House of Lord', Inc.

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IN THE MATTER OF HOUSE OF LORD' , INC.

ORDER, OPINIONS , ETC. , IN REGARD TO THE ALLEGED VIOLATION OF SEC. 2(d) OF THE eLAYTON ACT Docket 8631. Complaint, June 30, 1964-Decision, Jan. , 1966 Order requiring a 1\ ew York City manufacturer of ladies ' dresses to cease discriminating among its competing retail customers in paying promotional allowances to some and not to others in violation of Section 2(d) of the Clayton Act.

COMPLAINT The Federal Trade Commission, having reason to believe the party respondent named in the caption hereof, and hereinafter HOUSE OF LORD , IKC.

Complaint more particularly described, has violated and is now violating the provisions of subsection (d) of Section 2 of the Clayton Act, as amended, (U. , Title 15, Sec. 13), hereby issues its complaint stating its charges with respect thereto as follows: PARAGRAPH 1. Respondent, House of Lord' , Inc., formerly trading as Lord's Sportswear, Inc., is a corporation organized, existing, and doing business under and by virtue of the laws of the State of New York, with its offce and principal place of business located at 498 Seventh Avenue, New York, New York. PAR. 2. Respondent is now and has been engaged in the manufacture, sale, and distribution of ladies' dresses. Respondent sells its products to a large number of retail specialty and department stores located throughout the United States. Respondent' s sales of its products are substantial, having exceeded $1 573 000 for the calendar year ending 1960.

PAR. 3. In the course and conduct of its business, respondent has engaged and is now engaging in commerce, as "commerce " is defined in the Clayton Act, as amended, in that respondent sells and causes its products to be transported from its principal place of business located in the State of New York, to customers located in other States of the l:united States and in the District of Columbia. There has been at a11 times mentioned herein a continuous course of trade in commerce in said products across State Unes between said respondent and its customers. PAR. 4. In the course and conduct of its business in commerce respondent paid or contracted for the payment of something of value to or for the benefit of some of its customers as compensation or in consideration for services or facilities furnished by or through such customers in connection with their offering for sale or sale of products sold to them by respondent, and such payments were not made available on proportionally equal terms to a11 other customers competing in the sale and distribution of respondent's products.

PAR. 5. Included among the payments alleged in Paragraph Four were credits or sums of money paid either directly or indirectly by way of discounts, allowances, rebates or deductions as compensation or in consideration for promotional services or facilities furnished by customers in connection with the offering for sale or sale of respondent's products, including advertising in various forms such as newspapers, sometimes hereinafter referred to as promotional allowances.

For example, during the years 1961 and 1962, respondent made FEDERAL TRADE COMMISSION DEeISIONS Initial Decision 69 F.

payments and allowances to various customers in various cities including Washington, D. ; Cleveland, Ohio, and San Francisco California, for advertising its products in newspapers. In Washington, during the year 1961 , respondent paid Julius GarfinckeJ & Co. and Lewis & Thomas Saltz, Inc., promotional allowances in the amounts of $200 and $100, respectively, and during the year 1962 paid the same customers $150 and $100, respectively. In Cleveland, during the year 1961 , respondent paid The Halle Bros. ; Lota Kelly Sportswear, Inc., and The Higbee Co. promotional allowances in the amounts of $300, 8100 and $300, respectively, and during the year 1962, paid the Halle Bros. and Lota Kelly Sportswear, Inc., 8200 and $75, respectively. Respondent did not make, or offer to make, or otherwise make available such allowances on proportionally equal, or any, terms to all other customers in Washington, D. , and Cleveland competing with those who received such allowances. PAR. 6. The acts and practices of respondent, as alleged above are in violation of subsection (d) of Section 2 of the Clayton Act as amended by the Robinson-Patman Act (U. , Title 15 , Sec. 13).

Mr. Peter .J. Dias, Mr. Mye,' S. TuZkofj, and Mr. .Jay M. Rosenfor the Commission. Handelsman, Arutt Knox New York, N. , by Mr. Maxwell Handelsman for respondent.

INITIAL DECISION BY WILMER L. TINLEY, HEARE\G EXAMINER FEBRUARY 11 , 1965 The Federal Trade Commission, on June 30, 1964, issued and subsequently served its complaint, charging the respondent with violations of subsection (d) of Section 2 of the Clayton Act, as amended. Answer to the complaint, filed on August 11, 1964, admitted the essential factual allegations of the complaint, except the allegation that the challenged advertising allowances were not made available on proportionally equal terms to a11 customers competing with those who received such allowances. A joint prehearing conference, which was nonpublic, was held on September 21 , 1964, with counsel for the parties in this and certain other proceedings involving similar charges, and a separate prehearing conference, which was for the public record, was held on September 24, 1964, with counsel for the parties in this proceeding. Pursuant to leave granted by the Commission, hearings were held in New York, New York, on November 16 and 17; HOUSE OF LORD , INC.

Findings of Fact in Washington, D. , on November 18 and 19; in Cleveland, Ohio on November 23; and were concluded in New York, New York, on November 30 1964.

Seventeen witnesses were presented by counsel supporting the complaint, and three by counsel for respondent, one of the latter having previously been presented by counsel supporting the complaint. The transcript of testimony (Tr. ), including the public prehearing conference, consists of 645 pages. The evidence also includes 48 Commission s Exhibits (CX), 4 Respondent's Exhibits (RX), and several stipulations of fact by counsel. In accordance with the time granted by the h.hearing examiner, proposals were filed by counsel on or before January 4, 1965, and reply proposals were filed by counsel supporting the complaint on January 18 1965. No reply proposals were filed by counsel for respondent. After having considered the record in this proceeding, including the proposals and contentions of the parties, the hearing examiner issues this initial decision. Findings proposed by the parties which are not adopted herein, either in the form proposed or in substance, are rejected as not being supported by the record or as involving immaterial or unnecessary matter. The motion to dismiss made by counsel for respondent at the conclusion of the hearings, upon which decision was reserved, is disposed of by this initial decision. The specific references herein to the testimony and exhibits, and to other parts of the record, are intended to be convenient guides to the principal items of evidence supporting findings of fact, and do not represent complete summaries of the evidence which was considered in such findings. FIXDIKGS OF FACT 1. Respondent, House of Lord' , Inc., is a corporation organized under the laws of the State of ::ew York, with its offce and principal place of business located at 498 Seventh Avenue, ::ew York New York (Answer). It was originally incorporated in 1936 under the name Lord's Sportswear, Inc., which was changed to its present name in August 1963 (Tr. 59-60).

2. Respondent is now and, during the times herein referred to has been engaged in the manufacture, sale and distribution of ladies' dresses (Answer). Although respondent manufactures dresses of many different fabrics, and for alj seasons of the year (Tr. 478- , 573- , 599-60), the evidence herein relates only to its practices in connection with the sale of Viyella dresses, that is FEDERAL TRADE COMMISSION DEeISIONS Findings of Fact 69 F.

dresses containing a wool-and-cotton fabric identifled with the trade name "Viyella" (Tr. 29 32; CX 5, 6 et al.). 3. It was stipulated that the same practices followed by respondent in the sale of Viyella dresses are also followed by respondent in the sale of dresses containing linen (Tr. 29-32. See also Tr. 601-2). Accordingly, insofar as findings herein are made with respect to respondent's practices in connection with Viyella dresses, they apply also with respect to its practices in connection with dresses containing linen.

4. Respondent sells its products to a large number of retail specialty and department stores located throughout the United States. Its sales are substantial, having exceeded 1 573 000 for the calendar year ending 1960 (Answer), and having amounted to approximately $1 600,000 for each of the calendar years 1961 and 1962 (Tr. 60).

5. The record does not disclose respondent's annual sales of Viyella dresses, but it is clear that such sales were substantial. During the years 1961 and 1962, respondent sold its products to about 1500 to 2000 customers, and approximately 350 of them were Viyell a customers (Tr. 80, 604-5). The evidence discloses sales of Viye1Ja dresses during those years to individual customers ranging from $150 to $44 510 (Tr. 85 9; 544), and the money available and used for allowances to respondent' s customers for Viyella advertising in 1961 amounted to approximately S16 000, and in 1962 to approximately $12 000 (Tr. 76, 508-9). 6. In the course and conduct of its business, respondent has engaged and is now engaging- in commerce, as "commerce" is defined in the Clayton Act, as amended, in that respondent sells and causes its products to be transported from its principal place of business located in the State of New York, to customers located in other States of the L'united States and in the District of Columbia. There has been at all times mentioned herein a continuous course of trade in commerce in said products across State lines between said respondent and its customers (Answer). The Issues 7. The complaint alleged generally that respondent granted disproportionate advertising payments or allowances to compet- Ing customers in violation of subsection (d) of Section 2 of the Clayton Act, as amended, and as examples, alleged that such allowances were made during the years 1961 and 1962 to customers located in Washington, D. , Cleveland, Ohio, and San Francisco , pp.

HOUSE OF LORD S, INe.

Findings of Fact California (Pars. 4 and 5). During the prehearing procedures, the evidence with respect to advertising allowances granted by respondent was limited to the years 1961 and 1962 (Prehearing Order, Par. 3), and, in the course of the hearings, counsel supporting the complaint offered evidence of such allowances only with respect to customers operating retail stores in Washington, C. and Cleveland, Ohio.

8. It was stipulated that payments and allowances by respondent to customers for advertising- Viyella products included the following: Abercrombie & Fitch, $500 in each of the years 1961 and 1962; Robert Kirk, Ltd. , $116 in 1961, and $160 in 1962; and 1. Magnin & Co., $890 in each of the years 1961 and 1962 (Tr. 7). These three customers operate retail stores in San Francisco, California (CX 3A- , 14-16, 27- , 38-40), but no evidence was offered concerning advertising allowances to other Viyella customers operating retail stores in San Francisco, and counsel supporting the complaint do not rely upon these allowances as evidence of violations (CSC Proposals, Par. 10). The allowances to these three customers wil, therefore, be disregarded. Viyella 9. The issues are, accordingly, limited to respondent's advertising allowances in 1961 and 1962 to customers operating retail stores in Washington, D. C., and Cleveland, Ohio, with the stipulation that the same practices are followed by respondent in the sale of dresses containing linen. It was stipulated that competing customers in Washington and Cleveland bought goods of like grade and quality at or about the same time during the years 1961 and 1962 (Tr. 3, 153-4). In the context of the record, these stipulations are construed to mean, not that al1 customers of respondent in Washington and Cleveland were competing customers but that insofar as the evidence relates to competing customers of respondent, they bought Viyella dresses of like grade and quality at or about the same time.

10. Counsel supporting the complaint urge that during 1961 and 1962 respondent did not offer or make available Viyella advertising- or promotional allowances to a11 competing customers in Washington, D. , and Cleveland, Ohio, on proportionally equal terms. They urge that the allowances were not proportionally , and equal among the competing customers who received them that they were not offered or made available to the competing customers who did not receive them (CSC Proposals, Par. 10 8).

11. Counsel for respondent contends that each customer who Findings of Fact 69 F.

participated in the Viyella advertising program in 1961 and 1962 possessed and exercised the right to determine the advertising media to be used, the size, contents and cost of the advertisement and the time when the said advertisement should appear" (CR Proposals, Par. 24) ; and that each customer who did not participate was offered an equal opportunity to do so, but refused (CR Proposals, Pars. 25-30). He contends, therefore, that in 1961 and 1962 respondent made its Viyella advertising allowances available on proportionally equal terms to a1l of its competing customers in Washington, D. , and Cleveland, Ohio (CR Proposed Conclusions, Pars. B-C).

Pecic Pecic and Best Company 12. Counsel for respondent also contends, in effect, that respondent' s advertising allowances to two customers with respect to which evidence was offered, Peck & Peck and Best & Company, should be disregarded as possible violations. Thc facts in evidence, and respondent' s contentions concerning these two customers warrant preliminary consideration.

13. It was stipulated that payments and allowances for advertising Viyella products were made by respondent to Peck & Peck of 000 in 1961 , and $300 in 1962; and to Best & Company of $447 in 1961 , and $500 in 1962 (Tr. 7). Respondent' s sales of Viyella dresses to Peck & Peck amounted to $44 510 in 1961 , and to 950 in 1962; and to Best & Company, amounted to $8 768 in 1961 , and to $10 497. 50 in 1962 (Tr. 212-3). 14. During 1961 and 1962, Peck & Peck operated approximately 60 retail stores, two of which were in Washington, D. , and three in Cleveland, Ohio (Tr. 183-4) ; and Best & Company operated 17 or 18 retail stores, one of which was in Washington, D. and one in Cleveland, Ohio (Tr. 157-60). Some of the Viyella dresses purchased by these customers from respondent were resold by them in their Washington and Cleveland stores (Tr. 163 174 185- 200- 207-8) .

15. A1l sales of Viyella dresses by respondent to Peck & Peck and to Best & Company were made by sales representatives of respondent in New York dealing with representatives of those customers also in New York (Tr. 90-1); and the negotiations with respect to advertising allowances by respondent to those customers also occurred in 1\ew York (Tr. 97- , 117). All deliveries of Viyella dresses by respondent were made from its plant in 1\ew York to the warehouse of each of those customers, also in New HOUSE OF LORD , INC.

Findings of Fact York (Tr. 63- , 70- , 119) ; and all Viyella dresses sold in the various stores of Peck & Peck and Best & Company were delivered to those stores by Peck & Peck and Best & Company, respectively, from their New York warehouses (Tr. 166- , 180- , 199-200 206-8). The allowances were used by Peck & Peck for advertising in the New Yorker, a nationally distributed magazine, in 1961 and by Best & Company in both 1961 and 1962 (CX 13, 36, 37). 16. Counsel for respondent does not seriously contend that the advertising atlowances by respondent to Peck & Peck and Best & Company are beyond the jurisdiction of the Commission under subsection (d) of Section 2 of the Clayton Act, as amended, because of the intrastate nature of the sales and deliveries by respondent to those customers (Tr. 65- , 362-9; CR Proposals, Pars. 20-23). An extensive legal analysis of this point, accordingly, is not warranted. It should be noted, however, that this subsection applies if the transaction with either the favored or unfavored customer is in interstate commerce (Corn P,'oducts Refining Co. et al. v. 324 U. S. 726 , 745 (1945): Shreveport Macaroni Mfg. Co. , Inc. v. 321 F 2d 404, 408-9 (1963), cert. den. 375 U. S. 971; In the Matter of J. H. Filbert, Inc. 54 F. C. 359 369-71 (1957)) : and that respondent' s sales and shipments of Viyella dresses to customers located in Washington, D. , and Cleveland, Ohio, were clearly in interstate commerce. 17. Counsel for respondent does seriously contend that respondent' s advertising allowances to Peck & Peck and to Best & Company should be disregarded as possible violations because respondent' s sales and deliveries of Viyella dresses to those customers in "'ew York City in 1961 and 1962 were made " with no knowledge on the part of the Respondent or its offcers that any of the Viyella dresses would be shipped" by those customers to their stores in Washington, D. , or Cleveland, Ohio. (CR Proposals, Pars. 21 23. See also Tr. 65- , 362-9). Apparently on this basis respondent contends that "Peck & Peck and Best & Co. in 1961 and 1962 were not competing customers in Washington, D. C. or Cleveland Ohio. " (CR Proposed Conclusions, Par. D). 18. In considering a similar contention the Commission stated in its opinion of June 26, 1964 , in Docket No. 7226, In the Matter of Fiotill Products, Inc. (65 F. C. 1099 , 1144J ; But a seller is under an obligation to affrmatively offer or otherwise make available promotional allowances on proportionally equal terms to al1 customers who compete in the resale of its goods. This obligation entails whatever inquiry is necessary to establish whether customers in fact compete. If it FEDERAL TRADE COMMISSION DEeISIONS Findings of Fact 69 F.

were otherwise, sellers could avoid their obligations under the statute simply by closing their eyes to the obvious. A violation of Section 2(d) is determined by objective rather than subjective considerations. If the favored and nonfavored customers actually compete in the resal!" of the seller s goods, the Act may be violated without regard to the seller s knowledge of the lawfulness or unlawfulness of a disproportionate promotional allowance. To hold otherwise would recognize the right of a seller to discriminate in favor of or against any customer who conducts his resale operations in more than one trade area. 19. The record in this proceeding, however, makes it abundantly clear that in selling Viyella dresses to Peck & Peck and to Best & Company respondent had compelling reason to believe that they would be resold by those customers at their branch stores, including specifically their stores in Washington, D. , and Cleveland Ohio.

20. Respondent knew that both customers had stores in Washington and Cleveland (Tr. 68, 70- , 95-6), and that both advertised Viyella dresses in the New Yorker, a magazine of national distribution (CX 13, 36, 37; Tr. 96- , 116, 125-6). It also understood that, because of the quantities purchased, Viyella dresses would be sold in more than one store of both of those customers (Tr. 118-9). After the advertising appears in the :"ew Yorker copies are sent to respondent, and those advertisements indicate that the products are available in the various stores of those customers, including their stores in Washington and Cleveland (CX 13, 36 , 37: Tr. 96-100 , 162- , 167- , 174- , 184- , 199-201 206-8). When respondent made an allowance to Best & Company in 1962, it had seen the 1961 New Yorker advertisement of that customer (CX 36; Tr. 99-100). Since that advertisement disclosed that Viyella dresses were available in substantially a11 of the stores of Best & Company in 1961, respondent must necessarily have assumed that the same situation would occur in 1962. From the implications of the testimony as a whole, the hearing examiner is satisfied that respondent had a suffcient history of dealing with both customers, and that it dealt with them on a suffciently informed basis, to understand that it was their policy to have available in substantially a11 of their stores the merchandise which they advertised nationally.

21. Because of the foregoing circumstances, and because the hearing examiner is convinced that the offcial of respondent responsible for its advertising program was thoroughly acquainted with the advertising and sales policies of Peck & Peck and Best & Company with respect to Viyella dresses (Tr. 366), it is found that, when respondent granted advertising allowances to those HOUSE OF LORD , INC.

Findings of Fact customers, it fully anticipated that such dresses would be resold in substantially all of their stores, including their stores in Washington, D. , and Cleveland, Ohio.

Other Customers in Washington, D.

and Cleveland, Ohio 22. In addition to Peck & Peck and Best & Company, the only customers operating retail stores in Washington, D. , and Cleveland, Ohio, who received allowances from respondent in 1961 and 1962 for advertising Vi yell a dresses, together with the amounts of their purchases of Viyella dresses from respondent and the allowances which they received in those years, are shown in the following list (Complaint and Answer; Tr. 45, 85-7) : 1961 1962 Washin,gton, D. Pur. Allow. Pur. Allow. J uli us Garfmckel $2000 $200 $2000 $150 Lewis & Thomas Saltz 1000 100 1000 100 Cleveland, Ohio The Ba11e Brothers $4500 $300 $1500 $200 Lata Kelly Sports- 1250 100 1250 wear, Inc.

The Higbee Company 1250 300 750 None 23. Customers who purchased Viyella dresses from respondent in 1961 and 1962, and who received no allowance for advertising them, included: in Washington, D. , Virginia Simmons, Inc., and Dorothy Stead, Inc., each of whose purchases of Viyella dresses in each year amounted to $200 , and Lelia oyes Shop, whose purchases in each year amounted to $250; and in Cleveland, Ohio Anne Polshek Shop, whose purchases in each year amounted to $400, and Frocks and Bonnets and Milgrim Stores, each of whose purchases in each year amounted to $150 (Tr. 86-9, 544). Competition Among Viyella Customers 24. In cases too numerous to warrant citing in detail, the Commission has found, on the basis of varying kinds and quantities of proof, and with respect to different lines of business, that retailers of the same commodities located in the same city or local area or in reasonable proximity, are in competition with each other. (See particularly Standard Motor Pr-ducts, Inc. 54 F. C. 814 828, and other automotive replacement parts cases, and such cases as Elizabeth Arden, Inc. 39 F. C. 288, 301; and Liggett Myers Tobacco Company, Inc. 56 F. C. 221 , 248. ) In its opinion of January 11 , 1965 In the Matter of Su.nbeam Corporation Docket FEDERAL TRADE eommission DECISIONS Findings of Fact 69 F.

o. 7409 (67 F. C. 20, 53), the Commission articulated what appears to be its accumulated knowledge and experience with respect to the reality of such competition, in ruling, in effect, that when it was shown that "favored and disfavored customers were located in the same local trade area. . . the burden shifted to respondent of producing evidence that such customers were not, in fact, competing in the distribution of articles covered by the plan. " The record in this proceeding, however, contains substantial persuasive evidence with respect to competition among respondent' s Viyella customers operating retail stores in Washington, D. , and in Cleveland, Ohio.

25. The dress buyer of Peck & Peck identified Best & Company as a competitor in Washington and Cleveland. She also identified Halle Brothers as a competitor in Cleveland, and Garfinckel in Washington, and expressed the view that competitors of Peck & Peck included a1l other stores in those cities selling the same items (Tr. 203-4).

26. The dress buyer of Garfinckel considered that store to be in competition with Peck & Peck and Best & Company in Washington "In that a1l stores carrying ready-to-wear are in competition (Tr. 220). The owner of Virginia Simmons, Inc., who operates a very small "personal type of shop, " which she described as a boutique (Tr. 517), stated that her customers came from a1l parts of the Washington area, including the suburbs, and that she is in competition with any store in the area that sells the same merchandise (Tr. 531-6).

27. Miss Anne Polshek, who operates a small store out of the congested downtown area of Cleveland (Tr. 424-5), stated that the back of her store "faces the back" of the Peck & Peck store (Tr. 415). The buyer for Ha1le Brothers considered that store to be in general competition with other retail stores in the Cleveland area engaged in selling ready-to-wear merchandise, including Peck & Peck and Best & Company (Tr. 397). The owner of Lota Kelly Sportswear, Inc. , in Cleveland, considered that he was in competition with Peck & Peck and with Best & Company (Tr. 440-1) .

28. The contrary testimony on this point was limited and unpersuasive. Neither the advertising director nor the buyer of misses dresses of Best & Company knew whether or not that company Arlington, Virginia store was considered competitive with stores located in Washington (Tr. 160, 173) ; and the latter did not consider the Arlington store of Best to be in competition with its HOUSE OF LORD , 1NC.

Findings of Fact Washington store (Tr. 181). The former manager and buyer of Lelia'" oyes Shop, which is a small retail store in Washington felt that the small shops, which have an entirely different clientele, are not in competition with the big downtown stores such as Garfinckel's and Lewis & Thomas Saltz; but she indicated that a woman may go to any store to shop for clothes, and that the same general class of customers might go to her shop or to Gartinckel's for that purpose (Tr. 308-9).

