Viviano Macaroni Company

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IN THE ~IATTER OF VIYIANO l\IACARONI CO~IPANY ORDER, OPIKION, ETC., IX TIEG.-\RD TO TI-JE ALLEGED nOLATION OF SEC. :! (a), :2 (d) AND :2 (e) OF THE CLAYTON. ACT Docket 8666. Comp7aint, Sept. lfi63-Decision, Feb. 19, 1968 Order requiring' a Carnegie, Pa. , manufac-tllrer of macaroni and other food products ,to cease discriminating' in prices, promotional allowances and services in sales to competing retailers who resell its products. COl\IPLAIKT The Federal Trade Commission, ha"dng reason to believe that the party respondent named in the caption hereof, and hereinafter more particularly de.sig1ulted and described, has violated, and is now yiolating the provisions of subsections (a), (d) and (e) of Section 2 of the Clayton Act, as amended eG. , Title 15, Sec. 13), hereby issues its complaint, stating its charges with respect thereto as follows:

COUXT I PARAGRAPH 1. Respondent, Viviano l\Iaearoni Company is a corporation organized, existing, and doing business lmLlel; and by virtue of the laws of the Common'H' alth or Pennsylvania, ,,-ith its office. and principal place af business located on K ablest own Road, Collier Township, Pennsyh-ania. ~Iail nddre~sed to respondent is directed *Reported as amended b~' Hraring Examiner s (l1'(l!'r of Dec. 21 , 1965, by changing the name of respondent from YiillCO ?lIacnroni Products Company to Viyiano ?lIncaroni Company. 418-345--72---- . \ 314 FEDERAL TRADE CO::':E\IISSIO~ DECISIONS Complaint 73 F.

through Post Office Box 546, United States Post Office, Carnegie Pennsy I vania.

PAR. 2. Respondent has been, and is no\\, engaged in the manufaceggture, sale and distribution of macaroni, macaroni products, noodles, prepared foods, and sauces. Respondent sells its said products to a large number of customers, located principally in the State of Ohio and in the Coll1ll1on"health of Pennsylvania, ,yho purchase such products for use, consumption, or resale. R,espondenfs customers ate and retail chain stores, but also include 1)ri1llarily, ,yhosesale grocers manufacturers, independent retail stores, restaurants, and institutions. Respondent' sales of its products are substantial, exceeding 000 000 in the year 1962.

PAR. 3. Respondent sells a.llcl causes its products to be transported from its manufacturing plant and principal place of business in the Commonwealth of Pennsyh-ania to purehasers located in other States of the United States. There has been at all times mentioned herein a eontinuous course of trade in said products in commerce, as "commerce" is defined ill the Clayton Act, as amended. PAR. 4. In the course and conduct of its business in commerce, respondent is no\\, and has been, in substantial competition with other corporations, individuals, partnershjps, and firms, engaged in the ma.nufacture, sale, and distribution of macaroni, macaroni products egg noodles, prepared foods, and sauces.

~Iany of the purchasers of respondent's products of like grade and quality, and customers of some of said purchasers, are in substantial competition ",ith each other in the resale and distribution of such products ,,-within the trading areas \\here said purchasers are located. PAR. 5. In the course and conduct of its business in commerce, and particularly during and since 1963, respondent has been, and is now discriminating in price bet,yeen different purchasers of its products by selling said products to some purchasers at higher and less favorable prices than those prices charged competing purchasers for products of like grade and quality.

For example, most of respondents major customers are located within a trade area composed of eastern Ohio and western Pennsylania. Respondent's largest customer, located within the above described market area, is the Y oungsto\\n- Pittsburgh Division of National Tea Company, a, corporation of the State of Illinois, with its Youngstown-Pittsburgh Division offices located at 650 :l\Ieridian Road Youngstown, Ohio. This division of :N ationa.l Tea Company is comprised of 114 individmtl retail food stores, doing business as Lobla" Inc., and/or Loblaw :JlaTkets. During the year 1963 , respondent VIVIA.1~O l\IA. CARONI co. 315 313 Complain t granted this division of National Tea Company freight allowances which were 45.5 %, or approximately $9 000, in excess of the actual cost of freight transportation. As tlll introductory offer, respondent also gave this division of N ationrd Tea Company more than 6 600 cases or respondent's products, free of any cost., \\-ith an approximate value of $25,000. The aforesaid inflated freight allo"ance 'was also allowed on this free merchandise, creating a total introductoryallowance having an approxinlate value of $:26 300. The excessive freight allowances and the free merchandise referred to above resulted, directly or indirectly, in a. substantial discount from the prices at which respondent sold goods of like grade and quality to other purchasers competing in the resale and distribution of respondent' s p~oducts with National Tea Company.

As a further example, in the trade area composed of eastern Ohio and western Pennsylvania, respondent sells its products to a majority of its retail and "wholesale customers, including, The E:roger Company, Giant Eagle Super l\1markets, Thorofare l\Iarkets, and Golden Dawn Foods, Inc., at prices corresponding to those prices published in respondents price lists. Saidpdces were not oft'erecl or granted by respondent to other purchasers, ,rho purchased responclent~s products on a cash basis at prices averaging 2. percent to 13 percent above respondent's highest prevailing published list prices, and "ho compete with the said favored purchasers in the sale and distribution of respondent' s products of like grade and qua.lity. PAR. 6. The effect of the discriminations in price made by respondent inthesale of its products, as hereinbefore set forth, has been or ma.y be substantially to lessen compe.titionin the line of commerce in which respondent is engaged, and in which said favored purchasers are en- ' gaged, or to injure, destroy or prevent competition with said respondent, or its pure-hasers who receive the benefits of such discriminations. PAR. 7. The discriminations in price made by respondent in the sale of its products, as hereinbefore alleged, are in violation of subsection (a) of Section .2 of the Clayton Act, as amended by the Robinson- Patman Act.

corXT II PAR. 8. Para~raDhs One. throu~.dl Four of Count I hereof are herebv incorporated by reference, and made a part of this Count, as fully, and L'"ith the same effect, as if quoted herein verbatim. PAR. 9. In the course and conduct of its business in commerce, and particular1'ly during and since 1962 , respondent has paid or contracted for the. payme,nt of something of value to or for the benefit of some of .

316 FEDERAL TRADE COl\HIISSION DECISIONS Complaint 73 F.

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 hate not. been made available on proportionally equal terms to all other customers competing in the sale and distribution of respondents products.

For example, respondent has offered and paid various payments and allowances to certain of its customers, which payments 'and allowances have not been ofiered~ or paid, or otherwise made available to all respondents customers competing ,with the said favored customers. These payments or allowances included, but were not limited to: (1) free merchandise for store openings, anniyersary sales, and other promotional purposes; (::!) payments and allowances under "Cooperati ve ~ierchandisillg Agreements for printed handbill, radio, tele,-ision, or newspaper achertising of respondents products; (3) payments or allo,,' ances for yarious periodic. promotions of respondents products; and (-:I:) payments or allmyances for radio or television ad ,'ertising in excess of any pa~-ments or allowances which the customer might be entitled to under the aforesaid "Cooperative ~Ierchandising Agreements.

PAR. 10. The acts and practices of respondent, as alleged herein, are in violation of subsection (d) of Section 2 of the Clayton Act, as amended by the Robinson-Patman Act.

CO1JXT III PAR. 11. Paragraphs One through Four of Count I hereof are hereby incorporated by reference, and made a part of this Count, as fully, and ,with the same effect, as if quoted herein verbatim. m. 12. In the course and conduct of its business in commerce and particulnrl~~ during and since 1962, respondent has discriminated in favor of certain purchasers of its products, purchased for resale by contractin~: to furnish. contributing to the furnishing of. or furnishing, to such favored purc.hasers, services or facilities connected ,\ith the handling, sale, or offering for sale of such products so purchased, "while not according such services or facilities to all competing purehasers on proportionally equal terms.

For example, respondent has, directly or indirectly, through ~Ierchant' s Broadcasting System, a. corporation located in Pittsburgh Pennsyh-ania. furnished. or contributed to the furnishing.' of. broac1casting equipment, and taped background music and commercial announcements to certain retail grocery stores in the Greater Pittsburgh. VIVIANO MACARONI CO. 317 313- Initial Decision Pennsylvania, area. During the period November 5 , 19G2, to October 23 1963, respondent paid a total of $18 540. D1 for the ~Ierchanrs BroadeastingSystelll service, approximately 95.5 percent of "which expenditure "as paid for the furnishing of the above detailed services to the individual grocery markets of four large chain grocery stores who are engaged in interstate COlllmerCe. Such services or facilities "ere not accorded to all competing purchasers on proportionally equal terms.

As a further example, respondent has, directly or indirectly, through Super l\Iarket Broadcasting Systems, Inc. , a corporation located in Chicago, Illinois, furnished, or contributed to the furnishing of, broadcasting equipment, and tnped background music and cOlmnercial announcements to the retail grocery customers of two of respondents wholesale grocer customers who transact business in both the Commonwealth of Pennsyh-ania, and the State of Ohio. In the years 1962 and 1963 respondent paid $3 056 and $3 309, respectively, for the above described service. Such Ben-ices or facilities "ere not accorded to all competing purchasers on proportionnlly equal terms.

PAR. 13. The acts and practices of respondent, as nlleged herein are in violation of subsection (e) of Section 2 of the Cla:yton Act, as amended by the Robinson-Patman Act.

Jf1' . EJ'rlest G. BaJ'nes, illi'. Th0'7nas P. Athridge, JI' .:111' Oha?'les A. ,'ice and il1-7'. Ii ans O. Nolde supporting the complaint. lVh'itlock, ill a7'key and tait ,Yashington, D. , by illi.. Ed?ca?'CZ T. Tait ancll1J' lVilUamD. il1atthews for respondent. INITIAL DECISION BY ANDREW C. GOODIIOPE, HEARING Ex.nIINER AUGUST 31 , 1966 The Federal Trade Commission issued its complaint against respondent on September 21 , 19G5, charging it ",ith violations of the Clayton Act as amended by the Robinson-Patman Act. The charges were that respondent had violated subsections 2 (a), 2 ( d) and 2 ( e) of the Clayton Act as amended in selling its products to certain of its customers. The respondent filed an ans,,-er in "rhich it admitted certain allegations of the complaint and denied that it had violated any of the subsections of the Clavton Act as amended and alleged certain defenses discussed hereafter.

This matter is before the hearing examiner for final consideration the complaint, answer, evidence and the proposed findings of fact and conclusions and memoranda and briefs filed by counsel for respondent and counsel supporting the complaint. Consideration has been given 318 FEDERAL TRADE CO:\DIISSION DECISIONS Initial Decision 73 F.

to the proposed findings or fact and conclusions submitted by both parties, and all proposed findings of fact and conclusions not il~Teinafter specifically fOlUld or c.concluded are rejected, and the hearing examiner, having considered the entire record herein, makes the following findings or fact, conclusions drawn therefrOll1 and issues the follo,'ling order:

FIKDIKGS 0::: FACT 1. The respondent, Vi,-iano l\Iacaroni Company, is a corporation organized, existing, and doing business under and by virtue of the la,ys of the Commoll"health or Pennsylvania with its office and' principal place. of business located on X oblestown Road, Collier Township, Pennsylvania. ~Iail address or respondent is Post Office Box 546, United States Post Office.e ~ Carnegie Pennsylvania. (Comp. and Ans. Pars. One. ) 1 :2. Respondent has been, and is now~ engaged in the ma.nuracture sale and distribution of macaroni products, including spaghetti of various thicknesses and Cllts~ egg noodles, prepared roods, and sauces. Respondent sells its said products to (1. la-rge number of customer.rs located principally in the State or Ohio and in the Conm10nwealth of Pennsylvanifl, "ho purchase sneh products for llse ~ consumption, or resale. Respondents c.customers are primarily, I':wholesale grocers and retail chflin stores, but also include manufacturers, independent retail stores, restaurants, and institutions. Respondenrs sales of its products are substantial, exceeding 4: million in the years 1962 and 1965 and exeeec1ing 3 million in 1963 and 1964. (Comp. and Ans. Pars. Two-Tr. 85. ) Approximately 70 percent of respondents total sales are or three macaroni products-elbow lnacal'oni, regular spaghetti and thin spaghetti. (Tr. 85. ) :Jlacaroni products are semi perishable in nature and are an im )ortant and stal)le. 1)product in the Q'rocerv industry. Stock.ks of these products, becau~e or their nature, are constantly required in retail groce.ry stores and because or their semiperishable nature compal'ati,-ely small in,-entories are kept on hand nec.essitating frequent orders. (Tr. 3-4:7-348, 152L 1538. 3. Respondent sells and causes its products to be transported from its manufacturing plant and principal.place or business in the Comnlon"health or Pennsylvania. to purchasers located in other States or the United States.

1 In its ans'\\er. respondent admitted P,ll'agrap~ One of ,be complaint, but asserted that the name of the respondent as it appeared ill the complaim HVill1cO MacaronI Products Coll1pan:- " no longer existed. but that tlle nallie had been clan ~ec1 to the present style. Counsel in suppert of the complaint ll1o.-ec1 that tlle complaint be amended to sl1ow tllis correction and 11.11 order to tllis effect W,1S entered by tlle hearng examiner. , , , . ., , VIVIA~O MACARONI CO. 319 313 Initio.l Decision There has been, at all times mentioned herein, a continuous course of trade in saiel products in commerce, as "commerce:' is defined in the Clayton Act, as amended. In its ans"\\eI', respondent admitted.d that it was engaged in interstate commerce. but denied that any of the transactions alleged to be discriminatory in the complaint occurred,d in commerce or in the course of commerce. (Ans. Par. Three.) The questiOll of comme,rce will be considered separately hereafter in connection with e,ach of the three violations chaT!red.C-' 4. In the, course and conduct of its business in commerce, respondent is now, and has been, in substantial competition with other corporations, illdiyiduals, partnerships, and firms engaged in the manufacture, sale: and distribution of macaroni, macaroni products, egg noodles, prepared foods, and ~Iany of the purchasers of responclentsances.s products of like, grade and quality, and customers of some of said purchasers, are in substantial compe,tition with each other in the resale and distribution of such products within the trading areas whe:re said purchasers are located. (Se,eResp. Prop. Findingspp.

Respondent sells and distributes its nToduct.s to a large nlU11ber of customers located primarily throughout that area "\'\within a 150 J..mile radius surronlldin~2: r(,sj)ollclent~s manuracturillQ: facilities located neat Carnegie. Pennsylvania. In addition to western Pennsylvania this trading area also inc.lndes eastern Ohio, northern "'\Vest Virginia and nortlnyestern :Marylancl. (II'. 86. ) Respondents customers involved in this proceeding consist primarily of wholesale food distributors, chain and independent retail grocers. (Tr. 86-88, Compo and Ans. Par. Two.

5. Since the year 1963, respondent. has employed approximately fifteen salesmen who represent respondent by calling upon all wholesale food distributors, independent retail grocers, and the headquarters and individual stores of chain retail grocers located within each salesman s respectiye sales territory. This sales force constitutes respondent' s primary means of distributing and Beijing its products, the individual sale.smen being responsible for transacting sales, introducing new items ~ takiT~g care OT complaints and spoilage, and "* doing anything in their po,yer to promote the sale. of Vimco pI'oc1- ('1'- r. i:) - ('1-.l1C .s. 'i' .~ ,~..

6. Respondent sells and delivers its products directly to wholesale food distributors, chain retail grocers, and certain independe.nt retail grocers in minimum indivichml order quantities of twenty-fiye eases. (eX 2- ) :Hesponclent also sells its products, usually in minimums-'individual ordel' quantities of t\\'entry- n.ve cases, to wholesale food clis- 320 FEDERAL TRADE COMl\IISSIOX DECISIO~S Initial Decision 73 F.

tributors', drop-shipping the products to the wholesaler s retailer customer. (Tr. 90.) Finally, respondent sells its products, in small quantities, directly to retail grocers, primarily independent retail grocers who normally buy from a wholesaler on a cash basis through "off-thecal' sales" by its salesmen. (Tr. 98-101.) Respondents Regular Prices 7. Respondent publishes and distributes price lists for its various products which lists give three different price brackets based upon different ease volume purchase quantities. These three price brackets are calculated to pass on freight savings for larger purchases. (CX , 7- , Tr. 94-96. ) Respondents normal credit terms are 2%, days, net 30 days. Respondent also provides floor stock protection against the price declines for any stock in a warehouse Rt the time of the price reduction. Respondent also has regular cooperation advertising agreements, which it oft'ers to all of the purchasers of its products that it considers to be its direct customers. In addition, respondent. has periodic merchandising and promotion allowances, which are extended to all of its customers. (Tr. 103-10;3. ) Xo charges of discriminatory practices are based upon the above described selling methods. The charges in the complaint are all based upon deviations from respondents regular merchandising program. Charges of Price Discrimination in Violation of Section 2 (a) 8. During the year 1963, the National Tea Company owned and operated a chain of approximately 110 retail stores from a division headquarters located in Youngstown, Ohio. This group was operated as the Youngstown-Pittsburgh Division of National Tea by the All- American Stamp and Premium Corporation, a ,,-holly O\yned subsidiary of National Tea. (Tr. 301-302. ) The stores comprising this division ,,-ere located in eastern Ohio and "estern Pennsylvania and operated under various trade names including "Loblaw, Big D markets and Loblaw Big D food markets." (eX 1349a- ) Hereafter, in this decision this division of National Tea and its stores will all be collectively referred to as "Loblaw " since this was the trade na.me under which most of these stores operated in 1963. (CX 1349a- Loblaw stores, pertinent to this decision, were located in: Akron, Ohio, 11 stores; Canton, Ohio, 5 stores; Cuyahoga, Falls, Ohio, 5 stores; Youngstown, Ohio, 11 stores; Pittsburgh, Pennsylyania, 18 stores; Sharon Pennsy 1 vania, 2 stores. (CX 1349a- , VIVIANO I\TACARONI CO. 321 313 Initial Decision 9. Prior to January 1963 respondent had been selling its products to individual Loblaw stores from its regular price list by making deliyery directly to each Loblaw store which desired to purchase its products on a chop-shipment basis with billing being made directly to the Youngstown LobIn. w office and payment coming fronl this office. Respondents products were not stocked in nor delivered from any Lobla,y ,,-warehouse. (Tr. 124:-128, CX 25-38. ) In the late winter of 1962, subsequent to a reorganization and change in lllanagement in the Youngsto,,-n division of National Tea (Loblaw), respondent, by its principal officer, j)Ir. Samuel Viyiano, entered negotiations directly with the new Loblaw management in an attempt to place its entire line in the Lobln-w Youngstown ,,-warehouse for delivery by Loblaw to all Loblaw stores. (Tr. 128-129. ) In January of 1963 , these negotiations resulted in the following arrangement: A. Respondent agreed to give Loblaw free goods in the amount equal to the first two orders placed by Loblaw for twenty-nine of the being that thererespondenfs macaroni products. The result of this could be a number of orders and invoices for various products but only the first ,two covering a particular product of respondent's would be credited with free goods. There ",'as no limit placed upon either the size of the orders or the amount of free goods delivered, only that they should be equal. (Tr. 131-133, 1512, 1584:-1585. ) The record does not contain complete information as to tile amount of free goods delivered, but during the three-month period beginning j)lay 1963 when the free goods shipments be,gan, Loblaw received, free, at least 600 free eases of respondents products for a total dollar purchase value of $25 000. (CX 75-110.

