Kraftco Corporation

Text (OCR of the scan at left; may contain errors)

Initial Decision 89 F.T.C.

IN THE MATTER OF

KRAFTCO CORPORATION, ET AL.

ORDER, OPINION, ETC., IN REGARD TO ALLEGED VIOLATION OF SEC. 5 OF THE FEDERAL TRADE COMMISSION ACT AND SEC. 8 OF THE CLAYTON ACT

Docket 9035. Complaint*, June 17, 1975 — Order, Jan. 11, 1977

Order requiring SCM Corporation, a New York City producer of margarine, edible oils and barbecue sauce, among other things, to cease seating on its board of directors, individuals who simultaneously serve as directors of Kraftco Corporation, or any other companies with whom respondent is in competition.

Appearances

For the Commission: Ronald A. Bloch, Clinton R. Batterton and Joseph Tasker, Jr.

For the respondents: William E. Willis and Marcia B. Paul, Sullivan & Cromwell, New York City.

INITIAL DECISION BY MORTON NEEDELMAN, ADMINISTRATIVE LAW JUDGE

JUNE 17, 1976

I

[1] STATEMENT OF THE CASE

The Commission's complaint in this proceeding issued on June 17, 1975. It charges Kraftco Corporation¹ (hereinafter "Kraftco"), SCM Corporation (hereinafter "SCM"), and an individual, Richard C. Bond (hereinafter "Bond") with violating Section 8 of the Clayton Act (15 U.S.C. 19),² and Section 5 of the Federal Trade Commission Act (15 U.S.C. 45)³ by reason of an unlawful interlocking directorate. According to the complaint, Bond served simultaneously on the Boards of Directors of Kraftco and SCM which compete in the sale of margarine, edible oils, and barbecue sauce. The complaint further

* Complaint in Docket 9035 and consent order as to individual respondent, Richard C. Bond, appear at 87 F.T.C. 809; consent order as to corporate respondent, Kraftco Corporation, appears at 88 F.T.C. 362. ¹ Incorrectly captioned "Kraftco, Inc." in the complaint. See Answer of Kraftco Corporation, ¶ 2. ² Section 8 provides as follows with respect to interlocking directorates: * * * [N]o person at the same time shall be a director in any two or more corporations, any one of which has capital, surplus, and undivided profits aggregating more than $1,000,000, engaged in whole or in part in commerce, * * * if such corporations are or shall have been theretofore, by virtue of their business and location of operation, competitors, so that the elimination of competition by agreement between them would constitute a violation of any of the provisions of any of the antitrust laws. ³ Section 5 of the Federal Trade Commission Act prohibits unfair methods of competition and unfair and deceptive acts or practices.

KRAFTCO CORP., ET AL.

46 Initial Decision

alleges that each corporate respondent has capital, surplus, and undivided profits aggregating more than one million dollars.

Kraftco and Bond have entered into consent settlements.⁴ The remaining issue in this case is the liability of SCM.

[2] SCM's answer, dated November 17, 1975, admits certain complaint allegations respecting corporate identity. The answer also admits that SCM's capital, surplus, and individual profit aggregate more than one million dollars and that it is engaged in commerce, as "commerce" is defined in both the Clayton Act and the Federal Trade Commission Act. SCM's answer denies that Bond was a member of its Board of Directors at the time the answer was filed, but admits that prior to August 1, 1975, he was on SCM's Board. SCM's answer also admits the sale of certain food products, but denies knowledge sufficient to form a belief as to the allegations of the complaint respecting competition between it and Kraftco. SCM's answer then asserts several affirmative defenses, to wit: 1) the complaint fails to state a claim upon which relief could be granted, 2) Bond's resignation from SCM's Board renders the case moot, 3) competition, if any, between Kraftco and SCM is de minimis and not within the statutory purpose of the anti-interlock law, 4) the Commission lacks jurisdiction over SCM because Section 8 applies only to individuals and not to the corporations themselves, and 5) respondent's due process and equal protection rights have been violated by the Commission's uneven and discriminatory enforcement of Section 8. Concurrently with the filing of its answer, SCM moved for summary decision on the same grounds as those asserted as affirmative defenses. On December 1, 1975, complaint counsel filed a cross-motion for summary decision.⁵

A prehearing conference was held on December 19, 1975. After hearing oral argument on cross-motions for summary judgment, the administrative law judge suggested that the basic facts of the case should be stipulated and a decision could then be rendered on the basis of the stipulation. The parties agreed to follow this course of action, and on April 29, 1976, a factual stipulation was filed. On May 10, 1976, proposed findings and supporting briefs were filed by both parties, and replies were filed on June 3, 1976.

[3] On the basis of the factual stipulation, uncontroverted affidav-

____________________ ⁴ The Commission accepted a consent settlement from Bond on April 26, 1976. Kraftco's consent agreement was provisionally accepted by the Commission and placed on the public record for 60 days comment on May 6, 1976.

⁵ Complaint counsel renewed this motion in its Supplementary Memorandum of Law in Support of Complaint Counsel's Motion for Summary Decision and in Opposition to SCM's Motion To Dismiss (May 10, 1976). In view of my disposition of this matter on the merits by relying on a stipulated record, I need not address the summary decision question.

Initial Decision 89 F.T.C.

its submitted with the cross-motions for summary decision, and the pleadings, I make the following findings of fact:⁶

II

FINDINGS OF FACT

1. SCM is a New York corporation with its principal office and place of business located at 299 Park Ave., New York, New York. (SCM Ans., ¶ 2.) 2. SCM is a diversified industrial company which manufactures and distributes various products, including typewriters, business equipment, home appliances, paints, resins, food, chemicals, and paper. In fiscal 1975, SCM had total sales of $1,287,000,000. (Stip., § 1; Sexton, Aff. 1, ¶ 4.) 3. SCM has capital, surplus, and undivided profits aggregating more than one million dollars. (SCM Ans., ¶ 2.) [4] 4. SCM is engaged in commerce, as “commerce” is defined in the Clayton Act and the Federal Trade Commission Act. (SCM Ans., ¶ 2.) 5. SCM’s business includes the manufacture and sale in commerce of margarine, edible oils, and barbecue sauce. (SCM Ans., ¶ 5; Stip. ¶¶ 2, 3, 4.) 6. Kraftco, a corporation engaged in commerce as “commerce” is defined in the Clayton Act and the Federal Trade Commission Act, has capital, surplus, and undivided profits aggregating more than one million dollars. (Kraftco Ans., ¶ 2) Total Kraftco sales in 1974 were approximately $4,500,000,000. (Sexton Aff. 1, ¶ 4.) 7. SCM competes with Kraftco in the sale of margarine, edible oils, and barbecue sauce. Sales by SCM in fiscal 1975 of products sold in competition with Kraftco products were approximately $83 million.⁷ During the same period, Kraftco had sales of products in competition

⁶ The following abbreviations are used throughout this initial decision: “Stip.” - Stipulation of April 29, 1976, with ¶ references. “SCM Ans.” - SCM’s Answer to Complaint, with ¶ references. “Kraftco Ans.” - Kraftco’s Answer to Complaint, with ¶ references. “Sexton Aff. 1” - Affidavit of Richard Sexton, Vice President and General Counsel of SCM, dated November 11, 1975 and filed with SCM’s Motion for Summary Decision Dismissing the Complaint, with ¶ references. “Sexton Aff. 2” - Affidavit of Richard Sexton, Vice President and General Counsel of SCM, dated December 12, 1975 and filed with SCM’s Memorandum of Law in Opposition to Motion by Counsel Supporting the Complaint and in Further Support of Motion by Respondent SCM, with ¶ references. ⁷ SCM’s total sales of these products in 1975 were approximately $123,552,000, broken down as follows: $ 643,500 - Sales of margarine to industrial bakers 386,100 - Sales of margarine to wholesalers 25,740,000 - Sales of edible oil to industrial manufacturers of fried snacks 25,740,000 - Sales of edible oil to industrial manufacturers of prepared mixes and industrial bakeries 64,350,000 - Sales of edible oil to food service industry 6,435,000 - Sales of barbecue sauce to retail grocery trade 257,400 - Sales of barbecue sauce to food service industry (Stip., ¶¶ 2, 3, 4.)

