuing discrimination in fa VOl' of all department store cust01llers has no standing invoke S2(b)" " citing Federal Trade Oommission v. A. E. Staley Mfg. 00. 324 U. S. 746 (1945) and Federal Trade Oommission v. Oement Institute 333 U.S 683.

103. The Supreme Court, in Federal Trade Oommission v. Standard Oil 00. 355 U. S. 396 (1958) (a sequel to Standard Oil 00. v. Federal Trade Oommission 340 U.S. 231 (1951)), specifically approved a S 2 (b) defense in a factual situation similar to the one proven here. In Standard Oil the Supreme Court took cognizance of Staley, Oement Institute and National Lead (355 U.S. 401), but held, nevertheless, that the S 2 (b) defense was properly invoked. In Standard Oil as in this case, the pricing practice apparently preceded the 1936 Robinson- Patman amendments to the Clayton Act.

104. At page 402, the Court said:

It appears to us that the crucial inquiry is not wby reduced prices were :frst granted" '" . but rather why the reduced price was continued subsequent to passage of the Act in 1936 , li "' Respondent 'Wallace s exhibits 6 through 18- , read in conjunction with the testimony of John P. Joyce (who hied been in the candy busi- 1 See complaint counsel's reply memorandum fied August 31 , 1962. FRANK G. Shattuck CO. ET AL. 353 315 Initial Decision ness for many years) and the other evidence in this record, support a finding, and the examiner does fmd, that Wallace s additional 10% discounts to the retailers, as proven in this record, were "* * * ' a re sponse to individual competitive situations, rather than pursuant to a pricing system . . " " (see Standard Oil, supra 355 U.S. at 404). vVallace has proven that its lower prices to some purchasers were made in good faith to meet an equally low price of a competitor, or competitors.

CONCLUSIONS 1. The Federal Trade Commission has jurisdiction over the subject matter of this proceeding, and over the respondents Frank G. Shattuck Company, W. F. Schrafft & Sons Corporation, and Wallace& Co., and these respondents 'a.re engaged in commerce as "coIDlnerce" is defined in the Clayton Act as amended.

2. This record does not support the conclusion that respondent Schrafft' s Sales Corporation was engaged in commerce, as "commerce" is defined in the amended Clayton Act. The Federal Trade Commission does not have jurisdiction over Schl'afit' s Sales Corporation, and this complaint should he dismissed as to that respondent. : Respondent Frank G. Shattuck Company does not manufacture the product line involved in this proceeding. As to its wholly owned subsidiaries, VV. F. Schrafft & Sons Corporation and .Wallace & Co., who do manufacture and sell such product line, Shattuck does not determine, direct, or control the prices, terms, and other policies upon which such wholly owned subsidiaries do sell the product line and deal with their customers. Respondent Frank G. Shattuck Company has not been proven in this record to have violated the Clayton Act as charged in the complaint. Tho complaint should be dismissed as to respondent Fran G. Shattuck Company.

4. Respondents W. F. Schraff & Sons Corporation and Wallace & Co. manufacture and sell the product line involved in this proceeding. In the course and conduct of their businesses in commerce Schrafft and vVallace are competitively engaged with other corporations, individuals, partnerships and iirms in the manufacture, distribution and sale of their products.

5. The evidence in this record does not establish that 1V. F. Schrafft & Sons Corporation, in the course of its trade in commerce and in its sale of the product ling here involved, has discriminated in price, either directly or indirectly, between different purchasers of commodities of like grade and quality by selling to some purchasers at higher and Jess favorable prices than they sell to other purchasers competitively engaged in the resale of their products with the more 354 FEDERAL TRADE COMMISSIOK DECISIOXS Opinion 65 F.

tvorecl purcha.sers, as charged in the complaint. The complaint should be dismissed as to the respondent IV. F. Schraff & Sons Corporation. 6. The evidence in this record establishes that respondent 'Wallace & Co. sold its products of like grade and quality to some purchasers at higher and less bvorable prices than it sold such products to other purchasers competitively engaged in the resale of its products with the non-favored purchasers. 1Vallace & CO. s lower priess to some purchasers were made in good faith to meet the equally low prices of its competitors. The complaint should be dismissed as to IV all ace & Co. ORDER Now, therefore It i8 ordered That the complaint, and this proceeding, be and hereby are, dismissed as to each and all of the respondents Frank G. Shattuck Company, IV. F. Schrafft & Sons Corporation, Sehrafft's Sales Corporation, and IVallace & Co., jointly and severally. OPINION OF THE DIISSIOX APRIL 22 , 1004 By DIXON ornmiss7:owner:

This matter is before us on the appeal of Commission counsel from the hearing examiner s dismissal of the complaint, which had charged each of the respondents with price discrimination in viola ton of Section 2(a) of the Clayton Act, as amended by the Robinson-Patman Act (49 Stat. 1526 (1936), 15 U. 13(a)). Briefly summa.rized, the corporate relationships of the various respondents are as follows. Frank G. Shattuck Company is the parent corporation and owns all of the stock in the remaining respondents. Shattuck was made a party to the proceeding solely on the theory that it exercised suffcient direction and control over the sales activities of its wholly owned subsidiaries to be held1egally responsible therefor. IV. F. Schrafft & Sons Corporation maintains a plant in Charlestown, l\iassachusetts where it produces candies for a nationwide market. ''Vall ace & Company 111wufactures candy for sale in commerce at its Brooklyn, New York, plant. Schrafft's Sales Corporation is a wholesaler located in the city of Kew York and is engaged primarily in the sale of candy products manufactured by IV. F. Schrafft & Sons and Wallacetoretailersinthatcity.

After the record had been closed, counsel supporting the complaint recommended to the examiner that the charge against Frank G. Shattuck Company, the parent corporation, be dismissed on the basis that the evidence failed to show that it was responsible for the sales FRA K G. SHATTUCK CO. ET AL. 355 315 Opinion policies of its subsidiaries. I-Ie also recommended that the charge against Schrafft's Sales, whose activities were confined solely to intrastate sales, be dismissed. The examiner made independent findings of fact in accord therewith, and these findiJlgs, which are supported by the evidence, are hereby adopted as the findings of the Commission. 'V. F. Schramm & Sons Corporation and vVa11ace & Company, both of which are manufacturers of candy products, are thus the only respondents before us at this time. The charges against each present different problems and accordingly will be discussed separately. VV. F. SchrafI & Sons markets its boxed or gift candy, the product in issue, through wholesalers who resell the products to retailers. Although Schrafft makes a few sales directly to supermarkets, these particular sales constituted only a small part of Schrai1t's total sales at the time of the hearing and are not in issue in this proceeding. Thus, for the purposes of this case, all of Schrafft's sales of its products were made to wholesalers. These wholesalers purchase the products from Schrafft at a uniform price, regardless of their subsequent customers, and resell them to independent retailers and to such chain organizations as F. VV. vVoolworth Company, .V. T. Grant Company, and vValgrcen Drug Stores. The charge is predicated upon the fact that the chains are able to purchase Schraff' s candies from wholesa1crs for less than independent retailers purchasing the same products from the same wholesale.rs. Independent retailers are charged a price computed on the basis of a 33113 % discount from the suggested consumer price, while chain stores arb granted an additional 10% discount from the price at which the independents purchase. The additional discount permits the chain stores to purchase at 40% off the suggested consumer price and was thus sometimes referred to in the transcript as a 40% discount. A discount of 2% is also available to both classes of customers for prompt payment. The first question which arises is whether responsibilty for these price differences attachcs to Schraff, since instead of sellng directly to retailers, Schrafft utilizes a distribution system in which it seBs to wholesalers who in turn reseB the products at differing prices to retailers. ",Ve hane held in prior cases that where t.he evidence demonstrates that the ma.nufacturer exercises a. specified degree of control over the relationships and terms of the sale which occurs when the retailer purchases from the wholesaler, the retailer may, for the purposes of the Clayton Act as ",mended, be deemed an "indirect purchaser" from the manufacturer. E.g., Kraft-Phenix! Oheese Oorp., 25 537 (1937); Luxor, Ltd. 31 F. C. 658 (1940); Dentist,' Supp. p. 356 FEDERAL TRADE COMMISSIQ"f DECISIONS Opinion 65 F.