29. Respondent's customers, who received allowances for advertising Viyella dresses in 1961 and 1962 , advertised such dresses Viyella ad-exclusively in newspapers and magazines (Tr. 7-8). in thevertising by Best & Company in both years was Yorker, a magazine of national distribution (CX 36, 37; Tr. 178); and such advertising by Peck & Peck in 1961 was in the New York (CX 13; Tr. 211-12. Also see Tr. 509 which indicates that the 1962 advertising of Peck & Peck was in a newspaper, but does not indicate where). Viyella advertising in 1961 and 1962 by other customers in Washington and Cleveland was in newspapers of general circulation throughout those areas (CX 4- , 33-35). Customers located throughout the L:united States read the New Yorker, and, in person or by correspondence, may shop for Viye11a dresses in any of the stores of Peck & Peck or Best & Company (Tr. 200), and customers located throughout the Washington and CJeveland areas read the newspapers of general circulation in those areas, and, in person or by corespondence or telephone, may shop for Viyella dresses in any of the stores advertising in those newspapers (Tr. 244-63).

30. The record herein discloses, therefore, that the customers of respondent operating retail stores in Washington, D. , who received allowances for advertising Viyella dresses in 1961 and 1962, competed, in the sale of Viyella dresses of the same grade and quality, with each other and with customers of respondent in Washington, D. , who did not receive such allowances. It also discloses such competition among and between respondent' s Viye11a customers operating retail stores in Cleveland, Ohio, who did and did not receive Viyella advertising allowances in 1961 and 1962.

The Villella Coopemtive Adve?-tising Program 31. The Viyella fabric is manufactured by Wiliam Ho11ns & Company (hereinafter referred to as Hollins) in England (Tr. 74). Respondent purchases this fabric from Ho11ins and uses it in Findings of Fact 69 F.

the manufacture of Viyella dresses at its plant located in New York, New York, from which it then distributes the dresses to its customers located throughout the United States (Tr. 60-1). 32. Formerly Hollins advertised Viyella in this country in nationally distributed magazines, and otherwise, without referring to the retail stores in which Viyella dresses were sold. Approximately ten years ago, upon the recommendation of respondent Hollins and respondent adopted the program of cooperative advertising by retailers which is here in issue (Tr. 119-20). 33. Each year Hollins makes available to respondent an amount of money for use in the program based upon respondent's estimates of its probable needs, with latitude for exceeding that amount by a reasonable sum (Tr. 74- , 508-13). The program is administered by respondent, and it has full responsibility for determining the policy under which the ad\'ertising funds are uti- Ezed, providing only that the word "Viyella" is prominently displayed in all advertising (Tr. 74- , 602-4). 34. During the years here in issue, respondent's advertising allowances to customers have not exceeded the amount allowed to it by HolJins, and it has had available all of the money it desired for the program. Respondent has been reimbursed by HoBins for the full amount which it has allowed to customers for the cooperative advertising of Viyella (Tr. 74-5 , 114-5 , 498 , 499-501 , 504 508-13, 593) .

35. During the years 1961 and 1962, respondent granted payments or allowances to its customers for advertising Viyella dresses for resale (Tr. 28), equal to one-half of the cost to the customer of such advertising (Tr. 74 , 81 , 468 , 548), excluding production costs such as art work, agency fees, etc. (Tr. 168, 221 453, 460). Respondent did not prescribe the form or content of the advertising to be used by the customer, requiring only that the word "Viyella " be prominently mentioned (Tr. 76 , 82 564-5). It also endeavored to have the customer refer to House of Lord' s in the advertising, but this was not a requirement (Tr. 82-3). During 1961 and 1962, the only allowances made by respondent for Viyella advertising were for advertising in newspapers and magazines (Tr. 7-8), but it had no requirement limiting customers to those media, and had no objection to contributing to other forms of advertising (Tr. 74, 77- 108- 548 564). 36. Respondent's contribution to Viyella advertising was not based upon the customer s volume of purchases, and no limit was placed upon the amount which respondent would contribute. The , .

HOUSE OF LORD , INC.

Findings of Fact cost of the advertising was left entirely to the customer, and was limited only by the amount which it was wiling to pay as its share (Tr. 80- , 564- , 592- , 597). It was respondent' s conception that customers, who made Jarge advertising expenditures would purchase in large volume; and that, since the customer was expending an equal amount of its own funds, the judgment and self-interest of the customer would keep the amount of the allowance which it received in reasonable relationship to the volume of Viyella eiresses which it purchased (Tr. 121). PmpOTtionally Equal Terms 37. The Commission has stated that a plan for providing payment for promotional services and facilities "must be honest in its purpose and fair and reasonable in its application (Lever Emthers Co. 50 F. C. 494, 512 (1951) ; Docket :'0. 7904 Sunbeam CorpoTution Comm. OJ). 1-11-65) (67 F. C. 20, 53J, and the Supreme Court has pointed out with apparent approval "that the Commission has indicated a willing-ess to give a relatively broad scope to the standard of proportional equality under !: 2 (d) and 2 (e). (FTC v. Sr:mpl1city Pattern Company, Inc. 360 U. S. 55 , 61 , fn. 4 (J 959)).

38. This broad scope was emphasized by the Commission in Guide 7 of its 1960 Guides for Advertising Allowances (1 CCH pp. 6073, 6076), which states, in part, that: . . . payment" or services must be proportionalized on some basis that is fair io all customers \vho compete. No single ,Nay to proportionalize is prescribed by law. Any method that treats competing customers on proportionally equal terms may be used.

One of the approved examples under that guide states: A seller may properly offer to pay a specified part (say 50%) of the cost of local newspaper advertising up to an amount equal to a set percentage (such as 5%) of the dollar volume of purchases during a specified time. 39. In Vanity Fair Paper Mills, Inc. v. 311 F. 2d 480 486 (1962), the Court stated:

AHhough the test of proportional equality can be met by a plan conforming to anyone of the three basic types described in the Report of the Attorney General' s Committee on the Antitrust Laws, lR9 (1955), or we should suppose, by a combination of them, stil other methods may comply. One of the methods there specifically approved is the "payment of a dollar allowance per unit of promotional service rendered by each buyer, up to a uniform maximum percentage of his dollar vnlume (in. 6).

FEDERAL TRADE eommission DECISIONS Findings of Fact 69 F.

40. In its 1960 Guides s"pm the Commission specifically approved as proportionally equal a 50 % cooperative advertising allowance up to 5 % of a customer s purchases, with the clear implication that the latter figure was tentative and flexible; and apparently the same principle was approved by the Court in Vanity Fai,' Paper Mills, Inc. , supm. Respondent' s plan meets those standards except that it does not set a limit upon the percentage of a customer s purchases which it wil grant as an advertising allowanee.

41. In actual practice respondent's allowance to one customer in 1961 represented 24% of its purchases, and, without explanation in the record (Tr. 413), no allowance was made to that customer in 1962; a customer, whose allowance in 1961 represented approximately 7% of its purchases, received approximately 13% in 1962; and otherwise the allowances in 1961 and 1962 ranged from approximately 570 to 1070 of each customer s purchases of Viyella dresses (CSC Proposals, Par. 52). 42. Counsel have not cited, and the hearing examiner has not found, any reported decision by the Commission or the courts concerning the propriety of a plan which sets no limit upon the percentage of a customer s purchases which may be granted under a cooperative advertising plan. It is conceivable, of course that a plan without such a limit may be abused by a customer willing to undertake expenditures to advertise its own name wholly out of proportion to its purchases of the products of the contributing supplier. In the absence of any showing of such an abuse, or of some basis for anticipating its likelihood, however, it seems reasonable to expect that the fact that the customer must expend an equal amount of its own funds will constitute an effective brake upon the cost of the cooperative advertising which it will undertake, and wil keep such cost in reasonable relationship to its volume of purchases of the advertised product. 43. No circumstances have been disclosed in the record tending to indicate that any customer has endeavored to utilize respondent' s cooperative advertising to obtain an unreasonably high allowance, cr that respondent has endeavored to tailor its plan to favor any particular customer or group of customers, or to exclude others, The hearing examiner is convinced that respondent's plan is "honest in its purpose" to grant allo\vances on a basis which will most effectively promote the sale of Viyella dresses, and that it is designed to achieve a reasonable relationship between the al- HOUSE OF LORD , INC.

Findings of Fact lowances received and the volume of Viyella dresses purchased by customers who participate in the plan.

44. It is the opinion of the hearing examiner, therefore, that in principle, respondent' s plan for granting Viyella advertising allowances satisfies the "proportionally equal" requirements of Section 2 (d). Determination of whether or not the plan is "fair and reasonable in its application " must depend upon the evidence concerning the manner and extent to which it was made available to customers competing in the retaij sale of Viyella dresses. A milability Generally 45. Viyella is used in respondent's fall line of ladies' dresses which is usually ready for display to respondent's sales staff about the end of March. A meeting is then held, at which members of the sales staff are informed, among other things, that advertising money is available from Hol1ins, and at which they are instructed "to go full force" in offering the cooperative advertising program to every Viyella customer (Tr. 112- , 467- , 547- 594). The instructions do not limit the program to newspaper advertising, but include any type and amount of advertising which the customer desires to use (Tr. 548, 564). Failure by a sales person to comply with such instructions would result, first, in reprimand and correction, and a second offense would be cause for dismissal ('fr. 584- 5, 595). Except for the instance involving Lewis & Thomas Saltz (Pars. 55-61 herein), it has never come to respondent' s attention that its staff may have failed to offer the program to any Viyella customer (Tr. 595-7). 46. K 0 written or printed announcements of the Viyella cooperative advertising program are sent to respondent's customers and the program is made known to them only by the oral offers of respondent' s sales staff (Tr. 81-2). Other than the fact that respondent will share half the cost of any advertising the customers desire to use, these offers are largely in general terms, and it is clear that there is little suggestion by respondent concerning the various forms of advertising which the customers may use (Tr. 109- 471- 478 561-2) .

47. The extent to which respondent's sales staff complied with its instructions to offer the cooperative advertising to each of its Viyella customers, and whether or not the offers which were made were in fact in accordance with respondent' s principle of proportional equality, must be judged on the basis of the evidence with respect to twelve customers operating retail stores in Wash- FEDERAL TRADE COMMISSION DEe IS IONS Findings of Fact 69 F.

ington, D. , and Cleveland, Ohio, in 1961 and 1962, six of whom received allowances, and six of whom did not (Pars. 13, 22herein). '"0 evidence was offered concerning the circumstances under which an additional customer in Cleveland, Ohio, The Higbee Company, received an allowance in 1961, but not in 1962 (Tr. 413; CX 22; Also see Par. 22 herein). The circumstances with respect to each of these twelve customers are discussed separately below.

A vailability to Specific Customers 48. When the buyer for Peck & Peck placed Viyella orders, she knew the advertising program was available. Either when placing its 1961 order, or at a later date, Peck & Peck decided to run a full page advertisement in the ;'ew Yorker. It asked respondent to contribute $2000 as half of the cost of this advertising, and this amount was allowed. The cost, form and content of the advertising, and the media to be used, were not limited by respondent, but it accepted the determinations which were made by Peck & Peck (Tr. 7, 97- , 197- , 204-6). In 1962, Peck & Peck decided to advertise Viyella in a newspaper, and not in the New Yorker, and received an allowance of only $300 from respondent (Tr. 7, 509).

49. Respondent's advertising program was offered to Best & Company without any limitation upon the cost of the Viyella advertising to be used, or upon the form or content of the advertisements or the media to be employed, and no formula was prescribed which related the amount of respondent's allowance to the volume of merchandise purchased (Tr. 99, 164- , 168, 178-9). 50. Julius Garfinckel & Co. received a Viyella advertising allowance of $200 in 1961 , and of $150 in 1962, toward the cost of its newspaper advertising (Par. 22 herein). Counsel supporting the complaint contend that these amounts were fixed by respondent, and that this customer was not offered whatever amounts it wanted, conditioned only on the requirement that it would contribute like amounts (CSC Proposals, Pars. 17-21). 51. The Garfinckel buyer testified on direct examination that respondent paid 501'0 of the cost of Garfinckel's 1961 and 1962 Viyella advertising, but fixed the maximum amounts which respondent would contribute (Tr. 216-7). She said that in 1961 the amount of $200 was set by respondent and confirmed by its letter of July 12, 1961, fixing that limit (Tr. 218-9; ex 21). 52. On cross-examination, however, she disclosed a high degree HOUSE OF LORD , INC.

Findings of Fact of uncertainty concerning the circumstances under which the $200 limit was fixed in respondent' s letter of July 12, 1961. Without clearly remembering, she agreed that the limit must have been fixed by respondent only after she submitted an estimate that the cost of the advertising would be $400 (Tr. 230- , 238. See also Tr. 235). She also testified, with respect to 1961 and 1962, that a limit was not fixed by respondent in advance of receiving her estimate, and that respondent did not place any restrictions upon the advertising which she desired to use (Tr. 232-3). The size of the advertisement to be used was determined by Garflnckel without any restrictions by respondent (Tr. 227- , 241). It was her opinion that, within reasonable limits, respondent would have shared half the cost of almost any advertising she desired to use (Tr. 240-1). The allowance which she received from respondent was al1 that she desired (Tr. 241).

53. The president of respondent, who wrote the letter of July , 1961 , testified that when the Garfinckel buyer made her Viyel1a purchases in 1961, he offered to pay half of the cost of the advertising she desired to use. She subsequently advised him by telephone that she intended to spend $400, and he agreed to pay $200 of that amount. He then wrote the letter confirming that conversation (Tr. 590-2). The same procedure was followed in 1962 and he did not place a limit in the first instance upon the amount to be spent for the advertising (Tr. 592-3). 54. It is the opinion of the hearing" examiner that these witnesses testified concerning the circumstances under which respondent made allowances to Garfinckel' s to the best of their recol1sections and that any inconsistencies in their testimony were due to uncertain memory. On the basis of his appraisal of this testimony, and the record as a whoJe, he is satisfied that respondent's cooperative advertising offers to Garfinckel in 1961 and 1962 were not limited as to amount, and that the limit stated in respondent' s letter of July 12, 1961, was simply an adoption by respondent of one-half the cost of the advertising" which Garfinckel independently decided to use. Certainly the record falls far short of establishing that this was a limit initially fixed by respondent. 55. In each of the years 1961 and 1962 Lewis & Thomas Saltz received a Viyella advertising allowance of $100 (Par. 22 herein). Counsel supporting the complaint contend, however, that the 1962 allowance was not offered to this customer by respondent, but was obtained only after a protest and request by the customer; and that since the 1962 allowance was given on the basis of the ), FEDERAL TRADE eommission DECISIONS Findings of Fact 69 F.

amount allowed in 1961, it did not necessarily reimburse the customer for 50% of the cost of its advertising (CSC Proposals Pars. 22-24).

56. Lewis & Thomas Saltz had been receiving Viyella cooperative advertising allowances from respondent for many years, and it was well aware of respondent's policy to pay 50 % of the cost of such advertising (Tr. 277, 282-3; ex 18). In August 1961 Saltz employed Miss Helen Francis as C\manager of its Women s Department. When she made her first purchases of Viyella in 1962, she was not aware of respondent's cooperative advertising program and did not ask for it (Tr. 265- , 268). She testified that the aJlowance was not offered to her in 1962 (id. and that if it had been offered, she immediately would have taken it up with the advertising manager (Tr. 269). Respondent's saleswoman who dealt with Miss Francis in J 962, testified, however, that she distinctly remembered offering the Viyella advertising to Miss Francis, and explaining the program to her (Tr. 554-5). 57. This directly conflicting testimony by each of these witnesses is equally credible. Each was confronted with the problem of accurately recaJJng a rcJativeJy isolated incident of their employment which had occurred more than two years previously, and each had a similar motivation to testify to the proper performance of her responsibilities. From observing them the hearing examiner does not believe that either deliberately fabricated her testimony.

58. It is the opinion of the hearing examiner, however, that since Saltz was well aware of, and desired to participate in, respondent' s cooperative advertising program, it had a responsibility to instruct its new employee concerning the matter. This was not done (Tr. 276). Failure by respondent's saleswoman affrmatively to offer the allowance in these circumstances, if it occurred, could scarcely be considered concealment.

59. When Miss Francis reported to the manager of Saltz that she had purchased Viyella, he inquired about an advertising allowance from respondent, and learned that she had not received one (Tr. 275-6). He, thereupon, on August 14, 1962, wrote to respondent protesting the situation and requesting an allowance (Tr. 277: CX 18). ln the absence of respondent' s president, the letter was given an equivocal reply by his secretary on August 20, 1962 (CX 19; Tr. 555, 596).

60. - Immediately upon his return the letter from Saltz was brought to the attention of respondent's president, and on the HOUSE OF LORD , INC.

Findings of Fact same day, August 22, 1962, he wrote to Saltz, stating that there had been a misunderstanding and offering the same allowance Saltz received in 1961 (Tr. 596-7; CX 20). Over the years it had been the policy of Saltz to run the same kind of advertisement, a policy which had been made clear to respondent (Tr. 282-3). Saltz was satisfied with respondent' s offer, which actually reimbursed it for half of the cost of its 1962 Viyella advertising, and it had no desire for", larger allowance (Tr. 284). 61. In these circumstances, it is the opinion of the hearing examiner that whether the new buyer for Saltz did not receive an offer of a Viyella allowance in 1962, or did not understand the offer if it was made to her, is of little consequence. The situation was quickly corrected, and Saltz actually received the full allow. ance in 1962 which it desired to use. It is apparent that what occurred in this instance was the result of human failure, and did not represent a deliberate effort by respondent not to make its advertising program available to Saltz in 1962. 62. Halle Brothers received a Viyella advertising allowance of $300 in 1961; and $200 in 1962 (Par. 22 herein). Counsel supporting the complaint contend that this customer was not granted unlimited allowances in 1961 and 1962, but that the amounts of the allowances were fixed by respondent (CSC Proposals, Pars. 34-35) .

63. On direct examination the buyer for Halle Brothers testified that the amounts of the allowances received for Viyella advertising in 1961 and 1962 were set by respondent, and that she would have accepted larger allowances if they had been offered (Tr. 397; see also 400- , 411), On cross examination, however, her memory was highly uncertain, but she testified that Halle Brothers determined the size of the advertisements it would use that no limitation was placed on the size by respondent (Tr. 400 402 412), and that the cost was determined by the size (Tr. 399). She also testified that she indicated to respondent the cost of the advertisements which she proposed to use, and that respondent allowed half of that cost, so that she received the full allowance that she was asking for (Tr. 406-7).

64. In 1961 and 1962 respondent wrote letters to Halle Brothers confirming its agreements for cooperative Viyella advertising allowances in the amounts of 8300 and $200, respectively (CX 23 , 24). The president of respondent testified that before those letters were written he had been advised by the Halle buyer concerning the cost of the advertising she planned to use, and had , Findings of Fact 69 F.

agreed to allow half of that cost, and that the letters were simply confirmations of these agreements. He also testified that he did not set a limit upon the amount of the allowances, and that he would have allowed half the cost of any advertising Hal1e Brothers desired to use "because it is Viyella money" (Tr. 497- See also Tr. 592-3).

65. It is clear that the record does not establish that respondent limited the amounts of its cooperative Viyella advertising allowances to Halle Brothers in 1961 and 1962. On the contrary, the evidence is persuasively to the effect that the amounts of these allowances were first determined by the customer and then approved by the respondent.

66. Lota Kelly Sportswear, Inc., received a Vjyella advertising allowance of $100 in 1961, and $75 in 1962 (Par. 22 herein). Counsel supporting the complaint apparently raise no serious question concerning the amount of the allowance received by this customer in 1961 , but contend that in 1962 it did not receive as large allowance as requested, and would have accepted a larger allowance if it had been offered (CSC Proposals, Pars. 31-33). They also contend that "respondent appears to have paid for the production costs of the advertisements" of this customer not having done so for other customers" (Par. 33). 67. After reaching agreements with its customers concerning advertising allowances, it is customary for respondent to write confirmatory letters to them specifying the amounts agreed upon (Tr. 82- , 457 , 593). It wrote a letter of confirmation to Lota Kelly Sportswear, Inc. , in 1961, specifying an allowance of $100 (CX 25). Not having received such a letter by July 20, 1962, this customer wrote to respondent for the purpose of reminding it that a confirmation of the arrangement was desired (Tr. 458-60; CX 10). On July 25 1962, respondent wrote the confirmation specifying an allowance of $75 (CX 11).

68. On direct examination :\1r. Bruml, the owner of Lota Kelly Sportswear, Inc., testified that in 1961 respondent offered the Viye1Ja advertising program to him and inquired concerning the cost of the advertising he desired to use. When he stated a figure respondent agreed to contribute half of that amount. He was not clear on the specifics of his 1962 discussions with respondent, but testified that in general the procedure was the same (Tr. 436-7), but that he received a lower allowance because respondent stated that the Viyella advertising funds available in 1962 had been reduced (Tr. 436- , 454). He testified that he would have accepted a HOUSE OF LORD , INC.

Findings of Fact larger allowance than he received in 1962 if it had been offered to him (Tr. 440).

69. On cross examination Mr. Bruml testified that the allowance of $100 which he received in 1961 was a11 that he wanted or needed from respondent (Tr. 443), and that of that amount he would expect respondent to reimburse him for only half of his actual advertising costs if they amounted to less than $100 (Tr. 446-7). He did not reeall, but testified that it is possible that he actually spent only $150 in 1961 , and received reimbursement of only $75 (Tr. 447-8. See also 460-1). In 1962 he advised respondent, in substance, that he planned to do approximately what he had done in 1961 , but he was thinking in terms of being allowed the same ceiling as in 1961 (Tr. 448-9). It was his opinion that if he had advised respondent that hc intended to spend $400 on Viyella advertising in 1962, he would have been allowed $200 (Tr. 449-51. See also 455).

70. The president of respondent testified that for business reasons respondent curtailed its purchases of Viyella in 1962, and needed Jess money for Viyella advertising in 1962 than in 1961. He denied, however, that the advertising money available for ViyelJa advertising in 1962 was limited or reduced by HolJins, asserting that alj that he needed was available, and that the lower amount agreed upon with Hollins was the result of his own estimates and recommendation (Tr. 499-500, 508-13. See, however CX19&20).

71. The president of respondent also testified that although an allowance of $100 was authorized for Lota Kelly Sportswear Inc. , in 1961 , that customer actually used only about $75 (Tr. 502-3), and that his conversation with Mr. Bruml concerning his 1962 allowance was based upon that consideration (Tr. 500). It was his recollection that the customer asked for the same allowance which he had received in 1961, and on that basis was allowed $75 (Tr. 500, 503-4). He testified that if Mr. Bruml had asked for a Jarger allowance it would have been approved (Tr. 504) .