B. Respondent agreed to sell its products to Loblaw at its published350-case price. (Tr. 129-130, 1587.

C. Respondent agreed to permit Loblaw to pick up respondent' products at its manufacturing plant in Carnegie, Pennsylvania, in Loblaw trucks, and to give Loblaw a "pick-up" freight allowance of $1.69 per hundredweight applicable to all of respondent's goods invoiced to Loblaw. The $1.69 freight allowance was thereafter granted to Loblaw, not only on the products for "which it paid but also on the free goods ". which Lobla w picked up in its o"n trucks. Respondent granted this freight allowance and Loblaw picked up respondent' products continuously from January to Decenlber, 1963. (Tr. 129-130 , 104-11-1, 117,135; CXs 40, 48 , 50 , 51 , 61 , 65, 67, 69, 71, 72, 74-102 118, 1508-1530.

, ,, 322 FEDERAL TRADE COl\l~IISSION DECISIONS Initial Decision 73 F.

D. Respondent agreed to extend its normal credit terms of 2%days, to 2%-20 days, on all purchases by Loblaw. These terms were in effect from January to December 1963. (Tr. 129-131; ex 39. E. Respondent agrC€d to pay Loblaw all allowances which would be due under respondent's periodic merchandising offers by the issuance of (1, credit memorandum to Lobht;w covering goods under one of respondent's merchandising offers. (Tr. 110, 1585-1587. ) This resulted in LabIa w obtaining this money immediatelv without the necessity of submitting proof of performance of the required sales promotion or advertising services. Thus, Loblaw received this money without the usual delay bet"-een delivery of the products and the submission of proof of performance and payment of the promotional allowance. Lobla,v received prepayments of this type amounting to $10 000 during the first seven months of 1963. (CXs 41 , 49, 52., 54, 56, 58, 60, 62 103 115 119. ) COlillsel in support of the complaint c.contend that parts A, C and D of this arrangement violated Section :2 (a) of the Clayton Act, as amended.2 (See counsel in support of the complaint, Prop. Findings p. 157.

Interstate Commerce 10. Respondent urges that neither the agreement described above nor any of the products covered by the agreement can be considered to have been made or shipped in the course of interstate COll1lnerce. (Resp. Prop. Findings, p. 18. ) This contention by respondent must be rejected. The whole sense of the agreement was that respondent's products were to be sold to Loblaw, which had its headquarters in YOlillgStown, Ohio, and delivered by Loblaw, by whatever means it chose to its stores located both in Pennsylvania and Ohio. ,Yhile some of the products covereel by the agrC€ment may never have left the state of Pennsylvania, a substantial portion of them did. Certainly those that were carried by Loblaw back to the Youngstow, Ohio warehouse and delivered to stores in Ohio and Pennsylvania from this point must be considered to have been in c.commerce.

~ Section ~ (a) in pertinen t part pro,ides : That it shall be unlawful for any person engaged in commerce, in the course of such commerce, either directly or indirectly~-, to discriminate in price between different purchasers of commodities of like grade nnd quality, where either or any of the purchases involved in such discrimim' tion are in commerce * * * and where the effect of such discrimination may be substantially to lessen competition * * ".. in any line of commerce, or to injure. destroy, or pre,ent competition with ar.:;\' person who either grants or knowingly receives the benefit of such discrimination, or \yilh customers of either of them, " (49 Stat, 15~6; IG U. A, Sec. 13. VIVIANO MACARONI CO. 323 313 Initial Decision 11. The record is replete \\ith evidence that there \\ere a substantial nuniber of competitors of Loblaw purchasing respondents products or like grade and quality~ located both in the States of Pennsylvania and Ohio, who were in direct competition with Lobla"\v in the resale of respondent's products. Included among these customers who appeared and testified were independent retailers-Lazar Supermarkets of Youngstown, Ohio, (Tr. G89-691 ~ 694, 706-707) and Fisher Foods of Canton, Ohio, Inc. (Tr. 1243-1250. ) Neither of these customers were extended the same type or price concessions during 1963 as were extended to Loblaw, and both were in competition with Loblaw stores in Y oungstownand Canton, Ohio. Chain store customers of respondent in competition with Loblaw appeared and testified. The Great Atlantic and Pacific Tea Company, Inc.~ purchased over $40 000 worth of respondents products during 1963 at respondent's regular prices, and resold them in competition with Loblaw through 59 stores located in eastern Ohio and western Pennsylvania. (Tr. 310-315, CX 872b, 1103-1129; compare.A. & P' s store list CX 1103 for Youngstown Ohio, with Loblaw s store list 1349a-b for Youngstown, Ohio. ) The Fred W. Albrecht Grocery Company, with 2.5 stores located in Akron and Cuyahoga Falls, Ohio, purchased respondent's products at respondent's regular prices during 1963 and competed with a number of Loblaw stores. (Tr. 1111-1112, compare CX 1620 and 1349a. ) The I\:roger Company, Inc., in 1963 purchased respondent's products at regular list prices and sold these products through supermarkets located in Pittsburgh, Pennsylvania, and Youngstown, Ohio. (Tr. 166- 168 ex 1354.-1384, 544, 872b.) A number of these I\:roger stores competed directly with Loblaw stores in Pittsburgh, Pennsylvania, and Youngstown, Ohio. (Compare ex 1354 with 1349a. ) R.representatives or five wholesale food distributors appeared and testified. All of these wholesalers purchased respondent's products and sold the111 to independent retailers, including voluntary chain stores who were in competition with Lobla.w retail stores in both Pennsylvania and Ohio. The.y all purchased at respondent's regular published prices. (Tr. 1078-1079, 1082-1083, ex 221-281 , 872a-b; Tr. 336-345, CX 1141 1169, 1174-1188; Tr. 1198-1213 ex 1624a- , 40Sa-475, 872a; Tr. 384- 401, CX 127-133, 138-155, 1349a- , 645f- ) Eleven independent retail grocers who purchase respondents macaroni products from ,wholesalers of such products appeared and testified. These retailers \\ere all located in Ohio, and testified that they competed with Loblaw stores. Each bought respondent's products at their regular wholesaler s prices. (Tr. 607-615 ex 806-844; Tr. 623-631 ex 286, 315, 343, 845a-856b; 324 FEDERAL TRADE C01VLMISSION DECISIONS Initial Decision 73 F. T. Tr. 639-643, 658-660; CX 1349a; Tr. 673-680, ex 287; Tr. 710~717 ex 1292-1315; Tr. 721-731, CX 1189-1244; Tr. 1099-1102, ex 476- 478; Tr. 1151-1158, ex 417-426; Tr. 1182-1191; Tr. 1230-1233, ex 410-416; Tr. 1274-1282 ex 427-475.

12. 1With this wealth of evidence of interstate sales by respondent both to Loblaw and to competitors of Loblaw, it can only beheld that the transactions charged to be discriminatory occurred in commerce ill Oo?' v. ill ead' s Fine Bread 00. 348 U. S. 115 (1954) ; Sun Co8?71.etic Shoppe v. EUzabeth Anlen Sales 001'2). 178 F. 2d150 (C.A. 2 1949). 13. This e,-idence likewise forces the conclusion that respondent was selling products of like grade and quality to Loblaw and Lohlaw competitors continuously throughout the year 1963. ",Vhile ifs true that the record does not contain substantial evidence that competitors of Loblaw "Were handling the same identical products as were handled by a specific Lobla \y store on a specific day, the record leaves no doubt that this ,yas the case. It would be a practical impossibility at this date in 1966 to go back to records of either respondent in 1963 customers of respondent who competed with Lobla w in 1963 to establish this point. Aspointed out above respondent's largest selling products, which consisted of approximately 70% of respondent's total sales elbow macaroni, regular spaghetti and thin spaghetti ,were regularly earried by all of the retail stores handling respondent' s products. The testimony by respondent's official and an examination of the invoices of respondent to Loblaw in conjunction with the testimony and invoices in the record of shipments to Loblaw competitors leaTe no doubt that these best selling items were regularly handled at all times hy all such customers.

Effect on Competition 14. The record in this matter establishes clearly that there is serere competition at all levels in the food industry and particularly in the macaroni industry (see for example respondent's proposed findings pages 3-8). This competition is particularly acute at the wholesale and retail levels. The record establishes that grocery products including macaroni are highly advertised at very competitive prices. The record establishes that the average net profit on sales of grocery items by retailers is approximately 2% of the total volume, and these figures are also true of the net profit on macaroni items. Furthermore, the testimony in the record makes it plain that cost of goods and competitive retail prices are the most important elements of competition at the retail level. (Tr. 277, 282-284, 348, 1084, 1187, 1233, 1246; CX 874-881 1585-1587, 1621-1629. ) VIVIANO ::\IACARONI CO. 325 313 Initial Decision 15. The discriminations which the respondent granted Loblaw during the year 1963 are substantial. ,Yhile the record does not permit exact figures, Loblaw recei,-ed somewhere between 10% and 12% discount on its 1963 purchases as a result of receh-ing respondent's free goods and freight allowances.3 It is apparent that in an industry marked by such severe competition as exists in the macaroni industry a reduction in price such as given to Loblaw of necessity must be found to be injurious to competition. Both prior Commission and court proceedings require that under the circumstances of this matter it be found that respondent's price discriminations in favor of Loblaw had the effect on competition proscribed by the Clayton Act. Fedei' al T1'ade Cmnmission v. jJ10rton Salt 00. 334 U. S. 37 (1948) ; In the 31 atte7' of FOl' emost Da.1'ie8, In('.. C. Docket No. 7475 (decided ~Iay 23, 1963) (62 F. C. 1344), alrd 348 F. 2d 674 (C.A. 5 1965) In the Jl1attel' of lVillimn 11. Rol'eJ' , Inc. C. Docket X o. 8599 (decided l\lay 9 1966) (69 F. C. 667).

Respondent's 1\Ieeting Competition Defense 16. Respondent asserts that it granted the free goods, freight allo,,ance and extended credit terms to Loblaw to meet competitive offers by four of its competitors, Gioia 1\Iacaroni Company, La Rosa and Sons San Giorgio ~Iacaroni Company and the Ideal 1\Iacaroni Company. Respondent argues that there "as a great amount of "he,eling and dealing on macaroni during the year 1962, and that respondent was forced into' a position of meeting this severe competition or suffer the loss of a substantial amount of its business. At the last meeting with :1\11'. Dickson of Loblaw, 1\11'. Viviano was advised that other companies "ere bidding for Loblaw macaroni business, and after the d~al was made 1\11'. Dickson advised that all the offers were close and that he could have done better with another company. (Tr. 1467, 1494, 1514- 1515 1588-1590. ) The record makes it apparent that 1\11'. Viviano 1\as not aware of 1\hat any of the offers of his competitors 1\ere, only that he believed they 1\ere making Lobla~ excellent offers of some1\hat the same amount as his offer. Representatives of three of the competitors who did make Loblaw offers appeared and testified. These 1\ere representatiyes of Gioia, La RoE'a, and San Giorgio. (Tr. 1633, 1651 1668.) Ideal apparently, never made an offer. The testimony of these "witnesses and the 1\written offers 1\which they made show that there "as no close simi- 3 Tbe extentjon of terms from respondent's usual 2%-10 days to 2%-20 days cannot be giren 11 value to Loblaw.

Initial Decision 73 F.

larity in the offers of any of these competitors to the deal that Viviano finally granted Loblaw. (CX 1713-1719.

17. Prior cases in which meeting competition defense have been treated make it apparent that the respondent has failed in establishing that its deal with Loblaw was made to meet the equally low price of a competitor. Respondent was merely reacting to a general competitive situation Hndnot to any specific offer of a lower price or better terms of any specific competitor. In addition respondent has failed to demonstrate that the offers which competitors did make were lawful offers. In the 111atter of LVationaZ Daily PTOCZucts OO'l'porat2.on C. Docket No. 7018 (decided J u)y 28, 1066) (70 F. C. 79J ; In the ill attel' of Tn:- Valley Packing Assoc-iation- F. T.G. Docket X o. 7225 and 7496 (decided July 28, 1966) (70 F. C. 223J : In the./.11 Clue?' of li~ oU Associates, Inc. C. Docket No. 8549 (decided August 2, 1966) (70 F. C. 311J. Respondents ;;Off-the-Car" Sales 18. Respondent's salesmen, as part. of their normal day to day activity, call upon retailers who are customers of wholesaler customers of respondent; the purpose of these calls are to assist the retailer sell merchandise and nttelnpt to keep respondent's proc1acts on the retailers shelves. Respondent does not consider these retailers to be its customers but rather customers of the wholesaler. (Tr. 98, 173 564-566 569. ) As a part of this effort, respondent' s salesmen from time to time ,,-ill c::ury a small supply of respondent's products in the back of their cars. If a retailer who is a customer of a wholesaler is out of stock of an item and desires to purchase from respondent's salesman, the salesman will sell to the retailer from stock which he is carrying. In making out the invoice, the salesman sends one copy of the invoice to the respondent and another to the wholesaler from whom the retailer normally purchases his supplies of respondent' s products. (Tr. 99-100, CX 1338a- 1343d.) Under respondent's policy, these sales are to be made at the same price at which the wholesaler would sell such products to the retailer. These sales are a very small part of respondent:s business and are made only to fill in a retailer s stocks. No attempt is made by the respondent' s salesmen to compete with their wholesaler in the particulilt area for such sales. These sales constitute an inconsequential portion of respondent's total business. (Tr. 596-597. The record does contain evidence that one of respondents salesmen sold these products to various retail stores at varying prices. (eX 1340a-1343d. ) However, these sales are of such a de ?ninhn'is nature that no finding of substantial price discrimination or any meaningful effect upon coll1Detition can be based thereon. Consequently, the conten- _ VIVIANO :MACARONI CO. 327 313 Initial Decision tion of counsel supporting the complaint that these sales by this one salesman of respondent violated S :2 (a) of the Clayton Act as amended is rejected.

Charges of Violation of Section 2 ( d) 19. In their proposed findings counsel in support of the complaint urges that the respondent has -dobted Section 2 (d) in five different ways: (a) by its payments to State Food Stores, :filoundsville, ,Yest Virginia, for participation in a radio program; (b) by its payments to the Fox Grocery Company, Belle Vernon, Pennsylvania, for participation in radio and television programs; (c) by its payments to By- H.ite l\larkets, Inc., ,Vheeling, "'\Yest Virginia, for participation in a radio program; (d) by prepaying allamonnts of advertising allowances due under its regularly cooperative advertising agreements at the time of invoicing such products, rather than later after the submission of proof of performance, to six customers, including the prepayments to Loblaw discussed above; (e) by failing to give "ofl'- thecar" customers respondent' s regularly ofiered advertising allo\"lance. 20. During the year H)(33, respondent made payments to the State Food Stores in the amount of $10 per \"leek for participation in a radio program sponsored by that retail chain. (Tr. 188-189 , 1:1:17 ex 495a. State Food Stores 'v ere supplied by a wholesaler of respondent who had no part in the arrangement. between respondent and State Food Stores. State Food Stores had a number of competitors at the retail level to \"Ihom no similar advertising payment or allmyance "as offered on any basis. (Tr. 188-189.) The competing stores \"IeTe supplied respondent's macaroni products through t\"lO wholesalers, the ,Vheeling ,Vholesale Grocery Company, ,,"ho supplied State Fooel Stores and Zarnits Grocery Company. Both of these ,wholesalers sold to retailers in competition ,with State Food Stores. (Tr. 8:28-8;31 , 8:18 ex 1396b- Tr. 790-795, 819.

esponclent contends that its payments to State Food Stores \"Iere made in good faith to meet the competition of the San Giorgio :Macaroni Company. Respondent contends that during 1962, the State Food Stores began it radio program in l\:Iounds,~ille and \"Ier6 later acl,.isec1 bv an official of the State Food Stores that Snn Gionrlo \"Ias offering a l;t of free .goods and nc1vcrtisinQ' monev to State Food Stores it would take on San Giorgio. (Tr. 1419. ) Later. respondent's sale.sman was approftched by an official of State Food Stores and advised that San Giorgio \"Ias "7illing: to participate in the radio program if the respondent did not. (Tr. 191-102 , 1-4:19-1421.) ,Yhen ndvisecl of this~ respondent's principal officin.l, ~Ir. Samuel Viviano agreed to this pro- (;), ) .j:. )): ..... 328 FEDERAL TRADE COl\L\IISSION DECISIONS Initial Decision 73 F. T. gram and participated for a period of about a year at $10 per "leek. (Tr. 190.) An official of the San Giorgio Company testified in rebuttal in this matter, but no questions were asked regarding San Giorgio s otter or payments to State Food Stores. L~ der the circumstances, the hearing examiner must conclude that San Giorgio had made a, bona fide oiler to participate in the radio program "ith State Food Stores and that the respondent in good faith made this offer and subsequent payments in order to maintain its position in the State Food Stores, meeting the competition of San Giorgio. The size of the payments ,rere. only $10 per week, "which could reasonably lead respondent to believe that San Giorgio s offer to participate was an entirely lawful and proper offer.