ply 00. of NMV York 37 F. C. 345 (1943); Ohampion Spark P/Jg 00. 50 C. 30 (1953). The courts have recognized and applied the indirect purchaser doctrine on several recent occasions. , K. S. Om' v. Ohemstmnd Oorp. 198 F. Supp. 310 (S. 1961); American News 00. v. Fedemll'trade Oommission 300 F. 2d 104 (2d Cir. 1962), ce7't. denied 371 U.S. 824 (1962). Although the court in Klein Lionel Oorpomtion 237 F. 2d13 (3d Cir. 1956), declined to extend the doctrine to situations where the control was exercised through state fair trade contracts, no such issue arises in this case. In determining whether the doctrine enunciated by these cases is applicable in a particular situation, the decision must be made on a case-by. case basis with careful scrutiny of the diiIering circumstances presented in each instance. K. S. Om' v. Ohemst7'and Om' , s"pm. From an examination of these and other cases, it appears that the n10st important factor to be considered is the degree of control exercised by the manufacturer over the prices and other terms of the sale made by the wholesaler to tho retailer. Anothor is the extent, if any, to which the manufacturer deals directly with the retailer and by such dealing recognizes the reta,iler as his cllstomer. Examples of instances of direct contact which are of particular significancc are negotiations of franchise agreements with the retailer, negotiations ,,,ith the rota-ner concerning thc price which the retailer will be ehargcd by thc wholesaler attempts by the manufacturer s salesmen to solicit orders from the retailer, policing of the retailer s resale prices by the manufacturer inspections by the manufacturer to c1eterlnine whether.r the retailer is fulfillng his obligation to the wholesaler, and furnishing of ad vertising supplies to the retailer by the manufacturer. In this case, the transcript is replete with instances of direct contact between Schraff and all retailers of its products, both chain and independent. Schrafft registers its products with the central purchasing offces of the various chains so that the products will be listed for purchase by the buyers of the local outlets. As required by the chains the registration states the price at ,which the products are available to the chains' local outlets. The chains have indicated that they wil not "list" products for purchase by their Jocal outlets unless the products may be obtained at a price not greater than 40% off the suggested consumer price. Schrafft has thus infonnecl the central purchasing offces of the various chains that its products may be purchased fr01TI wholesalers at such a price, which is 10% less than its usual suggested wholesale price. .When chains have been billed by the wholesaler at the normal rather than the preferential price established by the act of registration, occasionally the chain has complained directly to Schrafft and Schrafft has intervened for the purpose and with the FRANK G. SHATTUCK CO. ET AL. 357 315 Opinion effect of obtaining for the chain the lower price. Further, Schraff' salesmen visit the various retailers. During these calls, the salesmen may promote now products, advise the retailers on methods of disphty and advertising, and even solicit orders. Schrafft requires that its salesmcn complete and file with it a specific form after such visits. Ohviously, therefore, Schrafft deals directly in many ways with the retailers who market its products, thus providing a basis for an inference that it recognizes these retailers as its own customers. On the other hand, the evidence is patcntly insuffcient to establish that Schrafft exercises any significant degree of control over the terms of the sales made by the wholesalers to thc independent retailers purchasing its products. Although the wholesalers usual.l1y charge the inde- 33V3 % off the consumerpendent retailers Schrafft' s suggested price of price, the transcript revealed instances where independents were able to purchase from the wholesalers at the lllore favorable chain store price. Several wholesalers testified that they were free to set the prices at which they sold their products. One testified that ho always sold andto the independents at the S:llnc price at which he sold to chains, another stated that if he received enough pressure from independents he made the lower price available to them. Further, and by way of distinguishing this case from ot.hers of a similar nature, there is no evidence that any contracts have been executed between the wholesalers and the independents governing the prices and terms of tho sales hy the wholesalers to the independent retailers, the provisions of which were established by Schmfft. It does not appear tlmt Schmfft requires the retailers to maintain a minimum inventory or a complete line of its products, or that it attempts in any ,yay to enforce the price which it suggests that the wholesalers charge the independents for its products. In short, there is little to indicate that Schrafft could eradicate the price difference in favor of the chains by requiring that the wholesalers make its products available to the independents at the same lower price even if it attempted to do so.