72. The owner of Lota Kelly Sportswear, Inc., testified that he desired an allowance that would cover half of his total advertising costs, including his production costs (Tr. 440), but that it was his understanding with respondent that the allowance would cover half of his newspaper cost of advertising, sometimes referred to as the space cost, and would not include the additional cost of art work (Tr. 453, 460). He estimated that the space costs of the two Findings of Fact 69 F. T. Viyella advertisements which he used in 1961 amounted to approximately $70 to $75 each, a total of approximately $150 (Tr. 452- 460). Although he could not recall precisely (Tr. 447-8), on that basis he apparently presumed that in 1961 the reimbursement which he actually received from respondent amounted to only $75 (Tr. 460-1).

73. It is clear from the record, therefore, that respondent's advertising allowance to Lota Kelly Sportswear, Inc., in 1962 was half the amount which respondent understood that customer desired to use for Viyella advertising. If it desired, or would have used, a larger amount, it failed to make that situation known to respondent, and only for that reason was limited to $75. It is equal1J)' clear that respondent's contribution to the advertising costs of that customer was based upon its "space costs " as was the situation with other customers, and did not include production costs such as art work.

74. Apparently counsel supporting the complaint do not contend that the record establishes that respondent's cooperative Viye1Ja advertising program was not offered to Virginia Simmons Inc. They contend, however, that since it is contrary to the policy of this store to mention a manufacturer s name in its advertising, it would appear that respondent's requircments for Vi yell a advertising would preclude said customer from participation" (CSC Proposals, Par. 16). They appear to contend on this basis that respondent' s program of a1Jowances discriminated against Virginia Simmons, Inc.

75. Although the owner of Virginia Simmons, Inc. , testified that it was her best reco1Jection that cooperative Viye1Ja advertising had been offered to her in 1961 and 1962 (Tr. 537- , 540-3), it is clear from her testimony that she had no specific recollection of such offers, and that, if made, they would have been disregarded and erased from her memory (Tr. 522-9). She was not interested in cooperative Viye1Ja advertising because in such local and limited advertising as she did she was promoting her own name and store, and it was contrary to her policy to mention any other name in her advertising. She ordinarily removed the manufacturers' labels from the garments which she sold, and substituted her own (Tr. 530- , 538-40). Respondent's saleswoman testified that she explained the Viye1Ja program to this customer in 1961 and 1962 and tried to persuade her to participate, but that the offers were rejected (Tr. 556-60).

76. The record establishes, therefore, that the Viye1Ja advertis- HOUSE OF LORD , INe.

Findings of Fact ing program was offered to Virginia Simmons, Inc., by respondent in 1961 and 1962, and was rejected. Among the reasons for rejection was the requirement that the Viyella name be prominently mentioned in the advertising, which was contrary to the policy of this customer. In these circumstances it is apparent that the policy of this customer would preclude it from participation in any cooperative Viyella advertising program which could be devised by respondent. The law does not require, and would not permit the granting of advertising allowances to customers who failed or refused to supply the reciprocal service of advertising respondent' s products. (See Guide 11 of F. C. 1960 Guides for Advertising Allowances, 1 CCH, pp. 6073, 6077). 77. Counsel supporting the complaint contend that advertising allowances were not offered or made available to Dorothy Stead Inc., in 1962 (CSC Proposals, Par. 11).

78. Respondent's saleswoman testified that in 1961 she offered the Viyella advertising to Miss Stead, and in 1962 to Mrs. Seitz who was then buyer for Dorothy Stead, Inc., and that in both instances the offers were rejected (Tr. 585-6). Miss Stead did not testify. Mrs. Seitz testified that she did not recall whether or not the Viyella advertising program was offered to her in 1962, but that at that time she was aware of the program because of her prior employment with Lewis & Thomas Saltz (Tr. 131-2), and assumed that she could have participated in the program for Dorothy Stead, Inc., if she had desired to do so (Tr. 131-3, 141-4). There was no need for Dorothy Stead, Inc. , to advertise Viyella to the general public, and it did not desire to do so, because it buys Viyella only for special customers, and it is not the type of merchandise with which this store does best (Tr. 144-5). 79. The record establishes that the Viyella advertising program was made available, either affrmatively or through the actual understanding of the buyer, to Dorothy Stead, Inc., beth in 1961 and 1962, and that in both years this customer elected not to participate.

80. Counsel supporting the complaint contend that Vi yell a advertising allowances were not offered to Lelia Noyes Shop in 1961 or 1962, and that no alternatives to newspaper or magazine advertising were discussed in an effort to adapt the program to the specific needs of this customer (CSC Proposals, Pars. 12-15). 81. The then buyer, and the owner of Lelia Noyes Shop both testified. In substance their testimony was that they did not recall whether or not offers of Viyella cooperative advertising were Findings of Fact 69 F.

made to them in 1961 and 1962. There would be no point in such offers being made, and, if made, they would have been rejected (Tr. 304, 309- , 312- , 319- , 332, 335- , 347-9). This customer does some advertising in small local publications, but in doing so does not identify particular manufacturers or fabrics (Tr. 304- 311- 333- 340) .

82. Respondent's saleswoman testified that she offered the Viye1Ja advertising program to both the owner and the buyer of Lelia Noyes Shop "in any form that they wanted to use it" in 1961 and 1962, and that her offers were rejected. They did not suggest or request any particular form of advertising (Tr. 560-2). 83. The record establishes that respondent's advertising program was made available to Lelia Noyes Shop in 1961 and 1962 and that this customer was not interested and did not desire to participate. Although there is testimony that the offers were of advertising "in any form " there is no evidence that any particular forms, or alternative forms, of advertising were discussed with representatives of this customer. In view of the certainty of rejection, which apparently was well known to respondent' saleswoman (Tr. 309, 340 , 561-2), it is clear that respondent fu1Jy discharged its obligation to make its program available to Lelia Noyes Shop.

84. Counsel supporting the complaint contend that respondent did not offer or make available Viyella advertising allowances to Anne Polshek Shop in 1961 or 1962 (CSC Proposals, Par. 27). 85. The owner of Anne Polshek Shop could not recall that she had been offered such allowances (Tr. 415), but they may have been offered to her (Tr. 416 , 419, 421). She believed that she would have received an a1Jowance if she had asked for it (Tr. 419), but if the program had been offered to her she would not have accepted it (Tr. 420). The program has been offered to her since 1962, but she has not taken advantage of it because, in her judgment, she doesn t buy enough Viye1Ja garments to warrant advertising (Tr. 419 421 423).

86. Respondent's salesman testified that he offered the Viyella advertising a1Jowance to Miss Polshek in 1961 and 1962, and that it was rejected (Tr. 470 , 472- , 477-8). His reco1Jection was based in part upon his practice of offering the a1Jowance to each of his Viye1Ja customers without exception (Tr. 491). 87. There is persuasive evidence that the Viyella advertising program was offered to Anne Polshek Shop in 1961 and 1962, and was rej ected. It is clear that the record does not establish that HOUSE OF LORD , INC.

Findings of Fact respondent failed to make the program available to that customer in 1961 or 1962. The record does establish, however, that Anne Polshek did not desire Viyella advertising allowances in 1961 or 1962 , and, in any event, would have rejected them. 88. Counsel supporting the complaint contend that Viyella advertising allowances were not offered to Frocks & Bonnets in 1961 or 1962; and that, if offered, this customer would have accepted such allowances for the purpose of window displays and mail enclosures (CSC Proposals, Pars. 28-30).

89. Miss Laura Bergner, the owner of Frocks & Bonnets, testified that she has been offered advertising by different companies but that she does not accept it (Tr. 374, 386-7). Occasionally she advertises in a small local paper, but such advertising apparently is inconsequential (Tr. 374). The only substantial forms of advertising which she does are window displays and enclosures which she mails to customers with the statements of their accounts (Tr. 374-5). She said that if she had been offered an allowance to pay for window displays or mail enclosures she would have accepted the offer (Tr. 374-5). She also stated that she has never had mail enclosures printed for an advertising program, but that if respondent had offered to share half the cost with her, she may have had Viyella enclosures printed for her use (Tr. 377- , 394-5). 90. Miss Bergner tcstifled that it is possible respondent' s salesman offered her Viyella advertising allowances in 1961 and 1962, but she does not remember his doing so (Tr. 376). She did not tell him that she uses window displays or mail enclosures, and she did not recall any discussion with him concerning such forms of advertising (Tr. 380, 393-4). The substance of a letter which she wrote to respondent for the purposes of this litigation, indicating that respondent's salesman had offered "special benefits for advertising, " was, in effect, repudiated during her testimony. That letter is, accordingly, wholly un persuasive (Tr. 380-91; RX 4). 91. Respondent's salesman testified that in 1961 and 1962 he told Miss Bergner that Viyella advertising money was available and that he was advised that she did no advertising (Tr. 470, 473 477). He did not mention any particular form of advertising, neither he nor Miss Bergner made any reference to the possible use of a cooperative advertising allowance for window displays or mail enclosures, and he was not made aware that she uses these forms of advertising (Tr. 471- , 474, 478). 92. It is apparent, therefore, that except for occasional, inconsequential advertisements in small local papers, Frocks & Bon- FEDERAL TRADE COMMISSIOK DEerSIOKS Findings of Fact 69 F.

nets does no newspaper advertising, and does not accept offers for such advertising. The record does not establish that respondent failed to offer this customer the Viyella cooperative advertising program. It does establish, however, that insofar as the program was offered, it was in general terms, and was rejected, and that no reference was made, either by respondent or by the customer to the possible use of an allowance to defray the cost of window displays or mail enclosures.

93. There is no evidence that in 1961 and 1962 window displays and mail enclosures constituted a part of the Viyella advertising program regularly and affrmatively offered to its customers by respondent (Par. 46 herein) ; nor is there any evidence that respondent refused to grant Viyella allowances for such purposes where it had reason to believe that they were desired by its customers. There is no showing that respondent had reason to believe that Frocks & Bonnets desired or would have used such allowances in 1961 or 1962. On the contrary the evidence indicates that it is highly unlikely that this customer would have undertaken the preparation, and paid half the cost, of window display or mail enclosure material for advertising Viyella if allowances for these purposes had been offered by respondent. In these circumstances, it is the opinion of the hearing examiner that the record does not establish that in 1961 or 1962 respondent failed to make Viyella advertising allowances available to Frocks & Bonnets on terms which were proportionally equal with its allowances to competitors of this customer.

94. Counsel supporting the complaint apparently concede that respondent made its Viyella cooperative advertising program available to :l1ilgrim Stores in 1961 , and that this customer was not interested in the program in 1962. They contend, however that respondent did not offer or make the program available to this customer in 1962 (CSC Proposals, Pars. 25-26). 95. The president of Milgrim Stores testified that in 1961 he was offered a Viyella advertising allowance which he did not accept, but that he was unable to recall such an offer in 1962 (Tr. 287- , 292, 296-8. See also ex 42 and RX 2). If such an offer had been made to him in 1962, he would not have been interested and would not have accepted it (Tr. 290). He is satisfied that if he had wanted an allowance in 1962, he could have had it (Tr. 292). The president of respondent testified that he offered Viyella advertising allowances to the president of Milgrim Stores in 1961 HOUSE OF LORD , INC.

Conclusions and 1962, and that in both years the offers were rejected (Tr. 589-90) .

96. The record does not establish that respondent failed to offer a Vi yell a cooperative advertising allowance to Miigrim Stores in 1962, but it does establish that such an offer would have been a useless gesture. There is, however, persuasive evidence that such allowances actual1ly were offered to this customer in 1961 and 1962, and were rejected.

CONCLUSIONS 1. Respondent is engaged in the sale of ladies' dresses in interstate commerce. In the course of such commerce it grants payments or allowances to customers, engaged in the resale at retail of its dresses containing Viyella or linen, as compensation or in consideration for the advertising of such dresses by its customers. 2. Certain of the customers receiving such allowances compete with each other, and with certain other customers of respondent \vho do not receive such allowances, in the sale of the advertised dresses of like grade and quality.

3. Respondent is reimbursed by its fabric suppliers fer a1l funds used in granting allowances to its customers for advertising such dresses. Respondent has full responsibility for determining the policy under which such funds are utilized, and for administering their disbursement, providing only that the trade name of the fabric is prominently mentioned in the advertising. The advertising services furnished by respondent's customers are for its benefit, as well as for the benefit of its fabric suppliers and the respondent is responsible for any disproportionate advertising payments or allowances to its competing customers which may occur.

4. The advertising allowances granted by respondent are equal to one-half of the actual cost to the customer of the advertising, excluding production costs. The allowances are not based upon the customers' volume of purchases, and no limit is placed upon the amount which respondent will contribute. The cost of the advertising is left entirely to each customer, and is limited only by the amount which it is wiling to pay as its share. Respondent' plan for granting advertising allowances, accordingly, satisfies the "proportionally equal" requirements of Section 2(d) of the Clayton Act as amended.

5. No written or printed announcements of respondent' s cooperative advertising program are sent to its customers, and the Opinion 69 F.

program is made known to them only by the oral offers of its sales staff. The staff is instructed to offer the program to every customer who purchases the advertised dresses, and the instructions are consistently followed. The offers are largely in general terms, and there is litte suggestion by respondent concerning the various forms of advertising which the customers may use. In 1961 and 1962 allowances were actually made only for newspaper or magazine advertising, but they were not limited by respondent to those forms of advertising. The allowances were available for other forms of advertising at the election and initiative of the customer. The plan is not tailored to favor any particular customer or group of customers, or to exclude others. 6. Respondent's cooperative advertising program is, with rare exceptions, affrmatively offered and made available to al1 customers competing in the distribution of the advertised dresses, and the program is not deliberately concealed from any customers. Failure, or apparent failure, to make affrmative offers of the program occasionally occurs, either as a result of inadvertence by respondent' s sales staff or as a result of misunderstanding by the customer. In some such instances affrmative offers would have been useless gestures, but in al1 such instances which are brought to respondent' s attention, the program is immediately made available.

7. Respondent's cooperative advertising program is "honest in its purpose and fair and reasonable in its application. " It is, accordingly, available on proportionally equal terms to all customers competing in the distribution of the advertised dresses. The payments or allowances granted by respondent to its customers as compensation or in consideration for the advertising of its dresses, therefore, do not constitute violations of Subsection (d) of Section 2 of the Clayton Act, as amended. ORDER It is ordered That the complaint herein, and it hereby is dismissed.

OPINION OF THE COMMISSION JANUARY 18 1966 BY DIXON Commissioner:

The complaint in this matter alleged that respondent House of Lord' , Inc., a manufacturer of wearing apparel, has violated Sec- HOUSE OF LORD , INC.

Opinion tion 2(d) of the amended Clayton Act, 15 U. C. 13(d),' by granting promotional allowances to certain of its retail customers without making such payments available to competing customers on proportionally equal terms. In an initial decision of February , 1965, a Commission hearing examiner concluded that the charge was not supported by the evidence and ordered the complaint dismissed. The matter is now before us on the appeal of counsel supporting the complaint.

Certain of the facts are not in dispute. Respondent House of Lord' , Inc., is a New York corporation engaged in the manufacture of ladies' dresses, with sales of approximately $1 600 000 in 1962. One of its principal products is a "line" of dresses made of an imported wool-and-cotton fabric called "Viyella " a trade name used by its English weaver, William Hollins & Company, of London. Respondent Lord' s imports this fabric, designs and manufactures dresses from it, and sells those dresses to some 350 retail department and "specialty" dress stores located throughout the United States. These dresses retail to the consumer at prices ranging generally from about $25 to $50.

lJntil about 10 years ago, the English fabric-maker (Ho11ns) did its own Viyella advertising in the United States; through its own employees in New York, it placed advertisements in American newspapers and paid the full cost of those ads. At that time however, the president of respondent House of Lord' , a Mr. Joseph Handelsman ' suggested to his English supplier that Viyel1a dresses could be more advantageously advertised in the United States by enlisting the aid of their American retailer-customers on a "50-50 cooperative basis that is, letting the retailers place the advertisements and bear 50% of the cost. That suggestion was accepted by Hol1ins. Now, in the fall of each year Hol1ins determines the amount of money it desires to spend on the promotion of Viyella in the United States in the coming year. Once this amount has been determined (approximately $16 000 in I Section 2(d) provides: "That it shall be unlawful for any person engaged in commerce to payor contract for the payment of anything of value to or for the benefit of Ii customer of such person in the course of such commerce as compensation OJ" in consideration for any services or facilities furnished by or through such clistomer in connection with the processing, handHns;, sale, or offering for sale of any products or commodities manufactured, sold or offered for sale by such person, unless such payment or consideration is available on proportionally equal terms to all other customers competing in the distribution of such products or commodities.

Joseph Handelsman, president of respondent House of Lord' , is the brother of ),axweJ! Handelsman, counsel in this matter for respondent House of Lord' FEDERAL TRADE COMMISSION DEeISIONS Opinion 69 F.

1961, $12 000 in 1962), the English fabric-maker s role in the advertising program is virtually ended; respondent Lord' s is authorized to spend the money as it sees fit.

The following example illustrates the mechanics of respondent' s program. On July 20, 1962, one of its retail customers in Cleveland, Ohio-Lota Kelly Sportswear-wrote to respondent Lord' s: "We are finalizing our September advertising plans, and these include two Lord' s Viyella dresses. Your help in the form of cooperative advertising assistance is needed, as in past years. May we hear from you?" a Lord's replied: 'j This win confirm agreement, according to which we wi1 contribute $75.00 towards a cooperative newspaper ad on our Viyella dresses. This ad is to be on a fifty-fifty basis, our share not to exceed the specified sum. To avoid any problems at a later date we ask that you adhere to the following details:

1. Viyella as used in their trade name is to be displayed in the ad.

2. Three copies of the ad to be sent with bi1 for payment. 3. House of Lords should be mentioned.

If this is satisfactory, please sign the enclosed copy of this letter and return it to me.

On September 29, 1962, Lota Kelly sent respondent Lord's a bil for $74. 39, that sum being 50;70 of the $148. 68 that customer had paid the Cleveland Plf1in Dmler 252 lines at . 59 per line Lord' s pays these bils either by sending the customer a check or by deducting the amount from its next invoice to the customer for dresses sold. When all of the year s bils are in from the retailers (together with copies of the ads themselves, as proof that they have actually been published), and a1l of the retailers' bils have been paid by respondent Lord's, it then forwards these documents to its fabric supplier, Ho1lins, in London. The latter, in turn, reimburses respondent Lord's for the sums it has paid to the retailers.

Respondent does not contend that a1l of its approximately 350 retail customers actual1ly received promotional allowances from it in the years in question here, 1961 and 1962; it does argue, how- .cx 10.

4CX 11.

ex 12.

HOUSE OF LORD , INC.

Opinion ever, that a1l were of fered ' such allowances. Thus it was stipulated, for example, that only 5 of its Cleveland customers and only 4 of its Washington, D. , customers in fact received any of that promotional money in 1961.' The amounts received by the favored customers in these two representative cities were also stipulated; they ranged from a high of $2 000 (Peck & Peck, for an ad in the New Yorker magazine) to a low of $100 (Lota Kelly, of CJeveland, -and Lewis & Thos. SaJtz, of Washington, D. Further, respondent does not challenge the examiner s finding that those 9 favored customers in those two cities are in competition with its other customers there who did not receive such payments.

It is respondent's position that the 6 nonfavored customers called by counsel supporting the complaint as witnesses in this proceeding-3 from Cleveland and 3 from Washington, D. were offered promotional money on the same terms as their favored competitors, but that each of them rejected it. Respondent called 3 witnesses. Its president, Joseph Handelsman, testified that he personally made the offer to those of his customers that he dealt with himself (including 1 of the nonfavored customers that testified here) and that he carefully instructed his 6 salesmen to make the offer to the others. Respondent' s other two witnesses-salesman Samucl Crane, in charge of the CJcveland territory, and saleslady Dorothy Cole, of the Washington, D. , sales territory-testified that they carried out those instructions and did in fact offer respondent's promotional "program" to each of The statute, Section 2(d) of the amended Clayton Act (see n. 1 supra) , does not US" the word "offer; it requires only that the seller make his promotional allowances "available" to the competing customers. See Vanity FU1r Paper Mills, Inc. Federal Trade Commission, 311 F. 2d 480, 484-485 (2d Cir. 1962). Thus the crucial factor is not the particular formalities by which he acquires it, but the information actually posst'ss",d by the customer particular y his knowledge of the seller wilingness to grant him the allowance. FOTster Mfg. Co. Dkt. 7207 (.July 2;-;1965), 8 (68 F. C. 191 . 197J. No such lju€stior: b presented here, however; both of the parties have cast their arguments in terms of whether thf' nonfavol"ed customers were in fact " offered" the allowances in Question, respondent Lord's contendillg OIlJy that dhect "offers" were actually made and complaint counsel arguing that those customers were never informed of, and in fact knew nothing about, respondent' s alleged promotional program. We agree that, in the context of this partieu;al' proceeding, the terms " offer and "availability" are for all practical purposes synonymous, both l'efcning simply to the seJier s duty to make sure the competing customej's know flbout the allowances, know of their right to obtain them, and are f1!milar with the terms (proportiona ly eQ'ml) on which they can be obtained.

7 See finding 31.

S For example, one of the nonfavored customers, the owner of the Anne Polshek Shop in Cleveland, testified that "the back of my store faces the bac;" of their. Peck & Peck, a favored customer ' store, just about. " Tl' 4J5. , FEDERAL TRADE COMMISSION DEeISIONS Opinion 69 F.

their customers, including those called as witnesses in this proceeding. We find this testimony unpersuasive. With perhaps one exception, the 6 nonfavored customers called by counsel supporting the complaint were reluctant witnesses anxious to "cooperate" with respondent and thus preserve their profitable and good relationship" with it." (Prior to their appearance at the hearing, each of them had received a letter from respondent requesting such "co-operation" in the matter. ) Nevertheless, only 1 of the 6 nonfavored customers claimed to have any recollection, at the hearing, of having received such an offer" in 1962." And that witness, a lady of highly uncertain memory,13 was merely "almost certain" about the matter; she could not say that I was absolutely sure that I was not offered it."" She was clear, however, that she was "not going to get in- 9 See findin.os 3i through 40. Aside from the denials of the noniavored customers :hat they in fact l"eceived such offers, there are other circumstances that reflect on the credibility of respondent' s three witnesses. For example, Handelsman admitted on the stand that a particularly significant statement in his pre-hearin" letter to complaint coum;el' s prospective witnesses-that he had "records " to prove Lord's had "in fact" offered them the allowances was wholly false, that respondent had no such records and never had had them. K. 11 infra. And he was able to quote verbatim a eonversation that the alle ed other party to it SaYB never took place. See finding 38 , nn. 37 , 38, and accompanying- text. Respondent' s two salesmen displayed equally convenient memories. Samuel Crane, uf the Cleveland territory, purported to recall in his November 1964 testimony the full details of his alleged verbal "offers" to two of the nonfavored customers in a Cleveland hotel showroom jn the spring of 1961 and 1962, including what he said to them and what :h,"y said in reply. But he was unable even to name any of the other 6 or 7 customers he says were there on the same days, much Jess recall what he had" said to them. Finding 37 , nn. 33-34 anrl accompanying text.