21. The Fox Grocery Company is a ,yholesale grocer operating from 70 to 75 miles from Belle Vernon, Pennsylyania. Respondent has supplied Fox with a complete line of maccuoni products for many years. During the relevant period 1963, Fox was carrying a competitive line of macaroni products, Procino & Rossi macaroni, and a small amount of l\luellers macaroni. (Tr. 754-759.) During the period 1963 to 1965 respondent had made payments to the Fox Grocery Company for participation in tele,~ision shmys and radio programs, ,,-which feature products sold by the Foodland Stores. (Tr. 76:3-76-4:. ) Foodland Stores were a voluntary chain of independent supermarkets ,which were supplied their grocery products by Fox. (Tr. 760-7G1.) The arrangement between respondent and Fox and Fox s advertising agency ,yas essentially for television advertising ,with the respondent paying $350 for each television spot during the year l!JG:3 , $:250 in 19(-\-1: and 8300 in 1965. During the three years respondent paid Fox in excess of $20 000 for participation in these television and radio programs. The teleyision program consisted of a movie ,with opening and closing billboards and spot adver6sing interspersed during the course of the movie. Only one maraconi product could properly be ac1,~ertised during the course of the program. ~Ir. Vi,-iano candidly conceded that he did not make similar payments of offers to any of Fox s competitors. (Tr. :20-4:. ) Fox had competitors who "'ere handling respondents products of like grade and quality and who operated in the same areas as Fox, both in Pennsylvania and ,Yest Virginia. The ,Yheeling ,Vholesale Grocery purchased a complete line of respondents products from 1962 to 196:3. (Tr. 759. 8-1:-4:. ) ,VheeEng ,Vholesale had a number of independent grocery retail customers in ",VIleeling, ,Vest Virginia who "-ere in competition with Foodland Stores when reselling respond- ,,0- 'J ")0 - ;)0)( r, IDD ':i .)0) ;)':)'1:. arnl, s pro(uc s. Brothers Grocery Company also rt ,yholesale grocer had customers in , .

VIVIA1\U MACARONI CO. 329 313 Initial Decision ",Vheeling, "'Vest Virginia "ho competed ,with Foodland Stores. (Tr. 820-8:27; CX 1395. ) Potter-)IcClUle and Associated Grocers, both of i,,"hom are "llOlesale grocers in competition "ith Fox and ,,-ith customers located in the same areas as FoodJand Stores in selling respondent"s products. Xone of the::e wholesalers ,were offered any type of like or similar advertising payments to those granted to Fox. :2:2. Respondent contends that the payments made to Fox Grocery Company "ere made to meet the competition of t"o competitors, La Primiatta, ~Iacaroni Company, and the Procino & R.ossi ~Iacaroni Company. Respondent ,,-as ach-ised by an official of the Fox Grocery Company that both of these competitors of respondent had offered to participate in Fox s television and radio programs, (Tr. 759, 766 et 8eq. and promptly thereafter respondent agreed to make the payments to Fox. Respondents contention that these payments were made jn good faith to meet like or similar payments of a c.competitor or competitors must be rejected. Fox had been a customer of respondent for many years, (CX 876) and at the time respondent~s products were Fox s largest selling macaroni product. by "5 to lover anything else. (Tr. 759-760. ) It is clear to the examiner that the respondent knew or should ha '-e knmyn that these payments of a substantial character over and above respondent s regular cooperati,-e advertising pa.yments were discriminatory. It should have been equally clear that for either of its competitors to make like or similar payments, in yie" of their weak position \with Fox, would have been clearly lmlawful. Consequently, the examiner finds that the respondent c.ould not have made these payments in good faith to meet like or similar payments of these t"o competitors.

:23. There can be no question but that both the sales and payments to the Fox Grocery Company "ere made. in the course of commerce. "\Vhile Fox s headquarters is located in Belle Vernon, Pennsylvania the Foodland Stores are located in ,Yheeling, ,Yest Virginia, and the payments ,,-which respondent made to Fox \were to benefit all such stores. Consequently, both the payments to Fox and sales to Fox for resale to Fooclland must be considered to have beeil in commerce. :24. Commencing on April 1 , 1963, and ending June 30, 1963 , respondent paid By-Rite ~Iarkets, Inc., of "11eeling, ,Yest Virginia., $15 a \yeek for radio advertising. The record sho"s that the total payments made to By-Rite ""ere $195 (CX 500). At the time, By-Rite was owned by the Fox Grocery Company \which acquired these seyen By-Rite stores on )Iay 3, 196:2. The record with regard to the relationship between By-Rite and Fox, is quite vague but apparently it was operat- 418- 34 5--72---- 330 FEDERAL TRADE CO~fMISSION DECISIONS Initial Decision 73 F.

iug somewhat autonomously of Fox, although it did acquire all of its . grocery products from Fox. Respondent contends that counsel in support of the complaint has failed to show that these payments ,were not or could not be considered to be a part of respondents regular promotional advertising agreements which provided for radio advertising. The testimony of the witness, Kemper of Fox is~ at best, vague ('fr. 762- 764). The testimony of ~Ir. Viviano is contradictory (Tr. :3.96-197, 211 , 1596-1598). The exhibit upon which counsel in SUPPO1' of the complaint rely, Comm. Exh. 500, is not conclusive. 00118eque.ntly, the examiner fu1c1s that counsel in support of the complaint have failed to carry their burden of demonstrating that these payments by By-Rite violated Section 2(d) of the Clayton Act, as amended.

25. Counsel in support of the complaint contend that the. prepayment by respondent of periodic merchandising payments to Lobla\Y" and to five other of its customers, Charley Brothers, F. \V. Albrecht Grocery Company, Betsy Ross Foods, Thorofare ~Iarkets and Ree'" Parvin violated Section 2 (d). (Tr. 110, 134, 1583-1587; CX 0, 13, 14 , 41, 4~ 52, 54, 56, 58, 60, 62, 64, 66, 68, 70, 73, 103, 115, 119, 215, 216 Q;36 2135, 373-378, 381-380 630 642, 800-S0D. ) The record demonstrates that these customers were required to submit proof or performance of the advertising or promotional activities but this was not required before payment was received. The allowances were given to these customers immediately by the issuance of a credit memorandum at. the time the merchandise was invoiced and shipped. Other customers of responden t who competed in reselling similar prod nets did not recei their payments until after they had supplied respondent ,with proof of performance of the ad vertising or promotional services. Respondent was apparently willing to extend this prepayment to any customer who desired the prepayment., particularly if the customer claimed that it was a hardship not to obtain the money immediately (Tr. 110). In the examiner s opinion, these prepayments to these few c.customers were not discriminations of fl sufficiently important nntUl'e to bottom a finding of violation of Section 2 (d) of the Clayton Act. All that. the record shows is that the respondent made these prepayments in six instances but had advised its sales force that such prepayments would be made to any customer ,,110 requested them. ...\.ny advantage which these customers might have enjoyed o'"e1' their competitors as a result of these prepayments tue, in the examiner s opinion ~ of such insignificant. yalne as not to ',"warrant a finding of violation. 26. Counsel in support of the complaint contend that respondent failed to oiler customers to ,,-hom it made "ofi' the-car ' sules, respond- VIVIANO MACARONI CO. 331 313 Initial Decision enfs regular cooperative advertising arrangement and thereby violated Section 2 ( cl) of the Clayton Act, as amended. As pointed out above, these sales 'were so small as to be de 1nini7nis and the small amounts of any advertising allmnll1ces based on these minute sales would be inconsequential. In addition, respondent, as pointed out above, did not consider the retailers to "ham these sales were made as its own customers, but customers of the \\'wholesale grocer who had normally supplied their needs Tor respondents products. In addition the record is not clear as to whether the normal "wholesale supplier would receive credit for these sales for ach-ertising allowance purposes but presumably he would have since he recei1;ed a copy of the invoice. The contention of counsel in support of the complaint that respondent violated Section 2 (d) 'Of the Clayton Act, as amended, by failing to offer responde-nfs "o:ff-the-car~~ customers its regular advertising allowance is rej ected.

Charges of Yiobtion of Section :2 (e) 27. Counsel in support of the complaint contend that respondent has violated Section2 (e) of the Clayton Act, as amended, as a result of jts arrangements prm'iding instore background music to 12 of its customers. This background music included verbal advertisements of a number of each of these c.customers. suppliers products including those of the respondent. Other in-store promotional services ,",-,ere also to be furnished by the retailer. The respondent made payments to the broadcasting companies for supplying this music. to the retail outlets and these payments are the basis for the charge of violation of Sec.tion 2 ( e) .

28. Commencing in September 196:?ancl continuing through September 1963, the respondent paid the ~Ierchants Broadcasting System (:MBS) for transmitting a music program into approximately 200 retail stores of four supermarket. chains: LobIn\\', I\:roger, Thorofare Giant Eagle, and nine independent retail grocers located in the Pittsburgh, Pennsylvania, area (Tr. 929-930). The contract between respondent and ~IBS provided for a monthly rebate of 20% of all revenues paid by suppliers to go to the four chains (Tr. 928 et seq.,: in camera). HoweverCX 1577 A-C. 1564 A- , 1554 A- , 1547-1584 no payments of this kind \\'ere eyer made since costs of the services exceeded the amounts received bv ~IBS. The broadcasts were over closed F:l\l circuit with range limited to the greater Pittsburgh area and none of the broadcasts \\""ent to an~- stores outside Pe.nnsylnmia (Tr. 954; CX 541-545). The broadcasts originated in Pittsburgh and the payments "ere made to :J\IBS in Pittsburgh. Consequently, there 332 FEDERAL TRADE CO?\IMISSIO::J DECISIOKS Initial Decision 73 F.

"as no interstate commerce 11lyolvecl in this arran.zement. In addition. )IBS attempted to notify al1 retail stores by placi~lg ads in t"\yO neys papers of the availability of the ~:en-ice and by mailings to all grocery stores listed in the Yello" Pages of the Pittsburgh telephone c1director~- Personal contacts "-ere made ,,-ith ret::til grocers in an attempt to sell the sen-ice to retailers in the Pittsburgh area (Tr. 955-956). Consequently the examiner finds that this sen-ice as a practical nlatter ,yas available to all QTOcerv leta11ers and ,wholesalers in the Pittsbnro'h area. The contention of counsel supporting the complaint that th;~e payments violated Section :2 (e) is rejected. 29. Supermarket. Broadcasting' System (SBS), "ith its headquarters in Chicago, Illinois, provides in-store background music interspersed ,with advertisements of products of various partic.ipating suppliers oyer loudspeaker systems in retail grocery stores. 1fiscellaneous merchandising services are also proyic1ed by the retailer to the participating suppliers. Respondent made payments to"ard the cost of the SBS program broadcasting into retail outlets of three of its "holesflle grocery customers: Golden Da "n Foods, Inc., Sharon, Pennsyh'ania September 1962 to July 196;): Reeyes Parvin & Co. , I-Iuntington Pennsylvania, July 1962 to February 1964; and Charley Brothers Company, Greensburg, Pennsylvania, during 1965. The services provided by SBS are basically the same for each of the wholesalers with minor differences not here pertinent.

30. Golden Da"n Foods, Inc., sells to approximately 130 retail grocery stores, the majority of "which operate under the Golden Dawn trade name. Approximately 80 of these Golden Dawn stores receive the SBS in-store broadcasting service and are located both in the States of Pennsy lyania and Ohio (eX 643-712). During the three year period September 1962 to ,-Tuly 1965 respondent paid SBS nearly 000 for the music. and advertising services in the Golden Dawn stores at the rate of $390 for each four week period. Reeves Parvin & Company sells to approximately 40 IGA- stores located in Pennsylvania of which 30 receive the SBS in-and one store in Hancock, )Iarylancl store broadcasting service. During the period July 1962 to February 1964 respondent paid SBS approximately $:2400 for the broadcasting of $150 for aservice in the Reeyes Parvin and IGA stores at the rate four "eek period (CX 71;5-80;)). Charley Brothers Company sells to approximately 150 retail grocers located in Pennsylvania with one store located in Bel1aire, Ohio (Tr. 46:2; CX 596-598). Charley Brothers sells to a group of stores which it sponsors and assists, all of whom These stores purc.hase all of theiruse the trade name "Red and \Yhite. grocery products from Charley Brothers and in addition Charley , , VIVIANO MACARONI CO. 333 313 Initial Decision Brothers sells to 100 contract stores who are independent and do not operate under the Red and 'Yhite label. In 1965 respondent began paying SBS for broadcast serrices into the Charley Brothers' Red and ,Vhite stores and continued these payments until July 1965 paying BBS in excess of $1 000 for such services at the rate of $278 for a four week period. As a part of the agreement with SBS respondent's products were advertised periodically m-er each of the retailers public address systems eight times a day and respondent received some additional merchandising and marketing services. 31. These three-,yay contracts between respondent, SBS and the wholesalers provided that SBS 'would pay each of the 'wholesalers a 5076 rebate on all advertising net reyenues paid to SBS by suppliers including the respondent, where there were 15 or less such suppliers. The contract also provided that SBS yrould pay the ,,-wholesalers a rebate of 80% of the gross revenues received by SBS ,,-here there were more than 15 participating suppliers. As a result Golden Dawn was paid approximately $66 000 by SBS during the three-year period that respondent participated in the program. Only a small ' percentage this total rebate to Golden Dawn, howerer, is attributable to respondent's payments to SBS. Reeves Paryin received rebates in excess of 000, a small percentage of which is attributable to respondent's payments to SBS. During the period April through .July 1965, Charley Brothers received rebates totaling nearly $5 000, of which a small percentage is attrjbutable to respondent's payments to SBS. :32. These ,wholesalers all handled respondents products and in addition there "ere a number of other ,,-wholesalers competing with them \,ho handled respondents procluds of like grade and quality and who did not receil-e or "ere not offered like or similar sen-ices ineluding the rebates. For example, the Tamarkin Company, a ",,'wholesaler located in Youngstown, Ohio, purchased produds of like grade and quality to t hose. sold by respondent to Golden Dawn and resold these products in competition with Golden Da,yn in the Eastern portion of the State 'of Ohio (Tr. 3;37-361). A number of retailers to ,,-hom Tamarldn sold were in direct competition with Golden Dawn stores located in the State of Ohio. The Tamarkin Company was never adrised of nor offered any like or similar services or facilities to those granted to Golden Dawn, Reeves Parvin or Charley Brothers. 33. These agreements and the payments made pursuant thereto and the products shipped by respondent to both fayorec1 and nonfavored wholesalers and retailers ,,-ere made in the course of interstate comlllerce. SBS is an on~:anization located in Chica2:0. Illinois. SBS billed the respondent from its Chicago office and respondent made payment L. 334 FEDERAL 'TRADE COl\nnSSION DECISIONS Initial Decision 73 F.

to SBS:s Chicago office and SBS paid the rebates to the favored wholesalers from its Chicago office. One of the favored wholesalers, Golden Dawn, had a substantial interstate business operating both in the States of Pennsylvania and Ohio. Golden Dawn stores located in both States received the services and facilities and rebates for which respondent provided the money. Consequently, it is found that these agreements and the payments made pursuant therato were made in the course of commerce.

Respondent contends that it entered these agreements with SBS in good faith to meet like or similar offers of its competitors. This contention must be rejected. The evidence in the record merely indicates that some of respondent:s conipetitors participated in these programs in the past and might hate participated in the SBS programs with these three wholesalers had respondent failed to do so. The evidence is very general in nature and it does not appear that the respondent was meeting any specific. offer of any of its competitors to participate in these programs but was merely reacting to the general competitive condition in the trade. In addition it should ha,ve been patent that these agreements were illegal, particularly in view of the fact of the substantial rebates which.h the "\wholesalers rec.eived from SBS. Consequently, respondent has failed to demonstrate that it knew that the offers, if suc.h they were, lllade by competitors were lawful. Consequently, it is found that respondent has failed to establish that these payments to SBS were made in good faith to meet the like offers of a c.competitor or of c.ompetitors~ CONCLUSIONS 1. Respondent Viviano ::\Iacaroni Company has violated Section :2 (a) of the Clayton Act, as amended by the Robinson-Patman Act, by granting a favored c.customer, Loblaw, discriminatory prices during the veal' 1963 in the form of free Q'oods, freig:ht allowances and extended eredit terms as found above.

2. The effect of these discriminations in price in favor of Loblaw may be and have been substantially to lessen competition or to injure destroy or prevent c.oll1petition between Loblaw and its competitors both "\Thole.sale and retail and retailer customers of wholesalers. 3. The discriminations in price granted to Loblaw were in the course of commerce, as "commerce:: is defined in the Clayton Act, as amended. 4. Respondent has failed to prove that the discriminatory prices granted to Loblaw were made in good faith to meet an equally low price or n, competitor.

VIVIA.i.~O MACARONI CO. 335 313 Initial Decision 5. The evidence in the record does not permit a conclusion that the respondent violated Section 2 (a) of the Clayton Act, as amended, in making its " off-the-car" sales as found above. 6. The payments made to State Food Stores do not violate Section 2 ( d) of the Clayton Act, as amended, since the respondent has established that these payments were made in good faith to meet the payments for services or facilities oftered by a competitor. 'I. The payments made to the Fox Grocery Company for radio and television advertising constitute a violation of Section 2 ( d) of the Clayton Act, as amended, since they were not made available on proportionally equal terms to all customers of respondent competing with the Fox Grocery Company in the resale of respondent:s products of like grade and quality.

8. The payments of respundent to the Fox Grocery Company and the sale of respondents products to Fox and to Fox s competitors were lllade in the course of commerce as "commerce:' is defined in the Clayton Act, as amended.

9. The record will not support a finding that the payments made to By-Rite ~Iarkets, Inc., constitute a violation of Section 2 (d) of the Clayton Act, as amended.

10. The record ,,-ill not support a conc.lusion that the prepayment of advertising allowances to Loblaw and five other of its customers constitute violations of Section 2 (d) of the Clayton Act, as amended. 11. The record will not support a conc.lusion that respondent's failure to offer its regular advertising and promotional agreements and contracts to its "off-the-car:' customers constitutes a violation of Section 2 (d) of the Clayton Act, as amended, because of their de 1nin-i1nis nature and the fact that these customers "ere not considered by respondent to be its customers but rather customers of its wholesalers. 12. The payments made by respondent to j\1merchants Broadcasting System for supplying the retail oi.ltlets of certain customers of respondents with in-store backgrOlUld music containing advertisements of 1'epondent:s products and the supplying by retailers of other pro1llotional activities cannot constitute a violation of Section 2. (e) of the Clayton Act, as amended, since neither the agreement nor the payments made pursuant thereto nor the shipment of any products to the stores receiving the background music can be considered to have been made in the course of commerce, as "coml1leree:' is described in the Clayton Act as amended.