Complaint counsel arglles that a finding that the independent retailers are indirect purehascrs from Schrafft is not necessary for a holding that Schrafft has discriminated in price. In essence, the argument is as follows. Schraff intervened in a sales distribution system which isolated it froln direct sales contact with retailers by knowingly establishing a discriminatory price in favor of the chains. The act of intervention was an act of control over prices "which created a discrimination which IVould not otherwise have existed. Thus, according to complaint counsel, the power of control over the prices at which chains purchase fronl wholesalers create, s a corresponding duty to 358 FEDERAL TRADE CO:\IMISSION DECISIONS Opinion 65 F.

protect other retailers from price discrimination. The failure to fulfil that duty is the basis for liability under Section 2(a). \Ve are unable to adopt this theory. The instant case presents a unique factual situation. All of the sales in issue were made by Schrafft to indepenclentwholesalers at uniform prices. The acts of discrimination occurred in subsequent sales by the w hole.salers to the various chains and independent retailers. .With the facts in this posture, we are of the opinion that Schrafft may not be held responsible for the discrimination unless it can be shown that both the chains and the independents ate "indirect purchasers," as that tenn has been defined, from Schraff. Our finding that. the independent retailers are not "indirect purchasers" is thus a finding that an essential element of the offense has not been established and compels dismissal of the charge against Schrafft. vVe express no opinion on whether Schrafft exercises sufficient control over the price charged the chain stores by the wholesalers o support a finding that the chains afe "indirect purchasers. II.

The packaged candy products manufactured by Wallace & Company are sold to retailers through several channels. Some are marketed through a distribution system composed of some forty brokers and thirty-five jobbers or wholesalers. However, the ILajority of 'Wallace sales are made directly to approximately four thousand retailers, and it is with these latter sales that we are presently concerned. '\Vallace normal wholesale price is 331j3 % less than the suggested consumer price. Chains and department stores purchase at 10% less than the normal wholesale price or 40% off the suggested consumer price. That price difference was the basis for the charge of price discrimination against ,Vall ace.

The hearing examiner found the evidence insuffcient to support a finding of probable competitive injury, but after commenting that the Commission had established a "per se" rule on that issue, held grounds for dismissal. Uponthat such a failure of proof was not consideration of "lVallace s defense that its prices were granted in a good faith attempt to meet lmvcr prices of competitors, the examiner concluded that the prices had in fact been so granted and OIl that basis dismissed the charge. Although we are in agreement with the should be dismissed, weexaminer that the charges against ,,,.. allace have concluded that the dismissal must be upon different grounds. ,Ve reject outright the examiner s conclusion that a failure of proof on the issue of probable competitive injury is not grounds for dismissal of a charge of price discrimination, and turn to a consideration of the evidence offered in support of this issue. The evidence on the question is limited to the cities of Buffalo and Rochester, New York. FRANK G. SHATTUCK CO. ET AL. 359 315 Opinion Instead of calling witnesses, a stipulation containing the expected testimony of three non-favored independent retailers from Buffalo and two non-favored refa,ilers from Rochester was introduced. One of the retailers from Buffalo was engaged in the sale of candy products, another operated a cigar and candy stand, while the third was classified as a fancy food store. In Rochester, one of the retailers realized over 50% of his business from the sale of ice cream, while the other operated a store sellng candy and nuts exclusively. AU, if called, would have stated that they compete with several specific stores which, according to other evidence, recei veel the preferential ten percent discount. They would have testified further that competition in the sale of candy products is keen, that they take advantage of alj trade and cash discounts where possible, and that, in their opinion, if a competitor were able to purchase \;Y all ace boxed candy at ten percent less, their business would be adversely affected because the greater over-aU profit margin on candy could be used to improve their competitors' position in the market in various ways. All considered the 2% cash discount to be "extremely important very important " or "particularly important. " However, four of the five did not habitually take advantage of it. Tl1ree assigned as their reason the unavailability of funds, but no reason ,vas advanced by the fourth. The stipulation revealed the average net profit margins of only two of the five witnesses. The fancy food store located in Buffalo reported an average net profit margin of 2 to 21h% on annual sales of $140 000. The other, the candy and nut store located in Rochester, reported a net profit during 1960 of slightly less than 15% on sales of $36 000. o further information on the average not profit margins of the non-favored retailers of vVal1ace candy appears. The stipulation is silent on the average net profit margin realiz.ec1 from the sale of 1Vallace products considered separately.