46 Initial Decision

with SCM of approximately $258 million. (Stip., ¶ 1.) Specifically, SCM and Kraftco competed as follows in 1975:

(a) SCM sold margarine in 41 states in competition with Kraftco. (Stip., ¶ 2.) (b) SCM sold edible oils in competition with Kraftco in all states. (Stip., ¶ 3.) [5] (c) SCM competed with Kraftco west of the Mississippi River in the sale of barbecue sauce. (Stip., ¶ 4.) (d) SCM and Kraftco have placed advertisements for edible oils, margarine, and barbecue sauce in the same trade publications. (Stip., ¶ 5.)

8. Bond became a member of SCM's Board of Directors in 1967 and continued as a director until he submitted his resignation on August 1, 1975. (Sexton Aff. 1, ¶ 6.) This resignation was accepted by SCM at the August 21, 1975 meeting of the SCM Board of Directors. (Sexton Aff. 2, ¶ 3.) Bond joined the Board of Directors of Kraftco sometime in 1957, and he continues to this day to serve on the Kraftco Board. (Sexton Aff. 1, ¶ 6.) SCM does not intend to reappoint Bond to its Board of Directors so long as he is a director of Kraftco or any corporation which competes or might compete in any line of commerce with SCM. (Sexton Aff. 1, ¶ 10.)

III

DISCUSSION*

On the basis of the factual stipulation submitted by the parties, there is no question that (1) Bond served simultaneously on the Board of Directors of both SCM and Kraftco; 9 (2) both corporations are engaged in "commerce" and have capital, surplus, and undivided profits aggregating more than $1,000,000; 10 and [6] (3) the two corporations compete. 11 Respondent SCM, however, contends that there are several defenses to what appears to be an obvious violation of Section 8.

First, respondent says that the Commission lacks jurisdiction over SCM because the prohibitions of Section 8 of the Clayton Act are directed exclusively to individuals. According to respondent, there is nothing in Section 8 which says it is illegal for corporations to have

* References in this section are to the briefs and reply briefs as follows: "SCM Main Brief" - Memorandum of Law of Respondent SCM Corporation (May 10, 1976). "SCM Reply Brief" - Reply Memorandum of Law of Respondent SCM Corporation (June 3, 1976). 9 Finding 8.

10 Findings 3, 4, and 6.

11 Finding 7.

Initial Decision 89 F.T.C.

interlocking directors; the statute, respondent asserts, is directly solely to individuals serving on two interlocking corporations. SCM Main Brief, pp. 16-23; SCM Reply Brief, p. 8.

While corporations have been held liable in Section 8 proceedings, See, eg, United States v. Sears, Roebuck and Co., 111 F. Supp. 614 (S.D.N.Y. 1953), it is true that in the only Supreme Court decision on the anti-interlock provisions of the Clayton Act, the Supreme Court specifically reserved judgment on the question of corporate liability.¹² Notwithstanding the lack of a definitive Supreme Court holding or the absence of legislative history directly in point, I believe that the language of Section 11(b) of the Clayton Act disposes of respondent's argument. This section says that the Commission shall issue orders requiring a "person" (defined in Section 1 of the Clayton Act as including corporations) to cease and desist from violations of the Act, including Section 8, and to "rid itself of the directors chosen contrary to the provisions of * * * section 8." Since the only "person" that could logically "rid itself" of directors is a corporation, by its terms, the statute gives the Commission jurisdiction over corporations.¹³ [7] Despite the clear language of Section 11 respecting the powers of the Commission, respondent argues that this section is merely "procedural" and that only Section 8 "defines" the offense. SCM Main Brief, p. 20. Such a bifurcated reading of this legislation, which would effectively eliminate most of Section 11, conflicts with the accepted principles of construction that separate parts of a single statute should be harmonized and construed together (See Clark v. Uebersee Finanz-Korp., 332 U.S. 480, 488 (1947)) and that no parts of a statute are to be denied significance and effect. Ex Parte Public Bank, 278 U.S. 101, 104 (1928).

As for respondent's argument that the subject language in Section 11 is a "vestigial" carry-over from the pre-1935 version of Section 8 which expressly prohibited banks from having interlocking directorates (SCM Main Brief, p. 21), not only is this a strained interpretation of inapposite legislative history, but also a strong argument could be made that the 1935 amendments, which were intended to strengthen rather than weaken Section 8 by removing the discretion of the Governors of the Federal Reserve System to allow interlocks (See, STAFF OF ANTITRUST SUBCOMM. OF HOUSE COMM. ON THE JUDICIARY, 89th Cong., 1st Sess., Report on Interlocks in Corporate Management

¹² United States v. W. T. Grant Co., 345 U.S. 629 at 634, n. 9 (1953). ¹³ The section reads, in pertinent part, as follows: "If * * * the Commission * * * shall be of the opinion that any of the provisions of said sections [including Section 8] have been or are being violated, it shall * * * issue and cause to be served on such person an order requiring such person to cease and desist from such violations, and divest itself of the stock, or other share capital, or assets, held or rid itself of the directors chosen contrary to the provisions of sections 7 and 8 of this Act, if any there be, in the manner and within the time fixed by said order." 15 U.S.C. 21 [Emphasis added.]

46 Initial Decision

23-24 (Comm. Print 1965)), left intact the power of the Federal Reserve System, as indicated in Section 11, to continue to prohibit banks from having interlocks. In any event, whatever the reach of the Federal Reserve System after the 1935 amendments may or may not be over banks, there is no legislative history cited by respondent which can be even remotely interpreted as saying that one should ignore what Congress expressly said in Section 11 about the jurisdiction of the Federal Trade Commission to enforce Section 8 against corporations.

Moreover, going beyond its plain language, Section 11 cannot be interpreted in such a way as to frustrate the very purpose and objective of Section 8.¹⁴ But this is precisely what would happen if corporations, as respondent urges, could not be held accountable for Section 8 violations. Congress intended by Section 8 [8] “to nip in the bud incipient violations of the anti-trust laws by removing the opportunity or temptation to such violations through interlocking directorates.” *United States v. Sears, Roebuck and Co.*, 111 F. Supp. 614, 616 (S.D.N.Y. 1953). An interpretation of Sections 8 and 11 which allows corporations to seat interlocking directorates, reap the anticompetitive benefits, and then possibly appoint new interlocking directors after each violation is uncovered would transform a statute aimed at preventing full-blown antitrust violations into a license giving corporations multiple opportunities for achieving actual anti-competitive results.

Respondent further contends that even if Section 11 does give the Commission jurisdiction over a corporation, the same section limits relief to an order requiring the corporation to rid itself of the director chosen contrary to the provisions of Section 8 of the Act. SCM Main Brief, p. 20. Respondent then argues that since no unlawful interlocking directorate now exists (Bond resigned from the SCM Board after complaint issued), Section 11 cannot be invoked as the basis for a cease and desist order. This contention also totally ignores the clear language of Section 11 which not only allows the Commission to require a corporation to rid itself of the offending directors, but also authorizes the Commission to issue “an order requiring such person [including a corporation] to cease and desist from such violations.” Thus, Section 11 relief is *not* limited to orders simply requiring removal of the director who was a participant in the unlawful interlock, and even if the director *has* been removed, an appropriate order to cease and desist may be entered. In addition, it has been held

¹⁴ A statute should be construed by looking to its object and underlying policy. As the Supreme Court recently said, “Our objective * * * is to ascertain the Congressional intent and give effect to the legislative will.” *Philbrook v. Glodgett*, 421 U.S. 707, 713 (1975).