13. The pa:pne.nts made by respondent to the Supermarket Broadeasting Systmn for providing background music in the retail stores supplied by certain of respondent's wholesale customers constitute 336 FEDERAL TRADE COr-fMISSIO),T DECISIONS Opinion 73 F.

violations of Section 2 (e) of the Clayton Act, as amended, since they were made in the course of commerce, as " COll11nerce" is defined in the Clayton Act, as amended, and ,were not accorded to all customers cOlnpeting with the favored customers on proportionally equal terms. ORDER TO CE.\SE AXD DESIST It is oNZe7' That respondent Yiyiano ~Iacaroni Company, a eorporation, and its officers, representatives, agents and employees, directly, indirectly, or through any corporate or other device, ill or in coll1"ieetion ,,-ith the sale of its macaroni products in commerce, as "commerce" is defined in the amended Clayton Act, do forthwith cease and desist from:

1. Discriminating, directly, or indirectly, in the price of such products of like grade and quality by selling to any purchaser at net prices higher than the, net price charged any other purchaser who competes in the resale and distribution of responclenfs products ,,-ith the purchaser, or with customers of the purchaser, paying the higher price.

2. Paying or contracting for the payment of anything of value to or for the benefit of any customer of respondent as compensation or in consideration for any services or facilities furnished or through such customer in connection "ith the offering for sale sale or distribution of respondent's products, unless such payment or consideration is made ayailahle on proportionally~' equal terms to all other customers competing in the distribution of such products. 3. Furnishing, contracting to furnish, or contributing to the furnishing of services or facilities in connection \with the handling, processing, sale or offering for sale of respondent's products to any purchaser of such products bought for resale, "hen such services or facilities are not accorded on proportionally equal terms to all other purchasers who resell such products in competition "ith any purchaser ,yho receives such services or facilities. OPIXIOX OF THE COl\BIISSION FEBRUARY 19. 1968 By DIXON Oonlmissione7' This matter is before the Commission on eross-appeals from the hearing examiner s initial decision. The complaint, in three counts, charges respondent, a corporation engaged in the manufacture and sale of macaroni products, with violating Sections 2 (a) (Count I), 2 (d) (Count II) , and 2 ( e) (Count III) of the Clayton Act, as amended. , ,, VIVIANO l\IACARONI CO. 337 313 .opinion The hearing examiner found that the evidence sustained certain the charges under each count and his proposed order prohibits violations of each of the three sections of the Clayton Act. Respondent has appealed from theexamil~er s findi1xgsof a violation under each of the three counts and complaillt coullseFs appeal is directed at the examiner s ruling that certain of the charges under Counts II and III have not been sustained. ",Ve ,,-ill iirst consider respondents appeal under each separate count.

CO"GNT I The price discrimination charge under this count is based on respondellt~s dealings "ith a. wholly owned subsidiary of the National Tea Company, the All-American Stamp and Premium Corporation, which in 1963, operated a group of about 110 retail stores with diyision headquarters in Youngstown, Ohio. ~Iost of these stores, which were located in eastern Ohio and ,,'estern Pennsylnlllia ere operated under the name Loblaw and the group ,,'ill hereinafter be referred to by that name.

Prior to 1963, respondent had been selling certain items in its line of macaroni products to about fifty of these LobIn w stores located in ,,-estern Pennsylvania. Sales ,,'ere made at respondent's regular list prices net the goods were drop shipped to the indi,-ic1ual stores. Billing for each shipment was sent to the Loblaw divisional office in Youngstown and payment was received from that office.

National Tea acquired the stock of the All-American Stamp and Premimll Corporation in .July 1962. As a result of this change in man- . age.lllent, respondent entered into negotiations with Loblaw in an attempt to place its entire line of macaroni products in Loblaw Youngstown ,,-are-house. These negotiations took place at two meetings in January 1963 bebyeen respondent~s principal officer, 1\11'. Samuel Viviano, nnd representatives of Lobla,,- The negotiations resulted in a package deal between respondent and Loblaw, the terms of which are not disputed. As found by the hearing examiner, respondent agreed:

(1) To give LabIa w free. goods in the a mount equal to the first two orders placed by Lobla,,' for t,yenty-nine of respondents macaroni products. This one-free-with-one offer on two orders was not limited as to the size of the orders that could be placed; (2) To sell its products to Loblnw at respondent"s 350-case price regardless of the actual quantity purchased; (3) To grant Loblaw a freight allm,ance of $1.69 per hundredweight for respondents products which Loblaw was permitted to pick \\ . :) y; 338 FEDERAL TRADE C'O~..DIISSIOX DECISIONS Opinion 73 F.

up in its o"n trucks at respondents plant in Carnegie, Pellnsylvania and transport to Lobla\Y s Yonngstmnl \yarehouse. This freight illlowance "as granted on the free goods as well as the products paid for Loblaw:

(4) To extend its normal credit terms of 2%-10 days to 2%-20 days on all purchases by LabIa, Counsel supporting the complaint relied on these lour provisions in the agreement in support or the price discrimination charge.1 I-:Io"ever in sustaining this charge the hearing e:s:a.miner placed no reliance upon the provisions for sales to Loblaw at respondent' s 350-case price. Com~ plaint counsel have not raised this issue. in their appeal. It is not disputed that~ as found by the hearing examiner respondcIlt granted Loblaw a freight allo"ance in the amount of 81.60 per hundredweightfor at least the period from ,January to December 19G3 (CX 40, 48, 50 , 51 , 61 , 65, 67, 6~ , 71: 7:2 7 :1:-102, HH-114, 117~ 11S 1508-1530). Competitors or Lobh,, ~ ,,-ho "-ere. responclenfs customers testified that they did not receive, and were not offered. a freight a11o,,ance by respondent. 1\11'. Yi,- iano testified unequivocally that respondent did not otICI' the $1.69 freight rate to all customers (Tr. 1:3:3). Additionally, the prices quoted on respondent~s published price lists were delivered prices and there is no indication on these lists that respondent granted a. freight allm,ance, in any amount (eX 1 , 2, 3). Despite these undisputed facts. responclenfs first argument on its appeal is that there is no substantial evidence that the $l.G9 freight allowance to Loblaw was discriminatory. It is responclenfs contention . that the evidence establishes that this freight allo\yance was available to all customers who desired to pick up goods at the Viyiano plant. The only evidence relied upon b~- respondent in support of this urgnment is the testimony~- of :3Ir. Viviano that his company used '; the. 3 OOO pound rate as a freight anowance for an:~ customer who "anted to pick up the goods. Ho"ever, 1\11'. Viviano s statement that this ,yas ;' company policy" is considerably weakened by the fact that respondent's pul)lished1 price lists specifically state that freight is prepaic1 and by the. testimony of customers that they hnc1 never been ofi'erec1 a. freight allmyance, Aside from this, ho"ever, the. reeoTCl establishes that the 5 000 pOlUlcl rate from lest)ondenrs )plant in Carne~rie. to Lobla\\ arehousC' in Youngstown ,,-as $.94 (ex:. 1640a). Thus, giving full c-l'edence to the testimony.-v of ~ll'. Yiviano. the 81.69 rate. QTflntecl to LabIa" ,yus di:s- 1 The agreement contained one other provision under which respondent agreed to pay its regular promotional payments to) LobI,HI" in acl'\"ance of performance of tlle promotional service. This practice is charged fts a 'Violation of Section 2 (d) of the CJ:l:-ton Act and will be more fully discussed in col1sidering the ni)j)eal of conl:11aint ('oangeL , . ,, vrnAXO :U.\CARONI co. 339 313 Opinion criminator:)T. Respondents further statement that where a customer bought smaller quantities the freight rate would increase according;ly, is literally true. However, respondent does not contend that it e:n~r granted such increased rates and the evide.nee establishes that it diel llot. :;\11'. Viyiano s testimony is that the 5 000pound rate \Y;1S granted regardless of the amount or the shipment and regardless of the loc.ation of the customer.

On this record, '~e find that the $1.69 per 11l1nc1rec1"ITeight. freight allmyance granted by respondent to LobIn \\ \\""fls discriminatory, and responclenfs argument to the contrary is rejected. Respondent s second argument is that its free goods offer to LabIa \\""as not discriminatory. The record in this regard discloses that for the three-month period beginning in :JIay 19(;:3, Lobla\\"" receiyecl at least 6 600 free cases of respondents products (eX 75-110). The ree~ ord further establishes that during this period customers of respondent who competed ,;-ith Lobb w, did not recei,-e and y, ere not oftered free goods by respondent.

The evidence relied upon b~- respondent is the testimony of 311'. Viyiano that for a period of from six to nine months, it was respondent' s policy to make an introductory ofter of one- free-Yrith-one on h\o orders to potential customers. eontl'ar~- to respondents argument however, this testimony further establishes the discriminatory nature of the offer. Obviously. if this otler ,yas available 0111\- to 1)otent/al customers, a price discrimination ,yas eft'ected between Lobla\\" and respondents established customers. competing ,,-ith Lobla\\"" in the. sale of responclenfs products. This, of course, is aside from the questioll whether the discrimination had the required adn~rse effect on competi()n "rhich is another issue. raised in responclenfs appeal. Ac1c1itionall~-, respondents argument on this issue ignores t\\'o critical factors. First, Lobla ,,- ,,-as not. trnly a potential customer since it is undisputed that prior to the otfer, respondent had been selling its products to about :fifty stores in the LobIn w chain. Second, respondent \\""ould have us view the one-free-with-one of1:'er as a separate introductory ofier. This is obyiously not the ease ,with respect to Lob);:!'y. Responclent~s free goods otter to that customer \yas actually a part of a package c1etl,l, combined .with other discriminatory terms having no time limitation, which must be considered ns a continuing price c1iscrimina tioll.

"'\Ye hold, on the, Iore2:oinQ" fa cis. that lest)onc1ent's free goods offer to Loblaw \yas discTiminatol'Y~ andl'esponc1ents argument to the contnn' y is also rejecteel.

~ Tl'. 3D3, 646, G85, 695, 1122, 1216, 1260. 340 FEDERAL 'TRADE COMMISSION DECISIONS ,Opinion 73 F. C..

As previously stated, Loblaw owned about 110 retail stores located in western Pennsylvania and eastern Ohio. Representatives of other retail grocery stores which 'were located in the same citjes and within a short distance of the LabIa", stores, and which did not receh~e free goods, a freight allowance or extended cash discount. terms from respondent, testified in support of the complaint.. It. is respondent's eon-tention that the evidence does not support the examiner s finding that particular Yiyiano products were sold contemporaneously by any specific. Lobla,y stores and their competitors. Respondent relies on testimony of former Loblaw officials that at the time of the Loblaw- Vi,-iano transaction, the Loblaw warehouse was carrying macaroni find noodle products of several of respondents competitors and that all of the products stocked in the. warehouse were not necessnrily for sale in all LobInw stores because the indiviehwl store managers usually~! exercised the prerog-atiye of determining ,,-hose products and which items he carried in his store.

The fnc.ts disclose. that. respondent's sales to LabIa." increased from about $i3:2. 1;:51) in If)(j:2 when it serviced about fifty Loblaw ~stores in Pittsburgh ,,-ith nine items, to about $293 800 in 1963 when it plac.eel hyenty-nine items in the Loblaw warehouse. By comparison, respondnfs sales to the brgest ,,-wholesale grocery company in Youngsto,,the Tmmukin Company, totaled about $13;3,000 in 1960. This ,,"holesales' sold to about 1;')0 retailer accounts in Youngsto,,"n and respondent s products were by far its leading macaroni line. In addition to the substantial volume of sales b~' respondent to LobIa w, the evidence discloses that respondents products were the number byo macaroni line in the Lobla", trading area and in the LobInw stores. Also. complaint counsel introduced into evidence representatiye Loblaw newspaper advertisements. offering: Viviano prodnets, which were published in 1963 in various cities in ,,"which nonftn-orec1 customers were located. One of these advertiseme.nts (eX 1631), published on :.\Iay L 1963, bears the address of nineteen Loblaw stores in the Youngstown trading area.

In further considering respondent's argument, it is to be noted tklt a former Lobla", official testified that, after the agreement ,with \:""iviano was entered into. shipment of respondent s products was dela:vecl in order that the line of macaroni products which Loblaw had in its Youngstown area stores at that time might be replaced. Obviously, therefore, the prerogative of the individual store managers in deciding w which brand of macaroni to carry was severely limited. VIYIANO MACARONI CO. 341 313 Opinion In these circumstances it would be ,wholly unrealistic to conclude as respondent contends, that individual LobInw stores ,were not shown to hate competed ,with nonfnvored retail grocers in the sa.le of Viviano products. As held by the Court of Appeals for the Kinth Circuit in the T,'i- Valley case ;) evidence tracing particular products to the shelves of two competing customers is not necessary. Thus, the facts of record in this case fully support the examinm' findings that respondents products ,were sold contemporaneously by the favored Loblaw stores and their nonfayored competitors. ,Ye next consider respondents argument that the price discriminations resulting from its deal ,with Loblaw did not hate the necessary potential to adversely affect competition within the meaning of Section 2 (a). In substa.nce, respondent refers to the hearing examiner finding that Loblaw received some,yhere betYleen 10% a.nd 12% dis- -count on its 1963 purchase of Viviano products and contends that the examiner erred in cone1uding that the benefits recei,'ed by Loblaw were of a continuing nature. Respondent says, for example, that the Viviano offer was "introductory,~: and "nonrecurrentt and constituted a "single transaction.

The Commission notes in this connection that there is no evidence that the combination offer of free goods, freight allmyance a.nd e.xtended credit t.e.rms was made to introduce respondent~s products into the store of any other potential purchaser. It was "introductory to Loblaw only in the sense that it induced that customer to substantially increase its purchases from respondent for at. least a year at a price lo"er than its competitors paid for the same goods. ,Yhile the offer and acceptance may constitute a "single transaction ~' there was a continuing price discrimination on every shipment of Viyiano !l' ooc1s to Loblaw from Januarv 1963 until some time in 1964. Tri-ralle!l Packi/lg As. Y. Federal Trade Commissio/l 329 F, 2el ()!)4 (9tb Cir, 1964), The court helel that where it is shown that the customers are opera ting on a particular functional le,el, such as retailing. it is onl~' necp;;sar? to esta blish that : ,~ * one (customer) has outlets in such geographical proximity~. to those of the other as to esta blish that the t".o customers are in general competition. and that the two Cllstomers 13ur('ha8eel goods of the same grade and quality:- from the seller within approximatel~- the same period of time, Actual competition in the sale of the seller s goods m1l:then be inferred even though one or both of the customers ha,e other outlets which are not in geographical proximity? to outlets of the other customer. 4 It is to be further noted that in our decision In the JIatter of SII/lbeam Corporatio/l Doeket ?\o, 7409 (1965) (67 F, T. C. 20), im'olving discriminatory promotional pa~.men ts. we held that where complaint counsel has shown that some of the fa,ored and disfavored customers are located in the same local trade area, the burdf'n shifts to respondent pro(luce el'idence that such customers were not competing in the distribution of the pro(lucts. 'Ve think the same rule applies in a matter invol,ing alleged discriminatory pricing, add respondent has not met that burden in this case. 342 FEDERAL TRADE CO3.L\IISSION DECISIONS Opinion 73 F.

"\Yhile al'Q'uil1Q' that the benefits to Loblaw frolll the combination offer ,were not of a continuing nature, respondent would al:3o view the free goods offer ~s separate and apart from the freight allowance and extension of credit terms. Respondent s contention is that, since the great majority of the free goods (86%) ,,-ere shipped in the periodfrom ::.\lay G to June 11 , 1963, there is no likelihood of injury to COm )etin8: nul'chasers.

In considering the benefits accruing to Loblow, the free goods offer cannot be so readily isolated from the freight allo\Vance and extension of credit terms. That LobIn w itself ,yas concerned ~with the benefits of the combination oller is shoYln by the fact that it refused to accept the free offer and a substantially lower freight allo"\\ance "hen first offered by respondent. :Morem- , the interrelationship bebyeen the terms of the offer is evidenced by the fact that the cliseriminatory freight allolyance, totaling about $2 200, "as granted on the free goods shipments.

Even assuming, holyever, that the terms of the agreement ean be considered separately, we believe that the discrimination resulting from the free 8:oods offer alone could easilv have a seriously adverse competitive effect.

The undisputed facts are that the free offer consisted or granting one case free with each case purchased on t".o unlimited orders covering twenty-nine of respondent's products. Loblaw received at least 601 free cases, having a total dollar value of $25 288. Since Lobla\V purchases of Viviano products for the year 1963 totaled about $:293 800, this constitutes a discount of over 8% on Lobla,,- s yearly purchases.

These facts nll18t be c.onsiclerecl in light of the competitive situation existing in the retail sale of food products in market areas in which respolldenfs products were sold. The examiner, in consickring this question, found that there is severe c.ompetition at all levels in the food industry and particularly in the mac.a.roni industry. This finding is not disputed and is fully supported by the record. Representatiyes of retail grocery stores and wholesalers testified that the cost of goods and retail prices determine their ability to compete. They further testified that they find it necessary to take adyantage of the 2% cash discount offered by suppliers and that these discounts are a vital factor in their profit and loss figures. Documentary evidence establishes the extremely low profit margins in the retail t::OTOCery,I industry.

The Supreme Court has stated that" * * ,~ S :2 (a) does not require fl. finding that the. c1isc.riminations in price have in fact had an ac1y, VIVIANO MACARONI CO. 343. 313 Opinion verse effect on competition. The statute is designed to reach such discriminations 'in their incipiellcy, ~ before the harm to competition is effected. It is enough that they ;mny' hat~ the prescribed effect. " 5 The court applied this test in the Edelmann case G 'irhel'e the marlmt conditions I,ere substantially identical "ith those established in this record. There, as here, purchasers or respondent's products sold in a market 'where competition \fas keen; these purchasers operated 01-1 small profit margins; and differentirtls of small amounts were impol' taut in the trade. In vie',," of these market conditions, the court sustained the Conimission s findings that the competitive opportunities of the less favored purehasel's ~ere injured when they had to pay substantially more for responclenfs products than their competitors had to pay.