Responrlent' s saleslady in the Washington, D. , area, in one particularly )"PveaJing incident, was flatly contradicted by no less than 2 witnesses and 3 contemporaneous documents. 2 of which were written by her own employer. Findings 39, 40. Tr, 340.

11 One of these letters read as follows:

We have been notified by the attorneys for the Federal Trade Commission that they intend to call you as a witness in a proceeding instituted against Rouse of Lords, Inc., for an a,leg-ed violation of the Clayton Act, to establish that House of Lords, Inc. did not make available to you for the years of 1961 and 1962 the cooperative advo'tising program fol' Viyella dresses which was offered to competing firms in your City. According to the members of our staff and 01lr records House of Lords, Ine, did in fact make available to you this advertising program for the ears in question. lt comes as a surprise to us that if you are earned, you wil so testify. We would appreciate it very much if you would let us know whether it is true that you are making such a daim and if so, in what manner did we fail to make our adverti ing program available to you. Please accept our thanks for your courtesy and cooperation. rex 41 (emphasis adderJ).

As noted above, Handelsman, respondent's pl'esirlcnt and the author of this letter, eoncedcd in his testimony that the statement (aJccording to. our record House of Lords Inc. did in fact make available to you this advertising program, " was false; there were no such records. Tl'. 101, 112, 617-618. See findings 33-35. Another of these customers, Milgrim Stores of Cleveland, did in fact receive an " offer from respondent in J961 , but not in 1962. See finding number 38. 13 See finding 36, n. 19, 14 Tr. 524 , 540 (emphasis added): finding 36, nn. 18, 19. HOUSE OF LORD , INC.

Opinion volved with any more manufacturers.""; The other 5 customers asked if they had received an offer of promotional allowances from Lord' , gave these answers:

1. Anne Polshek Shop, Cleveland:

Well, not that I recall 2. Frocks & Bonnets, Cleveland:

No.

3. Milgrim Stores, Cleveland:

No.'s 4. Dorothy Stead, Inc., Washington, D.

NO, 5. Lelia Noyes Shop, Washington, D.

I couldn t say I was, and I couldn t say that I was not. The most that any of these witnesses could say for respondent is summed up in the following testimony brought out on cross-examination by Lord's counsel:

Q. If I were to tell you that Mrs Cole (respondent' s Washington saleslady) did propose to you this advertising program, would you say that it could have happened? A. I would say it could have happened. . . . I think it was likely because we had a profitable and good relationship. . . . This is not enough. As the court said in Vanity Fair Paper Mills, Inc. v. Federal Trade Comm.ission 311 F. 2d 480, 487 (2d Cir. 1962), "a seller who has paid a special promotional allowance to some customers and not to others does not avoid the proscription of 9 2 (d) merely because payment m.ight have been available on proportionally equal terms to a1l other customers competing in the distribution of such products or commodities he avoids it only if such payment ' ' available,"22 And it " available to a customer, whether on "proportionally equal" terms or otherwise, only if the customer knows about it. " (AJ supplier s failure to inform a favored customer s competitors of the availability' of such promotional allowances is tantamount to Tr. 541.

tati'. 415.

Tr. 374.

Tr. 287.

Tr. 132.

Tr. 348 21 Tr. 338-340 (emphasis added).

., (Emphm is by the court. ) We need not attempt to resolve here the question of whether !'('spondent' s burden of proof is the " burden of persua ion " or merely the " burden of going forward. " See !i 2(b), (d), 15 e. c. 13(b), (d); State Wholesale Grocers The Great Atlantic Pacific Tea Co. 258 F. 2d 831 , 838 (7th Cir. 1958); Vanity Fair Paper Mils, IlUpra. at 486. 'We think it clear from the testimony quoted above and in the accumpanying findings that at Jeast 5 of the 6 nonfavored custoffers called as witnesses here nad no information whlltsoever about reRpondent's alleged promotional program prior to the commencement of thjs proceeding.

FEDERAL TRADE eommission DECISIONS Opinion 69 F.

concealment, and effectively precludes those competitors from participating In them. Fred Meyer, Inc. Dkt. 7492 (March 29 1963), (63 F. C. 1, 37J.

In the face of this clear proof that respondent has not, in fact informed al1 of its eligible customers of its alleged promotional program " we are particularly unimpressed by the argument that, since the promotional money in question is not its own but that of Ho11ins, its English supplier, Lord' s itself has no motive for discriminating among its customers. This argument presupposes that the amount of that supplier-money is unlimited. And that is not a fact. Each year, prior to the beginning of the se!1ng season " the executives of Hol1ins fix the amount of money they wish to spend on the promotion of Viyella dresses in the United States In the coming year. " In 1961, it was fixed at $15 000 to $16, 000; in 1962, it was cut back to $11 000 or $12 000." If that $12 000 had been divided equally among the approximately 350 retail customers who buy Viyella dresses from respondent Lord' it would have amounted to just over $34 each. To give one customer a larger amount (e. 000 to Peck & Peck for an ad in the New Yorker magazine) necessarily requires respondent to give a smaller amount (that is less than $34) to some of its smaller customers.

, Tr. 74 , 76; 508-510; 603-604. See finding number 40 , n. 56. Respondent Lord's "decided how it was to be spent, " b'o 76, aiter the Hollns executives had decided" rh;ow much money was available. . . . (WJe determined the policy once the amount was given to us. Like Viyella would give us a bulk amount, and we could distribute to the best of our knowledge ot to the best of our ability to get the sales and volume. " Tr. 603 (emphasis added). This supplier will "go along with" respondent Lord's if it exceeds the budgeted amount by "one thOUSfind or two thousfind " but beyond thfit Hollins would not foot the bil and the money would have to come out of respond,"nt's own pockets. Tr. 75 . 510. After fill. "they have their advertising budget" also. Tr. 75 (emphasis added). Tr. 508-510; finding number 40 , n. 56. This cutback by Hollins in 1962 naturally re. Quired respondent Lord's to reduce the amounts allowed to the l'etaiJers. For example, Lewis & Thos. Saltz, a Washington, D. , customer who had been receiving the allowance for years, had considerable diffculty getting it in 1962. Respondent explained to Saltz that " our budget was severely curtailed this season and we have had to reduce our ad cooperation. " ex 19. And: Our advertising budget was cut considerably this year and we naturally had to make proportionate cuts in allowances to our customers, " ex 20. Another customer (Lata Kelly, Cl,"veland) who had been receiving the allowance in prior years had to write and (LSIr for it in 1962. ex 10. The owner of this establishment testified that "Mr. Handelsman advised me at that time (19621 that since the appropriation of money made tLvailablc to Lords Sports1vflrLr by the Viyella people had been reduced, that we might not receive as much money as we wanted. " Tr. 438 (emphasis added), He would have accepted more money in 19G2 if it had been offered; "Yes. ""e would have run a larger ad or two ads. " Tr. 440. (Later . on crossexamination, the witness was led to say that he was satisfied with what he had received. But he subsequently explained his "satisfaction" this way; "We have done business together for many years and I think if there was any feeling on my part that 1 was asking him for any sum of money that was going to be difficult for him to give me that I probably voluntarily reduced any request that I might have otherwise made. " Tr. 455 (emphasis added). , HOUSE OF LORD , INC.

Opinion This same consideration-the understandable desire to "get the longest mileage"" out of a limited number of promotional dollars also explains respondent's "motive" in limiting its promotional payments to those retailers who are large enough to engage in newspaper and magazine advertising. " As respondent's president explained, newspaper advertising is preferred because "that' s the s be-best medium of results. "" In other words, respondent Lord' allocating the limitedlieved its own interests were best served by number of dollars provided by HoUins to a few large retailers and excluding from the program its smaller customers, those who had to use more modest forms of promotion. But whatever the commercial expediencies of such an exclusionary policy, it is clearly at odds with Section 2(d) of the a cus-amended Clayton Act. A seller s "offer" to pay 50 % of tomer ne' wspaper lineage cost,29 when the customer js "too small" or otherwise unable to engage in any kind of newspaper advertie.ing," is in fact and in law not an offer at al1. As the court said in State Wholesale Grocers v. The Great Atlantic pacific Tr. 604.

26 Respondent concedes that all of its 1961 find 19E2 payments were in fact for advertisements run in those two media. And the record makes it clear that this was the only Jdnd of advertising respondent was wiling to pay for. See finding 42. For example, respondent' Washington saleslady candidly testified as follows; newspaper adver- Q. Supposing that in your dealings with me I stated to you that I do no tising? A. Then I go up and I say that, if you are not interested, you don t advertise. (Tr. 566 (emphasis fldded).

2' Tr. 109.

s There Ilre of course othc!' reasons for a manufacturer to give its larger customers disproportionately large share of its total advertising money. Powerful buyers often demand larger' and larg('r contributions of this type as the price of their continued patronage. And in industri('s like this one, where "style" is an important factor in thc consumer s purchasing decisions, manufacturers Cln enhance the "prestige " of their goods and hel'cc theil' sales by having them sold il' the " better" retail establishments, those that aJreudy enjoy a reputation in their communities for sellng the more fashionable meJThandisc s Finding number 42.

,0 Finding number 41. Each of the 6 nonfavored customers involved hete testified that they do engage in some form of advertising, using such media as small "local" newspapers, window displays stuffers " (direct ma.iJ advertisements "stuffed" in the consumer-custom('r end-of-th('-month statement 01' bils), add so on, Ibid. And they did not say they would reject a promotional allowance geared to these media; only one of the 6 nonfavo:red customers was asked about the cooperative use of such non-newspaper promotions ("stuffers ), and she testHied that " if the cost wasn t too great, there is a possibility. " Tr. 394; see findings n. 58. Nor are we impressed by the "bootstrap" argument that these customers are "too small " or !iell too little of respondent's merchandise, to be intensted in receiving their fair share of its promotional allowances. The very purpose of advcrtisin,- and other promotional activity is to increase sales; respondent cannot favor one customer over another and then point to the latter s smaller sales volume as justification for the discrimination. " If these non-favOl"ed buyer" had received. (the discriminatory price concessions, they, too, would have doubtless increased the volume of their sales and, in turn, of their J)ur haslC from the suppliers. Fred lvIeyer, supra at 68.

FEDERAL TRADE COMMISSION DEeISIONS Opinion 69 F.

Tea Co. 258 F. 2d 831, 839 (7th Cir. 1958): "In determining the proportionally equal terms upon which a seller shall make availabe any payment or consideration referred to in 2 (d), the Act requires a frank recognition of the business limitations of each buyer. An offer to make a service available to one, the economic status of whose business renders him unable to accept the offer, is tantamount to no offer to him.

But even if this alleged "program" had in fact been communicated " to al1 of its 350 Viyella customers and had imposed no limitations on the promotional media those customers could use, we would stil have grave doubts about its lawfulness under the statute. For example, respondent claims that it offers to pay every customer 50% of any amount the customer might elect to spend on the promotion of Viyella dresses. But this is not a fact. Handelsman is not only selective in picking those of his 350 Viyella customers who are to receive an allowance in the flrst place, but also sets an arbitrary dollar limit on the amount he wil allow even those favored customers." For example, one of his favored Cleveland customers, Lota Kelly, asked respondent to pay 505'0 its total cost of advertising Viyella, including both the newspaper space" or lineage costs and the "production" costs (art work etc. ) . Respondent refused to contribute anything to the latter costs (which amount to about 25% of the total production-plus-space costs)." This favored customer also wanted to run, in 1962, either a larger advertisement than the one it had used the preceding n While the statute prescribes no particular method by which the "availability" of promotional aIlowanccs are to be communicated to the seller s cU8tomera, there is Rood reason to view with some skepticism those promotional "programs" that Drc conveyed solely by word. of-month from the seller s executives to it! salesmen. and then from the saleamen to the customers. A II1'C8t deal can get 10st in theBe oral transmissions. Vanity Fair PapcT MilB, Inc. v. Fedcrat Trade Commission, 311 F. 2d 480 , 485-486 (2d Gir. 1962). Even if the salesman doesn t "forget" to mention it at all to the smaller customers, subtle variations in the terms" of such a program-variations that can make it attractive or unattractive, depending on whether the salesman wants the customer to accept or "reject" the "offer are far easier to effect if those terms are not reduced to writing and openly distributed. In obvious recognition of this special utility of the "oral" promotional program as a device for discriminating between customers, respondent apparently abandoned it during the course of this proceeding. Tr. 527. We have not been told, however, whether all of its customers are now receiving these new "written" offers, nor the "terms " set forth in them. !2 Respondent is quite diligent in reducing this aspect of its promotional "program " to writing. After telling the customer the maximum amount he can have, respondent writes him a letter: " This wil confirm agreement. according to which we wil contribute $75. 00 towards a cooperative newspaIJer ad on our Viyella dresses. This ad is to be on a fifty-fifty bas OUT share not w exceed the 8specified sum (75. 00J. " ex 11 (emphasis added). The other favored customers received similar letters. ex 17, 21-25, 30. !! See finding 42.

HoeSE OF LORD , INC.

Opinion year, or an additional advertisement of that same size." But respondent refused to share even the lineage or space cost for that second ad; " . Handelsman advised me at that time (1962J that since the appropriation of money made available to Lords Sportswear by the Viyella people had been reduced, that we might not Teceive as much money as we wanted. Other favored customers testified to similar restrictions. A representative of Halle Bros., of Clevehmd, testified that Handelsman set a doj.ar maximum, and that she would definitely have accepted larger contributions if they had been offered: "Well, I had asked him what I would be able to get towards an ad . . . . I would like an ad as large, you know, as I would be able to have. So it would depend upon my merchandise or how much I could get. A representative of another favored customer, Garfinckel (Washington, D. ), similarly testified that Handelsman did not allow her all the advertising money she wanted, that he fixed the maximum dollar amount she was to receive, and that she did not know how he ar1'ived at that maximum figure: In other words, the promotional allowances this respondent gives to even its favored customers are set by its president, Handelsman, in separate negotiations with each individual customer, at arbitrarily-fixed dollar amounts bearing no discernible relationship to any expressed standard of proportionality.

We think respondent' s alleged promotional "program" falls short of the statute s requirements in stm another particular. As noted above, its offers of promotional payments were in fact limited to a few selected customers, and the offers to even those favored customers were limited to the payment of 50;/0 of their MTr. 440.

Tr. 438 (emphasis added).

3i Tr. 397. 405, 411 (emphasis added).

atr. 217-218. For example;

Q. Mrs. vllalser. was there a limitation on the amount or was there a. maximum amount that House of Lord's would "rant JuHus GarfinckeJ for the promotion of Viyella products? A. Yes.

Q. Who set this maximum amount? A. Mr. Handelsman.

Could YOU have an the advertising money that you wanted from House of Lord' A. :No.

Q. And who set this S200 figure? A. Mr. Handelsman.

Q. ::rs. 'laJser, can you teh me how this $200 figure was arrived at? Do you know? A. No.

FEDERAL TRADE eommission DECISIONS Opinion 69 F.

magazine and newspaper lineage cost. Hence there is no factual basis for respondent's claim that it informed a11 customers of its wilingness to pay half of the cost of "any" advertising they might care to undertake. But an "offer" as vague as this, even actual11y made, simply does not convey enough information to permit an inte1lgent evaluation of what is being proposed. For example, one of respondent' s salesmen described his "offering" technique this way: no. I did not mention any sort (type or median of advertising. It was up to them if they wanted to advertise. "" In other words, respondent would leave it to the retailer to devise his own advertising program, with no advice or suggestions from respondent itself. It is true, of course, that a seller may have a promotional "plan" with several alternative features, only one of which may be suitable for, or usable by, a particular customer. State Wholesale Grocers, supra at 838-839. ,s T,' , 472. This vag-uen(' s of respondent's allej.ed oral offers obscures stil other questions. For example, respondent claims that it offers to " cooperate up to the amount that they (the customersJ decided upon on a 50-50 basis " (tr. 82), i. ) that it will pay 50% of the CLlstomcr s advertising " costs. " What " costs " are induced in this sJlegcd offer? This record shows that respomlent has in fact limited its payments to magazine and newspaper "space" 01' lineage" costs (finding number 42). And that is mnsiderllbly less than 50% of the retaijtotal advertising costs. For example, one favored customer testified that his Viyella ads in the Cleveland Plain Denier cost him a tot?: of about 895 each, inclullir.g approximately $70 to $75 for the newspaper "space " and another 825 for "production " costs ("art work and layout" ), But respondent limited its contribution to 50% of the "space" cost (half cf $70-875, or 835 to 837. 50), less than 40% of that custolT. s total advertising costs (895), In other words, respondent's arrangement with this customer is not " 50-50" but 40 60 (e. !l.. 537. 50 out of total costs of $95), In his cross-examination of witness Bergnel', a non.favored Clevdanrl customer, respondent' s counsel put this question; " If you were informed that HO'.se of Lord's h d no stuITers but that if you wished to engage in any stuffng program you wfmld have to have your own prinled and then half the cost wOldd be 'rebated to you, would you have engagcrl in such a pJ"gram?" Tr, 394 (emphasis added), This implies, of course, that respondent would here pay 50% of "production " costs (which it refuses to pay to the customers who use newspaper advertisements), but would not credit, in computing the customer s share of the total costs, any actual "services or facilities " the customer might render or furnish. Yet such things as window space, counter space, e'Jstomel' lists (for direct mail or "stuffer" advertising), and so on have a reasonably deierminable market value. (In a recent Commission case, one of the allowances in Question was a supplier s payment of S:50 a month for a particularly ,lesirable segment of shelf space in the stores of a supermarkei chain F'red Meyer, SI,pr" 38. ) Indeed, to refuse to credit the customer for his "services or facilities" is to evade the lJrincilJal thrust of the statute; lJroIT. otional allowances, as this Commission reported to the Congress prior' to the passage of the Act, "usually coniemp:ate the performance of sjJccific acts by the recipients thereof, such as the insertion of adve).tisements in Jocal ncwspapel' and catalogs and in programs of local events. the ,Jressing of windows and counters with the products oj' signs of the manufacturers, and the display of products on sho.", cases. Fina: Report on the Chain- Store Investigation, Sen. Doc. No. , at 60 (74th Cong. , 1st. Sess" December 14 , 1 34 (emphasis added), If Cus':oITer A is ilnely re(juirell to furnish mOTley (buy space in a newspaper), competing Customer n obvious;y cannoi be required tu furnish proportionally the same amount of money alid supply respondent with 1ree facilities (s:lch as ma.iJing lists) ann services (mailinlf its st:Jffers), Such "terms " would not be "proportionally equal" : the fair market value of the Customer H's services and faci:ities must be credited in computing its share of the total cost of promoiiJJg respundent's product, whether that sha.re be 50%, 60%, or any other figure respondent mighi l"asonabJy require HOUSE OF LORD , INC.

Opinion However, such a sener may not take it upon himself to decide which of the several features of his promotional plan is to be offered to a particular customer; that choice is to be made by the customer himself a.after the seller has p,'esented him with the terms of all of the 'available' alternatives. " F,"ed Meyer, supra 61 (emphasis added). In that case, the Commission expressly rejected a construction of tile statute "that would permit a sener with a promotional plan having, say, ten different features, to select Feature 1 for Buyer A, Feature 2 for Buyer B , and so on concealing from each the nature of the activity for which the others wer" being paid. Ibid.

The necessity for such a rule is wen ilustrated here. To the witnesses in this proceeding, as noted, the word "advertising" has a special, highly restrictive meaning; it refers to "newspaper advertising" only, not to the myriad other forms of merchandise promotion. As a result of this restrictive definition placed on that term, an offer of "advertising" money-with no further explanation-is interpreted by these retailers as an offer to share the lineage" cost of running an advertisement in a newspaper, nothing more. As one witness explained it: "Lots of manufacturers do not accept that (advertisements in a local paper caned Heights) as even advertising. They want you to advertise in the morning Plain Dealer before they even can it advertising, and we have never done that. "" Thus in the context of this industry, an offer to share the "advertising" costs of a sman retailer, one who can afford newspaper advertising, is, as the court said in Wholesale Groce," , svpm no offer at all. When this respondent elects to give promotional money to one of its customers in a community, it has the duty, we believe, to devise and communicate to each of its other competing customers in that community a promotional plan with at least one feature that can be used by each of them. Any promotional program that fans short of this minimum standard of fairness is surely at odds with the statutory standard of proportiona.! equality.

VII Only one aspect of the order to be entered here requires special comment. The statute, as previously noted, prescribes no particular means or methods by which seners are to make known to their competing customers the "availability" of their promotional allowances. And though a w1'itten notification would appear to be JU Tr. 374: finding number 41 , n. 57. See also fimJjng number 42 , n. 72. Dissenting Opinion 69 F.

far and away the most-and perhaps even the only-completely reliable method of performing this duty, it is of course theoretically possible for a promotional program to be administered orally on a fair and honest basis. Here, however, we don t have a theoretical situation. Respondent' s president, before these hearings began, wrote the prospective witnesses that he had "records to prove they had " in fact" been offered the allowances in question; later, under oath, he admitted that statement had been false, that he had no such records. He testified further that he had told his salesmen "to go full force to all customers who buy Viyella and offer it to them."" And two of his salesmen testified that they had carried out those instructions. In fact, however they made no such offers. Being constrained to reject the testimony of respondent' s president and its salesmen under oath, we think it would be anomalous to again place in their hands the responsibilty of orally conveying to its customers the information to which we think those customers are entitled. Our order therefore, will require respondent Lord' s to notify its customers of its promotional program in writing. Whatever may be the general requirements of the statute in this regard, it is dear that "an order may permissibly require one who has violated the law to conform to a somewhat higher standard of future conduct than one who has stayed within it. Vanity Fair, sup1' at 488. We know of no other way to assure this respondent' s compliance with even a minimum, much less a higher, standard of law observance.

An appropriate order wi1 be entered.

Commissioners Reilly and Jones concurred and have filed a separate concurring statement.

Commissioner Elman dissented and has filed a dissenting opinion.

DISSENTING OPINION JAXUARY 18, J 966 By ELMAN Commissioner:

In several important respects the Commission s decision in this case seems to me most regrettable.

'OTr. 594.

HOUSE OF LORD , INC.

Dissenting Opinion As I have noted elsewhere ' the stresses and strains on administrative adjudication are especially acute when the result in a particular case may have a bearing upon a general policy or program to which the agency is committed. Unlike judges, who sit as neutral and detached adjudicators, agency members who are responsible for deciding the particular case are also responsible for advancing the goals and effectuating the policies of the statutes which the agency administers. Its success or failure is measured by the general results, or lack of them, which the agency achieves in carrying out its statutory mission. Unlike a judge, an agency member cannot overlook the effect which a decision in a particular proceeding may have on related proceedings before the agency. The fusion of functions within the administrative process affords great benefits in flexibilty of action; but it also gives rise to dangers which agency members must acknowledge, and resist as best they can.