Initial Decision 89 F.T.C.

that Commission's remedial powers under Section 11 to issue a cease and desist order governing future conduct are as broad as its general equitable powers under Section 5 of the Federal Trade Commission Act, and "the question to be asked in fashioning a remedy should be: What kind of order, within the broad range of an equity court's remedial powers, would, in the particular circumstances, be most effective to 'cure the ill effects of the illegal conduct, and assure the public freedom from its continuance.' " Ecko Products Co., 65 F.T.C. 1163, [9] 1215 (1964), aff'd., 347 F.2d 745 (7th Cir. 1965).¹⁵

Next, respondent argues that issuance of an order in this case is not required because the "nature and magnitude of the competition, such as it is, between SCM and Kraftco, is not 'actual and substantial' as that term has been repeatedly used in the antitrust laws" and that an interlock between SCM and Kraftco, "in no material manner adversely affects [the] public interest." SCM Main Brief, pp. 35-36; SCM Reply Brief, p. 5. This argument misconceives the purpose of Section 8 while at the same time ignoring the stipulated facts.

Given the fact that the parties have stipulated to a competitive overlap between Kraftco and SCM in the sale of margarine, edible oils, and barbecue sauce, the issue of competition has been removed from the case. The statute is violated whenever the technical requirements of "commerce" and jurisdictional amount are met, and the companies are in a competitive relationship where there is a potential for an agreement between them which would violate any of the antitrust laws, for example, a division of territory or a price-fix relating to the sale of edible oil. There is no need under this statute to have an elaborate market analysis, and evidence of actual effects on competition is unnecessary. Protectoseal Company v. Barancik, 484 F.2d 585 (7th Cir. 1973); United States v. Sears, Roebuck and Co., 111 F. Supp. 614 (S.D.N.Y. 1953).

[10] On the question of the substantality of the competitive overlap, the court noted in Sears, Roebuck that Congress had provided Section 8 with "its own substantiality standard in the form of the one million dollar size requirement."¹⁶ But even assuming that

¹⁵ While Ecko dealt specifically with the question of the power of the Commission to ban future acquisitions under Section 11 after a Section 7 violation has been proven, the decision touched generally on the similarity between a Section 11 cease and desist order (including orders aimed at interlocks) and the remedial scope of Section 5 (See 65 F.T.C. 1215, footnote 9). The decision indicates that both statutes are now to be read broadly, not only because of the 1950 amendments to the merger law, but also for the reason that FTC v. Eastman Kodak Co., 274 U.S. 619 (1927), which limited the scope of cease and desist orders, has for all practical purposes been overruled by Pan American World Airways v. United States, 371 U.S. 296, 312 and notes 17, 18 (1963). ¹⁶ 111 F. Supp. at 619.

46 Initial Decision

there may be some minimum amount of competitive overlap below which no violation should be found,¹⁷ the issue simply does not arise in this case. SCM and Kraftco do not come within any conceivable application of a de minimis rule, even if one were applicable here, since the competitive overlap between respondent and Kraftco was approximately $340 million in 1975. SCM's share of those sales, $83 million, is substantial by any measure.¹⁸

[11] Respondent next argues that its constitutional rights to due process and equal protection of the laws have been violated by the Commission's departure from an established procedure generally taken with regard to Section 8. Respondent says that the Commission's prior practice has been to seek voluntary termination of interlocking directorates and then to dismiss the action after resignation of the challenged director. According to respondent, the Commission's failure to follow this procedure here is arbitrary and discriminatory. SCM Main Brief, pp. 28-34; SCM Reply Brief, pp. 8-9. This argument, too, is without merit.

The facts of the matter are that the Commission has used various methods in enforcing Section 8. It is true that between 1960 and 1966, the Commission closed eleven Section 8 investigations after termination of the offending interlocks, and that in none of the pre-1966 cases was a formal consent order executed.¹⁹ But apparently this policy did not accomplish what Congress set out to do. As a result, in all formal complaint proceedings initiated since 1972, corporate respondents have routinely been required to enter into consent agreements even though the interlocks have been terminated.²⁰ Clearly, the Commission has the right, even the duty, to change procedures if it finds that informal settlements are not producing an adequate level of compliance. In any event, respondent's bald assertion that the Commission's practice is to dismiss actions after termination of the interlocks is in

¹⁷ A strong argument can be made that there is no de minimis defense in a Section 8 case because the statute prohibits interlocks where the competitive relationship is such that elimination of competition by agreement would violate any of the provisions of any of the antitrust laws. Such an agreement would include price-fixing which is illegal regardless of the amount involved. Kramer, Interlocking Directorships and the Clayton Act After 35 Years, 59 Yale L.J. 1266 at 1269 (1950). But see Paramount Pictures Corp. v. Baldwin-Montrose Chemical Co., 1966 Trade Cases, ¶71,678 (S.D.N.Y. 1966) which speaks of "de minimis competition" in the context of a Section 8 case where the competitive overlap was not only small, but also would not readily lend itself to a possible price-fix or a market allocation.

¹⁸ As the court said in Sears, Roebuck "Surely, the sales of $80,000,000 do not come within the de minimis principle." 111 F. Supp. 614 at 621, and "The fact that this volume of sales may represent but a small percentage of either or both of the corporate defendants' annual sales, or a fraction of the annual retail sales of all distributors in the country of those commodities, does not militate against the undesirability of directorates common to both corporations." Id. at 620.

¹⁹ Exhibit "A" to Stip. One formal complaint issued during this period, Dierks Forests, 58 F.T.C. 304 (1961). The complaint was dismissed after the interlocking director resigned.

²⁰ Between 1972 and 1975, the Commission issued 19 formal complaints charging corporations with violation of Section 8. Each of these cases resulted in a consent settlement directed at corporate responsibility for compliance with Section 8. (Exhibit "A" to Stip.)

Initial Decision 89 F.T.C.

error since this has not been the Commission policy as revealed in the stipulated facts.

As for respondent's argument that SCM was discriminated against because it received "no notice whatsoever of the Commission's intention to file a complaint prior to issuance thereof" (SCM Main Brief, p. 27), there has never been a requirement in the Commission's rules that [12] any such advance notice be given.²¹ But, as it happens, SCM did receive notice of the Commission's interest in a possible illegal interlock prior to issuance of the complaint.²² There is no indication, however, that this notice, which SCM now regards as so imperative, inspired any pre-complaint action on the part of respondent to rid itself of Mr. Bond, or to prevent reoccurrence of Section 8 violations.

Finally, respondent maintains that this action has been rendered moot by the "voluntary" resignation of Bond from the Board of Directors of SCM after the complaint was issued. Although respondent itself recognizes that the mere discontinuance of an illegal act, particularly discontinuance after an investigation or formal action has begun, does not render a case moot, SCM contends that the surrounding facts demonstrate that no relief is necessary and the action must be dismissed as moot. SCM Main Brief, pp. 6-16.

[13] On the general question of mootness (and in the very context of a Section 8 case) the Supreme Court said in United States v. W. T. Grant, 345 U.S. 629 (1953), that "voluntary cessation of allegedly illegal conduct does not deprive the tribunal of power to hear and determine the case, i.e., does not make the case moot." Id. at 632. The Supreme Court added, however, that an action can be moot if the defendant can demonstrate "there is no reasonable expectation that the wrong will be repeated," but the burden of doing so "is a heavy one." Id. at 633.