There is testimony in this record that a difference of a few pennies a box in the retail price of macaroni is snfiicient to gain a sale for the grocer with the lower price. The evidence also establishes that as a result of receiving the free goods, Loblaw reduced prices and ran special displays and advertising on respondent's products. Thus, the price discrimination resulting from the free goods gave this favored Cllstomer a very substantial initial competitive a,clva,ntage \which it -\ya.s able to maintain by virtue of the other two aspects of the package deal, the discriminatol'J freight allm\ ance and the discriminatory extension of creditterms.

This brings us to responclenfs further argument that the freight allowance merely reflected its savings from Lobla\y s assumption of delivery costs. It is respondent' s contention that the $1:69 rate Iyas the officialless-than-truckload rate established by the Interstate Commerce Commission and state regulatory tariff sc.hedules and reflects the exact freight rate respondent paid in drop shipping the individual Loblaw- Pittsburgh stores prior to the January 1963 transaction. . In the first place, the $1.69 rate was the 1963 CO111111011 carrier rate lor less-thall-truckload shipments from Carnegie to Youngstown. Prior to 1963, respondent shipped only to Loblaw s Pittsburgh stores which ,were near its Carnegie plant. 1\lore importantly, :Mr. Viviano testified that respondent used its own trucks ill making deliveries in Pittsburgh and Youngstown. Also, at least during 1963, Loblaw used its O\vn trucks which had made Pittsburgh deli'i'eTies, to pick products at the Viviano plant. Under the circumstances common carrier rates have no relationship to the actllal costs that 'were involved, and this record is devoid of any evidence as to actual delivery Corn Products Refining Co. Federal Trade Corn1'nission 324 U. S. 726 (1945), E. Edelmann CO. Y. Pedera.l. 'Trade CoTlllwission 239 F. 2d 152 (7th Cir, 1956). , , ,, 344 FEDERAL TRADE CO~DIISSION DECISIONS Opinion 73 F.

costs, either as to respondent or Loblaw, which would support respondents argument that the $1.69 rate reflected its savings. ~Ioreover, as "-e lun-e previously stated, respondents price lists set forth three categories of deli yered prices for each item, intended to reflect the differing costs of freight between each ,,-eight category on drop shipments. An example of respondents calculated freight savings on one such price list, efi'ectiye :JIarch 14: , 1963, shmys a difference in price on respondents 20-1 pound cartons of Xaples type products of just three cents behyeen each of the price categories. Under' these circumstances, respondents argument that the $1.69 per hundred freight allmnmce merely reflected its savings as a result of the Lobla,,- transaction is rejected.

It must be here noted that, ,,-while the. hearing examiner concluded that the extension of credit from 2%-10 days to 2%-20 days granted by respondent to Lobla w as part of the pa.ckage deal ,,-as discriminatory, he did not make a specific finding on this point nor did he discuss the evidence relating thereto.

Respondent does not take issue with the hearing examiner s conclusion which is fully supported by the facts of record. 1\11'. Viviano testified that 2%-10 days were respondent's normal credit terms and these terms are set forth on respondent's price lists ,,-which were in effect at that time (CX 1 , 2 , 3). Additionally, customers competing with Loblaw stores in the sale of respondent' s products testified that they were. never offered credit terms of 2%-20 days. \Ye find, therefore, that by granting Loblaw extended credit terms, respondent discriminated between competing customers.

The evidence which the examiner failed to discuss deals with the adverse competitive effect of this aspect of the discriminatory package deal. Thus, one of responde.nt's large customers ,,-ho was not offered the extended credit terms testified that "In 20 days, the chances are that the merchandise "e would hate bought would have been sold by that time and in most cases the moneys would have been collected for it and, in effect e would have been operating on Vimco s monei' (Tr. 346-347). lie further stated that his company borrows short term money to enable it to meet discount terms of its suppliers and that " we had an extra ten days, that would give us a half million dollars of extra capital in our business" (Tr. 347). Several other nonfavorec1 customers testified that an extension of credit to 2%-20 days would be siQ:nificant and a definite advantaQ'e for the reason that this ".ould enable them to sell the products before they have. to pay for them, thus giving them more cash to use. in other ,,-ays (Tr. 314, 1094, 1118, 1208). ; \ VIVIA.1~O MACARONI CO. 345 313 OpiniQll Considering this testimony in light of the intensively cOlnpetitive situation existing in the retail food industry, we find that respondent' discriminatory extension of credit terms to Loblaw, even considered separate and apart froln the other discriminatory' price reductions in its package deal may have the effect of substantially lessening competition.

As a final argument on the issue of competitive injury, respondent states that a comparison of Lobla,y s competitive state with the various retailers called as injury witnesses in this proceeding rebutted any inference of possible adverse effect on competition. The premise for this argmnent, that Loblaw .was losing money before, during and after 1963, does not find support in this record. The only evidence on this point is the testilnony of the Loblaw Youngstown division manager, l\lr. l\Ialt, who did not take that position until l1farch 196.4. Although asked several tilnes by complaint counsel whether the division was profitable when he arrived there, :Mr. :J\lalt would only reply that "I wish that it were." Upon further questioning by the hearing examiner, 1\11'. l\ialt indicated that he considered such information to be a trade secret. Clearly, this witness testimony is of no value in establishing the. financial condition of Lobla w in 1963. Additionally, during the period of the price discrinlination, Loblaw was awhoUy owned subsidiary of the National Tea Company which, the record does show, enjoyed a profit in 1963. There is no evidence as to the organization and internal operation of the National Tea Company which would require that the competitive state of its Loblaw subsidiary be determined separate and apart from the overall operatioll of the company.

After fully considering the al'gwnents presented by respondent on this issue, the Commission finds that the evidence sustains the examiner s conclusion that the effect of respondent' s price discl'ilnination may be. substantially to lessen competition between Loblaw and its nollfavored competitors.

\Ve next consider respondent's argument that the hearing examiner erred in rejecting its affirmative defense under Section 2 (b) of the Clayton Act by finding that respondent had failed to establish that its lower prices to Loblaw were Inade in good faith to meet a competitor s equally low price. \Ve will consider respondents argument under the test laid down by the Supreme Court in the Staley case 7 ,yherein it was held that the statute requires the seller "to sho"- the existence of facts which would lead a reasonable and prudent person Federal Trade Commission A.. E, Staley JIfg. Co" 324 U. S. 7-16 (H14;:)). 418-345--72---- 346 FEDERAL TRADE COMlVIISSION DECISIONS Opinion 73 F.

to believe that the granting of a lower price would in fact meet the equally low price of a colllpetitor.

The facts relied upon by respondent are primarily the thirty-five year s experience of Mr. Viviano in the macaroni business, and the testinlony of two fornler employees of Loblaw. As previously mentioned, the agreement between Lobla w and respondent, ,which included the free goods, freight allowance and extended credit terms, was reached as a result of two meetings between these parties in January 1963. The :first meeting was attended by lVlr. Viviano and by Mr. John Dickson, the assistant sales manager of Loblaw s Youngstown-Pittsburgh Division. NIl'. Viviano and ~Ir. Dickson were also present at the second meeting, as well as 1\11'. Dickson s superior, l\t1r. Charles l\lIarcey.

These meetings were prompted by the fact that after the change of ownership of Loblaw in July 1962, Loblaw was approached by a lllllbel' of potential macaroni suppliers who urged Loblaw to take on their products. Mr. Viviano testified that he "figured:' these conlpetitors were LaRosa and Sons, Procino &; Rossi, San Giorgio, Gioia lVlacaroni Co., and Ideall\tlacaroni Co. Thus, respondent contends that it lo.lew the specific identity of its cOlllpetitors for the reason that the record shows that the first three of these companies made offers to Loblaw and these offers are a matter of record.

In support of this contention, respondent relies on the testimony of 1\11'. Dickson and :Mr. l\tIarcey, neither of whom was still employed by Loblaw at the tilDe of his testullony, and upon two physical exhibits. Respondent does not contend that these persons identified the competitors and it is clear frolll this record that neither of these uldividuals mentioned the names of any of respondent's competitors in their llleetings with Mr. Viviano. In fact, neither could remember whether he had even told ~Ir. Viviano that respondent was talking with other macaroni companies. Instead, respondent's argument is that, frolll 1\11'. Viviano s experience in the market, he knew which competitors were likely to make offers to Loblaw, and the testimony of Dickson and 1\tIarcey that they had received offers from LaRosa, Procino & Rossi and San Giorgio prior to their meetulgs with IvIr. Viviano simply confirmed his belief. However, this testlillony can be given little weight. In rebuttal, cOlllplaint counsel adduced testimony from the representatives of each of these companies who would have the authority to lllake such offers. The San Giorgio representative testified unequivocally that his cOlllpany did not lllake an offer to Loblaw. Although Proci~o & Rossi lllacle an offer, it was notsublllittecl until after the elate of the second llleeting with Loblaw, as established by the testinlony of VIVIANO MACARONI CO. 347 313 Opinipn Mr. Viviano and :Mr. j\farcey. LaRosa did make an offer prior to respondent' s negotiations with Loblaw. However, the LaRosa representative testified that he quoted only the regular prices on LaRosa secondary line out of courtesy to ~Ir. Dickson, who had requested an offer, since his company was not ready to enter the Y olu1gstown market.

The testiInony of the former Loblaw officials is further diseredited by the fact that contrary to their assertions that Loblaw had not received written offers, the offers made by LaRosa (for regular prices only) and Procino & Rossi (made after the second Loblaw-Viviano meeting) were submitted to Loblaw in writing and are a matter of record in tills proceeding (CX 1714, 1718). While we do not hold that it is necessary for respondent to specifically identify its competitors to establish a Section 2(b) defense, we do find that respondent's reliance upon its alleged knowledge of the specific identity of its competitors who made offers to Loblaw, as evidence of its good faith in granting a discriminatory price, is not supported on tills record.

We turn next to the question or whether respondent has shown sufficient facts to lead a reasonable person to believe that its lower price was responsive to the lower price of any competitor who may have been negotiating with Loblaw for its Youngstown macaroni business.

In the Staley case SUIH' the facts as stipulated were that the cliscriminations .were made in response to verbal information from buyers Etnel salesmen to the effect that one or 1110re competitors had granted or offered to grant like discriminations. :Moreover, it was stipulated that Staley granted price discril11inations on the belief that such reports were true. :However, the court referred to the lack of diligence on the part or Staley to verify the reports and stated that "The good faith of the discrimination must be sho,yn in the face of the fact that the seller is aware that his discrimination is unlawful, lU1less good faith is shown and in ch'cumstances '7.07/2Ch are peculiarly favoi"able to JH2ce dis0'7'i1nination adl/;ses (emphasis added). In the case before us, we ha' ~/e the prime example or such favorable circumstances, a large chain store organization negotiating \\ith suppliers to obtain a lower price for a staple food product.

The facts relied upon by respondent are not as strong as those stipulated in the Staley case. There is no evidence, nor does respondent contend, that it had been informed as to the offers made by its competitors. ~lr. Viviano, in ans,"\er to a question from respondent's counsel specifically testified that he didn t know how respondent's offer compared ::; , 348 FEDERAL TRADE CO:\L\:IISSION DECISIONS Opinion 73 F.

with those of his eompetitors. j\Iore importantly, the evidence does not 8support a finding that respondent made a diligent effort to investigate or verify any possible competitive offers. "\Ve do have the self-serving testimony of j\Ir. Viviano that he twice asked :Mr. Dickson the nature of competitive offers, which information \Vas not given him. However, 1\1r. Dickson failed to support this testimony, stating first that 1\11'. Viviano had not asked and then, later, only that he "may have asked." There is no evidence that 1\11'. l\Iarce~y was asked, nor is there any evide.nce that respondent made any other attempt to learn the nature of any competitor s offer.

Respondent places reliance upon the testimony of ::\11'. Dickson that he toldl\lr. Viviano that "we had offers equally as good as his. " HO'iYfY';7 , this testimony can be given little weight. First. such a statement could be made only after?' respondent had made an offer and in no way reflects that respondent was responding to a competitor s offer. Second, !tit. Dickson s testimony ,yasrefuted by his superior, :i\Ir. ~Ial'cey, who was present at the second meeting when the discriminatory freight allowance was added to the deal. In answer to the question as to the c.onversation "ith :Mr. Viviano, ::\Ir. i\I:arcey stated: It wasn t a matter of telling him anything. It ".-as a matter of discussing' a proposal, not saying to him that we ha ye anything because we didu t do business that way. I am sure that we did not say to him ;;",Ve have a deal better than yours or equal to yours, " or anything like that, or ,ye didn t tell him \\"ha t the other deals were because it was against the policy of the company to do bu:::iness that way. (Tr. 1514.

The most that can be said for respondent's Section 2 (b) defense that it had general knowledge. knO'iHl in the trade. that Loblaw wa, interested in obtaining a macaroni supplier for its Youngstown ware llouse. This was obviously not a situation, which often prevails, "here a supplier has to react immediately to information received from a buyer or a salesman in order to retain the business of a customer. Instead, the facts show that this price discrimination \yas the result of 1I.negotiations over a course of time between a chain store buyer and a supplier whose product had consumer preference and ranked second in sales in the trade area. It ,yas simply a situation of a large buyer attempting to get the best price it could from a seller who was willing to grant price concessions to obtain the business. As we have stated in the f(noll case 8 "'" '" '" if it appears from the evidence and he (the supplie,rJ would have sold to favored purchasers at the lower discriminatory price regardless of the price at which his print! sold. it cannot be said that he was metting a competitor s price in good faith 8In the Matter of Knoll Associates) Inc, Docket No, 8549 (1966) (70 F. C. 311). VIVIANO ilIACARONI CO. 349 313 Opinion even though it can later be established that his competitor was also selling at the lo,,-er price.

'\Ve conclude that respondent has failed in its burden of establishing that its discriminatory price was granted to meet the equally low price of a competitor.

Respondents appeal from the hearing examiner s finding that the respondent has violated Section :2 (a) of the Clayton Act in its dealings with Loblaw is denied.

COUNT IT Respondent has appealed from the hearing examiner s ruling that its promotional payments to Fox Grocery Company violated Section 2 ( d) of the Clayton Act.

The facts concerning the payments to Fox are not disputed. Fox, a "\\wholesale grocery company, has its headquarters and warehouse ill Belle Vernon, Pennsylvania, and seryes over two hundred retail grocer accounts located in four States. It has carried the complete line of respondent~s macaroni products for fifteen to t,,"entry years. Beginning in January 1963, respondent paid Fox yarying amounts for spot announcements on television and radio programs sponsored by Fox and featuring products sold by Foodhtnc1 Stores, a voluntary chain of supermarkets supplied by Fox. Respondent's participation on these programs began when the programs "ere initiated and was maintained on a continuous basis through the date of the hearings in ~InTch 19GG. During the first three years (1963-1965) respondent )aic1 Fox in excess of $20.000 for these Sl)ot announcements. Fox purchases from respondent during this period totaled $579 577. Fox also carried macaroni products of t\yO other suppliers, Procino & Rossi and 1\iuellers, but respondent's products outsold the other brands bv 5 to Respondent had other \,wholesale grocery purchasers who competed "\\ith Fox and "\\hose customers competed with Fooclland markets in '\Vest Virginia, ~laTyland, Ohio and Pennsylvania. Respondent concedes that it did not make like or similar promotional payments available to these competitors.

Respondent' s first argument under this count is that the requisite jurisdiction was lrtcking in its transactions with Fox. It contends that the payments were made to Fox in Pennsylvania, respondent's products were shipped to Fox s Pennsylvania warehouse, and the. participating radio and TV stations paid by Fox are located in Pennsylvania. Accordingly, it is respondent' s argument that the promotional . y, .. 350 FEDBRAL TRADE COMMISSION DECISIONS Opinion 73 F.

payments were not made in the course of interstate commerce, as required by the statute.

It is established in this record that respondent is engaged in interstate commerce and that Fox is engaged in interstate commerce. Foodland Stores is a voluntary chain, purchasing all of its supplies from Fox, as distinguished from Contract stores which are independent stores which buy from Fox only if they so desire (Tr. 760). There are Foodland ma,rkets located in states other than Pennsylvania, which are served by Fox and, during the period of the discriminatory promotional payments, seven of these stores located in vVheeling, ,Yest Virginia, were wholly owned by Fox. The contract between respondent and Fox provided that the Foodland markets would stock the products featured on the spot commercials (CX 1537). The television station carrying these commercials televises into the three out-of-state areas in which the Foodland markets are located (eX 494e). Additionally, contrary to responclenfs contention, the testimony or the Fox representative establishes that a ,"\Yheeling, ,Vest Virginia, radio station was employed to broadcast the Fox sponsored Foocllaild commercials paid for by respondent (Tr. 776).

In the Sheer/)ep07't case lO the court stated: :~ :,: '" we ha,e a manufacturer engaged in interstate commerce making an -allo"":lnce to two food chain cm:tomers '\yl1o are also engag' ed in interstate commerce in connection with products "old only in introstate competition, but with the nllowance being made or used in interstate commerce. This, we think. meets the tp8t of the statute that the allowance payments be made in the course of the commerce tlla t Petitioner wa~o engaged in at tll e time, The court flu~ther stated that: "'"\Ve do not read the statute to qualify payment in the ' course, of * :;: * commerce ' once thftt appears, by a further requirement that the payment be in connection 'with goods sold in interstate commerce, resold in interstate commerce. or that competition bet"'eell competing customers be in interstate commerce "he.re there is a.1npJe nexus to interstate commerce in the ",hole transaction as here.

On the facts of this case, the court's holding in the 81/refcepoTt ease full~~ disposes of respondent' s jurisdictional argument. Accordingly, Ire find that respondents discriminatory promotional payments to p Section 2 (cl) provirle8, ill part, tho. t : It shall be unlawful for any person engaged in commerce to pa~' or contract for the payment of anything of v~lne to or for the benefit of a em.tomer of such perf'on iI:. the COU1'se of such commerce 10 SlIrel'eport JIac(!rOlli lIjr;. Co, Pederol 'J'j'ade Commission 321 F'. 2rl '104 (5th Cir. :LOG;';). eert. denied, 375 D, S. 971.