The independence of hearing examiners, specifically their isolation from the investigative and complaint-issuance process, is a substantial safeguard against unfairness in administrative adjudication. Particularly where the case is part of a general enforcement program to which substantial agency resources have been committed, an agency should be most reluctant to overrule an examiner s findings on strictly evidentiary questions. Where resolution of an issue of fact does not call for application of agency "expertise " but depends only on the naked question of the credibility of testimony, the hearing examiner s finding should be accorded great respect. In dealing with the question whether or not the testimony of certain witnesses is to be believed it is an elementary rule that a judicial offcer who has actual1Jy heard the testimony and observed the demeanor of the witnesses on the stand is in better position to evaluate their testimony than one who has merely read the cold record. This general rule deserves special emphasis when the reviewing tribunal not only is in no better position to decide the issue of credibility, but is itself open to charge of being Jess impartial and having a stake in the outcome of the case.

The relevance of the foregoing observations derives from the background of this case. This proceeding grew out of a publiclyannounced broad program by the Commission to enforce Section 1 A note on Administrative Adjudicatioll, 74 Yale L.J. 652 (1965); ct. Gimbel Bros. Docket 788t: (Feb. 23, 1962) (dis enting opinion) (60 F. C. 359 , 375l. FEDERAL TRADE eommission DEe IS IONS Dissenting Opinion 69 F.

2 (d) of the Clayton Act in the wearing apparel industry. Four years ago, the Commission conducted an investigation which revealed that the practice of suppliers in granting discriminatory and ilegal advertising allowances to their customers was rife in the wearing apparel industry. On October 17, 1962, the Commission held a public hearing, at which representatives of the industry appeared, to help decide how best to cope with the enormous practical problems of law enforcement posed by an industry where hundreds, and perhaps thousands, of firms were apparently violating the law. Over the objection of Commissioner Higginbotham and me, the Commission determined to follow its traditional case-by-case approach of issuing individual complaints in the hope that the law violators in the industry would accept consent orders. Over a period of almost three years, about 300 complaints against wearing apparel manufacturers were issued. The Commission engaged in the most assiduous solicitation of consent settlements by suppliers to whom complaints were sent with the extraordinary result that all except a bare handful signed agreements. It was made clear that respondents who did not consent would be proceeded against promptly and vigorously. The respondent in this case is one of the very few who did not sign a consent agreement, and chose instead to litigate. The disputed issue of fact which the hearing examiner resolved in favor of respondent is quite simple: Did the respondent make known to al1 of its customers that it had funds available for cooperative advertising? Because respondent did not communicate its advertising program in writing to any of its customers, but relied on its salesmen to inform them of the program, resolution of this question must depend entirely on the oral testimony adduced at the hearing. The hearing examiner found that respondent did in fact tell al1 its customers that cooperative advertising funds were available. The majority of the Commission overturns this finding and, on the basis of its own evaluation of the testimony, finds instead that respondent's salesmen did not tell al1 of their customers about the availability of the advertising allowances. The question boils down to one of credibilty of witnesses. Was Joseph Handelsman, respondent's president, telling the truth when he testified that he had given his salesmen instructions to tell al1 their customers about respondent's advertising program? Were respondent's salesmen telling the truth when they testified that they told every customer with whom they dealt that coopera- . . .

HOUSE OF LORD , INC.

Dissenting Opinion tive advertising funds were available? Were respondent's socalled non-favored customers telling the truth when they testified that ree,pondent may well have told them about its advertising program, but that they did not remember, and that, in any case, they would not have participated? The hearing examiner, after hearing their testimony, decided that all these witnesses were telling the truth. The maj ority of the Commission, after looking at the record, has decided that they were not. Section 8 (a) of the Administrative Procedure Act (5 U. 1007 (a)) provides that "whenever the agency makes the initial decision without having presided at the reception of the evidence, . . . (the offcer who presided at the reception of evidenceJ shall first recommend a decision. '" One of the prime purposes of the Administrative Procedure Act was to raise the status of hearing examiners, making their function similar to that of a trial judge." Of course, the agency was to remain responsible. for formulating policy and deciding questions of law, but the examiner was to decide such purely factual, non-policy issues as that of credibility of witnesses. The House Committee Report on the Administrative Procedure Act states: The provision that on agency review of initial examiners' decisions it has a1l the powers it would have had in making the initial decision itself does not mean that initial examiners' decisions or recommended decisions are without effect. They become a part of the record and are of consequence, for example to the extent that material facts in any case depend on the determination of credibility of witnesses as shown by their demeanor or conduct at the hearing. In a broad sense the agencies' reviewing powers are to be compared with that of courts under section 10(e) of the bil. Any doubts as to the weight to be given an examiner s report See also Section 5(c) (5 D. C, 1004(1')), "The same offcers who preside at the reception of evidence, . , shall make the recommended decision or initial der.ision, . . . 3 In the l' eport of the Attorney General's Committee on Administrative Procedure (1941), which recommended enactment of an AdministJ' ative P1"ocedul'e Act, it was noted: In most of the agencies the person who presides (at heal'ingsl is an advisor with no real power to decide. " " '" (lile may have limited powers to rule at the hearings; interlocutory appeals may be taken fl'm his rulings to the agency itself; and his intermediate report may be purely advisory, weig-hing little in the minds of those who fwal1y decide. Such is his role at the, , . Federal Trade Commission. " Administrative Procedure in Government Agencies, Sen, Doc. No. S, 77 Cong. , 1st Sess, 44-45 (1941), A major purpose of the Committee s recommendations is to increase, in most agencies, the effect of the hem'in!, offcer s work in the decision of the case. . , , Id. at 51. 'H, Rep. No. 1980, 79th Cong" 2d Sess. 38 (1946), Virtually identical language-e is contained in S. Rep. No. 752, 79th Cong. , 1st Sess, 24 (1945). See also: Administrative Procedure in Government Agencies, Sen. Doc. No. , 77th Cong. 1st Sess. 51 (1941):

In geneeal, the relationship upon appeal between the hearing commissioner and the a!,ency ought to a consirJel'able extent to be that of trial court to a.ppelate court, Conclusions, interpretatiODS, law, and policy should, of course, be open to fl111 review. On the other hand on matters which the hearing corrmiss;onc\' , having heard the evidence and seen the witnesses, is best quaJifierl to decide, the agency should be reluctant to rJistm'b his findings unless error is cJelLl'ly shown, Dissenting Opinion 69 F.

under the AP A were settled in Universal Camera Corp. v. Nar tional Labor Relations Board 340 US. 474. In an opinion by Mr. Justice Frankfurter, the Court stated that because of the examiner s "opportunity to observe the witnesses " his report "intrinsicaJ1y commands" considerable "probative force" (at 495), and that when an examiner s report has been reversed by an agency, that report should be given even greater weight by a reviewing court. " (EJ vidence supporting a conclusion may be less substantial when an impartial, experienced examiner who has observed the witnesses and lived with the case has drawn conclusions different from the Board's than when he has reached the same conclusion." (At 496.

The majority of the Commission apparently feels that it is better able than the hearing examiner to determine the question of credibility. It apparently assumes that the examiner s judgment on this issue of fact is entitled to no more weight than his conclusions on law or policy questions. The paragraph of the Commission s opinion dealing with the question of the credibilty of respondent' s witnesses concludes simply: "We find this testimony unpersuasive. " (P. 76.

Nowhere does the Commission explain why it doubts the abilty of the hearing examiner to assess the truth or falsity of the witnesses ' testimony. Cf. Retail Store Employees Union v. 360 F. 2d 494 (D.C. Cir., July 13, 1965). Does the majority of the Commission believe that the hearing examiner (who, incidentally, prior to becoming an examiner, had many years' experience in such cases as a member of the Commission s trial staff) was a poor judge of credibility? There are several additional observations to be made on the way the Commission has exercised its fact-finding function in this case:

(1) The Commission has made a finding of fact adverse to respondent on an uncontested issue-one which complaint counsel had conceded. The Commission has determined as a fact that not only did respondent fail to offer its promotional program to aJ1 its customers but also that "respondent' s salesmen are not aJ10wed to offer promotional aJ10wances to customers; only Handelsman (respondent' s president) himself has the authority to make such an offer. " (Finding 38. ) The issue of the salesmen s authority to offer aJ10wances was not contested below; respondent's testimony on this point was not chaJ1enged, and complaint counsel conceded . . .

HOUSE OF LORD , INC.

Dissenting Opinion the point in his brief. ' Furthermore, although the Commission copiously documents this finding (Finding 40), ' it ignores the unchallenged testimony of the buyer for Best and Company-who testified that she dealt with respondent' s salesmen and had been offered an allowance. (Tr. 177-78.

(2) The Commission has gone to great pains to establish a "motive" on the part of respondent to discriminate among its customers. Since respondent's plan did not base payments on the amount of a customer s purchases, the Commission reasons that respondent would have exceeded its budget had it offered the plan to all customers (Commission opinion, pp. 78-79). This reasoning ignores the fact that respondent paid only half of a customer s advertising cost. Since the customer paid the other half, the amount of his advertising would necessarily be limited by his volume of purchases.' Clearly, a customer who bought $400 worth of V iyella dresses would not spend $400 of his own money in advertising them. " Thus, as long as its advertising budget bore a reasonable relationship to the dollar value of Viyella dresses sold, respondent would have no motive for discrimination. Since the record does not disclose respondent' s annual sales of Viyella dresses (hearing examiner s finding 5), we cannot "Brief for complaint counsel, pp. 6- , 17. The inference is strong, and tenable, that Crane s (one of respondent's salesmenJ vague testimony as to his 'offer, in token compliance with comj)any instructions, was dictated by the presence of Mr. Handelsman in the hearing room (Tr. 491), together with the slime possible fear of dismissal for failure to carry out instructions, evinced by another salesperson. ld. at 17.

"Among file Commission s rcasons for finding that respondent's salesmen lacked authority to offer allowances was that all discussion and correspondence concerninll the specific terms of a customer s advertising WEIR done by respondent's president. (Finding 40, text accompanying n. 53 . n. 55.) However, the fact that customers discussed their specific advertising phms with respondent's president is not inconsiste:nt with the fact that respondent's sales personnel initially offered them the allowance. One of respondent' s saleswomen testified that she would tell customers of the advertising program, but that the customer would work out the details with respondent's president. " I mentioned to all the customers that there are advertising moneys. . . (butl any discussion of financing or anything of that type is taken up with Mr. Handelsman. " (Tr. 580. ) See also Tr. 552-53, 565-66. The Commission does not cite this testimony.

1" The Commission states that respondent was given a fixed advertising budget (Commission opinion, p. 78), but the record discloses that respondent was given "latitude for exceeding that8 Theamounthearingby a examinerreasonablepointedsum. " (Hearingthis out inexaminerhis findings;s finding 33. (Ilt seems reasonable to expect that the fact that the customer must expend an equal amount of its own funds wiJ constitute an effective brake upon the cost of the cooperative advertising which it wil 11ndertake, and wil keep such cost in reasonable relationship to its volume of purchases of 1he advertised product. " (Hearing examiner s finding 42. The buyer from Julius Garfinckel testified that she had vlaced an ad custing $400 , and respondent had reimbursed her 8200. Shc was then asked; " IIJf you had announced. . . that the ad you planned to run. . . was going to cost $800 , do you have any doubt in your mind that you would have "often a $400 allowance?" She answered; " I really don t know, because to start with, I would not be spending the $400. " (Tr. 241.) . , Dissenting Opinion 69 F. T. determine whether the relationship was reasonable. No one has claimed that it was not.

(3) The Commission states that any promotional program conveyed solely by word-of-mouth" should be viewed "with some skepticism" (Commission opinion, p. 80, n. 31). Is this why respondent' s promotional program has been found to be in violation of Section 2 (d) ? Failure to inform customers may be a legitimate ground for finding a violation (cf. Fred Meyer, Inc. Docket 7492 (decided March 29, 1963), pp. 15-16) (63 F. C. 1 36-37J, but does failure to commit a program to writing compel such a finding?"

(4) In the letter to respondent urging acceptance of the consent agreement, the Commission implied that the non-cooperative members of the industry would not be "accommodated" to the same extent as those who accepted consent ordersY This may explain why respondent is the only member of the industry who has been ordered to offer its promotional plan in writing (Commission opinion, pp. 83-84), and the only one who has been ordered to offer specific alternatives to its smaner customers. Also involved in this case is the proper standard for judging the legality of promotional payments under Section 2 (d) of the Clayton Act. The majority of the Commission concludes that even if respondent communicated the terms of this plan to a11 its customers, it violated Section 2 (d) because it did so only in general terms and did not specifically offer alternative promotional methods to customers who could not advertise in newspapers or magazines (Commission opinion, pp. 79-80) , 10 Cj. FTC ides for Advertising Allowances and Other Merchandising Payments and Services (960). " fA promotionaJJ plan need not be written " (p. 3); "The seller should take some action to inform all his customers. . . that the plan is available. He can do this by any means he chooses, including- . . . salesman. " (P. 40. 11 A proposed consent agreement was sent to every wearing apparel manufacturer, including respondent, who the Commission "had reason to believe" wa violating the Act. The covering letter stated in part:

The same complaint, order and proposed consent agreement al"e being forwa.rded to other manufacturers. . . .

As an accommodation to the parti€s, the Commission has directed that the complaint and order to be utilized in the consent settlement procedure be only in s;'cle1on form and in very general terms. . . . run this way, each of th!' wea)'ing apparel manufacturers is spared the embarrassment of hav;ng the details of its business relationship with its customers pub!icizerl through disclosures made in a long and detailed complaint and in the detailed provisions of a cease-ann-desist order applicabie to the particular situation (IJf !lny firm involved here should d€cide not to utilize the consent settlement procedure under the short form compl!lint and cease-and-desist order now being )J1'ovided, it is possible that in such cases the Commission wiJ find it necessary to direct the issuance of a complaint and proposed cease-ane-desist order in greater detail and more specific terms to serve as a basis for litigation.

, , HOUSE OF LORD , INC.

Dissenting Opinion The Commission s view of the law converts cooperative advertising from a simple business transaction, by which a seUer and buyer share the cost of advertising to their mutual benefit, into a complex endeavor fraught with legal pitfaUs. Under its view, a seUer who decides to engage in cooperative advertising assumes a heavy burden. He must disregard his own promotional needs and set up an intricate "promotional program" designed to satisfy the desires of aU his customers. He may be competed to pay for "promotional activity" which is of no benefit to him whatsoever, and which indeed is wasteful as well as not beneficial; and he runs the risk of violating the law if he fails to embody aU the specific terms of his plan in a written document which he can prove he has circulated among aU his customers.

I do not believe that Section 2 (d) was intended to have this result. As I read the Act, it provides that a seUer may choose those promotional and advertising services for which he wi1 compensate his customers; if he gives a payment to one customer who renders such services, he must give proportionally equivalent payments to all other customers who are ready, able, and wiling to provide him with the same services. But the Act does not require him to pay for "services " he does not want or need, and do not help sell his goods.

Before the Robinson-Patman Act was enacted in 1936 , sellers had developed several ways of favoring large buyers to whom they could not legally give price concessions," One method was to pay for the large buyer s advertising expenses." This was not illegal under the Clayton Act, although it had the same effect as illegal price discrimination. The Jarge and smaU buyers would both pay the same price for goods, but the small buyer would have the added expense of advertising his goods, while the large 12 A Federal Tracie Commission investigation revealed that chain stores often received preferential treatment" from their suppliers. "Preferential treatment" was defined as treatment granted to chain stores but not given to other retail dealers, wh:ch results in a lower net cm;t to chainstore customers than to other retailers. " Final Report on the Chain Store Investij;ation, Sen. Doc. No. , 74th Congo 1st Sess. 59 (1935). 12 " (PJromctional alJowllnces represent a considerable proportion of all preferences given. Many manufacturers in widely separated areas explained that such aJlowanres were granted only when purchasers we e suffciently powerful to demand them. " Final Report on the Chain Store TnvestiR"ation, Sen. Doc. No. 4, 74th Cong. , 1st Sess. 61 (1935). One practic.? which has been indulged in to evade the provisions of the Clayton Act is for the seller to make certain service allowances to the purchaser. They may be caHed advertising allowances. Vr'hen the purchaser had great purchasing power he could demand that great concessions he made to him; but here was the Clayton Act, which said You cannot make discriminations in prices.' So there was devised a second scheme under which the seller said v.' e wm make you an advertising aIJowanee or a service allowance which wil bring about l\ discrimination in prices.''' 80 Congo Rec. 62R2 (1936) (remarks of Senator Logan, floor manager of the Robinson bil). FEDERAL TRADE COMMISSION DEeISIONS Dissenting Opinion 69 F.

buyer s advertising expenses were paid by the seller. Section 2 (d) was enacted to close this loophole.

It was designed to play an important but limit€d role in the scheme of the Act. It did not purport to prohibit or regulate cooperative advertising. H Its purpose was to prevent sellers from giving in to the demands of large buyers and paying advertising allowances only to them. Congress felt that it could achieve this end by requiring sellers to offer "proportionally equal" payments to all customers who could perform the same valuable promotional services.

The standard of "proportional equality" was intentionally left vague. Realizing that it would be impossible to determine precisely the relative value of different customers' advertising, Congress did not prescribe a rigid test for determining the legality of promotional allowances. If a promotional program was "honest in its purpose and fair and reasonable in its application it would sabsfy' the " proportionally equal" test. Lever Bros. Co. 50 F. C. 494, 512.

As stated by the Senate Committee report: The phrase proportionally equal terms " . . . is designed to prevent the limitation of such allowances to single customers on the ground that they alone can furnish the services or facilities in the quantity specified. Where a competitor can furnish them in less quantity, but ;01 the same relative value he seems entited, and this clause is designed to accord him, the right to a similar allowance commensurate with those facilties. S. Rep. No. 1502, 74th Cong" 2d sess. 8 (1936) (emphasis added). (Virtually identical language is contained in H. R. Rep. No. 2287, 74th Cong. , 2d sess. 16 (1936). Thus, what Congress intended to outlaw was the arbitrary selection of customers to receive payments (Vanity Pair Paper Mills, Inc. v. 311 F. 2d 480 (2nd Cir. 1962), cert. denied 372 US. 910); the restriction of payments to large volume purchasers (Shreveport Macaroni Mfg. Co. v. 321 F. 2d 404 (5th Cir. 1963), cert. denied 375 US. 971) ; the restriction of H "The Robinson biJ docs not say that an allowance may not be made for advertising Rcrvices. Legitimate allowances for advertising and matters of that nature may be made, but allowances must not be made for the purpose of giving the purchaser an opportunity to buy goods at B lower price than others similarly situated may buy them, " 80 Congo Rec. 6282 (1936) (remarks of Senator Logan).

1! The following colloquy iJustrates this point; Mr. Bloom: rni you have a window at Fourteenth and F Streets where thousands of people pass by every day, are you going to pay fhe same price for one down at Fourth and B Streets where only 50 people pass in the course of a day? " * * There ate no two windows alike, no two counters alike. One side of the street is diffe)'ent from the other side. .. How can you do it on proportionately equal terms when there are no two places aHke " Suppose one Btore is 25 feet and the other store is only 10 feet; what are you g-doing to do with the 10-foot fellow? Give him half a sign?" ::r. ::cLaughlin; " You can Jlive him a smaller sign. You do not have to cut the sig-n in two, They have aJl different kinds of signs now. " 80 Congo Rec. 8236-3i (1936). HOUSE OF LORD , INe.

Dissenting Opinion payments to certain classes of customers (Simplicity Pattern 360 U.S. 55) ; and the tailoring of promotional plans to suit the needs of large customers (Elizabeth Arden, Inc. C. 288 afi'd 156 F. 2d 132 (2d Cir. 1946), cert. denied 331 US. 806).

But Congress did not require a seller to subsidize a1l customer promotional activity, " regardless of its value to him.1G Congress was aware that not a1l advertising would be of equal value to the seller, and Section 2 (d) did not require him to pay for a1l advertising." He need only pay for advertising which benefitted his business, and his payments had to be in proportion to the benefit he received. Ct. Edwards The Price Discrimination Law 159 (1959) :

(AJ payment for useless service, or a payment substantially in excess of the value of the service rendered, is, in effect, a concealed price concession; hence any standard of proportionality other than that of the value of advertising may readily be thought to foster discrimination. Overpayment closely resembles payment for service not actually rendered, which has long been condemned.

To be sure, one can extract from the debates in Congress statements that payments must be made in proportion to a customer purchases, but these were based on the assumption that a1l customers could provide services of equal value." A full reading of the legislative history shows that a seller s duty was intended to extend only to those customers who could provide advertising valuable to him. An example given during the hearings clearly ilustrates the scope of Section 2 (d) :

If a tobacco manufacturer offered an advertising allowance of $2 per win daw for the display in each retail-store window. . . , it could scarcely expect to be sustained in offering that allowance only to retail organizations possessing 15 000 retail outlets. The display of that label has comparably the same advertising value when displayed in any retail store handling the products of that manufacturer, whether owned by a concern which has 15 000 other stores 16 The "purpose (of Section 2 (d) was) to prevent service allowances when the use of them results in unfair discrimination. " 80 Congo Rec. 3116 (1936) (remarks of Senator Logan emphasis added). A discrimination based on a customer s inabi ity to provide a valuable service to the seller would certainly not be an unfair one. 11 " . (P:ioportionally equal' is another Question of fact to be determined upon all the circumstances in each particular.r case. It would depend upon such factors as the nature of the service or facilities for which it is offered and the ability of the competitor to furnish such services lsicJ oj' facilities with corresponding value in proportion to the smaller quantities which he might be able to furnish them." Hearings befo).e the House Committee on the Judiciary on Bils to Amend the Clayton Act. 74th Cong. . 1st. Sess. 38 (1935). 18 But if the seller grants an advertising anowance to one customer there is no reason why he should not grant 1lnder identical circumatanceB the same alJowa.nce to another customer based upon the Quantity of the purchases. If one man buys 8100, 000 in goods and should be showed 81 000 for advertising p1l'pOSC , and Ilnothcl" buys $10 000 in goods he ought to be allowed $100 for advertising. " 80 Congo Rec. 3116 (1936) (remarks of Senator Logan, emphasis added).

g FEDERAL TRADE COMMISSION DEe IS IONS Dissenting Opinion 69 F.

or 1,500 other stores or no other stores; and it should be entitled to a pro rata allowance accordingly. Hearings Before the House Committee on the Judiciary on Bils to Amend the Clayton Act, 74th Cong. , 1st Sess. 38 (1935). In fact, there is some indication that an even lesser duty was intended to be imposed. A1l of the examples cited during the hearings and debates assumed that sellers would offer allowances only for specific services." So long as the compensable services were chosen with a view to the seller s promotional needs (and not as a means of favoring a powerful customer), the fact that not a1l customers could perform the services was irrelevant. If the seller offered payments to all customers who could perform the desired services, he would meet the proportionally equal test. Nowhere in the legislative history was it suggested that a seller would have to pay for other services which would be valueless in selling the products and hence utterly wasteful."