In the instant case, the points cited by SCM to meet this "heavy" burden are: (1) Bond's immediate "voluntary" resignation and his assurance that he does not intend to serve on respondent's Board while a director of Kraftco; (2) respondent's assurance (by affidavit)

²¹ Prior to April 4, 1975, the Commission issued, but was not required to do so, "proposed complaints" under Part 2 of its rules for the purpose of encouraging consent settlements before a formal complaint was issued. After April 4, 1975, all complaints (including this one) were issued under Part 3. If a consent settlement is negotiated in the investigation stage, the complaint and consent settlement may be issued simultaneously. See 40 Fed. Reg. No. 60, p. 15235 (April 4, 1975). Respondent seems to be suggesting that under the new rules, which abolished Part 2, it has been treated differently than other Section 8 respondents because it has not been given an opportunity to have its complaint and consent order entered simultaneously. SCM Main Brief, pp. 27-28. In the first place, and contrary to respondent's representation, in Kane-Miller, Dkt. 9034, the Part 3 complaint alleging a Section 8 violation (issued on June 17, 1975 and not on July 17, 1975 as respondent asserts) was not accompanied by consent settlements. The matter was withdrawn from adjudication on December 19, 1975 for the purpose of considering consent agreements signed in October and November, 1975. Secondly, respondent's argument on this point is obscure, to say the least, since there is no indication that it wished to enter into a consent settlement at any stage of this proceeding.

²² On March 7, 1975, (Sexton Aff. 1, ¶ 8.)

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that Bond will not be re-elected to SCM's Board while he is a director of Kraftco or any other competitor of respondent; and (3) the lack of evidence of prior Section 8 or related violations by SCM. W. T. Grant establishes, however, that such grounds are insufficient to meet respondent's "heavy" burden in making a mootness defense. In that case, too, the defendant showed that the offending interlock no longer existed and it disclaimed any intention to revive the relationship. But the Supreme Court said that, "such a profession does not suffice to make a case moot although it is one of the factors to be considered in determining the appropriateness of granting an injunction against the now-discontinued acts." Id. at 633.

Despite the clear holding in W. T. Grant that a mootness defense ordinarily will not arise from the mere fact that the director has resigned and the respondent says it will not re-elect the offending director, SCM seeks refuge in the Supreme Court's refusal in that case to interfere with the District Court's denial of injunctive relief. In reviewing the discretionary power of the District Court with respect to injunctive relief, the Supreme Court said in W. T. Grant that it found no abuse of discretion on the facts of that case. But the Supreme Court indicated that the standard for injunctive relief — "some cognizable danger of recurrent violation, something more than a mere possibility * * *." (Id. at 633) remains nevertheless, a matter of discretion with the trier of the facts. Thus in subsequent cases the Court has said "[whether] further violations [are] sufficiently remote to make injunctive relief unnecessary * * * is [14] a matter for the trial judge." United States v. Phosphate Export Assn., 393 U.S. 199, 203-204 (1968).²³

The determination of how the trier of the facts — the administrative law judge, in the first instance, and later the Commission upon review of the record — should exercise this discretion is not materially advanced by respondent's mere repetition (in various versions) of the refrain "there is no cognizable danger of recurrent violation" (SCM Main Brief, pp. 7, 9, 10, 11, 15, 16; SCM Reply Brief, pp. 2, 3, 4, 10, 13; Sexton Aff. 2, ¶ 8): such self-serving declarations are entitled to no weight, especially when SCM is silent on what steps it has taken to avoid the danger of other unlawful interlocks.²⁴ In any event, if respondent's assessment of the danger of recurrence of a violation were the test, then, presumably, the Commission could

²³ See also Treves v. Servel, Inc., 244 F. Supp. 773 at 777 (S.D.N.Y. 1965) where the court relying on W. T. Grant said "Beyond the mootness area lies the more difficult issue whether, as a matter of discretion, the court ought to dismiss plaintiff's request for injunctive relief." ²⁴ This is not to say that a mere voluntary undertaking by respondent to comply with the law would be an adequate safeguard for the future. Clinton Watch Co. v. FTC, 291 F.2d 838, 841 (7th Cir. 1961), cert. denied, 368 U.S. 952 (1962).

Initial Decision 89 F.T.C.

never issue a cease and desist order in any case. See Hershey Chocolate Corp. v. FTC, 121 F.2d 968, 971 (3d Cir. 1941).

By the same token, respondent does not demonstrate the absence of a danger of recurrence by asserting that it may be caught again if it violates the law. SCM seems to be suggesting that because its selection of directors is a matter of public information and must be reported to the SEC and the New York Stock Exchange that this somehow guarantees against recurrence of the violation. SCM Main Brief, pp. 9, 15-16. The cogency of this argument is somewhat less than compelling since neither these reporting requirements nor public disclosure of Bond's membership on SCM's Board (presumably to SCM's stockholders) prevented the very violation which is the subject of this complaint. Moreover, respondent's position on this point seems to assume it is the function of the public, or its stockholders, or the New York Stock Exchange, or the SEC, or the F.T.C. to protect SCM from [15] violating the law. To the contrary, the obligation to comply with Section 8 falls squarely on every corporation which meets the statutory requirements.

It is also apparent that neither W. T. Grant nor any other decision relating to the discretionary power of the trier of facts to issue a cease and desist order can be read as meaning that no substantive violation can be found and no order can be issued unless complaint counsel comes forward with proof that respondent is a corporate recidivist.²⁵ Such a cavalier approach to Section 8, allowing one or more excused violations, would mean that in administering the antitrust laws one has to assume, contrary to fact, that Congress intended a high level of permissiveness.

As for the language in W. T. Grant that the moving party must persuade the trier of the facts of the need for injunctive relief, this does not mean that once a violation is proven, complaint counsel must then undertake a protracted second trial relating to the remedy. It is significant that on the limited facts before it in W. T. Grant — the failure of the director to terminate the interlocks despite five years of fruitless negotiation with the Government, the refusal by the director to concede illegality, and his failure to promise not to commit similar violations in the future — the Supreme Court said "Were we sitting as a trial court, this showing might be persuasive." Id. at 634. That the Supreme Court did not overturn a contrary conclusion by the lower court — that is, that the District Court was not persuaded — represents no more than the usual deference, in the absence of a clear showing of abuse, which the

²⁵ As the Supreme Court said in W. T. Grant, "The purpose of an injunction is to prevent future violations * * * and, of course, it can be utilized even without a showing of past wrongs." 345 U.S. 629 at 633.

46 Initial Decision

appellate body (W. T. Grant was a direct appeal to the Supreme Court) gives to the discretionary injunctive rulings of the trial court. See Brown v. Chote, 411 U.S. 452, 457 (1973).

From the lower court opinion, it is not possible to tell what would have persuaded the District Court in W. T. Grant that an order was indeed required, or how as a practical matter, the Government can hope to show any more than it actually did. Proof on the subject of the likelihood of future violations is bound [16] to be elusive at best since we are dealing with slippery issues of predictability of conduct and how assiduously a company will comply with the law when it is not compelled to do so by an order. To read W. T. Grant, however, as imposing a substantial burden in this respect would effectively frustrate enforcement of Section 8 which was specifically designed by Congress to avoid complex litigation. See Proteoseal v. Barancik, 485 F.2d 585, 589 (7th Cir. 1973). It would also be contrary to the clear holding of the Supreme Court that "once the Government has successfully borne the considerable burden of establishing a violation of law, all doubts as to the remedy are to be resolved in its favor." United States v. du Pont & Co., 366 U.S. 316, 334 (1961).

I believe W. T. Grant is properly read as leaving undisturbed what the Supreme Court has consistently said about the broad discretion which the Commission has to determine whether a cease and desist order is needed in order to make certain that an unfair method of competition or illegal trade practice is stopped and not resumed. Jacob Siegel Co. v. FTC, 327 U.S. 608 (1946); FTC v. Mandel Bros., 359 U.S. 385, 392 (1959). The Commission has traditionally exercised this discretion in favor of issuing orders enjoining future violations even where it is certain that the precise acts involved in a case could not be repeated because of statutory revisions or abandonment of the business. See discussion and cases cited in Rubbermaid Inc., Dkt. 8939, 3 CCH Trade Reg. Rep. ¶ 21,131 at pp. 20,985-20, 987 (April 13, 1976) [87 F.T.C. 676, 704-708].