VIVIANO MACARONI CO. 351 818 Opinion Fox were in the course of commerce, and respondent's argument on this issue is rejected.

Other than the commerce issue, there is no contention by respondent that the facts concerning its payments to Fox do not establish a pi~i1n.a facie violation of Section 2 ( d). However, respondent argues that its payments to Fox were made to meet the. specific competitive offers 'of two other maearoni suppliers, Procino &; R.ossi and La Premiata ~facaroni Company, and were therefore justified under Section 2 (b) Proeino &; Rossi products were in the Fox warehouse at the time Fox initiated the radio-TV show. La Premiata was not a supplier Fox at that time. The hearing examiner, relying on the evidence that Fox has been a customer of respondent for a number of years, that respondent' s products were Fox s largest selling maearoni product by 5 to l over any other competitor, and that respondent's payments for the radio-TV show were over and above its regular cooperative advertising payments, held that it should have been clear to respondent that "for either of its competitors to make like or similar payments, in view of their weak position with Fox, would have been clearly~' unlawful."

",Ye do not find it necessary to rule on this holding by the examiner since, in our opinion, respondent's Section 2 (b) defense fails for other reasons.

It is respondent' s position that this is the "classic situation" for the application of that defense for the reason that the competitors were identified and the amounts of their offers were known. In the first place, it is not clearly established that respondent knew the identity of the competitors since :Mr. Viviano testified only that he "suspected the other macaroni company was one of these three: Gioia, P &; R and San Giorgio." Be tha:t as it may. "-e do not think the evidence supports respondent~s contention that it knew the amount of any competitor s offer.

Respondent' s support for this argument is the testimony of 1\11'. ICemper, Fox vice president, that the prices charged for advertising on the Fox program was the same for all macaroni manufacturers. Thus, it is respondent's position that the amount which it paid Fox is the amount which competitors would have offered in order to participate on the program. Aside from the fact that there is no inc1ieation that any such information was conyeyed to respondenl 1\11'. ICemper s further testimony on this subject must be considered. He specifically testified that ~JI participants on the TV program did not take the same number of spots, stating that "They could not, because , ,, , Opinion 73 F.

e would not sell their products suffieie.ntly for them to afford it" (Tr. 785). lie further testified that some suppliers took "one or two spots three spots and participated intermitte.ntly on an "in-and-out basis (Tr. 771).

In our view, the testimony relied upon by respondent could only mean that suppliers were all charged the same amount per spot announcement, and not that all suppliers would pay the same overall amount.

It is, of course, well settled that a supplier claiming the Section 2 (b) defense does not have to establish the exact amount of a competitor s offer. However, under 8talev~ supra the supplier does hate the burden of taking steps to investigate competitive offers and thus to learn the existence of facts which would lead a reasonable and prudent person to believe that. the granting of promotional payments would do no more than meet the payments of a. competitor. \Ve recognize that ,ye are. here dealing with a Section 2 (b) defense to a violation under Section 2 ( cl) ,,-herens the Staley case in yol veel Section 2 (a.). HmyeTer, it has been judicially recognized that the Section 2 (b) prilleiples announced in the Staley decision also apply in a Section 2(d) case. Exquisite Fo'J'?n Bi' a8si(?i'e. lllc. v. Federal Tdlde OO'inmission 360 F. 2cl 402 (D. C. Cil'. 1965), oed. denied 38-4: U. 8. !)5D (1966) .

In this ease e have only the vague and general testimony of the Fox representative that he told respondent that competitors "would support the program'~ and that he "hid the cards on the table. " Respondent."s representative testified only that he ". as told that if he c1idn take the radio- T'l deal another macaroni company ,,-as going on. Respondent knew that its payments to Fox ,were oyer and above its regular cooperative promotional payments and that its products far outsold any other maearoni products in the Fox warehouse. AIs:o, as testified to by :Mr. ICemper, there ,,-ere no other TV programs like this one in the market. Despite these facts, there is no evidence that respondent made any effort to learn the nature of any c.ompetitive offers. Clearly, this record establishes an "entire lack of a showing of diligence on the. part of respondents to verify the reports" of competitive offersY ,Ye think respondents good faith defense fails for one additional. reason. Its payments to Fox began in J annary 1963 and continued for at least three years. The contract with Fox ,,- s rene,,-ed annually. Complaint counsel established by the testimony of the Fox representative that no other macaroni supplier "has attempted to get lJ. Federal Trade Commission Y. A. E, Staley ,Jffg. Co., supra, ).

VIVIANO MACARONI CO. 353 313 Opinion the progl :' since it was initiated and that ",ye have not solicited anybody" (Tr. 786). In view of this testimony, "lye think there was a burden upon respondent to show facts ,,-which would lead it to believe that a continuation of the discriminatory payments was necessary. Respondent made no atte,mpt to dOBO and its failure evidences a lack of good faith as required by Section 2 (b) . On this record, "lye hold that respondent has failed to sustain the burden imposed upon it by Section 2 (b) in its promotional payments to Fox. Accordingly, its appeal on this issue is denied. COUNT III The order issued by the hearing examiner under this count arises from payments made by respondent to Supermarket Broadcasting System (SBS The facts concerning . these payments are not in dispute.

As found by the examiner SBS, which is located in Chicago Illinois, provides in-store background music interspersed with ach-ertisements of products of various participating suppliers over loudspealcer systems in retail grocery stores. Respondent made payments to'\ard the cost of the SES prop:ram broadcast into retail outlets of three of its ,yholesale grocery customers: as follows: Golden Da,yn Foods, Inc., Sharon, Pennsylyania, September 196:2 to t uly 1965 , $9 000.

Reeves Parvin & Co. , I-Iuntington, Pennsyh-ania, truly 1962 to February 1964, $2 400.

Charley Brothers Company, Gl'eenslmrg, Pennsylnlllia, 1965 000.

The agreement between respondent and SBS provided that respondent' s products would be advertised over each of the retailer public address systems eight times a, day. The contract between SBS and the wholesaler provided that SBS would pay each of the \whole- Balers a 50 percent rebate on all advertising.' net revenues paid to SBS by suppliers.

The examiner found that respondent had other wholesale customers "ho competed with the three wholesalers receiving the SBS services and that the other wholesale customers did not receive and were not offered like or similar services. He further found that retail customers of the favored ,whole-salers competed with retail customers of nonfavored wholesalers. He held that the discriminatory services furnished by respondent through SBS violated Section 2 ( e) of the Clayton Act, and he rejected respondent's Section 2 (b) defense. Opinion 73 F. T.

Respondent does not contest the examiner s finding of illegality. Its position is that the circumstances are such that it is not in the public interest to issue an order. The alleged circumstances are that respondent was not aware of the rebate by SBS to wholesalers, that SBS advised respondent that the program.m was offered and available to all food outlets in respondent' s trade area, and that SBS further advised that the program was completely legal ",With reference to the rebate, the evidence shows that the practice was for respondent's representative to meet with representatives of the fa.vored wholesalers and SBS to discuss the program.m prior to respondent' s participation. ~loreover, the Golden Dawn representative indicated that respondent's representative was aware of the terms of the contract between SBS and the wholesale::: (Tr. 444). This contract specifically provides for a rebate from the advertising revenue to be paid to the wholesaler (CX 645c). Under the circumstances, little weight can be given to respondentis testimony that it WRS unawa.re of the rebate. In any event, the legality of the plan does not depend upon the rebate provision and respondent's alleged lack of knowledge is of no consequence. As found by the examiner, the violation results from the fact that respondent furnished services through SBS to three customers upon terms not. accorded to competing purchasers on proportionally equal terms.

Respondent cites the testimony of the SBS representative (Tr. 1045- 1046) in support of its sta.tement that SBS advised it that the program was available to all food outlets. Quite pla.inly, the SBS representative did not so testify. His COn1Jl1ents, relied upon by respondent relate only to the question of whether the program could be used by small grocery stores. Additionally, the contract bet',een respondent and SBS does not support respondent's position. In the contracts initially entered into betTleen these parties, SBS warranted that "the use of its system is availa.ble to any appropriate food trade group. Aside from the fact that SBS apparently determined which group was "appropriate " it is clear that respondent had customers "IVllich were not members of a food trade group a.nd were therefore pree.lnded from parlici pation.

Section 2 (e) imposes upon a supplier furnishing a service or facility to a customer the burden of assuring that such service or facility is accorded to all purchasers on prol)Ortionally equal terms. . Here, respondent ma.c1e no attempt to assume that burden. In the first place respondent did not even furnish SBS, upon whose representations it allegedly relied, a list of its customers. The testimony of Mr. Viviano establishes that respondent was well aware that the SBS in-store pro- ,, VIVIANO MACARONI CO. uO;) 313 Opinion granl w~s being used by only a few of its customers and not by their competitors ,y ho were likmvise respondent' s customers. Additionally, 1\1:1'. Viviano testified that although he knew that SBS had records shmving to whom the programs ,were offered, and was advised that he could see these records, he made no attenrpt to do so. The nonfavorec1 customers in this case were respondent's and not SES' customers. There is no authority for respondent's attempted delegation of its burden to SBS and, under the facts of this ease, its reliance thereon, rather than militating against an order, establishes the need for a prohibition against future violations. ,Ye find no substance in responclenfs further contention that it was informed by SBS officials that the program was legal. The testimony of the wholesalers who "~ere present at the meetings with rJl three parties, does not support this contention. :Moreover, we fail to see how sHeh information, if given, could carry any ,yeight. SBS was attempting to obtain suppliers to participate in its program, which was its it ".ouldsole business operation, and it is certainly to be expected that represent the program as being legal. Despite the obvious self-serving nature of any representations by SES, respondent made no attempt to verify the la\\fulness of its payments to SBS, well knowing that other competing customers \'";ere not being accorded equal treatment. )Ioreoyer, it is to be noted that the lawfulness of the SBS program is not really in issue. It is respondent' s discriminatory participation in the program which ".as found by the examiner to be illegal. Under the foregoing circumstances, we thi:ilk a prohibition in the ordel' against the future use of such illegal practices is required in the public interest and we, therefore, deny respondents appeal on this count.

PROCEDl.iRAL ISSUE Just prior to the first heft ring in this case, respondent filed an application for inspection and copying of documents in the possession of the Commission pertaining to all witnesses whom respondent had been notified would be. called as witnesses by complaint counsel. Certain of the documents requested were letters written to the Commission by such persons and copies of letters sent to thelll by the Commission, and all written statements given by them. At the first hearing, agreement ,vas reached as to these documents and they were made 3:vailable to respondent' s counsel In addition, respondent's application requested ;; All memoranda of meetings, intervie,ys and/ or telephone~ conversations made by Commission personnel" "ith all prospective Commission witnesses. The ex- ..

356 FEDERAL TRADE cO~nnssIO~ DECISIOXS Opinion 73 F.

aminer certified this portion of the application to the Commission which, by order and accompanying opinion issued on :March 9, 1966 denied the request.

Respondent now requests that we reconsider our denial in the light of our decision in Inte?' State Builde?'8, Inc. Docket No. 8624, April , 1966 C69 F. C. 1152J. Also, respondent contends that our previous ruling was erroneous under the Jencks rule. In the Inter' State B'ldlde1'8 decision, after reviewing at length the. requirements of the J end' rule, we remanded the case to the hearing examiner with directions that he examine interview reports prepared by Commission investigators of intervie,ys ,with 'witnesses who had testified in the proceeding to determine ,whether or not such reports were required under the Jencks rule to be. made available to the respondents for the purpose or cros3-examining and impeaching such \"ritnesses. ,Ve held that the Jencks rule required that any written statements prepared or approved by a witness relating to the subject matter of such witness~ testimony together with anv written statement "which represented a substantially verbatim transcription of any oral statements given to a Commission investigator by such witness ll1ust under the circum,stances of that ca3e~ be made a vaila ble to respondents counsel.

In reaching our decision in the Intel'- State BuiZdel's case, we pointed out certain requirements that must be met in order for the Jencks rule to apply in an administrative proceeding. Insofar as this present proeeeding is concerned, we eoneluded that J enel\:s statements may not be demanded until after the witness in question has testified on direct examination. The reason for this requirement, as '.ve pointed out, is that in some instances the witness might not ultimately be called upon to testify and in other instances a witness testimony might be unrelated to prior statements which he made. Second, \Ie held that under court decisions, respondent's counsel must make some sho\ling that a statement has been made to the government or that a report of an interview with the witness has been prepared by a government agent. In onr decision of :March 9, 1966 C69 F. C. 1104, 1106J, denying respondent's prehearing request for ,,"it-ness intervie,,' reports in the prese.nt case, we expressly stated that:

If there is any question whether or not the report is a sta ternent within the scope of Section 2 (e) of the statute (Jencks Act), the examiner may inspect the document and make a determination. But that would not occur until after the witness takes the stand.

1~ Jencks v. United States 353 V.S, 657 (1957), The rule laid down in that decisioll was codified in statuton- forlll in what is known as the Jencl~s Act, 18 U. C, 3500. VIVIA?-;O :MACARONI co. 357 313 Opinion N O\vhere throughout this entire proceeding did respondent's counsel make any request of the examiner to inspect any document for such purpose. Nor does respondent even contend that such request was made. NIoreover, respondents counsel diclnot ask or otherwise make any attempt to show that a report of an interview .with any 'witness who testified on behalf of complaint counsel had been prepared by a government agent. Given an opportunity to do so, respondent made no attempt to comply with the provision in our decision for invoking the Jencks rule, which prm-ision is entirely consistent Ivith our holding in Inte?' State Bu:iZdel'S. 13 Accordingly, respondent:s request that we reconsider on i\Iarch 9, 1966 , ruling in the light of the Inte?' State Builde1'8 decision and the Jencks rule, must be rejected. In this same connection, respondent contends that the examiner was inconsistent and el'l'ed in requiring its counsel to produce a memorandum prepared by one of respondents counsel of his interview with a defense Ivitness, j\lr. Dickson.

"'\Ve find no substance in this argument. As previously stated, respondent' s counsel agreed on the record to accept complaint counsel's proposal to turn over to the hearing examiner all letters and written statements sent to the Commission by complaint connsers ,,-witnesses and all letters sent by the Commission to those witnesses. Such documents were, in fact, produced. Complaint counsel requested similar documents that respondent may have received from its ,,-witnesses. One such document produced by respondent "as a copy of a letter it had received from one of its witnesses, 1\11'. Diekson. This letter disclosed that respondents counsel had forwarded to ~:Ir. Dickson a memorandum of an interview he had had with that ,vitness for that witness eonllllent. The record shmys that, in his letter, i\Ir. Dickson stated that the memorandum "as substantially correct except for certain corrections he was making. Complaint counsel argued that the nlemorandum thereby became an adopted statement of the witness and that they should have it for the purpose of cross-examination. The examiner so ordered.

Respondent does not dispute the facts. Nor does it argue that the witness Dickson did not adopt or approve the interview report. l\loreover, there is no contention by respondent that complaint colUlsel had in their possession any witness inteTyiew reports "which had even been 13 The court has stated with reference to a Jencks Act statement that "* * * the defendant must plainly tender to the Conrt the question of the pro(lucihilit~. of the document 11t 11 time whell it is possible for the Court to ordrr it produced, or to make an approvriate inquiry, If he fails to do so he may not assert. on appeal, that failure to order production 01' to undertake further inquiry was error. Ogden Y. United States, 303 F. 2d 724, 733 (9th Cir, 1962), Opinion 78 F.

seen by a witness. Respondent simply asserts that the examiner was inc-onsistent and erred in requiring it to produce the Dickson interview report ,yhile complaint counsel was not required to produce any witness interview reports they may have had in their possession. Clearly, there was no inconsistency in the examiner s rulings. The obvious reason for the difference in his rulings is the undisputed fact that respondent's witness approved and adopted his interview report.14 That such reports may be required to be produced for Crossexamination purposes is ,well settlec1.15 Oa'Jnpbell v. United States 8U2J1'a; United States v. Lanuna 349 F. 2c1338 (2c1 Cir. 1965). Although we find that, contrary to respondent's argument, the examiner was consistent in his ruling on this issue, we note that the examiner required the production of the Dickson interview report prior to the testimony of that witness. In this respect, he was in error. Cases decided prior to the examiner s ruling on this point have held that "Jencks statenlents" need not be produced until after a witness has testified on direct examination.16 However, at the time of the examiner s ruling, respondent' s counsel did not object on the grounds that production at that tinle was premature nor did they take an interlocutory appeal from the examiner s ruling. The record discloses that Ml.. Dickson took the stand imnlediately after the examiner s ruling. vVe have reviewed the testinlony of Nil'. Dickson on direct examination and we find that it expressly relates to the statements made in the report of the interview in question. Obviously, therefore, complaint connse-l \Yonlcllmve been entitled to the report for cross-examination purposes after the ",itness' direct testimony. Respondent does not contend nor has it shOlnl that it '"as prejudiced or ill any ,yay put-at a disach-antage as a result of the premature production of the report. Under the foregoing circUll1stances, we find that respondent was not deprived of a fair hearing as a result of the exanliner s action and, accordingly, respondent's appeal on this issue is denied.

COMPLAINT COUNSEL S APPEAL Count II Complaint colUlsel have appealed from the examiner s rulings dismissing certain of the charges lmder this Section 2 ( d) colmt. 14 Ga-mpbelZ v. Un-ited States, 373 U. S. 487 (1963). The fact that the witness did not sign the report is immaterial. Bergman v. Un-itecl Sta.tes, 253 F. 2d 933 (6th Cir. 1958). 15 In our decision in the Inter-State Builders case, we expressly held that an~' written statement approved by a witness relating to the subject matter of bis testimony must be made available to respondent' s counsel.

1G B. v. Vapor Blast Go. 287 F. 2d 402 (7th Cir. 1961) ; B. v, Gharnbers Alfg, Gorp. 278 F, 2d 715 (5th Cil'. 1960). VIVIANO MACARONI CO. 359 313 Opinioll The examiner found that in 1963 respondent nlade payments to State Food Stores, a chain of retail grocery stores in west Virginia in the amount of $10 per week for participation in a radio progranl sponsored by that customer. He further found that similar payments were not offered to that customer s competitors on any basis, thus establishing a prima facie violation of Section 2( d). However, he folUld that a competitor of respondent, San Giorgio, had made a bona fide offer to participate on the radio program and that respondent' offer was made in good faith to meet this competitor s offer. Accordingly, he found that respondent's payments were justified under Section2(b).