The Commission, although it has never stated so explicitly, apparently views promotional allowances not as compensation for valuable services actually rendered but as a kind of unjustified price rebate. On such a theory, it would be logical to require that all customers be offered allowances in proportion to the dollar amount of their purchases. The courts, however, have not accepted so rigid or absolute a standard, n so the Commission, although it apparently prefers promotional payments to be made in strict proportion to a customer s purchases does not require it. But it does require a seller to offer promotional allowances to all lU S. Rep. No. 1502, 74th Cong., 2d Sess. 8 (1936) and H. R. Rep. No. 2287 , 74th Congo 2d Bess. 16 (1936):

'\ere . . . a manufacturer grants to a particular chain distributor an advertising allowance of a stated amount pel' month pel' store in which the former s goods arc sold, a competing customer with a smaller number of stores, but equally able to furnish the same service per store, and under conditions of the same value to the seller, would be entitled to a similar allowance on that basis.

See also note 15 Bj(pra.

:0 Cf. Hearings Before the Committee on the Judiciary on BiJs to Amend the Clayton Act 74th Cong., 1st Sess. 38 (1935):

(If allowances are offered to one customers they must be offered on proportionally eljuaJ terms to aJ! othc!' customers . but naturally, if such opel" is not accepted, the manufacturer responsibility ends. Naturally also such offer can be accepted only by those customers ab7c to furnish the sen;iccB or facilities for which thcJl (lre ofjcrcd. (Emphasis added. lCf. Vanity Fair PO-PCT MilB . Inc. v. 311 F. 2d 480 , 486 (2d Cir. 1962). e1. denied, 372 U. S. 910; Atalanta Trading Corp: v. 258 F. 2d 365 , 371 (2d Cir. 1958). Nor has the Commission always applied this standard. In Le' ver Bros. Co.. o P. C. 4\)4, the Commission held that proportional equality was achieved when respondent offered highcl promotconal allowances for newspaper advertising than it did for radio OJ' hanrJbil advertisjng. " (Aldvertising uy newspaper is more expensive and more effective than advertising by either ' handbil or store display. Evjdently respondents con5idel"ed it of nJDre value to them and their payments are made on that basis. " (At 511 - 12. Cf. FTC Guides fot Advertising Allo11.ances O-nd Other Mercha-ndi8in Q Payments and Services (1960).

HOUSE OF LORD INC.

Dissenting Opinion competing customers even to those whose "services" are valueless and wasteful. Since it views allowances as price rebates, the Commission refuses to consider the benefit, or lack of it, the seller derives from such payments." In fact, a seller who attempts to use promotional allowances to increase sales of his product is, in the Commission s eyes, tainted with an ilegal motive (Commission opinion, p. 79). What the Commission fails to realize is that its interpretation of "proportionally equal" puts Section 2 (d) in conflict with the rest of the Act. Requiring that a1l customers be given promotional allowances when only some provide valuable services is like saying that a1l customers must receive price discounts when only some provide the seller with a cost justification. It also means that the Commission applies Section 2 (d) so as to compel sellers to subsidize "advertising" and "promotional" activities by customers which are useless, unnecessary, and benefit nobody.

In addition to its misinterpretation of the proportionally equal requirement, the Commission imposes an impossible burden for meeting the requirement of "availability. " In this case, for the first time, the Commission holds that it is not enough for a seller to make a general offer of cooperative advertising funds. To comply with the law, he must explain to each customer, with great specificity and in writing, a1l the various promotional services which may be performed. This part of the Commission s opinion is entirely without precedent. In most cases the issue has been was the allowance available to customers who wanted it " or oJ See Edwards The Price Discrimination Law 156-64 (1959), for a discussion of thc various interpretatior.s of "proportionally equal. Customers might be said to be equally treated by either of two standards; (a) if the services and payments for service that they receive are proportional to the purchases they make from the seller; 01', (b) if these services and payments lue propol'tionai to their value, that is, to the effect in promoting the seller s business that they can achieve. ld. at 156. The choice," between (these two standardsJ . . . is, . ' a diffcult one. An advertising al lowance may be conceived as a concealed discount. If so, its primary effect is to alter the net price at which goods are bought. and in a pj'ice- discrimination statute this effect should . . , be sterilized through some such requirement as a proportional relation between the amount of the allowance and the amount sold.... However . nn advertising aJlowa.nce may thealso be conceived as a prir.e paid for Ii legitimate advertising service, In this view, purchase of 2,advertising is similar to a purchase of transportation or of raw materials. Some purcha:;ers may be unable to provide the kind of advertising service desired; others ma.y be able to provide only service of inferior quality. ld. at 158. "Discussin! the Commission s interpretation of proportionally equal, the former Chief Economist of tne Commission said;

(IJt is inappropriate to require a buyer of adverti:;;ng service to buy it from all his customers if hE' buys it from any and to buy it from them in sta ed proportions to which proportionate value are arbitrarily assigned. One might, with similar :ogic, require a steel manufacturer to buy railwa.y transportation ervice from every railroad in prop01,tion, not his need for service from each, bui to the amount of his steel p)'oducts purchased hy each. Edwards, The Pn ce Discrimination Law 159 (1959). ..

FEDERAL TRADE COMMISSION DEeISIONS Dissenting Opinion 69 F.

did the seller take steps to conceal it."" Never before has the Commission held that a seller must not only offer an allowance but that he must also offer it in specific terms geared to each particular customer s desires. In the Vanity Fair Paper Mills case supra note 21 , the court traced the Commission s varying interpretations of the "availabilty" requirement. A promotional allowance is not "available" to all customers if it has been denied" to some. . . . Neither is it "available" if steps have been taken to conceal it. On the other hand, the legislative history. . . argues against a construction that would require the sener to make an actual "offer" to all customers, including many who might not be interested. Between these polar positions the Commission has shifted uneasily. For some years it tended toward an ever stronger attitude coming perilously close to requiring an offer as can be seen by . . . the. . . severe requirements of affrmative and specific notification set forth in Kay Windsor Frocks, Inc. 51 F. C. 89 , 95 (1954). . . . Then it made a slight retreat toward a more generalized notification requirement in its 1960 Guides for Advertising Allowances and Other Merchandising Payments and Services. (At 485). In this case, however, the Commission does not merely return to its former position; it imposes a requirement considerably more severe than any which has heretofore been exacted. Even in the Kay Windsor case, the order was phrased in the general statutory language; here, the order requires respondent to inform its cus- "26tomers specifically, and in writing, of " alternative services. The Commission s approach ignores the fact that Section 2 (d) contains a per se proscription of conduct. A case brought under this section requires no inquiry into the competitive effects of the challenged practices. Thus, by expanding the scope of Section 2 (d) the Commission runs the risk of enjoining conduct which is not injurious to competition.

Cj. Liggett Meyers Tobacco Co. 56 F. C. 221, 253: We do not believe, however, that it is necessary to make known a promotional plan where auch would be a useless or futile gesture. The Question of whether the gesture would be futile is one of fact. Where it is disclosed that a seller generally does not want promotional allowances, it may be shown by the party charged with the violation that in such a case to offer an allowance would be a futile act. In this instance, the examiner has found that such a gesture would have been futile. He has had an opportunity to see and hear the witnesses. We cannot say that his findings on this issue arc in error. 26 The order in this case prohibits respondent from paying any promotiunal allowance unless all other :competingJ customers,.. are informed, in writing, of (1) the terms and conditions of the promotional program or plan. , , including the services or facilities to be furnished therefor; (2) the availability of such payments on proportionally equal terms to all such customers; and (3) if it would not be economically feasible for all such competing customers to furnish such services or facilities, alternative services or facilities such customers can furnish and be paid for on proportionally equal terms. :7 "It is impossible tu knuw how extensive and important the discriminatory effects may HOUSE OF LORD , INC.

Dissenting Opinion In 1954, in the Kay Windsor case supra the Commission issued an order against a dress manufacturer prohibiting the payment of non-proportional promotional allowances. In 1959, Corwin Edwards made a study of the practical business effect of Federal Trade Commission orders. His discussion of the effects of the Kay Windsor order follows:

The impression is widespread in the dress industry that advertisements by large stores that have prestige facilitate the sale of the same dresses by small competing stores. The small stores themselves often share this belief. To the extent that it is true, the question arises whether selective advertising allowances are always injurious to the competitors of those receiving them. But whether there is injury to competing stores, it is obvious that the seHer promotional purpose can be accomplished better by selective advertising than by general advertising.

The Commission found that Windsor had violated Section 2(d) by offering advertising allowances that were not generally available. After the case, Windsor discontinued its program of selective allowances. One customer, a small department store, says that this change reduced its wilingness to buy Windsor dresses. In place of special allowances, Windsor made a general offer to pay half of the cost of newspaper advertising up to a maximum of 4 per cent of the customer s net annual purchases. * * * Many small customers have made no effort to obtain Windsor s advertising allowances. A small buyer cannot claim a small promotional allowance because he does not find it practicable to advertise by brand name a dress of which he may have bought only six copies. '" '" '" Indeed La customer) '" '" * said specifically that the advertising of a dress by a large department store competitor generates volume for other stores as well and that he, therefore, orders the dress he sees featured in the advertising of the department store. Edwards, The Price Discrimination Law 181- (1959).

I think the time has come for the Commission to reexamine its approach to this section of the Act, and to bring it into harmony with the rest of the Act and other antitrust provisions. have been in the situations in which the Commission took action under the proportionaJity provisions. Proof of injury to competition was not required by the statute, and the Commission made no effort to supply it. . . . (TJ he information at hand SUggests that in some cases. . . there was nothing that would have justified a finding of injury to compe. tition had a test of this kind been applied. In other cases. the app1icstion of thc test of injury probably would have resulted in findings and orders different in scope from those actually issued.

The cases are persuasive that the price discrimination appearinlt in disproportionate ad. vertising allowances and disproportionate services raise problems similar to and no more danlterous than those that appear directly in price differentials. Practices free from injurious impact appear to be common enough to raise Questions about the wisdom of a rule of law that outlaws these practices regardless of their effect. " Edwards The Price Discrimination Law 206 (1959).

Separate Statement 69 F.

SEPARATE CONeURRING STATEMENT OF COMMISSIONERS JONES AND REILLY JANUARY 18, 1966 The dissenting Commissioner suggests that the Commission has decided against this hapless respondent because the majority of the Commission has established a particular policy in this industry which would be defeated if this respondent, who chose to litigate the matter, is not made subject to an order to cease and desist from his present practices-practices which a great number in the industry have consented to stop. In other words, the dissent states that because of a prior policy decision, the majority is refusing to allow this respondent to escape regardless of the merits of the case. Thus, the dissent implies that in the minds of the maj ority, the need for equitable disposition of a particular case is subordinated to the supposed larger interests of Commission enforcement policy. Neither of us was a member of the Commission when the policy adverted to by the dissenting Commissioner was established. It must be clear, however, that our refusal to join in the views of the dissenting Commissioner has made him a minority of one. Thus we can assume that Our motives as well as those of the other two Commissioners in the majority are being impugned. The dissent says in effect that although the majority of the Commission sryS it is deciding this case on the merits, this is entirely disingenuous and is not to be believed. We find the dissent' s questioning of the motives of the majority deeply disturbing-just as we would find disturbing any reflection on the minority position as being motivated by a desire for consistency between the minority Commissioner s action here and his earlier opposition to the policy determination by the Commission to proceed in this fashion in these cases. We agree with the dissenting Commissioner that the disputed issue of fact involved herein is quite simple, namely, whether the respondent made known to al1 of its customers that they might participate in its promotional program. We also agree that the credibilty of witnesses is the central question in determining whether respondent' s program was made universally available. We do not agree however that observation of the demeanor of the witnesses is the sole or paramount consideration in weighing their credibilty.

Admittedly the hearing examiner is the only one who observes HOUSE OF LORD , INC.

Separate Statement the witnesses and thus he is in a better position than is the Commission to consider demeanor in weighing their testimony. If demeanor were the only relevant fact in the weighing of evidence and making a determination of credibilty, the findings of fact based on oral testimony, made by the hearing examiner would in many cases be conclusive.

However, as is perfectly obvious on this record, the demeanor of witnesses is only part and, as it turns out, only a sman part of the task of appraising the evidence. The content of what was said, which is available to the Commission in the transcript together with other evidence adduced, both testimonial and documentary, is in the record and the Commission suffers no handicap in being able to appraise it. Examination of an the facts led the majority to believe that the examiner was in error in accepting the credibilty of respondent's witnesses on the basis of the entire record.

Far from making a simple generalized conclusion that the testimony of respondent' s witnesses was unpersuasive, the majority found ample support in the record for its position that the hearing examiner s appraisal of credibility was erroneous. Respondent caned three witnesses and, in the opinion of the majority, their testimony on the basis of the entire record does not measure up to the requirements of credibilty. For example the demeanor of the witness Handelsman may have had a persuasiveness and simple candor which was heart warming, but the record also shows that upon learning that some of his non-favored customers might testify they had not been offered promotional assistance, Handelsman wrote them stating that his records showed that assistance had in fact been offered them, a statement he later admitted was wholly false.

The Commision did not have to observe Handelsman to weigh the effect of this deliberate deception on the question of his credibilty. Nor did the Commission have to observe the witnesses to believe that any doubt they may have had as to whether or not they had been offered promotional assistance was planted by Handelsman s insistence in his letter that his records indicated they had received such an offer.

Obviously there is more to be weighed here than demeanor and to accept testimony in light of contradictory evidence in the record simply requires a degree of credulity which the majority of the Commission does not possess and which it cannot on these facts understand in the hearing examiner. It must overrule him 100 FEDERAL TRADE eommission DEeISIONS Findings of Fact 69 F.

even at the very considerable risk of having its own credibilty called into question by a dissenting Commissioner. The Commission has made a scrupuJous review of the record to determine whether the initial decision, when weighed against the evidence as a whole, can properly be adopted as the Commission own decision. The reasons for its disagreement with the examiner are fully documented in the findings of fact and the opinion. That one Commissioner might interpret the record otherwise does not cause concern. That the motives of the majority of the Commission are impugned when there is a sound basis for its judgment in the record is deeply disturbing. The tactic of questioning the integrity of those who disagree is a well known adversary procedure. The temptation to use it should be resisted at al1 costs.

FINDINGS AS TO THE FACTS, Conclusions AND ORDER The Federal Trade Commission issued its complaint in this matter on June 30, 1964, charging that respondent House of Lord' s, Inc., a manufacturer of ladies' dresses, has granted promotional payments or allowances to certain of its customers while failing to make such payments "available on proportionally equal terms " to certain of its other customers in violation of Section 2 (d) of the amended Clayton Act, 15 US.C. 13 (d). A prehearing conference was held on the record on September 24, 1964, and testimony and other evidence in support of and in opposition to the allegations of the complaint were received into the record in six (6) days of evidentiary hearings held in the following month, November 1964. In an initial decision of February 11, 1965, the examiner concluded that the charges were not supported by the evidence and ordered the dismissal of the complaint. The Commission, having considered the appeal filed by counsel supporting the complaint and the entire record, and having determined that the examiner s findings of fact should be adopted in part and set aside in part, and that the examiner s conclusions of law and order should be set aside in their entirety, now makes this its findings as to the facts, conclusions drawn therefrom, and order.

FINDINGS AS TO THE FACTS 1. through 30. The Commission finds the facts to be as set forth in findings 1 through 30 (pages 47 through 55) of the HOUSE OF LORD , INC. 101 Findings of Fact hearing examiner s initial decision of February 11 , 1965, and adopts those findings as its own.

31. In the years 1961 and 1962, certain of respondent's retail customers in Cleveland, Ohio, and Washington, D. , received sums of money for promoting respondent' s Viyella dresses while other customers located in those two market areas, and competing with those favored customers, received no such allowances. The table below lists the favored customers and a representative number of the non-favored customers in those two areas, together with their respective Viyella purchases from respondent, and the allowances received, if any, in 1961 :' Cleveland 1961 Purchases Promotional and of Viyella Allowances Dresses ReceivedCustomersD.C. Peck & Peck'" $ 44 510 $ 2 000 Best & Co. 768 447 Other 1961 Purchases Promotional Cleveland of Viyella Allowances Customers Dresses Received Halle Bros. $ 4 500 $ 300 Lata Kelly 250 100 Higbee Co. 250 300 Anne Polshek Shop 400 None Frocks & Bonnets 150 None Milgrim Stores 150 None 1961 Purchases Promotional Other D. of Viyella Allowances Customers Dresses Received J uous Garfinckel $ 2 000 $ 200 Lewis & Thos. Saltz 000 100 Virginia Simmons 200 None Dorothy Stead 200 None Lelia N ayes Shop 250 None '" Peck & Peck operates approximately o retail stores, including 3 in Cleveland and 2 in Washington, D. C. Best & Co. operates 17 or 18 stores, including 1 in Cleveland and 1 in Washington, D.C. While the record does not indicate what part of these customers' total Viyella purchases were resold in their Cleveland and C. stores, respondent does not challenge the examiner findings that such resales were in fact made and that the allowances received were spent for ads in the New Yorker a national magazine that is of course distributed in those areas. Tr. 200. t The following year, 1962, the six (6) nonfavored customers listed above hour"ht in exactly the same Quantities and again received no promotional money. One of the 7 favored customers-Lewis & Thos. Saltz-also bought in the same quantity and received the same promotional allowance as in 1961; another, Julius Garfinckel, bought in the same Quantity ($2,000) but received a slightly smaller promotional allowance (S160 instead of $200) than Findings of Fact 69 F.

33. On or about September 24, 1964, several weeks before the hearings in this matter began, respondent's attorney was supplied with a list of complaint counsel's prospective witnesses, including the 6 nonfavored customers listed above. The following day, September 25, 1964, respondent wrote each of them a letter expressing "surprise" at the customer s intention of testifying against it and asserting flatly that "our records" show House of Lord' s "did in fact" make the allowances in question available. One of the letters reads as follows:

We have been notified by the attorneys for the Federal Trade Commission that they intend to call you as a witness in a proceeding instituted aga:nst House of Lords, Inc., for an alleged violation of the Clayton Act, to establish that House of Lords, Inc. did not make available to you for the years 1961 and 1962 the co-operative advertising program for Viyella dresses which was offered to competing firms in you city.

According to the members of our staff and our records HOWle of Lords, Inc. did in fact make available to you this advertising program for the years in question. It comes as a surprise to us that if you are called, you wil so testify.

We would appreciate it very much if you would let us know whether it is true that you are making such a claim and if so, in what manner did we fail to make our advertising program available to you. Please accept our thanks for your courtesy and co- operation.

At the hearing, respondent' s president, Handelsman-the author of this letter-testified as follows: Q. Are there company records to this effect? A. It' s an verbal.

Q. , , , What about those (customersJ who, as you stated were offered and did not wish to avail themselves of it? Was any record kept of this? A. None whatsoever.' In other words, Handelsman conceded that the statement he had made to complaint counsel' s prospective witnesses-that (aJ ccording to . . . our j' ecoTds House of Lords, Inc. did in fact make avajJable to you this advertising program for the years in question -was wholly false; there were no such "records, 34. AI1 six (6) of the nonfavored customers replied to this letter.

the year before; Peck & Peck's purchases and allowances were both much smaller than in the precedlng year (S9 950 purchases and $;-00 allowances); Best & Co. increased its purchases to $10,497. 50, and received a promotional a.allowance of :j500; Halle Brus. bought much less, only 51 500 , hut received a comparatively Jar!'CI' promotional a.Jlowancc than the yea.r before ($200 in 1962); Lota Kelly bought in the same Quantity ($1 250) but received a smaller allowance tha.n in 1961 ($75 rather tha.n $100); and Higbee, which ha.d received the highest aJlowa.nce of them all in 1961 ($300 on purchases of :jl 'j0), received no pro. motional allowances at all on its smaller $750 purchases in 1962. ex 41 (emphasis added). See also ex 42, 44-47, ! Tr, 101, 112. See also 617-618, HOUSE OF LORD , INC. 103 Findings of Fact (a) Anne Polshek Shop, Cleveland: Rec d your letter of the 25th to-day & surprised at its contents. . . . I told them (Federal Trade Commission attorneys), I was told that any newspaper adv. I did, would be paid prorata by you, on your product, but that I felt I was not qualified to make any demands, because I did not buy suffcient quant ties to advertise.

. . . The U.S. representative certainly misunderstood me. He had asked me for Lord's Invoices & I said I hoped I was not getting involved into any unpleasant situations, because I had always rec d cooperation from your company Mr. Handelsman.

If my answers were misinterpreted, I am truly sorry, because I wen recall being told about reimbursement towards Viyella ads. (b) FTocks Bonnets Cleveland:

Your salesman did offer special benefits for advertising but since we are small specialty shop we do not advertise. (C) Milgrim Stores Cleveland:

For the years 1961 and 1962 I recall your salesman offering advertising monies for ads on Viyella fabric. We did not avail ourselves of this offer. (d) Virginia Simmons, Inc. Washington, D. ; A representative of Mrs. Simmons wrote on her behalf that she was: . . . anxious for you to know how distressed she is about this misunderstanding.

We have no intention whatever of testifying against you in this matter. the first place, we have never done any cooperative advertising and do not intend to. We are a small shop, as you know, and this type of advertising is too expensive for us. For this reason we undoubtedly paid no attention to your offer.

We did show a man from the Federal Trade Commission some old stock records at his insistence, after protesting that we did not want in any way to harm our fine business and personal relationships with your firm. . . . Please rest assured of our cooperation with you in every way possible. (e) Dorothy Stead, Inc. Washington, D.

I wish to advise you that I was not employed by the Dorothy Stead shop during that period. However, I did check the invoices for this Shop during said period and found that there was not enough purchases to warrant adver tising.

. . . At that time, I was employed by Lewis and Thomas Saltz and they were offered shared advertising which they accepted. (f) Lelia Noyes Shop, Washington, D. . . . I had a manager during the year in question, 1961, who handled such matters fot me, and all I could testify would be that she may well have received an offer which she would automatically have declined. 4 RX 5 (emJ)basis added).

"RX 4.

sRX 2.

ex 48.

8RX 1.

Findings of Fact 69 F.