In this case there are no extenuating circumstances or other persuasive reasons for departing from overwhelming Commission precedent in favor of a cease and desist order. Here, as far as one can tell, nothing has been discontinued by SCM (Bond resigned of his own accord when he, too, was named as a respondent) and there is no basis for assuming that meaningful changes in procedures will be made unless respondent is ordered to do so. SCM has insisted all along that as a corporation it is not subject to the prohibitions of Section 8, and it has not even given adequate assurances of voluntary compliance with the law in the selection of directors other than Bond. Surely, whatever SCM did to comply with the law prior to complaint

Initial Decision 89 F.T.C.

(assuming it did anything) was inadequate since it did not detect or prevent an unlawful interlock with its competitor Kraftco. In sum, I fail to see how the public interest is protected in any way unless SCM is compelled to take positive steps to prevent future recurrence of the same practice.

[17] As for the scope of the order, this is not a case where the remedy proposed by complaint counsel is only loosely connected to the illegal conduct and could only be justified under the "fencing in" rubric of FTC v. National Lead Co., 352 U.S. 419, 431 (1957). The order which follows covers the exact same illegal practice as that charged in the complaint, and merely imposes a monitoring procedure which requires SCM to take certain minimal precautions in selecting directors to avoid interlocks. This is relief which is reasonably related to the unlawful practice which has been alleged and proven. Jacob Siegel Co. v. FTC, 327 U.S. 608 (1946).

IV

CONCLUSIONS

1. The Federal Trade Commission has jurisdiction over the subject matter of this proceeding, and over respondent SCM. 2. Respondent SCM was at all times material herein engaged in commerce, as "commerce" is defined in the Clayton Act and the Federal Trade Commission Act.

3. Respondent SCM Corporation has violated Section 8 of the Clayton Act, 15 U.S.C. 19, and Section 5²⁸ of the Federal Trade Commission Act, 15 U.S.C. 45, by reason of the following:

(a) Respondent SCM and Kraftco are corporations which each have capital, surplus, and undivided profits aggregating more than $1,000,000.

(b) Respondent SCM and Kraftco are competitors in the sale of margarine, edible oils, and barbecue sauce. (c) The elimination of competition with respect to the products cited in (b), above, by agreement between SCM and Kraftco would constitute a violation of the provisions of the antitrust laws. (d) Richard C. Bond served on the Board of Directors of respondent SCM and Kraftco between 1967 and August 1, 1975. 4. This proceeding is not moot, and an order to cease and desist

--- ²⁸ The complaint alleges a violation of both Section 8 and Section 5 of the Federal Trade Commission Act. I need not decide whether the substantive standard for judging an interlock may be different under Section 5 or whether Section 5 may reach an interlock which violates the policy of the Clayton Act although technically not within the four corners of Section 8. All the requirements of Section 8 have been met in this case, and my conclusion that Section 5 has been violated rests solely on the rule that the Federal Trade Commission Act registers all violations of the Clayton and Sherman Acts. FTC v. Motion Picture Advertising Service Co., 344 U.S. 392, 394-5 (1953).

46 Initial Decision

against SCM is both appropriate and necessary for the protection of the public interest.

Accordingly, the following order will issue:

- - - - - - - - - - - - - - - - - - - - - - - - - ORDER - - - - - - - - - - - - - - - - - - - - - - - - -

1. It is ordered, That upon this order becoming final respondent SCM Corporation and its successors and assigns, shall forthwith cease and desist from having, and in the future shall not have, on their board of directors any individual who either: (a) serves at the same time as a director of Kraftco Corporation, its successors or assigns, or any other corporation which competes with SCM Corporation in the production or sale of any product or service; or (b) fails to submit to SCM Corporation any statement required by Paragraph Two of this order.

2. It is further ordered, That within thirty (30) days of the date of service of this order and prior to each election of directors or to the solicitation of proxies for such election, whichever is earlier, hereafter, SCM Corporation shall obtain a written statement from each member of its board of directors (except directors whose terms expire at the next election and who are not standing for re-election) and from each nominee for a directorship (who is not then a director) showing: (a) the name and home mailing address of each director or nominee; and (b) the name and principal office mailing address of, and a description of each product or service produced or sold by, each corporation which the director or nominee then serves as a director of, or at the time of the statement, has been nominated to serve.

Nothing in this paragraph shall be construed to relieve respondent of its obligation under Paragraph 1(a) hereof due to any error or omission contained in any written statement received pursuant to this paragraph.

3. It is further ordered, That within forty-five (45) days of the date of service of this order and annually for a period of ten (10) years thereafter, SCM Corporation shall file with the Commission a written report setting forth in detail the manner and form in which it has complied with this order. Copies of the statements obtained pursuant to Paragraph Two of this order shall be submitted to the Commission as part of the reports of compliance required by this paragraph. Nothing in this paragraph shall relieve SCM Corporation of its obligation to comply with Paragraphs One, Two, and Four of this

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order once it is no longer required to submit reports of compliance to the Commission.

4. It is further ordered, That SCM Corporation shall notify the Commission at least thirty (30) days prior to any change in the corporation such as dissolution, assignment, or sale resulting in the emergence of a successor corporation, the creation or dissolution of subsidiaries, or any other change in the corporation which may affect compliance obligations arising out of this order.

CONCURRING STATEMENT BY CHAIRMAN COLLIER

I concur in the Commission's Opinion, Findings of Fact, Conclusions of Law, and Order, except that I find it unnecessary to reach the question whether the director interlock in question violated Section 5 of the Federal Trade Commission Act. I conclude that a violation of Section 8 of the Clayton Act has been proven here, and that the order entered by the Commission is fully supported by that conclusion.

[1] OPINION OF THE COMMISSION

By Dixon, Commissioner:

Complaint in this matter was issued on June 17, 1975, charging Kraftco Corporation ("Kraftco"), SCM Corporation ("SCM") and an individual, Richard C. Bond ("Bond") with violating Section 8 of the Clayton Act (15 U.S.C. 19) and Section 5 of the Federal Trade Commission Act (15 U.S.C. 45) by virtue of Bond's simultaneous presence on the boards of directors of the two corporations. The case was assigned for hearing to Administrative Law Judge ("ALJ") Morton Needelman. Subsequently the matter was withdrawn from adjudication with respect to Bond and [2] Kraftco, consent agreements with these parties were signed, and consent orders against them were issued on April 26 and May 6, 1976, respectively. The case against SCM was tried pursuant to a stipulated record, and Judge Needelman entered an initial decision sustaining the complaint and recommended entry of an order to cease and desist. The case is before us on respondent SCM's appeal from the ALJ's decision.

INITIAL DECISION

It was not disputed, and Judge Needelman so found, that Bond served simultaneously on the Boards of Directors of SCM and Kraftco, that both corporations are engaged in commerce and have capital, surplus, and undivided profits aggregating more than $1,000,000, and

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that the two corporations competed with each other in the sale of margarine, edible oils, and barbecue sauce. (I.D. 3-8.)¹ Sales by SCM in fiscal 1975 of products sold in competition with Kraftco were roughly $83 million, while Kraftco's sales in the same category approximated $258 million. (I.D. 7.)

The ALJ concluded that respondent had violated Section 8 of the Clayton Act and Section 5 of the F.T.C. Act. The Judge further concluded that the need for an order to cease and desist was not rendered moot by Bond's voluntary resignation from SCM's Board or by any other circumstances, and that entry of an order corresponding to the "Notice of Contemplated Relief" initially served with the complaint was necessary to prevent recurrence of Section 8 violations and protect the public interest.

[3] On appeal respondent argues that it has committed no violation of law; that if it has committed a violation there is nonetheless no necessity for the imposition of a remedial order; and that if there is a need for the imposition of a remedial order it should be no different from the consent order negotiated by co-respondent Kraftco.

LIABILITY OF CORPORATE RESPONDENT

(a) Clayton Act, Section 8

Respondent does not question that a violation of Section 8 has occurred, but it contends that only an individual director may be held liable for such a violation.