The facts, as folmd by the examiner, establish that respondent' offer to State Food Stores was made in response to verbal information received from respondent' s salesman, )1:1'. High, that San Giorgio had offered to participate on the radio program. This is the same factual situation as that stipulated in Staley, 8f/.t;p1'a. .J.l\.s we have previously stated, the doctrine of Staley applies in a meeting competition defense to a Section 2 ( d) charge. Thus, the Supreme Court in that case held that there is a burden upon a supplier lUlder these facts, to take steps to verify the existence of the lower offer of a competitor. Respondent concededly made no attempt to verify its salesman s report and, under the circumstances of this case, we think its failure to do so evidences a lack of good faith.

. Respondent bases its defense on the testimony of Mr. Viviano and its salesman, :Mr. High. lVlr. Viviano testified he was contacted by ~1:r. High with respect to the radio program and was told that "a competitor' was going on and we were going out if we didn t go " (tr. 192). He further testified that he was told by ~1:r. High that the competitor was San Giorgio and that it had offered State Food Stores $10 a week to go on the program. Additionally, he stated that, at this time, San Giorgio was selling to vVheeling ,Yholesale Grocery, the wholesale . supplier of State Food Stores.

~1:r. High testified concerning two conversations he had with officials of State Food Stores. The first occurred in a State Food market and was prompted by the fact that he noticed some San Giorgio macaroni on the shelf. Upon asking why, he was advised by 1\1:1'. Cassius general nlanager of State Food Stores, who was accompanied by the president of the company, that these were samples given to them by San Giorgio, that San Giorgio was offering them "some free goods and a lot of advertising money if we take them in" and that " don t think we need both San Giorgio and Vilnco." Mr. High further testified that about a month or two later, he was approached on the Opinion 73 F.

street by ~ir. Cassius who explained to him that several suppliers were going together-r on a radio progranl with them, that they "were giving a very low cost per spot announcement " and that "he wanted me to contact my office or the company and see if we couldn t participate. This was the entire extent of that conversation. It was allegedly on the basis of these two conversations that he told ~1r. Viviano that San Giorgio had offered to participate on the program, that it had offered $10 per week, and that if respondent did not participate, it 'Would lose the business. There can be no doubt frolll this record that, contrary to respondent's argmllent, no such information 'Was conveyed to 1\11'. High by a State Food Stores' representative. At best, his report to respondent "as lllerely a guess, resulting from his first conversation with 1\11'. Cassius. And that conversation was not initiated by the customer but by the salesman.

The facts establish that, contrary to respondent's assertion, the wholesale supplier of State Food Stores did not carry the competitor s product at the time the payments were initiated (tr. 1442, 834). :.\ioreover, respondent's products were this customer s main maca-rolli line (tr. 1440) and the recipient of the discriminatory payments was one of the biggest customers of the salesman upon whose report respondent relied (tr. 1439). Despite these facts, respondent would have us believe that it would have lost this accOlmt if it had not acted on tins salesman s report and made a payment of just $10 a week as a promotional allowance for this customer s radio program. The Staley decision imposes upml a supplier claiming the "good faith" defense, the burden of showing that it used due diligenee in verifying the cOlnpetitive necessity for a discriminatory price. Above anything else, the facts of this case clearly establish that respondent should have used some degree of care in determining the validity of its salesman s report. This it failed to do. ,Ve nlust conclude, therefore that respondent has not shown justification for it~ discriminatory paylllents to State Food Stores, and its defense that it acted in good faith to meet a competitor s offer lllUst be rejected. One further comment is required. Re.spondent also relies on the testimony of its representatives, ~1r. Viviano and ~1r. High, concerning alleged competitive inroads lllade on respondent's customers for several years in this market by competitors, including San Giorgio. Respondent offered no doclUllentary or other evidence in support of its statements. However, assuming the validity of this general testilllony, it does not establish that any competitor made an offer of a promotional allowance to State Food Stores which necessitated respondents payments.

,, ...

VIVIANO MACARONI CO. 361 313 Opinion 1Ve hold that the hearing examiner erred in sustaining respondent' Section 2 (b) defense and, accordingly, we grant complaint counsel's appe,al on this charge.

Complaint counsel have also appealed from the examiner s ruling that certain payments made by respondent to a retail grocery chain By- Rite M::markets, Inc., did not violate Section 2 ( d) . ~.n exhibit introduced by complaint colu1sel (CX 500) discloses that, for the period April 1, 1963, to July 1, 1963, re.spondent paid Byite :Markets a total of $195 for radio advertising. In substance, complaint COlUlsel contend that the testimony of ~Ir. Viviano establishes that these payments were not made available to respondent' s customers competing with By-Rite :NIarkets.

,Ye have review,ved the testimony ofl\lr. Viyiano on this point and we agree ,,-ith the examiner. Contrary to complaint counsel's contention, it cannot be found fronl ~lr. Viviano s testimony that respondent' payments to By-Rite l\iarkets ,,-ere other than a part of its regular cooperative merchandising agreement, offered to all customers. Since this is the evidence relied upon by complaint counsel, we find with the exa.miner that they have failed in their burden of proving that respondent' s payments to By-Rite l\Iarkets were discriminatory. Accordingly, complaint counsel.s appeal on this issue is denied. One additional issue has been raised by complaint counsel in their appeal under Count II. The.y c.contend that the examiner erred in finding that the evidence does not support the c.charge that the disc.riminatory prepayment of advertising allowances by respondent violated Seetion 2 (d) .

The evidence establishes that respondent granted prepayment of its periodic. advertising allowances to six of its largest retail chain and wholesale a.ecounts, including Loblaw. The allmyances were given to these customers by the issuance of a credit memorandum -at the time the lllerchandise was invoiced a.nd shipped. Respondent had other c.custom'ers, competing,with the six favored purchasers, ,yllo did not rec.eive payment until after they had supplied respondent ,,-ith proof of performa.nce of the promotional service. This normally involved a dela.y of about 60 davs. The record discloses that the dollar value of the allowances prepaid to three customers in the first eight months of 1963 ere: Loblaw-$11 875; Cha.rley Brothers- 448; and Thorofare ~ia.rkets- 232.

The examiner states that respondent ,yas "apparently willing" to extend prepayment to any customer who desired prepayment, particularly if the customer claimed that it ,vas a hardship not to obtain the money immediately. The only record support for this statement is the 418-345-- 72---- , 362 FEDERAL TRADE COMlIfISSION DECISIONS Opinion 73 F.

testimony of 1\11'. Vi viano that respondent ad vised its sales force that such prepayments would be made to any customer who claimed a hardship. l-Io,\ycn' L pn"ll this tpstimony is l'ollsic1Pnlbly weal:ened by the testimony of one of respolldent~s salesmen that ""'\V e don t pay anybody before they have performed the performance, sir. In any event, this record does not support a finding that prepayment "as made "availabJ(~" to all competing customers I,within the meaning of Section 2 (d), if that is what the examiner intenl~ed. Ob':iouslv, a eustOl1ler must kn0', of the existence of a promotional offer be.fore. it is available to him. T:"(())ity F,-dl' Papet' J.1Ii21&. Ino. Fedentl Trade 0 OllI1n is/Jion. 311 F. :2cl 480 (:?c1 Cir. 19(;2). Respondent's alleged policy p bces the burden on a customer to request equal treatment before prepayment would be aIlolyecl. ~Ioreover, respondent produced no evidence that any salesman ever carried out its alleged instructions. This failure itself supports an inference that the information was not. generally passed on. Vu'nity Fail' Pape1' j111?Zs ~ Inc. ~ 8up?' a. Finally, the testimony of several of respondent' s customers that they "ere never offered prepayment of promotional allowance by respondent establishes that such prepayment was not made available as required by Section 2 ( d) . In disl"!.1issing this charge~ the examiner has held that the prepayments Iyere, not. discriminations aT a. sufficiently important nature to bottom a finding of violation of Section :2 (d). ",Ve disagree. The evidence in this case goes beyond the requirements of Section 2 ( d) and affirmati very establishes the need for an order prohibiting this discriminatory practice.

A representative of a wholesale grocery company, who stated that respondent was one of its two largest macaroni suppliers, testified os follo'ys concerning advance payment of respondent' s promotional allowance to his company:

Q. Had it been offered payment at the time of ordering rather than at the time of proof of performance. would that have been of significance to you? A. Yes, sir.

Q. Why? A. Because it prevents us spending our money. (Tr. 1213. The significance of this testimony is emphasized by the previously clisenssed testimony of another wholesale customer of respondent concerning eash discounts. This customer first testified that if it were not for cash discounts, his company would not make a profit. In testifying concerning the advantage of a 2 percent cash discount in twenty days rather than ten days, this c.customer stated that the additional ten days would be significant for the reason that the goods would probably have been sold within that time and that the company would have been VIVIANO MACARONI CO. 363 313 Opinion ope'i'Ctt-ing O'1'/; '7'respondent' s1?wney. He further testified that his company reguhrly borroTI"s short term money for from 30 to 60 days to meet discount terms.

The testimony of responc1cmt's representati \. ~ ::\1;' . Yiviano, disdoses the importance of prepayment of the promotional allowance. In ans\yer to the question whether some customers rccei "ed their payment immec1iately, he stated that:

There were some customers who saiel "'Yhy tie up our money for 60 clays?" They said, " You are tying up a considerable amount of cash, ~() send us a credit llWillOrt111durn with your invoice. . .

As ,ye have found under Count I, profit margins are very low in the grocery business, and available cash is extremely important (tr. 314 347, 1094, 1118, 1208). One of respondent' s customers has stated that his grocery operation is "a penny business " while another testified that to stay in the competitive race" you have to take full advantage of all cash discounts, special promotions and advertising allowances offered by suppliers.

Viewed in the context of the competitive situation prevailing in the grocery business, we find that the examiner erred in concluding that respondent' s discriminatory prepaynlent of pronlotional allowances not of a sufficiently important nature to warrant a finding of a violation of Section 2 ( d) .

'Ve hold that respondent has violated Section 2( d) by prepaying advertising allowances to certain customers and not according such prepayments to competing customers on proportionally equal terms. The.refore, complaint counsel's appeal on this issue is granted. Count III The practice placed in issue by complaint counsel ull(ler the Section :2 (e.) count is similar to the. SBS broadcasting serdce discussed under respondent's appeal As found by the examiner, respondent made payments to :Merchants Broadcasting System (NIBS) for providing in-store background music interspersed TI"ith advertisements of respondent's products and those of other particip~ting suppliers, to the retail stores of four supermarket chains and fi \-e independent grocers located in Pittsburgh Pennsylvania. The payments began in Se.ptember 1962 and continued through September 1963. Respondent paid a total of about $18 500 for the lUBS service, of ,-..-which $17 670 was paid for the benefit of the four chains: Loblaw, Kroger, Thorofare and Giant Eagle. Respondent' contract with lYIBS provide.c1 that a re.bate of 20 percent of all revenue 364 FEDERAL TRADE CO),IMISSION DECISIONS Opinion 73 F.

paid by suppliers, a-after deduction of certain c.costs, would go to the four chains. These payments were never made since the cost of the program xceeded the amount of the rebate. During the period of the payments for the 1\IBS services to these customers, respondent had other customers competing "ith the ffn-ored customers who "ere not acc.orded similar services.

The examiner found, and it is not disputed, that the broadcasts ,which originated in Pittsburgh, did not go to. any stores outside Pitt~burgh, and that respondent, located a short distanc.e from Pittsburgh, made payments to ~IBS in Pittsburgh. On this basis, he held that there "ras no interstate commerce involved in the arrangements. ,Ye do not agree.

Respondent' s sales of macaroni products to two of the favored chain store customers were in interstate comme-rce. Loblaw s warehouse was in Youngstown, Ohio, and respondent's products were shipped to that ,yarehouse for redistribution to Loblaw s retail stores in Ohio and Pennsylvania. Respondent invoiced its products to Loblaw s Youngstolvn office a.nd was paid by that office. Also, the record shows that respondent's sales to I\:roger were made in Ohio and tha.t the goods ,were shipped to ICroger s ,va-rehouse in Solon, Ohio (eX 1;356-1371) .

"'\Ve do not think the fact that the payment for a promotional Ben-ice was made to a third party within the state or that the service itself ,yas rendered intrastate is determinative of the question whether the service was furnished in the course of intersta.te commerce. Here, the basic sales to two c.customers were in commerce. The services paid for by respondent were furnished in connection with such interstate sales. In our opinion, this satisfies the commerce requirements of Section:2 (e) .

Additionally, the benefits resulting from these promotional payments by respondent, an interstate business, accrued to the treasuries of three interstate companies. Such payments thus profited these companies not only in their local Pittsburgh stores but in their entire in- 17 Section 2 (e) does not contain the language "engaged in commerce" or "in the course of such commerce, " as found in Section 2(d). Howe\'er, these limitations ba\'e been supplied in Section 2(e) b~' judicial interpretation. Elizabeth Arden, blc, v, Federal Trade Commission 156 F, 2d132 (2d Cir. '1946), IS Rowe comments that: "Fundamentally, a promotional payment becomes amenable to Sections 2 (d) and 2 (e) by virtue of its 'connection' with a sales transaction which is governed by the Robinson-Patman Act, Accordingly, the jurisdictional status of a promotional arrangement is derivate from the sale to which it is appended, apart from any special requirements of Sections 2(d) and 2(e). p,,'ice Discrimination Under the Robinson- Patman Act at 393, .. .

VIVIANO MACARO)JI CO. 365 313 Opinion the 8hier' e2Joi't case 8upi' has terstate operations. The court in stated that:

The purpose of the Act was to protect small merchants from discriminatory practices at the hands of manufacturers or suppliers favoring large purel1asers. The discrimination here was in the course of interstate commerce, It ran from one engaged in interstate commerce to others engaged in interstate commerce. It favored inter::;tah,' el1ain operators in their whole business including their intrastate competition with grocerymen in Louisiana in the sale of Petitioner products ,v11o were not offered allowances on proportionally equal terms. For the foregoing reasons, ,ye hold that the examiner erred in ruling that there ,yas no interstate commerce involved in the discriminatory services furnished by res )ondent through 1\IBS. As a second QTounds for dismissing' this chaTQ'e. the examiner found that the )IBS scryice as a practical matter ,yas available to all grocery retailers and wholesalers in the Pittsburgh area. This finding is based principally on the testimony of the lUES representative that the company attempted to notify all retail stores by placing ads in two newspapers of the availability of the service, and by mailings to all QTOCerv stores listed in the Yellow Pages of the Pittsbunrh telephone directory. Also, he testified that personal contacts wei'e made ,with retail grocers in an attempt to sell the services to retailers in the Pittsburgh area.

The contract between respondent and lUES proyic1es that: The company (MBS) hereby represents that participation on this program has been offered 011 proportionately equal terms to all retail grocery, drug, and similar outlets h1 the area covered by this agreement. The testimony of the j\1BS representative, relied upon by the examiner, relates to the methods used by :JIBS to comply with this provision in the contract.

Under Section :2 (e), a. supplier has the legal responsibility of aecording promotional services to all competing purchasers on proportionally equal terms. In our opinion this record establishes that respondent did not meet that responsibility. In the first place, it is conceded that respondent itself made no attempt to inform its customers of the service provided through 1\IBS. The testimony of its representative establishes that respondent was a,yare that the four chains and five independent grocers were the only customers receiving the service. Respondent did not furnish 1\ibs with the names of its customers nor did it attempt to learn the methods :MBS might employ to comply with the provision in its contract. Respondent made no inquiry among its customers as to "Iyhether they had been offered the. :L\IBS service. , , Opinion 73 F.

Moreover, despite a provision in its contract with l\fBS that ~IBS would make available the names of the outlets to whom the service had been offered, respondent made no attempt to determine whether these names included its competing customers in the Pittsburgh area. Representatives of respondent:s customers who competed with the fa vorec1 customers te.stified that they had never.r been informed of the availability of the ~lbs services' \Ve do not hold that respondent can delegate its responsibility under Section 2 (e), as contended by respondent. However, even assuming that such delegation is permissible e conclude that under the facts of this case, respondent' s reliance on the representation in its contract "with ~ibs falls far short. of the duty imposed upon it of according equal treatment to all competing customers. Respondent's attempt to delegate its duty under Section 2 (e) must be rejected for yet another reason. The eon tract provision represents only that the :i\lbs program "- as offered to all retailers in the area. In our opinion, this type of in-store broadcast is not actually "accorded" to customers within the meaning of Section :2 (e) lmtil they are fully advised as to the identity of the participating suppliers. ,7\1 e have no doubt that a. customer would be greatly influeneed in his decision whether or not to accept the service by the type of products to he advertised and the business reputation of the suppliers. Such noti i-icatioll is not provided for in the lUES contract and the evidence discloses that customers "'ere not so informed. Certainly. a service is not ac- (~orc1ed to a customer "hen substantive information is not made known. Aside from the failure to name pnrticipating suppliers, we find that the three methods of notification allegedly used by ::\1BS, and relied upon by the examiner, "ere defective.

A copy of the later of the two nibs newspaper ads, which was published a year before respondent's participation in the program, is in the record (eX 573). It sets forth certain charges ,,-which must be paid by a retailer for installation of a sound system in his store. I-Iowever the evidence discloses that the chains which participated in the program never actually paid these charges. This difference betlveen the ach-ertised offer and the service actually pro,-ided would be of vital importance to a prospective customer.

Respondent did not produce a copy of the direct mailing allegedly nlac1e to all retailers in the Pittsburgh area. However, the MBS representatin~ testified that this mailing, ",-which was undertaken onl~- one time, was similar to the newspaper ad, using the. same- guidelines. Thus 19 Tr. 1016, 1021 ; 1002, 1010; 1066; 991, 995 ; 914. VIVIANO MACARONI CO. 367 313 Opinion retailers who may have received the mailing were not properly informed as to the terms of the offer.