. . . I told him (Federal Trade Commission investigating attorney) I knew nothing about the advertising program in question, but that it was known to a11 my friends in the New York showroom (House of Lord' s) that I would not be interested.

35. One of these customers, however, Frocks & Bonnets, of Cleveland, did not reply immediately to respondent's September 25th letter. "I was called long distance on two or three occasions. I was busy. I couldn t come to the phone. I was out of the store and they left a call for me to get in touch with them (respondent House of Lord' sJ. I didn, but they called me again. .. Q. What was the substance of the conversation? A. Getting me to write the letter. I was requested or asked to write the letter saying I had received- can t think of the words I want to use- had been offered advertising. That is what they wanted.I Asked what caused her to write the letter referred to above the witness explained:

A. The telephone calls asking me for just that type of letter, and as I say, to give them the benefit of the doubt in case he (respondent's salesman) had offered something.

On cross-examination, the witness was asked whether respondent' s representatives had " dictated" that letter for her: A. You are asking me did they dictate the words? Q. Yes, ma am.

A. Those were my words, but they just asked me to write a letter in words to that effect, let' s put it that way.

Q. To use the vernacular, no one twisted your arm to write this letter? A. Well, I am giving you the facts. I don t know whether you call twisting it around- Q. What fears did you have that something might have happened to you if you didn t write it? A. I didn t have any fears. I told you, explained that I merely tried to give House of Lord' s the benefit of the doubt, that they may have offered me some advertising. Do you understand that? ... I can t say whether there would be any form of retaliation such as locking me up. What fear could I have along that line? Mr. Rosen: This witness is being badgered. She has answered the question that she had no fears, and therefore she has no fears. Hearing Examiner Tinley: If you are objecting on that ground, I wil ovex 43.

10 Tr. 381-382.

11 Tr. 383 (emphasis added).

:RX 4.

n Tr, 386 (emphasis8 added).

, HOUSE OF LORD , INC. 105 Findings of Fact errule the objection. It has been rather diffcult to get down to the precise point.

If I understand, what you are saying is that you did not write the letter because you had any fear of any retaHation by House of Lord's against you if you didn The Witness: What could they do tome? Hearing Examiner Tinley: Just answer my question. Did you have any fear of any Solt of retaliation by House of Lord' The Witness: Of course not. I am trying to explain. They couldn t chop my head off or lock-me Up, 36. We find no credible evidence in this record that anyone of the six (6) nonfavored customers Usted above was offered a promotional allowance of any kind by respondent in 1962 or that any of them but Milgrim Stores was offered such an allowance in 1961. These customers testified as follows :

(a) Anne Polshek Shop, Cleveland (witness Anne Polshek) : Q. During 1961 or 1962, were you offered advertising allowances to promote Viyella merchandise? A. Well, not that I recall.

Q. You are not tellng this Court that it was not offered to you as a flat statement? A. I ca.n t make a flat statement, no.

Q. Now, at the time you made your purchase, you knew that there was an advertising program which was involved? A. No, I didn t know then.

(b) Procks Bonnets Cleveland (witness Laura Bergner) : Q. Did Mr. Crane (respondent' s Cleveland salesman) offer you any moneys for any form of advertising? A. No.

Q. Now, when you were asked a question on direct examination Did Mr. Crane offer to you an advertising program," you said you do not remember. Is that the case? A. That is right.

Q. You don t remember? A. I don t remember any special program.

Q. Now if Mr. Crane offered you th s advertising program, he would have told you that you could have had one-half the cost of any advertising pro- Ii Tr. 389-391.

lD Tr. 415-416, 418. The witness learned about respondent's "promotionnl program " when she was called on by the Commission s investigating attorney. Later, when she reported that interview to respondent's snlesman . he then assured her that she would be given "the same consideration 8S we do any other store. " Tr. 421. g,., , Findings of Fact 69 F.

gram that you engaged in in regard to Viyella. . . . If he had, this is what he would have said and I ask you now to tell us again whether any such statement to you refreshes your recollection in regard to this. A. Well, the only thing I can say, when I met him in the showroom, that he is always busily engaged with the big stores. I have been a little side issue waiting in turn to look at the line and buy it and get going, I don t remember any of this. I don t think I was in on any real important advertising or anything offered to them. . . . Well, I think if it had been specifically offered me in something special I would have remembered. (c) Milgrim Stores Cleveland (witness Franklin M. MjJgrim) .

Q. In the year 1962, were you offered an advertising allowance? A. I don t remember any discussion in ' 62. Q. Please, if you can, answer my question. Were you offered an advertising allowance in 1962? A. No.

(d) Vit,qinia Simmons, Inc. Washington, D.C. (witness Virginia Simmons) .

Q. Mrs. Simmons, did House of Lord's or did any representative of House of Lord's offer advertising allowances to Virginia Simmons, Inc. during 1961 and 1962 to promote Viyella products? A. . . . As far as when Mr, Stewart (Federal Trade Commission attorney) came and talked to me, I really didn t remember anything specific about it. . . . The only part that I could say was accurate is that I did not request anything. I could not say that I was absolutely sure that I was not offered it. I didn t recall it definitely at the time. . . . But I have not signed a statement and that' s his word against mine. . . . Yes. I really feel that it was (offered). . . . 16 Tr. 374, 376-377 (emphasis added). See finding number 3, supra for the witness' explanation of the letter she wrote earlier, at respondent's request, in which she had said (ylour salesman did offer special benefits for advertising. , ,, " (RX 4. ) Pressed by respondent' s counsel on the conflict between that letter and her testimony, she replied: I wrote that, JUBt to Quiet you (respondent Lord' . , , , So just to give you the benefit of the doubt. " Tr. 378 (emphasis added). The examiner struck that reply as "unresponsive " to the questions "whether you wrote this " and whether " ou have seen the letter?" We think that ruling was erroneous, There was no lay jury to be confused or misled by the witness unresponsive " explanation; indeed, a hig-hly misleading- impression would have been left on the record without it, It might also be noted that the strictness of this ruling was in morked contrast to the scope allowed respondent's counsel in "leading " not only witnesses who were patently "friendly" to his client but even his own offcials and empluyees. See VI Wigmore on Evidence 538-539 (3d I'd. 1940); B Motors Margol1s, 257 1', 2d 588, 591 (1953); " Adverse Party Examinations Trial Lawyer B Guide 21-23 (1962), 11 '11'. 287, As discussed below (finding number 38), the witness had been offered an allowance in 1961 , the year he dean with respondent's president, Handelsman. On cruss-examination by respondent's counsel, the wiLlJess explained that when he wrote the letter quoted above (RX 2), he had made no attempt to distinguish the two years 01' the two Lord's off. cials, TR 297. "I know of at leost one conversation with Mr, Handelsman. I can t remember of any with Mr. Crone." Tr. 289. In view of this cleal' cut statement, respondent is not helped by the witness' later acquiescence in counsel's statement that " you do not deny that such a conversation might have taken place. " '11' 290 (emphasis added). HOUSE OF LORD , INC. 107 Findings of Fact Yes. I feel almost certain that she (respondent's saleslady, Cole) did. We did discuss the plan. I mean, we did discuss advertising, and an offer was made.

Q. Mrs. Simmons, how many suppliers did you deal with in 1961? A. Wen, I guessed around one hundred. We started with close to 100. We now have about 225. So I would say it' s just cutting it in half, around 100. Q. Can you recall, if you had to, which manufacturers offered you allowances and which did not? A. I am not going to answer that. I CRn think of two who did. But I am not going to get involved with any more manufactu?' ers. (e) Dorothy Stead, Inc. , Washington, D. C. (witness Alice Seitz) :

Q. Do you recall whether or not anybody on behalf of Lord' s Sportswear, Inc. or House of Lord' , Inc. ever offered or made available, on an affrmative basis, any advertising or promotional allowances to Dorothy Stead for the promotion of Viyella merchandise? A. I don t remember at that period. . .

Q. I want to confine this question specifically to Dorothy Stead. At Dorothy Stead in 1962, were you offered any advertising allowances by House of Lord' A. No.

Q. In 1962 you said that you did not remember. A. No I don Q. Is that not what you said? A. I said no, that I had not been offered it. (f) Lelia Noyes Shop, Washington, D. (witness Maude M. Moffett, manager) :

Q. During the period that you dealt with the House of Lords people, djd anyone, including Mrs. Cole (respondent's saleslady J or Mr. Handelsman or any other employee, offer you as a representative of Lelia N ayes Shop an advertising allowance? A. . .. I just don t recall whether they did or not, but there would be no Tr. 522-525 . 537, 540 (emphasis added).

w Tr. 540-541 (emphasis adrlerl). The witness had fust testified, ns noted, that she hact no recollection of an "offer" prior to a visit at her place of business by the Commission investigating attorney, tr. 523, but that she had later received a Uit1ttcn offer in the mail. In her subsequent testimony, however, she Rttemptcd to place the wrtten offer before th.. investigator s visit. Tr, 526. Respondent's attorney conceded that this was not so: " Vle will concede for the record that no letter of this kind was addressed to any of our C1Jstomers in 1961 or 1962 , and that the letter that she has !'cference to is current practice. " T!'. 52i. 2Q Tr. 131-132 , 13i. The witness was not employed by Dorothy Stean. , Inc" until May of 19E1-after the Jatter had already done its buying for the fall season of that year (usually done in March and April). Hence her knowledge a tu whether respundent had offered the alJowliI1ce to Dorothy Stead, Inc" was limited to the following season, 1962, Findings of Fact 69 F.

point in anyone offering Mrs. N ayes' shop anything for advertising. . . . We did no virtually no advertising in newspapers. Q. Did she (respondent's saleslady) at any time explain the cooperational advertising program that the House of Lord's had to offer YOll? A. Well I don t recall that she did but she would have had no reason to. Q. . . . Now, isn t it the case that you have no memory concerning it'? A. I can t recall anything about it.

Q. Is it possible that such a proposal may have been made to you and you just simply don t recall it? A. Well, it could well be, certainly, because I just don t recall anything about it.

Mrs, Noyes, owner of the shop, testified to the same effect: Q. During the year 1961 were you offered an avertising allowance by House of Lords or any of its representatives? A. I cannot answer that. I do not know. . . . I have never used any advertising of that kind and I do not remember the many offers that have been made to me. I just couldn t remember them. They automatically are rejected. Q. Do you know what the advertising program of the House of Lords was in 1961 and 1962? A. No, I don t. I would imagine that they offered it to me because we have , but I cannot say that it was offered toalways been on very friendly terms me. I have no remembrance. I think it would be likely, but I can t be-you are not interested in likelihood, I suppose. saleslady) did pro- Q. If I were to tell you that Mrs. Cole (respondent's , would you say that it could have hap- pose to you this advertising program pened? A. I would say it could have happened. . . . I think it was Hkely because we had a profitable and good relationship. . . . Q. In other words, you couldn t possibly say that you were offered an advertising allowance by Mrs. Cole? A. No. I couldn t say I was, and I couldn t say that I was not. s witnesses 37. The contrary testimony offered by respondent' its president (Handelsman), its salesman in the Cleveland territory (Crane), and its saleslady in the Washington, D. , area (Cole)-is not persuasive. Handelsman testified that, in "Aprij of season, which is the each year, when our ViyeJ1a Une for the faJ1 trip with only season that we make Viyella in, is ready, I make a our representative salesmen around the United States, in about the approximately fifteen cities. Advance notice is sent out to .1 Tr. 304, 309, 313 (emphasis added).

22 Tr. 332, 335, 338-340, 348 (emphasis added). , , HOUSE OF LORD , INC. 109 Findings of Fact stores that we have, that we do business with, that we wil be in their respective city on the respective dates with our Vi yell a collection. When they come to the showroom in the hotel, where we show our merchandise, we then offer to them, after they see the Viyella dresses, our advertising program, which is a 50-50 cooperative advertising, depending on the size of the ad that they themselves would like to do, or the type of ad that they would like to do, not necessarjJy newspaper. These stores-some stores have accepted and some stores have refused for reasons of their own, primarjJy because they don t buy that much and they are too small and they have no advertising program whatsoever. "" The offer is made, he says, by "our respective salesmen as they were waiting on them (retail customers), in either the showroom or in the respective cities where they visited. They were offered-they showed the line and they then told them that they have a program of cooperative advertising, depending on the type that they want to run. "" Asked what "instructions" he gives his sales staff in regard to passing on the Viyella program " to their retail customers, Handelsman testified: "Well, to go full force to all customers who buy Viyella and offer it to them. Samuel Crane, respondent's traveling salesman in the Cleveland area, testified that he offered a promotional allowance to two of the non favored Cleveland customers-Anne Polshek and Laura Bergner (Frocks & Bonnets) -but that they turned it down. says he "told them there was money to be had, advertising money on a 50-50 cooperative basis on the Viyella, did they care to participate. . . . I did not mention any sort (particular type) of advertising. It was up to them jf they wanted to advertise. Salesman Crane, testifying in Kovember 1964, was able to recall exactly what he had said to those two customers and what they had said to him in March of 1961 and 1962. He testified that, in response to his 1961 "offer" of promotional money, Bergner of Frocks & Bonnets said We don t do any advertising,' and she could not accept any of the money. "" In 1962, he relates, Bergner "said no, she cannot participate in these type campaigns at al1. She does no type of advertising."" He "told Miss Bergner that we have a program on Vi yell a and that it was under a 50- 01 Tr. 73-(4.

"Tr. 80.

"Tr. 594.

,etr. 470, 472.

'Tr. 470.

8 Tr: 473.

Findings of Fact 69 F.

basis, advertising campaign, was she interested in this campaign and she said no, definitely not. . . . I told her the campaign was that we stil had the campaign on Viyella, was she interested and she said no, she is not interested in it at a1l under any conditions."'" According to Crane s testimony, his offers to Anne Polshek were similarly rejected. In 1961, she "said she doesn t do any sort of advertising at an, therefore, she couldn t accept anything that I could offer." The iol1owing year, 1962, Polshek told me she just does not advertise."" He told her "that we have the money available on Viyella and would she be interested in the program, it was on a 50-50 basis, and Miss Polshek said , she was not interested in it. "32 While he had no diffculty recallng these detailed conversations with these particular customers, salesman Crane was unable even to identify any of the other customers that he anegedly made the same offer to on the same day. On cross-examination by complaint counsel, Crane testified that he calls on approximately 300 to 400 customers in his sales territory each year, and that about 8 or 9 of them visited his Cleveland hotel showroom during his 1961 and 1962 trips to that city:

Q. Do you recall the identities of the customers that visited you in 1961 and 1962 in the Statler Hatel'? A. I would have to go to my book.

Q. How can you pm;sibly state that you offered allowances to Laura Bergner and Anne Poishek in the Statler Hotel? . . . You remember their being there but you don t remember the identity of any other customers? A. I can identify other customers, yes, I can, but I know they were there on these dates made by me. They were there and I worked with these people myself.

Q. But you do not recall all the customers who visited the Statler in 1961 and ' 62'? A. I couldn t say exactly, but as I say, I have my book at home. I could tell you who is in it in 1961 and 1962 at the Statler Hotel. Hearjng Examjner Tinley: . . . Did you have occasion to refresh your recollection with regard to these two witnesses (Bergner and PolshekJ before you testified from your books'? The Witness: I know they were there.

Hearing Examiner Tinley: I am asking you did you refresh your recollection by consulting ;your books with regard to these two customers before you testified'? 29 Tr. 477-478.

JO Tr. 472-473.

3!Tr. 474.

TT. 478.

, , HOUSE OF LORD , INC. 111 Findings of Fact The Witness: No.

Hearing Examiner Tinley: You did not? The Witness: No, but I know they were there. On redirect, respondent's counsel "rehabilitated" his witness this way:

Q. And your recollection of having conversations with Miss Bergner and Miss Polshek is based on part upon the fact that you talked to all without exception? A. That is right.

Q. And. you couldn t have mwsed one if you wanted to? A. Not at al1.! In other words, witness Crane had no present recollection whatsoever of having talked to Bergner and Polshek about the subject matter of this proceeding.

38. Respondent's dealings with the other Cleveland customer who received no promotional allowances in 1961 and 1962-MHgrim Stores-jlustrate a particularly significant aspect of this promotional "program." The record is clear that Milgrim was, in fact offered promotional money in 1961."' And Handelsman, respondent' s president, says it was offered to Milgrim again the following year, 1962. Explaining that he generally accompanies salesman Crane on his trip to Cleveland in the spring, Handelsman said he told MHgrim "about the Viyella advertising allowance. . . . That we have a cooperative advertising deal on a 50-50 basis, if he wanted to run anything. He said Joe, we are primarHya dress-type of organization. We only buy Viyella to satisfy a few special accounts. I don t buy enough-I wouldn t even buy enough to fill an eyelid or eyelash or eye cup or whatever it is. But we are strictly evening gowns or dressy clothes. . . .' He rejected it fuJ1y. He probably picked up three or four or five dresses."" That was in 1961. "It was 1962 when it was brought up again. He said Joe, forget it. As I told you before, we don do it. '" 31 :l1igrim testified, however, that he only talked to Handelsman in 1961 , the year he did his buying at respondent's showroom in New York City; the next year, 1962, he bought ViyeJ1a not from 13 Tr. 482-487 (emphasis added.

!4Tr. 491 (emphasis added).

The record is not clear, however, as to exactly what he was offered. He says that ia:advertising money was discussed on viyella merchandisc, I believe by )Ir. Handelsman and myself.. . . . I can t remember the exact nature, except that we would help with an ad. Tr. 287, 283.

36 Tr. 589-590.

11 Tr. 590 (emphasis added).

Findings of Fact 69 F.

Handelsman, but from salesman Crane at the Statler Hotel in Cleveland. "

Q. In the year 1962, were you offered an advertising allowance? A. I don t remember any discussion in '62. Q. Please, if you can, answer my question. Were you offered an advertising allowanr.€ in 1962? A. No.

As whl be discussed below, the fact is that respondent' s salesmen are not allowed to offer promotional allowances to customers; only Handelsman himself has the authority to make such an offer.

39. Mrs. Dorothy Cole, respondent's saleslady in the Washington, D. , area in 1961 and 1962, was the most "certain" of respondent' s three witnesses: " . . . Mr. Handelsman wI1 always tell us (sales personnel) that there is advertising money; that we are to tell it to our customers: it' s a 50 50 basis, regardless of what type of advertising that they want to do; that' s up to the stores to do it. But our problem which he impressed upon us at al1 times was that you must tell your customers that they have this money; that it is to your advantage; that you get better sales to have it advertised; that the fabric becomes more important. . . This is what he impressed upon us that we should do. . . . Mr. Handelsman never stopped telling us that we should advertise, that we should tell our customers amd make phone calls, do anything, but try, even after they say they may not be interested in " 40an ad, to try to persuade them in to it. Mrs. Cole was equally certain that she had offered promotional money to the three nonfavored Washington, D. , customers called as witnesses here. " (VirginiaJ Simmons was a new customer at the time (1961). And I showed her the advertising book and the type of advertising that we do in Viyella. And I said that the offer would go for her, and it would be an important item for her type of customers, being in the outskirts of town, suburban area, and that it would be to her advantage to take this as a 50-50 percent basis; that it would also establish her and her people, that the name would be there, and she would only have to pay fifty percent of it. She said that she was not at all interested. . . . . She did not want to have any part of advertising of anybody, ours or anybody else, no matter what it was ,8Tr. 287.

"Dlbid.

40 Tr. 548-550 (emphasis a.added).

HOUSE OF LORD , INC. 113 Findings of Fact even if it was one hundred percent; that if anybody gave her one t handle it, theyhundred percent of advertising, they couldn didn t want to advertise. . . . She doesn t want to advertise anybody, anybody s merchandise, " 41 In regard to Dorothy Stead, Inc., also of Washington, D. , sales- Jady Cole testified that Mrs. Stead, the owner of the shop, came to respondent's New York showroom with her buyer in 1961 , and that the buyer, a Mrs. Seitz, came to the showroom alone in 1962. Cole says that, in response to her "offer" of promotional money in 1961, Mrs. Stead rejected it, saying she "doesn advertise; she can t use any allotment, any allowance given to her. "" In 1962, the Stead buyer, Mrs. Seitz, allegedly declared so she couldn t acceptthat "Dorothy Stead doesn t advertise, money. " 43 Saleslady Cole was equally unsuccessful in her alleged efforts ) to acceptto "persuade" the Lelia Noyes Shop (Washington, D. respondent' s promotional money. She testified that she sold Viyella dresses to Mrs. Noyes and her employee, a Mrs. Moffett, in 1961, ILord' s New York showroom in both 1961 and 1962. "In offered the Viyella money as advertising in any form that they wanted to use it on a 50-50 basis. And I said the same thing in 1962 . . . . At either time they did not accept the offer; they don t advertise. . . . The offer was made as a 50-50 advertising for Viyella to be used in any way that they wanted to use it, provided that it mentioned Viyella and, maybe, I would say that if they mentioned the House of Lord's it would be nice. But they just said that they don t advertise.

40. The first diffculty with this testimony of saleslady CoJe is supra, supported by the that it is not, as pointed out in finding 36, testimony of those nonfavored customers to whom she allegedly a second diffculty with made those "offers." There is, however, her testimony-in an incident involving one of the favored customers, Lewis & Thomas Saltz, a Washington, D. , retailer, she was squarely contradicted not only by two representatives of the Saltz firm but by no less than three (3) contemporaneous documents, two of them written by her own firm. This customer, Saltz, had been receiving a promotional a1Jow- "nee from respondent Lord's for several years, including 1961. In 1962, however, Saltz had a new buyer, a Mrs. Helen Francis, who "1 Tr. 557-560.

'2Tr. 586.

Ulbid.

44Tr. 561.

, , Findings of Fact 69 F.

knew nothing about the alleged "offers" of promotional allowances she was supposed to receive from Lord's. She went to respondent' s New York City showroom, placed Saltz s 1962 order for Viyella dresses with Lord's saleslady, Cole, and returned to Washington with no promotional allowance. She testified positively that "it was never discussed with me in the showroom. Saleslady Cole agrees that she sold Viyella dresses to Mrs. Francis at the showroom in 1962, but insists that she did in fact offer her the promotional allowance:

Q. Did you at that time offer her the Vi yell a advertising program? A. I remember it distinctly because I explained to her and showed her ads in ,OU?O ad book like Viyella was advertised by Lewis & Thomas Saltz in the past and it would stil go; that, if she were buying it, it would stil be the same procedure, that Lewis & Thomas Saltz would buy it-would advertise Viyella on a 50-50 basis.

In his initial decision, the hearing examiner concluded that this directly confiicting testimony by each of these witnesses is equally credible. He thought Saltz, the customer had a responsibilty to instruct its new employee concerning the matter to instruct her to as/c for the promotional allowance, and that the incident "was the result of human failure, and did not represent a deliberate effort by respondent not to make its advertising program available to Saltz in 1962.