Respondent places its principal reliance upon the language of the Section which states in relevant part that:

* * * no person at the same time shall be a director in any two or more corporations, any one of which has capital, surplus, and undivided profits aggregating more than $1,000,000, engaged in whole or in part in commerce * * * if such corporations are or shall have been theretofore, by virtue of their business and location of operation, competitors, so that the elimination, or competition by agreement between them would constitute a violation of any of the provisions of the antitrust laws.

[4] Respondent contends that Section 8, by its terms, merely forbids individuals to be joint directors; it does not render corporations liable to suit for the use of interlocking directorates.²

[5] While the language of Section 8 read in vacuo perhaps leaves

¹ The following abbreviations are used throughout this opinion: I.D. - Initial Decision, Finding No.

I.D. p. - Initial Decision, Page No.

² Our own review of the legislative history reveals no sign that this question was directly addressed during the course of Congressional debate over the Clayton Act. Respondent cites a statement of Rep. Nelson, at p. 21 of its brief, which it argues implies that he understood Section 8 to cover only individuals. Whether this is a valid or relevant inference, the opposite inference can plausibly be drawn from other comments in the Congressional debates, like (Continued)

Opinion 89 F.T.C.

some doubt as to the entities its proscription is intended to cover, the language of Section 11, [15 U.S.C. 21] which provides for enforcement of Section 8, leaves none. In relevant part Section 11 provides that the Commission shall, upon a finding that any "person" (defined in 15 U.S.C. 12 to include corporations) has violated Section 8.

* * * issue and cause to be served on such person an order requiring such person to cease and desist from such violations, and divest itself of the stock, or other share capital, or assets, held or rid itself of the directors chosen contrary to the provisions of sections 7 and 8 of this Act, if any there be, in the manner and within the time fixed by said order * * *. [emphasis added]

Needless to say, only a corporation may "rid itself" of directors. SCM suggests that the underlined words are a vestigial remnant intended only to cover banks and the Federal Reserve Board, but there is nothing in the wording of the statute or in its legislative history to support this distinction. (I.D. p. 7.) Rather, Section 11 by its plain terms empowers the Commission to remedy violations of Section 8 by entering an order to cease and desist against corporations, and this Section would be robbed of meaning by a construction that excluded corporations from the entities covered by Section 8. We believe, instead, that when Section 8 forbids the presence of a director on the boards of competing corporations, it [6] speaks both to the director and to the competing corporations, and all may be held accountable for ignoring its dictates.

Respondent correctly points out that the Supreme Court reserved judgment on this issue in a case in which it arose, United States v. W.T. Grant Co., 345 U.S. 629, 634n.9 (1953). However, at least one lower court has enjoined a corporation from Section 8 violations in a case brought to enforce that Section, United States v. Sears, Roebuck and Co., 111 F. Supp. 614 (S.D.N.Y. 1953), decree construed, 165 F. Supp. 356 (S.D.N.Y. 1958), a second court has recently asserted the same authority³, and the imposition of corporate liability is in accord with decades of Justice Department and Federal Trade Commission

³ Respondent's not directed to the precise issue here, which seem to treat Section 8 as though it only imposed obligations on corporations. For example: "In drafting the provisions of Section 9 [now Section 8] your committee has endeavored to carry out the recommendations of the President. In order that the corporations affected may have time to readjust their boards of directors in keeping with the requirements of the act [a two year period is allowed] * * *." H.R. No. 627, H.R. 15656, p. 18, Part 1, 63 Cong., 2d Session (1914). "This section will be full of difficulty and peril for small corporations, and will affect them in far greater degree than it will large ones, against which the legislation is presumed to be aimed." "The use of interlocking directorates serves many useful purposes, and because it has been used to foster monopoly or create a restraint of trade, does not furnish a good reason why the use of interlocking directorates generally should be forbidden." Ibid. Part 2, p. 8. On balance we think comments such as these, or those allegedly to the opposite effect cited by respondent, shed little light on the question here in issue.

⁴ United States v. Crocker National Corp., No. C-75-2108, United States v. BankAmerica Corp., No. C-75-2109 (N.D. Cal., 8/27/76). [1976] 5 Trade Reg. Rep. (1976-2 CCH Trade Cases) ¶ 61,044. After noting that the corporate

(Continued)

46 Opinion

enforcement of the Clayton Act, via voluntary action, consent agreements, and litigation. To absolve corporations of liability for sharing directors with competitors would, without question, severely undermine enforcement of the law, since any corporation could maintain such an interlocking directorate and, if detected, simply replace the ousted director with another interlocking board member, again without fear that detection could lead to anything more than the director's resignation. Sanctions [7] against individuals alone are likely to be of limited effect, because there are hundreds of thousands of potential corporate directors at any given time. Sanctions against a much smaller number of corporations are far likelier to effectuate the purposes of Section 8, since an order against a corporation will prevent a far larger number of potential interlocks than one against an individual.

For the foregoing reasons we conclude that respondent's conduct violates the Clayton Act and may be proscribed by this Commission. We do not quarrel with respondent's proposition that the "plain meaning" of a statute may not be disregarded in order to effect its purpose. All that is "plain" in this instance, however, is that the Clayton Act authorizes the Commission to enter an order to remedy what respondent has done. Read in this light, we think Section 8 is properly construed to prohibit corporations as well as individuals from effecting interlocking directorates. The fact that this interpretation is most likely to effectuate the Congressional purpose is only a further reason to favor it.

(b) Federal Trade Commission Act, Section 5

We also conclude that respondent's conduct runs afoul of Section 5 of the Federal Trade Commission Act, which prohibits, inter alia, unfair methods of competition. It is well established that the prohibitions of Section 5 extend to practices which offend the underlying spirit and policy, as well as the letter, of the antitrust laws, FTC v. Sperry & Hutchinson Co., 405 U.S. 233, 239-244 (1972); FTC v. Brown Shoe, 384 U.S. 316 (1966); FTC v. Motion Picture Advertising Service Co., 344 U.S. 392 (1953). Assuming arguendo that illegally interlocked corporations must be allowed to escape liability

defendants in these interlock cases had argued that Section 8 applied only to individuals, Judge Peckham observed that:

"[r]egardless of whether this contention is correct, it is clear, and the defendants conceded at oral argument, that were this court to decide that injunctive relief were appropriate in these cases, this court could, if it chose to, enjoin the defendant corporations, as well as the individual defendants from further violating Section 8. See e.g. 15 U.S.C. § 25." (p. 69,673, footnotes omitted)

15 U.S.C. 25 is Section 15 of the Clayton Act (the Justice Department/Federal Court analog to Section 11), which empowers the district courts to "prevent and restrain violations of this Act."

Opinion 89 F.T.C.

through the allegedly porous wording of Section 8, no better illustration of a practice offensive to the spirit and policy of the antitrust laws if not their letter can be imagined than the employment and retention by a corporation of a director whose presence on the board itself violates the law. Application of Section 5 in such a case does no more than effectuate the clear purpose of the Clayton Act.

Section 5 has been similarly applied in an earlier case also arising under the Clayton Act. In Grand Union Co. v. FTC, 300 F. 2d 92 (2d Cir. 1962), the court sustained the [8] Commission's conclusion that Grand Union in its role as a buyer had violated Section 5 by knowingly soliciting and receiving payments made by suppliers in violation of Section 2(d), 15 U.S.C. 13(d). The court so found despite the fact that Section 2(d) did not expressly mention buyers. In rejecting the argument that the Commission had applied Section 5 to effect an unwarranted expansion of the Clayton Act the Court reasoned:

Nor can we accept the notion that the Commission is here legislating a "new antitrust prohibition." The practice itself is clearly proscribed * * * The Commission is not upsetting specific Congressional policies; the proceedings did not "circumvent the essential criteria of illegality prescribed by the express prohibitions of the Clayton Act." No economic activity, once lawful, has been suddenly brought within the prohibition of the antitrust laws. Jurisdiction, perhaps, has been expanded from * * * technical confines * * * but only fully to realize the basic policy of the * * * Act * * *. 300 F.2d at 98 (footnotes omitted).