In addition to the stipulation of expected testimony complaint counsel introduced invoices showing all sales made by IVallace in the Buffalo and Rochester areas clul'illfT the veals 1958-1959. These ,0invoices revealed the cash value of the discount granted to the favored retailers and provided a basis for a computation of what the value would have been to the non-favored retailers during those :years. According to the examiner s calculat.ions, the value of the discount to the non-favored Buil'alo retailers reporting an average net profit margin of 2 to 2Jh% on annual sales of $140 000 would have been $75.43 in 1958 and $84.06 in 1959. Tbe cash value to the Rochester retailer reporting a net profit margin of slightly less than 15% on annual sales of $36 000 would have been $4.18 in 1958 and $6.94 in 1959. In a case such as this, where there is no proof of actual competitive injury and the non-favored retailers resell the products at a preticketed 360 FEDERAL TRADE CO::VI:.SSION DECISIO: Final Order 65 F.

price, factors such as the net profit margins of the non-favored retailers and the extent to which they take advantage of the 2% cash discount take on an added significance in determining the probability of competitive injury. Thus, where the discrimination does not alter the price at which the product is ultimately resold, the effects of the discrimination must be measured with reference to such factors as the impact on average net profits. "Were, as here, the nOllwfavored retailers are engaged in diiI'erent types of retail business, and the evidence reveals the net profit margins of only two, whose profits are somewhat divergent, there is little upon which to project the probable effects of a discrimination. In addition, although we are told tlutt competition in the sale of packaged candy is keen, so much so that the cash discount of 2% is of extreme importance, the evidence reveals that four of the five non-favored retailers did not habitually take advantage of this discowlt. In these circumstances, we find that there is in this record no basis for an informed determination of the probable competitive effect of 1Vallace s price discriminations. In view of the foregoing, we find it unnecessary to reach 1VaUace contention that the discriminatory prices \were granted in good faith to meet the 10\v81' prices of its various competitors, and as a consequence we do not adopt the examiner s findings and conclusions in regard thereto.

For the reasons state, , the charges against each of the respondents will be dismissed. An order modifying those parts of tI,e initial decision in conflict with our vie,vs as discussed herein and adopting the decision as so modified will issue. Rules of Practice, Section 24(b) (August 1, 1963), 28 Fed. Reg. 7080, 7091 (,July 11, 1963). Commissioner iaclntyre not concurring for the reason set forth in the order, and Commissioner Reilly not participating for the reason that he did not he tr oral argument.

FINAL ORDER This matter having been he,arc1 by the Commission upon appeal by counsel supporting the complaint from the hea.ring examiner s initial decision, related September 20, 1962, and upon briefs and argument in support thereof and in opposition th reto; and The Commission having rendered its decision determining that the appeal shou1c1 be denied, and that the initial decision of the examiner should be modiiied in accordance with the views and for the reasons expressed in the accompanying opinion, and, as so modified, a.adopted a.s the decision of the Commjssion:

It is ordered That the initial decision, dated September 20, 1962 , and it hereby is, modified by striking from the findings of fact CONTINENTAL PRODUCTS , ET AL. 361 315 Complaint paragraphs 32 and 33, paragraphs 63 through and including paragraph 80, paragraphs 91 through and including paragraph 104; by striking from the conclusions paragraph 6; a.nd by substituting therefor the findings and conclusions of the accompanying opinion. It is further ordered That the initial decision as above modified and as modifed in the accompanying opinion he, and it hereby is, adopted as the decision of the Commission.

Commissioner :Maclntyre not concurring for the reason that he considers this to be a price discrimination case of a fundamental type where competitive opportunities of small business retailers arc substantially adversely affected hy a continuing 10% price discrimination in favor of the large cha.ins with which they "keenly" compete and consequently, believes that minimally this matter should be handled in the same manner as Federal Trade Commission Docket No. 8513 In the Mattet of .Atlantic Products C01'1oration, et al (December 13 1963) (63 F. C. 2237J. Commissioner Reilly not participating for the reason that h did not hear oral argument.