Finally, the testimony as to personal solicitation is general and vague, leaving open the important question of the method used by ~:fBS to select retailers to be directly solicited. No reliance can be placed on this testimony since it is clear that all retailers in the Pittsburgh area were not per::orally contacted by :J\IBS, andl\fBS did not know who respondent's customers were in that area. On the facts in this record, we find that respondent did not accord the l\1BS service to an of its customers in the Pittsburgh area on proportionally equal terms as required by Section :2 (e). Accordingly, complaint counsel's appeal on this issue is granted. SCOPE OF THE- ORDER As a final issue, complaint counsel contend that the hearing examiner s order should be amended. Speeificia.lly, they ".oulc1 include definition of net price in the prohibition against further price discriminations, and "ould add bvo provisions to the order. - 1Ve agree with complaint counsel that a. definition of net price is required in the prohibition against future price discriminations. The illegal discriminations upon which this prohibition is based were granted by respondent by means of free goods, freight a.llo".ances and extended credit terms. Thus, the discriminations were not the result of an established disc-count schedule but were granted as the result of direct negotiations between respondent and a large chain store purchaser which was attempting to obtain the lowest possible net price in a form acceptable to this supplier. That respondent was willing to accede to discriminations in the forms granted compels the conclusion that, to be effective, an order against future price. discriminations nlust extend to other me.Rns by which a reduction in price nlay be accomplishe.d. V,T e will include a definition of net price in our order for that purpose..

The first provision that complaint counsel would add to the order would require. respondent to notify all competing customers concerning the terms, details, and availability of any special prices, cash discount terms, or advertising allowance programs extended to any customer.r.

,Ve recognize, of course, that the. addition of such a provision to an order must be warranted by the facts of the particular ease. In this proceeding, re.spondent has been found to have engaged in practices which violate Sections 2 (a), 2 (d) and:2 (e.) of the Clayton Aet. For 368 FEDERAL TRADE cO::.nlISSION DECISIONS (Opinion i3 F. T. the most part, these violations resulted from specially negotiated deals between respondent and the fa vorecl customer. The discriminations were in several different forms and, being directly negotiated, would likely be kno,\yn only to the. customer who reaped the benefits. l\1:oreover, these discriminations occurred in the grocery industry where competition is keen and profit margins are extremely low. ,Ye think that a vital factor contributing to respondents ,yillingness to grant these discriminations in their various forms is its confidence that nonfavorecl customers would be unaware of the benefits conferred on their competitors. Accordingly, it is our opinion that to presen' e competition in this industry, respondent should be required to publicize to all customers any future changes in price, cash discount terms or promotional allowances offered to any customer.2o Such a provision ,,-ill be included in our order.

The second provision that complaint counsel would add to the order '\vould require. respondent to notify the Commission of the terms any future price schedule \which establishes a different price for any individual customer, and submit data. in support of the cost jllstificatioll of such price differences. Hmve.yer, respondent did not make any attempt to defend its price discriminations in this case on the grounds that they were cost justified and, accordingly, we do not believe that the second provision requested by complaint counsel is warranted. The hearing examiner s order ,,-ill be modified in acconbnce with the. foregoing discussion.

ADDITION AL Issues During the course of the oral argument in this ease, Commissioner Jones asked respondent's counsel for his transcript references to certain testimony. Also, there was a discussion bet\veen Commissioner Elman and complaint counsel concerning a letter signed by respondenfs witness, John Dickson, and a memorandum prepared by respondent' s counsel of his interview with :Mr. Dickson. Subsequently, respondents counsel directed letters to Commissioner Jones and Commissioner Elman concerning the respective discussions, and forwarded copies of both letters to each of the other COlllmissioners and to complaint counsel. Attached to Commissioner Jones' letter were excerpts from the official tntnscri pt. Respondents counsel enclosed with his letter to Commissioner Elman a copy of his interview report. 20 The court, in upholding such a requirement in a Section 2 (a) Commission order, has stated that .. . '" . publicity in the future is tailored to prevent recurrence of past conduct which abetted illegal discrimination. WiWom H. Rol' er, hlc. - Y. Federal Trade Commission, 374 F. 2d 622 (2d Cir. 1967). VIVIANO MACARONI CO. 369 313 Opinion Complaint counsel hate filed formal ans,yers to both of respondents letter submissions. They contend that the transcript excerpt forwa,rded to Commissioner Jones are not complete and that the copy of the letter signed by ~Ir. Diekson should have ac~ompaniec1 the copy of the interview report sent to Commissioner Elman. However, complaint counsel went beyond objecting to respondents submissions a.nd argued the merits of the matters to which they relate. Respondent then filed motions requesting that eoll1plaint counsels objections be stricken from the record or that respondent be permitted to file answers thereto. Considering the circumstances leading to respondents submissions we find that complaint counsel "as not justified in attempting to rei argue the merits of matters ,,-which had been fully briefed by both parties. Accordingly, respondents letters and the attachments "ill be received in the record but complaint counsel's answers and respondenfs subsequent motions relating thereto will be excluded. One final matter remains. In August, 1967, the stafr reported to the Commission on a request for an advisory opinion. In its report, the staff made a number of references to this case. By letter of September 12 1967, the Secretary advised respondent's counsel that because of the possibility that the references to this matter might be considered iJ paJ'te communications, the Commission had directed that the portions of the staff report which contain such references be made available to respondent's counsel for purposes of this proceeding, and also made a part of the record herein on an in came7' basis. A copy of the relevant portions of the stairs report was forwarded to respondent's counsel.

Respondent's counsel then fmyarc1ec1 a letter to the Secretary requesting that each member of the Commission 'who had read the report disqualify himself from further participation in this proceeding. Two Commissioners responded by letters to respondent's counsel, declining to disqualify themselves. Respondents counsel then requested that its letter to the Secretary be treated as a motion to be acted upon by the Commission.

As grounds for the requested disqualification, respondents counsel argues that the staff's report contains matters generally to the prejudice of respondent and constitutes an eJ3 7)((,)'te communication. ,Ve find no merit in this argument. Respondent has been prm-ic1ed "cith a copy the relevant portions of the staff's report and it is now part of the record. Respondent is thus fully advised as to the staff's comments and has been given an opportunity to discuss the report and to make known its position and present any argmnent that it desires concerning the matters referred to by the staff. Accordingly, we hold that responclellt !!.. .

370 FEDERAL TRADE COM~nSSION DECISIONS Final Order 73 F.

has not been prejudiced by the staff' s report nor has it been denied due process. Its motion requesting disqualification is, therefore, denied. For the reasons set forth herein, respondent's appeal is denied and the appeal of counsel supporting the complaint is granted in part and denied in part. The initial decision will be modified to conform to the vie~s expressed in this opinion.

Commissioner Elman dissented.

Commissioner Nicholson did not participate for the reason oral argument was heard prior to his appointment to the Commission. FINAL ORDER This matter having been heard by the C0l111nission upon crossappeals frolll the hearing examiner s initial decision; and The Commission having determined, for the reasons stated in the accompanying decision, that respondent's appeal should be denied and that the appeal of counsel supporting the complaint should be granted in part and denied in part; and The. Commission havin. further determined that the initial decision should be modified to conform to the views expressed in the accompanyll1g' opllllon :

1 t -is onle1' ecl That the initial decision be nlodified by adding the follolTing paragraph to finding number 15 on page 325 Respondent' s normal cash discount terms 'were ~%-10 days. By granting Loblaw cash discount terms of 2%-20 days, respondent discriminated in price bet'\\'een Loblaw and l'espondEmt' s other customers competing with Loblaw in the sale and distribution respondent's products. This discrimination enabled Loblaw to sell respondent' s products before it had to pay for them, thus giving Loblaw more cash to use for other purposes. Available cash extremely important in the retail grocery industry. In light of the intensively competitive nature of this industry, the effect of respondent' s discrimination may be substantially to lessen competition between LoblalT and its competitors who \\ere not granted cash discount terms of 2%-20 days by respondent. It "/s furthe1' OJYle1' That the initial decision be modified by striking the third and fourth sentences in finding number 17 on page 326. I tis fw,the?' orde?'ecl. That the initial decision be modified by striking the last paragraph in fin~ling number 20, beginning on page 327 and ending on pa.ge 328~ and substituting the following: Respondent contends that its pfv?ments to State Food Stores were made in good faith to meet the. ofter of a competitor, San \\ VIVIANO MACARONI CO. 371 313 Final Order Giorgio l\lacaroni Company. l\1:r. Viviano testified that he was told by his salesman, l\li'. High, that respondent would lose the State Food business if it did not participate on the radio program, that the competitor which had made on offer was San Giorgio, and that this competitor had offered $10 a week to participate. He further testified that at that time, San Giorgio was selling its products to the wholesale supplier of State Food. :Jill'. High testified that he was told by a State Food official that of advertising San Giorgio had offered some free goods and a lot lllaney. At. a subsequellt meeting Iyith this official, he was requested to contact his office to see if respondent Iyould participate on the radio program. He did not testify that he was given the information which he allegedly related to )1:1'. Viviano. It is further established that respondent's products were State Food' s main macaroni line, that State Food was one of the biggest customers of :Mr. IIigh on whose report respondent allegedly rei iec1 , and that the "wholesale supplier of State Food did not earry the San Giorgio macaroni products.

Reqxmc1ent made absolutely no attempt to verify the report allegedly made by its salesman. On the facts of record, respondent has not Shol'"11 justification for its discriminatory payments to State Food Stores, and its meeting competition defense must be rej ected.

It 2s fu.rther OJYle1'ed That the initial deeision be modified by adding the following to finding number 22 on page 329: Respondents contention that it knew the amount of competit.ars' offers is not supported on the record. The testimony of the Fox representative, on "which respondent relies, establishes at best that the cost of a spot nnnor\ncement "-as the same to nJl participants. HOlle vel', it is likewise established that participating suppliers took different lllul1bers of spot announcements and that they all could not afford to take the same number of announcements since Fox c1idnot sell a sm'Jicient amount of their products. The testimony of the Fox representative concerning his discussions Iyith respondent is vague and general. ?\1:r. Viviano testified only that he \Tas told that if he did not go on the program, another company -Ivas going on, Additionally, respondent \Tell knew that its payments to Fox for participation on the radio and TV programs ere in :lc1c1itioll to its regular cooperative prmnotional payments to Fox. l.:nc1eT the circumstances. the facts l'enlied UDon hv re- J.. - .1. spondent are not sufficient to IyalTant a finding that its diserim- :Final Order 73 F.

inatory payments to Fox were made in good faith to meet the payments offered by a competitor.

Additionally, although the paynlents to Fox extended for a three-year period, the agreement was rene"ed annually. Complaint counsel established that after respondent began participating on the program, no other nlacaroni supplier attempted to participate or was solicited to participate by Fox. Respondent: failure. to show the. existence of facts which would reasonably lead it to believe that a continuation of the. discriminator:y payments ,yas necessary evidences a lack of good faith as required by Section :2 It i8 fu.l'the'i' oi'(lei'ed That the initial decision be modified by striking (b). the last sentence in the first paragraph of finding nmnber 25 and by striking the second paragraph of that finding on page 330, and substituting' the following' Respondent contends that its sales force was advised that prepayments of promotional allowances would be made to any customer who claimecIa hardship. This self-serving testimony can be given little weight in view of the contradictory testimony~- of respondents salesman. ~Ioreover, this policy, if estnbl1shec1. does not meet the requir.'enwnt of Section 2 (d) that promotional payments be made ;;available to competing customers since. customers ,youlcl ha ,-e no knOlyledge. of the existence of the ofter llnle'3s they inlormec1respondent that it ,yas tt hardship for them to " ait for rm:, ment until after proof of performance. There is normally a delay of about 60 days before a customer receiyes payment for a sen-ice "which he has performed. The testimony of respol1(lent's nonfavored customer's~ and of respondent representati\- establishes that prepayment of promotional allowances is sig:nificant to the customer for the reason that it pre,-ents him from ha ,-ing: to spend his money and tie. up his eash. ~-\..s previously fO1111d the availability of cash is extremely important for profitable operation in the retail grocery industry. vVe find that respondent by prepaying advertising allo,,-anees to certain customers and not accm:ding such prepayments on proportionally equal terms to oth2T competing customers, has violated Section 2 ( d) .

I t is fui'the'i' orde/"'ed That the initial decision be modified by striking therefrom the In~t five sentences of finding number 28, beginl1ing on page 331 and ending on page 332, and substituting the fcllOlyillg: Respondent sold its li1macaroni products to h,o of the favored customers, LobInw and Kroger, in interstate commerce. The prod- VIVIANO MACARONI CO. 373 313 Final Order ucts were shipped from respondent:s plant in Pennsylvania to these customers in Ohio from where payment ,vas made. Them:BS services paid ror by respondent -were furnished in connection with these interstate sales. Additionally, the benefits resulting frolll these payments accrued to the treasuries of three interstate businesses, Loblaw, I(roger and Thorofare. Accordingly, the ~IBS services accorded these customers were furnished in the course of interstate commerce.

Respondent contends that the :J\lbs sen-ice was accorded to all its customers in the Pittsburgh area and relies on the representation in its contract with l\IBS that ldBS had offered participation on the program to all retail grocery, drug and similar outlets in the area. In further support at this contention, the :J\1BS representative testified that his company attempted to notify all retail stores of the availability of the service by placing ads in local newspapers, by mailings to all such stores listed in the Pittsburgh telephone directory, and by personal contacts. Representatives of respondent's nonfa,vol'eclPittsburgh custOll1ers testified that they had never been informed of the :MBS service. Respondent was ft"ware that only a few or its customers were receiving the service. Respondent did not attempt to inform its customers of the service, did not advise J\1BS as to the names of its customers in the area, and made no effort. to determine the methods employed by ~IBS to comply with its contract. :ThIore.over, the methods allegedly used by idBS failed to disclose essential information to retail stores -i.e. the identity or participating suppliers, and these methods were employed by lUES prior to respondent's participation on the program. Additionally the newspaper ads and mailings used by l\IBS differed substantially from the service actually rendered in that they represented that there \were 'charges to the retailer tor installation of a sound system in his store whereas the chain stores which actual-1ly participated did not pay these charges. :No reliance can be placed on the testimony concerning personal solicitation since all retailers in the area were not personally contacted and ~IBS did not know the identity of respondent's customers. On the basis of the roregoing facts, it is found that respondent did not accord the :J\lbs service to all of its customers in the Pittsburgh area on proportionally equal terms. It is ,htJ1?the?? ordered That the initial decision be modified by striking the next to last sentence in finding number 33 on page 334. Final Order 73 F.

It is furthe?' o?yle?' That the initial decision be modified by striking conclusions number 6, 10, and 12 on page 335 and substituting the following:

6. The promotional payments to State Food Stores violate section 2 ( d) of the Clayton Act, as amended, and respondent has failed to establish that these payments were made in good faith to meet the payments for services or facilities offered by a cOlnpetitor.

10. The record supports a conclusion that respondent's prepayment of advertising allowances to Loblaw and five other of its customers constitutes violations of Section2(d) of the ClflytOll Act, as amended.

12. The services performed by ~1:merchants Broadcasting System for certain of respondents customers, paid for by respondent were furnished in the course of interstate commerce. These services violate Section 2 ( e) of the Clayton Act, as amended, since they were not accorded to all of respondent' s competing customers on proportionaly equal terms.

I t is hlTthe'i' ordered. That the following' order to cease and de:=;i~3t he substituted fort-he order in the initial decision: ORDER It is ordered That respondent Viviano ltiacaroni Company, a corporation, and its officers, representatives, agents and mnployees, directly, indirectly, or through any corporate or other device, in Or in connection with the sale of its l11Rcaroni products in COlnmerce, as commerce is defined in the amended Clayton Act, do forthwith cease and desist from:

Discriminating directly, or indirectly, in the price of such products of like grade and quality by selling to any purchaser at net prices higher than the net price charged any other purchaser who competes in the resale and distribution of respondent' s products with the purchaser, or with customers of the purchaser paying the higher price. "Net price" as used in this older shall mean the ultimate cost to the purchaser, and, for purposes of determining such cost, there shall be taken into account all rebates, allowances, coIillnissions, discounts, credit arrangements terms and conditions of sale, and other forms of direct and indirect price reductions, by which such ultimate cost to the purchaser is affected.

1-1,..

VIVIANO MACARONI CO.

318 Final Order Paying or contracting lor the paynlent of anything of value , or for the benefit of, any custOlner of respondent as compensation or in consideration for any services or facilities furnished by or through such customer in connection with the offering for sale, sale or distribution or respondent's products, unless such payment or consideration is made available on proportionally equal terms to all other customers competing in the distribution of such products.

III Furnishing, contracting to furnish, or contributing to the furnishing or services or facilities in connection with the handling, processing, sale or offering for sale of respol.1Q.ent's products to any purchaser of such products bought for resale, when such services or facilities are not accorded on proportionally equal terms to all other purchasers who resell such products in competition with any purchaser who receives such services or ffwilities. t is furthe?' ordel' That, in addition to and apart from the provisions of the preceding paragraphs, if respondent at any time after the effective date of this order:

1. Grants or permits any customer to take delivery of, or Illake payments for, its merchandise on a basis other than regularly published prices, freight prepaid, or 2. Grants or pernlits any customer to submit proof of performance or receive payment, for any advertising or other promotional allowance on a basis, or on terms, other than those set forth in respondent' s all110Unce.ll1ents to Cllstomers of said promotion, or customarily observed by respondent in such promotiOllS, in any locality, or 3. Grants or permits any custOIiler to make payments for cash discount purposes on terms and conditions other than those contained in respondent's published price lists~ or customarily observed by respondent, in any locality, respondent shall promptly notify all other customers who compete, or whose customers COIl1Dete. I':ith the c.ustOl11er so .2:rantec1 or m~rmitte(l. .c setting forth in writing the details and provisions thereof, and respondent shall allow, and the -written notification shall contain a. statement that such customers may, at their option, elect such provisions terms or conditions on an equal basis. In no event, however, shall re- 376 FEDERAL TRADE cO:\nnSSIOX DECISIONS Complaint 73 F.

spondent pay to any customer an allowance for freight, or an allowance for any differing methods of sale or delivery, which exceeds any cost savings to respondent resulting from the differing methods or quantities in \which respondents products are sold or delivered to such customer.

1 t -is fUTthci' orde?' That the hearing examiner s initial dec.ision as lllOdified in this order and as supplemented by the findings and conclusions embodied in the accompanying opinion, be, and it hereby is adopted as the decision of the Commission.

I t is fuJ,th eJ' onlei' That respondent 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 \"ith the provisions in the order set forth herein. Commissioner Elman dissenting, and Commissioner Nicholson not participating for the reason oral argument was heard prior to his appointment to the Commission.