Here, as well, the application of Section 5 does no more than permit the effectuation of a Congressional policy by applying that policy to the entities in the best position to ensure its success.

That Congress specifically contemplated the application of Section 5 to interlocking directorates is, moreover, suggested by some of the legislative history cited by complaint counsel. In explaining the language of Section 5, for example, the Senate Interstate Commerce Committee reported that:

[9] The Committee was of the opinion that it would be better to put in a general provision condemning unfair competition than to attempt to define the numerous unfair practices, such as local price cutting, interlocking directorates, and holding companies intended to restrain substantial competition. [emphasis added.]

For these reasons, then, we conclude that respondent's conduct runs afoul of Section 5 of the Federal Trade Commission Act.

* S. Rep. No. 597, 63rd Congress, 2d Sess. 13 (1914) See also the remarks of Senator Newlands, Chairman of the Committee, on the floor, 51 Cong. Rec. 11106, 11537, 12980 (1914).

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46 Opinion

[10] NECESSITY FOR AN ORDER

Respondent argues that even assuming it has been found to have violated the law, it should nevertheless not be ordered to desist from future violations, since it has halted the prior infraction and promises never to repeat it.⁵ The administrative law judge rejected this argument and we fully concur in his conclusion and in his reasoning, at I.D. pp. 12-16.

The violation which occurred here continued for several years and was terminated only when pointed out by the Commission. It was, moreover, not an insignificant, trivial, or technical infraction. In 1975, SCM and Kraftco competed with respect to more than $300 million worth of business, of which more than $80 million were sales by SCM. While these figures are only a small fraction of the total sales of the companies, $300 million or $80 million is by any measure a great deal of trade to be jeopardized by the sorts of anticompetitive agreements which interlocking directorates facilitate, and which Congress meant to stop before they got started when it imposed its ban on interlocks between competitors, cf. Sears, Roebuck, supra, 111 F. Supp. 614 at 621. If one regards the antitrust laws seriously, and we do, this was a serious violation.

It may be that respondent does not intend to utilize illegally interlocked directorates in the future. But it probably did not intend to use them when it hired Mr. Bond either. We cannot, however, resist the conclusion that SCM paid inadequate attention to whether it acted [11] permissibly or not, and there is nothing whatsoever in the record to suggest it will not continue to pay insufficient attention in retaining future directors unless ordered to do so.⁶

Under these circumstances we find nothing to challenge the ALJ's conclusion that an order is appropriate here. The W.T. Grant case, supra, cited by respondent held no more than that it was within the discretion of a trial court judge to withhold injunctive relief where a violation had been halted. The Court strongly suggested that it would not have quarreled with the imposition of injunctive relief in the same case, and obviously did not intend to disturb a long line of cases, prior and subsequent, holding that discontinuance of a violation is not proper grounds for omission of a Commission order, e.g., Fedders

⁵ SCM promises never to rehire Bond so long as he directs Kraftco or any other corporation competing with SCM (Appeal Brief, p. 16). It does not promise to avoid other unlawful interlocks with Kraftco or anyone else.

⁶ SCM argues there is nothing which requires it to announce what steps it will take or has taken to avoid interlocks (Appeal Brief, p. 18). We completely agree, and if those undisclosed procedures it uses to comply with the law had proven adequate to prevent this violation their identity would be no concern of ours. However, since a violation involving a large amount of commerce did occur and persist for several years, and since the record discloses nothing of the procedures used by respondent to prevent such occurrences, we are hard pressed to see what other conclusion can be reached than that SCM's procedures are inadequate to ensure nonrepetition of future violations.

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Co. v. FTC, 529 F.2d 1398 (2d Cir.), cert. denied, 45 U.S.L.W. 3244 (Oct. 5, 1976); Coro Inc. v. FTC, 338 F.2d 149, 153 (1st Cir. 1964), cert. denied, 380 U.S. 954 (1965); Clinton Watch Co. v. FTC, 291 F.2d 838, 841 (7th Cir. 1961), cert. denied, 368 U.S. 952 (1962); [12] Galler v. FTC, 186 F.2d 810, 813 (7th Cir.), cert. denied, 342 U.S. 818 (1951); Eugene Dietzgen v. FTC, 142 F.2d 321, 330 (7th Cir.), cert. denied, 323 U.S. 730 (1944). See also, United States v. Newmont Mining Corp., 34 F.R.D. 504, 505 (S.D.N.Y. 1964): “It is plain that mere resignation of a directorship allegedly held in violation of §8 of the Clayton Act does not render an action for violation of that Section moot. The Grant case expressly so holds.”

Respondent’s position here would necessitate that having shown a violation, complaint counsel then demonstrate by affirmative evidence the likelihood of future additional violations. To the contrary, we think the violation is itself the best evidence of the possibility of future such occurrences, and that the burden rests with respondent to demonstrate that violations will not recur before consideration may be given to omitting an order, United States v. W.T. Grant Co., supra at 633.

[13] THE ORDER

The administrative law judge entered an order corresponding generally to the provisions of the “Notice of Contemplated Relief” served upon the parties at the time the complaint was issued. Basically this order forbids SCM to violate Section 8 in the future (Par. 1), and establishes a mechanism for implementing and monitoring such compliance by requiring that future candidates for director provide a list of the products manufactured by companies which they already direct (Par. 2.) Copies of these reports shall be filed with the Commission periodically, for a period of 10 years, and SCM may not hire a director who has not provided the required report.

SCM argues generally that its order should be no broader than that consented to by Kraftco and directs particular objection to Paragraph 2, contending that the requirement that prospective directors list all products manufactured by companies of which they are presently directors may prove unduly burdensome in cases of companies which manufacture numerous products.

Having reviewed the order recommended by the ALJ, we believe it is a generally appropriate disposition of this matter, narrowly tailored to prevent recurrence of the type of infraction that gave rise to this proceeding, i.e., the use of an interlocking directorate violative of Section 8 of the Clayton Act and Section 5 of the F.T.C. Act. We believe that Paragraph 2 is necessary, initially, to provide a ready

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means by which SCM may effect compliance by itself and its directors and prospective directors with Section 8, and also a means by which the Commission may check on SCM's compliance since it will review the product lists submitted by SCM directors. We have changed the necessity for "product description" to "product list" and as modified we do not believe this requirement should be unnecessarily burdensome. We believe that even large corporations have readily available a list or lists of the products they manufacture. However, we believe there is no necessity that this requirement exist in perpetuity, and we shall instead limit its duration to a period of five years. During this time it will provide a mechanism for SCM to comply with the law and for the Commission to monitor its compliance. Thereafter, SCM will [14] remain under obligation to adhere to Section 8, but it will be at liberty to adopt alternative methods by which to do so, as its experience dictates.

We have also modified Paragraph 1(a) to make clear that its prohibition on interlocks with Kraftco Corporation applies only while SCM and Kraftco are competitors. In addition we have modified the class of competitors with which SCM may not interlock to exclude any "subsidiaries," "sisters," or "parents" as defined in the order, and amended the reporting requirement accordingly. In all other respects we have retained the order recommended by the administrative law judge, and conclude that it is in the public interest that such an order be entered.

Respondent argues, as noted above, that if an order must be entered it should be no different, or at least no more stringent, than the consent order to which co-respondent Kraftco earlier agreed. Any more comprehensive order, protests respondent, would be discriminatory and tantamount to punishing it for having exercised its constitutional right to contest the charges against it.⁷ SCM seeks to bolster its argument with the following syllogism: In accepting a consent order the Commission certifies that it is in the public interest; a litigated order must similarly be in the public interest; therefore the Kraftco consent order is a sufficient disposition of this proceeding and anything in excess of its provisions must amount to punishing SCM for litigating.