We find nothing "equally credible" in saleslady Cole s testimony that she offered the promotional allowance to Saltz s new buyer in 1962. When the latter got back to Washington, her manager, a Mr. Steinback asked me if I had been given this allowance . . . . I said I had not even discussed it." '" The Saltz manager promptly wrote Mrs. Cole the following letter (August , 1962) :

Mrs. Francis has just told me of he?' conversation with you in regards ViyeHa cooperative advertising.

I am amazed to learn that after years of allocating to us money for such advertising you have decided to discontinue it. The lack of an advertising appropriation wil not only be detrimental to our efforts of selling Viyella dresses but I also feel that making money available to Abercyombip. & Fitch and Peck and Peck and not . to us, as you have in the past, is actually unfair and discriminatory.

1'r. 26B.

"" 1'r. 5. 555 (emphasis added).

n Initial decision. p. 62 (emphasis added). Id. lit 62-63.

1'r" 268.

m He also confij"med in his testimony here thlit he had in fact talked to hi;; new buyer about her failure to g-et the Lord' s allowance immediately after her 1"eturn from New York. 1'r. 275-276.

. . .

HOUSE OF LORD , INC. 115 Findings of Fact I would very much appreciate it if you would reconsider your decision and)' do hope you can see your way clear to again make an appropria tion available to us for this coming season. In her testimony, Mrs. Cole conceded that she received this letter. " But she didn t answer it; she took it to Handelsman s offce and one of his secretaries wrote a reply letter (August 20, 1962) to the S8.tz manager:

Your letter addressed to Mrs. Cole regarding advertising for a cooperative Viyella ad was given to me for reply. Mr. Handelsman who is the head of our firm and handles all advertising is presently in Europe and is expected back at the end of the coming week. We wil discuss your letter with him and the conversation had with Mrs. Cole. I know that you did receive some advertising allowance last season, but our budget 'Was severely curtailed this season and we have had to reduce au?' ad cooperation.

We wil definitely advise you within the next week as to whether or not we wil be in a position to be of service in planning a cooperative ad this seaso:n.

When respondent' s president, Handelsman, got back from Europe, he wrote the Saltz manager a letter (August 22, 1962) reading in part as follows: OU?' advertising budget was ctd considern bly this yea,' and we nat"Tally had to make proportionate cuts allowances to ou,' customers. However, accounts who had $100 or less are getting the same allowance this year and according to our records we did give the store (SaltzJ $100 in 1961 and are giving the same sum, $100 in 1962. The original copy of my advertising list was locked in my deslc and the duplicate copy did not have complete information which led to this misunderstanding. r n short, neither saleslady Cole nor any other person in the House oj' Lord' s organization had the authority, in Handelsman absence, to "offer" a promotional allowance to a customer, 55 even t ex I g (emphasis added).

Tr. 555.

53 ex 19 (emphasis added).

"CX 20 (.emphasis added).

As noted above (finding number 38), another customer, Milgrim of CJeveland, had received the offer in 19G1 , when he dealt with Handelsman himself, but not in 1962 , when he dealt with !,alesrran Crane. Tl" 287. The testimony of (llother of the favo)'ed customers Druml of Lota Kelly Sportswear, lnr.., Cleveland, is particularly revealing on this point: Q. Mr. Drum!, did yuu deal with Mr. Sam Crane or Lords Sportswear during these two years 01' rlid you dea! with MI'. , Toseph Handelsman? A. 1 dealt with both of them concurrently. Mr. Crane lIould exh1 bit the line, Mr. llandels- 1'CLn would then a8k me what kind of fadvertisingj plans 1 w01,ld like to make. The two gentlem"n worked together.

Q. In so far as advertising allowances were concerned . with whom did you deal? A. Mr. Handelsman g..

Findings of Fact 69 F.

one who was known by the Lord's employees to have received it in past years, who had bought in substantial quantities ($1 000 worth of Viyella dresses in each of the years 1961 and 1962), and who was demanding the allowance in no uncertain terms-including such terms as "unfairness" and "discrimination." In the face of such evidence as this, the testimony of salesman Crane and saleslady Cole that they affrmatively and routinely "offered" the allowance to each and everyone of their approximately 350 Viyella customers, including the 6 nonfavored customers that testified here (annual purchases of $150 to $400)-indeed, that they tr (jedJ to persuade them in to it" "-strains our credulity. 41. There is no reliable evidence in this record that the 6 nonfavored customers who testified here would have rejected a bona fide promotional allowance if it had in fact been offered to them on "proportionally equal" terms. It is not a fact that they engage in no advertising. Laura Bergner (Frocks & Bonnets), of Cleveland, testified that "we don t advertise," but then went on to explain that manufacturers of wearing apparel attach a special and highly restricted meaning to the word "advertise. Lots of manufacturers do not accept that (advertisements in the local Heights newspapers as even advertising. They want you to ad- Hearing Examiner Tinley: You mean by that that YOU did not have any discussion of advertising allowances with Mr. Crane? The Witness: That is right.

(Tr. 458--59 (emphasis added).

In other words, the Cleveland and Washington, D. C.. customers that 110t the allowances we:!e those that dealt with Handelsman himself; those that didn t get the allowllI1ces were those that dealt with salesman Crane or saleslady Cole. See tr. 130 (Dorothy Stead Inc. ); tr. 198, 487 (Peck & Peck); tr. 217 (Julius Gnrfinckel); tr. 304 (L€will Noyes); tr. 373 (Frocks & Bonnets); tr. 396 (Halle); tr. 415 (Anne Polshek); tr. 543 (Simmons); and tr. 564 (Best & Co.

Tr. 650. In fact, respondent has never had enough advertising money to make an unlimited" 50-50 offer to all of its Viyella customers. Lord's does not use its own funds to promote Viyella; the maker of the Viyella fabric, an English firm (Wiliam Honins & Company, of London), carries the full cost of promoting respondent' s Viyella dresses, with House of Lord' s simply acting as the distributor of the fabric-maker s advertising money. In 19€1, it allowed respondent $16 000; in 1962 , the "budget" was cut back to $12 000. Tr. 74-76, 114-115 , 508-510 , 603-604. If $16 000 was divided equally among 350 customers, it would amount to just over 545 for each customer. (The Enl/lish fabric-maker would " along with" perhnps another " one thousand or two thousand " but beyond that Lord' woulrl have to spend its own mlJney. Tr. 75 , 510. ) To give one customer an "unlimited" allowance (e. 000 to Peck & Peck for a New Yorker magazine ad) necessnrily means that respondent must impose "limits" on thc amounts given to its other customers. Several of the "favored" customers were quite cIenr that there were, in fact, such limits, that they could not have all the promotionnl money they wanted . See tr. 217-219 (Garfinckel); tr. 284-285 (Saltz); tr. 438 , 440 , 464--, 5 (Lota KeJIy): tr. 397 , 410--11 (Halle). See also finding number 42, infra.

HOUSE OF LORD , INC. 117 Findings of Fact vertise in the morning Plain Dealer before they even cad it advertising, and we have never done that.

Q. Do you do any form of promotional advertising? A. No just our windows and the stufJers with the statements (advertisements mailed to customers along with end-oi-month statements or bibs). If we buy stuffers, that is the only form of advertising we use. . . . StuffeTS where you buy them at a thousand. You know, they print them for different stores, and then you buy so many a thousand. They put them in your statements.

Q. If you were offered a sum of money to pay for a window display or to buy some stuffers, would you have accepted this: A. Yes. That type of thing, yes.

Q. Did you ever discuss this with Mr. Crane (respondent's Cleveland salesmanJ. . . ? A. No.

Q. "We win pay one-half without specifying stuffers, window displays, or any other means. " If that had not been specifically mentioned but just simply the advertising program, would you have stopped to ask the question "Well, does it mean stuffers as against newspaper advertising?" A. Well, usually the (manufacturer sJ salesman shows you the picture of the stuffers and that is specifically shown to you, ordinarily, with all Hnes. Q. Isn t. it true that the stuffers are made by the store in question at all times? A. No, , no. We do not make our own stuffers, never. The manufacturer has those printed and we are shown the copies of the prints, and then we see the styles and know whether we want to go into it or not, and the cost per thousand is given us.

Q. And is it your testimony this morning, Miss Bergner, that Mr. Crane did not offer you a stuffng program specifically? A. That is right. I have never seen a stuffer on Vi yell as, that's right. Whether you ever published or printed them, I don t know, because I have never seen them.

Q. If you were informed that House of Lord's had no stuffers but that if you wished to engage in any stuffng program you would have to have your own printed and then half the cost would be rebated to you, would you have engaged in such a program? A. Well, if the cost wasn t too great and I could afford it, it has always been a good source of advertising for us because we have handled our credit system since the beginning of the business, and we do have our special accounts and we do mail those stuffers in the statements. Q. Would you have prepared the stuffers on your own? :;1 Tr. 374. Another of the witnesses had written Lord' . . . I was told that any newspaper adv. I did, would be paid pro-rata by you. . . ." RX 6 (emphasis added). Another testified: "We did. . . virtually no advertising in newspapers. Tr. 304 (emphmds added). And another: " I have never used advertising of that kind. Tr. 332 (emphafds added).

Findings of Fact 69 F.

A. If I had to have them printed, I had never done that, but had the cost been right, there is a possibility.

Hearing Examiner Tinley: Counsel is asking you if you would be wiling to pay half the cost if House of Lord's paid half the cost if you had them printed.

t too The Witness: Yes, I understand that. I am saying if the cost wasn great, there is a possibility.

Q. And that possibility would. have included the obligation on the part of your shop to prepare its own stuffers? A. That is right.

Anne Polshek, also of Cleveland, testified that she advertises (iJn the Cleveland Plain Dealer, in the Cleveland Press, in the Sun Press. Virginia Simmons, of Washington, D. , testified that, in 1961 and 1962, she advertised in " (sJ mall publications such as the Bethesda Advertiser; scattered ads. There was no steady continuity in advertising; just whenever we could afford it or felt that we wanted to push a sale or a general ad attracting attention to a new shop. Since then we have dropped that and the only publication that we have used was the Georgetown Spectator, the Capitol Hi1 Spectator, which comes out every week." Witness Seitz, of Dorothy Stead, Inc. (Washington, D. ), testified that she engages in "general advertising. . . in the very local Georgetowner (newspapers which comes out every two weeks and in "the Star and in the Post for our sale merchandise only. That' s the only time that we advertise in the other papers, if it is a sale that we are having." ;" Asked if she used such promotional media "as direct mailers or bi1 stuffers or anything of that nature " the witness answered: "General going-back-to-school advertising. . . . Again, it would be general; maybe a sweater and a skirt, not specifying anything particular, or a coat, a raincoat or something of that sort. But usually it was just the general type of mailer that we sent out. . . . Yes, which we do at Christmas time as well, which is announcing to the public that we have Christmas gifts available. But it' s usually general, like maybe a mink boa or a hat, a pocketbook and that sort of thing. . . . We sent it out, as I recall, in the bils that go out for Tr. 374-375 , 377-378, 394-395 (emphasis added), The hearing examiner concluded that the evidence indicates that it is highly unl:kely that this customer would have undertaken the prepara:ion, and paid half the cost, of window display or mail enclosure material for advertising Viyella if allowances for these purposes had been offered by respondent. " Initial decision, p. 70. We find nothing in the witness' testimony to support that conclusiOll. wTr. 415.

Tr. 530.

61 Tr. 132-133.

, HOUSE OF LORD , INC. 119 Findings of Fact the first of September, the latter part of August. Witnesses Moffett and Noyes, of Lelia Noyes Shop (Washington, D. ), testified that they advertised in "a little booklet that is put out called Shopping in Washington,' and then we advertise in the ' Green Book,' Mrs. Hagner s ' Green Book,' and on occasions we would advertise in catalogs of the nature of-well, the 'International Ball,' let's say, or the ' Antique Shop' or something like that. They were more charitable things. We did no-virtually no advertising in newspapers. 63 The witness thought this was not "commercial" advertising:

Q. By not commercial, you mean you didn t pay for it? A. We paid for, but I am speaking of commercial now in newspaper. That is a commercial type of advertising. . . . !\oyes testified that, on those occasions when she is running a sale I wil put a little ad in the paper" and "I will put a little sign in the window saying ' Suit Sale.' " 65 She also engages in " direct mau" advertising.

42. Respondent's advertising allowances to its customers were limited not only to the individually negotiated dollar amounts fixed by its president, Handelsman " but to two media, magazines and newspapers. Respondent stipulated in this proceeding that only newspapers and magazines were in fact used in 1961 and 1962, the years in question here, but argues that this was the choice of its retail customers, not House of Lord's. The record is clear, however, that it was newspaper advertising Lord' s wanted not the miscellaneous promotions (displays stuffers," and so on) within the reach of their smaller customers, and that the custom- 2 Tr. 134.

6, Tr. 304 (emphasis added).

MTr. 305 (emphasis added).

6'Tr. 333 , 335.

ooTr. 332.

el As noted above (n. 56, supra), several of the favored customers testified that Handelsman gave them less money than they wanted. For example, ODe witness tified as follows; Q. In 196:! . then, would you have accepted more money jf it was offered to you for adverti inj; Viyella d,'esses? A. Yes, W(' would.

Hearing Examiner Tinley; What do you mean by that, you would have run a larger ad? Is that what it adds up to? The Witne.%: Yes. We would have run a larger ad or two ads. After the maximum amount respondent wa willing tolTr.fm'nish440. Seeeachalsocustomertr. 455. had been individually negotiated with that customer, either).' at the time of the purchase or later, by telephone, H.9.ndeJ man carefully put the agreement in writing; " This wil confirm agreement according to which we wil contribute $75,00 towards a cooperative newspaper ad on our Viyella dresses. This ad is to be on a fifty-fifty basis, our share ?Jot to exceed the 8specified 8um. ex 11 (emphasis added), See aJ o ex 17, 21- , 30. , ,, Findings of Fact 69 F.

ers so understood the Lord' s "program." Handelsman, explaining how his saleslady, Mrs. Cole, carries out his alleged instructions to "offer" advertising money to a customer, testified that "she wil then tell her that we have this advertising program, should she want to run a cooperative newspaper advertising," 68 And (aJ t a1l times, we expect the customer to give us an honest account and charge us 50 per cent of their newspaper1' space and that is what " 69we refund them.

Witness Virginia Simmons, co-owner of Virginia Simmons Inc. , of Washington, D. , was cross-examined by respondent' counsel as follows:

Q. Going back to 1961 and 1962 and this is what we are limiting ourselves to, Mrs. Simmons-in those years, would you have advertised the name Viyella or House of Lord' s in a newspaper ad if this were asked of you as a condition to accepting the ad? A. Ko, I wouldn t have.'O Respondent' s saleslady in the Washington, D. , area, Mrs. Dorothy Cole, explained her technique of offering allowances to customers in these words: " I'm waiting on a customer, for you. You have a shop. I am through waiting on you. I tell you Now, we have an advertising campaign. You can have fifty percent of whatever it costs you to advertise. It is to your advantage because you are getting your name in the paper and you are bringing in ' " 71customers.

Q. Supposing that in your dealings with me I stated to you that I do no newspaper advertising? A. Then I go up and J say that, if you are not interested, you don t advertise.

The favored customers, moreover, were compensated only for their "space cost " not for the full cost of producing the advertisements (e. art work) they paid for. For example, witness Dorothy Eisenstark, buyer for Best & Co., testified as follows on cross-examination by respondent's counsel; Q. Were you told that there would be a contribution of fifty percent of 63 Tr, 106 (emphasis added), He denies that it is ")jmiteu to any type of ad " but adds that " most of the stores do newspaper' very seldom 01' occasional they wil come up with what we call a statement enelosu1'c or end-of-the-month enelosu)'c in which they would sketch a particular garment and enclose it in their statcment8." TL 108-109, And, in 1961 and 1962 none of the stores have done anything like that. It was strictly neWSIJBper advertising or the ew Yorkcl' Magazine. . . , As I say, 80 far it has always been nell!spaper because they find that' s the best medium of results. " Tr. 109 (emphasis added). Sg Tr, 503 (emphasis added).

;0 Tr, 538-539 (emphasis added).

11 Tr. 565--566 (emphasis added).

12 Tr, 566 (emphasis added).

HOUSE OF LORD , INC. 121 Fi ndings of Fact space cost only that would be given or remitted to Best & Company if you engaged in such an advertising program? A. Yes.

The buyer for Julius Garfinckel, witness Walser, testified as follows:

Q. In connection with these advertisements. . . (CX 4, 6,) were there any production costs involved in the preparation of these ads? A. Yes.

s shared the advertising cost Q. When the respondent, when House of Lord' did this include the cost of production? A. No.

Q. What do production costs include? A. Art work, layout. I am sure other things that I'm not familar with. But I would say those were the two main.

Q. Then, was it Julius Garfinckel and Company that had to bear the cost of the production? A. Yes.

Q. Whaf: cost was it that the House of Lord' s was sharing? A. Newspaper lineage.

Q. In other words, space cost? A. Yes, the same thing.

The owner of Lota Kelly Sportswear, Inc. , of Cleveland, witasked respondent Lord' s toness Edgar Bruml, testified that he pay 509'0 of his total costs-including both "production" and newspaper "lineage" costs-but that Handelsman would only pay for half of the latter:

Q. Mr. Bruml, did the money you received from House of Lords cover your lineage cost in the newspaper rather than production cost? A. We asked for a sum of money that we feel will cover 50 per cent of OUTtota,l costs and Hearing Examiner Tinley: Including the production costs? The Witness: That is what we would be aiming for. , 9) are, what the Q. Can you tell us what the cost of these ads (CX 8 cost was in 1961 to run two ads like this? A. I can approximate it. I would say that the space cost of each ad would be about between 70 and 75 dollars, and the art work and the layout for each ad would be in the neighborhood of $25. So we are talking about approximately $95 per ad.

Hearing Examiner Tinley: Let me clear up this one point in this connection. Was it your understanding with House of Lords that they would pay 50 '3 Tr. 178 (emphasis added).

,. Tr. 221-222 (emphasis added).

Conclusions 69 F.

per cent of your newspaper cost of the advertising or of your total cost including your art work? What was your understanding with them? The Witness: Wen, the understanding is 50 per cent of the newspaper (lineage J cost.

Q. Now, I show you Commission s Exhibit 12 which is a memoranda or debit memo to Lords regarding 1962 cost of advertising. Isn t it so that the cost that is reflected therein is only the space cost and nothing else? A. Yes, I think that is correct.

Q. And isn t it true, Mr. Bruml, that in your dealings with Mr. Handelsman, the agreement between the two of you was that Lords would make a rebate of 50 per cent of your space cost in advertising Viyella? A. That is correct, yes.

CONCLUSIONS 1. Respondent House of Lord's is engaged in commerce, as commerce" is defined in Section 1 of the Clayton Act, 15 D. 12.

2. In 1961 and 1962, in the course of such commerce, respondent House of Lord's offered to pay, and paid, sums of money ranging in amounts from $75 to $2 000 to certain of its customers as compensation or reimbursement for 50% of the Hneage or space costs incurred by those customers in publishing newspaper or magazine advertisements of respondent's Viyella dresses. 3. Certain of respondent's other customers, although competing with those favored customers in the distribution of respondent' s products, were not informed of, and did not know about respondent' s alleged wjlingness to make such promotional allowances available to them on similar or any other terms. 4. The promotional allowances offered and granted by respondent House of Lord' s in the years 1961 and 1962 were offered and granted solely as compensation for, and on the condition that they be used for, newspaper or magazine advertising. Certain of respondent' s other customers find it economically impractical to advertise in these two media. Hence those allowances, even if respondent' s alleged wilingness to pay them on such limited terms had in fact been communicated to al1, would not have been available to those nonfa vored customers on proportionally equal terms. 5. The promotional allowances offered and granted by respondent House of Lord' s in the years 1961 and 1962 were not, as al- 15 Tr. 440 , 452-453 , 460 (emphasis added). ex 12 , B debit memorandum to respondent Lord' s from Lata KeJJy dated September 29 , 1962, biled respondent for $74. 39. or 50% of $148. 68, the Bum that customer paid to the Cleveland Plain Dealer 252 lines IIt . per'Jine HOUSE OF LORD , INC. 123 Order leged, part of a general plan whereby respondent offered to pay a fixed percentage of the amount its respective customers desired to spend on the promotion of Viyella dresses, but arbitrarily fixed dollar amounts (e. $100, $2 000, etc. ), determined by respondent in separate negotiations with each favored customer. 6. Respondent House of Lord's has paid promotional allowances to certain of its customers while failng to make such allowances available on proportionally equal terms to aJl other customers competing in the distribution of such products in violation of Section 2 (d) of the amended Clayton Act. ORDER This matter having been heard by the Commission on the exceptions of counsel supporting the complaint to the hearing examiner s initial decision dismissing the complaint; and The Commission having determined that the examiner s findings of facts should be set aside in part and adopted in part, and that the examiner s conclusions and order should be set aside in their entirety:

It is ordered That the examiner s findings as to the facts numbered 1 through 30, at pages 47 through 55 of the initial decision of February 11 , 1965, be, and they hereby are, adopted as the findings of the Commission; that the examiner s findings numbered 31 through 96, at pages 55 through 71 of the initial decision be, and they hereby are, set aside and the accompanying findings of the Commission numbered 31 through 42 be, and they hereby are, issued in lieu thereof; and that the conclusions and order of the examiner be, and they hereby are, set aside and that the accompanying conclusions and order of the Commission , and they hereby are, issued in lieu thereof. It is further ordered That respondent House of Lord' , Inc., a corporation, its offcers, directors, agents, representatives and employees, directly or through any corporate or other device, in the course of its busin€ss in commerce, as "commerce" is defined in the Clayton Act, do forthwith cease and desist from: Paying or contracting to pay to or for the benefit of any customer anything of value as compensation or in consideration for any advertising or promotional services or facilities furnished by or through such customer in connection with the handling, sale or offering for sale of wearing apparel manufactured, sold or offered for sale by respondent, unless aJl other customers competing with such favored customer in Complaint 69 F.

the distribution or resale of such products are informed, in writing, of (1) the terms and conditions of the promotional program or plan under which such payments are made, including the services or facilities to be furnished therefor; (2) the availability of such payments on proportionally equal terms to al1 such customers; and (3) if it would not be economically feasible for all such competing customers to furnish such services 01' facilities, alternative services or fadlities such customers can furnish and be paid for on proportionally equal terms.

It is JUTtheT oTcleTecl That respondent House of Lord' , Inc. shall, within sixty (60) days after service upon it of this order file with the Commission a report, in writing, setting forth in detail the manner and form in which it has complied with the order to cease and desist.

Commissioners Rejjy and Jones concurred and have filed a separate concurring statement. Commissioner Elman dissented and has filed a dissenting opinion.