[15] An unstated premise of this argument is, of course, that

⁷ Respondent also makes certain other charges of discrimination which are patently frivolous. It cites the Commission's past practice of forebearing to obtain an order where the interlock was dissolved. But it does not deny that this enforcement strategy was modified well in advance of the instant matter, since which time the Commission has sought cease and desist orders from many alleged Section 8 violators (I.D. p. 11) Respondent also argues that it was discriminated against by being sued without being previously notified of the charges against it. Assuming arguendo that this was the case (there is some dispute as to whether it was, I.D. pp. 11-12) we can apprehend no prejudice since respondent was subsequently given an opportunity to negotiate a consent settlement but evinced no apparent interest (I.D. p. 12, n. 21).

Opinion 89 F.T.C.

Kraftco, the consent settlor, may be assumed to have violated the law in equal measure as SCM, so that the remedy appropriate to Kraftco may somehow be the test of that appropriate to SCM. In fact, of course, Kraftco in settling admitted no legal liability, and gave up its opportunity to defend the charges against it and to present any evidence which might tend to mitigate the force of incriminating evidence. In light of this it is somewhat presumptuous for this Commission or SCM to assume that Kraftco's order provides an absolute measure of what would satisfy the public interest with respect to SCM.

However, assuming arguendo that it is at all relevant to compare the treatment of a party which has not admitted liability and that accorded a party adjudged in violation, we nonetheless find no impropriety in the mere imposition of varying orders upon settlors and non-settlors in the same case.

The "public interest" on behalf of which this Commission is enjoined to act comprehends not only the justness with which particular disputes are resolved, but the speed and efficiency with which resolutions are obtained as well. The public unquestionably has a strong interest in the ability of its law enforcement institutions to resolve controversies swiftly and at minimum cost. Every party accused of wrong-doing in our system has the right to insist that the government prove the charges against it, but if every accused were to exercise that right to its fullest extent the administration of justice would be seriously retarded if not actually imperiled. As a result, we believe the Commission does not act improperly when, in considering acceptance of a proffered consent order, it weighs as part of the requisite public interest the savings in time, money, and uncertainty which the settlement will provide.

It follows from this that the terms of a consent settlement may, consistently with the public interest, be less stringent than the corresponding order obtained through litigation, and conversely, that an order entered after litigation may properly be more stringent than an order entered after settlement.

[16] Moreover, SCM does not suggest, nor could it, that the order entered here will disadvantage it in competing with Kraftco, or with any other company. Nor does the order do more than prevent the recurrence of violations of law previously engaged in. This being the case, we cannot conclude that the order is punitive merely because it is broader in some respects than an order entered after negotiations with a party charged with but not formally adjudged to have committed the same offense.

An appropriate order is appended.

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46 Final Order

[1] FINAL ORDER

This matter having been heard by the Commission upon the appeal of respondent from the initial decision, and upon briefs and oral argument in support thereof and opposition thereto, and the Commission, for the reasons stated in the accompanying Opinion having determined to deny the appeal:

It is ordered, That the initial decision of the administrative law judge, pages 1-18, be adopted as the Findings of Fact and Conclusions of Law of the Commission.

Other Findings of Fact and Conclusions of Law of the Commission are contained in the accompanying Opinion.

It is further ordered, That the following order to cease and desist be, and it hereby is, entered:

[2] ORDER

The following definitions shall apply in this order: "Subsidiary" of SCM means any corporation, 50 percent or more of the voting stock of which is owned or controlled, directly or indirectly, by SCM.

"Parent" of SCM means any corporation which owns or controls, directly or indirectly, 50 percent or more of the voting stock of SCM.

"Sister" of SCM means any subsidiary of a parent of SCM. 1. It is ordered, That respondent SCM Corporation and its successors and assigns shall forthwith cease and desist from having, and in the future shall not have, on their board of directors any individual who either:

(a) serves at the same time as a director of Kraftco Corporation, its successors or assigns (so long as Kraftco and SCM Corporation compete in the production or sale of any product or service), or serves at the same time as a director of any other corporation (other than a subsidiary, parent, or sister of SCM) which competes with SCM Corporation in the production or sale of any product or service; or (b) fails to submit to SCM Corporation any statement required by Paragraph Two of this order to be obtained by SCM. 2. It is further ordered, That within thirty (30) days of the effective date of this order, and prior to each election of directors or prior to the solicitation of proxies for such election, whichever is earlier, SCM Corporation shall obtain a written statement from each member of its board of directors (except directors whose terms expire at the next election and who are not standing for re-election) and

Final Order 89 F.T.C.

from each nominee for a directorship (who is not then a director) showing: (a) the name and home mailing address of each director or nominee; and (b) the name and principal office mailing address of, and a listing of each product or service [3] produced or sold by, each corporation which the director or nominee then serves as a director, or has been nominated to serve as a director at the time of the statement. The requirements of this paragraph shall not apply to elections of directors occurring after five years from the effective date of this order, nor shall directors or nominees be required to list products or services of subsidiaries, sisters, or parents of SCM Corporation. Nothing in this paragraph shall be construed to relieve respondent of its obligation under Paragraph 1(a) hereto due to any error or omission contained in any written statement received pursuant to this paragraph. 3. It is further ordered, That within forty-five (45) days of the effective date of this order and annually for a period of ten (10) years thereafter, SCM Corporation shall file with the Commission a written report setting forth in detail the manner and form in which it has complied with this order. Copies of the statements obtained pursuant to Paragraph Two of this order shall be submitted to the Commission as part of the reports of compliance required by this paragraph during the first five (5) years. Nothing in this paragraph shall relieve SCM Corporation of its obligation to comply with Paragraphs One and Four of this order once it is no longer required to submit reports of compliance to the Commission. 4. It is further ordered, That SCM Corporation shall notify the Commission at least thirty (30) days prior to any change in the corporation such as dissolution, assignment, or sale resulting in the emergence of a successor corporation, the creation or dissolution of subsidiaries, or any other change in the corporation which may affect compliance obligations arising out of this order.

RAPPERSWILL CORP., ET AL. 71

71 Complaint

IN THE MATTER OF

RAPPERSWILL CORPORATION, ET AL.

CONSENT ORDER, ETC., IN REGARD TO ALLEGED VIOLATION OF THE FEDERAL TRADE COMMISSION ACT

Docket C-2861. Complaint, Jan. 12, 1977 — Decision, Jan. 12, 1977

Consent order requiring a New York City manufacturer of building insulation, among other things, to cease misrepresenting that its products are noncombustible, non-flammable, or non-toxic; that urea-formaldehyde foam has been certified "non-combustible," that it is not included in the F.T.C.'s cellular plastics activities; and failing to make required disclosures with respect to numerical flame spread rating representations. Further, respondents are required to send certain building officials and previous purchasers of their products a prescribed statement noting that their products cannot be considered "non-combustible" in actual fire conditions and should be installed accordingly.

Appearances

For the Commission: Lawrence S. Blumberg.

For the respondents: David Greene, Aberman, Greene & Locke, New York City.

COMPLAINT

Pursuant to the provisions of the Federal Trade Commission Act, and by virtue of the authority vested in it by said Act, the Federal Trade Commission, having reason to believe that the parties named in the caption hereof, hereinafter more particularly described and designated as respondents, have violated the provisions of said Act, and it appearing to the Commission that a proceeding by it in respect thereof would be in the public interest, hereby issues its complaint, stating its charges in that respect as follows: PARAGRAPH 1. Respondent Rapperswill Corporation is a corporation organized, existing and doing business under and by virtue of the laws of the State of New York, with its principal office and place of business located at 305 East 40th St., New York, New York. Respondent Rapco Chemical, Incorporated is a corporation organized, existing and doing business under and by virtue of the laws of the State of South Carolina, with its principal office and place of business at 3231 Bryson Drive, Florence, South Carolina. Respondent Rapco, Inc. is a corporation organized, existing and doing business under and by virtue of the laws of the State of California, with its principal office and place of business at 518 South 11th St., Richmond, California.